Financial claims are initially sold by deficit units in ________.
primary markets
______ are markets in which users of funds (e.g., corporations) raise funds, through new issues of financial instruments such as stocks and bonds (Saunders and Cornett 2011).
Primary markets
They consist of underwriters, issuers, and instruments involved in buying and selling original or new issues of securities referred to as ________.
primary securities
In other words, 1)_______ are markets for primary securities (new issues of financial instruments like stocks and bonds). They raise cash for the issuing company, which acts as borrower by increasing its current 2)________ when it issues stocks, or 3)_______ when it issues bonds.
- primary markets
- capital stock
- outstanding liabilities
The government also acts as a borrower when it issues 1)______ or 2)_______.
- bonds
- Treasury bills
The primary market transaction involves either:
- __________ (stock) or
- __________ (bond).
These new issues are issued to initial suppliers of funds or investors.
- equity security
- debt security
An _________ refers to the process of offering shares of a private corporation to the public in a new stock issuance for the first time.
initial public offering (IPO)
An _______ allows a company to raise equity capital from public investors.
IPO
The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes a share _______ for current private investors. Meanwhile, it also allows public investors to participate in the offering.
premium
Before an IPO, a company is considered 1)______. As a 2)_______, the business has grown with a relatively small number of shareholders including early investors like the founders, family, and friends along with professional investors such as venture capitalists or angel investors.
- private
- pre-IPO private company
An _______ is a big step for a company as it provides the company with access to raising a lot of money. This gives the company a greater ability to grow and expand. The increased transparency and share listing credibility can also be a factor in helping it obtain better terms when seeking borrowed funds as well.
IPO
When a company reaches a stage in its growth process where it believes it is mature enough for the rigors of ________ along with the benefits and responsibilities to public shareholders, it will begin to advertise its interest in going public.
SEC regulations
Typically, this stage of growth will occur when a company has reached a private valuation of approximately 1)_______, also known as 2)________. However, private companies at various valuations with strong fundamentals and proven profitability potential can also qualify for an IPO, depending on the market competition and their ability to meet listing requirements.
- $1 billion
- unicorn status
IPO shares of a company are priced through 1)_______. When a company goes public, the previously owned private share ownership converts to public ownership, and the existing private shareholders’ shares become worth the public trading price. 2)_______ can also include special provisions for private to public share ownership.
- underwriting due diligence
- Share underwriting
Generally, the transition from private to public is a key time for private investors to cash in and earn the returns they were expecting. Private shareholders may hold onto their shares in the public market or sell a portion or all of them for _______.
gains
Meanwhile, the public market opens up a huge opportunity for millions of investors to buy shares in the company and contribute capital to a company’s shareholders’ equity. The __________ consists of any individual or institutional investor who is interested in investing in the company.
public
Overall, the number of shares the company sells and the price for which shares sell are the generating factors for the company’s new shareholders’ equity value. ________ still represents shares owned by investors when it is both private and public, but with an IPO, the shareholders’ equity increases significantly with cash from the primary issuance.
Shareholders’ equity
One option available to a corporation that seeks to increase its capital is by selling its shares of stock to the 1)______. The 2)_______ regulates these transactions. It is important to note that the mere registration of the Corporation before the SEC for incorporation purposes does not include a license to sell its shares to the public.
- public
- SEC (Securities and Exchange Commission)
A corporation must first apply for a license with the SEC in order to trade stocks publicly. This is called the 1)_______ with the SEC. Once the SEC grants a license, a corporation that seeks to be listed in the Philippine Stock Exchange (“PSE”) must then comply with the criteria set by the PSE (2)________).
- Secondary Registration
- Legal Guerilla Guide for Start-ups
Since 2013, the Philippine Stock Exchange (“PSE”) has been operating a system that consists of two boards: the 1)_______ and the 2)______. Generally, the boards are distinguished by its minimum capitalization requirement.
- Main board
- Small Medium and Emerging (SME) Board
Corporations listed under the main board are required to have an authorized capital stock of at least 1)_______, while corporations that seek to be listed on the SME Board are required to have an authorized capital stock of GOING PUBLIC at least 2)________, at least 3)_______ of which is subscribed and fully paid. There are further specific criteria for the two boards mentioned above as provided by the PSE.
- PhP 500 million
- PhP 100 million
- 25%
General Criteria (Applicable to Both Boards)
• Positive 1)_______ in the fiscal year immediately preceding the filing of its application;
• Operating history of the corporation: 2)____ years prior to its listing;
• All subscribed shares of the same type and class applied for shall be paid in 3)_____;
• Minimum offering to the public for initial listing are as follows:
• When required by PSE, the corporation shall engage the services of an 4)_______ accredited by the SEC to determine the value of its assets;
• The Corporation shall have an 5)_______. Such program shall include, at the minimum, a corporate website which contains, the following information:
a. 6)_______
b. 7)_______
c. 8)_______
d. 9)_______
e. 10)______
f. 11)______
g. 12)______
- Stockholder’s Equity
- 3
- full
- independent appraiser
- investor relation program
- Corporation Information
- Corporation news
- Financial report
- Disclosures
- Investor FAQs
- Investor Contact
- Stock Information
Is there an occasion that a secondary offering of stocks will happen in a primary market?
____, there is. This means that the shares of stock being offered were previously issued but are being offered to the public for the first time by a large or controlling shareholder. As such, the selling stockholder gets the proceeds of the sale.
Yes
In a 1)_______, prices are often set beforehand, whereas in the 2)_______, only basic forces like supply and demand determine the price of the security.
- primary market
- secondary market
