Equity Capital Markets Flashcards
What are the roles and duties of the FCA?
The FCA is the competent authority in respect of UK-regulated markets. Its duties and power are set out in FSMA Part 4a. Thes include:
1) Maintaining the official list (the list of companies whose securities are admitted to trading on the Main Market or Professional Securities Market of the LSE or the NEX Echoing Main board
2) Approving Prospectuses
3) Admitting companies to the Official List
4) Regulating Listed Companies
The FCA, through its UK Listing Authority (the UKLA) determines which companies are eligible to join the Official List, and writes and enforces the FCA rules, which applies to those companies
What three sourcebooks are the FCA Rules divided into?
The FCA Rules are divided into the following 3 sourcebooks
1) The Listing Rules (LRs) - these compromise general rules for listed companies, including the provisions for listing, overarching listing principles and continuing obligations
2) The Disclosure Guidance and Transparency Rules (DTRs) - These provide the rules and guidance for the dissemination of price-sensitive and other information, notification of interest in shares and which corporate governance provision apply
3) The Prospectus Rules (PRs) - Consolidate all rules on prospectuses, the procedures for their approval, and exemptions from the requirement for a prospectus
Although all these rules apply to premium listed companies, some of them have a wider application, such as
- The LRs apple to issuers with a premium listing, but only certain elements apply for issuers with a standard listing, and specialist issuers
- The DTRs apply in general to listed companies, with certain elements also applying to AIM and NEX exchange growth market companies
- The PRs apply to al companies =, both public and private, seeking to offer shares to the public or gain admission to trading on a UK-regulated market
What is the LSE?
The LSE is a listed company that runs a marketplace in securities.
The FCA regulates the LSE and has granted it RIE status.
The LSE operates 2 principal levels of entry into the equity market:
1) The Main Market, for those securities on the UKLA Official List and its small and medium sized enterprise (SME) Growth Market (The AIM)
2) A specialist market - the professional securities market
What markets does the FCA regulate, compared to the LSE?
The FCA regulates Listed Companies (those companies quotes on the Marin market or professional securities market).
The LSE regulated companies quoted on the AIM, as well as writing and enforcing the AIM rules and regulating AIM advisers.
The LSE’s rules govern secondary marketi trading in the shares of both listed and AIM companies by shareholders and intermediaries
What is one of the MiFID ll aims, in relation to SMEs?
One of the aims of the MiFID ll is to facilitate access to capital for SMEs, and the development of specialist markets catering for SME’s needs.
MiFID ll seeks to establish a regime for the registration of MTFs offering facilities to SMEs as ‘SME Growth Markets, where they meet certain criteria.
MiFID ll requires that at least 50% of the issuers whose financial instruments are admitted to trading on an MTF registered as an SME-GM are small and medium sized enterprises at the time the MTF is registered as an SME - GM, and in any calendar year thereafter. AIM is registered as a SME-GM
What is a prescribed market?
A prescribed market is any market operated by an RIE
What are the 2 tiers of listing for all main market companies, whether UK-or Overseas-Registered
The 2 tiers of listing for all main market companies are:
1) Premium listing - available to those issuers prepared to meet UK super-equivalent standards. It is available for equities issued by commercial companies, together with those equity securities issued by Closed-Ended Investment Companies (CEICs) and Open-Ended Investment Companies (OEIC)
2) Standard listing - rehires issuers to comply only with EU minimum standards. Is is available to both UK and overseas commercial equity issuers, as well as issuers of GDRs, debt, securitised derivatives and miscellaneous securities. Not available for CEICs or OEICs
What are the Listing Rules (LRs)?
The Listing Rules set out the standards expected of listed issuers and the specific procedures to be followed. Namely:
1) The details of the FCA’s enforcement regime
2) The requirements for listing for all securities, together with the super-requivelelent provision for premium listing
3) The Listing Principles
4) the procedures for application for admissition to listing, including secondary offerings
5) The requirements for sponsors, including criteria for approval and continuing obligations for companies and directors
6) The requirements for shareholder approval of significant and related party transactions
7) The contents of circulars to shareholders, and financial information in circulates
8) The requirements of share buy-backs
9) The specific requirements for CEICs and OEICs, and issuers of debt, GDRs and non equity shares
What are the Disclosure, Guidance and Transparency Rules (DTRs)?
The aim of the DTRs is to implement those requirements of the Market Abuse Directive (MAD) and the Transparency Directive that apply to quoted companies in the UK, with a view to ensuring transparency to shareholders. They contain
1) Provision relating to the disclosure and control of inside information by issuers
2) Requirements to disclose transactions by Persons Discharging Managerial Responsibilities (PDMRs) and their related parties
3) Periodic financial reporting, including the timing and content of annual and interim accounts, and interim management statements
4) Vote holder and issuer notifications (Disclosure of substantial)
5) Continuing obligations and access to information
6) Corporate governance requirements, including the requirement for an audit committee and corporate governance standards
The DTRs have been revised with the intro of MAR/MAD 2, and many of the elements previously within the DTRs now sit pithing MAR
What is the difference between a Recognised investment exchange (RIE), a regulated market and a Multilateral Trading Facility (MTF)
Under MiFID, entities that offer multilateral trading for financial instruments (such as an order book) must be organised either as a Regulated Market, or as an Multilateral Trading Facility (MTF)
1) Regulated Market - Regulated Markets are those that comply with the requirements for regulated markets under MiFID
2) Multilateral Trading Facilitiy (MTF) - Multilateral Trading Facilities are those markets which are not designated at regulated markets
3) Recognised Investment Exchange - an RIE is a firm which operates one or more of these markets, and meets the standards required by the FCA to be an RIE
What is a regulated market?
A regulated market is a multilateral trading system operated by a market operator which brings together or facilitates the bringing together of 3rd party buying an selling interests in financial instruments in a a way that results in a contract, in respect of the financial instruments admitted to trading under its rules or systems, and which is authorised and functions regularly in accordance with the provisions of Title lll of the MiFID
Who is responsible for maintaining the list of regulated markets?
The FCA, by virtue of Article 47 of MiFID, is responsible for maintaining the list of regulated market for which they are the home member state.
Regulated markets are
1 Ice Futures Europe (ICE) 2 London Stock Exchange (LSE) 3 London Metal Exchange (LME) 4 NEX Exchange (NEX) 5 CBOE Europe Equities Regulated Market (CBOE) 6 Euronext London
Which operators are responsible for regulating the LSE, the AIM or the NEX Exchange, respectively?
The LSE is a regulated market, and as such, must be regulated by the FCA, in its role as authority for regulated markets
The AIM is not a regulated market, it is an MTF, which is also designated as an exchange regulated market or a prescribed market. It is therefore regulated by its operator, the LSE
The NEX Exchange Growth Market is also an exchange regulated market, so it is regulated by its operator, the NEX Exchange
What is a Recognised Investment Exchange?
A Registered Investment Exchange (RIE) is an investment exchange which is considered by the FCA to be fit and proper, and although it is subject to FCA supervision and oversight, it is not required to be authorised
The LSE is a RIE. AS such, ir operates bot ha regulated market (Main Market) and an MTF (AIM). Any MTF operated by a UK RIE is described as a prescribed market
What is a multilateral trading facility?
A multilateral trading facility (MTF) is defined as any system that brings together multiple parties that are interested in buying and selling financial instruments and enables them to do so. These systems can be operated by an investment firm of market operator. Instruments can include shares, bonds nd derivates.
Secondary market trading in AIM and Main Market shares may take place on both RIEs an MTFs
What is the purpose of the Listing principles and Premium Listing principles
There are 2 Listing Principles and 6 Premium Listing Principles. Premium listing principles apply only to issuers with a premium listing, in respect to their obligations arising from the LRs and DTRs
The purpose of the principles is to ensure that premium issuers pay due regard to the fundamental role they play in maintaining market confidence and enabling fair and orderly markets, and to assist them in identifying their obligations and responsibilities under the LRs and DTRs
Listing Principle 1
What are the Listing Principles and Premium Listing Principles?
The 2 Listing Principles are:
1) A listed company must take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations
2) A listed company must deal with the FCA in an open and cooperative manner
The 6 Premium Principles are:
1) A Listed company must take reasonable steps to enable its directors t oudnerstand their responsibilities and obligations as directors
2) A listed company must act with integrity towards the holders and potential holders of its premium shares
3) All equity shares in a class that has been admitted to premium listing must carry an equal number of votes on any shareholder vote
4) Where a listed company has more than one class of equity shares admitted to premium listing, the aggregate voting rights of the shares in each class should be broadly proportionate to the relative interests of those classes in the equity of the listed company
5) A listed company must ensure that it treats all holders o the same class of its listed equity shares that are in the same position equally in respect of the rights attaching to those listed equity shares
6) A listed company must communicate information to holders and potential oilers of its listed equity shares in such a way as to avoid the creation of a false market in those listed equity shares
What are the Listing Requirements?
The Listing Requirements for admission to the official list are separated into those which apply to all issuers, and those which are specific to premium issuers.
The requirements for all securities (both premium and standard) are:
1) Applications must be duly incorporated in accordance with the law of their place of incorporation and operate in accordance with their constitution
2) Securities must be duly authorised, confirm with the law of the country of incorporation and have and necessary statutory or other consents
3) Where any securities of a particular class are admitted to listing, all the existing securities and further issues of securities of that class must be issued to listing
4) Securities must be admitted to trading on an rIE
5) Securities must be freely transferable
6) Shares must be fully paid up and free from liens and other restrictions on the right of transfer
7) The expected market value of all securities issued by the company, and to be listed, must be all easy £700,000 for shares and £200,000 for debt securities
8) A prospectus for the sale or admission to listing of the securities must be approved by the FCA and publihed
9) If another EEA state is the home member state for the securities, their competent authority must supply the FCA with a certificate of approval (a passport), a copy of the prospectus as approved and, if needed, a translation of the summary of the prospectus
10) Convertible securities may be admitted to listing only if the securities into which they are convertible are already, or will become at the time, listed securities on a regulated, regulated operating, recognised open market
1) At least 25% of the shares must be distributed to the public (not held by directors or singicant shareholders (shareholders holding 5% or more). This is referred to shares in public hands, or as a ‘free float’.
A premium issuer is subject to additional requirements. The provisions below apply to commercial companies (premium issuers)
1) The Issuer must have published consolidated, independently audited accounts covering at least 3 years, with the latest accounts being no more than 6 months old at the date of its prospectus
2) At least 75% of the applicant’s business must be supported by this 3 year earning record, and it must carry on an independent business as its main activity and have controlled the majority of its assets for at least 3 years
3) Th Issuer must make a clean working capital statement - ie show it has sufficient working capital for the next 12 months
What is the High Growth Segment (HGS)?
The High Growth Segment (HGS) of the main market is designed to assist mid-sized European and IK companies that require access to capital and a public platform to continue their growth
the HGS is for high growth businesses seeking access to the Main Market due to their size and stage of development, but that, at the point of their IPO, are not able to meet all the requirements for being on the FCA’s official list
The HGS has EU-regulated market status, to ensure a framework for appropriate larger companies, whereas AIM is not a EU regulated market, to allow for a market framework for smaller companies
What type of company can access the HGS?
The HGS is for the equity shares of UK and European Trading businesses that can demonstrate significant growth in revenues and a longer term aspiration to join the premium segment of the main market.
The 5 specific eligibility criteria include:
1) Incorporation in an EEA State
2) Equity Shares Only
3) Revenue generating business with historic revenue growth of 20% compound annual growth rate (CAGR) over a 3 year period
4) Minimum free float of 10%, with a value of at least £30m (majority of 30m must be raised at admission
5) A key advisor (who must be a UKLA approved sponsor) to be retained at admission and for specific matters including notifiable transactions
How would a company transition from the HGS to Premium Listing?
the HGS has EU-regulated market status, but is outside the UK’s Listing Regime.
For a company transitioning between the HGS to Premium Listing, they would remain on the same EU-regulatedd market (the main market) but would need to apply for admission to the premium listing category of the official list.
The company would need to:
1) Apply to the official list and meet the requirements for a premium listed company
2) Have an eligibility letter from a sponsor
3) A new prospectus may be required, depending on the company’s circumstances (i.e. if a company is undertaking a fundraising at the time of transition
The HGS rules provide an exemption from requiring shareholder approval for cancellation from the segment where a concurrent application is made for admission to the premium segment
What does a company need to do in order to be admitted to the HGS
In order to be admitted to the HGS, a company must
1) Produce an EU prospectus, approved by the FCA or other competent authority
2) Appoint a key advisor for admission
3) Demonstrate eligibility for the segment, as set out in the HGS rulebook and compliance with the LSEs HGS Rulebook and the Admission and Disclosure Standards
4) Be approved for admission by the LSE’s Admission Review Committee
5) On going retirements set out in the HGS rulebook, including rules around significant transaction and web disclosure and the requirement to consult a key advisor to specific events such as notifiable transactions
6) EU FSAP directives as applicable to regulated markets
7) An annual statement of what corporate governance code has been adopted and to what extent
What is the Specialist Fund Segment?
The Specialist Fund Segment (SFS) is designed for close-ended investment funds. IT is for specialised investment entities that wish to target institutional and high-net worth iprofessionally advised investors, rather than retail investors. Trading companies don’t qualify for the SFS.
The SFS is aimed at different types of investment managers seeking admission to a public market in London.
The SFS is a regulated market. Securities admitted to it are eligible for most investor mandates, however, they sit outside the UK’s Listing Regime (similar to the HGS)
How can a company be admitted to the Specialist Fund Segments (SFS)?
The Specialist Fund Segment (SFS) is an EU-Regulated Market. UK and Non-UK investment entities are eligible to seek admission. Admission is a 2 stage process, requiring
1) The approval of a prospectus by the applicants EEA competent Authority
2) Following prospectus approval, application to the LSE for admission to trading on the SFS
to be eligible for admission applications must ensure that:
1) The prospectus complies with Annex XV of the Prospectus Regulation
2) They disclose post-issue free float as part of their submission to the LSE
3) The comply with the LSE Admission and Disclosure Standards
What are the continuing obligations for standard and premium listing companies, in regards to disclosure and transparency
The continuing obligations for standard and premium listed companies are contained within the Listing Rules and in part in the DTRs. They govern the conduct of directors of listed companies and the disclosure of information necessary to protect investors, maintain an orderly market and ensure that investors are treated fairly.
The DTRs also contain requirements relating to the dissemination of Inside Information
What are the three offences relating to misleading statements and practices?
The three offences are:
1) Making false or misleading statements (Section 89)
2) Creating false or misleading impressions (Section 90)
3) Makign false or misleading statements or creating false or misleading impressions in relation to specified benchmarks (Section 91)
The misleading impression offence now covers recklessly created misleading impressions, as well as those created intentionally
What is the central rerquirement an issuer must make in regards to disclosures?
The central requirement provides that a premium or standard issuer must make a public disclosure through a regulated information service (RIS), of any inside information which directly concerns it, and that this disclosure should be made as soon as possible
What is the definition of inside information?
Inside information is defined as information:
- Of a precise nature
- which has not yet been made public
- relating directly or indirectly to one or more issuers, or to one or more financial instruments, and which
- if it were to be made public, would likely have a significant effect on the prices of those financial instruments, or on the price of related derivative financial instruments
Examples of inside information could include:
- changes n expectations of a company’s profits (such as through major new contracts or losses)
- Material transactions, including acquisitions, disposals or joint ventures
- Appoint of resignation of senior management
- Changes to the financial stability of the company, such as withdrawal of lending facilities
