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Securities Firms (II): Other Businesses

Securities Firms (II): Other Businesses Investment Banking Business Brokage Service Investment Banking Investment banks’ major responsibility is to assist in the initial sale of securities in the primary market, namely, underwriting stocks and bonds Include both IPOs and seasoned offers

Gabriel
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Securities Firms (II): Other Businesses

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  1. Securities Firms (II): Other Businesses • Investment Banking Business • Brokage Service

  2. Investment Banking • Investment banks’ major responsibility is to assist in the initial sale of securities in the primary market, namely, underwriting stocks and bonds • Include both IPOs and seasoned offers • Glass-Steagall Act separates commercial banking from investment banking

  3. Underwriting Stocks and Bonds • Giving Advice • When to offer? • At what price? • Filing Documents • SEC • Registration statement • Prospectus • Underwriting • Syndicate • Tombstones • Marketing Outcomes • Fully subscribed • Undersubscribed • Oversubscribed • Best Efforts

  4. Ten Largest Underwriters in the U.S.

  5. Other Investment Banking Service • Private Placement • Mergers and Acquisitions • Active in this market since 1960s • Serves both acquirers and target firms

  6. Securities Brokers and Dealers • Brokerage Service • a. Securities Orders • Market Order • Limit Order – buy with maximum acceptable • price and sell with minimum price • short sell • b. Other Services • Margin Credit • brokage-based cash management account • c. Full-Service Brokers – provide research and investment advice • d. Discount Brokers – execute trades on request • Securities Dealers • Market Makers – increase market liquidity

  7. Box 1: Using the Limit-Order Book Unfiled Circuit City Limit Orders __________________________________ Buy Orders Sell Orders 37 100 37.125 300 37.25 100 37.375 200 37.50 500 37.625 100 Any deal now?

  8. Orders 1. 200-share market buy order 2. 300-share limit sell order at 37.125 3. 500-share limit buy order at 36.875 The order book is:

  9. Short-selling – borrow shares Joel shorts 200 shares of IBM stocks at $50/share. Later on the stock price goes to $40/share. How much profit/loss Joel has made in this transaction?

  10. Buy-on-margin – borrow money Amy bought 10,000 shares of IBM stocks at $50/shares with her margin account. The IBM price increases to $60 later. How much profits/losses Amy could make?

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