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1
Major Security Houses
Investment
Banking
Investment
Mgt
Dealer/Broker
Primary
Secondary
2
Functions of Investment Bankers
Issuance of new securities
Mergers and acquisitions
3
Public vs Private Offerings
Public Offering
Shelf (Rule 415)
Traditional (single
Private Offering
Traditional
Delayed
4
Public Sale of New Securities
Underwriting Firm-commitment underwriting Best-efforts underwriting
Underwriting Syndicate
5
IssuanceProcess
Preliminary
Marketing
Structure/
Pricing/
Timing
Assemble
Syndicate/
Sellers
Due
Diligence
Registration
Statement
Listing
Agreement
Underwrite/
Distribute
Wait
6
How Investment Banks Are Paid
7
Variations in the Underwriting Process
Traditional Underwriting
Bought Deal underwriting of bonds
Auction Process underwriting of stocks and bonds
Preemptive Rights Offering underwriting common stock
8
Bought Deal
Investment banking firm or group of firms offers to buy an entire issue from the issuer (private negotiation).
Attractive features: quick in bringing issue to market lower risk of capital loss
9
Auction Process
Competitive Bidding Underwriting
(One buyer based on bid for entire issue)
Single-Price Auction or Dutch
Auction(multiple buyers at one price)
Multiple-Price Auction(multiple buyers at multiple prices)
10
Private Placement of Securities
Sale of securities to a limited number of institutional investors.
SEC specified conditions to be met for private placement.
Issuers work with investment bankers.
Rule 144A offering or non-Rule 144A offering (enhanced secondary trading)
11
Rule 144 A
SEC rule permitting large institutions to trade securities acquired in a private placement among themselves without having to register these securities with the SEC.
SEC Rule 144A improves liquidity of privately placed securities.
Encourages non-U.S. firms to issue securities in the U.S. private placement market.