Securities Firms (II): Other Businesses - PowerPoint PPT Presentation

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securities firms ii other businesses l.
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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?