Chapter 15: Investment Underwriting: Public and Private Placement
Glossary and Key Terms
Search the textbook's full glossary using the form below. The results will open in a new window. Following the search form are the key terms featured in this chapter of the textbook.
bought deals: An issue of securities that has been prepurchased by an investment dealer. The investment dealer has thus guaranteed proceeds to the issuing corporation, and the investment dealer bears the risk of holding or selling the security issue.
dilutive effect on shares: The potential reduction in market share value as additional shares are issued.
flotation cost: The distribution cost of selling securities to the public. The cost includes the underwriter's spread and any associated fees.
going private: The process by which all publicly owned shares of common stock are repurchased or retired, thereby eliminating listing fees, annual reports, and other expenses involved with publicly owned companies.
initial public offering (IPO): The first time a corporation or government raises capital through the public markets.
investment dealer: A financial organization that specializes in selling primary offerings of securities. Investment dealers can also perform other financial functions, such as advising clients, negotiating mergers and takeovers, and selling secondary offerings.
leveraged buyout: Existing management or an outsider makes an offer to "go private" by retiring all the shares of the company. The buying group borrows the necessary money, using the assets of the acquired firm as collateral. The buying group then repurchases all the shares and expects to retire the debt over time with the cash flow from operations or the sale of corporate assets.
managing investment dealer: An investment dealer who is responsible for the pricing, prospectus development, and legal work involved in the sale of a new issue of securities.
market maker: See dealers: Participants in the market who transact security trades over the counter from their own inventory of stocks and bonds. They are often referred to as market makers, since they stand ready to buy and sell their securities at quoted prices.
market stabilization: Intervention in the secondary markets by an investment dealer to stabilize the price of a new security offering during the offering period. The purpose of market stabilization is to provide an orderly market for the distribution of the new issue.
private placement: The sale of securities directly to a financial institution by a corporation. This eliminates the middleperson and reduces the cost of issue to the corporation.
public placement: The sale of securities to the public through the investment dealer-underwriter process. Public placements must be registered with the provincial securities commission.
underwriting: The process of selling securities and, at the same time, assuring the seller a specified price. Underwriting is done by investment dealers and represents a form of risk taking.
underwriting spread: The difference between the price that a selling corporation receives for an issue of securities and the price at which the issue is sold to the public. The spread is the fee that investment dealers and others receive for selling securities.
underwriting syndicate: A group of investment dealers formed to share the risk of a security offering and also to facilitate the distribution of the securities.
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