1、INVESTMENTS | BODIE, KANE, MARCUS Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin CHAPTER 3 How Securities are Traded INVESTMENTS | BODIE, KANE, MARCUS 3-2 How Firms Issue Securities Primary Market Firms issue new securities through underwriter to public Inves
2、tors get new securities; firm gets funding Secondary Market Investors trade previously issued securities among themselves INVESTMENTS | BODIE, KANE, MARCUS 3-3 How Firms Issue Securities (Ctd.) Stocks IPO Seasoned offering Bonds Public offering Private placement INVESTMENTS | BODIE, KANE, MARCUS 3-4
3、 Investment Banking Underwriting: Investment bank helps the firm to issue and market new securities Prospectus: Describes the issue and the prospects of the company. Red herring INVESTMENTS | BODIE, KANE, MARCUS 3-5 Figure 3.1 Relationship Among a Firm Issuing Securities, the Underwriters, and the P
4、ublic INVESTMENTS | BODIE, KANE, MARCUS 3-6 Investment Banking Firm commitment investment bank purchases securities from the issuing company and then resells them to the public. Shelf Registration SEC Rule 415: Allows firms to register securities and gradually sell them to the public for two years I
5、NVESTMENTS | BODIE, KANE, MARCUS 3-7 Investment Banking (Ctd.) Private placements Firm uses underwriter to sell securities to a small group of institutional or wealthy investors. Cheaper than public offerings Private placements not traded in secondary markets INVESTMENTS | BODIE, KANE, MARCUS 3-8 In
6、itial Public Offerings Process Road shows to publicize new offering Bookbuilding to determine demand for the new issue Degree of investor interest in the new offering provides valuable pricing information INVESTMENTS | BODIE, KANE, MARCUS 3-9 Figure 3.3 Long-term Relative Performance of Initial Publ
7、ic Offerings INVESTMENTS | BODIE, KANE, MARCUS 3-10 How Securities are Traded Types of Markets: Direct search Buyers and sellers seek each other Brokered markets Brokers search out buyers and sellers INVESTMENTS | BODIE, KANE, MARCUS 3-11 How Securities are Traded Types of Markets: Dealer markets De
8、alers have inventories of assets from which they buy and sell Auction markets traders converge at one place to trade INVESTMENTS | BODIE, KANE, MARCUS 3-12 Bid and Asked Prices Bid Price Bids are offers to buy. In dealer markets, the bid price is the price at which the dealer is willing to buy. Inve
9、stors “sell to the bid”. Bid-Asked spread is the profit for making a market in a security. Ask Price Asked prices represent offers to sell. In dealer markets, the asked price is the price at which the dealer is willing to sell. Investors must pay the asked price to buy the security. INVESTMENTS | BO
10、DIE, KANE, MARCUS 3-13 Types of Orders Market Order: Executed immediately Trader receives current market price Price-contingent Order: Traders specify buying or selling price A large order may be filled at multiple prices INVESTMENTS | BODIE, KANE, MARCUS 3-14 Figure 3.5 Price-Contingent Orders INVE
11、STMENTS | BODIE, KANE, MARCUS 3-15 Trading Mechanisms Dealer markets Electronic communication networks (ECNs) True trading systems that can automatically execute orders Specialists markets maintain a “fair and orderly market” INVESTMENTS | BODIE, KANE, MARCUS 3-16 NASDAQ Lists about 3,200 firms Orig
12、inally, NASDAQ was primarily a dealer market with a price quotation system Today, NASDAQs Market Center offers a sophisticated electronic trading platform with automatic trade execution. Large orders may still be negotiated through brokers and dealers INVESTMENTS | BODIE, KANE, MARCUS 3-17 Table 3.1
13、 Partial Requirements for Listing on NASDAQ Markets INVESTMENTS | BODIE, KANE, MARCUS 3-18 New York Stock Exchange Lists about 2,800 firms Automatic electronic trading runs side- by-side with traditional broker/specialist system SuperDot : electronic order-routing system DirectPlus: fully automated
14、execution for small orders Specialists: Handle large orders and maintain orderly trading INVESTMENTS | BODIE, KANE, MARCUS 3-19 Table 3.2 Some Initial Listing Requirements for the NYSE INVESTMENTS | BODIE, KANE, MARCUS 3-20 Electronic Communication Networks ECNs: Private computer networks that direc
15、tly link buyers with sellers for automated order execution Major ECNs include NASDAQs Market Center, ArcaEx, Direct Edge, BATS, and LavaFlow. “Flash Trading”: Computer programs look for even the smallest mispricing opportunity and execute trades in tiny fractions of a second. INVESTMENTS | BODIE, KA
16、NE, MARCUS 3-21 Bond Trading Most bond trading takes place in the OTC market among bond dealers. Market for many bond issues is “thin”. NYSE is expanding its bond-trading system. NYSE Bonds is the largest centralized bond market of any U.S. exchange INVESTMENTS | BODIE, KANE, MARCUS 3-22 Market Stru
17、cture in Other Countries London - predominately electronic trading Euronext market formed by combination of the Paris, Amsterdam and Brussels exchanges, then merged with NYSE Tokyo Stock Exchange INVESTMENTS | BODIE, KANE, MARCUS 3-23 Globalization and Consolidation of Stock Markets NYSE mergers and
18、 acquisitions: Archipelago (ECN) American Stock Exchange Euronext NASDAQ mergers and acquisitions: Instinet/INET (ECN) Boston Stock Exchange INVESTMENTS | BODIE, KANE, MARCUS 3-24 Globalization and Consolidation of Stock Markets Chicago Mercantile Exchange acquired: Chicago Board of Trade New York M
19、ercantile Exchange INVESTMENTS | BODIE, KANE, MARCUS 3-25 Figure 3.6 Market Capitalization of Major World Stock Exchanges, 2007 INVESTMENTS | BODIE, KANE, MARCUS 3-26 Trading Costs 1. Brokerage Commission: fee paid to broker for making the transaction Explicit cost of trading Full Service vs. Discou
20、nt brokerage 2. Spread: Difference between the bid and asked prices Implicit cost of trading INVESTMENTS | BODIE, KANE, MARCUS 3-27 Buying on Margin Borrowing part of the total purchase price of a position using a loan from a broker. Investor contributes the remaining portion. Margin refers to the p
21、ercentage or amount contributed by the investor. You profit when the stock appreciates. INVESTMENTS | BODIE, KANE, MARCUS 3-28 Buying on Margin (Ctd.) Initial margin is set by the Fed Currently 50% Maintenance margin Minimum equity that must be kept in the margin account Margin call if value of secu
22、rities falls too much INVESTMENTS | BODIE, KANE, MARCUS 3-29 Margin Trading: Initial Conditions Example 3.1 Share price$100 60% Initial Margin 40% Maintenance Margin 100 Shares Purchased Initial Position Stock $10,000 Borrowed $4,000 Equity $6,000 INVESTMENTS | BODIE, KANE, MARCUS 3-30 Maintenance M
23、argin Example 3.1 Stock price falls to $70 per share New Position Stock $7,000 Borrowed $4,000 Equity $3,000 Margin% = $3,000/$7,000 = 43% INVESTMENTS | BODIE, KANE, MARCUS 3-31 Margin Call Example 3.2 How far can the stock price fall before a margin call? Let maintenance margin = 30% Equity = 100P
24、- $4000 Percentage margin = (100P - $4,000) / 100P (100P - $4,000) / 100P = 0.30 Solve to find: P = $57.14 INVESTMENTS | BODIE, KANE, MARCUS 3-32 Table 3.4 Illustration of Buying Stock on Margin INVESTMENTS | BODIE, KANE, MARCUS 3-33 Short Sales Purpose: to profit from a decline in the price of a st
25、ock or security Mechanics Borrow stock through a dealer Sell it and deposit proceeds and margin in an account Closing out the position: buy the stock and return to the party from which it was borrowed INVESTMENTS | BODIE, KANE, MARCUS 3-34 Short Sale: Initial Conditions Example 3.3 Dot Bomb1000 Shar
26、es 50%Initial Margin 30%Maintenance Margin $100Initial Price Sale Proceeds $100,000 Margin & Equity $50,000 Stock Owed 1000 shares INVESTMENTS | BODIE, KANE, MARCUS 3-35 Example 3.3 (Ctd.) Dot Bomb falls to $70 per share Assets $100,000 (sale proceeds) $50,000 (initial margin) Liabilities $70,000 (b
27、uy shares) Equity $80,000 Profit = ending equity beginning equity = $80,000 - $50,000 = $30,000 = decline in share price x number of shares sold short INVESTMENTS | BODIE, KANE, MARCUS 3-36 Short Sale - Margin Call How much can the stock price rise before a margin call? ($150,000* - 1000P) / (1000P)
28、 = 30% P = $115.38 * Initial margin plus sale proceeds INVESTMENTS | BODIE, KANE, MARCUS 3-37 Regulation of Securities Markets Major regulations: Securities Act of 1933 Securities Act of 1934 Securities Investor Protection Act of 1970 Self-Regulation Financial Industry Regulatory Authority CFA Insti
29、tute standards of professional conduct INVESTMENTS | BODIE, KANE, MARCUS 3-38 Regulation of Securities Markets (Ctd.) Sarbanes-Oxley Act Public Company Accounting Oversight Board Independent financial experts to serve on audit committees of boards of directors CEOs and CFOs personally certify firms
30、financial reports Boards must have independent directors INVESTMENTS | BODIE, KANE, MARCUS 3-39 Insider Trading Officers, directors, major stockholders must report all transactions in firms stock Insiders do exploit their knowledge Jaffe study: Inside buyersinside sellers = stock does well Inside sellersinside buyers = stock does poorly
