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1、Chapter 2,Securities Markets and Transactions,Securities Markets and Transactions,Learning GoalsIdentify the basic types of securities markets and describe their characteristics.Explain the initial public offering (IPO) process.Describe broker and dealer markets, and discuss how they differ from alt
2、ernative trading systems.,Securities Markets and Transactions,Learning Goals (contd)Review the key aspects of the globalization of securities markets, and discuss the importance of international securities markets.Discuss trading hours and regulation of securities markets.Explain long purchases, mar
3、gin transactions and short sales.,Types of Markets,Money Markets: the market where short-term securities are bought and soldCapital Market: the market where long-term securities such as stocks and bonds are bought and soldPrimary Market: the market in which new issues of securities are sold to the p
4、ublicSecondary Market: the market in which securities are traded after they have been issued,Primary Markets,Initial Public Offering (IPO)First public sale of a companys stockRequires SEC approvalThree Choices to Market Securities in Primary MarketPublic offeringRights offeringPrivate Placement,Tabl
5、e 2.1 Annual IPO Data, 19992008,Going Public: The IPO Process,Underwriting the offering: promoting the stock and facilitating the sale of the companys sharesProspectus: registration statement describing the issue and the issuerRed Herring: preliminary prospectus available during the waiting periodQu
6、iet Period: time period after prospectus is filed when company must restrict what is said about the companyRoad Show: series of presentations to potential investors,Figure 2.1 Cover of a PreliminaryProspectus for a Stock Issue,The Investment Bankers Role,Underwriting the Issue: purchases the securit
7、y at agreed-on price and bears the risk of reselling it to the publicUnderwriting Syndicate: group formed by investment banker to share the financial risk of underwritingSelling Group: other brokerage firms that help the underwriting syndicate sell issue to the publicTombstone: public announcement o
8、f issue and role of participants in underwriting processInvestment Banker Compensation: typically in the form of a discount on the sale price of the securities,Figure 2.2 The Selling Process for a Large Security Issue,Secondary Markets,Secondary Market: the market in which securities are traded afte
9、r they have been issued Role of Secondary MarketsProvides liquidity to security purchasersProvides continuous pricing mechanismSecurities Exchanges: forums where buyers and sellers of securities are brought together to execute tradesNasdaq Market: employs an all-electronic trading platform to execut
10、e tradesOver-the-counter (OTC) Market: involves trading in smaller, unlisted securities,Broker Markets and Dealer Markets,Broker Markets: consists of national and regional securities exchanges60% of the total dollar volume of all shares in U.S. stock market trade hereNew York Stock Exchange (NYSE) i
11、s largest and most well-knownTrades are executed when a buyer and a seller are brought together by a broker and the trade takes place directly between the buyer and sellerDealer Markets: consists of both the Nasdaq market and the OTC marketTrades are executed with a dealer (market maker) in the midd
12、le. Sellers sell to a market maker at a stated price. The market maker then offers the securities to a buyer.,Figure 2.3 Broker and Dealer Markets,Broker Markets,New York Stock Exchange (NYSE)Largest stock exchangeover 2,700 companiesOver 350 billion shares of stock traded in 2005Accounts for 90% of
13、 stocks traded on exchangesSpecialists make transactions in key stocksStrictest listing policies NYSE Amex (formally American Stock Exchange)More than 500 companies listedMajor market for Exchange Traded FundsTypically smaller and younger companies who cannot meet stricter listing requirements for N
14、YSE,Broker Markets (contd),Regional Stock ExchangesTypically lists between 100500 companies, usually with local and regional appealListing requirements are more lenient than NYSEOften include stocks that are also listed on NYSE or NYSE AmexBest-known: Midwest, Pacific, Philadelphia, Boston, and Cinc
15、innatiOptions ExchangesAllows trading of optionsBest-known: Chicago Board Options Exchange (CBOE)Futures ExchangesAllows trading of financial futuresBest-known: Chicago Board of Trade (CBT),Dealer Markets,No centralized trading floor; comprised of market makers linked by telecommunications network B
16、oth IPOs and secondary distributions are sold on OTC40% of the total dollar volume of all shares in U.S. stock market trade hereBoth IPOs and secondary distributions are sold on OTCBid Price: the highest price offered by market maker to purchase a given securityAsk Price: the lowest price at which a
17、 market maker is willing to sell a given security,Dealer Markets,NasdaqLargest dealer marketLists large companies (Microsoft, Intel, Dell, eBay) and smaller companiesOver-the-counter (OTC) Bulletin BoardLists smaller companies that cannot or dont wish to be listed on NasdaqCompanies are regulated by SECOver-the-counter (OTC) Pink SheetsLists smaller companies that are not regulated by SECLiquidity is minimal or almost non-existentVery risky; many nearly worthless stocks,
