Sunday, January 23, 2011

Capital Markets Business Terminology

OK, this isn't tech. I'm writing this so I remember in a few years what it is I did. This follows chats with the guys closes to the business.

Equity Capital Markets

Ways to raise money and the stages:

Private placement
  • Pre-IPO
  • Less than 500 investors in accord with SEC rules.
IPO
  • Registering on an exchange.
  • Publicly tradable.
Green shoe option
  • The right of the underwriter(s) to sell additional stock.
  • Stabilizes the price.
Follow on
  • Post-IPO when the company still has equity to sell.
  • Non-publicly traded.
Rights Issue
  • Diluting stock.
  • Current stock-holder have the right to buy more.
  • They can sell this right.
Miscellaneous:

Pot
  • All orders controlled by the syndicate
Retention
  • Orders controlled by any one bank within the syndicate.
Block trader
  • Very secretive.
  • Relies heavily on network of clients.
  • Operates outside of market hours so as not to spook the market.
  • Deals with large amounts (~1% of company).
  • Offers a sizable discount on market price.
  • Essentially selling "warrants". That is to say, an agreement to exchange the equity through the exchange when the market next opens.
  • Doesn't want the salespeople to know anything!

Debt Capital Markets

There are two types of salesperson:

Pot
  • Institutional investors share of deal.
  • ~98% of demand.
PWM (Private Wealth Management)
  • Retail investors.
  • More legal restriction involving selling to these investors (eg, conflicts of interest).
Takedown
  • Investment bank buys the bond at booking time and sells slices of it.
  • This is iff the investment bank is handling the booking and delivering.
Switch
  • Alternative form of payment
Hedge
  • Unrelated bond from a different issuer.
Soft Allocation
  • What a bank would like a syndicate member to get.
  • This is applicable when said bank is not the book runner.
Duration Manager
  • Very desirable role for an investment bank.
  • Can see the hedges and swaps of other counter-parties. This is valuable market data.
  • Role is assigned by the issuer.

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