2 - practice q

Question 1

In liquidation, what do preference shareholders have priority of over ordinary shareholders and what is normally not paid out?

Answer 1

Priority over repayment of nominal value
Preference dividends not usually paid

Question 2

What is grey market trading?

Answer 2

Depositary receipt created leads to depository bank receiving notification in future that shares will be placed on deposit.
If the bank holds cash as collateral, even though shares are not yet on deposit, the bank can create and sell the receipt.
So investors buying a receipt that entitles them to share benefits that in future will be held on deposit to them.

Question 3

How long can grey market trading happen?

Answer 3

Depositary receipt can be treated this way for up to 3 months.
Then the actual purhcase of underlying shares has to happen.
Also called pre-release

Question 4

Features of bearer securities

Answer 4

anonymous
freely transferable
no register maintained of legal title/proof of title is in physical posession

Question 5

What is issued in bearer form and what is not?

Answer 5

UK shares not normally
Eurobonds, money market instruments, bank notes are.

Question 6

What is the tear-off slip?

Answer 6

This when instruments issued in berer form have these attached which basically represents a dividend/interest payment.
On due payment date, investor tears off the slip (the coupon) and submits to payin agent.

Question 7

What is stub/talon

Answer 7

Once all coupons have been used up when invstors tear off slip of a bearer doc, they submit this
It essentially is a request to additional coupons

Question 8

Who are bearer documents placed with

Answer 8

High security depositaries (immobilised)
In oder to guard against theft

Question 9

How does a bearer security differ from registered security in terms of proof of legal title?

Answer 9

Bearer: proof of legal title is achieved by having physical possession of the security
Registered: legal title is proved by the security being registered in the owner’s name

Question 10

What is commercial paper?

Answer 10

Short-term unsecured debt financing issued by a company
Generally no interest paid so issued at a discount (like T bills)

Question 11

What are pre-emption rights?

Answer 11

Right that a shareholder may benefit from on an issue of new shares or transfer of shares.
Right to purhcase shares being issued/transferred

Question 12

Features of medium-term notes?

Answer 12

Coupon rate and maturity set to market demand

Question 13

How often are 10-yr Treasury notes usually issued?

Answer 13

On a quarterly basis

Question 14

Clean/dirty wrt to Eurobonds quotes and settlements

Answer 14

Bonds quoted as clean
Settled as dirty

Question 15

Bond spread definition?

Answer 15

Difference between the yield on a given bond and that of the equivalent govt bond of the same maturity

Question 16

Lifetime of Japanese superlong bonds?

Answer 16

20 years

Question 17

Compare risk betwen mezzanine debt and subordinated debt and why?

Answer 17

Mezzanine debt is higher risk, so higher interest rate.
This is because mezzanine debt usually has equity participation - like warrants or rights to convert to equity.

Question 18

What are credit enhancements?

Answer 18

Tools used by an issuer to enable bonds to be more highly-rated.
Includes guarantees from other group companies.

Question 19

What kind of coupons do Eurobonds have?

Answer 19

Fixed coupons

Question 20

Issuing US treasury bonds - what is the method of pricing used

Answer 20

Tender style - price of issue is assessed tender-style with investors paying a common strike price

Question 21

What does a sinking fund involve?

Answer 21

Issuer setting aside a certain amount each year
May be an approach combined with a bond issue that is callable.

Question 22

How often do Eurobonds pay interest?

Answer 22

Gross
Annually

Question 23

How soon should Eurbond trades be reported post publication and post transaction

Answer 23

To be reported in TRAX system within 30 min for publication
Transaction by 10pm on the day of the trade

Question 24

What is Federal Home Loan Mtg Corp known as?

Answer 24

Freddie Mac

Question 25

What does it mean when a coupon bond is trading at part?

Answer 25

Gross redemption yield is equal to the coupon

Question 26

Trading above par - relation to redemption yield?

Answer 26

Trading above par means loss to redemption to flat-yield is greater than the GRY.
NRY is lower than GRY

Question 27

If DRs are released prior to issue of underlying shares, what is the most common form of collateral accepte and for how long can this period go on for?

Answer 27

Cash is only acceptable form of collateral
Max 3 months grey trading/pre-release

Question 28

Issuance of Warrants vs covered warrants difference?

Answer 28

Covered warrants are issued by third parties.
Warrants issued by company itself
both confer rights but not obligations to the holder

Question 29

Whose name is registered with the ADR?

Answer 29

Name of depository who holds the shares

Question 30

REIT and corporation tax?

Answer 30

If REIT pays at least 90% of rental income to Shareholders then don’t need ot pay corporation tax
However, any income to shareholders will be treated as income and not taxed as a dividend

Question 31

Settlemenet times for UK corporate debt, for gilts and for Eurobonds?

Answer 31

UK corporate debt = T+2
Gilts = T+1
Eurobonds + T+2

Question 32

Settlement of spot transaction?

Answer 32

T+2

Question 33

Eurbonds interest - how often is it usually paid and what type of coupon is it?

Answer 33

Usually gross interest on an annual basis
Coupon could be fixed or floating