Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
24 Cards in this Set
- Front
- Back
What is the primary market?
|
financial markets dealing with financial claims that are newly issued
|
|
What are investment bankers?
|
work with issuers to distribute newly issued securities
|
|
What is underwriting>
|
the function of buying the securities from the issuer
|
|
What is a firm commitment?
|
firm agrees to buy securities from the issuer at a set price
|
|
What is a best efforts arrangement?
|
investment banking firm agrees only to use its expertise to sell the securities, it does not buy the entire issue from the issuer
|
|
What is the gross spread or the underwriter discount?
|
difference between the price paid to the issuer and the price at which the investment bank reoffers the security to the public; constitutes the fee
|
|
What are initial public offerings (IPOs)?
|
common stock offerings issued by companies that had not previously issued common stock to the public- gross spread is usually higher for IPOs because of risk
|
|
What does a synidicate of firms do in the underwriting process?
|
because of risk of one firm underwriting and losing a significant portion of its capital, more investment banks join in the underwriting process
|
|
What is a selling group?
|
group includes underwriting syndicate plus other firms; increases potential investor base; provides input on amount of interest
|
|
Among whom is the gross spread divided?
|
lead underwriter, members of the underwriting syndicate, and members of the selling group
|
|
What is a registration statement?
|
must be filed with SEC by the issuer of a security; includes information in nature of the business, key provisions/features of the security, nature of the investment risks, background of management
|
|
What are the two parts of a registration statement?
|
1. a prospectus- shown to public
2. contains supplemental information, not distributed to the public, has to be requested |
|
What is due diligence?
|
obligation of underwriter, must verify the registration statement
|
|
What is the waiting period?
|
time interval between the initial filing of the registration statement and the time the registration statement becomes effective
|
|
What is a red herring?
|
before prospectus becomes effective, cover pages states that it is a red herring in red ink
|
|
What is the shelf-registration rule?
|
allows certain issuers to file a single registration document indicating they intended to sell a certain amount of securities within the next two years; sale of the security does not have to be pre-approved by the SEC; allows issuers to quickly take advantage of good markets
|
|
What are the other variations in underwriting?
|
1. bought deal
2. auction process for both stocks and bonds 3. rights offering for underwriting common stock |
|
What is a bought deal?
|
offer is made to a potential underwriter to purchase securities with a specified interest rate and maturity; only one firm is the underwriter but it usually has other buyers lined up; allows firms to quickly take advantage of favorable market conditions
|
|
What is the auction process or competitive bidding underwriting?
|
issuer announces the terms of the issue, and intersted parties submit bids for the entire issue; used for public utilities and many municipal debt obligations
|
|
What is a single-price or Dutch auction?
|
all bidders pay the lowest winning price
|
|
What is preemptive rights offering?
|
corporation can issue new common stock directly to existing shareholders; ensures that investors can maintain their share of equity in the company; no underwriting services are needed
|
|
What is a standby underwriting arrangment?
|
issuing corporations use the services of an investment banker for the distribution of common stock that is not subscribed to; must pay a standby fee for service
|
|
What is private placement?
|
securities placed with a limited number of investors such as insurance companies, investment companies and pension funds; life insurance companies are the major investors; cannot advertise; prospectus is not subject to SEC review
|
|
What is Rule 144A?
|
rule eliminates the 2-yr holding period for privately placed securities (which in the past caused the market to be illiquid raising the cost to the issuer)
|