1. All Rights ReservedDr. David P Echevarria1 STOCK [EQUITY] MARKETS CHAPTER 10

2. All Rights ReservedDr. David P Echevarria2 PRIVATE EQUITY A.Venture Capital 1.Financing for high risk start-up ventures 2.Dollars for Equity position a.Receive lettered stock (SEC Rule 144a) b.Provide [managerial] assistance 3.VC profits when venture goes public (IPO) a.After a 90 to 180 day lockup period b.Secondary registration required

3. All Rights ReservedDr. David P Echevarria3 PUBLIC EQUITY: COMMON STOCK A.Corporate Charter; shareholder rights 1.Elect directors 2.Amend the charter 3.Raise capital 4.Approve mergers 5.Preemptive rights B.Classes Of Common 1.Voting 2.Non-Voting 3.Weak voting

4. All Rights ReservedDr. David P Echevarria4 PUBLIC EQUITY: COMMON STOCK C.Lettered Stock 1.Private issue to investors a.May be privately resold to qualified investors 2.Covered by SEC rules (i.e., 144a) D.Rights Offerings 1.Right granted by the corporate charter 2.New shares must be offered to current holders (rights) 3.Rights (R) may be exercised or sold to public

5. All Rights ReservedDr. David P Echevarria5 PREFERRED STOCK A.Hybrid Security 1.Fixed payouts like bonds 2.An equity investment like common B.Attributes Of Preferred Stock 1.Par value; meaningful in bankruptcy or liquidation 2.Cumulative Features; missed dividends must be made up 3.Participating; in years of high profits, an extra dividend 4.Non-Voting; except as provided in corporate charter 5.Convertibility; typically into common

6. All Rights ReservedDr. David P Echevarria6 NEW ISSUES OF STOCK (IPOS) A.Typically below current market prices B.Process 1.Developing Prospectus 2.Price the issue 3.Distribute the issue 4.Transaction Costs: Spread, fees C.Shelf Registrations 1.Corporation can plan issues up to two years to completion 2.Permits issuer to time issuance for best price action

7. All Rights ReservedDr. David P Echevarria7 SECURITY MARKETS A.Organized Exchanges 1.NYSE, AMEX, Tokyo (TSE), London (LSE), etc 2.Restricted participation, trading rules strictly specified 3.Traders (members) hold seats (Specialists, Floor traders) except NYSE – buy “license” to trade 4.Sale of seats must be approved (Pre-qualifications must be met) 5.Transactions tend to be centralized; advantageous for price discovery

8. All Rights ReservedDr. David P Echevarria8 SECURITY MARKETS B.Over-The-Counter (OTC)NASDAQ, 1.Government Sec, Money Markets, Foreign Exchange 2.Transactions tend to be decentralized; price discovery less efficient 3.Liquidity more expensive in terms of bid-ask spreads 4.Bulletin Board: price listing for "penny" stocks 5.Pink Sheets: teeny-tiny fractional price low volume stocks

9. SECURITY MARKETS An electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary.financial intermediary C.Electronic Trading Platforms 1.Scottrade 2.TradeMonster 3.OptionsHouse 4.TradeKing 5.Motifinvesting 6.MerrillEdge 7.NYSE Arca 8.Fidelity ATP All Rights ReservedDr. David P Echevarria9

10. Fidelity Active Trader Pro Version 10.3 All Rights ReservedDr. David P Echevarria10

11. Fidelity Active Trader Pro Version 10.3 All Rights ReservedDr. David P Echevarria11

12. Fidelity Active Trader Pro Version 10.3 All Rights ReservedDr. David P Echevarria12

13. All Rights ReservedDr. David P Echevarria13 SECURITY MARKETS D.Stock Market Information 1.Ticker Symbol 2.52-Week Price Range (Hi-Lo) 3.Dividend 4.Dividend Yield 5.Price-Earnings Ratio (TTM) 6.Volume (in hundreds = round lots) 7.Closing Price, change from previous close 8.Indexes (DJIA, SP500, NASDAQ)

14. All Rights ReservedDr. David P Echevarria14 SECURITY MARKETS D.Auction Markets 1.Orders of traders are directly matched 2.NYSE Members may act as dealers (specialists) or brokers (traders) E.Cost of Liquidity Services: Bid–Ask Spread 1.Bid = highest unexecuted price to buy 2.Ask = lowest unexecuted price to sell

15. All Rights ReservedDr. David P Echevarria15 MARKET MONITORING A.SEC: reporting requirements 1.www.sec.gov/edgar (web site for SEC reports) www.sec.gov/edgar B.Sarbanes-Oxley (2002) 1.Cannot audit books of firm any one of whose CEO or CFO formerly worked for the auditing firm 2.Require outside directors to be on audit committee 3.Members of audit committee may not receive special compensation 4.Require CEO / CFO certification of correctness 5.Failure to comply draws fines and imprisonment

16. All Rights ReservedDr. David P Echevarria16 HOMEWORK QUESTIONS A.What rights do common stockholders have in the Corporate Charter? B.What characteristic of preferred stock causes sensitivity to interest rate changes? C.What does it mean when a preferred stock is cumulative & participating? D.What are preemptive rights and why are they important to common stockholders? E.How do we measure the cost of liquidity? F.What is the major requirement of Sarbanes-Oxley on the company’s management?