WEEK 3 - Issuing securities: auctions, underwriting, bookbuilding; and mergers and acquisitions Flashcards
What is the UK primary market regulator?
FCA
What is the US primary market regulator?
Securities and Exchange Commission
How are the UK primary market regulations set?
Largely set by European directives, such as the “prospectus directive” and the “transparency
directive”.
What is the goal of the FCA?
To ensure that investors have full
information about newly issued and traded securities
What is the equivalent primary market regulative law in the US?
‘The truth in securities’ act
What are the objectives of the Truth in securities act?
require that investors receive financial and other significant information concerning securities being offered for public sale; and
prohibit deceit, misrepresentations, and other fraud in the sale of securities.
How are Government Bonds issued?
Through auction by the Debt Management Agency (UK)
How are the Gilts (UK Govt bonds) split up?
index linked (IL) from conventional gilts (CV)
Conventional Gilts split to:
- Short maturity
- Mid maturity
- Long maturity
What is a conventional Gilt?
Long term UK government bond, offering fixed
payments of “coupon” every six months and the repayment of the original principal at the maturity date.
What is a Index Linked Gilt?
Payments are linked to a price index, increasing along with inflation.
How are Corporate Bonds issued?
Via an underwriter or bookrunner
an investment bank who (working with other
banks) is responsible for producing the required prospectus and marketing the bond issue (through a so called roadshow).
How are IPOs issued?
Underwriting via a lead bookrunner
whose job is to market the issue and use their contacts to establish and indicative market price.
What happened during the Twitter IPO?
- never made a profit at the time of the IPO, (spent more money on expanding the business than earned)
- sold a small proportion of shares, (a little over 10%)
- The relatively small share issue and the great excitement over the IPO raised IPO price of $45 per share, more than twice initial valuation range of $20-$25.
How do investment banks earn money via IPOs?
Earn revenues upwards of 5% of the value of the flotation
Whats the problem in establishing market price for IPOs?
Best explained by Keynes in the ‘General Theory’
The price alters based on what people think another person will view the price of the stock at.