Chapter 12

Question 1

What is fiancing?

Answer 1

AKA Underwriting, it is raising capital through debt or equity issuance.

Question 2

What is competitive tender system?

Answer 2

Securities are issued by way of auction and amount won is based on bids submitted (how most government bonds and T-bills are marketed)

Question 3

What institutions are considered government securite is distributors?

Answer 3

Schedule I, Scheudle II banks, investmne dealers, foreign dealers active in distribution of government securities. Distributors that maintain a certain threshold of activity are known as primary distributors

Question 4

What are non-competitive tender basis

Answer 4

When bids are accepted in full by the bank of Canada and bonds are awarded at the auction average yield.

Question 5

How often are government bonds issued?

Answer 5

2,5,10 years are quarterly and 30 year are semi-annual

Question 6

How do provincial issues of direct and guaranteed bonds work in Canada?

Answer 6

Provincial government appoints a grouip of investments dealers and banks called a syndicate to underwrite issues, offer advice and manage issuance. usually includes many major dealers.

Question 7

How do municipal bond and debenture issue work?

Answer 7

Generally place in institutional portfolios and pension accounts and they require in-depth knowledge about tax-generation potential of municipal area.

Question 8

What is a negotiated offering?

Answer 8

corporation management negotiates with daelrs to determine type of security, price, interest, evaluation multiple. May be done by issuing equity or debt

Question 9

What is the public float of shares?

Answer 9

Portion of outstanding shares taht are available to public. It excludes shares held by company officers, directors and institutions with controlling interest. (smaller public float = more volatile)

Question 10

What is the broker of record

Answer 10

Once relationship is solidified with a dealer and corporation (after a debt/equity issuance), the dealer becomes broker of record thus having the right of first refusal on nw financings planned by corporation.

Question 11

What is private placement?

Answer 11

Entire issue is sold to one or several large institutional investors. Since they are sophisticated investors, the requirement for detailed prospectus is usually waived. Dramatically reduces the cost of distribution.

Question 12

What is the difference between best efforts underwriting and firm commitment underwriting for shares?

Answer 12

best effort: Dealer acts as an agent and makes best effort to sell securities

Firm commitment (aka bought-deal): underwriter acts as principal and commits to buy specified number of shares at specific price.

Question 13

What are treasury shares?

Answer 13

Shares that are repu8rchased from the market, they do not have voting rights of dividend entitlements. they can sell them back to market at later date and dividend rights are given to new holder

Question 14

How does firm commitment work for bond issance?

Answer 14

Issuing company sells bonds to financing group. They are the lead underwriter aka syndicate manager aka managing underwriter. Then they are offered for public resale at the par value price of 100

Question 15

What is banking group vs selling group?

Answer 15

banking group: dealers who are agree to participate on set terms of a bond issuance and accept a liability to their individual participation

Selling group: Dealer who are not members of the banking group

Question 16

When is a prospectus required?

Answer 16

If the offeriung or sale is demed to be a distribution to the public.

Question 17

What is a preliminary prospectus?

Answer 17

AKA red herring prospectus. It has front cover in red ink and a statement that the prospectus has been filed, is not in final form and is subject to amendment. Offers to buy cannot be accepted until final prospectus has been obtained by provincial securities commission.

Question 18

Where is it necessary to file preliminary prospectus?

Answer 18

Everwhere except quebec where they have the choice to or not. If offering is in multiple provinces, it must be filed.

Question 19

What is greensheet?

Answer 19

Information circular for in-house use only which highlights the salient features of the new issue, pros/cons to help sales representatives solicit interest.

Question 20

What is the passport system for new issues?

Answer 20

All jurisdictions of Canadian securities administators, except ontario adopted multilateral instrument Passport system which gives access to capital markets in multiple jurisdictions. Once a prospectus is filed in its principal jurisdiction, the regulator tells the other local jurisdiction and it automatically deems receipt.

Question 21

What is the waiting period for issuance?

Answer 21

period between receipt of preliminary prospectius and receipt for final prospectus. Underwrites may solicit interest and preliminary prospectus must be provided to anyone who expresses interest.

No activities encouraging a trade are allowed. May give a price if determed.

Question 22

What is final prospectus?

Answer 22

Must provide full, true and plain disclusre of all material facts. Includes anything that can affect market price or value of security. must be accompanied by written consent of experts whose reports or opinions are referred to in prospectus (appraisers, auditors, lawyers, etc)

Question 23

What is meant by Blue Skyed?

Answer 23

When approval for final prospectus is granted, the issue is said to be blue skyed and can be distributed for public investment.

Question 24

When does a copy of the final prospectus need to be mailed to anyone who purchasers of securities offered in distribution?

Answer 24

no later than midnight on the second business day after entering agreement.

Question 25

What is market out clause?

Answer 25

Allows underwiter to cancel offering without penalty under certain conditions

Question 26

What is a short form prospectus?

Answer 26

Shorter system for qualified issuers. mostly for Seasoned equity offerings, any information ommited can be found in issuer’s annual information form (AIF) and other continuous disclosure documents. focuses mainly on price, use of proceeds, securitie’s attributes. MUST file with system for electronic document analysis and retrival (SEDAR)

Question 27

What situations can a short form prospectus never be used?

Answer 27

When it is an IPO, offering by an inactive or dormant issuer, offering for purpose of financing a material change in issuer’s busines

Question 28

What is After market stabilization?

Answer 28

Dealer is required to support the offer price of the stock once it begins trading in after-market aka secondary market

Question 29

What are the three types of market stabilization activites?

Answer 29

1. Greenshoe option aka overallotment: allows dealer to issue 15% more shares than originally planned if market demand is high and buy back additional shares to cancel them is demand is low
2. Penalty bid: penalizes other dealers if their customer flip shares in weak issues
3. Stabilizing bid: dealer posts a bid to purchase at a price not exceeding the offer price if the distribution of shares is not complete

Question 30

What is junior company distributors?

Answer 30

companies which have no record of earnings, own few assets that would qualify for collateral. Companies are known as risk capital. mostly mining companies and oil companies. They must find dealer to act as underwriter or agent.

Question 31

How can a company offer incentive to an underwriter to provide risk capital as principal.

Answer 31

Junior compnay can grant underwriter treasury share options. Uses escrowed shares as payment for Properties, goods, services. These escrowed shares cannot be sold or transferred unless special approval is given and are held by independent trustee. Escrowed shares maintain full voting and dividend privileges for the company and ensures stability in secondary market performance

Question 32

What is capital pool company program?

Answer 32

When IPO is not financially viable. TSX venture exchange developedthe program. CPC can conduct ipo and list shares on TSX venture. The goal is to have a qualifying transaction (QT) through the purchase of an existing business or their assets.

• must raise between 200k and 4.75mil
• 24 months to release agreement to acquire business

Question 33

What is NEX Board?

Answer 33

Seperate board of TSX venture that allows companies which have fallen below TSX venture listing standards

Question 34

What is crowdfunding?

Answer 34

Soliciting contributions from the public at large. Many regulators have allowed prospectus exemption for start-ups and early stage companies.

Question 35

What is listing agreemnet?

Answer 35

When a company wants to be listed on a recognized exhcnage, it must fill questionnaire. When this is accepted, it signs a listing agreement. The agreement states the specific regulations and reporting requirements that the company must keep to keep its listing.

Question 36

What is delayed opening and when does it happen?

Answer 36

When an exchange order a delay in trading shortly before opening. Arises when there is heavy influx of buy or sell orders, Delay gives exchange traders time to organize the orders and aligh buys with sells.

Question 37

What is a halt in trading?

Answer 37

When the is a temporary stop in trading, can be ordered or arranged at any time to allow reporting of significant news, such as pending merger or substantial change in dividends or earning

Question 38

What is a suspension in trading?

Answer 38

When trading privilages are suspending for more than one trading session. Happens when a company does not meed exchange requirements or fails to comply with listing agreement. if company rectifies problem within time required, trading resumes for the security. Usually allowed to execute orders for the suspended security in the unlisted market EXCEPT for those suspended from trading on TSX venture.