Module 7 - The Stock Exchange Flashcards
Reasons for joining a stock exchange
- raising finance
- enhanced status
- higher profile
- exit route
Disadvantages of joining a stock exchange
- cost
- public scrutiny
- dilution
- ongoing responsibilities
Main Market segments
- premium
- standard
- high growth (want to progress to premium)
- specialist fund
What are the requirements to join a premium or standard listing?
- 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)
Differences between entry requirements for a premium listing compared to standard
- 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
AIM
- 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
Conditions for AIM
- legally established under laws and be a public company
- publish annual and interim accounts
- appoint and retain a NOMAD
- appoint and retain a broker
NOMAD
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
Who often carries out the role of NOMAD
investment banks, corporate finance or accountancy firms approved by the LSE
The Broker
- 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
Two stage process for admission to Main market or AIM
- LSE admit company’s securities to trading
2. UK listing Authority admits securities to the official list
Three areas of Listing Rules
- listing rules
- prospectus rules
- disclosure and transparency rules
Listing rules contain
- eligibility criteria
- rules on suspending/cancelling listings
- duties of sponsors
- continuing obligations
Eligibility criteria
- 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
Sponsor
- 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
Circumstances requiring regulatory news announcements
- transactions between the company and a related party (directors + shareholders with more than 10% company’s votes)
- transactions in shares (class test ratios)
Prospectus
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)
Contents of prospectus
- summary (2500 words detailing directors, advisers, key financial info etc)
- registration document
- securities note
Long form report inclusions
- company history and business
- summary of past results
- net asset position
- future prospects
- functional areas of mangagement
- management structure
no specific regulations around this
When must a short form report be produced
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
Inside information
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
Market Abuse regulation areas covered for AIM listed companies
- 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
