FINANCIAL MARKET & THE INSTRUMENTS
Primary and secondary stock markets • Primary market • The stocks can be formed Initial Public Offering (IPO) or additional new stocks if the company has been going public (Seasoned new issues) • It is called also as new-issue market • shares of stock are first brought to the market and sold to investors • Companies issue new securities to raise money • Secondary market • existing shares are traded among investors • Investors are constantly appraising the values of companies by buying and selling shares previously issued by these companies
IPO mechanism
Arranging financing for companies by finding investors to buy newly issued securities
Investment banking firm
Company
Suggesting an issue of 4 million shares of common stock. 2 million shares will be distributed to the original stockholders
Underwrite
Purchasing 2 million shares for $10/share. The company sold half of it to the underwriter for $20 million
Resell in the primary market Sell $12/share in an IPO. Difference between the price is called underwriter spread as the underwriter’s compensation
Fixed commitment (underwriter pays the firm a fixed amount)
IPO mechanism Securities and Exchange Commission (SEC)
Company
Federal regulatory agency charged with regulating US securities markets
Asking companies to get approval to register, to prepare prospectus
Underwriter The prospectus is complete except for the final offering price not set because market condition might change while the approval is being sought
Circulate the prospectus among investors to generate interest in the stock offering
Approve to the IPO
Underwriting syndicate
Penjualan saham u/ menambah saham Beberapa macam cara penjualan: • Dijual kepada pemegang saham yang sudah ada • Dijual kepada karyawan melalui Employee Stock Ownership Plan (ESOP) • Menambah saham melalui dividen yang tidak dibagi (Dividend Reinvestment Plan) • Dijual langsung kepada pembeli tunggal (investor institusi) secara privat (private placement) • Ditawarkan kepada publik
Harga rendah saat IPO Perusahaan menarik investor dengan menetapkan harga jual rendah (Underpricing) Underpricing di Indonesia menarik investor karena biasanya investor mendapat initial return tinggi (hingga 15%) dalam waktu 15 hari Initial return adalah return yang diperoleh dari aktiva di pasar perdana mulai dari saat dibeli di pasar primer hingga pertama kali didaftarkan di pasar sekunder (15 hari)
Secondary markets for common stocks • Investors buy and sell shares with other investors • Secondary market stock trading among investors are
directed through 3 channels: • Directly with other investors • Indirectly through a broker who arranges transactions for others • Directly with a dealer who buys and sells securities from inventory
• Institutional investors, such as pension funds and mutual
funds, trade through both brokers and dealers, and also trade directly with other institutional investors
Secondary markets for common stocks Ada dua macam pasar sekunder: • Pasar Bursa Saham • Tempat saham perusahaan besar diperdagangkan • Menggunakan sistem lelang (auction) disebut juga auction market • Transaksi dilakukan secara terbuka, harga ditentukan oleh supply dan
demand anggota bursa yang meminta ask price (offer price atau harga penawaran terendah untuk jual) dan bid price (harga permintaan tertinggi untuk beli)
• Over-the-counter (OTC) • Tempat saham perusahaan kecil diperdagangkan • Menggunakan sistem negosiasi, harga ditentukan dengan cara tawar menawar antara investor dan dealer negotiated market • Berbeda dari broker (menerima komisi), dealer mendapatkan laba dari perbedaan harga beli dan harga jual
Why secondary markets are important? • Secondary market provides liquidity to the individuals who
acquired securities • After acquiring securities in the primary market, investors may want to sell them again to acquire other securities, buy a house, etc. the primary market benefits greatly from the liquidity provided by secondary market because investor would hesitate to acquire securities in the primary market if they thought they could not subsequently sell the in the secondary market • That is, without an active secondary market, potential issuers of stocks or bonds in the primary market would have to provide a much higher rate of return to compensate investor for the substantially liquidity risk
Why secondary markets are important? • Secondary market also important to those selling seasoned
securities because the prevailing market price of the securities is determined by transactions in the secondary markets • New issues of outstanding stocks or bonds to be sold in the primary market are based on prices and yields in the secondary market • The secondary market also has an effect on market efficiency and price volatility • Forthcoming IPOs are priced based on the prices and values of comparable stocks or bonds in the public secondary markets
Broker & dealer • Broker • Broker sebagai perantara yang menemukan penjual dan pembeli, broker tidak membeli sekuritas (maka dia menerima komisi) • Dealer • Dealer mendapatkan keuntungan karena dealer membeli sekuritas untuk dijual kembali • Memiliki persediaan saham yang siap dijual
