Fin Mar 8 - 1 to 5 Flashcards
As a recognised investment exchange, the LSE is responsible for:
- Providing a primary and secondary market for securities
- Supervising members
- Regulating the market
- Recording transactions
- Disseminating information through a RNS
registered news service
What are the four markets which comprise the LSE
1) Main Market
2) AIM
3) Professional Securities Market
4) International Securities Market
1900 listed companies between them
What securities trade on the LSE?
1) Corporate Bonds
2) Muni Bonds
3) GILTS and UKTs
4) ETFs
5) Domestic Equities
6) International Equities
What are the four primary areas that the LSE operates in?
1) Equity markets and primary issuance
2) Trading services
3) Information services (live price data)
4) MTFs and Derivatives
Regulatory structure of UK:
Top to Bottom
HMT & Parliament
Bank of England
FPC
PRA & FCA & POTAM
Firms
FPC and PRA are part of BoE
Who are the FCA dircetly accountable to?
Parliament and HMT
What remit of regulation do the PRA and FCA have?
PRA: Prudential
FCA: Conduct & Prudential
A firm covered by both is “dual regulated”
What regulation are UK companies expected to comply with?
1) FCA Regulations
2) HMT Supervision
3) LSE Membership Rules
4) POTAM
5) Companies Act 2006
What are the key areas of the companies act?
1) Company Name
2) Memorandum of Association
3) Directors Duties
4) Publish and Audit Account
What reponsibilities does the FCA have for the LSE? And how does the LSE govern itself?
1) FCA designate as a RIE
2) FCA set listing requirements
3) FCA ensrue sufficient systems
4) LSE day to day running of exchange
What does the FPC do?
Part of the BoE
Macro-prudential regulator
Monitor and respond to risks
What does the POTAM enforce?
The EU takeover directive
What is the investment association?
A trade body for UK investments - they have created many classification systems
What is the association of investment companies?
A classify of trusts
classify via region and sector e.g. UK smallers or European EM
both must invest 80% in named sector
What is the CISI?
Chartered institute for securities and investment
Professional body who offer qualifications, resources, ethics.
What are the CISIs objectives?
1) Promote the advancement and dissemination of knowledge
2) Develop high ethical standards
3) Act as an authority for matters of education and public interest
all above relate to securities and investments
What is PIMFA?
Personal IM and FA association
What is PIMFAs goal?
Create an opearting environment that llows best service for clients and their savings and investments
What are PIMFAs 6 goals?
1) Represent the diverse range of firms with a unified voice
2) Be leaders througk their knowledge and expertise
3) Laed debate to create optimal operating environment
4) Be a catalyst to develop culture of savings and investment
5) Transform the way people save and invest
6) Faciliate dialogue across stakeholders to create a best practice
What is primary issuance?
Why is it done
Give two examples
Securities issued for the first time
Raise Capital
IPO & Bond Issue
What two ways can an IPO be done?
1) Underwritten
2) Best effort basis (no guarentee all securities are sold)
Who carries out the IPO? and why?
A syndicate of banks with a “lead underwriter”
Comission for selling securities
What are secondary issues?
Further issues of already public stock
Dillutive and non-dillutive
What is a dillutive and non-dillutive secondary issue
Dillutive - company create new shares
Non-dillutive - existing shareholder sells large amount of shares (can often be a founder or long term employee)
Give 3 advantages of a public listing?
1) Raise public profile
2) Marketability and liquidity
3) Easier and less costly access to financing
Give 3 disadvantages of public listing?
1) Increases costs of compliance and reporting
2) Lose some control of business
3) Become a takeover target
What is techMARK?
A section of the LSE for tech companies
What is a dual listing?
A company listed on two exchanges either internationally or domestically (e.g. many american are domestic and regional)
What are common examples of dual listing
China and Hong Kong
UK and US
What do dual listed companies in the US have to comply with.
Give examples:
Sarbanes Oxly - SOX
HSBC, Vodafone, BP
What are the 5 listing requirements for the LSE?
1) Market cap of £30m+ & 10% free float
2) Value of bonds at least £200,000
3) Securities freely transferable
4) 3yr trading history
5) Going concern for next 12 months
If a UK PLC cannot meet LSE requirements, what can they do?
List on AIM
Aim features less stringent requirements
What are the requirements for AIM?
Appoint NOMAD (advise on complying with rules and prospectus)
Appoint broker
Subject to continuing FCA obligations
What are the FCA continuing AIM obligations?
1) make public price sensitive info
2) Issue annual reports within a set time frame
What is AQSE?
Aquis stock exchange
Trades AIM and Main on its own exchange
Examples of succesful and unsuccesful IPOs
1) Apple, Msft etc
2) 90s dot com bubble failures
the prospect of large gains attracts many to IPOs
What are the three stages of the IPO process?
1) Decision - Weigh up pros an cons of undertaking IPO
2) Prepare prospectus (involves IBs, accountants, lawyers)
3) Sale of securities - syndicate manage and sell securities
What is a broke issue?
Debut price falls below seller’s set level for IPO
How do banks guard against broke issues
Oversell issue by 15%
Effectively shorting and purchasing back to support price
What is a greenshoe option?
Syndicate can buy up to an additional 15% of shares is demand exceeds expectation or price exceeds
Can help provide stability for excess demand issue
Underwritten vs Best effors?
1) Underwritten = full guarentee from bank
2) Best effort = no guarentee all securities will be sold
Why can best effort be risky for a bank?
Can hurt repuation if they fail to sell all securities
What is price stabilisation?
Lead manager purchases shares in market to support price if it falls below an agreed value
Creates stability for issue
What are the 3 MAR guidelines for price stabilisation?
1) Disclosed before offer that its an option
2) Can’t exceed 30 days
3) Must disclose transactions after process concludes
3 ways of issuing shares
1) IPO
2) Placings
3) Introductions
Two types of IPO and the differences
1) Offer for sale - Price decided by public - cannot pay more than that price
2) Offer for subscription - public given a price at which they can purchase
What is a placing?
Offered to specific individuals. (usually investors with specific interest)
Why would a company choose to do a placement?
1) less expensive
2) less prospectus requirements
What 3 things must be included in a prospectus?
1) Risks
2) Business plan showing use of funds raised
3) Owners and directors
What offerings do not need prospectuses?
1) To sophisticated investors
2) Private placements
What regulates prospectus requirements?
Prospectus Regulation (2019 replaced Prospectus directive)
6 things PR introduced:
1) Summary no more than 7 pages - clear concise language
2) 10 groups of risks - on material risks listsed (severity and probability)
3) Frequent issuers get universal regulation document - speed up approval
4) SMEs issue growth prospectus - less rigorous
5) Existing listings (18 months) simplified prospectus
6) Exempt if offering to sophisticated investors
How will UK PR differ from EU PR?
1) FCA will have overall responsibility
2) FCA have greater flexibility over necessity of prospectus
3) Prospectuses won’t be a requirement for all public offerings
What is passporting?
Allows EEA to passport in to UK to conduct business
Passporting is the foundation of the EU single market
How could EEA firms still operate in the UK post Brexit?
What did it grant them?
“Temporary Permissions Regime” (TPR)
Part 4A Permission - authorsied to carry on regulated activities
What passporting rules must be complied with under TPR?
1) Show how FCA conditions will be met
2) How UK business will be structured
3) SM&CR takein into account
After 31st Dec 2023 - what happens to EEA firms without full authorisation?
Wound down by the Financial Service Contracts Regime (FSCR) - ensures an orderly exit from the UK market.
What was the temporary marketing permissions regime?
Allowed EEA funds to be marketed in the UK
