1. Trang chủ
  2. » Tài Chính - Ngân Hàng

Tài liệu Thị trường tài chính và các định chế tài chính _ Chapter 24 doc

45 523 0

Đang tải... (xem toàn văn)

Tài liệu hạn chế xem trước, để xem đầy đủ mời bạn chọn Tải xuống

THÔNG TIN TÀI LIỆU

Thông tin cơ bản

Tiêu đề Securities Operations
Tác giả Jeff Madura
Trường học South-Western
Chuyên ngành Financial Markets and Institutions
Thể loại Chapter
Năm xuất bản 2006
Định dạng
Số trang 45
Dung lượng 456 KB

Các công cụ chuyển đổi và chỉnh sửa cho tài liệu này

Nội dung

Investment Banking Services cont’d  How IBFs facilitate new stock offerings corporation and investors  Origination  IBFs evaluate the corporation’s financial condition to determine th

Trang 1

Chapter 24

Securities Operations

Trang 2

Chapter Outline

 Investment banking services

 Brokerage services

 Sources of income

 Regulation of securities firms

 Risks of securities firms

 Valuation of a securities firm

 Interaction with other financial institutions

 Participation in financial markets

 Globalization of securities firms

Trang 3

Investment Banking Services

 One of the main functions of investment banking firms (IBFs) is raising capital for corporations

 IBFs originate, structure, and place securities in the capital markets

 They serve as an intermediary rather than a lender or investor

 Their compensation is typically in the form of fees

Trang 4

Investment Banking Services

(cont’d)

 How IBFs facilitate new stock offerings

corporation and investors

 Origination

 IBFs evaluate the corporation’s financial condition to determine the appropriate stock price

Trang 5

Investment Banking Services

(cont’d)

 How IBFs facilitate new stock offerings (cont’d)

 Origination (cont’d)

 The issuing corporation registers with the SEC

The registration statement is intended to ensure that

accurate information is disclosed by the issuing corporation

Included in the registration information is the prospectus,

disclosing relevant financial data on the firm and provision applicable to the security

 The IBF and the issuing firm may engage in a road show to meet with institutional investors

Trang 6

Investment Banking Services

(cont’d)

 How IBFs facilitate new stock offerings (cont’d)

other IBFs to underwrite a portion of the stock

In a best-efforts agreement, the IBF does not guarantee a

price to the issuing corporation

Trang 7

Investment Banking Services

 The issue is advertised to the public

 Some IBFs have brokerage subsidiaries that can sell stock

on a retail level

The corporation incurs two types of flotation costs:

 Fees paid to the underwriters

accounting expenses

Trang 8

Investment Banking Services

 IBFs may be able to place an entire offering with a small set

of institutional investors

 Rule 144A allows firms to engage in private placement without the registration statement

 The issuing firm’s costs are lower

Trang 9

Investment Banking Services

(cont’d)

 How IBFs facilitate new bond offerings

 Origination

on existing debt levels

 The coupon rate, maturity, and other provisions are decided

 The asking price on the bonds will be determined by evaluating market prices of existing bonds

 Issuers of bonds must register with the SEC and a registration statement must be filed

Trang 10

Investment Banking Services

 IBFs provide several services to the issuer

 Underwriting spreads on newly issued bonds are normally lower than on newly issued stock

 The IBF may organize an underwriting syndicate to participate in placing the bonds

 Distribution of bonds

 A prospectus is distributed to all potential purchasers

 The issue is advertised to the public

 The asking price is normally set to ensure a sale of the entire issue

 Flotation costs range from 0.5 to 3 percent of the value of the bonds

Trang 11

Investment Banking Services

In a private placement, the issuing corporation sells the

issue to a purchaser of the entire issue

 Avoids underwriting fees

stocks

Trang 12

Investment Banking Services

(cont’d)

 IBFs assess the market value of the firm

 IBFs arrange financing, which involves raising funds and

purchasing any common stock outstanding that is held by the public

 IBFs may be retained in an advisory capacity

 IBFs may purchase a portion of the firm’s assets to provide

financial support

 Exposes the IBF to a high degree of risk

 Merrill Lynch has designed a mutual fund that finances LBOs

 Purchase junk bonds of firms that went private

Provides bridge loans that offer temporary financing to firms until

junk bonds can be issued

Trang 13

Investment Banking Services

(cont’d)

 How IBFs facilitate arbitrage

Arbitrage activity involves the purchasing of

undervalued shares and the resale of those shares for a higher profit

Arbitrage firms search for undervalued firms and

IBFs raise funds for these firms

Asset stripping involves acquiring the firm and

selling its individual divisions off

 The sum of the parts is greater than the whole

Trang 14

Investment Banking Services

(cont’d)

 How IBFs facilitate arbitrage (cont’d)

 IBFs generate fee income from advising arbitrage firms and

receive a commission on the bonds issued to support the

arbitrage activity

 IBFs receive fees from divestitures of divisions

 IBFs may provide bridge loans if additional financing is needed

 IBFs may provide advise on defense takeover tactics and

finance takeovers

 Some arbitrage firms take positions in hostile takeover targets

to benefit from the expected takeover by another group

 Some attempts at arbitrage fail because target firms are successful

at defending against a takeover

Trang 15

Investment Banking Services

(cont’d)

 How IBFs facilitate arbitrage (cont’d)

 History of arbitrage activity

targets with the expectation that targets will buy back the shares at a premium

 Arbitrage activity has been criticized because:

 It often results in excessive financial leverage and risk for corporations

 The restructuring of divisions after acquisitions results in

Trang 16

Investment Banking Services

(cont’d)

 How IBFs facilitate corporate restructuring

 IBFs assess potential synergies that might result from the combination of two businesses

 The sum of the whole is greater than the sum of the parts

 IBFs may suggest a carve-out in which the firm sells a unit

of the firm to new shareholders through an IPO by the unit

 The sum of the parts is greater than the sum of the whole

 The unit may also be spun off, where new shares of the unit are created and distributed to existing shareholders

Trang 17

Investment Banking Services

(cont’d)

 How IBFs facilitate corporate restructuring

(cont’d)

 IBFs are critical in the valuation of the business

 IBFs have loaned out their funds to companies involved in mergers and acquisitions or even provided equity financing

 The IBF can help finance an acquisition by:

 Providing loans to the acquirer

 Underwriting bonds or stock for the acquirer

 Investing their own equity in the acquirer’s purchase of the target

Trang 18

Brokerage Services

Market orders are requests by customers to purchase

or sell securities at the market price existing when the order reaches the exchange floor

Limit orders are requests by customers to purchase or

sell securities at a specified price or better

 Specialists monitor limit orders and execute transactions in

accordance with the limits specified

 If investors order a sale of securities when the price reaches a

specified minimum, it is a stop-loss order

Trang 19

Brokerage Services (cont’d)

Short selling involves the sale of securities investors do

Full-service brokerage firms provide information and advice

as well as executing transactions

Discount brokerage firms only execute transactions upon

requests and do not provide advice

 The required minimum opening balance is typically between $1000 and $3,000

 Most discount brokers offer some degree of research on a website

Trang 20

Brokerage Services (cont’d)

 Online orders

reduced costs of brokerage firms

 Prices charged are low, typically $25 or less for 100 shares

of stock

Trang 21

Sources of Income

Investment Banking Services

Underwriting  Fees from underwriting stock or bond offerings

Advising  Fees for advice to firms about identifying potential

targets, valuing targets, identifying potential acquirers, protecting against takeover

Restructuring  Fees for facilitating mergers, divestitures, carve-outs,

spin-offs

Brokerage services

Management fees  Fees for managing securities portfolios

Trading commissions  Fees for executing trades securities requested by

individual or firms in the secondary market Margin interest  Interest charged to investors who buy securities on

margin

Investing its own funds

Trang 22

Sources of Income (cont’d)

 The proportion of income derived from each source varies

among securities firms in any particular year

 e.g., when IPOs are hot, income from underwriting fees will be high

therefore generate a high proportion of income from

underwriting and advising fees

 e.g., Goldman Sachs

proportion of income from trading commissions

 e.g., Charles Schwab

 Many securities firms attempt to diversify their services so that they can capitalize on economies of scope

Trang 23

Sources of Income (cont’d)

 Impact of the September 11 Crisis on revenue sources

declined

number of IPOs and secondary offerings

Trang 24

Regulation of Securities Firms

 Securities firms are subject to a variety of

regulations

 The SEC attempts to ensure that investors have access to financial information

 The SEC has power to ensure that

publicly-traded companies provide sufficient financial

information to existing or prospective investors

 The SEC tends to establish general guidelines that can affect trading on security exchanges

Trang 25

Regulation of Securities Firms

(cont’d)

prevent unfair or illegal practices, ensure orderly trading, and address customer complaints

regulation of exchange trading

 Surveillance departments monitor trading patterns and behavior

by specialists or market makers and floor traders

 Enforcement divisions investigate possible violations and can enforce disciplinary actions

Trang 26

Regulation of Securities Firms

(cont’d)

 The Fed determines margin requirements

 The Securities Investor Protection Corporation (SIPC) offers insurance on cash and securities deposited at brokerage firms and can liquidate failing brokerage firms

premiums by the SIPC

 The insurance limit is $500,000, including $100,000 against claims on cash

 The SIPC has a $500 million revolving line of credit and can borrow up to $1 billion from the SEC

Trang 27

Regulation of Securities Firms

(cont’d)

 Financial Services Modernization Act

 The Act allowed banking, securities activities, and

insurance to be consolidated in a financial holding

company

 The Act resulted in the creation of more financial

conglomerates that included securities firms

 A primary benefit to securities firms is cross-listing

 The bundling of financial services can generate more business for each type of financial institution that is part of the conglomerate

Trang 28

Regulation of Securities Firms

(cont’d)

 Regulation FD:

 Requires that firms disclose any significant

information simultaneously to all market participants

 Was partially intended to prevent a firm from leaking information to analysts

 Prevented analysts working for securities firms to

have a competitive information advantage

Trang 29

Regulation of Securities Firms

(cont’d)

 Rules regarding analyst compensation and

ratings

they are more likely to hire a securities firm whose

analyst would rate the stock highly

2002 period was sometimes aligned with the new

business they brought in

 Analysts were tempted to inflate the ratings of stocks and investors were misled

Trang 30

Regulation of Securities Firms

(cont’d)

 Rules regarding analyst compensation and

ratings (cont’d)

 If a securities firm underwrites an IPO, it cannot use its analysts to promote the stock for the first 40 days after the IPO

 Analyst compensation cannot be directly aligned with the amount of business that the analyst bring to the securities firm

 Analysts cannot be supervised by the investment banking department within the securities firm

 An analyst rating must divulge any recent investment banking business provided by the securities firm that assigned the rating

Trang 31

Regulation of Securities Firms

(cont’d)

 Rules preventing abuse in the IPO market

 Some securities firms that served as underwriters allocated shares to corporate executives who were considering an IPO for their firm (spinning)

 Some securities firms that served as underwriters encouraged institutional investors to place bids for the shares on the first day that are above the offer price in order

to be allowed to participate in the next IPO

fines

Trang 32

Regulation of Securities Firms

(cont’d)

 Specialists were sometimes able to jump ahead of other orders (called penny-jumping)

 Prevented other investors from having their orders executed

 In 2004, the SEC ruled that investors could circumvent the

trade-through rule to avoid penny-jumping by specialists

 In 2003, some funds were allowing their large clients to buy or sell shares after the 4 p.m closing but at the 4 p.m prices (late trading at stale prices)

 Violates 1968 SEC laws

 The SEC imposed heavy fines on those mutual funds and is working on laws requiring more disclosure of the fees that mutual funds charge and better governance

Trang 33

Risks of Securities Firms

 When stock prices are rising there is a greater volume of stock offerings and secondary market transactions

 Securities firms benefit from a bullish stock market

 Some take equity positions in the stocks they underwrite

 Some take a partial equity interest in target firms

 Acquisitions tend to be more common in bullish markets

 Interest rate risk

 The market values of bonds held as investment by securities firms increase as interest rates decline

 Lower interest rates can encourage investors to withdraw

Trang 34

Risks of Securities Firms (cont’d)

 Many securities firms have operations in foreign countries

 Earnings remitted by foreign subsidiaries are reduced when the foreign currencies weaken against the parent firm’s home

currency

 Market values of foreign investments decline as the currencies weaken against the parent firm’s home currency

Trang 35

Valuation of a Securities Firm

 The value of a securities firm is the present

value of its future cash flows

expected cash flows and the required rate of return:

 Factors that affect cash flows:

), (

? -

) ,

, ,

( )

Trang 36

Valuation of a Securities Firm

(cont’d)

 Economic growth increases the level of income of firms and

households and can increase the demand for the firm’s services

 The volume of brokerage activity increases

 Business expansion increases

 Debt securities are less likely to default

 Equity securities should perform well

 Change in the risk-free interest rate

 The valuation of a securities firm is inversely related to interest rate movements

 Assets are adversely affected by rising interest rates

Trang 37

Valuation of a Securities Firm

(cont’d)

 Affected by regulations, technology, and competition

expected cash flows

 Managers can attempt to make decisions that will capitalize on external forces the firm cannot control

 Securities firms need skillful management to create new

financial services that may complement the brokerage services they already offer

Trang 38

Valuation of a Securities Firm

(cont’d)

 Factors that affect the required rate of return by

investors:

 The risk-free rate is positively related to inflation, economic

growth, and the budget deficit level, but inversely related to

money supply growth

 The risk premium is inversely related to economic growth and the company’s management skills

 Regulatory constraints may discourage firms from taking

) ,

( R RP f

Trang 39

Type of Financial

Commercial banks

and SIs

 Compete with commercial banks and SIs for brokerage services

 Compete with commercial banks offering advice on M&As and underwriting commercial paper

Mutual funds  Execute trades for mutual funds

 Some mutual funds are organized by securities firms

 Mutual funds purchase newly issued securities Insurance companies  Advise portfolio managers of insurance companies on trades

 Execute securities transactions for insurance companies

 Advise portfolio managers on hedging interest rate and market risk

 Underwrite stocks and bonds purchased by insurance companies

 Compete with insurance companies in the sales of mutual funds

 Obtain financing on LBOs from insurance companies

 Have acquired or merged with insurance companies

Interaction with Other Financial Institutions

Ngày đăng: 12/12/2013, 23:15

TỪ KHÓA LIÊN QUAN

TÀI LIỆU CÙNG NGƯỜI DÙNG

TÀI LIỆU LIÊN QUAN

🧩 Sản phẩm bạn có thể quan tâm