Chapter 24 Securities Operations.doc

Chapter 24 Securities Operations
Chapter 24
Securities Operations
Financial Markets and Institutions, 7e, Jeff Madura
Copyright ?2006 by South-Western, a division of Thomson Learning3>. All rights reserved.
Chapter Outline
Investment banking services
Brokerage services
Sources of e
Regulation of securities firms
Risks of securities firms
Valuation of a securities firm
Interaction with other financial institutions
Participation in financial markets
Globalization of securities firms
Investment Banking Services
One of the main functions of investment banking firms (IBFs) is raising capital for corporations
IBFs originate, structure, and place securities in the capital markets
They serve as an intermediary rather than a lender or investor
pensation is typically in the form of fees
Investment Banking Services (cont’d)
How IBFs facilitate new stock offerings
An IBF acts as an intermediary between a corporation and investors
Origination
IBFs mend the appropriate amount of stock to issue
IBFs evaluate the corporation’s financial condition to determine the appropriate stock price
Investment Banking Services (cont’d)
How IBFs facilitate new stock offerings (cont’d)
Origination (cont’d)
The issuing corporation registers with the SEC
The registration statement is intended to ensure that accurate information is disclosed by the issuing corporation
Included in the registration information is the prospectus, disclosing relevant financial data on the firm and provision applicable to the security
The IBF and the issuing firm may engage in a road show to meet with institutional investors
Investment Banking Services (cont’d)
How IBFs facilitate new stock offerings (cont’d)
Underwriting
The IBF may form an underwriting syndicate and ask other IBFs to underwrite a portion of the stock
In a best-efforts agreement, the IBF does not guarantee a price to the issuing corporation
During IPOs:
IBFs want to set the price high so that the issuing corporatio