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  1. 1. Major Security Houses Investment Banking Investment Mgt Dealer/ Broker Primary Secondary
  2. 2. Functions of Investment Bankers <ul><li>Issuance of new securities </li></ul><ul><li>Mergers and acquisitions </li></ul>
  3. 3. Public vs Private Offerings Public Offering Shelf (Rule 415) Traditional (single Private Offering Traditional Delayed
  4. 4. Public Sale of New Securities <ul><li>Underwriting </li></ul><ul><ul><li>Firm-commitment underwriting </li></ul></ul><ul><ul><li>Best-efforts underwriting </li></ul></ul><ul><li>Underwriting Syndicate </li></ul>
  5. 5. Issuance Process Preliminary Marketing Structure/ Pricing/ Timing Assemble Syndicate/ Sellers Due Diligence Registration Statement Listing Agreement Underwrite/Distribute Wait
  6. 6. How Investment Banks Are Paid
  7. 7. Variations in the Underwriting Process <ul><li>Traditional Underwriting </li></ul><ul><li>Bought Deal </li></ul><ul><ul><li>underwriting of bonds </li></ul></ul><ul><li>Auction Process </li></ul><ul><ul><li>underwriting of stocks and bonds </li></ul></ul><ul><li>Preemptive Rights Offering </li></ul><ul><ul><li>underwriting common stock </li></ul></ul>
  8. 8. Bought Deal <ul><li>Investment banking firm or group of firms offers to buy an entire issue from the issuer (private negotiation). </li></ul><ul><li>Attractive features: </li></ul><ul><ul><li>quick in bringing issue to market </li></ul></ul><ul><ul><li>lower risk of capital loss </li></ul></ul>
  9. 9. Auction Process <ul><li>Competitive Bidding Underwriting </li></ul><ul><li>(One buyer based on bid for entire issue) </li></ul><ul><li>Single-Price Auction or Dutch Auction </li></ul><ul><li>(multiple buyers at one price) </li></ul><ul><li>Multiple-Price Auction </li></ul><ul><li>(multiple buyers at multiple prices) </li></ul>
  10. 10. Private Placement of Securities <ul><li>Sale of securities to a limited number of institutional investors. </li></ul><ul><li>SEC specified conditions to be met for private placement. </li></ul><ul><li>Issuers work with investment bankers. </li></ul><ul><li>Rule 144A offering or non-Rule 144A offering (enhanced secondary trading) </li></ul>
  11. 11. Rule 144 A <ul><li>SEC rule permitting large institutions to trade securities acquired in a private placement among themselves without having to register these securities with the SEC. </li></ul><ul><li>SEC Rule 144A improves liquidity of privately placed securities. </li></ul><ul><li>Encourages non-U.S. firms to issue securities in the U.S. private placement market. </li></ul>