How Firms Issue Securities
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
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CHAPTER 3How Securities are TradedHow Firms Issue SecuritiesPrimaryNew issueKey factor: issuer receives the proceeds from the saleSecondaryExisting owner sells to another partyIssuing firm doesn’t receive proceeds and is not directly involvedHow Firms Issue Securities ContinuedInvestment BankingShelf RegistrationPrivate PlacementsInitial Public Offerings (IPOs)Sale to a limited number of sophisticated investors not requiring the protection of registrationAllowed under Rule 144ADominated by institutionsVery active market for debt securitiesNot active for stock offeringsPrivate PlacementsThe Underwriting Process (IPO)Select underwritersnegotiated vs. competitive bidding firm commitment vs. best efforts Form SyndicateDue diligence and Road ShowsRegistration Statements (Red Herring, Final Prospectus)Set offer price and Issue SecurityFigure 3.1 Relationship Among a Firm Issuing Securities, the Underwriters and the PublicInitial Public OfferingsProcess Road showsBookbuildingUnderpricing Post sale returnsCost to the issuing firmFigure 3.2 Average Initial Returns for IPOs in Various CountriesFigure 3.3 Long-term Relative Performance of Initial Public OfferingsThe cost of raising capitalUnderwriter Compensationgross spread, expenses, board seat, etc.Direct Expenses listing and registration feeslegal and accounting feesUnderpricingcost for selling securities for less than they are worthThe cost of raising capitalLee, Lochhead, Ritter and Zhao (JFR, 1996)Possible Explanationsrelated to firm riskto reduce underwriter riskrelated to underwriter reputationmarket sentimentHow Securities are TradedTypes of MarketsDirect searchLeast organizedBrokeredTrading in a good is activeDealer Trading in a particular type of asset increasesAuctionMost integratedHOSE Live Stock PriceOpen/Hi/Lo (session 1& 2)Session 3Trading CostsCommission: fee paid to broker for making the transactionSpread: cost of trading with dealerBid: price dealer will buy from youAsk: price dealer will sell to youSpread: ask - bidCombination: on some trades both are paidSample of Trading Costs DỊCH VỤMỨC PHÍMÔI GIỚI : chứng khoán niêm yết trên sàn HOSE/HNX/UPCOM *1Tổng giá trị giao dịch trong ngày:- Dưới 100 triệu đồng0,20%2Tổng giá trị giao dịch trong ngày:- Từ 100 triệu đồng đến dưới 200 triệu đồng0,15%3Tổng giá trị giao dịch trong ngày:- Từ 200 triệu đồng trở lên 0,10%4Giao dịch trái phiếu đã niêm yết0,10%Types of OrdersMarket—executed immediatelyBid PriceAsk PricePrice-contingentInvestors specify pricesStop ordersFigure 3.5 Price-Contingent OrdersTable 3.1 Partial Requirements for Listing on NASDAQ MarketsMuốn niêm yết trên sànNYSE (2007)2200 cổ đông, mỗi người nắm ít nhất 100 CPÍt nhất 1.1 triệu CP được nắm giữ trong công chúngLợi nhuận trước thuế >$2.5 triệu tại thời điểm niêm yếtLN trước thuế >$2 triệu/năm trong 2 năm trước đó. Tổng giá trị thị trường của CP ít nhất là $100 triệuHOSE (2009)Ít nhất 20% CP được nắm giữ bởi tối thiểu 100 cổ đông2 năm gần đây nhất không lỗKhông có nợ quá hạnThành viên BGĐ, HĐQT, Ban KS không được bán CP trong vòng 6 tháng, không bán quá 50% trong vòng 1 nămCty CP vốn điều lệ >80 tỷ đồng (10 tỷ cho HASTC)Figure 3.6 Market Capitalization of Major World Stock Exchanges, 2007QUY MÔ NIÊM YẾT HOSENguồn: Sàn GDCK TP HCM ngày 7/5/2010Vietnam GDP : $92,84 tỷ (2009 ước lượng)Tổng giá trị thị trường của CP: $35,2 tỷ (31/12/2009)(www.cia.org)Buying on MarginUsing only a portion of the proceeds for an investmentBorrow remaining componentMargin arrangements differ for stocks and futuresStock Margin TradingMargin is currently 50%; you can borrow up to 50% of the stock valueSet by the FedMaintenance margin: minimum amount equity in trading can be before additional funds must be put into the accountMargin call: notification from broker that you must put up additional fundsMargin Trading - Initial Conditions Example 3.1X Corp $10060% Initial Margin40% Maintenance Margin100 Shares PurchasedInitial PositionStock $10,000 Borrowed $4,000 Equity $6,000Margin Trading - Maintenance Margin Example 3.1Stock price falls to $70 per shareNew PositionStock $7,000 Borrowed $4,000 Equity $3,000Margin% = $3,000/$7,000 = 43%Margin Trading - Margin Call Example 3.2How far can the stock price fall before amargin call?(100P - $4,000)* / 100P = 40%P = $66.66* 100P - Amt Borrowed = EquityTable 3.4 Illustration of Buying Stock on MarginShort SalesPurpose: to profit from a decline in the price of a stock or securityMechanicsBorrow stock through a dealerSell it and deposit proceeds and margin in an accountClosing out the position: buy the stock and return to the party from which is was borrowedShort Sale – Initial Conditions Example 3.3Dot Bomb 1,000 Shares50% Initial Margin30% Maintenance Margin$100 Initial PriceSale Proceeds $100,000Margin & Equity 50,000Stock Owed 100,000Short Sale - Maintenance MarginStock Price Rises to $110Sale Proceeds $100,000Initial Margin 50,000Stock Owed 110,000Net Equity 40,000Margin % (40,000/110,000) 36% Short Sale - Margin CallHow much can the stock price rise before a margin call? ($150,000* - 1000P) / (100P) = 30% P = $115.38 * Initial margin plus sale proceeds Circuit BreakersTrading haltsCollarsTrading range (HOSE, HNX) Insider TradingOfficers, directors, major stockholders must report all transactions in firm’s stockInsiders do exploit their knowledgeLeakage of useful information to some traders