1. 1. 2. 3. 4. Learning Objectives “The BIG picture” Learning Objectives “The BIG picture” P.115 Review Q#5,14,15,16; + handout

2. Capital Markets: Sources = Users =

3.  Channel funds from savers to borrowers  Provide a place where investors can act on their beliefs  Help allocate cash to where it is most productive  Help lower the cost of exchange Importance of Financial (Capital) Markets p.90

4. Securities: Debt vs. Ownership p.37-49 OWNERSHIP DEBT

5. Initial public offering (IPO)  Secondary offering (“seasoned new issue) Issue facilitated by __________________  Underwriting: Specialists in advice, design, and sales  Intermediaries between issuer and investor Primary Markets: the sale of new (stock) securities p.93

6. Markets where investors _______________ (trade) previously issued shares (TSX, NYSE, Nasdaq) _________ markets = bid and ask __________ __________ represent investors for a fee www.tsx.com Secondary Markets p.97+

7. ________________ by the SEC (USA) (or the provincial securities commissions OSC Ontario) _________________ for traded firms (minimum capitalization, shareholder equity, average closing share price, etc) _________________ Toronto Stock Exchange (TSX, p. 99)  Largest Canadian stock market  8 th in world TSX Venture Exchange is Canada’s “junior” stock market Montreal exchange (MX) = derivatives New York Stock Exchange (NYSE)  largest secondary market in the world 200 + stock exchanges throughout the world  riskier! Stock Exchanges p.97+

8. General Exchange Initial Listing Requirements (specifics may vary) StandardNYSETSX Nasdaq (NM) Nasdaq (Sm. Cap) Distributiona) 2,000 round lot holders b) 1.1m public shares a) 300 board lot holders b) 1m public shares a) 400 round lot owners b) 1.1m a) 300 round lot owners b) 1m Market Value (public shares) $100m$4m Cdn.$75m (or Total Assets or Total Sales > $75m) $50m (or Stock Equity >$5m or Net Income >$0.75m)

9. StandardNYSETSX Nasdaq (NM) Nasdaq (Sm. Cap) Before-Tax Earnings from Continuing Operations $6.5 m over past 3 years:$2.5m last year + ($2m/ $2m), OR $4.5m last year and pos. all 3 years For Senior Industrial Companies: $300,000 CDN last year $1m last year (or in 2 of last 3 years) $0.75m Net Income (or $5m Equity or $50m Mkt. Value) Cash Flow$25m Operating Cash Flow over last 3 years Pre-Tax CF $0.7m last year and prior 2-year average ($0.5m) N/A General Exchange Initial Listing Requirements (cont’d)

10. ________ of dealers standing ready to either buy or sell securities at specified prices “___________________”  Handle _________ securities  _____________  Canadian OTC stocks are trading on the TSX Venture Exchange NEX system __________________ : Electronic Communications Networks (ECNs) allow investors to trade after exchange hours  trades “clear” when the market opens ___________: Trading network among investors interested in buying and selling large blocks of stock  _______________ Over-the-Counter (OTC) or Third Market

11. Primary Market: companies and governments sell bonds to institutional investors Secondary Market (retail) primarily an over-the-counter network of dealers  Government of Canada bonds actively trade in dealer markets  Corporate bonds are not as actively traded Bond (Debt) Markets p.109