Capital-Markets课件

1、Capital Markets14Chapter OutlineCapital market and securitiesFund raisers in the capital marketsThe three-sector economy of the United StatesPhysical and electronic marketsRapid adjustment of prices as an indication of efficiencySecurity legislation2Security MarketsConsist of various government bond

2、s and corporate common stockThe markets are influenced by variables like:Interest ratesInvestor confidenceEconomic growthGlobal crises, etc.3Types of Security MarketsMoney marketsShort-term markets comprising of securities with maturities of one year or lessTreasury bills, commercial paper, negotiab

3、le certificates of depositsCapital marketsLong-term markets consisting of securities having maturities greater than one yearBonds, common stock, preferred stock, convertible securitiesThese securities comprise a firms capital structure4International Capital MarketsHave played an important role over

4、the last decade due to various factors:The Soviet Union disbanded in 1991China has moved along a capitalistic course for several decadesCentral and Eastern European countries “privatized” many of their state industries during the 1990sContinuing development of international “free trade”5Internationa

5、l Capital Markets (contd)Establishment of NAFTA in 1994CAFTA reduces trade barriersThe six original members of EU abolished internal tariffs in 1968WTO strives to further liberalize international tradeEuro still considered second most important international currencyValue of “euro cash” in circulati

6、on now exceeds value of dollars in circulation worldwide62006 Total Dollar Trading Volume on Ten Largest Equity Markets7International Capital Markets as a Source of FundsAn opportunity for companies to raise debt capital at the lowest costMany list their common stock around the world to:Increase liq

7、uidity for the stockholdersProvide opportunities for the potential sale of new stock in foreign countriesAbout 3.7% of foreign investment has been invested in government securities8Competition for Funds in the U.S. Capital MarketsSecurities available in the capital market:The federal governmentGover

8、nment agenciesState governmentsLocal municipalitiesInvestors must choose among corporate and noncorporate securities with the desire to:Maximize returns for any given level of risk9Government SecuritiesU.S. government securities - TreasuryManages the federal governments debt in order to balance the

9、flow of fundsSells short- or long-term securities to finance shortfalls or retires in case of surplusFederally sponsored credit agenciesGovernmental units issuing securities on a separate basis from those sold by U.S. TreasuryIncludes:Federal Home Loan Banks (FHLB)10Government Securities (contd)Fede

10、ral National Mortgage Association (Fannie Mae)Farm Credit BanksStudent Loan Marketing AssociationState and local securitiesMunicipal securities or tax-exempt offeringsInvestors - high marginal tax bracketsSupported by revenue-generating projects11Corporate SecuritiesCorporate bondsDebt instruments h

11、aving a fixed life and to be repaid at maturityAs bonds come due and are paid off, the corporation normally replaces this debt with new bondsPreferred stockLeast used of all long-term securities since the dividend is not tax-deductible to the corporation12Corporate Securities (contd)Common stockSold

12、 by companies desiring new equity capitalEither sold as a new issue in an initial public offering (IPO) or as a secondary offeringTreasury stock: When a company purchases its own stock availability of surplus cash13Internal versus External Sources of FundsInternally generated funds include retained

13、earnings and cash flow added back from depreciationComposition of internal funds is a function of:Corporate profitabilityThe dividends paidThe resultant retained earningsThe depreciation tax shield firms avail14Internally Generated Funds: Depreciation and Retained Earnings15The Supply of Capital Fun

14、dsHousehold sector - major supplier of fundsIndirect investments:Household savings generated by wagesTransfer payments from the governmentWages and dividends from the corporationsThese are funneled to financial intermediariesDiverse financial institutions channel funds into commercial banks, mutual

15、savings banks, and credit unions16Flow of Funds Through the Economy17Suppliers of Funds to Credit Markets (September 2007)18The Role of the Security MarketsThe capital markets are divided into many functional subsetsEach specific market serves a certain type of securitySecondary trading:The security

16、 trades in appropriate markets not original offeringProvides liquidity to investors and keeps the prices competitive19The Role of the Security Markets (contd)Security markets provide liquidity by:Enabling corporations to raise funds by selling new issues of securitiesAllowing investor to sell them w

17、ith relative ease and speedCorporations and government units would not be able to raise large amounts of capital for economic growth without markets20The Organization of the Security MarketsSecurity markets structuring has changed because of: Technological advances which include:The rise of electron

18、ic communication networks (ECNs)Mergers or alliances between exchangesTransformation of member exchanges into public companiesAcquisition of leading ECNs by the traditional exchanges21Traditional Organized ExchangesEither national or regional, both structured in similar fashionHistorically, exchange

19、s have central trading location, securities bought & sold in auction market by brokers acting as agents for buyers & sellersEach stock trades at a physical location, trading post, on exchanges trading floorBrokers are registered members of exchanges22Regional ExchangesBegan by trading securities of

20、local firmsAlso listed on national exchanges but continued to be traded on regionalsTrade primarily done in nationally known companiesTrading in same companies common between NYSE and regionals like Chicago Stock Exchange dual trading More than 90 percent of companies traded on the Chicago Stock Exc

21、hange also listed on the NYSE - dual trading23Listing RequirementsA firms securities can be traded on an exchange if company meets listing requirements and has been approved by board of governors of that exchangeAll exchanges have minimum requirements that must be met before trading occurs in compan

22、ys common stockNYSE - biggest exchange, generates most dollar volume in large companies, listing requirements are most restrictiveNASDAQ has less restrictive listing requirements than NYSE24Electronic Communication Networks (ECNs)Electronic trading systems that automatically buy and sell orders at s

23、pecified pricesAlso known as alternative trading systems (ATSs)Have SEC approval to be fully integrated into the national market systemCan choose to act as broker-dealer or an exchangeLower the cost of tradingForced organized security exchanges to make significant changes in their operations and str

24、ucture25The New York Stock ExchangeIn 2006, NYSE merged with a large ECN and became a public companyComprises of thousands of huge companies whose shares are listed on the NYSESpecialists meet to buy and sell securities through a bid and ask market, called an auction marketThey are registered member

25、s of the exchangeIn addition to acquiring Archipelago, NYSE merged with EuronextNYSE acquired American Stock Exchange in 200826The NASDAQ MarketNASDAQ:Was once considered an OTC marketAll trades done electronicallySecond largest exchange in the U.S.Currently owns 30% of London Stock ExchangeKnown fo

26、r trading technology and listing of many of the worlds largest technology companies27The NASDAQ Market (contd)Created SuperMontage, electronic trading system that integrates trading process with limit orders, time stamps for receipt of orders, multiple quotes, etc.Acquired the largest ECN called INE

27、T, and later BRUTCreated more speed and price efficiency in order executionsDivides its markets into national and small capitalization markets28World Federation of Exchanges Members (2006)29Market EfficiencyMarkets in general are efficient when:Prices adjust rapidly to new informationThere is a cont

28、inuous market, in which each successive trade is made at a price closer to the previous priceThe market can absorb large dollar amounts of securities without destabilizing the pricesThe important variable affecting efficiency is the certainty of income stream30Market Efficiency (contd)Fixed income s

29、ecurities, with known maturities, have reasonably efficient marketsThe most efficient is that for U.S. government securitiesCorporate bond markets are reasonable to a degreeCommon stocks market has been supported through decimalization, ECNs, etc.31The Efficient Market HypothesisWeak form Past price

30、 information is unrelated to future priceTrends cannot be predicted and taken advantage of by investorsSemistrong formPrices currently reflect all public informationStrong formAll information, both private and public, is immediately reflected in stock prices32Regulation of the Security MarketsOrgani

31、zed securities markets are regulated by the:Securities and Exchange Commission (SEC)Self-regulation of the exchangesThree laws govern the sale and trading of securities with a primary purpose:To protect unwary investors from fraud and manipulationTo make markets more competitive and transparent33Sec

32、urities Act of 1933Important features include:All offerings except government bonds and bank stocks to be sold in more than one state to be registered with the SECThe registration statement is to be filled 20 days in advance of date of sale and must include detailed corporate informationThe SEC does

33、 not certify the fairness of a price, but only that the information seems to be accurateAll new issues of securities must be accompanied by a prospectus containing the same information appearing in the registration statementOfficers of the company and other experts preparing the prospectus or the re

34、gistration statement could be sued for penalties and recovery of realized losses in case of discrepancies in information34Securities Exchange Act of 1934Some of the important features include:Guidelines for insider trading preventing them from taking quick advantage of information resulting in short

35、-term gainsThe Federal Reserves Board of Governors responsible for setting margin requirements to determine quantity of creditManipulation of securities by conspiracies among investors was prohibitedSEC given control over the proxy procedures of corporationsSEC required that certain reports be fille

36、d periodically, for its regulation of companies traded on the marketsAll security exchanges to register with the SEC35Securities Acts Amendments of 1975Major focus: to direct the SEC to supervise the development of a national securities marketAssumed that any national market would extensively use co

37、mputers and electronic communication devicesProhibited fixed commissions on public transactions, also prohibited banks, insurance companies and other financial institutions from buying stock exchange membership to save commission costsThe Intermarket Trading system, computerization demonstrated by t

38、he ECNs, and a more competitive structure has now been observed36Sarbanes-Oxley Act of 2002Not directly related to security tradingFeatures include:Authorization of an independent private-sector board to oversee the accounting professionCreation of new penalties and long prison terms for corporate f

39、raud and document destructionRestrictions on accounting firms from providing consulting services to audit clients, and other similar provisionsThe act holds corporate executives legally accountable for the accuracy of their firms financial statementsIt requires the CEO, along with the CFO, to sign o

40、ff documents, making monitoring a very serious business37Investment Banking Public and Private Placement15Chapter OutlineWhat is investment banking?Functions of an investment bankerDilution of earningsPublic versus private financingLeveraged buyouts and debt for restructuring of a corporation39The R

41、ole of Investment BankingThe investment banker is the link between the corporations in need of funds and the investorResponsible for designing and packaging a security offeringResponsible for selling the securities to the public40Concentration of CapitalAllows large firms to take additional risks an

42、d satisfy the needs of an increasingly demanding capital marketCompetition has propelled many businesses to the position they are at nowRaising capital has become an international propositionFirms that are very large have the ability to competeInternational consolidations with international buy-outs

43、 of banks have become common41Gramm-Leach-Bliley Act (1999)Repealed the separation policy of the Depression-era lawsWhich included separating banking, brokerage, insurance, and investment banking into separate entitiesFederal Reserve and Treasury:Have the power to impose restrictions on the activiti

44、es of the banksAllows strong banks to participate in the venture capital market42Investment Banking CompetitorsThere is intense competition in the marketBeing a leader in one sector helps a firms overall reputationIt, however, does not ensure success in other areas43Functions of the Investment Deale

45、rUnderwriter:buying the security and reselling it to the public (large companies). Takes a risk.selling security on commission basis (unknown companies)Market Maker: ensuring an available market by buying and selling the securityAdvisor:on securities issues, mergers and acquisitions, leveraged buyou

46、ts, corporate restructuringAgent:for private placements, mergers, acquisitionsPPT 15-444UnderwriterAn investment banker underwrites any risk associated with a new issue:By giving a firm commitment to purchase the securities from the corporationLarge investment houses assume risk of distributionSmall

47、er investment houses may handle distributions for unknown corporationsThis is done on a “best efforts” or commission, basis45Market MakerInvestment banker engaged in buying and selling of the security to ensure a liquid marketProvides research on the firm to encourage active investor interest46Advis

48、orServices offered include advising the client on a continuing basis about:The types of securities to be soldThe number of shares or units for distributionThe timing of the saleImportant advisory services in the area of mergers and acquisitions, leveraged buyouts, and corporate restructuring are als

49、o offered47Agency FunctionsAn investment banker may act as an agent for a corporationThat wishes to place its securities privately with:An insurance company,A pension fund, orA wealthy individualInvolves in negotiation of the best possible deal for the corporation with potential investors48Distribut

50、ion Process in Investment Banking49The SpreadThe underwriting spread represents the total compensation for all participating members The lower a party falls in the distribution process, the higher the price for the sharesThe farther down the line the securities are resold, the higher the potential p

51、rofitThe larger the dollar value of an issue, the smaller the spread is as a percentage of the offering price50Allocation of Underwriting Spread51Pricing the SecurityInvestment BankerPrice of the stock is an important considerationConduct an in-depth analysis to determine a firms value: The companys

52、 industryFinancial characteristicsAnticipated earningsDividend-paying capability52Pricing the Security (contd)Based on a technique deemed appropriate by the underwriter:A tentative price is assignedThis will be compared to others in that given industryAnticipated public demand also plays a major fac

53、torUnderpricingSetting the price slightly below the current market valueCommon during the issuance of additional shares53DilutionProblem associated with the issuance of additional securities:Actual or perceived dilution of earnings effect on shares currently outstandingMay be caused by the perceived

54、 time lag in the recovery of earning per shareResulting from increase in shares outstanding54Market StabilizationAn investment banker is responsible for stabilizing the offering during the distribution period:Accomplished by repurchasing securities when market price is below initial public offering

55、priceStabilization lasts for two or three days after initial offeringPoor market environment - stabilization may be very difficult to achieveUnderwriter price support an exception to market manipulation55AftermarketResearch shows that the IPO generally tends to perform well in the immediate aftermar

56、ketAfter the first day of trading, IPO returns are approximately 3.4% lower than returns for similar sized firms over the first full year of tradingThe IPO appears to be a good deal for investors who purchase shares from the underwriter56Shelf Registration (1982)Permits large companies to file one c

57、omprehensive registration statementShould outline the firms financing plans for up to 2 yearsThe firm can issue securities without further SEC approvalThis registration has become part of the underwriting processMost frequently used with debt issues, and utilized minimally with the equity markets57P

58、ublic Vs. Private Financing for CompaniesPublicly financed company:when shares of a company are offered to the publicanyone can buy shares of the stockPrivately financed company:privately owned or held by an individual or familysecurities not available to the general publicadditional funds may be ra

59、ised by private placementPPT 15-958Advantages of Being PublicTo the Corporation:Tap security markets for greater amounts of fundsAssociated prestige better relationshipsAbility to purchase another firm using its own stock as currencyTo the Stockholders:Ability to achieve a higher degree of liquidity

60、 and to diversify his/her portfolioStockholders of a private corporation can sell holdings if it decides to go public59Disadvantages of Being PublicAll information must be made public through SEC and state filingsTremendous pressure for short-term performance by security analysts and large instituti