sifma research quarterly – 1q20 · 5/7/2020 · the u.s. equity markets are the largest in the...

Executive Summary

US Cash Equities, ETFs, Multi-Listed Options and Capital Formation Page | 1

SIFMA Research Quarterly – 1Q20 Primary Market: US Equity Capital Formation Secondary Markets: US Cash Equities, ETFs and Multi-Listed Options

May 2020

Executive Summary


Contents Executive Summary ................................................................................................................................................................................... 4 Quarterly Highlights .................................................................................................................................................................................... 5 Chart Book: US Equity Capital Formation .................................................................................................................................................. 6 IPO Issuance and Other Statistics .............................................................................................................................................................. 6 Chart Book: US Cash Equities ................................................................................................................................................................... 9 Volumes and Other Statistics ..................................................................................................................................................................... 9 Exchange and Parent Group Market Share.............................................................................................................................................. 11 Chart Book: US Multi-Listed Options ........................................................................................................................................................ 12 Volumes and Other Statistics ................................................................................................................................................................... 12 Exchange and Parent Group Market Share.............................................................................................................................................. 13 Chart Book: US Exchange-Traded Funds ................................................................................................................................................ 14 Volumes and Other Statistics ................................................................................................................................................................... 14 Exchange and Provider Market Share ...................................................................................................................................................... 15 Appendix: Exchange Landscape .............................................................................................................................................................. 16 US Cash Equities ..................................................................................................................................................................................... 16 US Multi-Listed Options ............................................................................................................................................................................ 17 Appendix: Terms to Know ........................................................................................................................................................................ 18 Authors ..................................................................................................................................................................................................... 21

Executive Summary


SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate on legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.

This report is subject to the Terms of Use applicable to SIFMA’s website, available at http://www.sifma.org/legal. Copyright © 2020

Associated Reports

Please also see SIFMA Research Quarterly Report: US Fixed Income Markets, which can be found at: https://www.sifma.org/ research

SIFMA Insights Primers: The SIFMA Insights primer series is a reference tool that goes beyond a typical 101 series. By illustrating important technical and regulatory nuances, SIFMA Insights primers provide a fundamental understanding of the marketplace and set the scene to address complex issues arising in today’s markets. The SIFMA Insights market structure primer series includes: global capital markets & financial institutions; U.S. fixed income markets; U.S. equity markets; U.S. multi-listed options markets; U.S. ETF markets; and U.S. capital formation and listings exchanges. The primers and other Insights reports can be found at: https://www.sifma.org/primers

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Executive Summary


Executive Summary The U.S. equity markets are the largest in the world and continue to be among the deepest, most liquid and most efficient, representing 44.9% of the $82 trillion global equity market cap, or $37 trillion (as of 1Q20). This is 4.6x the next largest market, China. U.S. market share has averaged 37.6% over the last 10 years, troughing at 31.4% in 2010 and peaking this year at 44.9%.

US Market Share – YTD

Source: World Federation of Exchanges, SIFMA estimates Note: EM = emerging markets, DM = developed markets

US Market Share – Historical Trends

Source: World Federation of Exchanges, SIFMA estimates (YTD = 1Q20)

US45%

EU9%

China10%

Japan6%

HK5%

UK4%

Canada2%

Australia1%

Singapore1%

EM15%

Other DM2%

Global Equity Market Cap

5548

55

65 68 67 70

85

75

9082

17 16 1924 26 25 27

32 3036 37

0

10

20

30

40

50

60

70

80

90

100

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 YTD

US Share of Global Equity Markets ($T)World US

Executive Summary


Quarterly Highlights Markets continued to expand in the early part of the quarter, before falling with the emergence of Covid-19. The S&P 500 index averaged 2,921.44 for the quarter and 2,584.59 for March, 1Q20 5.3% Y/Y (peak 3,225.52, trough 2,584.59); the DJIA averaged 25,194.18 and 21,917.16, 1Q20 -1.6% Y/Y (peak 28,256.03, trough 21,917.16); and the Nasdaq averaged 8,472.80 and 7,700.10, 1Q20 +12.8% Y/Y (peak 9,150.94, trough 7,700.10). The VIX spiked up to new highs not seen since the later end of 2018 averaging 37.50 for the quarter and 53.54 for March, +149.6% Y/Y (peak 53.54, trough 18.84).

ADVs were up for all three segments covered in this report. Equity ADV was 10.8B shares for the quarter, +44.3% Y/Y (peak 15.6B, trough 7.6B). Options ADV was 28.9M contracts for the quarter, +49.5% Y/Y (peak 31.6M, trough 25.8M). ETF ADV was 2.64B shares or the quarter, +76% Y/Y (peak 4.35B, trough 1.54B).

For capital formation, total equity issuance was $55.3B for the quarter (+23.1% Y/Y) and the total IPO value was $7.2B (+45.4% Y/Y). The number of IPOs was up 41.2% Y/Y but down 40.0% Q/Q. Private equity deal value fell 27.6% Y/Y and 32.0% Q/Q.

In this report, we recap statistics for U.S. primary and secondary markets (cash equities, multi-listed options, ETFs). Highlights include:

Source: Dealogic, The World Federation of Exchanges, Cboe Global Markets, Options Clearing Corporation, SIFMA estimates

1Q20 4Q19 1Q19 Y/Y Q/Q 2019 2018 Y/YPrimary Markets TotalsTotal Equity Issuance ($B) 55.3 50.7 44.9 23.1% 9.1% 228.0 221.6 2.9%Total IPO Value ($B) 7.2 6.3 5.0 45.4% 14.4% 48.8 49.9 -2.2%# IPOs 24 40 17 41.2% -40.0% 151 185 -18.4%Small Cap as % Total IPOs 83% 90% 82% 1.1% -7.4% 78% 81% -3.7%# Listed Companies 5,293 5,301 5,357 -1.2% -0.2% 5,301 5,343 -0.8%Private Equity Deal Value ($B) 127.4 187.4 175.8 -27.6% -32.0% 726.5 747.0 -2.7%Secondary Markets AveragesEquity ADV ($B) 10.8 6.8 7.5 44.3% 60.3% 7.0 7.3 -4.2%ETF ADV ($B) 2.6 1.3 1.5 76.0% 110.8% 1.4 1.5 -7.8%ETFs as % Equitiy ADV 24.4% 18.5% 20.0% 22.0% 31.5% 19.6% 20.4% -3.8%Options ADV ($M) 28.9 20.1 19.4 49.5% 43.9% 19.6 20.6 -4.7%Market Performance (Price)

S&P 500 2,921.44 3,136.44 2,774.33 5.3% -6.9% 2,937.96 2,738.40 7.3%DJIA 25,194.18 27,878.69 25,614.78 -1.6% -9.6% 26,556.06 24,996.01 6.2%Nasdaq 8,472.80 8,643.48 7,514.53 12.8% -2.0% 8,013.87 7,405.50 8.2%VIX 37.50 13.21 15.02 149.6% 183.9% 15.24 16.95 -10.0%

Chart Book: US Equity Capital Formation


Chart Book: US Equity Capital Formation Companies need capital for various business purposes: invest in growth, fund mergers and acquisitions, etc. Firms have several ways to generate this capital, including initial public offerings (IPOs). IPOs allow businesses to grow, innovate and better serve their customers.

IPO Issuance and Other Statistics

Source: Dealogic Note: Equity data includes rank eligible deals, excludes BDCs, SPACs, ETFs, CLEFs and rights offers (YTD = Mar. 2020)

306

186146

127

224186 194

227256 265

219185

265285

304

249

203 220 222 228

55

977

697642

733

966

778 816770

343

730781

663

824

1,100 1,076

901

791

976916 886

189

0

200

400

600

800

1,000

1,200

0

50

100

150

200

250

300

350

400

450

500

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 YTD

US Equity Issuance Volume ($B) # Deals (RHS)

32 21 39 50 497

185157

155 155 145

29

32

2526 17 34

19

249

203220 222 228

55

0

50

100

150

200

250

300

FY15 FY16 FY17 FY18 FY19 YTD

US Equity Issuance by Type ($B)IPOs Secondary Offerings Preferred Stock

2915

30 33 41

5

3

6

917 8

2

153

98

154

185

151

24

0

20

40

60

80

100

120

140

160

180

200

0

20

40

60

80

100

120


US IPOs by Domicile ($B)Non-US Firms US Firms # Deals (RHS)



Source: Dealogic, PitchBook Note: IPOs include rank eligible deals, exclude BDCs, SPACs, ETFs, CLEFs and rights offers (YTD = Mar. 2020)

126

81

132156

126

18

27

17

22

29

25

6

153

98

154

185

151

24

0

20

40

60

80

100

120

140

160

180

200


US IPOs by Deal Size (#)>=$50M <$50M

1% 1% 1% 3% 3%0%

13% 11%15% 17%

19%17%

86% 88%84%

81%78%

83%

40%

50%

60%

70%

80%

90%

0%

10%

20%

30%

40%

50%


US IPOs by Company SizeLarge Cap Mid Cap Small Cap (RHS)

48.6%

19.7%

19.5%

7.0%

1.5%

1.4%

1.4%

1.0%

Healthcare

Utility & Energy

Forestry & Paper

Computers & Electronics

Finance

Real Estate/Property

Consumer Products

Other

US IPOs by Industry

506610 627

747 727

127

4,469 4,4584,786

5,4075,005

939

0

1,000

2,000

3,000

4,000

5,000

6,000

0

100

200

300

400

500

600

700

800

900


US Private Equity - Total DealsDeal Value ($B) # of Deals (RHS)

3,229 3,225 3,309 3,704 3,273

698

1,191 1,172 1,4041,616

1,656

231

48 6376

8775

11

0

1,000

2,000

3,000

4,000

5,000

6,000


US Private Equity - Deal Size Breakout (#)Under $100M $100M-$1B Over $1B



Source: Bloomberg, Dealogic, World Federation of Exchanges Note: IPO data includes rank eligible deals, excludes BDCs, SPACs, ETFs, CLEFs and rights offers (YTD = Mar. 2020)

5 5 6

27

15 14

47 6

23

8 9 9

1512

25

12

23

41

18

6

14

67

1

6 7 711 12

5

1215 15

12

85

27

106 7

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

550%

0

5

10

15

20

25

30

35

40

45

50

1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20

US IPOs vs Stock Market PerformanceIPOs Nasdaq (RHS) S&P 500 (RHS)

15.1 14.011.1

14.216.2 16.9

19.3 19.7

11.515.1

17.315.6

18.7

24.026.3 25.1

27.4

32.130.4

36.3 36.8

0

5

10

15

20

25

30

35

40


US Equity Market Capitalization ($T)Market Capitalization Trendline

6,917

6,177

5,685

5,295 5,226 5,145 5,133 5,109

4,6664,401 4,279 4,171 4,102 4,180

4,369 4,381 4,331 4,336 4,397 4,323 4,325

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000


Number of Listed Domestic Companies in the US# of Companies Trendline

Chart Book: US Cash Equities


Chart Book: US Cash Equities On average, around 11 billion shares are traded on U.S. equity markets every day, making them among the deepest, most liquid and most efficient in the world. Investors enjoy narrow spreads, low transaction costs and fast execution speeds, with plenty of opportunity for price improvement, especially for individual investors.

Volumes and Other Statistics

Source: Bloomberg, Cboe Global Markets, SIFMA estimates (YTD = Mar. 2020) Note: Tape A = NYSE listed stocks; Tape C = Nasdaq listed stocks; Tape B = formerly regionals, now mostly NYSE ARCA

6.9 7.38.6

6.6 6.97.6

8.5

6.9 6.8

11.0

0

2

4

6

8

10

12

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

Equity ADV (B)ADV Trendline

7.38.6

6.6 6.97.6

8.5

6.9 6.8

11.0

17.6

34.5

14.8

43.0

18.4

11.4

21.0

28.4

17.1

9.5

20.025.4

53.5

0

10

20

30

40

50

60

0

2

4

6

8

10

12

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

Equity ADV (B) vs VIX (#)ADV VIX (RHS)

131 129 126 150 138187

72 72 6186 75

13675 71 83

121109

182

278 273 271

357322

506

0

100

200

300

400

500

600


Equity Volumes by Tape ($B)Tape A Tape B Tape C

11.95

40.74

28.14

11.43

22.51

9.15

37.32 36.07

12.09

24.59

11.54

82.69

57.08

05

1015202530354045505560657075808590

Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20

VIX Index



Source: Bloomberg, SIFMA estimates

2,105

1,920

2,126

2,824

2,507

2,752

2,977

3,038

2,585

1,500

1,750

2,000

2,250

2,500

2,750

3,000

3,250

3,500


S&P 500S&P 500 Index Trendline

18,133

16,285

18,142

20,812

26,149

23,32724,815

28,538

21,917

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

30,000


DJIADJIA Index Trendline

5,128

4,5585,189

6,199

7,411

8,110

6,635

7,453

8,175

8,973

7,700

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000


NasdaqNasdaq Index Trendline

1,238.68

1,033.90

1,191.39

1,400.43

1,574.98

1,740.75

1,499.42

1,668.47

1,153.10

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1,800


Russell 2000 Russell Index Trendline

18.4 18.119.5

21.3 22.1

18.4 19.020.5 20.0

0

5

10

15

20

25

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

Average P/E Ratios for S&P 500 Stocks

15,274

17,62018,025

16,55216,020

16,72816,381

12,500

15,000

17,500

20,000

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

Short Interest for NYSE Stocks



Exchange and Parent Group Market Share

Source: Cboe Global Markets, FINRA, SIFMA estimates Note: Intercontinental Exchange (ICE) owns the NYSE exchanges. Announced new exchanges = Long Term Stock Exchange (LTSE); Members Exchange (MEMX); MIAX PEARL Equities, 2H20

13 Exchanges

7 OTC Venues

31 Equity ATS

5 ICE: New York Stock Exchange, NYSE Arca, NYSE American, NYSE Chicago, NYSE National

4 Cboe: Cboe BYX, Cboe BZX, Cboe EDGA, Cboe EDGX

3 Nasdaq: Nasdaq BX, Nasdaq PHLX, Nasdaq Stock Market

IEX

16.8%

12.7%

9.2%

6.9%

5.4%

2.3%

2.1%

1.7%

1.2%

0.7%

0.4%

0.3%

Nasdaq

NYSE

NYSE Arca

Cboe BZX

Cboe EDGX

Cboe BYX

Cboe EDGA

NYSE National

Nasdaq BX

Nasdaq PSX

NYSE American

NYSE Chicago

Market Share - Exchange

NYSE, 24.3%

NDAQ, 18.6%

CBOE, 16.7%IEX,

2.6%

Off Exchange,

37.6%

Market Share - Parent Company

Chart Book: US Multi-Listed Options


Chart Book: US Multi-Listed Options Options, or a contract to buy or sell an underlying security (stocks, ETFs, etc.) at a specified price on or before a given date, are frequently used as risk management tools by investors to hedge positions and limit portfolio losses. They also provide flexibility, enabling an investor to tailor their portfolio to investment objectives and market environment.


Source: Options Clearing Corporation, Bloomberg, SIFMA estimates

Equity89.2%

Index / Other9.4%

Futures1.4%

Options Asset Class Breakout

91.8%

89.3%88.5%

85.2%

88.8% 89.2%

80%

82%

84%

86%

88%

90%

92%

94%

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 YTD

Equity Options as % of Total Volume

15.318.1

15.4 16.6 17.3

22.4 22.719.3 20.1

28.9

0

5

10

15

20

25

30

35

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

Options ADV (M)ADV Trendline

21.0

12.1

28.4

17.1

9.512.1

25.4

18.7

13.8

0

5

10

15

20

25

30

0

5

10

15

20

25

30

35

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

Options ADV (M) vs VIX (#)ADV VIX (RHS)

Chart Book: US Multi-Listed Options


Exchange and Parent Group Market Share

Source: The Options Clearing Corporation, SIFMA estimates Note: Intercontinental Exchange (ICE) owns the NYSE exchanges.

22.0%

11.5%

9.8%

9.7%

9.3%

7.7%

7.2%

4.5%

3.9%

3.4%

3.4%

3.1%

1.7%

0.3%

0.2%

Cboe

Nasdaq PHLX

Cboe BZX

Nasdaq NOM

NYSE Arca

Nasdaq ISE

NYSE American

MIAX PEARL

MIAX

Nasdaq GEMX

Cboe EDGX

Cboe C2

MIAX Emerald

Nasdaq MRX

Nasdaq BX

Market Share - Exchange

CBOE, 38.3%

NDAQ, 32.9%

NYSE, 16.5%

MIAX, 10.0%

BOX, 2.4%

Market Share - Parent Company

Chart Book: US Exchange-Traded Funds


Chart Book: US Exchange-Traded Funds Exchange-traded funds (ETFs), or pooled investment vehicles holding an underlying basket of securities (equities, bonds, commodities, currencies), provide investors a multitude of choices to meet different investment objectives.


Source: Cboe Global Markets, Bloomberg, SIFMA estimates

1,465

1,057

1,549

1,991

1,256

2,680

0250500750

1,0001,2501,5001,7502,0002,2502,5002,7503,000

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

ETF ADV (M)ADV Trendline

1,465

1,057

1,5491,361 1,256

2,680

17.1

9.5 12.1

25.4

13.1

13.8

53.5

0

10

20

30

40

50

60

0250500750

1,0001,2501,5001,7502,0002,2502,5002,7503,000

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

ETF ADV (M) vs VIX (#)ADV VIX (RHS)

20.7% 17.5% 20.3% 20.0% 20.4% 24.4%

0%10%20%30%40%50%60%70%80%90%

100%

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

ETFs as a % of Total Equity ADVETF Single Stock

Chart Book: US Exchange-Traded Funds


Exchange and Provider Market Share Exchange Market Share

Provider Market Share

Source: Cboe Global Markets, etf.com, SIFMA estimates Note: Intercontinental Exchange (ICE) owns the NYSE exchanges.

1.4%

17.7%

18.0%

25.9%

37.0%

IEX

NASDAQ

Cboe

NYSE

Off Exchange

ETF Market Share - Exchange Parent Company

3.7%

5.0%

9.9%

16.1%

26.7%

38.6%

Schwab

Invesco

Other

State Street

Vanguard

BlackRock

ETF Market Share - Provider

Appendix: Exchange Landscape



US Cash Equities

Note: Announced new exchanges = Long Term Stock Exchange (LTSE), 2H20; Members Exchange (MEMX), 2H20; MIAX PEARL Equities, 2H20

IntercontinentalExchange

(ICE)

New York Stock Exchange

NYSE Arca

NYSE National

NYSE Chicago

NYSE American

Nasdaq(NDAQ)

Nasdaq Stock Market

Nasdaq BX

Nasdaq PHLX

Cboe Global Markets(CBOE)

Cboe BZX

Cboe EDGX

Cboe BYX

Cboe EDGA

InvestorsExchange

(IEX)

MembersExchange(MEMX)

Long-TermStock Exchange

(LTSE)

MIAXPEARL Equities



US Multi-Listed Options

Note: BOX also opened an open outcry trading floor in August 2019

CboeGlobal Markets

(CBOE)

Cboe

BATS

C2

Cboe EDGX

Nasdaq(NDAQ)

Nasdaq PHLX

NOM

Nasdaq ISE

Nasdaq GEMX

Nasdaq MRX

Nasdaq NOBO

IntercontinentalExchange

(ICE)

NYSE ARCA

NYSE AMEX

Miami Int'lSecurities Ex

(MIAX)

MPRL

MIAX

MIAX EMLD

BOXOptions

Exchange*

Appendix: Terms to Know



ADV Average Daily Trading Volume Y/Y Year-over-YearAlgo Algorithm (algorithmic trading) Q/Q Quarter-over-QuarterAP Authorized Participant YTD Year-to-DateAT Automated Trading BPS Basis PointsATS Alternative Trading System PPS Percentage PointsAUM Assets Under Management CAGR Compound Annual Growth RateBest Ex Best ExecutionCEF Closed-End Fund CFTC Commodity Futures Trading CommissionCLOB Central Limit Order Book FINRA Financial Industry Regulatory AuthorityD2C Dealer-to-Client SEC Securities and Exchange CommissionD2D Dealer-to-Dealer SRO Self-Regulatory OrganizationDark Pool Private trading venues NMS National Market SystemECN Electronic Communication Network Reg NMS Regulation National Market SystemEMS Equity Market Structure SIP Security Information ProcessorETF Exchange-Traded FundETP Exchange-Traded ProductHFT High-Frequency TradingIDB Inter-Dealer BrokerIIV Intraday Indicative ValueIOI Indication of InterestIPO Initial Public OfferingMF Mutual FundMM Market MakerNAV Net Asset ValueOEF Open-End FundOTC Over-the-CounterPCF Portfolio Composition FilePFOF Payment For Order FlowSI Systematic InternaliserTick Size Minimum price movementUIT Unit Investment Trust



Bid An offer made to buy a securityAsk, Offer The price a seller is willing to accept for a securitySpread The difference between the bid and ask price prices for a security, an indicator of supply (ask) and demand (bid)NBBO National Best Bid and OfferLocked Market A market is locked if the bid price equals the ask priceCrossed Market A bid is entered higher than the offer or an offer is entered lower than the bidOpening Cross To determine the opening price of a stock, accumulating all buy and sell interest a few minutes before the market openClosing Cross To determine the closing price of a stock, accumulating all buy and sell interest a few minutes before the market close

Order TypesAON All or none; an order to buy or sell a stock that must be executed in its entirety, or not executed at allBlock Trades with at least 10,000 shares in the orderDay Order is good only for that trading day, else cancelledFOK Fill or kill; must be filled immediately and in its entirety or not at allLimit An order to buy or sell a security at a specific price or betterMarket An order to buy or sell a security immediately; guarantees execution but not the execution priceStop (or stop-loss) An order to buy or sell a stock once the price of the stock reaches the specified price, known as the stop price

Call The right to buy the underlying security, on or before expirationPut The right to sell the underlying security, on or before expirationHolder The buyer of the contractWriter The seller of the contractAmerican Option may be exercised on any trading day on or before expirationEuropean Option may only be exercised on expirationExercise To put into effect the right specified in a contractUnderlying The instrument on which the options contract is based; the asset/security being bought or sold upon exercise notificationExpiration The set date at which the options contract ends, or ceases to exist, or the last day it can be tradedStock Price The price at which the underlying stock is trading, fluctuates continuouslyStrike Price The set price at which the options contract is exercised, or acted uponPremium The price the option contract trades at, or the purchase price, which fluctuates constantlyTime Decay Time value portion of option premium decreases as time passes; longer option’s life, greater probability option will move in the moneyIntrinsic Value The in-the-money portion of an option's premiumTime Value (Extrinsic value) Option premium (price) minus intrinsic value, given external factors (passage of time, volatility, interest rates, dividends)In-the-Money For a call option, when the stock price is greater than the strike price; reversed for put optionsAt-the Money Stock price is identical to the strike price; the option has no intrinsic valueOut-of-the-Money For a call option, when the stock price is less than the strike price; reversed for put options

InvestorsInstitutional Organization, fewer protective regulations as assumed to be more knowledgeable and better able to protect themselves*Retail Individual, a non-professional investorAccredited Individual, income > $200K ($300K with spouse) in each of the prior 2 years or net worth >$1M, excluding primary residence*Types of institutional investors: endowment funds, commercial banks, mutual funds, hedge funds, pension funds and insurance companies



IPO Private company raises capital buy offering its common stock to the public for the first time in the primary marketsBought Deal underwriter purchases a company's entire IPO issue and resells it to the investing public; underwriter bears the entire risk of selling the stock issue

Best Effort Deal Underwriter does not necessarily purchase IPO shares and only guarantees the issuer it will make a best effort attempt to sell the shares to investors at the best price possible; issuer can be stuck with unsold shares

Follow-On Offering (Follow-on public offering) Issuance of shares to investors by a public company already listed on an exchangeDirect Listing (Direct placement, direct public offering) Existing private company shareholders sell their shares directly to the public without underwriters. Often used

by startups or smaller companies as a lower cost alternative to a traditional IPO. Risks include, among others, no support/guarantee for the share sale and no stock price stabilization after the share listing.

Underwriting Guarantee payment in case of damage or financial loss and accept the financial risk for liability arising from such guarantee in a financial transaction or deal

Underwriter Investment bank administering the public issuance of securities; determines the initial offering price of the security, buys them from the issuer and sells them to investors.

Bookrunner The main underwriter or lead manager in the deal, responsible for tracking interest in purchasing the IPO in order to help determine demand and price (can have a joint bookrunner)

Lead Left Bookrunner Investment bank chosen by the issuer to lead the deal (identified on the offering document cover as the upper left hand bank listed)Syndicate Investment banks underwriting and selling all or part of an IPOArranger The lead bank in the syndicate for a debt issuance deal

Pitch Sales presentation by an investment bank to the issuer, marketing the firm’s services and products to win the mandateMandate The issuing company selects the investment banks to underwrite its offeringEngagement Letter Agreement between the issuer and underwriters clarifying: terms, fees, responsibilities, expense reimbursement, confidentiality, indemnity, etc.Letter of Intent Investment banks’ commitment to the issuer to underwrite the IPOUnderwriting Agreement Issued after the securities are priced, underwriters become contractually bound to purchase the issue from the issuer at a specific priceRegistration Statement Split into the prospectus and private filings, or information for the SEC to review but not distributed to the public, it provides investors adequate

information to perform their own due diligence prior to investingThe Prospectus Public document issued to all investors listing: financial statements, management backgrounds, insider holdings, ongoing legal issues, IPO information

and the ticker to be used once listedRed Herring Document An initial prospectus with company details, but not inclusive of the effective date of offering price

Roadshow Investment bankers take issuing companies to meet institutional investors to interest them in buying the security they are bringing to market.Non-Deal Roadshow Research analysts and sales personnel take public companies to meet institutional investors to interest them in buying a stock or update existing

investors on the status of the business and current trends.Pricing Underwriters and the issuer will determine the offer price, the price the shares will be sold to the public and the number of shares to be sold, based on

demand gauged during the road show and market factorsStabilization Occurs for a short period of time after the IPO if order imbalances exist, i.e. the buy and sell orders do not match; underwriters will purchase shares at

the offering price or below to move the stock price and rectify the imbalanceQuiet Period (Cooling off period) The SEC mandates a quiet period on research recommendations, lasting 10 days (formerly 25 days) after the IPO

Reg S-K Regulation which prescribes reporting requirements for SEC filings for public companiesReg S-X Regulation which lays out the specific form and content of financial reports, specifically the financial statements of public companiesForm S-1 Registration statement for U.S. companies (described above)Form F-1 Registration statement for foreign issuers of certain securities, for which no other specialized form exists or is authorizedForm 10-Q Quarterly report on the financial condition and state of the business (discussion of risks, legal proceedings, etc.), mandated by the SECForm 10-K More detailed annual version of the 10Q, mandated by the SECForm 8-K Current report to announce major events shareholders should know about (changes to business & operations, financial statements, etc.)Greenshoe Allows underwriters to sell more shares than originally planned by the company and then buy them back at the original IPO price if the demand for the

deal is higher than expected, i.e. an over-allotment optionTombstone A plaque awarded to celebrate the completion of a transaction or deal

BDC Business Development Company; unregistered closed-end investment company, invests in small and mid-sized businessesSPAC Special Purpose Acquisition Company; publicly traded buyout company, raises funds in a blind pool through an IPO to acquire a private companyRights Offer Rights offered to existing shareholders to purchase additional stock (subscription warrants) in proportion to existing holdings

Authors


Authors SIFMA Research Katie Kolchin, CFA, Director of Research Justyna Podziemska Ali Mostafa [email protected]

mailto:[email protected]

sifma research quarterly – 1q20 · 5/7/2020 · the u.s. equity markets are the largest in the...

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