Module 7 - The Stock Exchange

Question 1

Reasons for joining a stock exchange

Answer 1

• raising finance
• enhanced status
• higher profile
• exit route

Question 2

Disadvantages of joining a stock exchange

Answer 2

• cost
• public scrutiny
• dilution
• ongoing responsibilities

Question 3

Main Market segments

Answer 3

• premium
• standard
• high growth (want to progress to premium)
• specialist fund

Question 4

What are the requirements to join a premium or standard listing?

Answer 4

• minimum market capitalisation of any equity issue is 700k
• at least 25% shares must be held by the public
• audited financial info for 3 years (shorter if not in operation for standard)

Question 5

Differences between entry requirements for a premium listing compared to standard

Answer 5

• can be listed on FTSE UK indices
• require a sponsor
• follow UK corp governance code not just statements
• class test ratios
• 75% shareholder approval required for transfer between listing categories or cancellation of listing

Question 6

AIM

Answer 6

• alternative investment market for small, young and growing companies
• raise equity finance without having to comply with the level of regulation required for flotation on main market
• don’t need 3 year track record
• no minimum market cap
• don’t need 25% public shares

Question 7

Conditions for AIM

Answer 7

• legally established under laws and be a public company
• publish annual and interim accounts
• appoint and retain a NOMAD
• appoint and retain a broker

Question 8

NOMAD

Answer 8

responsible for advising and guiding the company both on its listing and continuing obligations

role:

• due diligence before listing
• coordinating preparation of documents for listing
• ensuring company understands rules of listing
• providing corporate finance advice

Question 9

Who often carries out the role of NOMAD

Answer 9

investment banks, corporate finance or accountancy firms approved by the LSE

Question 10

The Broker

Answer 10

• can act for companies listed or for investors wishing to deal in AIM securities
• promote and facilitate trading of the company’s shares (publishing research, dealing in shares, providing advice)
• must be retained and must be member of the Exchange
• can have more than one

Question 11

Two stage process for admission to Main market or AIM

Answer 11

1. LSE admit company’s securities to trading

2. UK listing Authority admits securities to the official list

Question 12

Three areas of Listing Rules

Answer 12

• listing rules
• prospectus rules
• disclosure and transparency rules

Question 13

Listing rules contain

Answer 13

• eligibility criteria
• rules on suspending/cancelling listings
• duties of sponsors
• continuing obligations

Question 14

Eligibility criteria

Answer 14

• must be plc
• must have published account for the past three years
• must be revenue generating
• must have sufficient working capital for the next 12 months

Criteria for the securities:

• whole class of securities must be listed
• shares must be freely transferrable
• market cap 700k for equity 200k for debt
• 25% shares in public hands
• warrants or options to subscribe must not exceed 20%
• convertible securities must be convertible into securities which are listed or capable of being listed
• shares must be eligible for electronic settlement

Question 15

Sponsor

Answer 15

• advisor required for premium listing
• often investment bank, accountant or lawyer
• advise and guidance
• accepts responsibility that all documents have been submitted and company has satisfied the conditions of listing
• must be FCA approved
• must be independent

Question 16

Circumstances requiring regulatory news announcements

Answer 16

• transactions between the company and a related party (directors + shareholders with more than 10% company’s votes)
• transactions in shares (class test ratios)

Question 17

Prospectus

Answer 17

A formal disclosure document which provided details relating to a financial instrument that is being offered for sale to the public

Required where a company’s securities are admitted to the Main Market or when an offer of securities is made to the public (all Main Market and AIM which are not placings)

Question 18

Contents of prospectus

Answer 18

• summary (2500 words detailing directors, advisers, key financial info etc)
• registration document
• securities note

Question 19

Long form report inclusions

Answer 19

• company history and business
• summary of past results
• net asset position
• future prospects
• functional areas of mangagement
• management structure

no specific regulations around this

Question 20

When must a short form report be produced

Answer 20

Under certain circumstances such as where there has been a material change to the group structure or a qualified audit report during the past three years

must be prepared by an independent accounting firm

Question 21

Inside information

Answer 21

precise, not generally available information which relates to the issuing company or its shares, which, if it were known, would have a significant effect on the share price

Question 22

Market Abuse regulation areas covered for AIM listed companies

Answer 22

• Introduction of new rules around the disclosure of inside information
• Maintenance of insider lists
• Introduction of a ‘closed period’ prior to financial results during which directors
  cannot usually deal in shares