投资学英文版课件：Chap003 How Securities are Traded

1、CHAPTER 3How Securities are TradedHow Firms Issue SecuritiesPrimary MarketFirms issue new securities through underwriter to publicInvestors get new securities; firm gets fundingSecondary MarketInvestors trade previously issued securities among themselves2How Firms Issue Securities (Ctd.)StocksIPOSea

2、soned offeringBondsPublic offeringPrivate placement3Investment BankingUnderwriting: Investment bank helps the firm to issue and market new securitiesProspectus: Describes the issue and the prospects of the company.Red herring4Figure 3.1 Relationship Among a Firm Issuing Securities, the Underwriters,

3、 and the Public5Investment BankingFirm commitment investment bank purchases securities from the issuing company and then resells them to the public.Shelf RegistrationSEC Rule 415: Allows firms to register securities and gradually sell them to the public for two years6Investment Banking (Ctd.)Private

4、 placementsFirm uses underwriter to sell securities to a small group of institutional or wealthy investors.Cheaper than public offeringsPrivate placements not traded in secondary markets7Initial Public OfferingsProcess Road shows to publicize new offeringBookbuilding to determine demand for the new

5、issueDegree of investor interest in the new offering provides valuable pricing information8Figure 3.3 Long-term Relative Performance of Initial Public Offerings9How Securities are TradedTypes of Markets:Direct searchBuyers and sellers seek each otherBrokered marketsBrokers search out buyers and sell

6、ers10How Securities are TradedTypes of Markets:Dealer marketsDealers have inventories of assets from which they buy and sellAuction marketstraders converge at one place to trade11Bid and Asked PricesBid PriceBids are offers to buy.In dealer markets, the bid price is the price at which the dealer is

7、willing to buy.Investors “sell to the bid”.Bid-Asked spread is the profit for making a market in a security.Ask PriceAsked prices represent offers to sell.In dealer markets, the asked price is the price at which the dealer is willing to sell.Investors must pay the asked price to buy the security.12T

8、ypes of OrdersMarket Order: Executed immediatelyTrader receives current market pricePrice-contingent Order: Traders specify buying or selling priceA large order may be filled at multiple prices13Figure 3.5 Price-Contingent Orders14Trading MechanismsDealer marketsElectronic communication networks (EC

9、Ns)True trading systems that can automatically execute ordersSpecialists marketsmaintain a “fair and orderly market”15NASDAQLists about 3,200 firmsOriginally, NASDAQ was primarily a dealer market with a price quotation systemToday, NASDAQs Market Center offers a sophisticated electronic trading plat

10、form with automatic trade execution.Large orders may still be negotiated through brokers and dealers16Table 3.1 Partial Requirements for Listing on NASDAQ Markets17New York Stock ExchangeLists about 2,800 firmsAutomatic electronic trading runs side-by-side with traditional broker/specialist systemSu

11、perDot : electronic order-routing systemDirectPlus: fully automated execution for small ordersSpecialists: Handle large orders and maintain orderly trading18Table 3.2 Some Initial Listing Requirements for the NYSE19Electronic Communication NetworksECNs: Private computer networks that directly link b

12、uyers with sellers for automated order executionMajor ECNs include NASDAQs Market Center, ArcaEx, Direct Edge, BATS, and LavaFlow.“Flash Trading”: Computer programs look for even the smallest mispricing opportunity and execute trades in tiny fractions of a second. 20Bond TradingMost bond trading tak

13、es place in the OTC market among bond dealers.Market for many bond issues is “thin”.NYSE is expanding its bond-trading system.NYSE Bonds is the largest centralized bond market of any U.S. exchange21Market Structure in Other CountriesLondon - predominately electronic tradingEuronext market formed by

14、combination of the Paris, Amsterdam and Brussels exchanges, then merged with NYSETokyo Stock Exchange22Globalization and Consolidation of Stock Markets NYSE mergers and acquisitions:Archipelago (ECN)American Stock ExchangeEuronextNASDAQ mergers and acquisitions: Instinet/INET (ECN) Boston Stock Exch

15、ange23Globalization and Consolidation of Stock Markets Chicago Mercantile Exchange acquired:Chicago Board of Trade New York Mercantile Exchange24Figure 3.6 Market Capitalization of Major World Stock Exchanges, 200725Trading CostsBrokerage Commission: fee paid to broker for making the transactionExpl

16、icit cost of tradingFull Service vs. Discount brokerageSpread: Difference between the bid and asked pricesImplicit cost of trading26Buying on MarginBorrowing part of the total purchase price of a position using a loan from a broker.Investor contributes the remaining portion.Margin refers to the perc

17、entage or amount contributed by the investor.You profit when the stock appreciates.27Buying on Margin (Ctd.)Initial margin is set by the FedCurrently 50%Maintenance marginMinimum equity that must be kept in the margin accountMargin call if value of securities falls too much28Margin Trading: Initial

18、Conditions Example 3.1Share price$10060% Initial Margin40% Maintenance Margin100 Shares PurchasedInitial PositionStock $10,000 Borrowed $4,000 Equity $6,00029Maintenance Margin Example 3.1Stock price falls to $70 per shareNew PositionStock $7,000 Borrowed $4,000 Equity $3,000Margin% = $3,000/$7,000

19、= 43%30Margin Call Example 3.2How far can the stock price fall before amargin call? Let maintenance margin = 30%Equity = 100P - $4000Percentage margin = (100P - $4,000) / 100P (100P - $4,000) / 100P = 0.30Solve to find:P = $57.1431Table 3.4 Illustration of Buying Stock on Margin32Short SalesPurpose:

20、 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 it was borrowed33Short Sale:Initial Conditions Example 3.3Dot Bomb1000 Sh

21、ares50%Initial Margin30%Maintenance Margin$100Initial PriceSale Proceeds $100,000Margin & Equity $50,000Stock Owed 1000 shares34Example 3.3 (Ctd.)Dot Bomb falls to $70 per shareAssets$100,000 (sale proceeds)$50,000 (initial margin)Liabilities$70,000 (buy shares)Equity $80,000Profit = ending equity beginning equity = $80,000 - $50,000 = $30,000 = decline in share price x number of shares sold short35Short Sale - Margin CallHow much can the stock price rise before a margin call?($150,000* - 1000P) / (1000P) = 30%P = $115.38 * Initial margin plus sale proceeds36Regulation of Securitie