Question

1. What is the difference between public and private placement of securities? ( 2 paragraphs)

2. What were the ramifications of the repeal of the Glass-Stegal Act?  Why are some parties trying to reinstate it? ( 2 paragraphs)

Answer 1

1. Public Securities:- In public securities, The most common type of public offering is an initial public offering, in which equity shares are offered to public investors for the first time. A secondary or follow-on public offering occurs when you want to sell equity shares in the public markets after you've completed an IPO. After a company has gone public, it is regulated by the SEC and must disclose quarterly and annual financial performance to the public. When you list shares in a public offering, you're inviting shareholders to not only share in the ownership and profits of the business but you're also allowing them a vote on the future direction your company takes.

Advantages:-The federal government made IPOs more small-business friendly as a result of public policy that was passed in 2012. The rule, which is named the Jumpstart Our Business Startups Act, was formed to support hiring, and it lessens the otherwise extensive financial reporting burden on small businesses filing for an IPO. Although you may not earn as much money in a private placement compared with an IPO, the expenses associated with a private deal are less. Private placements can also be completed quicker than IPOs, and if you value your position as a private entity, you don't have to sacrifice that privacy but can still gain access to liquidity, or cash, from the deal

Private Securities:- In a private placement, you sell equity shares of your business to a select group of investors. The target investor audience for private placement deals are accredited investors, or those who earn at least $200,000 annually or whose net worth exceeds $1 million, according to a 2010 article on "The Wall Street Journal" website. The investors, who you are responsible for finding, although you could enlist the help of a broker, agree to buy and hold the shares for a predetermined period of time and in exchange are offered shares of the company for a discounted price.

Advantages:-Fast and cost effective, Choice of investors, Flexibility in type of amount of funding,

Glass Stegal Act:-

The Glass-Steagall Act is a law that prevented banks from using depositors' funds for risky investments, such as the stock market. It was also known as the Banking Act of 1933 (48 Stat. 162). It gave power to the Federal Reserve to regulate retail banks. It also prohibited bank sales of securities. It created the Federal Deposit Insurance Corporation.

Glass-Steagall separated investment banking from retail banking.

Investment banks organize the initial sales of stocks, called an initial public offering. They facilitate mergers and acquisitions. Many of them operated their own hedge funds. Retail banks take deposits, manage checking accounts and make loans

A reinstatement of Glass-Steagall would better protect depositors. At the same time, it would create organizational disruption in the banking industry. This might be a good thing, as these banks would no longer be too big to fail, but it should be managed effectively.

Congressional efforts to reinstate Glass-Steagall have not been successful.

In 2011, H.R. 1489 was introduced to repeal the Gramm-Leach-Bliley Act and reinstate Glass-Steagall. If these efforts were successful, it would result in a massive reorganization of the banking industry. The largest banks include commercial banks with investment banking divisions, such as Citibank, and investment banks with commercial banking divisions, such as Goldman Sachs.

The banks argued that reinstating Glass-Steagall would make them too small to compete on a global scale. The Dodd-Frank Wall Street Reform Act was passed instead.

A part of the Act, known as Volcker Rule, puts restrictions on banks' ability to use depositors' funds for risky investments. It does not require them to change their organizational structure. If a bank becomes too big to fail and threatens the U.S. economy, Dodd-Frank requires that it be regulated more closely by the Federal Reserve.