Chapter 1: Financial Markets and Institutions Flashcards
Interest rates in the UK are set following a meeting of the?
The Monetary Policy Committee (MPC) of the bank of England is responsible for setting interest rates in the UK.
The control of interest rates as a means of managing the economy may best be described as?
Monetary policy is the area of the government economic policy making that is concerned with changes in the amount of money in circulation. The key tools used are the control of money supply and the setting of interest rates.
When pursing an expansionary fiscal policy (promotion of strong and sustainable growth & reduction of poverty), what is the government likely to pursue?
a. Increase government expenditure
b. Borrow more money so as to implement a road building policy
c. Maintain current government spending plans while not reducing taxation.
The UK government must borrow each year to cover the amount by which its expenditure exceeds its income. What is this amount known as?
PSNCR (Public Sector Net Cash Requirement) is the term used by the UK government to describe this borrowing requirement.
How does the Treasury fund the PSNCR?
The PSNCR is the Government’s borrowing requirement which is funded by issuing UK government bonds, known as gilts.
Following Companies Act 2006 changes, what can proxies do?
Following Companies Act 2006 changes, proxies may exercise all the powers the member would have if they were present in person.
What requirements must a company satisfy for a ‘premium’ Stock Exchange listing?
The Company listed must provide three years (not five) of audited accounts to the UKLA along with other documentation at least 48 hours prior to the hearing to decide the listing application.
How long after the half-year must interim results be produced for a listed company?
Interim results must be produced within two months of the end of the half-year.
What requirements does the Disclosure Guidance and Transparency Rules (DTR) impose?
a. Directors of listed companies to report transactions in shares of the company.
b. Impose obligations on listed companies to keep shareholders informed of price-sensitive information.
c. Impose notification requirements on major shareholders of listed companies.
When an individual acquires a material interest in a company, the company should be notified of this within how many days?
Material interest is an investor who has a 3% or more holding in the company (aggregated withthose investments of connected parties eg spouses, infant child but not siblings). Once the investor reaches 3%and every time the investor changes the holding by going through a percentage point eg 6.7% to 7.1%, the investor must inform the company by the end of the second business day following the day of the trade (T+2).
How many days’ notice is usually required for a General Meeting of a company where a special resolution is to be passed?
28 days. A Special resolution involves a voting majority of 75% or more and would be required for certain major decisions, such as changing the company’s name or undertaking a share buyback.
How many shareholders must be present at an Annual General Meeting (AGM) to pass a valid resolution?
In general, a ‘quorum’ is achieved when two members (or their proxies) are present.
What disclosure obligations does a shareholder have when it sells 1% of its shares of a listed company?
The shareholder must inform the company by the end of the second business day following the day of the trade (T+2).
Which entity is responsible for considering applications by a company for its shares to be listed?
The UK Listing Authority (UKLA) is a function of the Financial Conduct Authority (FCA), which is the ‘competent authority’.
How is price-sensitive information required to be disseminated by listed companies?
Disclosures are made through a Regulated Information Service (RIS).
When a company intends to list on the AIM, what is the least market value of the shares the company could have?
There is no minimum value for a company to list on the AIM. (the minimum for a full listing is £700,000 of shares).
When a company listed on the AIM has a dispute with its Nominated Adviser (NOMAD) and the NOMAD ceases to work for the company, what action will be taken regarding the company if it fails to appoint a replacement NOMAD within 30 days?
The NOMAD is retained to advise the directors once an AIM listing is granted. Should the company lose its NOMAD, it must appoint a new one within 30 days or the company will have its listing suspended.
What is required of a company listed on the AIM?
a. The company must have a broker
b. The company must publish price-sensitive information immediately
c. The company must have a London Stock Exchange approved NOMAD
Which entity regulates the AIM?
Although the UKLA (part of the FCA) regulates the Full List, the London Stock Exchange (LSE) regulates the AIM, publishing the AIM Rules and monitoring compliance with them.
In order to comply with the DTR, when should shareholders publicise shareholding movement?
The change must be publicised if the 3% threshold is crossed in either direction, and if full percentage points above 3% are crossed in either direction.
What is the inability to sell an asset quickly at a fair price associated with?
An asset that cannot easily be sold quickly at a reasonable price is ‘illiquid’. During the financial crisis of the late 2000s, mortgage-backed securities became illiquid when the market for them effectively seized up, and there were no ready buyers.
What are the benefits of high-frequency trading?
a. Lower transaction costs
b. More efficient market pricing
c. Improved liquidity
Who should a shareholder appoint if they cannot attend a forthcoming company meeting but wishes to vote against a particular resolution?
A two-way proxy (or ‘special proxy’) is used to appoint another person to vote in a particular way, either for or against a resolution.
What is a Eurobond?
A Eurobond is a bond denominated in a currency that is not native to its place of issue.
What can be done to mitigate or reduce the agency problem?
The separation of ownership and control (especially in larger firms).
Which entity has stated its single mission as being: ‘to promote the good of the people of the United Kingdom by maintain monetary and financial stability’?
The Bank of England
When a company declares its first dividend, what day of the week will the ex-dividend date fall?
The ex-dividend date will always fall on a Thursday
What requirements should a company follow to be eligible for the London Stock Exchange’s High Growth Segment (HGS)?
a. Compound annual growth in revenue must be at least 20% over three years.
b. The company may be incorporated in any EEA State
i. Previous AIM membership is not required.
