1. COMPONENTS OF FINANCIAL MARKET SYSTEM
Chapter 2
COMPONENTS OF FINANCIAL MARKET SYSTEM

2. Financial Markets Primary Market Second Market Money Market
Capital Market
Organized Securities Exchanges
Over-the-Counter Markets
Public Offerings and Private Placement

3. Organized Securities Exchanges
(1)    New York Stock Exchange, (NYSE)
(2)    American Stock Exchange, (AMEX)
(3)    Mid-west Stock Exchange,
(4)    Pacific Stock Exchange,
(5)    Philadelphia Stock Exchange,
(6) Boston Stock Exchange, and

4. New York Stock Exchange (NYSE)
Membership
seat：1366 seats since 1953.
Seat fee: $760,000 to a high of $830,000.' 1995
auction :“make a market”
matching
pricing (asked and offered)
Price Quotes
82%

5. Function of the NYSE 1 Providing a continuous market.
2. Establishing and publicizing fair security prices.
3. Helping business raise new capital.

6. Listing Requirements (1) profitability (2) size (3) market value
(4) public ownership.

7. Profitability
EBT: at 1east $2.5 million.
For the two years preceding EBT:at least $2.0 million.
Size
Net tangible assets: at least $18.0 million.

8. Market Value
The market value: at least $18.0 million.
Public Ownership
common shares :1 .1 million publicly held holders of 100 shares :at least 2,000.

9. THE INVESTMENT BANKER
a financial specialist involved as an intermediary in the merchandising of securities.
Banking Act of 1933(also known as the Glass-Steagall Act of 1933).

10. Functions of Institutes
(1)    underwriting,
(2)    distributing,
(3) advising.

11. Distribution Methods Most competitive bid purchases
(1)    rail-road issues,
(2)    public utility issues,
(3)    state and municipal bond issues.
(4)    Commission or Lest-Efforts Basis
(5) Privileged Subscription
(6) Direct Sale

12. (1)    current stockholders,
(2)    employees, or
(3) customers.

13. PRIVATE PLACEMENTS (1) life insurance companies,
(2)    state and local retirement funds,
(3) private pension funds.

14. Advantages of private placement
1.       Speed.
2.       Reduced flotation costs.
3.       Financing flexibility.

15. disadvantages 1. Interest costs. 2. Restrictive covenants.
The possibility of future SEC registration.

16. Leading U.S. Investment Bankers, 1995 (Domestic debt and Equity issue) (BILLION OF DOLLARS
FIRM UNDERWRITING VOLUME Percent
Merrill Lynch ＄ %
Lehman Brothers
Golden Sachs
Morgan Stanley
Salomon Brother
CS First Boston
J.R. Morgan
Bear, Sterns
９　Donaldson Lufkin & Jenrette　
Smith Barney

17. Table 2-6 Public and Privately Placed Corporate Debt Placed Domestically (Gross proceeds of All New U.S. Corporate Debt Issue)
Total Volume Percent Publicly Percent Privately
Year (S Millions) Placed (%) Placed (%)
$ ．8　　　 17．2
． ．7
． ．8
． ．3
． ．5
． ．3
． ．7
． ．5
． ．8
． ．9
　　 ． ．1

18. FLOTATION COSTS (1) the underwriters spread (2) issuing costs.
(a) printing and engraving,
(b) legal fees,
(3)    accounting fees,
(4)    trustee fees,
several other miscellaneous components.

19. Full public disclosure
Firm file a registration statement with the SEC
a minimum 20-day waiting period,
registration process a preliminary prospectus (the red herring)

20. 25 investors not be registered
1. less than $1.5 billion of new securities per year.
2. Issues that are sold entirely intrastate.
3. short-term instruments: maturity periods of 270 days or less.
4. Issues that are already regulated or controlled by some other federal agency

21. Mr. Ivan F. Boesky, a loophole in the 1940
Ponzis Scheme
Enron and WorldCom

25. REGULATION 1929--1932, State statutes (blue sky laws)
Securities Acts Amendments of 1975
Primary Market Regulations
Securities Act of 1933.

26. Primary market regulation
Full public disclosure
Firm file a registration statement with the SEC
a minimum 20-day waiting period,
registration process a preliminary prospectus (the red herring非招募章程)

27. Secondary Market Regulations Shelf Registration
1. Major security exchanges must register with the SEC.
2. Insider trading is regulated.
3. Manipulative trading
4. The SEC is given control over proxy procedures.
5. The Board of Governors of the Federal Reserve System

28. Figure 2-4 Average Annual Returns and Standard Deviations of Returns, 1926-1995

29. Figure 2-5 Rates of Return and Standard Deviations, 1926-1995

30. Table 2-7 Interest Rate Level and Inflation Rates 1981-1995
3-Month Year AAA Rated Inflation
Treasury Bills Treasury Bonds Corporate Bonds rate
Mean

32. INTEREST RATE and DETERMINANTS
k = k* + IRP + DRP + MP + LP
k = the nominal or observed rate
k* = the real risk--free rate of interest,
IRP = inflation-risk premium.
DRP = default-risk premium
MP = maturity
LP = liquidity premium

33. Krf = k* + IRP (2-2)

34. The Effects of Inflation on Rates of Return and the Fisher Effect
Krf =k *+ IRP + (k*. IRP)
0.113 = k* '05k*
K* = .06 = 6%

38. MEAN MEAN INFERRED SECURITY % % % Treasury bills 7.08 3.93 3.15
MEAN MEAN INFERRED
NOMINAL YIELD INFLATION RATE REAL RATE
SECURITY % % %
Treasury bills
Treasury bonds
Corporate bonds

39. 短期国库券 融资工具 市场 市场主要参与对象 风险 期限 年利率 货币市场 国家财政部为支付联邦财政支出而面向协会投资者发行
投资者承担违约风险
91天到1年
6.40%
银行呈兑汇票
银行允诺呈兑的汇票
银行许诺，故风险较低
180天
6.30%
商业票据
可靠的金融机构面向较大投资者发行
低违约风险
270天
6.20%
大额可转让存单
由金融中心的商业银行签发给较大的投资者
大于短期国库券 1年
6.50%
共同基金
投资于短期国库券、商业票据由个人或商行持有
低风险
无到期日
5.50%
欧元现市存单
由美国以外的银行发行
承担不发行的违约风险
消费信贷
由银行、信贷联合协会、金融机构发行给个人
风险易变
不固定
10-15%浮动
美国政府债券
资本市场
由美国政府发行
但当利率上升时，价格会下降
1到30年
7.80%

40. THE TERM STRUCTURE OF INTEREST RATES

41. Historical Interest Rates2 10 30 9 13 1
Years to maturity
Interest rate
Oct 31, 19 79
Mar 31, 19 90
Nov 13, 19 91

42. Explaining Term Structure
(1)    the unbiased expectations theory,
(2)    the liquidity preference theory,
(3)    the market segmentation theory.

43. SUMMARY market environment structure of financial markets
the institution of investment banking
various methods for distributing securities
role of interest rates

44. Components of financial market
public offerings
private placements：institutional investors.
financial instruments
The secondary market
money and capital markets
primary and secondary
organized security exchanges
over-the-counter market

45. Investment banker
functions of (l) underwriting, (2) distributing, and (3) advising.
the negotiated purchase, (2) the competitive bid purchase, (3) the commission or best-efforts basis, (4) privileged subscriptions, and (5) direct sales.

46. Private placements
(l) life insurance firms, (2) state and local retirement funds, and (3) private pension funds.
advantages and disadvantages

47. Flotation costs
securities Act Of l933.
Rates of return