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CISI > 4. equities > Flashcards

4. equities Flashcards

1
Q

when a company seeks listing for its shares what is this known as?

A

becoming listed or quoted
floating on the stock market
going public
making an initial public offering IPO

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2
Q

what does the term primary market refer to?

A

marketing of new shares in a company to investors for the first time.

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3
Q

what is the secondary market

A

an investor wishing to dispose of some or all of their shares and will often do this through stock exchange- this is dealing on the secondary market

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4
Q

why do primary markets exist?

A

to raise capital and enable surplus funds to be matched with investment opportunities

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5
Q

why do secondary markets exist?

A

to allow primary markets to function efficiently by facilitating two-way trade in issued securities

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6
Q

what are advantages of being a listed company?

A
  • capital
  • takeovers
  • status
  • employees (stock options to key staff are a way of providing incentives and retaining employees and options to buy listed company shares that are easily sold in the market and even more attractive.
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7
Q

what are disadvantages to being a listed company?

A
  • regulation- listed companies must govern themselves in a more open way than private ones and provide timely and detailed info on financial situ
  • takeovers
  • short-termism
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8
Q

what are the requirements for being listed on the LSE?

A
  • company must be a public limited company PLC
  • expected market capitalisation of the company must be at least £700,000.
  • company should have been trading for at least three years and at least 75% of its business must be supported by a historic revenue-earning record for that period
  • at least 25% of the companies shares should be in public hands or available for purchase by the shareholders who hold 5% or more of the companies shares
  • a trading company must demostrate that it has sufficient working capital for the next 12 months
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9
Q

what is being listed on the LSE refered to as often?

A

full listing

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10
Q

where are companies who are not fully listed dealt with on?

A

AIM (alternative investment market)- less onerous requirements

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11
Q

to be listed on the LSE what type of company must a company be?

A

A PLC

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12
Q

to be listed on the LSE what must be the companies expected market capitalisation?

A

£700,000

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13
Q

to be listed on the LSE how long should the company have been trading and what must this be supported by

A

company should have been trading for at least three years and at least 75% of its business must be supported by a historic revenue-earning record for that period

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14
Q

to be listed on the LSE what % of shares must be in public hands?

A

least 25%

this exludes company directors and their associates and sig shareholders (hold 5% or more of comapny shares)

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15
Q

what must a trading company demonstrate to be listed on the LSE?

A

that it has sufficient working capital for the next 12 motnhs

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16
Q

once listed what must companies fulfil?

A

rules known as the continuing obligations- e.g. half-yearly report and must notify market of any new price sensitive info.

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17
Q

where are smaller business traded?

A

on the AIM market

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18
Q

what is not needed for AIM

A
  • no trading history needed
  • no minimum market capitalisation
  • no requirement for minimum proportion of the shares to be held by the ‘public’
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19
Q

what is required of a company wanting to gain admission to AIM

A

must appoint a NOMINATED ADVISER (NOMAD) and a NOMINATED BROKER

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20
Q

what is the role of a NOMAD?

A

adivse the directors of their responsibilities in complying with AIM rules and the content of the prospectus that accompanies the company’s application for the admission to the AIM.

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21
Q

what is the role of the nominated broker?

A

to make a market and facilitate trading in the company’s shares

provide ongoing information about the company to interested parties

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22
Q

what rules are common to both AIM and fully listed companies

A
  • both must release price-sensitive information promptly

- both must produce financial information at the half-yearly (interim) and full year (final) stage

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23
Q

what do stock market indices provide?

A

a snapshot of how share prices are progressing across the whole group of constituent companies.

benchmark for investors allowing them to assess whether their portfolios of shares are outperforming or under performing the market in general

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24
Q

what in recent decades have indices provided?

A

basis for derivatives contracts e.g. FTSE futures and FTSE options

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25
Q

what does the FTSE 100 show?

A

index of the largest 100 UK companies

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26
Q

how much of the UK market by value does the FTSE cover?

A

about 70%

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27
Q

what is the FTSE 250?

A

an index of the next 250 medium or mid cap companies below the 100

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28
Q

what is the FTSE 350?

A

combination of the 100 and 250 indices

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29
Q

what is the FTSE 350 broken down into?

A

industry sectors e.g. retailing and transport

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30
Q

what is the FSTE all share?

A

covers over 800 companies including the FTSE 350

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31
Q

what market value does the FTSE all share cover?

A

about 98%

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32
Q

what is the FTSE all share often used as the benchmark for?

A

benchmark against which diversified share portfolios are assessed.

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33
Q

how often are the FTSE 100, 250 and 350 and all share carried out?

A

every three months

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34
Q

what does the Dow Jones industrial average provide?

A

narrow view of US market

35
Q

what does the S&P 500 provide?

A

wider view of USs stock market

36
Q

what does the NASDAQ Composite provide?

A

focus on shares traded on NASDAQ, including many tech companies

37
Q

what countries do the following indices belong to?

1) Nikkei 225
2) CAC 40
3) Xetra DAX
4) Hang Seng

A

1) Japan
2) France (40 companies)
3) Germany
4) Hong Kong/ China

38
Q

what is on-exchange trading?

A

trading that takes place through a recognized stock exchange

39
Q

what is an ‘over the counter trade’

A

when trades are undertaken directly between market counterparties away from an exchange

40
Q

what are tradings systems used for stock market trading generally categorised into?

A

quote driven OR order driven

41
Q

what is quote driven trading

A

-employ market makers to provide continous two-way or bid and offer prices during the trading day in particular securities, regardless of market condiitons.

market makers make a profit or turn through this spread

42
Q

what do practitioners argue quote driven systems provide?

A

liquidity to the market when trading would otherwise dry up

43
Q

give two e.g.s of quote driven equity trading systems

A

NASDAQ and LSE’s Stock exchange automated quotation (SEAQ) trading systems.

44
Q

what is order driven trading

A

uses an electronic order book, or auction process to match buyers with sellers. Buyers and sellers are matched in strict chronological order by price and the quantity of shares being traded and do not require market makers.

45
Q

give e.g.s of order driven trading

A

LSE’s SETS or NYSE floor

46
Q

what is traded on SETS

A

FTSE all share- FTSE 100/ 250/ 250

47
Q

what is the nature of trading on SETS

A

it is anonymous

48
Q

what is the LSE’s SETSqx used for?

A

less liquid shares that are not on SETS

49
Q

what is the LSE’s SEAQ used for

A

fixed interest securities and AIM stocks not traded on SETSqx

50
Q

what is electronic order book for retail bonds- ORB used for

A

offers continuous two-way pricing for trading in UK guilts and retail sized corporate bonds

51
Q

what two ways can shares be issued?

A

in register or bearer form

52
Q

what is register form?

A

when the investor’s name is recorded on the share register- often an investor is issued with a share certificate to reflect ownership

53
Q

what is holding bearer shares

A

the person who holds or is the bearer of the shares is the owner- ownership passes by transfer of the share certificate to the new owner.

BUT risky as can lose certificate

rare in the UK- eurobound

54
Q

what is a share register

A

a record of all current shareholders in that company and how many shares they each hold

55
Q

who keeps the share register

A

a company registrar who might be a company employee or a specialist firm of registrars.

56
Q

what is a settlement

A

the reflection of the change of ownership and the transferring of money from the seller to the buyer- share register needs updating

57
Q

how has UK settlement of shares been dematerialised?

A

through CREST

58
Q

what is the clearing time of crest or the settlement period?

A

T+2

59
Q

what is the T time of physical share certificates?

A

T+10 or shorter

60
Q

what is clearing?

A

the process through which the obligations held by buyer and seller to a trade are defined and legally formalised.

Procedure establishes what each of the counterparties expects to receive when the trade is settled as well as defining the obligations each must fulfil, in terms of delivering securities or funds for the trade to settle successfully

61
Q

in a clearing process what is recorded?

A

key trade information so that counter parties can agree on the trade terms

62
Q

in a clearing process what is formalised

A

the legal obligation between counter-parties

63
Q

in a clearing process what is matched?

A

trade details matched and confirmed

64
Q

in a clearing process what is agreed?

A

procedures for settling transaction

65
Q

in a clearing process what is calculated

A

settlement obligations and sending out settlement instructions to the brokers, custodians and central securities depository

66
Q

in a clearing process what is managed

A

margin and making margin calls (collateral paid to the clearing agent by counter-parties to guarantee their positions against default up to settlement)

67
Q

what is bilateral settlement but what is issue with this?

A

trades that are cleared and settled directly between counter-parties.

but each trading party bears a direct credit risk against each counter-party that it trades with. thus it would bear direct liability for any losses incurred through counterparty default.

68
Q

what is a Central Counterparty (CCP) used for?

A

as an alternative to bilateral settlement

69
Q

what does a CCP do

A

interposes itself between the counterparties to a trade, becoming the buyer to every seller and the seller to every buyer.

so the actual buyer and seller are anonymous.

70
Q

what is the process of using a CCP known as

A

Novation

71
Q

what is settlement?

A

process through which legal title of a security is transferred from seller to buyer in exchange for the equivalent value in cash.

72
Q

what should ideally happen with buyer and seller exchange during settlement and waht is this known as?

A

delivery versus payment DvP

73
Q

who operates crest

A

Euroclear UK and Ireland

74
Q

what is CREST used for

A

system for settlement

75
Q

features of holdings on CREST

A

they are uncertificated

76
Q

features of trade matching on CREST

A

real-time matching of trades

77
Q

features of settlement on CREST

A

takes place in sterling, euros or dollars

78
Q

on CREST what takes place on settlement?

A

the electronic transfer of title ETT

and

guaranteed obligations to pay cash outside of CREST

79
Q

what equities does CREST cover

A

shares, corporate and government bonds and other securities held in registered form

80
Q

corporate actions and CREST

A

can process a range of corporate actions including dividend distributions and rights issues

81
Q

CREST and paper shares

A

provides a mechanism to facilitate the settlement of trades when the investor holds paper share certificates

82
Q

four stages of CREST

A

1- trade matching (T)
2-stock settlement
3-Cash settlement (T+2)
4- register update

TSCR

83
Q

what is a CMA

A

cash memorandum account- how much cash you have available as a buyer

CISI (2 decks)

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