Chapter 24
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| show | They help the govt and firms raise funds. They also facilitate the transactions between investors in the secondary mkt.
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| show | 1)Investment banks- facilitate stock and bond offerings, facilitate corporate restructuring activities. 2) brokerage firms- provide brokerage svcs for investors who want to either buy/sell various types of securities in 2nd mkt.
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| How do securities firms act as intermediaries between a corporation issuing securities and investors? | show 🗑
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| Origination | show 🗑
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| show | If the corp has issued stock to the public before, the price should be the same as the mkt price on its outstanding stock. If not, the firm will compare the corp.'s finances w/ those of similar firms in the same industry that have issued stock.
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| show | all info relevant to the security, as well as the agreement between the issuer and the securities firm, must be provided here. This is intended to ensure that accurate info is disclosed by issuing corp.
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| Prospectus | show 🗑
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| Underwriting syndicate for stock offerings | show 🗑
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| Best efforts agreement | show 🗑
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| show | w/ the IPO, they attempt to price the stock high enough to satisfy corp. Must try to satisfy institutional investors that may buy part of IPO. higher price, lower return. Firms tend to underprice the IPO. returns are seen in the very beg.
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| show | Flotation costs ( fees of placing the securities). 1-must pay fees to the underwriters who place the stock w/ investors. 2- it incurs issue costs including printing, legal, registration, and accounting expenses. Generally are lower for larger issues.
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| show | Even after the stock is issued, the securities firm may continue to provide advice on the timing, amt, and terms of future financing. Recommendations on the appropriate type of financing (bonds, stocks, loans)
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| Private Placement of stocks | show 🗑
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| show | firm may suggest a max of bonds that should be issued. if the issuer already has a high lvl of outstanding debt, bonds may not be well recieved in mkt. 2-coupon rate, maturity, and other provisions are made, 3-register w/ SEC
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| Underwriting bonds | show 🗑
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| show | The flotation costs generally range from 0.5 to 3% of the bonds' value issued, which can be significantly lower than the flotation costs of issuing common or preferred stock.
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| show | If issuing corp knows of a potential purchaser for its entire issue, it maybe able to sell its bonds directly w/o offering the bonds to public. Avoids the underwriting fee. Price determined by negotiations. provisions can be made to the purchaser's wants
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| show | 1. firms assess the firm's mkt value of concern so that the acquirer doesnt pay more than the target firm's val. 2-arrange financing 3-help the acquirer buy any common stock of the target that is outstanding. 4-retained as advisory capacity
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| show | provides temporary financing until the acquirer of a leveraged buyout has access to other funds.
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| show | the securities industry involves purchasing undervalued shares and reselling them at a higher price.
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| show | Securities firms work closely w/ them by searching for undervalued firms and raising funds for the arbitrage firms.
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| show | a common form of arbitrage where a firm is acquired and then its individual divisons are sold off. Motivated by the belief that the sum of the parts is sometimes greater than the whole.
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| greenmail | show 🗑
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| Facilitating corporate restructuring | show 🗑
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| show | combine 2 businesses worth more than the sum of their vals separate. 2-carveout- where firm sells 1 unit to new shareholders through an IPO. proceeds go to parent firm. 3-spin off creating new shares for the unit & giving them to existing shareholders.
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| How do securities firms act as brokers? | show 🗑
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| Full-service brokerage firms | show 🗑
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| show | only execute orders upon request and don't provide advice. often unable to maintain a long-term relationship w/ clients, b/c they provide a service difficult to differentiate from competitors.
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| What do some securities firms invest their own funds in? | show 🗑
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| show | '95 Nick Leeson, a trader of currencies and excessively traded securities and suffered losses of more than $600 million of the bank's capital
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| Bear Stearns | show 🗑
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| Underlying causes of investment problems | show 🗑
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| show | SEC plays a big role in regulation by enforcing financial disclosure laws that attempt to ensure that investors who buy/sell securities have access to finanial info. Stk exchanges & Nasdaq mkt are expected to prevent unfair/illegal practices.
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| show | Is regulated by the National Association of Securities Dealers (NASD).
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| show | Regulation is necessary to ensure that investors who place orders are properly accomodated. This will establish credibility w/in the systems used to execute securities transactions.
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| Securities Investor Protection Corporation (SIPC) | show 🗑
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| show | allowed banking, securities activities, and insurance to be consolidated. No longer need to search for loopholes. resulted in the creation of more financial conglomerates and created a more competitive environment. offering of securities more efficient.
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| show | requires firms to disclose any significant info simultaneously to all mkt participants. Intended to prevent firms from leaking info to analysts. Firms now provide info in the form of news releases/conference calls.
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| show | market risk, interest rate risk, credit risk, and exchange rate risk.
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| show | When stock prices rise, a greater vol of stock offerings and 2nd mkt transactions. Securities firms benefit from bullish mkt. When the stk mkt declines, stock transactions dec, causing a reduction in firms business. highly sensitive to stock mkt cycles.
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| show | sensitive to int rate mvmts 1)bonds mkt vals held as firms investments inc as int rates decline. 2) lower int rates encourage investors to w/draw deposits & invest in stk mkt. inversely related to int rate mvmts.
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| Credit risk | show 🗑
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| Exchange rate risk | show 🗑
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| Impact of the credit cris on securities firms | show 🗑
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| Bank Holding Companies | show 🗑
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