The stockbroker is a financial intermediary who searches and buys securities on behalf of the customers in the target market. The broker is responsible for trade account management.
The role of the stockbroker is then also by its nature different from that of the dealer. The professional works mostly as an operator that simply merges the supply and demand of financial instruments, but is a passive actor in the context of trading as he can not take positions on the market but merely perform those of its clients.
The dealer’s hand is seen as a speculator based on the information in his possession. He takes advantage of opportunities by buying securities when they are undervalued and selling them when they are on the upside. It often happens, however, that a stockbroker can also act as a dealer.
Besides, this creates possibility of raising equity capital in the subsidiaries that offer the best prospects at the time. The issue can broaden the shareholder base of the company and improve the transparency and market valuation of the company. Furthermore, they can also serve as a defensive measure against hostile takeovers and the creation of business- unit based management incentive systems.
Tracking
The issue of tracking stock can be made as a spin-off as a dividend in kind to the company’s shareholders, as an Equity Carve-out as part of a public offering or an acquisition currency to the shareholders of the acquired company – and these options can be combined. A major difference and advantage to the equity carve-out is that the issue of tracking stock is not necessarily linked to the formation of legally independent subsidiaries.
In addition, trade account management can be largely left in the hands of the Executive Board of the Issuer as opposed to equity carve-out. The introduction of tracking stocks can also be given due to the lighter revisability and tax advantages of preference over equity carve-out.
problems
The control of separate business areas is difficult. There would be incentives to cross-subsidize unprofitable operations of a successful area. Penny stock are shares whose value is less than one unit of local currency. In the euro area so this is a share which has a value of EUR 1. In the USA the use of the term, however, is different because there are stocks that are trading below USD 5 as a penny stock.
Due to the often very low trading volume on the stock exchanges, such shares are often the object of speculators and have a high volatility. In contrast, there is the unregulated open market featuring a very large number of such shares. A listing in the open market costs relatively little. A prospectus must not be published, the publication of annual reports and balance sheets is also not mandatory.
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