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Information about 2006911155950435

Published on April 28, 2008

Author: Arkwright26

Source: authorstream.com

_________________________ Tradelink Equity Advisors, LLC Tradelink Securities, LLC:  _________________________ Tradelink Equity Advisors, LLC Tradelink Securities, LLC June 28, 2006 Ning Bo, China An Introduction to US Equity Capital Markets Slide2:  US Exchanges Initial Public Offering (IPO) Market Maker & 15c2-11 Letter Private Investment in Public Equity (PIPE) Current Regulatory Environment Public vs. Private Valuation Outline Slide3:  Thank You Ning Bo! Slide4:  I. US Exchanges Slide5:  New York Stock Exchange (NYSE) NASDAQ American Stock Exchange (AMEX) Over the Counter Bulletin Boards (OTCBB) Pink Sheets US Exchanges Slide6:  About: The New York Stock Exchange (NYSE) , also known as the "Big Board", is the largest stock exchange in the world in dollar volume and second largest by number of companies listed. Its share volume was exceeded by that of NASDAQ during the 1990s, but the total market capitalization of companies listed on the NYSE is five times that of companies listed on NASDAQ. The New York Stock Exchange has a global market capitalization of $21 trillion, including $7.1 trillion in non-U.S. companies. Listing Requirements: A. New York Stock Exchange Slide7:  Listing Process: Companies that desire to become listed on the NYSE must either be acquired by a publicly traded NYSE firm, show a proven trading history on another “major” US exchange with a fully filing history, or sell shares to the public through an investment bank via an IPO All firms must establish an audit committee, and submit financial filings to the SEC on a timely basis The NYSE charges annual fees, one time listing fees (~$150,000), and the following per share exchange fees: While the NASDAQ is known to play host to faster-growing firms, the character of the exchange is not a hard-and-fast rule. In fact, the NYSE is competitive with the NASDAQ for listing some of the best, young companies. Examples of stocks that trade on the NYSE: Motorola (MOT), International Business Machines (IBM), Pfizer (PFE), British Petroleum (BP), PetroChina (PTR), Suntech Power Holdings (STP), & China Mobile (CHL) A. New York Stock Exchange Slide8:  About: NASDAQ (originally an acronym for National Association of Securities Dealers Automated Quotations) is an American electronic stock exchange. It was founded in 1971 by the National Association of Securities Dealers (NASD), who divested it in a series of sales in 2000 and 2001. It is owned and operated by The Nasdaq Stock Market, Inc. (NASDAQ: NDAQ) which was listed on its own stock exchange in 2002. NASDAQ is the largest electronic screen-based equity securities market in the United States. With approximately 3,300 companies, it lists more companies and, on average, trades more shares per day than any other U.S. market. NASDAQ owns and operates two different exchanges: the NASDAQ National Market (NNM) for Large Cap companies and the NASDAQ Capital Market for Mid & Small Cap Companies. Listing Requirements: B. NASDAQ Slide9:  Listing Requirements: Listing Process: NASDAQ’s listing fees: B. NASDAQ Slide10:  Listing Process: NASDAQ’s annual fees: In addition to paying exchange fees, companies listed on the NASDAQ must stay current in their regulatory filings. Companies may list their shares on the NASDAQ that meet the financial requirements aforementioned including 3 market makers and operating history. Or, they may list their shares if they meet the aforementioned requirements and sell shares to the public via an IPO (see IPO slide) Examples of stocks that trade on the NASDAQ: Microsoft (MSFT), EBay (EBAY), Google (GOOG), Starbucks (SBUX), Jet Blue Airlines (JBLU), Costco (COST), Baidu.com (BIDU), Ctrip.com (CTRP), NetEase.com (NTES), Focus Media Holdings (FMCN), SINA Corp (SINA), Sohu.com (SOHU), & Shanda Interactive Entertainment (SNDA) B. NASDAQ Slide11:  About: Out of the three major American stock exchanges (NYSE, NASDAQ, & AMEX), the AMEX is known to have the most liberal policies concerning company listing, as most of its companies are generally smaller compared to the NYSE and NASDAQ. The Amex also specializes in the trading of Exchange Traded Funds (ETFs), and hybrid/structured securities. The majority of US listed ETF's are traded at the AMEX including the SPDR and most Powershares. Examples of stocks that trade on the AMEX: Apex Silver Mines (SIL), Bema Gold (BGO), Delta Apparel (DLA), eMagin.com (EMA), Genesis Energy (GEL), Orleans Homebuilders (OHB), & Wesco Financial (WSC) Listing Requirements & Fees: C. American Stock Exchange (AMEX) Slide12:  About: Provides access to more than 3,300 securities; includes more than 230 participating Market Makers Overseen by the National Association of Securities Dealers, Inc. (see Regulatory slide). The OTCBB does not charge issuers a fee for being quoted on the service. Rather, market makers are charged for each security in which they make a market. Listing Requirements & Fees: There are no listing requirements and there is no minimum bid price requirement. There are no fees charged to the company. Listing Process: A company cannot trade on the OTCBB by submitting an application alone. Rather, a market maker must submit a 15c2-11 application (211 letter) to the NASD and agree to act as a market maker for securities of the company. This letter vouches for the financials of the company (see 15c2-11 slide). A company wishing to become listed must satisfy the OTCBB eligibility rule requiring companies whose securities are quoted on the OTCBB to file updated financial reports with the SEC or with their banking or insurance regulators If these companies fail to file current financial reports with the SEC, their securities will be removed from the OTCBB, but could be quoted in another system, such as the Pink Sheets Examples of stocks trading on the OTCBB: Diamondhead Casino (DHCC), US Gold Corp (USGL), Solar Enertech (SOEN), China Digital Communications (CHID), MMC Energy (MMCN), Patriot Scientific (PTSC), & Xethanol (XTHN) D. Over The Counter Bulletin Board (OTCBB) Slide13:  About: The Pink Sheets offers a quotation service for market makers. Issuers may not list securities on the Pink Sheets. Only broker-dealers who are market makers may apply to quote securities on the Pink Sheets. The Pink Sheets does not charge issuers a fee for being quoted on the service. Market makers are charged for each security in which they make a market. Listing Requirements: There are no listing requirements and there is no minimum bid price requirement Listing Process: Issuers are not required to register securities with the Securities and Exchange Commission (SEC), or be current in their reporting requirements to be quoted on the Pink Sheets. These registration and reporting requirements apply to securities quoted on the OTC Bulletin Board (OTCBB), Nasdaq, NYSE and other national securities exchanges. The Pink Sheets LLC is a private company that is not affiliated with the Nasdaq Stock Market, Inc. or the NASD. Due to the lack of filing requirements, it is difficult to rely on unaudited or no financial reporting from the company as an investor. Examples of stocks trading on the Pink Sheets: Healthsouth (HLSH), Delphi (DPHIQ), Calpine Energy (CPNLQ), First Guardian Financial (FGFC), Royal Spring Water (RSPG), & RMD Entertainment E. Pink Sheets Slide14:  II. Initial Public Offering (IPO) Slide15:  About: An initial public offering (IPO) is the first sale of a corporation's common shares to public investors. The main purpose of an IPO is to raise capital for the corporation. While IPOs are effective at raising capital, they also impose heavy legal compliance and reporting requirements. The term only refers to the first public issuance of a company's shares; any later public issuance of shares is referred to as a Secondary Market Offering. IPOs generally involve one or more investment banks as "underwriters." The company offering its shares, called the "issuer," enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approach investors with offers to sell these shares. A large IPO is usually underwritten by a "syndicate" of investment banks led by one or two major investment banks (lead underwriter). Upon selling the shares, the underwriters keep a commission based on a percentage of the value of the shares they sell. Usually, the lead underwriters, i.e. the underwriters selling the largest proportions of the IPO, take the highest commissions as discussed in the next slide. Initial Public Offering (IPO) Slide16:  IPO Costs: IPO costs are typically 7½ to 8½ percent of the value of the company, including underwriter's commission, legal and accounting fees, investor relations, printing, road show and initial listing fee.  For a $25 million offering, that's between $1.875 million and $2.125 million. This excludes the exchange fees aforementioned. IPO Trends: Due to the rising costs of an Initial Public Offering, the number of IPOs in the United States have been decreasing steadily since the technology bubble in 1999-2000, and have been replaced in large part by PIPEs (see section): Initial Public Offering (IPO) Slide17:  III. Market Maker & 15c2-11 Letter Slide18:  Market Maker: A "market maker" is a firm that stands ready to buy and sell a particular stock on a regular and continuous basis at a publicly quoted price. Their function is to provide liquidity to the market they are presently quoting. Market makers may reflect customer orders and/or proprietary quotations. Becoming a market maker requires an extensive application and approval process through the NASD & SEC. 15c2-11 Letter: Rule 15c-211 was designed to allow non-reporting public company's securities to be quoted on the National Association of Securities Dealers' ("NASD") Over-the-Counter Bulletin Board ("OTCBB") by filing some simple disclosures. Now, companies seeking to obtain a quote on the NASD OTCBB must be required to file reports with the Securities and Exchange Commission ("SEC"). Under Section 15 of the Securities Exchange Act of 1934 (the "Act"), as amended, a company who has filed a registered offering with the SEC, such as an SB-1 or SB-2 registration statement is required to file reports for one year. A company which files a Form 10 or Form 10SB (for small business issuers) becomes a reporting company under Section 12g of the Act and must file reports. To be eligible for a quotation of its securities, the company's market maker must file a Form 211 with the NASD, the company must have sufficient free trading stock in its public float to allow Rule 15c2-11. Essentially, the market maker is vouching for the company’s financials when the 211 Letter is filed. Market Maker & 15c2-11 Letter Slide19:  IV. Private Investment in Public Equity (PIPE) Slide20:  About: PIPE transactions are privately issued equity or equity-linked securities that are sold to accredited investors under Regulation D by public companies; issuers range in size from small OTC Bulletin Board companies to large-cap NYSE-traded companies. Transaction sizes have ranged from under $1 million to over $200 million. Within the spectrum of equity alternatives for a publicly traded company, a PIPE transaction generally best fits companies with a market capitalization under $400 million that seek an equity infusion of less than $75 million. Traditional public equity alternatives include add-on equity offerings (“secondary” or follow-on offerings) and 144A convertible securities. These transactions are typically underwritten and require extensive institutional and/or retail distribution networks. Due to the need for liquidity in the secondary trading market for these types of securities, as well as the overhead requirement on the part of the underwriter, the minimum transaction size is typically $65 million to $100 million to achieve optimal execution for traditional public offerings. While a PIPE transaction is marketed to a limited number of investors over a short period of time, a traditional public transaction may require a broader marketing process and, in the case of an add-on offering, the filing of a registration statement with the SEC prior to pricing. PIPE Transaction Slide21:  Key Benefits: Does not require SEC registration prior to offering Allows for a more flexible transaction size than traditional public alternatives Improves balance sheet strength and financial flexibility Offers greater confidentiality and eliminates typical price declines on filing of traditional public offering (“announcement effect”) Requires minimal preparation before launch Increases issuer’s trading liquidity levels and diversifies shareholder base Allows for a targeted marketing process, reducing management’s time contribution Transaction Types: PIPE transactions may be issued in a variety of forms, including registered common stock (“registered directs”), unregistered common stock, convertible preferred stock, convertible debt and equity credit lines (“ECLs”). PIPE Transaction Slide22:  V. Current Regulatory Environment Slide23:  SEC & NASD Sarbanes-Oxley Current Regulatory Environment Slide24:  Securities & Exchange Commission: The United States Securities and Exchange Commission (SEC) is a United States government agency having primary responsibility for enforcing the Federal securities laws and regulating the securities industry. The SEC was created by the Securities Exchange Act of 1934 after the Great Depression. The SEC consists of five Commissioners appointed by the President with the advice and consent of the Senate. To ensure that the SEC remains non-partisan, no more than three Commissioners may belong to the same political party. The President also designates one of the Commissioners as Chairman, the SEC's top executive. The primary mission of the SEC is to protect investors and maintain the integrity of the securities markets. The SEC rose out of the ashes of the great stock market crash in October of 1929. After the crash and the ensuing depression, confidence in the markets fell to an all-time low. Congress held hearings to identify problems in the market and concluded that faith in the system needed to be restored. As such, the Securities Act of 1933 and the Securities Exchange Act of 1934 were passed. These acts were designed to restore investor confidence through two main principles: Companies offering securities to the public must be truthful about their businesses and the risks involved in investing AND companies that sell and trade securities must treat all investors fairly and honestly. When these securities laws were passed, the SEC was established to enforce them. Their focus was, and remains, to promote stability in the markets and, most importantly, to protect investors. A. SEC & NASD Slide25:  National Association of Securities Dealers: The NASD is the primary Self Regulatory Organization (or SRO) responsible for the regulation of persons and companies involved in the securities industry in the United States. First and foremost it is an industry organization. Its board members almost exclusively represent securities firms. The NASD enforces practices that are in the best interest of investors. The SEC delegated enforcement responsibility to the NASD. All firms dealing in securities that are not regulated by another SRO are required to be member firms of the NASD. SROs, which are overseen by the SEC, are the front line in regulating broker-dealers. While the SEC is responsible for ensuring fairness for the individual investor, the NASD is responsible for overseeing virtually all U.S. stockbrokers and brokerage firms. In the grand scheme of things, the NASD is overseen by the SEC. A. SEC & NASD Slide26:  About: The Sarbanes-Oxley Act of 2002 (also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or SarbOx) is a United States federal law passed in response to a number of major corporate and accounting scandals involving prominent companies in the United States. These scandals resulted in a decline of public trust in accounting and reporting practices. The legislation is wide ranging and establishes new or enhanced standards for all US public company Boards, Management, and public accounting firms. The Act contains 11 titles, or sections, ranging from additional Corporate Board responsibilities to criminal penalties, and requires the (SEC) to implement rulings on requirements to comply with the new law. While some believe the legislation was necessary, others believe that the Sarbanes-Oxley Act does more economic damage than it prevents. The Act covers issues such as establishing a public company accounting oversight board, auditor independence, corporate responsibility and enhanced financial disclosure. The Act came in the wake of a series of corporate financial scandals, including those affecting Enron, Tyco International, and WorldCom (now MCI) B. Sarbanes-Oxley Slide27:  Sarbanes-Oxley does not yet apply to companies with a market capitalization of under $75 million. It is scheduled to apply to all filers for the 2007 year (for reports issued in 2008). Based on the outcry from the industry with respect to costs (see charts below), we believe that there will be a flurry of de-listings on the US Exchanges if the SEC imposes this on smaller firms The largest SOX expense is in the initial up-front implementation of the system; on an ongoing basis the costs are not nearly as large We believe that the SEC will probably relent and have very relaxed requirements for these smaller firms (< $75 million) when the regulations emerge, but there will still be more internal audit requirements than exist currently, as it would be politically unacceptable to abandon the rule in its entirety Our firm is preparing to position itself on other international exchanges such as London’s AIM in the event that the SEC enforces the rule as planned B. Sarbanes-Oxley Slide28:  VI. Public vs. Private Valuation Slide29:  Investors place a high premium on liquidity, or having the ability to sell stock quickly. As a result, public companies trade at significantly higher valuations than private firms with similar financial characteristics. By going public, the value of a company is immediately valued at a higher level — resulting in the creation of new value for existing stockholders In addition to higher valuations, public companies also enjoy other significant benefits, including: Greatly improved sources of capital; a foundation for future financing activities A source of liquidity for owners – in the form of selling stock or using stock as collateral for personal loans, etc. Creation of a stock currency to fund acquisitions and/or equity-based compensation for management and employees. Incentive plans can be established for key employees without spending cash; creation of a vesting schedule so that such employees will stay with the firm for several years An international mark footprint that may attract trading partners and/or investors that otherwise would not have known about the firm Public vs. Private Valuation Slide30:  Again, Thank You Ning Bo! Slide31:  Appendix Slide32:  ____________________________________________________________ Yi Shen Chairman, Tradelink Equity Advisors China ____________________________________________________________ Mr. Shen has spent his entire career in the financial services industry. Upon graduating with a Ph.D. in Statistical Physics from the University of Oklahoma, he continued his education as a financial mathematics teacher at the University of Chicago. He built his career as a quantitative analyst and derivatives trader at R.J. O’Brien & Associates before joining Goldman Sachs & Co. in London. At Goldman Sachs, Mr. Shen was the Executive Director responsible for managing the international fund trading business for all of Europe. Before starting his own statistical arbitrage hedge fund at Tradelink in Chicago (Digilog-Shen, LLC), he managed a $350mm portfolio for Millennium Partners, a $4bln hedge fund. Presenters

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