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In this chapter, students will be able to understand: Investment banking services, brokerage services, sources of income, regulation of securities firms, risks of securities firms, valuation of a securities firm, interaction with other financial institutions, participation in financial markets, globalization of securities firms. | Chapter 24 Securities Operations Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Investment banking services Brokerage services Sources of income Regulation of securities firms Risks of securities firms Valuation of a securities firm Interaction with other financial institutions Participation in financial markets Globalization of securities firms Investment Banking Services One of the main functions of investment banking firms (IBFs) is raising capital for corporations IBFs originate, structure, and place securities in the capital markets They serve as an intermediary rather than a lender or investor Their compensation is typically in the form of fees Investment Banking Services (cont’d) How IBFs facilitate new stock offerings An IBF acts as an intermediary between a corporation and investors Origination IBFs recommend the appropriate amount of stock to issue IBFs evaluate the corporation’s financial condition to determine the appropriate stock price Investment Banking Services (cont’d) How IBFs facilitate new stock offerings (cont’d) Origination (cont’d) The issuing corporation registers with the SEC The registration statement is intended to ensure that accurate information is disclosed by the issuing corporation Included in the registration information is the prospectus, disclosing relevant financial data on the firm and provision applicable to the security The IBF and the issuing firm may engage in a road show to meet with institutional investors Investment Banking Services (cont’d) How IBFs facilitate new stock offerings (cont’d) Underwriting The IBF may form an underwriting syndicate and ask other IBFs to underwrite a portion of the stock In a best-efforts agreement, the IBF does not guarantee a price to the issuing corporation During IPOs: IBFs want to set the price high so that the issuing corporation receives higher proceeds IBFs do not | Chapter 24 Securities Operations Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Investment banking services Brokerage services Sources of income Regulation of securities firms Risks of securities firms Valuation of a securities firm Interaction with other financial institutions Participation in financial markets Globalization of securities firms Investment Banking Services One of the main functions of investment banking firms (IBFs) is raising capital for corporations IBFs originate, structure, and place securities in the capital markets They serve as an intermediary rather than a lender or investor Their compensation is typically in the form of fees Investment Banking Services (cont’d) How IBFs facilitate new stock offerings An IBF acts as an intermediary between a corporation and investors Origination IBFs recommend the appropriate amount of stock to issue IBFs .
