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Transcript of Financial Markets
Defined by having transparent pricing, basic regulations on trading, costs and fees and market forces determining the prices of securities that trade.
Financial markets are classified into the money market and the capital market.
The money market is where short-term funds are raised through the buying and selling of short term debt securities such as commercial papers.
The capital market is where long-term funds are raised through the bond market, which deals with long-term debt securities such as bonds, the stock market which deals with equity securities or stocks. PRIMARY MARKETS FINANCIAL MARKETS A market that issues new securities on an exchange.
Facilitated by underwriting groups, which consist of investment banks that will set a beginning price range for a given security and then oversee its sale directly to investors.
Also known as "new issue market" (NIM).
It can be:
Initial Public Offering (IPO)
- refers to the first time a company publicly sells shares of its stock on the open market.
- It is also known as "going public."
-First time to sell the stock in public. PRIMARY MARKETS Example: For instance, if San Miguel Corporation decides to sell a new stock to raise equity funds, it will be a primary market transaction. Since it is the first time the company has sold stock to the public, it is called an initial public offering (IPO). The proceeds of the sale go to San Miguel Corporation, the issuing company. Investors who have subscribed to the IPO have provided the company with the necessary funds to continue its operation and expansion, and become part owners of the company.
Follow on Public Offering (FPO)
a sale of stock by a company or by an existing shareholder of a company that is already publicly held.
Also called a “secondary offering”.
Second or third time to sell stocks in public.
Example: Company XYZ is a public company and would like to sell additional shares in order to raisemoney to build a new factory. This sale of additional shares is called a follow-on public offer. Company XYZ would hire an investment bank to underwrite the offering, register it with the Securities and Exchange Commission and handle the sale. The company receives the proceeds from the sale of the shares. Company XYZ is not the only entity that can do a follow-on public offer, however. Let's say an individual person own a very large block of Company XYZ shares -- maybe 100,000 shares. In this type of follow-on offering, the seller -- which is not Company XYZ in this case -- receives the proceeds. SECONDARY MARKETS SECONDARY MARKETS 2. Dealer market – this not require parties to meet in a central location. Rather, participants in the market are joined through electronic networks namely telephones, fax and etc.
o The dealers are ready to buy and sell with market participants. Dealers earned profits through spread between prices.
So, how can you avail of San Miguel shares when the IPO has been completed? Investors can only buy these shares from existing shareholders who are willing to sell their shares. When they do so, it is a secondary market transaction. The proceeds from this transaction don not go to the issuing corporation; instead they go to the investor who sold his shares. Let's watch again! primary markets. capital markets. secondary markets. money markets. LET'S WATCH THIS This is where the majority of true stock trading occurs.
This is market that is used for trading stocks between people and other entities.
It is called secondary market because this is where investor’s trade previously owned securities from other traders.
It maintains efficiency: raising and falling of stocks allows investors to accumulate more money and assist companies that sold their securities by receiving profit that they could put back into the company and create more securities.
Two specialized Categories:
1. Auction (Broker) market – all individuals and institutions that want to trade securities will gather in one area to bid and ask prices for securities or items which they are willing to buy and sell.
o This idea brings all parties together and having them publicly declare their prices.