Financialinstruments金融工具課件

3.FINANCIALMARKETS

ANDINSTRUMENTS3.FINANCIALMARKETS

ANDINSTRU1Financialmarkets&instrumentsBusinessesraisemoneytofinancecurrentoperationsaswellasforfuturegrowthMoneyisraisedInfinancialmarkets(capitalmarketsandmoneymarkets)Byissuingfinancialinstruments(alsocalledsecurities)whichgivetheholdersclaimsonfuturecashflowsofthebusiness2Financialmarkets&instrumFinancialmarketsFinancialmarketsdescribesthedistributionsystembywhichcash-deficitentitiesengageintransactionswithcash-surplusentities.Besidesbusinesses,participantsincludegovernmentagencies,pensionfunds,endowments,individuals,commercialbanks,insurancecompanies…RegulatedbySecurities&ExchangeCommissionCapitalmarketsdealwithlongterminstrumentslikestocksandbondswhilemoneymarketsdealwithshort-terminstrumentswithmaturitylessthanoneyearsuchascommercialpaper.3FinancialmarketsFinancialmarFinancialinstrumentsInstrumentsmustappealtoinvestorsandmeettheneedsofthecompany.TheyaredesignedkeepinginmindInvestors’claimsonfuturecashflowsInvestors’righttoparticipateincompanydecisionsInvestors’claimsoncompanyassetsintheeventofliquidationSECregulationsrequireadequatedisclosurebeforepurchase.4FinancialinstrumentsInstrumenTypesofinstrumentsDebtinstrumentsofferfixedclaims.Equityoffersresidualclaims.Hybridssuchasconvertibledebtcombineboth.Derivativessuchasforwards,futuresandoptionsprovideahedgeagainstrisk5TypesofinstrumentsDebtinstrBONDSFixedincomesecurity–interestpaidperiodicallyRepaymentofprincipalatmaturity.Bondsaresoldtothepublicinsmallincrements,suchas$1000,andcanbetradedonanexchangeafterissue.Yield(returnwithreferencetomarketprice)inverselyrelatedtomarketprice6BONDSFixedincomesecurity–BondcharacteristicsParvalueMaturitydateCouponrateCurrentyieldvs.yieldtomaturity(YTM)SinkingfundforperiodicrepaymentofprincipalVariableratevs.fixedratebonds7BondcharacteristicsParvalue7CallProvisions提前贖回條款Righttoretirebondspriortomaturity.Investorsrequireapremiumforcallprovisions.Callpriceistypicallyamodestpremiumabovepar.Delayedcallpreventsretirementbeforesomedate.Calloptionshelpcompaniestakeadvantageofdeclinesininterestratesandrearrangecapitalstructure8CallProvisions提前贖回條款RighttoCovenants契約Contractualtermstoprotectbondholdersbyimpactingmanagementdecisions.Examples:LowerlimitoncurrentratioUpperlimitonD/EratioRequiredapprovalbybondholdersbeforemajoracquisitionorsaleofassetsBondholdershavenodirectsayinacompanyunlessitdefaultsonitsinterest,sinkingfund,orcovenantobligations.9Covenants契約ContractualtermstRightsinLiquidation清償權利RightsofabsolutepriorityGovernmentinrespecttotaxespastdueSeniorcreditorsGeneralcreditorsSubordinatedcreditorsPreferredshareholdersCommonshareholders10RightsinLiquidation清償權利RightSecuredCreditorsSecuredcreditinvolvescollateral.Inliquidation,proceedsfromthesaleofcollateralonlygotothesecuredcreditoruptotheamountofthesecuredcredit.Anyresidualgoesintothepoolsharedbytheotherinvestors.Ifthesaleofcollateralisinsufficient,thesecuredcreditorbecomesageneralcreditorforthebalance.11SecuredCreditorsSecuredcrediBonds–Issuer’sperspective

Advantages:LowercostoffundsInterestistaxdeductibleNolossofcontrol

Disadvantages:InterestpaymentmandatoryRedemptioncashoutflows12Bonds–Issuer’sperspective ABonds–investor’sperspectiveFixedincome,nocapitalappreciationConvertiblebondsseektoprovidebothRisk–returntradeoffLesserriskthanequity,lowerreturnsAnnualizedreturnsover10yrsforBarclaysBondIndex@7.6%vs.S&P500@10.4%AlsoreferTable5-1Realvs.nominalreturnsir=(1+in)/(1+p)-1whereir=Realreturn,in=Nominalreturn,p=Inflationrate

13Bonds–investor’sperspectiveTABLE5-1RateofReturnonSelectedU.S.Securities1900-200714TABLE5-1RateofReturnonSBondratingsExpressionoftheopinionoftheratingagencyonthecreditworthinessoftheborrowerMeasurescreditrisk/defaultriskCreditratingagencies-S&P,D&B,Moody’sAAA–HighcreditworthinessBBB–AdequateCCC-PoorD–DefaultBondratingsandinterestrates15BondratingsExpressionoftheJunkBondsInvestmentgradeis“BBB”andabove.Junkbondsarespeculativeorhighyieldbondsandarebelowinvestmentgrade.Junkbondmarketisanalternativetobankandinsurancecompanyloansforsmaller,lessprominentcompanies.Junkbondshavebeenusedtofinancemergersandacquisitions.16JunkBondsInvestmentgradeisEQUITYorCOMMONSTOCKResidualincomesecuritiesRepresentownershipsecurities-proportionatetoshareholdingRighttocontrol-VotingrightsShareholdersarerepresentedthroughaboardofdirectors,throughwhichtheyexercisecontrol.Rightinliquidation–residualclaimoverassetsRiskierthandebtinstruments17EQUITYorCOMMONSTOCKResidualRiskandreturnWhatistheexpectedrateofreturnonequity?

Rateofreturn=Dividendyield+capitalappreciation =Div/Mktprice+%changeinsharepriceRisk–returntradeoff:Highertheriskinaninvestment,highertheexpectedreturnsEquityinvestorsexpectariskpremiumtocompensatefortheenhancedriskSoreturnonequity=Riskfreerate+RiskpremiumRiskfreeratetakenasGovt.BondrateRiskpremium(Table5-1)=11.6-5.3=6.3%18RiskandreturnWhatistheeCommonstock(contd)Advantagestoinvestor*Higherreturnsthandebt *Liquidity *WealthsharingDisadvantagestoinvestor*Higherrisk*Dividendpaymentnotmandatory19Commonstock(contd)AdvantagesCommonstock(contd)Advantagestoissuer *Dividendpaymentnotmandatory *Noredemptioncashoutflows *Higherequitymeansbetterborrowingability Disadvantages*Costliersourceoffundsthandebt*Dilutionincontrol*Dividendsnottaxdeductible(unlikeinterest)20Commonstock(contd)AdvantagesAnoteonretainedearnings……Readilyavailablesourceoffundsinternally(internalequity)NoissuecostsNodilutionincontrolReflectstherobustnessofcompany’shealthandreducesdependanceonoutsidefundingTheonlypointtoberememberedisthatretainedearningsalsohasacostintermsofopportunitycosttoinvestors21Anoteonretainedearnings……RHigherpriorityovercommonstockholdersinpaymentofdividendsandinrepaymentofcapitalAnnualfixeddividendatcouponratexparvalueDividendisdiscretionaryCumulativedividendsfeatureDividendnottaxdeductibleforissuerNovotingrightsexceptinmatterswhichconcernthemPREFERREDSTOCK22HigherpriorityovercommonsPreferredstock(contd)Totheinvestor:Lesserrisk,butlesserreturnsandlessliquidthancommonstockTotheissuer:Lessercost,dividendpaymentnotmandatory(butnottaxdeductible),nolossofcontrol23Preferredstock(contd)TotheMARKETCHANNELSMarketChannelsforraisingfundsPrivateequityVenturecapitalInitialpublicoffers(IPOs)andseasonedequityissues(SEOs)ShelfregistrationPrivateplacementInternationalmarkets24MARKETCHANNELSMarketChannelPrivateEquityFinancingSourceoffundsforstartups,neworsmallbusinessesviewedastooriskyforbanklendingandtoosmalltoattracttheattentionofinvestorsinpublicmarkets.Fundingdonebystrategicinvestors,venturecapitalfirmswhoprovideseedmoneywithpotentialacquisitionontheirminds.25PrivateEquityFinancingSourcePrivateEquityPartnershipsStructuredaslimitedpartnershipswithaspecifieddurationsuchas10years.Generalpartneristheprivateequityfirm,whichraisesapoolofmoneyfromlimitedpartners,suchasinstitutionalinvestorsandinsurancecompanies.Limitedpartnershavelimitedliability.Typicalfeestructureis2and20,thesumofamanagementfeeand‘carriedinterest’basedoncapitalappreciation.Inducemanagerstocreatevalueoverlongrun26PrivateEquityPartnershipsStr

VenturecapitalAventurecapitalcompanyisafinancinginstitutionwhichjoinsanentrepreneurasaco-promoterinaprojectandsharestherisksandrewardsoftheenterprise.Projectsaregenerallyhighriskwithpotentialhighrewards.Soughtbynew/untriedbusinesseshavinglittle/noaccesstopubliccapital/bankloans.27VenturecapitalAventurecapiVenturecapital-featuresLongtermequityfinance–highstakes.Returnsthroughcapitalgainsatthetimeofexitbysellingoutequityholdingsathighpremiums.Selective-generallyseekaboveaveragereturns.Generallyfinancingofnew/untriedtechnology,new/notrackrecordpromotersNotonlyfinancingbutalsoactiveroleinmgmt.Mediumtolongterminvestmenthorizon.Incentivestopromotersonperformance.28Venturecapital-featuresLongExitrouteGoingpublicSaleofsharestopromoter.Saleofcompanytoanothercompany–managementbuyinorbuyout.Sellingtoanewinvestor.Liquidation29ExitrouteGoingpublic29FIGURE5-3VentureCapitalInvestmentinU.S.Companies30FIGURE5-3VentureCapitalInvInitialPublicOfferings(IPOs)WhencompaniesraisecapitalforthefirsttimebyissuingnewsharesSeasonedequityofferings(SEOs)refertoissueofnewsharesbyacompanythatisalreadypubliclytraded(alreadymadeanIPO)Companyassessesproposalsfrominvestmentbanksandchoosesone–‘managingunderwriter’31InitialPublicOfferings(IPOIPORisksManagingunderwriteradvisesthecompanyonsecuritydesignregisterstheissuewiththeSEC(30-90days)orchestratesa“roadshow”assemblesanunderwritingsyndicatewhoengageinbookbuildingSyndicateactsaswholesaler.Offerpricesethoursbeforestockgoespublic.Companybearspriceriskduringtheregistrationprocess;syndicatebearsriskassociatedwithunsoldshares,whichtheycannotsellabovetheofferprice.32IPORisksManagingunderwriterShelfregistrationShelfregistrationisageneralpurposeregistrationgivingbroadtermsofthesecuritiestobeissued,gooduptotwoyears,thatallowsthefirmtogetquickapprovalAsingleunderwriteroftenbuystheentireissue.CutsthetimelagfromseveralmonthstoafewdaysCompetitivebidslowertheissuecosts.33ShelfregistrationShelfregistPrivatePlacementCorporationscanavoidregisteringwithSECbyplacingthesecuritiesprivatelywithinstitutionalinvestors.Theprivateplacementmarketisabouthalfthesizeofthepublicmarket,excludingbankloans.Attractiveoptionifpublicinvestorsnotespeciallyreceptiveforreasonsofcomplexity.Advantagestocompanyarequickerandeasiertonegotiate,canbecustomtailoredtospecificneedsDisadvantageisthatasunregisteredsecuritiestheycannotbetradedonfinancialmarkets–lessliquidRule144Anowallowsfortradingofprivatelyplacedsecuritiesamonginstitutionalinvestors.34PrivatePlacementCorporationsIssueCostsForprivatelynegotiatedtransactions,issuecostamountstotheinvestmentbankingfee.Forpublicissues,therearealsolegal,accounting,andprintingfees.Costcomparisons2.2%forstraightdebt.3.8%forconvertiblebonds.7.1%forsecondaryofferings.11%forIPOs.35IssueCostsForprivatelynegotComparisonIPOPvt.PlmntCapitalraisedHighLesserDistributionWidelydistributedLimitedDilutionofControlHighLowerFloatationcost&timeHighLower36ComparisonIPOPvt.PlmntCapitaEfficientMarketsIssuesinraisingnewcapitalTimingPricingMarketefficiencyiswithreferencetohowquicklypricesincompetitivemarketsrespondtonewinformationEfficientmarketisonewherepricesadjustrapidlytonewinformationandcurrentpricesfullyreflectavailableinformation37EfficientMarketsIssuesinraiEfficiencyinDegreesAmarketisweak-formefficientwhenpricesfullyreflectallinformationaboutpastpricesSemi-strongformefficientwhenpricesfullyreflectallpubliclyavailableinformationstrongformefficientwhenpricesfullyreflectallinformation,publicorprivate.38EfficiencyinDegreesAmarketEmpiricalevidence-implicationMarketsarenotstrongformefficient.Withlimitedexceptions,marketsaresemi-strongformefficientandhencePubliclyavailableinformationhasnopredictivepowerinrespecttomarketprices.Typicalinvestorsshouldnotexpecttoearnabnormalreturnstradingonpubliclyavailableinformation.Itispointlesstotimethepurchaseorsaleofthefirm’ssecurities.39Empiricalevidence-implicatiConclusionstoDrawApartfrommarketsentiment,managerscanuseprivateinformationabouttheirowncompaniesinmakingtimingdecisions.PricingdecisionsinpracticearebasedonMarketvalueFairvaluePricediscoverythrobookbuilding40ConclusionstoDrawApartfromManagingRiskRiskisdefinedasthevariabilityofreturnsfromtheexpectedvaluesInfinancialmarketsvolatilityresultsinriskCompaniesusederivativestomanageriskandincentivizemanagers.Derivativesincludeforwards,futures,optionsSocalledastheirvalueisderivedfromthatoftheunderlyingassetswhichcouldbeshares/currency/commodities41ManagingRiskRiskisdefinedaForwardcontractsYoucanbuyinspotmarkettodayforimmediatedelivery–spotcontract.Youcancontracttodayatapredeterminedpriceforfuturedelivery–forwardcontract.Bylockinginapricetoday,youcanavoidpriceriskAnexporterwith€1millionreceivablein90days,cansell€(animporterwithapayablecanbuy€)atapredeterminedrateintheforwardmarketFuturescontractsaresimilartoforwardsexceptthattheyareexchangetraded(whileforwardsarebilateral)42ForwardcontractsYoucanbuyi寫在最后成功的基礎在于好的學習習慣Thefoundationofsuccessliesingoodhabits43寫在最后成功的基礎在于好的學習習慣43結束語當你盡了自己的最大努力時，失敗也是偉大的，所以不要放棄，堅持就是正確的。WhenYouDoYourBest,FailureIsGreat,SoDon'TGiveUp,StickToTheEnd演講人：XXXXXX時間：XX年XX月XX日

結束語443.FINANCIALMARKETS

ANDINSTRUMENTS3.FINANCIALMARKETS

ANDINSTRU45Financialmarkets&instrumentsBusinessesraisemoneytofinancecurrentoperationsaswellasforfuturegrowthMoneyisraisedInfinancialmarkets(capitalmarketsandmoneymarkets)Byissuingfinancialinstruments(alsocalledsecurities)whichgivetheholdersclaimsonfuturecashflowsofthebusiness46Financialmarkets&instrumFinancialmarketsFinancialmarketsdescribesthedistributionsystembywhichcash-deficitentitiesengageintransactionswithcash-surplusentities.Besidesbusinesses,participantsincludegovernmentagencies,pensionfunds,endowments,individuals,commercialbanks,insurancecompanies…RegulatedbySecurities&ExchangeCommissionCapitalmarketsdealwithlongterminstrumentslikestocksandbondswhilemoneymarketsdealwithshort-terminstrumentswithmaturitylessthanoneyearsuchascommercialpaper.47FinancialmarketsFinancialmarFinancialinstrumentsInstrumentsmustappealtoinvestorsandmeettheneedsofthecompany.TheyaredesignedkeepinginmindInvestors’claimsonfuturecashflowsInvestors’righttoparticipateincompanydecisionsInvestors’claimsoncompanyassetsintheeventofliquidationSECregulationsrequireadequatedisclosurebeforepurchase.48FinancialinstrumentsInstrumenTypesofinstrumentsDebtinstrumentsofferfixedclaims.Equityoffersresidualclaims.Hybridssuchasconvertibledebtcombineboth.Derivativessuchasforwards,futuresandoptionsprovideahedgeagainstrisk49TypesofinstrumentsDebtinstrBONDSFixedincomesecurity–interestpaidperiodicallyRepaymentofprincipalatmaturity.Bondsaresoldtothepublicinsmallincrements,suchas$1000,andcanbetradedonanexchangeafterissue.Yield(returnwithreferencetomarketprice)inverselyrelatedtomarketprice50BONDSFixedincomesecurity–BondcharacteristicsParvalueMaturitydateCouponrateCurrentyieldvs.yieldtomaturity(YTM)SinkingfundforperiodicrepaymentofprincipalVariableratevs.fixedratebonds51BondcharacteristicsParvalue7CallProvisions提前贖回條款Righttoretirebondspriortomaturity.Investorsrequireapremiumforcallprovisions.Callpriceistypicallyamodestpremiumabovepar.Delayedcallpreventsretirementbeforesomedate.Calloptionshelpcompaniestakeadvantageofdeclinesininterestratesandrearrangecapitalstructure52CallProvisions提前贖回條款RighttoCovenants契約Contractualtermstoprotectbondholdersbyimpactingmanagementdecisions.Examples:LowerlimitoncurrentratioUpperlimitonD/EratioRequiredapprovalbybondholdersbeforemajoracquisitionorsaleofassetsBondholdershavenodirectsayinacompanyunlessitdefaultsonitsinterest,sinkingfund,orcovenantobligations.53Covenants契約ContractualtermstRightsinLiquidation清償權利RightsofabsolutepriorityGovernmentinrespecttotaxespastdueSeniorcreditorsGeneralcreditorsSubordinatedcreditorsPreferredshareholdersCommonshareholders54RightsinLiquidation清償權利RightSecuredCreditorsSecuredcreditinvolvescollateral.Inliquidation,proceedsfromthesaleofcollateralonlygotothesecuredcreditoruptotheamountofthesecuredcredit.Anyresidualgoesintothepoolsharedbytheotherinvestors.Ifthesaleofcollateralisinsufficient,thesecuredcreditorbecomesageneralcreditorforthebalance.55SecuredCreditorsSecuredcrediBonds–Issuer’sperspective

Advantages:LowercostoffundsInterestistaxdeductibleNolossofcontrol

Disadvantages:InterestpaymentmandatoryRedemptioncashoutflows56Bonds–Issuer’sperspective ABonds–investor’sperspectiveFixedincome,nocapitalappreciationConvertiblebondsseektoprovidebothRisk–returntradeoffLesserriskthanequity,lowerreturnsAnnualizedreturnsover10yrsforBarclaysBondIndex@7.6%vs.S&P500@10.4%AlsoreferTable5-1Realvs.nominalreturnsir=(1+in)/(1+p)-1whereir=Realreturn,in=Nominalreturn,p=Inflationrate

57Bonds–investor’sperspectiveTABLE5-1RateofReturnonSelectedU.S.Securities1900-200758TABLE5-1RateofReturnonSBondratingsExpressionoftheopinionoftheratingagencyonthecreditworthinessoftheborrowerMeasurescreditrisk/defaultriskCreditratingagencies-S&P,D&B,Moody’sAAA–HighcreditworthinessBBB–AdequateCCC-PoorD–DefaultBondratingsandinterestrates59BondratingsExpressionoftheJunkBondsInvestmentgradeis“BBB”andabove.Junkbondsarespeculativeorhighyieldbondsandarebelowinvestmentgrade.Junkbondmarketisanalternativetobankandinsurancecompanyloansforsmaller,lessprominentcompanies.Junkbondshavebeenusedtofinancemergersandacquisitions.60JunkBondsInvestmentgradeisEQUITYorCOMMONSTOCKResidualincomesecuritiesRepresentownershipsecurities-proportionatetoshareholdingRighttocontrol-VotingrightsShareholdersarerepresentedthroughaboardofdirectors,throughwhichtheyexercisecontrol.Rightinliquidation–residualclaimoverassetsRiskierthandebtinstruments61EQUITYorCOMMONSTOCKResidualRiskandreturnWhatistheexpectedrateofreturnonequity?

Rateofreturn=Dividendyield+capitalappreciation =Div/Mktprice+%changeinsharepriceRisk–returntradeoff:Highertheriskinaninvestment,highertheexpectedreturnsEquityinvestorsexpectariskpremiumtocompensatefortheenhancedriskSoreturnonequity=Riskfreerate+RiskpremiumRiskfreeratetakenasGovt.BondrateRiskpremium(Table5-1)=11.6-5.3=6.3%62RiskandreturnWhatistheeCommonstock(contd)Advantagestoinvestor*Higherreturnsthandebt *Liquidity *WealthsharingDisadvantagestoinvestor*Higherrisk*Dividendpaymentnotmandatory63Commonstock(contd)AdvantagesCommonstock(contd)Advantagestoissuer *Dividendpaymentnotmandatory *Noredemptioncashoutflows *Higherequitymeansbetterborrowingability Disadvantages*Costliersourceoffundsthandebt*Dilutionincontrol*Dividendsnottaxdeductible(unlikeinterest)64Commonstock(contd)AdvantagesAnoteonretainedearnings……Readilyavailablesourceoffundsinternally(internalequity)NoissuecostsNodilutionincontrolReflectstherobustnessofcompany’shealthandreducesdependanceonoutsidefundingTheonlypointtoberememberedisthatretainedearningsalsohasacostintermsofopportunitycosttoinvestors65Anoteonretainedearnings……RHigherpriorityovercommonstockholdersinpaymentofdividendsandinrepaymentofcapitalAnnualfixeddividendatcouponratexparvalueDividendisdiscretionaryCumulativedividendsfeatureDividendnottaxdeductibleforissuerNovotingrightsexceptinmatterswhichconcernthemPREFERREDSTOCK66HigherpriorityovercommonsPreferredstock(contd)Totheinvestor:Lesserrisk,butlesserreturnsandlessliquidthancommonstockTotheissuer:Lessercost,dividendpaymentnotmandatory(butnottaxdeductible),nolossofcontrol67Preferredstock(contd)TotheMARKETCHANNELSMarketChannelsforraisingfundsPrivateequityVenturecapitalInitialpublicoffers(IPOs)andseasonedequityissues(SEOs)ShelfregistrationPrivateplacementInternationalmarkets68MARKETCHANNELSMarketChannelPrivateEquityFinancingSourceoffundsforstartups,neworsmallbusinessesviewedastooriskyforbanklendingandtoosmalltoattracttheattentionofinvestorsinpublicmarkets.Fundingdonebystrategicinvestors,venturecapitalfirmswhoprovideseedmoneywithpotentialacquisitionontheirminds.69PrivateEquityFinancingSourcePrivateEquityPartnershipsStructuredaslimitedpartnershipswithaspecifieddurationsuchas10years.Generalpartneristheprivateequityfirm,whichraisesapoolofmoneyfromlimitedpartners,suchasinstitutionalinvestorsandinsurancecompanies.Limitedpartnershavelimitedliability.Typicalfeestructureis2and20,thesumofamanagementfeeand‘carriedinterest’basedoncapitalappreciation.Inducemanagerstocreatevalueoverlongrun70PrivateEquityPartnershipsStr

VenturecapitalAventurecapitalcompanyisafinancinginstitutionwhichjoinsanentrepreneurasaco-promoterinaprojectandsharestherisksandrewardsoftheenterprise.Projectsaregenerallyhighriskwithpotentialhighrewards.Soughtbynew/untriedbusinesseshavinglittle/noaccesstopubliccapital/bankloans.71VenturecapitalAventurecapiVenturecapital-featuresLongtermequityfinance–highstakes.Returnsthroughcapitalgainsatthetimeofexitbysellingoutequityholdingsathighpremiums.Selective-generallyseekaboveaveragereturns.Generallyfinancingofnew/untriedtechnology,new/notrackrecordpromotersNotonlyfinancingbutalsoactiveroleinmgmt.Mediumtolongterminvestmenthorizon.Incentivestopromotersonperformance.72Venturecapital-featuresLongExitrouteGoingpublicSaleofsharestopromoter.Saleofcompanytoanothercompany–managementbuyinorbuyout.Sellingtoanewinvestor.Liquidation73ExitrouteGoingpublic29FIGURE5-3VentureCapitalInvestmentinU.S.Companies74FIGURE5-3VentureCapitalInvInitialPublicOfferings(IPOs)WhencompaniesraisecapitalforthefirsttimebyissuingnewsharesSeasonedequityofferings(SEOs)refertoissueofnewsharesbyacompanythatisalreadypubliclytraded(alreadymadeanIPO)Companyassessesproposalsfrominvestmentbanksandchoosesone–‘managingunderwriter’75InitialPublicOfferings(IPOIPORisksManagingunderwriteradvisesthecompanyonsecuritydesignregisterstheissuewiththeSEC(30-90days)orchestratesa“roadshow”assemblesanunderwritingsyndicatewhoengageinbookbuildingSyndicateactsaswholesaler.Offerpricesethoursbeforestockgoespublic.Companybearspriceriskduringtheregistrationprocess;syndicatebearsriskassociatedwithunsoldshares,whichtheycannotsellabovetheofferprice.76IPORisksManagingunderwriterShelfregistrationShelfregistrationisageneralpurposeregistrationgivingbroadtermsofthesecuritiestobeissued,gooduptotwoyears,thatallowsthefirmtogetquickapprovalAsingleunderwriteroftenbuystheentireissue.CutsthetimelagfromseveralmonthstoafewdaysCompetitivebidslowertheissuecosts.77ShelfregistrationShelfregistPrivatePlacementCorporationscanavoidregisteringwithSECbyplacingthesecuritiesprivatelywithinstitutionalinvestors.Theprivateplacementmarketisabouthalfthesizeofthepublicmarket,excludingbankloans.Attractiveoptionifpublicinvestorsnotespeciallyreceptiveforreasonsofcomplexity.Advantagestocompanyarequickerandeasiertonegotiate,canbecustomtailoredtospecificneedsDisadvantageisthatasunregisteredsecuritiestheycannotbetradedonfinancialmarkets–lessliquidRule144Anowallowsfortradingofprivatelyplacedsecuritiesamonginstitutionalinvestors.78PrivatePlacementCorporationsIssueCostsForprivatelynegotiatedtransactions,issuecostamountstotheinvestmentbankingfee.Forpublicissues,therearealsolegal,accounting,andprintingfees.Costcomparisons2.2%fors