This chapter will begin by looking at the US stock markets.
There are many ways to get equity in a company, and one is to buy stock. However, not all stock markets are the same. You have the very liquid big capitalization stocks that are traded on a variety of platforms, and exchanges, and you have over-the-counter stocks (OTC) that can vary from Pink Sheets to penny stocks. Our discussion will only be about securities that are traded on the major exchanges.
When you buy a stock, who actually sells it to you?
Is it your broker?
Is it the underwriter?
Is it the mysterious short seller?
The answer may surprise you. It is the company that issued the stock! This is very significant, and it will help you to understand the “flow of funds” we will discuss later.
When a company decides to offer stock to the public, it goes through a series of steps that will result in an underwriting and an IPO (initial public offering). If it is a small offering, it will be conducted in the OTC market, or even a smaller stock market known as “penny” stock. No matter which market the firm uses, when it offers stock the originator's interest will become diluted.
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