LOS 39.i Flashcards
(11 cards)
What’s the difference between a primary and secondary market?
A primary market refers to the sale of newly issued securities, either seasoned offerings (new shares issued by already trading firms), or IPO’s.
A secondary market are where securities trade after their initial issuance.
How does an IPO work
Corporation
What is book building?
The process of gathering indications of interest from investors for a security offering, often used to adjust the offer price. The book runner (London) or book builder (Europe) manages this process.
Can be accelerated
What is an underwritten offering?
An agreement where an investment bank purchases the entire security issue at a negotiated price, taking on the risk of unsold portions.
What is a best-efforts offering?
An agreement where the investment bank distributes shares but is not obligated to buy unsold portions.
Describe the conflict of interest investment banks face in underwritten offerings.
As the issuer’s agent, they should set a high price. As underwriters, they prefer a lower price to ensure all shares sell.
What is a private placement?
Selling securities directly to qualified investors (substantial wealth and knowledge), with fewer disclosure requirements and lower issuance costs.
What is shelf registration?
A firm discloses information publicly but issues securities over time based on capital needs and market conditions.
What is a Dividend Reinvestment Plan (DRP/DRIP)?
Allows existing shareholders to use dividends to buy new shares at a discount.
What is a rights offering?
Existing shareholders have the right to buy new shares at a discount, but it can dilute ownership if not exercised.
