Learning Objectives
“The BIG picture”
P.115 Review Q#5,14,15,16; + handout
1.
2.
3.
4.
Capital Markets:
Sources =
•
•
•
Users =
•
•
•
Importance of Financial (Capital) Markets p.90

Channel funds from savers to borrowers
 Provide a place where investors can act on their beliefs
 Help allocate cash to where it is most productive
 Help lower the cost of exchange
Securities: Debt vs. Ownership
OWNERSHIP
DEBT
p.37-49
Primary Markets: the sale of new
(stock) securities p.93
• Initial public offering (IPO)

•
Secondary offering (“seasoned new issue)
• Issue facilitated by __________________


Underwriting: Specialists in advice, design,
and sales
Intermediaries between issuer and investor
Secondary Markets p.97+
• Markets where investors _______________
(trade) previously issued shares (TSX,
NYSE, Nasdaq)
• _________ markets = bid and ask
• __________
• __________ represent investors for a fee
www.tsx.com
Stock Exchanges p.97+
• ________________ by the SEC (USA) (or the
provincial securities commissions OSC Ontario)
• _________________ for traded firms (minimum
capitalization, shareholder equity, average closing
share price, etc)
• _________________
•
•
•
•
•
Toronto Stock Exchange (TSX, p. 99)
 Largest Canadian stock market
 8th in world
TSX Venture Exchange is Canada’s “junior” stock market
Montreal exchange (MX) = derivatives
New York Stock Exchange (NYSE)
 largest secondary market in the world
200 + stock exchanges throughout the world riskier!
General Exchange Initial Listing
Requirements (specifics may vary)
Standard
NYSE
Distribution
a) 2,000
round lot
holders
b) 1.1m
public
shares
Market Value
$100m
(public shares)
TSX
Nasdaq
(NM)
Nasdaq
(Sm. Cap)
a) 300 board
lot holders
b) 1m public
shares
a) 400 round
lot owners
b) 1.1m
a) 300 round
lot owners
b) 1m
$4m Cdn.
$75m
(or Total
Assets or
Total Sales >
$75m)
$50m
(or Stock
Equity >$5m
or Net Income
>$0.75m)
General Exchange Initial Listing
Requirements (cont’d)
Standard
NYSE
TSX
Nasdaq
(NM)
Nasdaq
(Sm. Cap)
Before-Tax
Earnings
from
Continuing
Operations
$6.5 m over
past 3
years:$2.5m
last year +
($2m/ $2m),
OR
$4.5m last
year and pos.
all 3 years
For Senior
Industrial
Companies:
$300,000 CDN
last year
$1m last
year (or in 2
of last 3
years)
$0.75m Net
Income
(or $5m Equity
or $50m Mkt.
Value)
Cash Flow
$25m
Operating
Cash Flow
over last 3
years
Pre-Tax CF
$0.7m last year
and prior 2-year
average
($0.5m)
N/A
N/A
Over-the-Counter (OTC) or Third Market
• ________ of dealers standing ready to either buy or sell
securities at specified prices “___________________”
 Handle _________ securities _____________
 Canadian OTC stocks are trading on the TSX
Venture Exchange NEX system
• __________________ : Electronic Communications Networks
(ECNs) allow investors to trade after exchange hours 
trades “clear” when the market opens
• ___________: Trading network among investors interested in
buying and selling large blocks of stock _______________
Bond (Debt) Markets p.109
• Primary Market: companies and governments sell bonds to
institutional investors
• Secondary Market (retail) primarily an over-the-counter
network of dealers
 Government of Canada bonds actively trade in dealer
markets
 Corporate bonds are not as actively traded