EECS 1710 Lecture Notes - Lecture 32: Sec Rule 144A
24 Jun 2018
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EECS 1710 Lecture 32 Notes
Introduction
Stock issues
When a non-U.S. firm issues stock in its own country, its shareholder base is quite
limited.
A few large institutional investors may own most of the shares.
By issuing stock in the United States, non-U.S. firms may diversify their shareholder base
This can lessen the share price volatility induced by large investors selling shares.
Investment banks and other financial institutions in the United States often serve as
underwriters of stock targeted for the U.S. market, and they receive underwriting fees
of about 7 percent of the issued stock’s value.
Because many financial institutions in the United States purchase non-U.S. stocks as
investments, non-U.S. firms may be able to place an entire stock offering within the
United States.
Many of the recent stock offerings in the United States by non-U.S. firms have resulted
from privatization programs in Latin America and Europe.
That is, businesses that were previously government owned are being sold to U.S.
shareholders.
Given the large size of some of these businesses, their local stock markets are not large
enough to digest the stock offerings.
Consequently, U.S. investors are financing many privatized businesses based in foreign
countries.
Firms that issue stock in the United States are normally required to satisfy stringent
disclosure rules regarding their financial condition.
However, they are exempt from some of these rules when they qualify for a Securities
and Exchange Commission guideline (called Rule 144a) through a direct placement of
stock to institutional investors.
Document Summary
When a non-u. s. firm issues stock in its own country, its shareholder base is quite limited. Firms that issue stock in the united states are normally required to satisfy stringent disclosure rules regarding their financial condition. However, they are exempt from some of these rules when they qualify for a securities and exchange commission guideline (called rule 144a) through a direct placement of stock to institutional investors. American depository receipts non-u. s. firms also obtain equity financing by issuing. American depository receipts (adrs), which are certificates representing bundles of the firm"s stock. The use of adrs circumvents some disclosure requirements imposed on stock offerings in the united states while enabling non-u. s. firms to tap the u. s. market for funds. Firm issues stock in its own country, its shareholder base is quite limited. A few large institutional investors may own most of the shares. By issuing stock in the united states, non-u. s. firms may diversify their shareholder base.
