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CISI Securities > Chapter 4 Primary Markets > Flashcards

Chapter 4 Primary Markets Flashcards

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SIE Exam flashcards
1
Q

What are the stages of an IPO

A
  1. The decision
  2. The preparation of prospectus
  3. The sale of securities
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2
Q

Who is in the origination team

A
  • Sponsor (listing agent)
  • Legal advisor
  • Public relations
  • Accountants
  • Corporate broker
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3
Q

What does origination team do

A

Range of advisors who work with lead manager to help the company place its new issu of shares/bonds

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4
Q

What does sponsor/listing agent do

A
  • assess company’s suitability for listing
  • Assess best method for bringing company to market
  • Coordinate production of prospectus
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5
Q

What does legal advisor do

A

Ensures all relevant matters covered in prospectus

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6
Q

What does public relations do

A

Create positive perception of company

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7
Q

What do accountants do

A

Validate financial statements in prospectus

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8
Q

what does corporate broker (issuing house) do

A

Advise company on current market conditions

Interface between company and market

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9
Q

difference between co-lead managers and co-managers

A

Co-lead managers when company appointed all banks in syndicate group, including the lead manager. Joint responsibility

Co-manager is appointed by lead manager in syndicate

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10
Q

What is green shoe option

A

Allow increased offering up to 15%

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11
Q

What is stabilisation

A

Lead manager purchases stock in secondary market to support issue price

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12
Q

Difference between offer for sale and offer for subscription

A

Offer for subscription- company offers shares directly

Offer for sale - company sells to issuing hose who sells to investor

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13
Q

Difference between fixed price offer and tender offer

A

Fixed - price is fixed just below a point at which it is believed there would be full subscription

Tender offer is book building process where minimum price is set and investors respond with prices and volumes that prepared to pay

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14
Q

What is an introduction

A

Company obtains listing without issuing new share capital

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15
Q

Examples of agency bonds

A

Student loan/ mortgage etc

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16
Q

describe municipal bonds

A

Issued in US by LA/State, usually guaranteed by third party monoline insurer

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17
Q

What is shelf registration

A

Single registration covers multiple issues of bonds for up to 2 years

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18
Q

What is reverse inquiry

A

Investor requests specific type of bond (used in conjunction with MTN)

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19
Q

Detail stages of bond issue

A

Pitching

Indicative bid

Mandate announcement

credit rating

roadshow

listing

syndication

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20
Q

How does UK gov bond issue work

A

Issued by DMO

Competitive bids for more than £1 million nominal. Competitive means they price they bid and only GEMMS can take part in competitive auction

Non competitive auction- DMO sets weighted average price so everyone pays same price. Minimum £1000 NV

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21
Q

How does US government bond issue work

A

Tender style (single price auction/dutch auction). Everyone pays same: the lowest of successful bids

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22
Q

How do french and german gov bond issues work

A

Bid pricing system

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23
Q

FCA role in listing

A

FCA assesses whether the exchange has
sufficient systems and controls to run a market. Furthermore, the FCA (through its division; the UK

Listing Authority (UKLA)) lays down the detailed rules that have to be met before companies are
admitted to the Official List that enables their shares to be traded on the exchange.

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24
Q

What is a follow on offering/ secondary offer

A

An already listed company looking to raise more capital can choose to go through a follow-on offering.
A follow-on offering is alternatively referred to as a secondary offer. Issuing more shares in a follow-on
offering will only be considered if the equity markets are sufficiently robust.

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25
Q

What needs to be included in prospectus

A

The prospectus has to fully disclose all the pertinent details regarding the offering,

  • including a detailed business plan,

-an explanation of how the proceeds from the offering will be used,

-details of all owners/directors of the entity,

-and most importantly a comprehensive disclosure of all of
the risks associated with the investment

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26
Q

Stages of convertible/exchangeable offer

A
  1. the decision
  2. the preparation of prospectus
  3. the sale of securities
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27
Q

What role does the listing agent fulfill in terms of AIM

A

Nominated advisor

28
Q

What are continuing obligations of listed companies

A
  • Issue annual accounts and half yearly report
  • Notify the market of any new price sensitive info
29
Q

What is alternative way of stabilizing the price after an IPO

A

Greenshoe option

30
Q

What is the Main Market in the Uk

A

The Main Market in the UK is is for securities included within the Official List and the criteria for admission to the Official List are set out in the Listing Rules – a rule book is maintained by the UK regulator – the FCA

31
Q

What are the requirements to be on the official list

A
  • Must be represented by a sponsor
  • The expected market capitalisation of the company should be at least £30 million for the
    company’s shares to be listed.
  • The company should have a trading record of at least three years.
  • At least 10% of the company’s shares should be in public hands, or be available for public
    purchase. The term ‘public’ excludes directors and their associates and anyone who holds 5%
    or more of the shares

The company and its advisers must publish a prospectus, a detailed document providing potential
investors with the information required to make an informed decision on the company and its shares.

  • The company must restrict its ability to issue warrants to no more than 20% of the issued share
    capital.
  • Listing is not free, and a further requirement before a company’s shares can be admitted is that
    the appropriate fee has been paid
32
Q

Difference between standard and premium listing

A

The UKLA actually has two sets of requirements that may be met by an applicant to be admitted to the Official List.

The first is the so-called Standard Listing, with the requirements derived from the EU,
and the second is the so-called Premium Listing, which has further requirements over and above the European minimum.

Only equity shares are eligible for Premium Listing, so issuers of other securities,
such as bonds, can only seek a Standard Listing

33
Q

What is requirement for standard listing

A

Aggregate market value of the debt securities should be at least £200,000.

34
Q

Difference between Main market official list and Alternative Investment Market (AIM)

A

In the UK, the LSE has established two markets for company securities: the Main
Market and AIM (which originally stood for ‘Alternative Investment Market’).

The Main Market is the
more senior market for securities that have been admitted to the Financial Conduct Authority’s (FCA’s)
Official List. Entry rules are stringent, ensuring that only companies of a high quality can be involved.

AIM was created with less stringent admission requirements to provide a market for smaller, less well established companies. For example, there is no restriction on market value, percentage of shares in public
hands or trading history

35
Q

What are AIM requirements

A

The main requirements for a company’s shares to be admitted to the AIM are twofold:
1. That there is no restriction on the transferability of the shares.
2. That the AIM company appoints two experts to assist it:
a. the nominated adviser – as seen, the nomad can be thought of as an exchange expert,
advising the company on all aspects of AIM Listing Rules and compliance
b. the broker – AIM companies’ shares are usually less liquid than those of fully listed
companies; it is the broker’s job to ensure that there is a market in the company’s shares, to
facilitate trading in those shares and to provide ongoing information about the company to
interested parties.

As with the Official List, the LSE imposes similar continuing obligations on AIM companies. There are
also certain other aspects in relation to AIM companies and their broker and nominated adviser:
* The broker and adviser can be the same firm; they are often firms of stockbrokers or accountants.
* If a company ceases, at any time, to have a broker or adviser, then the firm’s shares are suspended
from trading.
* If the company is without a broker or adviser for a period of one month it is removed from AIM

36
Q

Look at pg 134 for Frankfurt Stock Exchange

A
37
Q

Who decides whether a company is appropriate to apply for a quotation on an exchange?

A

Listing agent

38
Q

In which type of investment may a reverse inquiry be used?

A

Medium term notes

39
Q

A company is seeking a dual listing in both the UK and USA for which a syndicate has been formed. The UK firm handling the UK listing would have which role within the syndicate?

A

Co-lead manager

40
Q

Who would take on the role of assessing the market conditions for an issue of equity on the exchange?

A

Corporate broker

41
Q

Which of the following would an underwriter least like to occur?

A

Since the underwriter has a potential obligation to buy any new shares that are not taken-up at a fixed price, they would least like to see a fall in the market value of the shares.

42
Q

A listed company must adhere to which of the following?

A

A listed company adheres to International Financial Reporting Standards. IFRS

43
Q

Which of the following best describes a national listing authority’s role with regard to primary and secondary markets?

A

The listing authority writes and enforces the rules on the primary market; the exchange writes and enforces the rules on the secondary market

44
Q

If the market were to assess the free float of a company, it would calculate the number of shares in the hands of:

A

The public

45
Q

A company wishes to issue shares on an exchange. Which of the following takes a central role for the company in advising the directors of their responsibilities?

A

Listing agent

46
Q

Claire is asked if she would like to participate in the purchase of shares of a company in a selective marketing process. Who would have most likely made this approach?

A

A financial intermediary

47
Q

Commission on an underwritten issue is calculated on the:

A

Value of shares underwritten by the underwriter

48
Q

Which of the following is not normally underwritten?

A

Placing

49
Q

hen are the rate and intervals of interest payments determined for corporate bonds?

A

At the issuance of the bond

50
Q

The process of issuing US T-bonds is through a:

A

Single priced auction

51
Q

MTNs are normally issued with a maturity of:

A

Between 2 and 10 years

52
Q

Who has the ultimate responsibility for the underwriting of a new issue?

A

The lead manager

53
Q

A syndicate group will primarily be formed in which of the following situations?

A

A new issue of shares

54
Q

Which of the following is true of the continuing obligations for a company when quoted on an exchange?

A

Companies should produce accounts

Not all companies must abide by the regulator’s listing rules in junior markets it is just the exchange’s rules they must follow. There is a need to produce accounts and interim reports where applicable. Holders of ordinary shares which hold voting rights always have the right to vote on resolutions whereas preference shareholders typically not given voting rights.

55
Q

A medium-term note programme benefits from which of the following?

A

Shelf-registration

56
Q

Payment of shares

A

Public limited companies’ shares can be, but not must be, partly paid on issue. The company can decide when the remaining nominal value is paid

57
Q

Corporate governance can be described as a set of rules, laws and customs which guide a company. Which roles within a company should ideally be split between different individuals?

A

The chair and the chief executive

58
Q

In respect of a prospectus who is responsible for co-ordinating the due diligence process?

A

Listing agent

59
Q

What happens if gilt unsold

A

The UK Debt Management Office will put all unsold gilts on its books at the lowest bid price

60
Q

What is the term used for a eurobond issue where the issuer reaches a firm agreement with the lead manager to purchase the entire issue?

A

Bought deal

61
Q

A company has successfully released shares into the market through an initial public offer. The members of the board of directors have personal debts which they wish to pay off. Which of the following BEST describes the method used to help achieve their objective?

A

A non-dilutive secondary issue

62
Q

What is the most common issue method used by the UK Debt Management Office when issuing gilts to institutional investors?

A

Competitive auction

63
Q

By what maximum percentage can an issuing company allow the underwriters to increase the size of the offering if demand is high?

A

15%

64
Q

In an offer for sale to whom does the company sell its shares?

A

Directly to the issuing house

65
Q

In order for a company to list equity on a junior market, what is the market capitalisation required?

A

There is no limit

66
Q

Equities are being issued by tender. The minimum offer price in the prospectus is 200p. You offer 300p. The maximum price offered is 350p. The common strike price set by the company is 245p. What price will you pay?

A

245p the common strike price

CISI Securities (15 decks)

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