Winds of Change: From Vendor Lock-in to the Meta Cloud

Winds of Change: From Vendor Lock-in to the Meta Cloud Introduction: A software requirement specification is a complete explanation of the system that is to be created. Software requirement specification includes non-functional and functional requirements. Use case technique can be used in prepared to identify the functional requirements of the software inventions. Non-functional requirements are requirements which force constraints on the implementation and design. As systems grew more complex, it becomes more apparent that the goal of the entire system can’t be easily included. The software requirement specification consists of two important activities. Problem/Requirement investigation Product Function summary Security is one of the most important points in wireless communication studies because it is an essential challenge since wireless messages are transmitted in the air so there is a chance that hackers can read out the messages and see what all the contents are there in the message. Purpose of Software Requirement Specification: A software requirement specification personifies the requirements of a system IEEE standard and is a organized collection of information. A business analyst (BA), sometimes called system analyst is important for examining the business needs of their clients and for the persons having interest and concern in solving the problems and finding solution for the problems. BA typically performs a communication between the business side of an enterprise and the information technology department. To list the user requirement in a specified manner is the main purpose of software requirement specification. It defines requirements for the software and restrictions needed to this application and document. 4.2 Performance Requirements Portability: It is easy for the user to understand and respond as the Graphical User Interface of this application is user-friendly. Response time: It is the time taken to complete a work by the system by the user is found to be very less. Reliability: This system helps us to deliver the need for queries with high possibility and the functionalities that are available in the application. Scalability: To improve the quality of the product, the system can be extended to combine the changes that are done in the present application. Scalability is meant for the future works that is to be done on the application. 4.3 Functional Requirements: Functional requirements are the statements of services the system should supply, how the system should behave in particular condition and how it behaves to certain inputs. Also the functional requirements define what the system should not do in some cases. The functional requirements is based on the kind of software being evolved, when writing requirements the general approach taken by the organization and the anticipate users of the software. These requirements for a system report what the system should do. The requirements are normally describes in a fairly abstract way when it is exhibited as user requirements. Functional requirements may be exhibited in numerous ways for a software system and it describes the irregularity, its inputs and outputs and functions of system in detail. Some of the typical functional requirements are: 1. Transaction corrections, adjustments, cancellations: Here uploading the data on cloud by data owners are by the transactions which is done online. The end users upload the files to each cloud servers can be downloaded and viewed and these end users have to register to cloud service providers. 2. Authentication: Here the users authentication is required to enter any of the modules implemented in the proposed system and is used to login into the cloud service providers servers. 3. Authorization- functions user is assigned to perform: Here the users are allowed to login by registering and paying into cloud servers if the cloud services are to be used by paying. User has the right to upload the files to respective cloud servers and track the details which are uploaded after logging into the cloud by registering. 4. Audit Tracking: An audit trail which is also called as audit log provides documentary proof of the series of activities that have elaborated at any time a particular operation, procedure or event and is a security-applicable chronological record, set of records, and/or at the end of line and source of records. Scientific research and health care data transactions, financial transactions, or communications by individual people, systems, components, accounts or other entities are the activities in which the audit records typically result from. The procedure that generates an audit trail can enter and administer all actions from all users; a standard user is not authorized to stop or change it and is typically required to always run in a prosperous mode. Additionally, database table with a string or trail file is not reachable to normal users in some cases. The use of a role-based security model in the software is another way of dealing with this issue. When using audit trail functionality, the softwar e is required by many companies and it can also work as a ‘closed system’ or with closed-looped controls. 5. Historical Data: Historical data is the data which is a collection of old records and it should always be present in database. Historical data should not be deleted by the cloud service provider from the database except the data owners are asking to delete the historical data. 4.4 Non-Functional Requirements: Non-functional requirements are the requirements that are often called the qualities of the system. It can be used to form the operation of the system, rather than specific behaviors. Reliability (accuracy), response time and store occupancy are the emergent system properties that non-functional requirements deal with. Alternatively, they may define the constraints on the data representations used in system interfaces and the system capabilities of I/O devices. Non-functional requirements are constraints, quality attributes i.e. it provide the method for designing the fitness and suitability of the product, quality goals, non-behavioral requirements i.e. it achieves its job such as reliability(accuracy) and defines the attributes of the system, efficiency(planning), timing constraints etc.. Non-functional requirements are divided into two main classes: Security and usability are execution qualities. Testability, maintainability, extensibility and scalability are evolution qualities. Some of the non-functional requirements are: Accessibility Accessibility is the one in which a device, service, product or environment is available to many people as possible. Accessibility advantage from some system or organization and it can be observed as the â€Å"ability to access†. The cloud computing system is distributed software so it can be reached from any point of the world through internet without interfering. Availability Availability is the degree to which a system, subsystem, constituent or equipment is in a detailed operable and occurring state at the start of a mission, when the mission is called for as an unknown i.e. a non-specific time. The cloud computing system is distributed software so it can be reached from any point of the world without interference. Reliability Software reliability is the accuracy that has possibility that software will work properly in an identified environment and for a given time. The possibility of failure is calculated by testing a sample of all available input states using the following formula. Probability = Number of failing cases/ Total number of cases under consideration. System Reliability Specification: Hardware reliability Possibility a hardware component fails. Software reliability Possibility a software component will produce an incorrect output Even though a bad result will occur, software can continue to operate in that condition Operator reliability Possibility a system user will make an error Dept. of CSE,STJIT,RANEBENNURPage 1 Underpricing in Turkey: a Comparison of the IPO Methods Underpricing in Turkey: a Comparison of the IPO Methods Abstract This paper addresses the question of what kind of selling and underwriting procedure might be preferred for controlling the amount and volatility of underpricing in the Istanbul Stock Exchange (ISE). Using 1993-2005 firm and issue data, we compare the three substantially different IPO methods available in the ISE. One is very similar to the book building mechanism used in the U.S., another is the fixed price offer, and the third one is the sale through the stock exchange method. The empirical analysis reveals significant first day underpricing of 7.01% in fixed price offer, 11.47% in book building mechanism, and 15.68% in sale through the stock exchange method. Finally, we also show that fixed price offers can better control the impact of market information on underpricing than sale through the stock exchange method. 1. Introduction Extensive amount of research from a variety of different markets have documented the presence of first-day underpricing upon the listing of initial public offerings. The evidence is well documented by Loughran, Ritter, and Rydqvist (1994) and Ritter1 (1998), (2003) in many developed and emerging markets. In developed markets, in the absence of restrictions on intra-day price movements, first-day underpricing is observed in broad price bands. However, in emerging markets, in the presence of daily volatility limits, first-day underpricing is observed in narrow price bands. In contrast to the daily price limits, significant positive short run returns are observed in a number of emerging markets and substantial amount of money is â€Å"left on the table by issuers. Besides empirical evidence, most of the theoretical models explaining IPO underpricing are grouped under four broad headings by Ljungqvist (2005), these are (i) information asymmetry between the investors, the issuing firm an d the underwriter, these models assume that one of these parties knows more than the others, (ii) institutional reasons, institutional theories focus on three features of the marketplace: litigation, banks price stabilizing activities once trading starts, and taxes, (iii) control considerations, control theories argue that underpricing helps shape the shareholder base so as to reduce intervention by outside investors once the company is public, (iv) behavioral approaches, behavioral theories assume either the presence of irrational investors who bid up the price of IPO shares beyond true value, or that issuers suffer from behavioral biases causing them to put insufficient pressure on the underwriting banks to have underpricing reduced. These theoretical models almost always end with the conclusion that the average IPO is undervalued at the offer price, where the initial investors, in most cases, benefit from possessing information by receiving allocations of shares in IPOs and earn the largest first-day returns. The expectations of issuing firms, investors and underwriters in IPO pricing are considerably different. In an offering, the issuer generally wants to receive the highest possible price to maximize cash flows to the firm. Investors like to purchase shares at a deep discount so that they can realize positive returns *Baskent University, Faculty of Economics and Administrative Sciences, Baglica Kampusu, Ankara, 06530, Turkey, + 90 (312) 234 10 10 /1728, [emailprotected] 1 Ritter (1998), (2003) provides an update on the compilation of Loughran, Ritter, and Rydqvist (1994) in a short investment period. Underwriters, acting as an intermediary between investors and issuing firms, suffer from a dilemma, if an underwriter determines IPO prices too low, where the foreseen amount of money left on the table will be huge, the issuing firm may withdraw or switch to another underwriter. On the other hand, if an underwriter determines IPO prices relatively high, investors will hesitate to buy new issues, which would result in low commissions and an unwanted effort in aftermarket stabilization activities. Underwriters, however, have an incentive to underprice the shares to ensure that they can sell the offering, and, unsurprisingly, there is extensive evidence that IPOs are, on average, underpriced. Hence, pricing of stocks in IPOs may be the most critical stage of the IPO process. More recently, the literature on IPOs, both theoretical and empirical, focuses on the efficiency mechanisms of the following methods for pricing initial public offerings. At the center of this literature, book building, auctions and fixed price offers differ mainly in price-discovery and share allocation process. Book Building in which the underwriters do road shows and take non-binding orders from Auctions in which the company sets a price range to be used as a non-restrictive guideline for investors, than accepts bids, each specifying a number of shares and a price the investor is willing to pay for them, finally, the market-clearing price set by the investors approximates the real price the shares will command in the market. Fixed Price Offer in which the issue price is set first and than orders are taken from investors who typically pay in advance for part or all of the shares that are ordered. Sale through the Stock Exchange in which the sale is initially conducted in the primary market of the stock exchange by a designated underwriter. Those investors who buy the shares in the primary market must wait until the shares trade in the secondary market in order to sell their shares. The price designated at the time of registration with the securities exchange commissions is set as the opening price. Hybrid Offerings in which the underwriters combine the preceding IPO methods, and design auction/fixed price, auction/book building and book building/fixed price hybrids. For most hybrids, the most common combination is the book building/fixed price offer, where the underwriter uses the book building method to set the price and allocate shares to institutional and foreign investors, and retain the fixed price offer to the domestic retail investors who do not participate in the price-setting process. This paper addresses the question of what kind of selling and underwriting procedure might be preferred for controlling the amount and volatility of underpricing in the Istanbul Stock Exchange (ISE). In this regard, we first compare the three IPO methods available in Turkey. One is very similar to the book building mechanism used in the U.S., another is the fixed price offer, and the third one is the sale through the stock exchange method. Then, we estimate a binary probit on the issuers choice between fixed price offer and sale through the stock exchange method, however, because of the declining importance of the book building mechanism in Turkey, we excluded the book build IPO sample from our binary probit estimations. Finally, we determine the factors that are expected to have an effect on the IPO returns. Our results indicate that, the comparison of the two mechanisms yield that for certain values, namely first day underpricing, IPO amount and fractions of equity sold, fixed pric e offer outperforms the sale through the stock exchange method. To the best of our knowledge, this is the first empirical study on the comparison between fixed price offer and sale through the stock exchange method in the IPO literature. The uniqueness of the data and the availability of the sale through the stock exchange method in the ISE make it possible to conduct a study on the comparison between these two methods. The remaining part of this paper is organized in six sections. In the next section, we provide a comparison of the theoretical and empirical research conducted on IPO methods across many countries around the world. In section 3, we describe the three important Turkish IPO market selling procedures. In section 4, we describe the data and the methodology we used in our empirical tests. Section 5 documents the relationship between market conditions and underpricing of IPOs in different time series and the last section concludes. 2. Comparison of the IPO methods in the literature: Theory and Evidence The efficiency of the IPO methods has been the subject of an academic research over a decade, both empirical studies and theoretical models have tried to explain the advantages of one method over another. The argument that is often made in favor of IPO methods is often empirical as well as theoretical. Researchers studying on the efficiency of the IPO methods try to answer the most challenging question, â€Å"Which one of the IPO mechanism is the most efficient?2. However, according to our comprehensive literature research, both empirical studies and theoretical models listed in Table have some mixed answers. 1. Book Building vs. Fixed Price Offer and/or Auctions Comparison of the IPO methods in the literature goes back to Benveniste and Spindt3 (1988), (1989) and Spatt and Srivastava (1991), they suggest that the American bookbuilding procedure is efficient since it encourages investors to reveal their beliefs about the issues value at a cost of initial underpricing. Book building allows investors to collect information about the value of the stock and price the issue more accurately. To compensate the investors who reveal information, underwriter will favor them when allocating shares. However, fixed price mechanism does not utilize any information about realized buyer valuationsin setting the issue price and is generally inefficient. Loughran, Ritter and Rydqvist (1994) present the first international evidence on the short-run and long-run performance of companies going public in many stock markets around the world. They document that the fixed price method is associated with greater underpricing because of the greater probability of the issue failing and the increased uncertainty associated with the longer time delay between offer and issuance time. Chowdhry and Sherman (1996) point out that two features of fixed price offers tend to lead to greater underpricing, relative to the book building method. The first one is the length of the bidding process, as the time gap between the offer and first day market price widens â€Å"price information leakage occurs, the second one is the common requirement that investors pay in advance for their entire order. Benveniste and Busaba (1997), extend Welchs4 (1992), model of information cascades in investment decisions and present a theoretical comparison of the fixed-price and book-building mechanisms. They exhibit that issuers with a greater concern for risk will prefer a fixed-price offer, because book- building might generate higher expected proceeds, and exclusively provides an opportunity to sell additional shares at full value but it also exposes them to higher risk. Ritter (1998) demonstrates that countries that use bookbuilding typically have less underpricing than countries using f ixed-price offerings, more underpricing under fixed-price offering procedures can be attributed to informational cascades. However, Loughran, Ritter and Rydqvist (1994) and Ritter (1998) point out that IPOs with discretionary allocation (Fixed Price Offering and Book-building) are underpriced more than those with non-discretionary allocation (Offer for sale and Auctions), especially in Auctions. Under discretionary allocation, the first day price increase averaged 37% in fixed price offerings, 12% in book building. Under non-discretionary allocation, the first day price increase averaged of 27% in Offer for sale and 9% in Auctions. 2 In terms of controlling the amout and volatility of underpricing, share allocation and pricing. 3 The literature on underpricing in initial public offerings goes back to Logue (1973), Ibbotson (1975), Chalk and Peavy (1987), Miller and Reilly (1987), Ritter (1984), Rock (1986), Allen and Faulhaber (1989), Benveniste and Spindt (1988, 1989), Grinblatt an d Hwang (1989), and Welch (1989). However, the mechanism by which initial issues are sold has largely been ignored until Benveniste and Spindt (1988), (1989). 4 Welch (1992) focuses on the fixed-price procedure used in some non-US countries, and shows that this procedure can cause informational cascades: investors who observe the investment choice made by previous investors can update their beliefs about the value of the issued shares. Sherman (2000), (2002) shows that fixed price offer, can lead to higher underpricing than book building. Contrary to the fixed price offer and the auction method, in book building underwriters discriminate investors in the allocation of shares to establish long-run relationship with intermediates. Book building gives the underwriter greater flexibility in designing a solution that reflects the individual issuers preferences. By controlling investor access to IPO shares, book building controls both the winners curse problem that affects discriminatory auctions and the free rider problem that affects uniform price auctions. Book building also reduces uncertainty for both issuers and investors. In a study that covers 47 countries, Sherman (2002) has found that in all countries in which the bookbuilding mechanism has been introduced, pre-existing auction systems have decreased in popularity or disappeared altogether. Ljungqvist, Jenkinson and Wilhelm (2000) use a unique dataset containing information on 2,051 initial public offerings in 61 stock markets around the world, during the period of 1992-1999. The authors examine the relative direct and indirect costs of offerings carried out by book building and fixed-price methods. They find that, the direct costs of book building are typically twice as large as direct costs for fixed-price offers. Compared to fixed price offerings, book building efforts though more expensive produce far less underpricing. Nevertheless, fixed price offering is still an extremely common method that is not likely to be abandoned by the underwriters completely. Compared to book building efforts, fixed price offering is an efficient, low cost way to distribute shares to retail investors, avoiding the high fixed costs of road shows. Aorsio, Giudici and Paleari (2000), Guidici and Paleari (2001) present an empirical study conducted on the Milan Stock Exchange companies bet ween 1985 and 1999. Authors distinguish between fixed- price offers and open-price offers with bookbuilding and find different underpricing levels and statistically significant determinants. They state that if the offering is preceded by book building, the underpricing is significantly lower (8.32 % vs. 28.33% in fixed-price offerings), this method allows the issuing parties to collect information from the institutions and to signal good news or bad news to retailers through the revision of the prospectus price range. Therefore, the cost of raising private information is reduced and the requested underpricing is lower. The evolution of the placing procedure, from fixed price to book building, has considerably improved the efficiency of Italian IPO market. Biais and Faugeron-Crouzet (2002) analyze and compare the performance of book building, fixed price offering, uniform price auction, internet-based Open IPO mechanism, and an auction like mechanism called the Mise en Vente in France. Conclusions emerging from their analysis are; Fixed price offerings lead to inefficient pricing and winners curse. Dutch auctions can also lead to inefficiencies, to the extent that they are conductive to tacit collusions by investors. The book building and an auction like mechanism Mise en Vente can lead to optimal information elicitation and price discovery. Chahine (2002) investigates the relationship between underpricing and the investors interest prior to and after the IPO day on 305 French issues. Empirical results show that book-built issues have a lower underpricing, on median, but a higher variance level, than the auction-like and fixed-price offerings. Despite the high initial underpricing of some book-built issues, book-building procedure appears to better control the information gathering from investors participating in the offering, and to be a more efficient pricing system than the auction-like procedure. Paney (2004) examines the initial returns, characteristics of issuers and long run performance of Indian IPOs on a sample of 84 Indian IPOs between 1999 and 2002. In terms of initial returns or underpricing, Paney (2004) finds that fixed price offering yields higher initial returns on average, as compared to book building. In terms of issuer characteristics, Paney (2004) finds that fixed price offering are used by issuers of fering large proportion of their capital by raising a small amount of money. In contrast, book building is opted for by issuers, offering small portion of their stocks and mobilizing larger sums of money. Kutsuna and Smith (2004) present an empirical study conducted on the Japanese IPOs between 1995 and 1999. Using a sample of 163 book-built and 321 auctioned IPOs by JASDAQ companies, authors document that average total issue cost, measured as a percent of aftermarket price, was significantly higher in the book-building regime than in the earlier auction regime. However, when results are weighted by issue size, the estimated aggregate costs of auctioning and book building are similar. This outcome favors book building over auctions for two reasons. First, auction-method estimates do not reflect opportunity costs related to underinvestment. Second, issue cost estimates ignore other benefits of the more-accurate pricing that book building affords. Anand (2005) examines the differences between book building and Dutch-auction, and shows that the bookbuilding method of offering securities is superior to the Dutch-auction IPOs. Stated by Anand (2005), while the Dutch-auction may seem to lea d to efficient price discovery based on investor demand, recent transactions suggest that price discovery is not always accurate and that, indeed, underpricing occurs even in the Dutch auction. Further, even if the Dutch auction is more fair than the bookbuilt process in terms of allocating securities, the Dutch auction can lead to less capital market efficiency overall and can therefore be questioned as a basis for promoting this type of offering. Jagannathan and Shermans (2005) research on the efficiency of IPO mechanism show that hybrid bookbuildings5, unlike auctions, have proved effective in many different countries, cultures, time periods, and market conditions. Jagannathan and Sherman (2005) propose a new IPO mechanism that could overcome the problems with standard auctions. A method that retains the advantages of bookbuilding, while modifying it to increase transparency. Although not a direct comparison between book building, auctions and fixed-price offers, Cornelli and Gol dreich6 (2001), (2003) examine a unique data set of international book building allocations and find that the underwriter favors both regular investors and investors that supply information on the value of the issue. Degeorge, Derrien and Womack (2005) have presented empirical evidence from Frances IPO market that underwriters employing the bookbuilding process implicitly committed to providing more favorable coverage to the companies they took public in the aftermarket. Authors find convincing empirical evidence that in addition to placing the IPO shares with investors, underwriters employing book-building implicitly commit to providing more favorable coverage to the companies they take public in the aftermarket. Specifically, analysts, affiliated with the lead underwriter of the offering, issue more favorable recommendations for recent book-built IPOs than for auctioned offerings. 2.2. Fixed Price Offer vs. Book Building and/or Auctions The pricing of Initial Public Offerings (IPOs) in the short-run has been analyzed by several theoretical and empirical studies referring to the major international stock markets. Extensive research has revealed that the fixed-price offering all over the world suffer from IPO underpricing especially in these major markets. However, studies conducted by Busaba and Cheng (2001), Bierbaum and Grimm (2003), Chemmanur and Liu (2003), Hsu and Hung (2005) present some evidence on the efficiency of fixed price offering over book building and auctions. Busaba and Cheng (2001) show that the bookbuilding process elicits much information from informed traders at the IPO stage by promising larger allocation of valuable stocks to investors who truthfully reveal their information, and therefore reduce the impact that such informed traders have in the after- 5 In the hybrid bookbuilding offers, all retail investors are allowed to place orders in a public offer tranche, and all have an equal chance of getting shares. The prices, however, are set by professional investors who are given incentives to attend the road show. Jenkinson and Jones (2004), cast some doubts about the findings of Cornelli and Goldreich (2001) upon the extent of information production during the bookbuilding period. market trading. In contrast, the fixed price method, that does not elicits such private information at the IPO stage, enables informed traders to use such information in the after-market at the expense of the uninformed traders. In this regard, if the underwriter building a book can not successfully target a subset of the informed investors, a simple fixed price strategy that involves allocating the issue to retail investors produces higher proceeds on average. The comparatively high adverse selection problems associated with the fixed-price method will spill over from the IPO stage to the after-market. This in turn means that liquidity will be relatively more important for IPOs carried out via a fixed- price method than via bookbuilding. Authors show that, compared with a fixed-price offering, the bookbuilding process elicits more information from informed traders at the IPO stage, and therefore reduce adverse selection problems in the after-market trading. However, by the same toke n bookbuilding may require larger informational rents to be paid at the IPO stage. This suggests that underpricing should be larger for IPOs carried out via bookbuilding than via a fixed-price method. Bierbaum and Grimm (2003) compare the fixed price and the uniform auction in a game theoretic framework. The comparison of the two mechanisms yields that for certain parameter values, namely a low variance of the asset and, at the same time, a sufficiently high probability of low demand, fixed price method outperforms the auction in terms of revenue. Moreover, the revenue in the fixed price mechanism is typically less volatile than the revenue in the auction. Chemmanur and Liu (2003) model the effect of costly information production on issuers choice of a fixed-price offer or a uniform-price auction with exogenous entry of bidders. Their model predicts that IPO auctions will exhibit a significantly lower mean and variance of underpricing compared to fixed- price offerings. This is due to the fact that the offering price in an IPO auction aggregates the information produced by outsiders to a significant degree, so that this offering price is greater for higher intrinsic-value firms and lower for lower intrinsic-value firms in IPO auctions than in fixed- price offerings. At the same time, there is less information production in IPO auctions compared to fixed-price offerings where the offering price is set by insiders to induce the optimal degree of information production, so that a lower amount of information is reflected in the opening price of the shares listed in the stock market. Thus, Chemmanur and Liu (2003) demonstrated that, in many situations, firms will prefer to go public using fixed-price offerings rather than IPO auctions in equilibrium, since such offerings allow the firm to induce the optimal extent of information production. Hsu and Hung (2005) present an empirical study conducted on the Taiwanese companies between 1996 and 2000. Using a sample of 280 pure fixed-price offers and 84 hybrid auctioned, authors find that, Taiwanese hybrid auctions are associated with less under-pricing and with a lower variance of under-pricing than versus the pure fixed-price offers, but these differences are not statistically different. On the other hand, we find that the market index returns prior to the IPO pricing date have a strong influence on the under-pricing of Taiwanese IPO auctions and of the pure fixed-price offers. Authors provide empirical evidence of how Taiwanese issuers make the choice of IPO method. Taiwanese issuers that float large IPOs, or which have a pricing conflict with underwriters, will likely use a hybrid auction to distribute shares. On the other hand, when the relative risk level of IPO auctions to fixed-price offers has increased, the issuers will likely avoid an IPO auction. Empirical evidenc e also explains why Taiwanese IPO auctions have lost market share to fixed-price offers. Further results reveal that Taiwanese IPO auctions are not associated with less under-pricing and with a lower variance of under-pricing, nor are they better at incorporating recent market information into the IPO price than the pure fixed-price offers. Authors examination on issuers choice of hybrid auctions or fixed-price offers indicates that Taiwanese issuers condition their choice of IPO method not only on firm characteristics, but also on IPO size and on market conditions. This is why Taiwanese issuers prefer a pure fixed-price offer to a hybrid auction are based on market volatility and the pricing conflict. In doing so, under a volatile market where Taiwanese hybrid auctions have become much riskier relative to the pure fixed-price offers, issuers will prefer a pure fixed-price offer to a hybrid auction, resulting in a lower popularity of Taiwanese hybrid auctions. As listed in Table 1, Fixed Price Offering seems to be the less favorable method comparing to Book building and Auction Methods. It is a fact that, the worldwide introduction of book building method during the 90s has promoted efficiency in the major equity markets. However, Sherman (2002) states that stock markets listing few IPOs each year, fixed price offering is still be the optimal method. 2.3. Auctions vs. Book Building and/or Fixed Price Offer Using a sample of 108 French firms marketed on the Second Marchà © between 1984 and 1991, Leleux and Paliard (1995) show that initial returns are significantly higher for firms issuing through the fixed- price procedure than for firms using auction-like procedures. Leleux and Paliard (1995) state that the auction mechanism is associated with less underpricing and thus more efficient, since this procedure is able to incorporate more information from recent market momentum into the pricing of the IPO. Beierlein (2000) compares the book-bu ilding method to two commonly used auction mechanisms, the discriminatory price auction and the uniform price auction in terms of underpricing and the long run performance of IPOs relative to the market. Using data from Japan, Israel and the U.S., author finds evidence that the U.S. book building is less efficient than the auction mechanisms are. Specifically, underpricing is significantly higher in the U.S. than it is in Japan or Israel and bookbuilding appears to incorporate less demand information into the offer price than the auction mechanisms do. Bennouri and Falconieri (2001) suggest that auction mechanisms are the optimal way to sell new shares because auction procedures are more informationally efficient than bookbuilding. Assuming ex ante uncertainty about the firm true value, then auction mechanisms are able to elicit and incorporate more information from the market as well as from investors into the pricing of IPOs. Draho (2001) suggests that underpricing in bookbuilt IPOs is due to the uncertainty about the price on the secondary market rather than about the firm value, as most of the literature assume. Nonetheless, his results indicate auction-like mechanisms as the most efficient ones, since they are open to all investors who are moreover required to submit price-quantity bids. McDonald (2001) examines the efficiency mechanisms of the sealed-bid uniform-price auctions over book building method in a theoretical framework and concludes that the uniform-price auction, due to its generalized Vickrey auction properties, is indeed an efficient auction mechanism especially for the sale of IPOs over the Internet. Biais, Bossaert, and Rochet, (2002) study the optimal IPO mechanism by which the seller can extract private information to maximize the expected net IPO proceeds. They find that the optimal mechanism they characterize is similar to auction-like IPO procedures used in the U.K. and in France. Kaneko and Pettway (2003) examine the Japanese initial returns before and after the introduction of book building, and find that underpricing in book building method is significantly higher than auctions, especially during hot markets. Results suggest that the move from auction-priced to underwriter-priced IPOs using book building in Japan has significantly reduced the wealth of issuing companies while increasing the wealth of underwriter-selected investors. Derrien and Womack (2003), use the French IPO data for the 1992-1998 period and compare the three underwriting/selling mechanisms available on the French market. One is very similar to the book building mechanism used in the United States. Another is a fixed price procedure. The third one is an auction-like procedure. Authors show that the auction procedure is better than the others at controlling underpricing in general as well as the variance of underpricing of the issued shares in â€Å"hot versus â€Å"cold markets. Fixed price offering method is indeed inefficient and leads to greater underpricing compared to IPOs sold through book-building and auctions. However, the main empirical comparison in this paper is between the two main procedures auction and book building. Authors find evidence that during hot markets auctioning is associated with less underpricing than book building. They attribute the result to the auction methods ability to incorporate more information about recent market performance into the offer price. This result provides empirical support for the theoretical work by Biais, Bossaerts, and Rochet (2002) who suggests the auction procedure is optimal. In line with the evidence of Derrien and Womack (2003) that an auction procedure is more efficient in incorporating recent market momentum in the offer price compared to fixed price procedure, Vandemaele (2003) uses the French IPO data for the 1984-1995 period and points out the factors that may influence issue procedure choice. Results indicate that, firms facing relatively high valuation uncertainty are high likely to opt for an auction-like procedure and the likelihood of opting for an auction increases as the investment bank reputation associated with the issue decreases. Although not a direct comparison between auctions, book building and fixed-price offers, studies in Pettway and Kanekos (1996) examination on Japanese auctions, Kandel, Sarig and Wohls, (1999) examination on Israeli auctions, and Liu, Wei and Liaws (2003) examination on Taiwanese auctions seem to suggest that IPO auctions lead to less under-pricing. Biais and Faugeron-Crouzet (2001) show that a uniform price auction can prevent tacit collusion among bidders and can truthfully elicit information from investors in much the same way as book building. Bulow and Klemperer (1998) also show that it can be optimal in an auction to set a price at which there is excess demand. 2.4. Research on IPOs in the Istanbul Stock Exchange (ISE) Firms in Turkey may offer their shares to the public through, book building, fixed price offer and sale through the stock exchange method, however, they are mainly underwritten and sold using the fixed- price offering method; a method which is very common world w ide is becoming much less common, particularly for more active markets. Recent empirical studies, focused mainly on the initial returns and under pricing, condu Email Protocol: SMTP, POP, and MIME Email Protocol: SMTP, POP, and MIME Email protocol governs the interactions between email clients and servers. An Email protocol is a standard method which is used at each end of a communication channel either server side or client side, in order to transmit information properly. User is required to use a mail client to access to the mail server, by using variety of email protocols, the mail client and server can only exchange their information with each other. Three examples of Email protocol are: Simple Mail Transfer Protocol (SMTP) Post Office Protocol(POP) Multipurpose Internet Mail Extensions(MIME) Simple Mail Transfer Protocol(SMTP) Simple Mail Transfer Protocol (SMTP) transmits electronic mail (email) within different hosts in the Department of Defense Internet protocol suite. Email servers and other mail transfer agents use SMTP to send and receive messages, while SMTP usually used by client side’s email application to send messages to the email server for relaying only. For receiving messages, client side would mostly use POP protocol which will be introduced at the next part. Examples of email client that used SMTP to send messages are webmail systems: Hotmail, Gmail and also Outlook, Microsoft Exchange and so on. SMTP listens on TCP protocol well-known port 25. Functions of SMTP: To enable the client side to send email message to a receiver (an email address which already exist), SMTP would perform the following functions: User authentication To verify the sender who is using SMTP server to send an email message has the right to do so. User notification After delivering the message to the destination, SMTP will check whether the message has been successfully delivered. If the message does not delivered successfully, SMTP notifies sender by using an error messages and the message that was not successfully delivered will be delivered back to the sender. Advantages of SMTP: Simplicity SMTP is the simplest way to send an electronic mail between various computers in a particular network. As long as there is a receiver destination and a sender who send the message, the message will be send to the destination. The message will pass through a simple process from SMTP server to an exchange server for the receiver’s computer. Quick Email Delivery As we known SMTP is the simplest way to transmit a message, email messages can be sent quickly and easily by using SMTP. As long as the condition of the mail server is good, the messages that are sent will reach to the recipients as quick as possible. Reliability When the message has failed to deliver, an error message will be sent to inform the sender and the message that failed to deliver will be sent back to the sender. In this case, sender doesn’t have to worry that the message send will failed to delivered, because when the message is failed to delivered, sender can choose to resend the message until the message is finally delivered to the recipient successfully. Limitation of SMTP: Additional administrative overhead Original SMTP identifies clients by using the IP addresses, but it is only available when the email services are provided by the same Internet server provider that supplied the connection. Therefore, an extension named† SMTP-AUTH† is required to verify the senders of the messages. Required to set up security Required expertise Post Office Protocol(POP) Post Office Protocol (POP) is a Internet standard protocol in the application layer which allows email clients to retrieve email messages from a remote mail server. Out of the versions of POP that has been developed, current standard which used in most of the client and server email communication architecture is version 3 of POP also written as POP3. POP3 server listens on TCP protocol well-known port 110. It uses the TCP/IP protocol stack for network connection and works with SMTP for end-to-end email communication. In this case, POP is responsible to â€Å"pull† the messages from the server and SMTP will â€Å"push† the messages to the server. Function of POP: Retrieve message from an ISP and whether to delete or not to delete it on the server, depends on users’ decision. Detect whether new message has arrived but not retrieving it from the server, meaning the messages will be stored at the server until the user choose to retrieve it from the server. To see whether the message is worth retrieving, POP will peek at the few sentences of the message before retrieving it. Advantages of POP: Once the messages have been retrieved to the client computer, it is visible with or without the internet connection including the attachment along with the message. User can choose whether to delete or not to delete the messages that already retrieved from the server. User can choose to save a copy of some of the important messages by choosing not to delete the messages from the POP server. Disadvantages of POP: Occupied a lot of hard disk spaces in computer as the email retrieved from the server are all store into the hard disk storage. Not accessible from other machine. Nowadays, people uses multiple devices to access to one email account, but not with POP, all messages are downloaded into one and only one PC. In order to read that specify message, user can only use the PC which used to download the messages to view it. Messages stored at local disk drive are vulnerable to data loss or even security threats. As those messages stored at local disk are deleted from the server and stored at only one PC at a time, it is more dangerous when the PC suffered virus attack or data corrupted. Multi-purpose Internet Mail Extension(MIME) MIME is an extension which allows users to use the protocol to send different kinds of data files on the Internet, for example: audio file, image file (PNG, GIF, JPEG), video or even application programs. SMTP protocol only handled ASCII text, which means, only ASCII texts can be send through the protocol. Media type of content in email is described by MIME type, some of the examples for MIME types are: Plain text: txt/plain Java applets: application/x-java-applet Adobe PDF documents: application/ pdf Advantages of MIME: Allows mail messages consists not only ASCII text. Old version of Internet email standard allows only ASCII characters messages, messages not exceed 1000 characters and so on. But with MIME, it allows additional fields for mail message by using the MIME headers that describe new types of content and organization for messages. MIME allows mail messages to consist of the following: Multiple objects in a single message. Unlimited length text messages. Other than ASCII characters, it also allows non-English messages. Message that consist multiple types of font. Application specify or even binary files. Audio, Image, Video and other multimedia attachment in the mail message. MIME header can help client PC to search for the suitable application software to open the attachment or file include in the mail messages. Disadvantages of MIME: Some compound formats are considered as an application when they are nor for example â€Å"application/pdf†. Diagrams below show how client and server send and retrieve messages via SMTP and POP protocols, also how the multipurpose internet mail extension works: How to apply the following email protocols (SMTP, POP, MIME) with ASP.NET? One way to apply the mentioned email protocols with asp.net is using System.Net namespaces. It consists of classes that provide simple programming interface for several number of network protocols, compose Email and send it, it also consist of representation of multipurpose internet mail exchange (MIME) headers. Besides, it also can access to network traffic data and peer-to-peer networking function. SMTP Inside System.Net, there is a namespace called System.Net.Mail, it contains classes that we needed which is to send email messages to a simple mail transfer protocol (SMTP) server for it to be delivered. Classes include in this namespaces are for example: an Attachment class which allowed user to add an attachment into the email, MailMessage class represents the email message that can be sent by using the SmtpClient class, while there is also a class which allowed user to send an email by using the SMTP. List of all the classes in System.Net.Mail namespace will be included in Appendix A. To actually send an email using SMTP, we will require these following items: The SMTP host server that we use to send email. A port number, which usually we use port number25. User name and password for authentication purpose. An email address of sender and recipients. The message content. Once we have accessible SMTP server, it is time to send our email message! Firstly we will need to create an empty page which consists of the example coding shown: Next we can choose to send the email to more than one person at a time, by adding email address to the â€Å"To† collection as shown below: After that we can set the name of the sender, this will be shown along with the sender email address to the recipient once the email has been received. For instance, we can do this: Next, we can use the CC and BCC fields in the email messages, for example: Other than that, we can also set priority of an email message, by using one of the method provided in the System.Net.Mail class: POP To log in to a POP server, we need to use System.Net.Sockets namespace. Classes that we can use from the System.Net.Sockets namespace are for example TcpClient and NetworkStream. Firstly, we will need a simple aspx page which consists of several textfields that allow user to enter the username and password. To initiate the connection to POP3 server, we will use the System.Net.Sockets. For example, after user enter their username and password, and then there is a on click event of the button as shown in the following header: Next, we will send the username and password to the server, and the server response will be displayed: If the username and password are valid and successfully verified by the POP server, we will get a response and then start to retrieve a list of messages from the server. We will request for using the LIST command and display each message that we loop through: At last, we need to close the connection to the server. In this case, QUIT command has come to use, and then server response will be display: MIME Similar with implementing SMTP into asp.net, we can use the classes within System.Net.Mail namespace to apply MIME into asp.net. There is one namespace called System.Net.Mime which holds the types that used to represent MIME headers. These types are use along with the types in System.Net.Mail namespace when a SmtpClient class send an email with attachment. Data of MIME is represented by Attachment class which we just mentioned in the System.Net.Mail part. Here are some example of classes included in the System.Net.Mime: For the full list of classes included in System.Net.Mime, please refer to Appendix B.