1

Major Security Houses

Investment

Banking

Investment

Mgt

Dealer/Broker

Primary

Secondary

2

Functions of Investment Bankers

Issuance of new securities

Mergers and acquisitions

3

Public vs Private Offerings

Public Offering

Shelf (Rule 415)

Traditional (single

Private Offering

Traditional

Delayed

4

Public Sale of New Securities

Underwriting Firm-commitment underwriting Best-efforts underwriting

Underwriting Syndicate

5

IssuanceProcess

Preliminary

Marketing

Structure/

Pricing/

Timing

Assemble

Syndicate/

Sellers

Due

Diligence

Registration

Statement

Listing

Agreement

Underwrite/

Distribute

Wait

6

How Investment Banks Are Paid

7

Variations in the Underwriting Process

Traditional Underwriting

Bought Deal underwriting of bonds

Auction Process underwriting of stocks and bonds

Preemptive Rights Offering underwriting common stock

8

Bought Deal

Investment banking firm or group of firms offers to buy an entire issue from the issuer (private negotiation).

Attractive features: quick in bringing issue to market lower risk of capital loss

9

Auction Process

Competitive Bidding Underwriting

(One buyer based on bid for entire issue)

Single-Price Auction or Dutch

Auction(multiple buyers at one price)

Multiple-Price Auction(multiple buyers at multiple prices)

10

Private Placement of Securities

Sale of securities to a limited number of institutional investors.

SEC specified conditions to be met for private placement.

Issuers work with investment bankers.

Rule 144A offering or non-Rule 144A offering (enhanced secondary trading)

11

Rule 144 A

SEC rule permitting large institutions to trade securities acquired in a private placement among themselves without having to register these securities with the SEC.

SEC Rule 144A improves liquidity of privately placed securities.

Encourages non-U.S. firms to issue securities in the U.S. private placement market.