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CISI - Corporate Finance Regulation > Equity Capital Markets > Flashcards

Equity Capital Markets Flashcards

1
Q

What does a primary market mean in the context of ECM?

A

First time a security is offered on an exchange

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2
Q

What are the two main stock exchanges in the UK?

A

London Stock Exchange and Aquis Stock Exchange

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3
Q

What is the MTF for LSE and Aquis?

A

AIM | Aquis Growth Market

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4
Q

Are AIM and Aquis GM RIEs or MTFs?

A

MTFs, as they offer SME’s growth market facilities

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5
Q

What is the difference between the Listing Rules, Disclosure Guidance and Transparency Rules, and the Prospectus Regulation Rules?

A

o Listing Rules (LRs): provisions for listing and continuing obligations, apply for premium listing companies and partially for standard listed
o Disclosure Guidance and Transparency Rules (DTRs):Dissemination of price-sensitive information
o PRRs: Content and form of a prospectus, exemptions, and approvals

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6
Q

Difference between premium and standard listing?

A

Premium:
- UK super-equivalent standard
- Meet highest standard of UK regulation
- Comply with Corporate Governance code
- Available for equity securities and those issued by Open- and Close-Ended Investment Companies

Standard:
- Meet minimum EU standards only
- No sponsor required
- Limited compliance with Corporate Governance code
- No transaction classifications
- Partial application of Listing Principles
- Only partial compliance with Listing Rules
- Available for equity securities, debt, and GDRs, but not OEICs/CEICs

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7
Q

What are the six high level principles for premium listed companies?

A

Premium listed companies must:
1) Ensure that directors understand their responsibilities and obligations as directors
2) Act with integrity towards its shareholders
3) All listed shares in a class must carry equal votes
4) If different classes of equity listed, aggregate voting rights proportionate to relative interests
5) Treat all shareholders of the same class equally
6) Communication of information should avoid the creation of a false market

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8
Q

Alongside the six principles for premium listings, what principles apply to both premium and standard listings?

A

Premium and standard listed companies:
1) Establish and maintain adequate procedures, systems, and controls
2) Deal with the FCA in an open and co-operative manner

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9
Q

What are the FCA listing rules for debt and equity issues?

A
  • Minimum market capitalisation
    o More than £30 million shares for equity issues (but only need minimum of £700,000 listed publically
    o More than £200,000 debt for debt issues
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10
Q

What are the FCA listing rules for primary listings?

A
  • Minimum market capitalisation
    o More than £30 million shares for equity issues
    o More than £200,000 debt for debt issues
  • Freely transferable without restrictions
  • Applicant to be in accordance with local law and company constitution and have necessary consents
  • All existing securities and further issues of securities fo the class must be admitted to listing
  • Prospectus must be approved by the FCA
  • Convertible securities must be convertible into securities on a regulated open market
  • Free float at least 10% (free float is the amount available for trading)
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11
Q

Alongside the FCA’s primary listing rules for all companies, what additional requirements are there for premium issuers when they are issuing securities?

A
  • Three years of published, consolidated, independently audited, current accounts
  • At least 75% of the applicant’s business supported by three-year independent record of that activity
  • Clean working capital statement; sufficient to cover 12 months
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12
Q

What is Listing Requirement 8, the role of the sponsor?

A
  • Act with due care and skill
  • Ensure issuers/directors properly advised under LRs and DTR
  • Ensure issuer satisfies conditions
  • Ensure all rules complied with
  • Communicate and provide all information ot FCA
  • Take reasonable steps to identify and manage conflicts
  • Reasonable basis for working capital statement
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13
Q

What is the high growth segment of the stock exchange?

A

Segment of the main market allowing high growth companies to access capital without the full requirements of official listing requirements:

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14
Q

What rules are required to be satisfied to be classified as a high growth stock on the stock exchange?

A
  • High revenue growth: at least 20% per year for last three years
  • Minimum free float of 10%
  • Minimum market capitalisation of £300 million
  • Key adviser (similar to a sponsor)
  • Produce prospectus
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15
Q

What is the regulatory status of high growth segment?

A
  • Subject to LSE HGS rulebook, but outside of formal FCA listing regime
  • EU directives apply (prospectus, transparency, market abuse)
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16
Q

What is the specialist fund segment of the market?

A
  • A segment of the Main Market designed for closed-ended investment funds
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17
Q

What are the five methods of issuing stock to the public?

A
  • Five methods available for bringing securities for an initial listing
    o Offer for subscription
    o Offer for sale
    o Placing
    o Intermediaries offer
    o All four of the above are to raise funds
    o And you can introduce something to an exchange  not to raise funds, just trying to raise awareness
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18
Q

When issuing equity, what is the difference between an offer for sale and offer for subscription?

A

Offer for sale:
New shares and shares already in existent (but held by insiders/private individuals) given to issuing house and then sold to public

Offer for subscription:
Company issues new shares directly to the public. Unlike an offer for sale, shares are not in existence until applications received from investors

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19
Q

In equity issuances, what is a placement?

A

New shares and shares already in existent (but held by insiders/private individuals) given to issuing house and then sold to institutional investors

20
Q

In equity issuances, what are the advantages of a placement?

A

Advantages: Lower cost, quicker speed, greater certainty, can use for both primary and secondary offers

21
Q

What is an introduction onto an exchange, rather than a sale?

A

Introduction:
- Shares are admitted to trade on a stock exchange but no new money raised and therefore is not a marketing operation
- Requires wide shareholder base (e.g. secondary listing, move from AIM to Main Market)

22
Q

In equity issuances, what are intermediaries offers?

A

Intermediaries offer
- Made to intermediaries brokers only who sell to own clients

23
Q

What types of transactions could there be in secondary offerings?

A
  • Rights issue
  • Secondary placing
  • Open offer
    tradeable
  • Vendor consideration placing
24
Q

What is the difference between rights issue and open offer?

A
  • Rights issue
    o Existing shareholders offered new shares pro-rata to their existing holding, satisfying pre-emption rights
  • Open offer
    o As rights issue, however rights are not tradeable
25
Q

What is a secondary placing?

A
  • Secondary placing
    o Shares offered to limited number of institutional investors, pre-emption rights not fulfilled
26
Q

What is a vendor consideration placing?

A

o New shares offered to vendor in takeover, with pre-agreement to immediately place the new shares with investors (cheaper and easier than rights issue if small sums involved). New shares will be bought from company who receives them immediately after transaction is complete

27
Q

In an equity issuance, what is the sponsors role?

A

Advises on certain transaction.

Often, a sponsor will be a small corporate advisory firm, alongside the issuing house (which could be something like an investment bank underwriting the transaction)

28
Q

Why would a company want an IPO to be underwritten?

A
  • An insurance policy for the issuing company against the risk of unsold shares
29
Q

What does it mean to underwrite an IPO?

A
  • Underwriters guarantee to buy unsold shares at set price if no demand  no limit to the number of underwriters that can be used
30
Q

Is underwriting an IPO compulsory?

A

Nope!

31
Q

What are the continuing obligations of a listed company in regards to the DTR?

A
  • Disclosure and transparency rules
    o Need to disclose all information necessary to keep investors informed of company’s position
    o May delay disclosure if it will prejudice company’s interest and will not mislead the public
32
Q

What are the percentages required to classify transactions as a reverse takeover, Class 1, Class 2, and residual transaction?

A

%’s of gross assets, capital, or profits of the transaction target compared to the listed company, or consideration of transaction compared to the market capitalisation of the listed company

Reverse takeover - >100%
Class 1 - 100%>x>25%
Class 2 - 25%>x>5%
Residual Transaction - 5%>x

33
Q

Which classification of transactions require a sponsor?

A

Class 1 and reverse takeover both require a sponsor.

34
Q

What type of transaction is covered by transaction classifications?

A

The above classification relates specifically to a premium listed company acquiring an unlisted one

35
Q

What is the announcement procedure of a premium listed company acquiring an unlisted company?

A

Listed company –> tells regulatory information service (e.g. RNS of LSE) –> tells quote vendors (e.g. Bloomberg/Reuters). The listed company must also publish on company website by close of day after RNS notification

36
Q

What should an insider list detail?

A
  • Issuer of listed securities is required to maintain an insider list detailing:
    o Identity of each person having access and why they are on the list
    o Date the list was created and updated
37
Q

What does the issuer of an insider list have to do regarding it?

A
  • Issuer should also:
    o Update list regularly
    o Keep records for five years
    o Ensure employees acknowledge legal and regulatory duties
38
Q

What are vote holder notifications?

A
  • Disclosure and transparency rules (DTRs) requires shareholder disclosure of significant stakes in listed companies on T + 2 basis
  • Threshold = move (up or down) through every percentage point, starting at 3%
  • Fund managers and non-UK issuers only have to disclose at 5%, 10%,15%, 20%, 25%, 30%, 50%, 75%
39
Q

What are the MTFs of the LSE and Aquis Stock Exchange?

A

LSE -> AIM

Aquis -> Aquis Growth Market

40
Q

How do the requirements for listing on an MTF compare to an RIE?

A

Much easier to list on an MTF, and crietia is much more simple than a premium listing on a RIE

41
Q

What are nomads?

A

Nominated advisers - usually in context of a standard stock listing; Nomad is instead of a sponsor

42
Q

What are the duties of a NOMAD?

A
  • Pre-admission due diligence on company, suitability for AIM
  • Retained post issue, ensure continuing compliance
  • Evaluate when change in company trading, financial performance, or other event requires an announcement
  • Allocate min. two members of staff, inc. one qualified exec. to each firm
43
Q

What is a qualified executive in the context of Nomads?

A
  • A full-time employee of the applicant
  • Someone who has 3 years experience
  • Someone who has acted on 3 listings
44
Q

What is a capitalisation issue?

A

Same as a bonus issue or a scrip issue, where extra shares are given free of charge to existing shareholders pro rata to their current holding in order to reduce the unit price per share.

It has the same effect as a stock split.

45
Q

Which body is the UK competent authority with respect to regulated markets?

A

UKLA

Historically, referred to the primary market functions of the FCA acting in its capacity as the competent authority for the purposes of Part VI (Official Listing) of the Financial Services and Markets Act 2000 (FSMA). The UKLA was also referred to as the UK Listing Authority.

46
Q

What is the difference on how full list companies and AIM companies trade?

A

Full list companies trade on an EU regulated market whereas AIM companies trade on an exchange regulated market

CISI - Corporate Finance Regulation (8 decks)

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