Chapter 12

The price at which a dealer will sell a financial asset.

A bond in which ownership is demonstrated through possession of the bond.

The price at which dealers will buy a financial asset.

Can be viewed as straight fixed-rate bonds with the addition of a call option (or warrant) feature. This entitles the bondholder to purchase a certain number of equity shares in the issuer at a prestated price over a predetermined period of time.

Accept buy or sell orders from market makers and then attempt to find a matching party for the other side of the trade; they may also trade for their own account. They charge a small commission for their services to the market maker that engaged them. They do not deal directly with retail clients.

A bond that can be exchanged for a predetermined number of equity shares of the issuer.

A straight fixed-rate bond that pays coupon interest in the issue currency, but at maturity pays the principal in a currency other than the issue currency.

There are two typics of these bonds; convertible bonds and bonds with equity warrants.

A bond issue denominated in a particular currency but sold to investors in national capital markets other than the issuing country.

Are (typically) fixed-rate notes issued by a corporation with maturities ranging from less than a year to about 10 years. They have a fixed maturity and pay coupon interest on periodic dates. This is partially sold on a continuous basis through an issuance facility that allows the borrower to obtain funds only as needed on a flexible basis.

Medium-term bonds that have their coupon payments indexed to a reference rate such as the three-month U.S. dollar LIBOR.

Refers to a bond offered by a foreign borrower to the investors in a national capital market and denominated in that nation's currency.
Example: an American company selling yen-denominated bonds in Japan to local investors.

First offered in 1989, this issue is a very large bond issue that would be difficult to sell in any one country or region of the world. Consequently, it is simultaneously sold and subsequently traded in major markets worldwide. They are fully fungible because the identical instrument trades in all markets without restritction. Most have been denominated in the US dollar.

An investment banker that acts as the bookrunner of an underwrtiting syndicate that will bring the bonds (Eurobonds) to market.

The lead manager will sometimes invite co-managers to form this to help negotiate terms with the borrower, ascertain market conditions, and manage the issuance.

They stand ready to buy or sell for their own account by quoting two-way bid and ask prices. They trade directly with one another, through a broker, or with retail customers. The bid-ask spread represents their only profit; no other commission is charged. New electronic trading platforms, however, allow asset managers to trade directly with one another, cutting this type of individual out.

The market in which new security issues are sold to investors. In selling the new securities, investment bankers can play the role of either broker or dealer.

A bond whose ownership is demonstrated by associating the buyer's name with the bond in the issuer's records.

A market in which investors buy and sell securities to other investors; the original issuer is not involved in these trades. This market provides marketability and valuation of the securities.

Most of the underwriters, along with other banks, will be part of this that sells the bonds to the investing public.

Allows a bond issuer to pre-register a securities issue that will occur at a later date.

Bonds with a specified maturity date that have fixed coupon payments.

The managing group, along with other banks, will serve as this for the issue, that is, they will commit their own capital to buy the issue from the borrower at a discount from the issue price.

The discount an underwriter buys an issue from the borrower, and is typically in the 2%-2.5% range.

A group of investment banks, merchant banks, and the merchant banking arms of commercial banks that specialize in some phase of a public issuance.