IPO Terms

Question 1

Affiliate

Answer 1

A person or entity that directly or indirectly controls, is controlled by,
or is under the common control of, a company. Examples of
affiliates include executive officers, directors, large stockholders,
subsidiaries and sister companies.

Question 2

Aggregate offering price

Answer 2

The total price of an offering to the public, which is equal to the
number of shares offered, multiplied by the price per share

Question 3

AIM (Alternative Investment

Market)

Answer 3

A global market for smaller and growing companies.

Question 4

American Depositary Receipts

ADRs

Answer 4

ADRs are a convenient way for domestic investors to own shares in
foreign companies. Denominated in US dollars, ADRs allow
American investors to invest in a foreign company. ADRs are also
traded in London.

Question 5

Arbitrage

Answer 5

Buying securities in one country, currency or market, and selling in
another to take advantage of price differences.

Question 6

Authorized share capital

Answer 6

The total number of shares a company is authorized to issue with
regard to its memorandum and articles of association

Question 7

Bank Interchange Code (BIC)

Answer 7

A unique code identifying a participant.

Question 8

Beneficial ownership

Answer 8

The beneficial owner of a security includes any person who directly
or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares voting or investment rights
with respect to said security. A person or entity may be the beneficial
owner of a security even though the title may be in another name for
safety, convenience or other reasons (such as when securities
beneficially owned by an individual are held by a broker under a
‘street name’). There may be more than one beneficial owner of
a single security.

Question 9

Bonds

Answer 9

Debt securities issued by governments and companies as a means
of raising capital which generally entitle the holder to a fixed-rate
of interest during their life-time and repayment of principal at
maturity.

Question 10

Capitalization

Answer 10

The total amount of a company’s outstanding debt and equity
securities. The term is also commonly used to refer to the capital
(debt and equity) structure of a company.

Question 11

Comfort Letter

Answer 11

A letter written by a company’s accountants and delivered to
underwriters and the company’s board of directors as part of
a due diligence process. A comfort letter gives assurance to
underwriters and a company’s board of directors that the
financial information included in a registration statement
corresponds to audited and un-audited financial statements and
other financial records of the company and may also include the
results of certain additional agreed upon procedures.
See also Due diligence.

Question 12

Convertible bond

Answer 12

These bonds can be converted into a specified number of shares
of an issuing company at a pre-determined price.

Question 13

Dealer

Answer 13

Dealers buy and sell securities on behalf of a broking firm (or
investment bank) itself. Securities bought by a bank may be sold to
clients or other firms or become part of a bank’s own holdings.
See also Investment bank.

Question 14

Debenture

Answer 14

These are secured corporate bonds that are used to raise long-term
debt capital.

Question 15

Demutualization

Answer 15

Demutualization involves the conversion of a not-for-profit
association owned by its members into a for-profit company
owned by its shareholders.

Question 16

Earnings per share (EPS)

Answer 16

Net income of a company for a specified period of time divided by
the number of equity securities outstanding at such time. Fully
diluted EPS assumes the exercise or conversion of all relevant
warrants, options and convertible securities into common stock.

Question 17

Face value

Answer 17

This is the value of a bond or security as printed on a document.
Face value represents the amount that an issuing company promises
to pay at the time of maturity

Question 18

Final prospectus

Answer 18

An offering document sent to all purchasers of a company’s
stock during a public offering and immediately following it.
A final prospectus is an updated version of a preliminary
prospectus, contains all final offering information (such as
pricing and underwriting details) and reflects amendments to
the registration statement subsequent to the date of the
preliminary prospectus.
See also Preliminary prospectus.

Question 19

Flipping

Answer 19

The practice of an investor buying stock via an IPO at the offering
price and quickly selling it for a profit when it starts trading.
Though it became common during the internet boom of the late
1990s, this practice is generally discouraged by companies and
underwriters who seek investors willing to make a long-term
commitment to a company.

Question 20

Flotation

Answer 20

Also known as an IPO. The process by which a company obtains a
listing from the UKLA and is admitted to trading on the Exchange.

Question 21

Gross proceeds

Answer 21

Offering proceeds before underwriting discounts and commissions
are deducted.

Question 22

Initial Public Offering (IPO)

Answer 22

Also known as flotation, it is a company’s first offer of shares on the
stock market. Shares may be offered at face value or at a premium.

Question 23

Institutional investors

Answer 23

Organizations whose primary purpose is to invest their own assets
or those entrusted to them by others, the most common of which
are employee pension funds, insurance companies, mutual funds,
university endowments and banks.

Question 24

Investment bank

Answer 24

An investment bank is a financial intermediary that offers a range of
services and advice to its clients. The role of an investment bank
includes corporate finance, securities trading, research, investment
management and international finance.

Question 25

Investment trust

Answer 25

A collective investment trust in the form of a listed company which
holds a portfolio of securities on behalf of its own shareholders.
Because an investment trust is itself a listed company, its shares can
be bought and sold in the usual way.

Question 26

Issuer implementation team

Answer 26

The department at an exchange responsible for dealing with

applications for admission to trading.

Question 27

Lock-up agreement

Answer 27

An agreement between a company or its underwriters as one party,
and a stockholder as the other, whereby a stockholder agrees to
refrain from reselling its shares for a period of time specified in
a registered agreement.

Question 28

Managing underwriters

Answer 28

Underwriters, who individually or together with co-managers,
participate in preparing a registration statement, carry out portions
of due diligence and conduct road shows.

Question 29

Maturity period

Answer 29

This is the life of a bond or security. A bond’s life usually ranges from
5 to 15 years but a few government bonds may even have a lifespan
of 25 to 50 years

Question 30

Option

Answer 30

The right (but not the obligation) to buy or sell securities at a fixed
price within a specified period.

Question 31

Partnership

Answer 31

In a partnership, two or more people jointly own a business. Whilst
general partners are fully liable for the debts of a business, limited
partners have limited liability.

Question 32

Preliminary prospectus

Answer 32

An offering document used by a company and underwriters to
market a public offering. Also known as a red herring because
of the red ink used on the front page,

Question 33

Rights issue

Answer 33

An invitation to existing shareholders to purchase additional shares
in a company

Question 34

Road show

Answer 34

Presentations made by a company’s executive management during
a public offering, in one-on-one or group format, to prospective
purchasers of securities in a public offering, typically institutional
investors. An IPO road show typically lasts from one to three weeks

Question 35

Secondary offering

Answer 35

The portion of a registered offering being offered and sold by
existing stockholders.

Question 36

Selling group

Answer 36

A group of dealers and underwriters selected by managing
underwriters, as the agent for the other underwriters, to market
shares in a public offering.

Question 37

Swaps

Answer 37

Complex derivative products that are settled in cash.

Question 38

Syndicate

Answer 38

A group of underwriters selected by managing underwriters to

market and sell shares in a registered public offering.

Question 39

Transfer agent

Answer 39

A transfer agent keeps a record of the name of each registered
stockholder, his or her address and the number of shares owned,
and ensures that certificates presented for transfer are properly
cancelled and that new certificates are issued in the name of
the new owner.

Question 40

Underwriter

Answer 40

An investment bank that offers or sells securities to investors in
a public offering on behalf of a company either as a firm
underwriting commitment (which is the most common way) or
a best efforts offering. The Securities Act defines the term
underwriter much more broadly to cover many other
participants in a distribution of securities.

Question 41

Underwriting agreement

Answer 41

In a registered offering, the principal agreement is signed by the
company and the underwriters to set forth the relationship between
the parties. An underwriting agreement contains an agreement to
sell and buy offered shares, the underwriting discount and
commission, representations and warranties of the parties, certain
covenants, expense allocation and indemnification provisions.

Question 42

Underwriting discount and

commission

Answer 42

A percentage of the gross proceeds of an initial public offering that
constitutes compensation paid to underwriters for marketing and
selling the offering.

Question 43

Waiting period

Answer 43

The period of time between filing a registration statement and
the effective date.

Question 44

Working group

Answer 44

Consists of key company executives and employees, a company
board of directors, managing underwriters, a company counsel, an
underwriter counsel, company auditors, a financial printer and other
parties. Working group members have various responsibilities in
preparing registration statements, including the prospectus, and
marketing and selling the company’s stock to investors.