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CISI: Securities > Chapter 4: The Primary Market > Flashcards

Chapter 4: The Primary Market Flashcards

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SIE Exam flashcards
1
Q

What is an IPO?

What does it do?

A

Initial Public Offering

Allows privatley owned companies to sell its shares on a public market to raise capital.

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2
Q

Advantages of an IPO?

Over other capital raising methods.

A
  • Raise substantial sums
  • Boosts Publicity
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3
Q

What is a Greenshoe?

Or an over allotment clause.

A

Whereby the issuing company reserves the right to release extra shares if demand remains unsatisfied.

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4
Q

What are the 3 Broad Stages of an IPO?

DPS

A
  1. Decision
  2. Prospectus
  3. Sale
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5
Q

What is Firm Underwriting?

A

Where a bank will gurantee the sale of all of the securities in an IPO.

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6
Q

What is Unconditional “Best-Efforts” Underwriting?

A

Where banks and co-underwriters will not guarantee the complete sale of issued securities. Not committing to buy back any unsold secutities.

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7
Q

What is Conditional “Best-Efforts” Underwriting?

A

Where banks and co-underwriters will not guarantee the complete sale of issued securities. But instead commit to buy back any unsold secutities, to keep prices stable.

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8
Q

What is a Follow-on Offering?

A

A secondary offer, that issues more shares if demand is still strong.

This is unlikley to work in a bear market.

Cheaper than an IPO, as most of the stages have been completed.

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9
Q

Stages of a Follow-on Offering?

A
  1. Decision
  2. Prospectus
  3. Sale
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10
Q

What is an Offer for Sale?

A

The most popular type of IPO is where an issuing house (Investment bank) will buy a package of shares and offer them to investors.

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11
Q

What is a Fixed Offer Price?

A

Is a price offered to an issuer, just below what it is believed they should be fully subscribed, to encourage an active secondary market.

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12
Q

What is a Tender Offer?

Why is this good?

A

Does not set a fixed price for the shares, it invites potential investors to bid to gauge both price and demand.

This does not lead to shares being excessivley demanded or underdemanded. A minimum price is set,

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13
Q

Why are Fixed Offers preffered over Tender Offers?

A

Less adminisration from both parties.

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14
Q

What is a Greenshoe Option?

Why is it used?

A

Gives the issuer the provision of an over allotment option of up to 15% the original amount of shares. This settles demand and stabilises the price.

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15
Q

What is Placing?

Selective Marketing?

A

Where shares are issued directly to a broker, and then offered to a select handful of clients. This is less expensive than most other options.

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16
Q

Can Placing Occur in Secondary Markets?

A

Yes. Provided the jurisdication allows it.

17
Q

What is a Private Placement?

A

Whereby shares can be issued to investors without the provision of a regular public prospectus.

18
Q

What does the UK Prospectus Regulations reflect?

A

The EU Prospectus Directive

19
Q

What is the SEC Provisions for Private Placements Called?

A

Reg D

20
Q

What is an Introduction?

Why are they used?

A

Listing shares on an exchange, not to raise capital, but to raise awareness, liquidity and often comply with certian regulations.

21
Q

What is an Exchangable Bond?

Ex?

A

A bond that pays a coupon with a set redemption date. It then gives the holder the option to exchange for a set number of shares in ANOTHER company.

22
Q

What is a Convertible Bond?

A

A bond that pays a coupon with a set redemption date. It then gives the holder the option to exchange for a set number of shares in the issuing company.

23
Q

Benefits of both Exchangeable and Convertible Bonds?

A

Safety of repayment and coupons, as well as the capital growth of the securities.

24
Q

Stages of both Exchangeable and Convertible Bonds?

A
  1. The Decision
  2. The preperation of the prospectus
  3. The sale of the securities
25
Q

What is the Role of a Reporting Accountant?

What are they AKA?

A

RAs or “Public Auditors” will attest the validility of the financial info in the prospectus.

26
Q

What do Legal Advisors do in an IPO?

A

Ensure all the relevant areas are covered in the prospectus, and the statements are justified .

27
Q

What is a PR Consultant?

What do they do?

A

Appointed to optimise the positive public perception of the company.

28
Q

What is a Corporate Broker?

What do they do?

A

Act as an interface between the company and the stock market.

29
Q

What is a Sponsor?

What do they do?

A

Listing agent or sponsor (Investment Bank), evaluates a company suitablilty for listing and cordinates prospectus creation for investors assesment.

30
Q

What is Book Building?

Who carries this out?

A

Where the syndicate (multiple entities) with gather willingness of investors, to gauage the price most fit for the IPO.

31
Q

What is a Circuit Breaker?

Why is it used?

A

Temporarly suspending a market when prices move to suddenly to stabilise the market.

32
Q

What are the Listing Requirments for the LSE?

There are 5

A
  • Must be duly incoporated, represented by a sponsor
  • At least £30million mkt cp
  • 3 years trading record
  • Publish a prospectus
  • Issue no more than 20%
33
Q

What is the Aggregate Market Value Required for Debt Securities?

A

£200,000

34
Q

How Often are Companies Listed on the LSE Required to Produce Account Reports?

A

At least half annually

35
Q

Requiresments for Shares to be Admitted to the AIM?

There are 2

A
  1. There are no restrictions on the transferability of the shares.
  2. Appoint 2 compulsory personnel.
    * The Nomominated advisor (nomad) - Compliance
    * The Broker - Ensure and facilitate a market for the shares
36
Q

Obligations on AIM Companies

There are 3

A
  1. Broker and Advisor can be the same firm
  2. If a company caeses, trading is suspended
  3. Without a broker of nomad for more than 1 month, shares will be removed from the AIM

CISI: Securities (11 decks)

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