Securities Firms (II) (ch21) – Fin 331 1 Securities Firms (II): Other Businesses Investment Banking Business Brokage Service.

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Securities Firms (II) (ch21) – Fin Securities Firms (II): Other Businesses Investment Banking Business Brokage Service

Securities Firms (II) (ch21) – Fin 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

Securities Firms (II) (ch21) – Fin 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

Securities Firms (II) (ch21) – Fin Ten Largest Underwriters in the U.S.

Securities Firms (II) (ch21) – Fin Other Investment Banking Service Private Placement Mergers and Acquisitions –Active in this market since 1960s –Serves both acquirers and target firms

Securities Firms (II) (ch21) – Fin 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

Securities Firms (II) (ch21) – Fin Box 1: Using the Limit-Order Book Unfiled Circuit City Limit Orders __________________________________ Buy OrdersSell Orders Any deal now?

Securities Firms (II) (ch21) – Fin Orders share market buy order share limit sell order at share limit buy order at The order book is:

Securities Firms (II) (ch21) – Fin 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?

Securities Firms (II) (ch21) – Fin 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?

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