Investment Banks, Security
Brokers and Dealers and
Venture Capital Firms
The process of underwriting a stock or bond issue requires
that the investment bank purchase the entire issue at a
predetermined price and then resell it in the market
Most investment banks are attached to large brokerage houses.
Investment banks may lose future business if new
securities are oversubscribed
Often investment bankers will form a group, each one
buying only a portion of the new securities to be issued.
Such a group is called an underwriting syndicate
In a best efforts agreement, the investment banker makes no
guarantee regarding the price the issuing firm will receive, but
agrees to sell the securities on a commission basis
Private placements are more common for
the sale of bonds than for stocks.
By making a market in thinly traded stocks, securities
dealers solve the nonsynchronous trading problem. which
is of particular benefit to small businesses
An instruction to a securities agent to sell a stock
when it reaches a specific price is a stop loss order
An instruction to a securities agent to purchase a stock as long
as its price does not exceed a specified level is a limit order
Funding just one or a small number of firms is not
a characteristic feature of venture capital firms
The sources of venture capital funding have shifted from
wealthy individuals to pension funds and corporations