Financial Markets Flashcards
How many independant non-executive directors should a FTSE350 company have on its board?
> 50%
How often are FTSE350 directors re-elected?
Annually
Who must clearing houses be recognised by as ‘fit & proper’?
PRA
According to the principles of the takeover code, what cannot be created as a result of a takeover bid?
False markets that artificially distort the price of securities
True or false? The offeror company must have sufficient cash when announcing the bid.
True
What two elements make up a stock exchange?
Primary market - where securities first issued
Secondary market - where securities are traded
What are some of the benefits of listing a company?
- Cash - raise finance to expand.
- Increased profile
- Liquidity - company’s shares can be traded more easily.
- Places a value on the company.
- Employees - can offer share schemes to incentivise.
- Takeovers - easier for company to take over other companies.
What must be issued before a company’s listing?
Prospectus
Where must firms apply if they wish to be listed on the ‘main market’?
-UKLA’s Official List
-LSE’s Main MarketW
Name the conditions a firm must meet to be listed.
- Min market cap of £30m (£700k for OEICs/ITs).
- Min 10% of shares available to public.
- No one shareholder can have >30% voting rights.
- Three years’ audited accounts.
- Shareholders must be given pre-emptive rights for any further share issuance.
- Must have an FCA authorised sponsor.
What are the differences in conditions for listing on the AIM compared to the main market?
-No min market cap
-No prior trading history
-No min free float
What are the four main types of IPO?
- Offers for sale
- Offers for subscription
- Placing
- Introduction
What is the most common method of listing?
Offer for sale
On what basis can offers for sale be made, and how do they differ?
Fixed price offer - shares offered to investors at a predetermined price.
Tender offer basis - investors invited to bid for shares, stating minimum price they’d pay
How do offers for subscription work?
Investors are invited to bid for shares above a minimum subscription level, usually to gauge overall demand.
What type of IPO do investment trusts tend to use?
Offers for subscription
How do placings work?
Issuer goes directly to institutional investors and pitches share sales to them.
Why might a company opt for a dual listing?
It allows for a larger investor base
What may the sponsor agree to do if the price of a shares following a listing falls below a predetermined level?
Price stabilisation - sponsor will buy back the issued shares
What is the greenshoe option and when can it be used?
Allows sponsor to over-allot the issue by up to 15%.
Can only be used up to 30 days from issue & must be disclosed
What ways could a listed firm subsequently raise further capital?
-Rights issue
-Open offer
-Subscriptions
-Resale with subscriptions
-Closed offer
Who are the primary dealers for the UK Gilt market?
Gilt-Edged Market Makers (GEMMs)
Under the auction process for UK Gilts, what is the minimum bid?
£1m
How are conventional gilts allocated following an auction?
-Highest bid; then
-remainder taken up by lower bidders
What price do all successful bidders pay at an auction for index-linked gilts?
Lowest accepted price
How much of a conventional gilt auction is set aside for non-competitive bids?
15%
What will the DMO regularly issue to cover any shortfall in UK Govt cashflow?
Treasury bills
Categorise the three main types of corporate bond based on highest to lowest risk.
-Senior - lowest risk
-Subordinated
-Mezzanine
How are corporate bonds typically priced?
At a yield spread to a specified benchmark i.e. SONIA
How might a company close the funding gap between commercial paper and long-term borrowing?
Medium term note (MTN) programme
True or false? There is a market in junk-rated MTNs.
False
Once a holding becomes a notifiable interest, how long does the investor have to inform the company and the FCA?
2 working days
In what scenarios must an investor with a notifiable interest inform the company?
- Their holding goes above 3% (shares or voting rights).
- Once above 3%, if their holding rises or falls by a full percentage point.
- The stake falls below 3%.
What are the thresholds for notifiable interest for collectives?
5%
10%
Every full % point over 10%
When must a mandatory offer be made?
- Where a shareholder acquires more than 30% of the shares/voting rights.
- Where a shareholder increases their holding from 30% or more to less than 50%.
How might a predator fund a takeover?
-Follow-on offering i.e. rights issue
-Conventional bond issuance
-Convertible bond issuance
