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Chapter 1: The Regulatory Environment > Other Regulatory Requirements > Flashcards

Other Regulatory Requirements Flashcards

1
Q

Who is the regulator for listed companies?

A

The UK Listed Authority which is the FCA

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2
Q

What are the two lists on the LSE?

A

The Official List and Alternative Investment Market

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3
Q

What is the alternative for the Official List and AIM?

A

AQSI - Aquis Stock Exchange

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4
Q

Do all public companies issue shares?

A

No. Some companies are publicly listed but do not trade on the stock exchange

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5
Q

How is floatation achieved? (3)

A
  • A company must first be floated - issue shares
  • For admission to the Official List/AIM, applications are made to the UKLA, a division of the FCA
  • To trade, applications are made to the LSE
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6
Q

What are the Disclosure and Transparency Rules?

A
  • Helps to prevent market abuse and insider dealing
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7
Q

Once a company is listed on the LSE, what regulations are they bound by? (3)

A
  • FCA and UKLA rules
  • The Companies Act
  • The LSE’s own rules for members
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8
Q

What are the advantages of floatation? (3)

A
  1. Access to wider capital base
  2. Acquisition currency through M+A
  3. Public profile and prestige e.g. press coverage, financial results
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9
Q

What are the disadvantages of floatation? (3)

A
  • Exposure to market conditions e.g. volatility, geopolitical
  • More accountable to regulators e.g. more disclosures, reporting
  • Principal agent problem between shareholders and founders
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10
Q

What is cross listing? (4)

A
  • A firm lists its shares on one of more stock exchanges in addition to its domestic exchange
  • Make shares more accessible for global investors
  • Increase liquidity
  • Decrease cost of capital
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11
Q

What is a UKLA prospectus? (2)

A
  • Contains all the relevant information required by a potential investor to make informed decision about buying company shares
  • UKLA requires a prospectus or listing particulars to be completed by a company seeking a listing
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12
Q

Once listed, what are the requirements for the financial promotion? (3)

A
  • Be identified as a financial promotion and not the prospectus itself
  • State where the prospectus can be obtained
  • Be consistent with the details stated in the prospectus
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13
Q

What is the Prospectus Directive?

A

Harmonises the rules on the creation of prospectuses

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14
Q

When are prospectuses not required? (5)

A
  • Qualified investors
  • Fewer than 150 natural persons involved per EEA state
  • Where minimum consideration is at least €100,000 per investor
  • Where total consideration is less than €1m over 12 months
  • Shares being admitted are less than 20% of same share class
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15
Q

What are the 3 main types of listing?

A
  • Premium
  • Standard
  • High growth segment
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16
Q

What are the conditions for a premium listing? (7)

A
  • Is a public limited company (PLC)
  • 3 year trading record (financial statements and audited)
  • 12 months working capital
  • £30m in equities and £200,000 in debt
  • Management complies with Model Code
  • Appointment of sponsor (typically an authorised firm expert in administering listing)
  • 10% free float (shares on the LSE
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17
Q

What are the conditions for a standard listing? (4)

A
  • PLC
  • £30m in equities, £200,000 in debt
  • Management must comply with Model Code
  • 10% free float
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18
Q

What are the conditions for a high growth segment listing? (4)

A
  • Incorporation in the EEA
  • Commercial company issuing equity only
  • 10% free float
  • CAGR of 20% over 3 years
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19
Q

What is the AIM market? (6)

A
  • Separate to the Official List
  • Set up by the LSE in 1995
  • A market for small, young and growing companies
  • Is considered a MTF
  • LSE decides who is admitted to AIM not UKLA
  • Known as a quoted companies not listed companies
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20
Q

What are the key roles for companies seeking AIM status? (2)

A
  • Nominated advisor (NOMAD) - an LSE member firm that advises the company to comply with AIM rules, companies must appoint a NOMAD, must confirm in writing to the LSE that the company is appropriate, must be accepted onto the register of NOMADs held by the LSE
  • Nominated broker - an LSE member firm who matches buyers and sellers in the company’s shares/market maker when orders cannot be matched, provides market information which cannot be accessed by SETS

Broker and advisor can be from the same firm and must be retained even after admission to AIM

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21
Q

What are the conditions for entry for an AIM company? (4)

A
  • Must be a PLC
  • Produce an admission document
  • Publish accounts in accordance with international accounting standards
  • Issue freely transferable shares
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22
Q

What are the main differences between AIM and the Official List? (4)

A

AIM companies do not need:
- Minimum free float
- Minimum trading record
- Shareholder approval
- Minimum market cap

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23
Q

What is the AQSE? (2)

A
  • Aquis Stock Exchange
  • Is in direct competition with the LSE and is another RIE
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24
Q

How many markets does AQSE have and what are they? (2)

A
  • Main board - eligibility criteria is similar to the Official List with a premium or standard listing
  • Growth market - similar to the AIM market
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25
Q

What are the conditions for entry to AQSE? (7)

A
  • Appointment and retention of an ASQE corporate advisor, similar to a NOMAD for AIM markets
  • Demonstrate appropriate levels of corporate governance - at least one independent director
  • At least 2 years of trading history and publish financial reports within 9 months before admission
  • 10% free float
  • 12 months working capital
  • No restrictions on transferability of shares
  • Have shares available on electronic settlement
26
Q

What are the continued obligations of publicly traded companies? (5)

A
  • Disclosure and control of inside information
  • Periodic financial reporting
  • Vote holder and issuer notifications
  • Access to information
  • Corporate governance
27
Q

What are disclosure and transparency rules (DTR)? (4)

A
  • Requirement for listed companies to keep the market informed of all price sensitive information
  • What type of information should be disclosed
  • How and when the information should be disclosed
  • Procedures for delaying disclosure
28
Q

What are the financial reporting requirements by the UKLA? (3)

A
  • Audited annual reports available at least four months after the end of the financial year
  • Half year results are to be available at least 2 months after the midpoint of the financial year
  • Management reports should be attached to each
29
Q

What does the UK Code of Corporate Governance require from premium listings? (6)

A
  • Board Leadership and Company Purpose
  • Division of Responsibilities between chair, board, non execs, senior managements
  • Composition, succession and evaluation - democratic
  • Audit risk and internal control -
  • Remuneration codes
  • Board diversity
30
Q

What is Section 172 Reporting? (4)

A
  • Under the Companies Act is the duty to promote the success of the company on directors
  • Impact on community
  • Consequences of decisions on long term
  • Desirability of maintaining good reputation for business conduct
31
Q

What is the Stewardship Code 2010? (5)

A
  • Encourages institutional shareholders (pension funds) to take an active interest in corporate governance of the companies into which their clients money is invested

12 Stewardship Codes under the 4:
- Purpose and governance
- Investment approach
- Engagement
- Exercising rights and responsibilities

32
Q

What is the shareholders rights directive? (2)

A
  • SRD II aims to tackle the perceived lack of shareholder engagement in the stock market
  • Institutional investors should put in place shareholder engagement policy and improve transparency of investment policies
33
Q

What is the responsibility of trustees of occupation pension schemes under the Stewardship Code? (2)

A
  • Publish information regarding the development and implementation of shareholder engagement
  • Implement appropriate governance arrangements to manage climate related risks
34
Q

When are AGMs? (6)

A
  • Called by the board
  • Held once a year, should be within 6 months of the end of the financial year. Interval of AGMs must not exceed 15 months
  • Gives shareholders the opportunity to vote on resolutions
  • 21 calendar days notice - can be shortened if 100% of shareholders agree
  • Electronic notice - transmitted and delivered 48 hours after being sent
  • Resolutions include: approval of financial statements, appointment of auditors, directors appointments, approval of dividends
35
Q

What is a general meeting? (3)

A
  • Called by the board or shareholders who own 5% or more of company shares
  • 14 days notice - can be reduced if 95% of shareholders agree to meeting
  • Discus pressing issues such as impending insolvency of company
36
Q

What are the 2 types of resolutions at general meetings? (2)

A
  • Ordinary - More than 50% agreement required (most of the business of an AGM is carried by ordinary vote)
  • Special - More than 75% agreement required
37
Q

When is notice for resolutions? (2)

A

Ordinary resolution - 14 days calendar notice
Special resolution - 21 days notice

38
Q

How do shareholders vote? (3)

A
  • Through a show of hands - one vote per shareholder, regardless of how many shares they hold
  • Full ballot - voting rights here are determined by how many shares are held by the shareholder
  • Poll - can be demanded by shareholders holding 10% or more of voting rights in company, 5 members having voting rights or the chairperson
39
Q

What are proxies? (4)

A
  • For shareholders who are unable to attend meetings, they appoint proxies to vote on their behalf
  • Proxies can vote on issues by show of hands or written ballot
  • Special proxy (two way proxy) - follows instructions of shareholder
  • General proxy - makes their own decision
40
Q

What is the EU Transparency Directive? (4)

A
  • Covers EU companies trading on EU exchanges
  • Trigger 5%
  • Notify issuer within 4 business days
  • Issuer notifies market
41
Q

What is the UK Disclosure and Transparency Rules? (4)

A
  • Highlights what type of information should be disclosed
  • How and when the information should be disclosed
  • Procedures for delaying disclosure
  • The Companies Act requires prompt disclosure of significant shareholdings within publicly traded companies
42
Q

What are the requirements for person or connected party discharging material responsibilities (PDMR)? (2)

A
  • Notify the company within 3 days of the trade
  • Company notifies the market via RIS/RNS no later than the next business day
43
Q

What is a shareholder who owns >50% of a company deemed?

A

Legal owner

44
Q

When does a takeover bid occur?

A

When someone wishes to acquire >50% of the business - this could be an individual or a company

45
Q

What is the objective of the Department for Business, Enterprise and Industrial Strategy?

A
  • Established in 2009
  • Raise the productivity of the economy across all regions
  • Improve skills of population
  • Promote innovation
  • Deliver conditions for business
46
Q

What are the disclosure of material interests? (4)

A
  • Made to the company within 2 business days where:
  • Interest reaches 3%
  • A change in percentage point above 3%
  • Falls below 3%
47
Q

What metrics are used to determine whether 3% interest exists amongst PDMR or connected party? (4)

A
  • The persons spouse
  • Minor childer
  • Companies where the person control 1/3 of votes
  • Fellow members of any concert party
48
Q

What is the role of the CMA under the Enterprise Act 2002? (4)

A
  • CMA will decide whether to clear or refuse a takeover or merger
  • Identifies transaction where combined entity exceeds 25% (Share of Supply Test)
  • The turnover of the entity being acquired exceeds £100m (Turnover Test)
  • Acquirer’s existing share supply of 33% and turnover of £350m (Acquirer Test)
49
Q

What is the EU Takeover Directive?

A
  • Creates a level playing field across the EU to ensure equal treatment for shareholders during takeovers
50
Q

What is the Takeover Panel? (5)

A
  • Independent, statutory body
  • Monitors mergers and takeovers
  • Funded by the Takeover Panel levy (£1 per transaction above £10,000 on the LSE)
  • Chairman appointed by the BoE
  • Other members from all areas of the financial markets
51
Q

What are the powers of the Takeover Panel? (6)

A
  • To write rules
  • Issue directions
  • Require documentation
  • Issue private reprimands and public censure
  • Report offenders to other regulatory bodies e.g. to FCA, LSE
  • Seek approval from the courts to enforce compliance with the rules
52
Q

What are the 6 general principles?

A
  • City Code outlines the Takeover Code - applies to all UK PLCs
    1. All shareholders of the same class of the target company must be given equal treatment
    2. Shareholders must be given sufficient time and information to reach decision of bid
    3. Board of target company must act in the interest of the company as a whole
    4. False markets must not be created
    5. The predator must announce an bid only after ensuing that it can fulfil any cash consideration
    6. Target company must not be hindered in the conduct of its affairs for longer than is reasonable by the bid
53
Q

What are the 2 types of control when it comes to takeover?

A
  • Legal control - more than 50% of voting shares
  • Effective control - panel uses a benchmark of 30% control, many rules start to apply at this level
54
Q

What is the timing process once the bid has been publicly announced by the LSE? (6)

A
  • Details of offer must be sent to target within 28 days
  • T14 - posting of first defence document
  • T21- Earliest closing for offer
  • T39 - Last date for target company announcement
  • T46 - Last date for predate to revise offer
  • T60 - Final closing date for offer
55
Q

What the offer consideration? (4)

A
  • Cash only
  • Shares or loan stock (a paper offer)
  • A choice offering a number of alternatives
  • Whichever form of consideration is specific, the minimum price to be offered is the highest price paid by the offeror in the last three months
56
Q

What is a compulsory bid? (3)

A
  • If a predator acquires influence over 30% or more of voting rights of a company, it must make an offer for all the remaining shares in the company
  • Offer becomes unconditional once the predator gains influence over more than 50% of target company - predator is then obliged to purchase the shared of all those who have accepted the offer. Offer period remains open for 14 days before it becomes unconditional
  • The price offered must be no less than the highest price paid by offeror in last 12 months
57
Q

What is squeezing out? (2)

A
  • Where the bidder receives acceptances of 90% or more of same shares to which the offer relates, it may acquire the outstanding shares on the same terms
  • Applies to mandatory and voluntary bids
58
Q

How is ownership and control distinguished? (2)

A
  • Principal - shareholder of a company, investor, voters - seeking to get best return from their ownership e.g.g profit
  • Agent - investment manager, management of a company, politicians - seeking to get best return from their agency e.g. salary, commission
59
Q

What are explicit agency costs? (3)

A
  • Salary
  • Fees
  • Commission
60
Q

What are some implicit costs? (4)

A
  • Cost of corporate governance and regulation
  • Prerequisites - company car, healthcare
  • Opportunity cost of slow action and time delays e.g. needing financial statements audited
  • Cost of not meeting objectives

Chapter 1: The Regulatory Environment (10 decks)

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