Essentials of Investments: Chapter 3 - Securities market incldudes Primary vs. Secondary Security Sales, Investment Banking Arrangements, Public Offerings, Private Placements, Organization of Secondary Markets, Organized Exchanges. | 1 Bodie • Kane • Marcus Essentials of Investments Fourth Edition Chapter 3 Securities market Irwin / McGraw-Hill © 2001 The McGraw-Hill Companies, Inc. All rights reserved. 2 Bodie • Kane • Marcus Essentials of Investments Fourth Edition Primary vs. Secondary Security Sales • Primary – New issue – Key factor: issuer receives the proceeds from the sale • Secondary – Existing owner sells to another party – Issuing firm doesn’t receive proceeds and is not directly involved Irwin / McGraw-Hill © 2001 The McGraw-Hill Companies, Inc. All rights reserved. 3 Bodie • Kane • Marcus Essentials of Investments Fourth Edition Investment Banking Arrangements • Underwritten vs. “Best Efforts” – Underwritten: firm commitment on proceeds to the issuing firm – Best Efforts: no firm commitment • Negotiated vs. Competitive Bid – Negotiated: issuing firm negotiates terms with investment banker – Competitive bid: issuer structures the offering and secures bids Irwin / McGraw-Hill © 2001 The McGraw-Hill Companies, Inc. All rights reserved. 4 Bodie • Kane • Marcus Essentials of Investments Fourth Edition Public Offerings • Public offerings: registered with the SEC and sale is made to the investing public – Shelf registration (Rule 415, since 1982) • Initial Public Offerings (IPOs) – Evidence of underpricing – Performance Irwin / McGraw-Hill © 2001 The McGraw-Hill Companies, Inc. All rights reserved. 5 Bodie • Kane • Marcus Essentials of Investments Fourth Edition Private Placements Private placement: sale to a limited number of sophisticated investors not requiring the protection of registration • Dominated by institutions • Very active market for debt securities • Not active for stock offerings Irwin / McGraw-Hill © 2001 The McGraw-Hill Companies, Inc. All rights .
