Other Regulatory Requirements Flashcards
Who is the regulator for listed companies?
The UK Listed Authority which is the FCA
What are the two lists on the LSE?
The Official List and Alternative Investment Market
What is the alternative for the Official List and AIM?
AQSE - Aquis Stock Exchange
Do all public companies issue shares?
No. Some companies are publicly listed but do not trade on the stock exchange
How is floatation achieved? (3)
- A company must first be floated - issue shares
- For admission to the Official List/AIM, applications are made to the UKLA, a division of the FCA
- To trade, applications are made to the LSE
What are the Disclosure and Transparency Rules?
- Helps to prevent market abuse and insider dealing
Once a company is listed on the LSE, what regulations are they bound by? (3)
- FCA and UKLA rules
- The Companies Act
- The LSE’s own rules for members
What are the advantages of floatation? (3)
- Access to wider capital base
- Acquisition currency through M+A
- Public profile and prestige e.g. press coverage, financial results
What are the disadvantages of floatation? (3)
- Exposure to market conditions e.g. volatility, geopolitical
- More accountable to regulators e.g. more disclosures, reporting
- Principal agent problem between shareholders and founders
What is cross listing? (4)
- A firm lists its shares on one of more stock exchanges in addition to its domestic exchange
- Make shares more accessible for global investors
- Increase liquidity
- Decrease cost of capital
What is a UKLA prospectus? (2)
- Contains all the relevant information required by a potential investor to make informed decision about buying company shares
- UKLA requires a prospectus or listing particulars to be completed by a company seeking a listing
What is the Prospectus Directive?
Harmonises the rules on the creation of prospectuses
What are the 3 main types of listing?
- Premium
- Standard
- High growth segment
What are the conditions for a premium listing? (7)
- Is a public limited company (PLC)
- 3 year trading record (financial statements and audited)
- 12 months working capital
- £30m in equities and £200,000 in debt
- Management complies with Model Code
- Appointment of sponsor (typically an authorised firm expert in administering listing)
- 10% free float (shares on the LSE
What are the conditions for a standard listing? (4)
- PLC
- £30m in equities, £200,000 in debt
- Management must comply with Model Code
- 10% free float
What are the conditions for a high growth segment listing? (4)
- Incorporation in the EEA
- Commercial company issuing equity only
- 10% free float
- CAGR of 20% over 3 years
What is the AIM market? (6)
- Separate to the Official List
- A market for small, young and growing companies
- Is considered a MTF
- LSE decides who is admitted to AIM not UKLA
- Quoted companies not listed companies
What are the key roles for companies seeking AIM status? (2)
- Nominated advisor (NOMAD) - advises the company to comply with AIM rules, companies must appoint a NOMAD, must confirm in writing to the LSE that the company is appropriate, must be accepted onto the register of NOMADs held by the LSE
- Nominated broker - an LSE member firm who matches buyers and sellers in the company’s shares/market maker when orders cannot be matched, provides market information which cannot be accessed by SETS
Broker and advisor can be from the same firm and must be retained even after admission to AIM
What are the conditions for entry for an AIM company? (4)
- Must be a PLC
- Produce an admission document
- Publish accounts in accordance with international accounting standards
- Issue freely transferable shares
What are the main differences between AIM and the Official List? (4)
AIM companies do not need:
- Minimum free float
- Minimum trading record
- Shareholder approval
- Minimum market cap
What is the AQSE? (2)
- Aquis Stock Exchange
- Is in direct competition with the LSE and is another RIE
How many markets does AQSE have and what are they? (2)
- Main board - eligibility criteria is similar to the Official List with a premium or standard listing
- Growth market - similar to the AIM market
What are the conditions for entry to AQSE? (7)
- Appointment and retention of an ASQE corporate advisor, similar to a NOMAD for AIM markets
- Demonstrate appropriate levels of corporate governance - at least one independent director
- At least 2 years of trading history and publish financial reports within 9 months before admission
- 10% free float
- 12 months working capital
- No restrictions on transferability of shares
- Have shares available on electronic settlement
What are the continued obligations of publicly traded companies? (5)
- Disclosure and control of inside information
- Periodic financial reporting
- Vote holder and issuer notifications
- Access to information
- Corporate governance
What are disclosure and transparency rules (DTR)? (4)
- Requirement for listed companies to keep the market informed of all price sensitive information
- What type of information should be disclosed
- How and when the information should be disclosed
- Procedures for delaying disclosure
What are the financial reporting requirements by the UKLA? (3)
- Audited annual reports available at least four months after the end of the financial year
- Half year results are to be available at least 2 months after the midpoint of the financial year
- Management reports should be attached to each
What does the UK Code of Corporate Governance require from premium listings? (6)
- Board Leadership and Company Purpose
- Division of Responsibilities between chair, board, non execs, senior managements
- Composition, succession and evaluation - democratic
- Audit risk and internal control -
- Remuneration codes
- Board diversity
What is Section 172 Reporting? (4)
- Promote the success of the company on directors
- Impact on community
- Long term consequences of decisions
- Maintaining good reputation for business conduct
What is the Stewardship Code 2010?
- Encourages institutional investors (pension funds) to take an active interest in corporate governance
What is the shareholders rights directive? (1)
- Aims to tackle shareholder apathy in the stock market
What is the responsibility of trustees of occupation pension schemes under the Stewardship Code? (2)
- Publish information on shareholder engagement
- Publish climate mitigation policies
When are AGMs? (5)
- Called by the board
- Held once a year, should be within 6 months of the end of the financial year. Interval of AGMs must not exceed 15 months
- 21 calendar days notice - can be shortened if 100% of shareholders agree
- Electronic notice transmitted and delivered 48 hours after being sent
- Resolutions: financial statements, appointment of auditors, directors appointments, approval of dividends
What is a general meeting? (3)
- Called by the board or shareholders who own 5% or more of company shares
- 14 days notice - can be reduced if 95% of shareholders agree to meeting
- Discus pressing issues such as impending insolvency of company
What are the 2 types of resolutions at general meetings? (2)
- Ordinary - More than 50% agreement required (most of the business of an AGM is carried by ordinary vote)
- Special - More than 75% agreement required
When is notice for resolutions? (2)
Ordinary resolution - 14 days calendar notice
Special resolution - 21 days notice
How do shareholders vote? (3)
- Through a show of hands - one vote per shareholder, regardless of how many shares they hold
- Full ballot - voting rights here are determined by how many shares are held by the shareholder
- Poll - can be demanded by shareholders holding 10% or more of voting rights in company, 5 members having voting rights or the chairperson
What are proxies? (4)
- For shareholders who are unable to attend meetings, they appoint proxies to vote on their behalf
- Proxies can vote on issues by show of hands or written ballot
- Special proxy (two way proxy) - follows instructions of shareholder
- General proxy - makes their own decision
What is the EU Transparency Directive? (4)
- Covers EU companies trading on EU exchanges
- Trigger 5%
- Notify issuer within 4 business days
- Issuer notifies market
What are the requirements for person or connected party discharging material responsibilities (PDMR)? (2)
- Notify the company within 4 days of the trade
- Company notifies the market via RIS/RNS no later than the next business day
What is a shareholder who owns >50% of a company deemed?
Legal owner
When does a takeover bid occur?
When someone wishes to acquire >50% of the business - this could be an individual or a company
What are the disclosure of material interests? (4)
- Made to the company within 2 business days where:
- Interest reaches 3%
- A change in percentage point above 3%
- Falls below 3%
What metrics are used to determine whether 3% interest exists amongst PDMR or connected party? (4)
- The persons spouse
- Minor childer
- Companies where the person control 1/3 of votes
- Fellow members of any concert party
What is the role of the CMA under the Enterprise Act 2002? (4)
- CMA will decide whether to clear or refuse a takeover or merger
- Identifies transaction where combined entity exceeds 25% (Share of Supply Test)
- The turnover of the entity being acquired exceeds £100m (Turnover Test)
- Acquirer’s existing share supply of 33% and turnover of £350m (Acquirer Test)
What is the EU Takeover Directive?
- Creates a level playing field across the EU to ensure equal treatment for shareholders during takeovers
What is the Takeover Panel? (5)
- Independent, statutory body - limited in it’s powers
- Monitors mergers and takeovers
- Funded by the Takeover Panel levy (£1 per transaction above £10,000 on the LSE)
- Chairman appointed by the BoE
- Other members from all areas of the financial markets
What are the powers of the Takeover Panel? (6)
- To write rules
- Issue directions
- Require documentation
- Issue private reprimands and public censure
- Report offenders to other regulatory bodies e.g. to FCA, LSE
- Seek approval from the courts to enforce compliance with the rules
What are the 2 types of control when it comes to takeover?
- Legal control - more than 50% of voting shares
- Effective control - panel uses a benchmark of 30% control, many rules start to apply at this level
What is the timing process once the bid has been publicly announced by the LSE? (6)
- Details of offer must be sent to target within 28 days
- T14 - posting of first defence document
- T21- Earliest closing for offer
- T39 - Last date for target company announcement
- T46 - Last date for predate to revise offer
- T60 - Final closing date for offer
What the offer consideration? (4)
- Cash only
- Shares or loan stock (a paper offer)
- A choice offering a number of alternatives
- Whichever form of consideration is specific, the minimum price to be offered is the highest price paid by the offeror in the last three months
What is a compulsory bid? (4)
- If a predator acquires influence over 30% or more of voting rights of a company, must offer for all remaining shares
- Offer becomes unconditional once more than 50% of target company acquired - predator is then obliged to purchase the shared of all those who have accepted the offer.
- Offer open for 14 days before it becomes unconditional
- Price offered must be no less than the highest price paid by offeror in last 12 months
What is squeezing out? (1)
- Where the bidder receives acceptances of 90% or more of same shares
How is ownership and control distinguished? (2)
- Principal - shareholder of a company, investor, voters - seeking to get best return from their ownership e.g.g profit
- Agent - investment manager, management of a company, politicians - seeking to get best return from their agency e.g. salary, commission
What are explicit agency costs? (3)
- Salary
- Fees
- Commission
What are some implicit costs? (4)
- Cost of corporate governance and regulation
- Fringe benefits - company car, healthcare
- Opportunity cost of slow action and time delays e.g. needing financial statements audited
- Cost of not meeting objectives
