Emeline rivas Erica Waugh Byung kyu , Park Hongyi Ren Brian Kim Bai Kui Sa

1. EmelinerivasErica WaughByungkyu, ParkHongyiRenBrian KimBaiKui Sa Group 9

2. SECURTIES MARKET OPERATIONS EMELINE RIVAS

3. The video • http://money.cnn.com/video/fortune/2008/09/15/sl.091508.fallout.fortune/

4. What is securities market operation? The functioning of security markets, in which bonds and stocks are traded, involves several financial institutions, including securities brokers and dealer, investment banks and organized exchanges.

5. Let’s refresh our memory! • Primary market is when new issues of are sold to buyers by the corporation or government agency borrowing the funds. • Secondary market is then trades the securities that have been sold in the first market.

6. Why does this matter? Investment banks assistwith the initial sale of securities in the primary market and securities brokers and dealers assist trading securities in the secondary markets.

7. Investment Banking An investment bank is a financial institution that assists corporations and governments in raising capital by underwriting and acting as the agent in the issuance of securities.

8. Securities: brokers and Dealers • Brokers match buyers and sellers of a security and get paid a brokerage commission. • Dealers are a bit different because they hold inventory of securities and own the securities. They sell securities higher than the price purchased to gain profit. Being a dealer is a bit more risky than a broker because you have to worry about the rise and fall of securities when being held in the inventory.

9. Organized Exchange • The New York Stock Exchange (NYSE), trading thousands of securities, is the largest organized exchange in the world. • Organized stock exchange securities are traded with the help of a specialist. The specialist matches buy and sell orders submitted at the same price and performs a brokerage function. If the buy and sell orders don’t match up, the specialist buys or sell stocks from a personal inventory of securities, in this case performing a dealer function.

10. History The Industry Crash and Reformation. The stock market crash of 1929 confirmed that the securities industries were in need to a reform. In 1934 Congress established the Securities and Exchange Commission (SEC) to protect investors against fraud and mismanagement by securities firms and other investment entities. The SEC performs legislative, judicial, and executive functions. This was used to strengthen the banking industry and to reduce speculative risks that threatened the health of the U.S. economy. The result of this law was maintaining relatively stable securities market throughout most of the remainder of the twentieth century.

11. FINANCE COMPANIES ERICA WAUGH

12. Finance Companies • Acquire funds by issuing commercial paper or stocks and bonds • Make small loans to individuals and/or businesses • Opposite of banking institutions business model • Virtually unregulated • Lack of restrictions allows for better loans

13. Finance Companies • Three types: • Sales Finance Companies • Owned by particular retailing or manufacturing company • Make loans to consumers who purchase their products • Faster and more convenient • Higher interest rates • Offer incentives like % off first purchase or points

14. Finance Companies • Three types • Consumer Finance Companies • Loans to consumers for particular items or to refinance small debts or for medical/dental loans • Can be separate corporations or owned by banks • Charge higher interest, make loans to higher risk consumers (bad credit)

15. Finance Companies • Three types • Business Finance Companies • Specialized credit for businesses • seed capital - start up funds for new businesses • angel investing – helps companies weather hard times • leases equipment – computers, planes, farm equipment • factoring – businesses sell their accounts receivable at a discount • loans for investment – new lines of business, upgrading machinery • Well suited for businesses because the terms of the contracts are suited for particular situations

16. Finance Companies Positive Negative • Offers quick easy loans to those who can not always get the money they from some place else • Their specialized financing meets the needs of the businesses and/or consumers better than other financial intermediaries • Higher interest rates • Lend to at risk borrowers which can put the borrower in over their head • Terms and conditions may be stricter • Factoring can turn off your customers

17. HEDGE FUNDS BYUNG KYU, PARK

18. Hedge Funds What is Hedge Funds? • Investment fund opens to a limited range of investors that undertakes a wider range of investment and trading activities. • A fund is usually used by wealthy individuals and institutions, which is allowed to use aggressive strategies that are unavailable to mutual funds that included with selling short, leverage, program trading, swaps, arbitrage, and derivatives. • First Hedge fund was created in 1949 by the law firm of Sweard & Kissel • Different from the Concept of Hedging • Hedge funds are exempted from the numbers of the rules and regulations.

19. Hedge Funds Sorts of Hedge Funds Equity Long/Short fund Etc Hedge Funds Market neutral fund Managed futures Global fund Event driven fund

20. Hedge Funds Positive Effects • Injecting liquidity into markets • Market stabilizing • Higher Profits Negative Effects • Monopolistically distorting power: Hard behavior • Higher Risks • Causing derangements in small-sized or low liquidity power

21. Hedge Funds Conclusion • Diversified Investment • Remind Risks on Hedge funds • Invest on high liquidity assets

22. MUTUAL FUNDS HONGYI REN

23. Mutual fund A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests typically in investment securities (stocks, bonds, short-term money market instruments, other mutual funds, other securities)

24. Open-end fund • The term mutual fund is the common name for what is classified as an open-end investment company by the SEC. Being open-end means that, at the end of every day, the fund continually issues new shares to investors buying into the fund and must stand ready to buy back shares from investors redeeming their shares at the then current net asset value per share.

25. Money market Fund • A money market fund is an open ended mutual fund that invests in short term debt securities. Regulated under the Investment Company Act of 1940, money market funds are important providers of liquidity to financial intermediaries. • Breaking the buck

26. PRIVATE EQUITY BRIAN KIM

27. Private Equity and Venture Capital Funds • Private equity funds are long-term investments in companies that are not traded in public markets and has a similar structure to hedge funds • Investors who are limited partners place their money with the managing (general) partner who make the private equity investment.

28. Private Equity and Venture Capital Funds • There are two types of private equity funds • Venture capital funds: make investments in a new start-up business, often in the technology industry • Capital buyout funds – make investments in established business, and in many cases, buy publicly traded firms through a leveraged buyout • Leveraged buyout – is when the publicly traded firm is taken private by buying all its shares, while financing the purchase by increasing the leverage (debt) of the firm

29. Venture capital fund diagram

30. Advantages • Investing in private equity has several advantages over investing in publicly traded companies • 1. private companies are not subject to the controversial and costly regulations included in the Sarbanes-Oxley Act • 2. Managers of private companies do not feel pressure to produce immediate profits

31. Advantages • 3. mangers have more an incentive due to a larger stake and usually work hard to maximize the value of the firm • 4. private equity overcomes the free-rider problem

32. The start of venture capital funds • First steps towards a professionally-managed venture capital industry was the passage of the Business investment Act of 1958 • During the 1960 to 1970 venture capital firms focused their activities primarily on starting and expanding companies. • A lot of venture capital firms focused on silicon valley companies

33. Private equity crash • The Nasdaq crash and technology slump which started in march 2000 hurt the entire venture capital industry. • Over the years, many venture firms had been forced to write-off their large proportions of their investments. • However the revival of an internet-driven environment in 2004 through 2007 helped to revive the venture capital environment.

34. Government Financial Intermediation BaiKui Sa

35. Financial Intermediation • Financial intermediaries are firms that borrow from consumer/savers and lend to companies that need resources for investment. • Governments has become involved in two ways, 1)by setting up federal credit agencies that directly engage in Financial intermediation and by supplying government guarantees for private loans

36. The Fundamental Services Provided by Financial Intermediaries • A host of services that are essential to the functioning of a modern economy. • Service one is access to the payments system. • Service two Financial intermediaries will continue to provide is access to liquidity. • There will always have to be some mechanism for channeling the savings of households into the investments of firms. . . . This is the fundamental role of a financial intermediary.

37. The Future Form Of Financial Intermediaries • 1) a financial products supermarket and • 2) what I will call an all-in bank. • Why and How Do We Regulate? • 1) consumer protection • 2) systemic risk • 3) the moral hazard arising from government guarantees.

38. What Form Will Regulation Take? • need to promote market discipline. • regulators will need to rely more on the financial firm’s own internal assessments of risk. • I believe it is important to continue to think about ways to reduce government guarantees and any negative influence they may have on firm behavior.

39. Conclusion • I am convinced that we should be thinking hard about how we might answer them if we want to ensure the smooth functioning of our financial system in the next century.