A. Honors Finance and Investments Chapter 2 II. Investment Banking A. 1. 2. 3. 4. B. 1. 2. 3. 4. III.The Transfer of Funds to Business A. Indirect Transfer 1. a) B. Direct Transfer 1. 2. IV. The Role of Investment Bankers A. Investment Bankers 1. 2. 3. 4. 5. a) Goldman, Sacks & Co. b) Donaldson c) Montgomery Securities B. Initial Public Offering 1. C. Firm Commitment 1. D. Underwriting 1. 2. E. Underwriters 1. 2. 3. F. Originating House 1. 2. G. Syndicate 1. 2. 3. Advantages a) More potential buyers b) Reduced amount of securities that each firm must sell c) Increased probability that the entire issue will be sold H. Best Efforts Agreement 1. 2. 3. V. Pricing a New Issue A. If the price is set too high… 1. 2. When this occurs, the syndicate has two options: a) b) c) NEITHER CHOICE IS GOOD! (1) (2) 3. Under price rather than overprice VI. Marketing New Securities A. B. Preliminary Prospectus 1. a) 2. 3. 4. Includes: a) b) c) d) e) f) g) 5. Does not include: a) (1) C. Securities and Exchange Commission 1. D. Registration 1. E. Registration Acceptance 1. 2. 3. F. Cost of Underwriting 1. 2. VII. Volatility of the Market for Initial Public Offerings A. Extremely volatile 1. Because… a) b) 2. VIII. Shelf Registrations A. B. C. D. 1. Price of securities a) There is no guessing on what the initial price should be b) The price is set by the securities current market c) Less need for a detailed prospectus (already done) E. IX. Private Placements A. B. 1. 2. 3. After a firm achieves success, the venture capital company may sell to the general public C. X. The Regulation of New Public Issues of Corporate Securities A. B. 1. Provide information to help prevent fraud 2. Notify investors so they can make informed decisions 3. Prevent employee’s from using privileged information for personal gain C. D. E. F. Full Disclosure Laws 1. 2. a) Trade secrets G. 10-K Report 1. H. Firm’s must issue new information throughout the year that may affect the value of a security I. Insider Information 1. 2. J. Securities Investor Protection Corporation (SIPC) 1. a) XI. Sarbanes-Oxley Act of 2002 A. B. Main provisions: 1. a) 2. a) 3. a) (1) Must be independent C. Penalties for Violation 1. 2.