Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

IMC IE Chapter 6 > 6.1 Flotation & LSE Listing > Flashcards

6.1 Flotation & LSE Listing Flashcards

1
Q

What is the name of the main market managed by the London Stock Exchange?

A

Official List

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the name of the second tier market managed by the London Stock Exchange (LSE)?

A

Alternative Investment Market (AIM)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the name of the exchange which is not one of the two LSE Markets?

A

Aquis Stock Exchange

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Are all public companies quoted on a public market?

A

No! Some companies are set up as public companies even if there is no intention to actively trade their shares.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the two ways a flotation can come about?

A
  1. A flotation can go hand in hand with an issue of new shares, i.e. as part of a marketing operation.
  2. A company can achieve a flotation by way of an introduction, where shares already issued but trading privately, are made available for trading on an exchange.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Who are applications to be admitted to the Official List made to?

A

UK Listing Authority (UKLA) aka FCA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the name of the standards that applications to be admitted to the Official List have to meet?

A

UKLA’s Listing Rules

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Who do the Prospectus Rules apply to?

A

All publicly traded companies whether they trade on the main market or AIM.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Who do the Listing Rules NOT apply to?

A

AIM or other similar securities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What do the Disclosure and Transparency Rules apply to and what do they help prevent?

A

They apply to shares traded on a regulated market in the UK and they help to prevent insider dealing and market abuse.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What power is granted to the FCA/UKLA under FSMA 2000?

A

The power to create the rules for listing, prospectuses and disclosure and transparency.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

List 3 regulations a company is bound by once its stocks are listed on the London Stock Exchange.

A

1) The Companies Act
2) Financial Conduct Authority (FCA) and UKLA rules
3) The LSE’s own rules for members

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the advantages of being listed on a stock exchange?

A

Advantages of flotation Acquisitions and mergers

The ability to issue paper securities with a market price as an acquisition currency can increase the potential of corporate growth by way of acquisition.

Public profile and prestige
Exposure on a public market will usually bring about an increase in press coverage, resulting in a heightening of public awareness about the company and its products and services.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the disadvantages of being listed on a stock exchange?

A

Disadvantages of flotation Regulation and cost
A publicly quoted company is more accountable to regulators. It therefore entails a much higher level of disclosure and reporting than is required by non-quoted companies. This, in turn, will lead to additional costs.
Market conditions
A company’s share price is susceptible to volatile market conditions. This may result in a lack of liquidity in the company’s shares that is beyond the control of the company’s directors.
Investor power
Where shares are held by large institutional investors there is a risk that the founders could lose control of what they perceive to be their business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is a dual-listed company (DLC)?

A

A corporate structure in which two corporations function as a single operating business through a legal equalisation agreement, but retain separate legal identities and stock exchange listings.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are some characteristics of virtually all dual-listed companies?

A

Virtually all dual-listed companies are cross-border, and have tax advantages for the corporations and their shareholders.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What do equalisation agreements specify?

A

How ownership of the corporation is shared.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What do equalisation agreements set up to ensure?

A

Equal treatment of both companies’ shareholders in voting and cash flow rights.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What do equalisation agreement cover?

A

Issues related to dividends, liquidation and corporate governance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the typical corporate structure of a dual-listed company?

A

Usually the two companies will share a single board of directors and have an integrated management structure.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Define cross-listing of shares.

A

Cross-listing of shares is when a firm lists its shares on one or more foreign stock exchange in addition to its domestic exchange.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are some reasons why a firm may seek to cross-list?

A
  1. The firm expects to benefit from a lower cost of capital because their shares become more accessible to global investors.
  2. Cross-listings on deeper and more liquid equity markets could lead to an increase in the liquidity of the stock and a decrease in the cost of capital.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Which legislation empowers the FCA to act as a listing authority?

A

Financial Services and Market Act 2000 (FSMA 2000) Section 72.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is the role of the UKLA?

A

Set standards for companies wishing to float on an exchange and check those whose shares are traded as well as those who trade the shares are meeting their obligations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What power does the UKLA have when it receives an application in relation to a company acquiring listed status?

A

The UKLA has the power to assess whether the appropriate standards have been met and, based on this, accept or refuse the application for listed status.

26
Q

What power does the UKLA have over listed companies?

A

The UKLA has the power to discontinue or suspend their status as a listed company.

27
Q

Who are applications to trade on the LSE made to?

A

The London Stock Exchange. N.B. applications for companies to be admitted on to the LSE Official List go to the UKLA.

28
Q

Where can the Listing, Prospectus and Disclosure Rules be found?

A

The FCA Handbook and comprise of three separate sourcebooks.

29
Q

List 2 things the Listing, Prospectus and Disclosure Rules do.

A
  1. They set out the rules governing any issuer of securities wishing to list on the LSE official list and anyone trading in these securities.
  2. They also apply to the appointment of a firm as a sponsor for these issuers and the behaviours of these firms when performing the role of sponsor.
30
Q

What is a prospectus?

A

A prospectus is a publication containing all the relevant information required for a potential investor to make an informed decision about buying a company’s securities and any rights attached to those securities.

31
Q

What happens once a prospectus has been completed?

A

It must be approved by the UKLA, published and advertised in at least one national newspaper.

32
Q

List the 3 rules financial promotions relating to the issuance of a company’s shares must follow .

A

They state that the financial promotion must:

1) Be identified as a financial promotion and not the prospectus itself
2) State where the prospectus can be obtained
3) Be consistent with the details stated in the prospectus

33
Q

What have the UKLA’s Prospectus Rules been brought into line with?

A

The Prospectus Directive.

34
Q

What does the Prospectus Directive set out?

A

The rules which apply to prospectuses for public offers of securities and admission of securities to trading on a regulated market.

35
Q

List 5 circumstances in which prospectuses are not required.

A

1) Where the offer is made to qualified investors. The definition of qualified investor is similar to that of the quantitative test for elective professional clients
2) Where the offer is made to fewer than 150 natural or legal persons, other than qualified investors, per EEA state
3) Where the offer is made to investors who acquire the securities for a total consideration of at least €100,000 per investor or the denomination per unit is at least €100,000
4) Where the total consideration of the offer is less than €5m calculated over a period of 12 months
5) Where the shares being admitted to market represent less than 10% of the same class of shares already admitted to the same market (applies to admission for trading not public offers)

36
Q

What happens if there is a subsequent resale of securities to which the prospectus exemptions apply?

A

It is regarded as a separate offer and may require a prospectus unless an exemption applies.

37
Q

What must an issuer provide when a prospectus is not required?

A

Listing particulars.

38
Q

What do listing particulars contain?

A

Listing particulars contain the minimum basic information from the prospectus.

39
Q

Name the 3 listing categories on the Official List.

A
  1. Premium listing
  2. Standard listing
  3. High growth segment (HGS)
40
Q

Define premium listing.

A

A company meets listing requirements above those required by EU directives, for example, requirements on corporate governance. The ability to exceed EU requirements is referred to as ‘super equivalency’. These companies are eligible for inclusion in the FSTE indices – adding significant liquidity to the shares.

41
Q

Define standard listing.

A

A company meets the EU listing requirements.

42
Q

Define high growth segment (HGS).

A

For companies that cannot yet meet the premium status, but intend to. They are typically larger than AIM companies and have separate eligibility criteria.

43
Q

List the 7 most important UKLA requirements for a premium listing.

A
  1. Status: The company must be a public company.
  2. Trading record: The company must normally have a trading history of three years with financial statements, which have been independently audited and published.
  3. Working capital: The company must demonstrate that it has sufficient working capital to cover at least the next twelve months of business.
  4. Market value of securities:

There is a minimum market value requirement for all securities.

  • In the case of bringing equities to market, the minimum value is £700,000
  • In the case of debt securities, the minimum value is £200,000

Therefore, should a company bring both debt and equity to the market, the total value must be at least
£900,000.

  1. Management: The directors and senior management must have appropriate expertise and experience. They must also comply with the Model Code for Directors’ Dealings.
  2. Sponsor: The company bringing its shares to market must appoint a sponsor. This is typically an authorised firm expert in administering the listing and/or issuing process.
  3. Share Ownership: At least 25% of the shares must be distributed to the public. In this instance, the ‘public’ refers to any person, individual or institution, who is not a director of the company. This is known as the free float. A minimum level of free float is desirable as companies with low free floats tend to experience high share price volatility.
44
Q

List the 3 premium listing conditions which are not required for standard listings?

A
  1. Trading record
  2. Working capital
  3. Sponsor conditions
45
Q

List 4 eligibility criteria for high growth segment (HGS).

A
  1. Incorporation in the EEA
  2. Commercial company issuing equity only
  3. Free float of 10%
  4. Compound average growth rate (CAGR) of 20% over three years
46
Q

What is the Alternative Investment Market (AIM)?

A

AIM is a separate market to the Official List.

47
Q

Who was the Alternative Investment Market (AIM) set up by and why was it set up?

A

It was set up by the LSE (in 1995) specifically to provide a market for small, young and growing companies.

48
Q

What is the Alternative Investment Market (AIM) considered?

A

A multilateral trading facility (MTF)

49
Q

What is the Alternative Investment Market (AIM) not considered to be?

A

It is not considered an EU regulated market.

50
Q

What is the difference between the criteria required to join the official list and the criteria required to join AIM?

A

The criteria for acceptance are less onerous than those for the Official List.

51
Q

Who does a company apply to, to join AIM?

A

A company does not apply to the UKLA (the FCA) to join AIM. Instead, it is the LSE itself which has the final say on who joins this junior market.

52
Q

What are Companies floated on AIM known as?

A

Quoted companies

53
Q

What does a nominated advisor (NOMAD) do?

A

A NOMAD plays a key role in advising the company to comply with AIM rules.

54
Q

What are companies seeking an AIM flotation required to do?

A

Companies seeking a flotation are required to appoint a NOMAD whose job it is to satisfy itself that the company is appropriate for AIM and to confirm this in writing to the Exchange.

55
Q

What must firms be accepted on in order to act as a NOMAD ?

A

The register of nominated advisors held by the Exchange.

56
Q

What is the role of the nominated broker?

A

AIM companies must appoint an LSE member firm to act as the company’s broker. The broker’s role is to match buyers with sellers in the company’s shares, or to act as market maker when such orders cannot be matched. The broker is also responsible for providing important information about the company which can be accessed via the SETS system (i.e. the stock exchange electronic trading service). The NOMAD and broker may in practice be the same firm.

57
Q

List the 4 conditions for entry to AIM.

A
  1. Status: The company must be a public limited company.
  2. Admission document:

The company must produce an admission document disclosing the information required by the Prospectus Directive. This information includes details on the directors, the activities and the accounts. The NOMAD vets this document.

A quoted applicant is not required to produce an admission document unless required under the Prospectus Rules. If a prospectus is required, then this shall serve as the admission document. Once a prospectus has been approved by the FCA it must be submitted to the LSE with the admission application and fee before the expected date of admission to AIM.

  1. Accounts: The company must publish accounts in accordance with international accounting standards.
  2. Transferability: Shares must be freely transferable.
58
Q

List 4 things requirements of the Official List which are not required of AIM applicants.

A
  1. Minimum free float
  2. Minimum trading record
  3. Shareholder approval
  4. Minimum market capitalisation
59
Q

List the 2 markets of the Aquis Stock Exchange (AQSE) and their criteria.

A
  1. Aquis Stock Exchange Main Board: Has eligibility criteria very similar to the official list of the LSE. Companies can also choose standard or premium listing.
  2. Aquis Stock Exchange Growth Market: Similar to AIM. As another market on which buyers and sellers can gather to trade securities, and on which companies can seek flotation to raise capital, AQSE is in direct competition with the LSE.
60
Q

List the 7 conditions for entry to the Aquis Stock Exchange (AQSE) growth market.

A
  1. The appointment and retention of an AQSE corporate advisor. This role is the equivalent of the NOMAD on AIM.
  2. Demonstrate appropriate levels of corporate governance, with at least one independent director.
  3. Provide at least 24 months’ of audited financial reports, and have published these no more than 9 months prior to the date of admission.
  4. Have at least 10% free float.
  5. Have 12 months’ working capital.
  6. Have no restriction on the transferability of shares.
  7. Have its shares available for electronic settlement.

IMC IE Chapter 6 (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions