The modern concept of “Investment Bank” was created in the Glass-Steagall act (Banking Act of 1933). Glass Steagall separated commercial banks, investment banks, and insurance companies.
Carter Glass, Senator from Virginia, believed that commercial banks securities operations had contributed to the crash of 1929, that banks failed because of their securities operations, and that commercial banks used their knowledge as lenders to do insider trading of securities.
“ In floating any new issues of securities, therefore, the seller desires to have conditions so shaped that the price of the issue will remain stable, or perhaps it will rise slightly, during the period in which the securities are being absorbed by the market. . .establishing a favorable psychological attitude of investors. . The term manipulated market is not altogether a misnomer.”
Auction Process (competitive bidding underwriting) various syndicates bid on the issue
Preemptive rights offering: existing shareholders have rights to buy issue below market value
Directly Public Offering (DPO): Company itself sells its securities directly to public, usually over the web. Small firms. Example: Internet Ventures, a web service provider, raised $3.8 million in 1998 by advertising the securities to its customers on the web.
“ Do you think that investors expect reputable underwriters to take some account of true investment value in deciding the offering price in an IPO, rather than just the price the market will bear on the day of the offering?”