Continue to study the SRC, specifically the following sections: 3.

1, 8, 9, 10, 12, 13,

14, and 15
What is equity market?
What are debt securities and what are the major kinds?
Distinguish between bonds, debentures, and notes.
What are the Laws Governing Securities/Equities Market?
What are the principal market regulators and identify their roles?
What is foreign equity limitations on securities and what is the basis for this
limitation?
What are the Disclosure Requirements under the SRC?
Distinguish between publicly traded and privately held companies. Identify the
characteristics of each in terms of voting rights, stock ownership and
transfer/restrictions on transferability
What is an IPO, secondary or follow-up offerings?

Market, Stock Market Terminology

Definition of 'Equity Market'

The market in which shares are issued and traded, either through exchanges or overthe-counter markets. Also known as the stock market, it is one of the most vital
areas of a market economy because it gives companies access to capital and
investors a slice of ownership in a company with the potential to realize gains based
on its future performance.

Investopedia explains 'Equity Market'

This market can be split into two main sectors: the primary and secondary market.
The primary market is where new issues are first offered. Any subsequent trading
takes place in the secondary market.

Definition of 'Debt Security'

Any debt instrument that can be bought or sold between two parties and has basic terms defined,
such as notional amount (amount borrowed), interest rate and maturity/renewal date. Debt
securities include government bonds, corporate bonds, CDs, municipal bonds, preferred stock,
collateralized securities (such as CDOs, CMOs, GNMAs) and zero-coupon securities.
The interest rate on a debt security is largely determined by the perceived repayment ability of
the borrower; higher risks of payment default almost always lead to higher interest rates to
borrow capital.

Also known as "fixed-income securities."

Most debt securities are traded over-the-counter, with much of the trading now
conducted electronically. The total dollar value of trades conducted daily in the debt
markets is much larger than that of stocks, as debt securities are held by many
large institutional investors as well as governments and non-profit organizations.
Debt securities on the whole are safer investments than equity securities, but riskier
than cash. Debt securities get their measure of safety by having a principal amount
that is returned to the lender at the maturity date or upon the sale of the security.
They are typically classified and grouped by their level of default risk, the type of
issuer and income payment cycles.

Definition of 'Bond'
A debt investment in which an investor loans money to an entity (corporate or governmental)
that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by
companies, municipalities, states and U.S. and foreign governments to finance a variety of
projects and activities.
Bonds are commonly referred to as fixed-income securities and are one of the three main asset
classes, along with stocks and cash equivalents.

Investopedia explains 'Bond'

The indebted entity (issuer) issues a bond that states the interest rate (coupon) that will be paid
and when the loaned funds (bond principal) are to be returned (maturity date). Interest on bonds
is usually paid every six months (semi-annually). The main categories of bonds are corporate
bonds, municipal bonds, and U.S. Treasury bonds, notes and bills, which are collectively referred
to as simply "Treasuries."
Two features of a bond - credit quality and duration - are the principal determinants of a bond's
interest rate. Bond maturities range from a 90-day Treasury bill to a 30-year government bond.
Corporate and municipals are typically in the three to 10-year range.

Definition of 'Debenture'
A type of debt instrument that is not secured by physical assets or collateral. Debentures are
backed only by the general creditworthiness and reputation of the issuer. Both corporations and
governments frequently issue this type of bond in order to secure capital. Like other types of
bonds, debentures are documented in an indenture.

Investopedia explains 'Debenture'

Debentures have no collateral. Bond buyers generally purchase debentures based on the belief
that the bond issuer is unlikely to default on the repayment. An example of a government
debenture would be any government-issued Treasury bond (T-bond) or Treasury bill (T-bill). Tbonds and T-bills are generally considered risk free because governments, at worst, can print off
more money or raise taxes to pay these type of debts.

Definition of 'Secondary Offering'

1. The issuance of new stock for public sale from a company that has already made its
initial public offering (IPO). Usually, these kinds of public offerings are made by
companies wishing to refinance, or raise capital for growth. Money raised from these
kinds of secondary offerings goes to the company, through the investment bank that
underwrites the offering. Investment banks are issued an allotment, and possibly an
overallotment which they may choose to exercise if there is a strong possibility of making
money on the spread between the allotment price and the selling price of the securities.
2. A sale of securities in which one or more major stockholders in a company sell all or a
large portion of their holdings. The proceeds of this sale are paid to the stockholders that
sell their shares. Often, the company that issued the shares holds a large percentage of the
stocks it issues.

2. Investopedia explains 'Secondary Offering'

3. 1. This sort of secondary public offering is a way for a company to increase outstanding
stock and spread market capitalization (the company's value) over a greater number of
shares. Secondary offerings in which new shares are underwritten and sold dilute the
ownership position of stockholders who own shares that were issued in the IPO.
2. Typically, such an offering occurs when the founders of a business (and perhaps some
of the original financial backers) determine that they would like to decrease their

positions in the company. This kind of secondary offering is common in the years
following an IPO, after the termination of the lock-up period. Owners of closely held
companies sell shares to loosen their position - usually gradually, so that the company's
share price doesn't plummet as a result of high selling volume. This kind of offering does
not increase the number of shares of stock on the market, and it is most commonly
performed in the case of a company that is very thinly traded. Secondary offerings of this
sort do not dilute owners' holdings, and no new shares are released. There is no "new"
underwriting process in this kind of offering.

Definition of 'Initial Public Offering - IPO'

The first sale of stock by a private company to the public. IPOs are often issued by smaller,
younger companies seeking the capital to expand, but can also be done by large privately owned
companies looking to become publicly traded.
In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine
what type of security to issue (common or preferred), the best offering price and the time to bring
it to market.
Also referred to as a "public offering."

Investopedia explains 'Initial Public Offering - IPO'

IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock
will do on its initial day of trading and in the near future because there is often little historical
data with which to analyze the company. Also, most IPOs are of companies going through a
transitory growth period, which are subject to additional uncertainty regarding their future
values.
Embark on the interesting journey from the pre-IPO stage to the final IPO placement in the
primary market - Read The Road to Creating an IPO and Interpreting a Company's IPO
Prospectus Report.

Definition of 'Follow-On Offering'

An issue of shares of stock that comes after a company has already issued an initial public
offering (IPO). A follow-on offering can be diluted, meaning that the new shares will lower a
company's earnings per share (EPS), or undiluted, if the additional shares are preferred. A
company looking to offer additional shares, registers the offering with regulators which includes
a prospectus of the investment.

Investopedia explains 'Follow-On Offering'

Unlike an IPO, which includes a price range that the company is looking to sell shares at, the
price of a follow-on offering is market-driven. Because the company is already publicly traded, it
has been consistently valued by investors for at least a year before the follow-on offering is
floated. Thus, any investment bank working on the offering will often focus on marketing efforts,
rather than valuation.