39. Overview of Equity securities Flashcards
Common Shares
Common stock represents an ownership position. Common shareholders benefit from a company’s operating performance, participate in its governance, and have a residual claim to its asseat liquidation. Companies often choose to pay dividends to common shareholders, but they are under no obligation to do so.
statutory voting
standard voting system, grants one vote for each share owned
Cumulative voting
allows shareholders to direct all of their votes to specific candidates in board elections.
Preference Shares (Preferred Stock)
rank above common stock in terms of dividends and liquidation rights. preference shares do not grant any voting rights and owners are generally unable to benefit from any improvement in the issuer’s operating performance.the issuer is contractually obligated to make fixed payments at regular intervals.may also carry an option that allows their owner to convert them into common shares.
Private equity securities
are issued via private placements, primarily to institutional investors. They are highly illiquid because they do not trade on public exchanges.
Venture capital (VC)
firms provide start-up capital, early-stage financing, or mezzanine financing. VC investments typically require relatively long-term commitments (i.e., 3 to 10 years). Initial public offerings are often used as an exit strategy.
leveraged buyout (LBO)
investors raise large amounts of debt to purchase all of a public company’s outstanding common stock. If the deal is overseen by managers, it is called a management buyout (MBO). Both the LBO and MBO work well for companies that have undervalued assets and high cash flows to support the debt obligations. Either way, the company is taken private, although investors typically seek to take it public again after it is restructured.
Private investments in public equity (PIPE)
are used by companies that need to raise capital quickly. Private investors can purchase these equities at a significant discount.
depository share
represents an economic interest in a foreign company, but it trades on an exchange in the investor’s domestic market. A DR can represent any number of the company’s shares.
Global Depository Receipts
GDRs are issued outside the company’s home country and are generally exempt from any foreign ownership and capital flow restrictions that may be imposed by that country’s government.
American Depository Receipts
A GDR that can be listed on a US exchange is called an American Depository Receipt (ADR). ADRs are USD-denominated securities that trade like US domestic stocks. The underlying securities, called American depository shares, are traded in the issuing company’s domestic market.
Global Registered Shares
A global registered share (GRS) is traded on different stock exchanges around the world (including the local market) in different currencies, which eliminates the need for currency conversions. A GRS can be purchased on an exchange in one country for local currency units and sold on another exchange for units of that country’s currency. Unlike a DR, a GRS represents an actual ownership interest in the company.
Basket of Listed Depository Receipts
is an exchange-traded fund that represents a portfolio of depository receipts. Like other ETFs, it trades throughout the day like a normal stock.
callable
The call option gives the issuer the ability to buy the shares at a fixed value (benefits the issuer)
putable
the put option allows shareholders to sell their shares for a fixed amount (benefits the shareholder).
