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IMC Unit 1 - Chapter 1 > Settlement procedures in the UK > Flashcards

Settlement procedures in the UK Flashcards

1
Q

What is the settlement time / platform for LSE equity transactions?

A

Settle T+2 through CREST (2 is business days)

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2
Q

What is the settlement time / platform for Gilt transactions?

A

Settle T+1 through CREST

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3
Q

What is CREST?

A

Computerised system allowing electronic holding/ transfer of shares

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4
Q

When listing products in the UK for the first time what regulator is likely to be used?

A

Issuing products for the first time – in the UK this is likely to involve the UKLA

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5
Q

Who does the UKLA report to?

A

They don’t report to the FCA because they are one in the same. The FCA/ UKLA report to her majesties treasury and are fully accountable to this.

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6
Q

Who can be a listed company?

A

Public companies only

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7
Q

Who decides the admission to the official list?

A

The UKLA/ Financial Conduct Authority (FCA) is the ‘competent authority’ to decide on admission to the Official list (this is for public limited companies only)

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8
Q

When making a decision on approving a company for the official list what must be approved and why?

A

must approve listing particulars or a prospectus prior to listing (the market must be given all relevant information – that has to be approved my the UKLA to check it is clear, concise and there is enough of it – idea behind this is that could be involved with an IPO and thus we don’t know what the level of knowledge of a potential buyer could be)

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9
Q

What conditions regarding the audience would exempt a company from making a prospectus to be listed?

A

o The offer is made to qualified investors (thus good level of knowledge and experience); or
o The offer is made to less than 150 persons (very select audience and probably know level of knowledge and experience of these people)

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10
Q

what conditions regarding total consideration would exempt a company from making a prospectus to be listed?

A

The total offer consideration is less than 5million euros

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11
Q

what conditions regarding minimum investment per investor would exempt a company from making a prospectus to be listed?

A

o The minimum investment per investor is greater than or equal to 100,000 euros (probably wholesale investment rather than retail)

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12
Q

how long must public accounts cover to be on the official list?

A

3 years

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13
Q

how much must shares be worth to be on the official list?

A

£700,000

shares = seven

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14
Q

how much must debt securities be worth for a company to be on the official list?

A

£200,000

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15
Q

how is shareprice calculated?

A

Amount of shares in issue * trading price of the shares

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16
Q

in order to get on the official list and be a listed company how much of the issued shares must be ‘free float’ and what does this mean?

A

‘Free float’: at least 25% of issued shares in the hands of the public

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17
Q

in order to get on the official list and be a listed company how much working capital must a company have?

A

sufficient to covet at least the next 12 months

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18
Q

in order to get on the official list and be a listed company who must be appointed?

A

Sponsor must be appointed * (they handle the sponsor on the behalf of the company)

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19
Q

what three criteria in terms of getting onto the official list relaxed for standard listings?

A
  • Published accounts: must cover at least three years*
  • Amount of shares in issue * trading price of the shares.
  • Working Capital: sufficient to covet at least the next 12 months*
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20
Q

where will companies go if they cant make it onto the official list?

A

If some of the above can not be met then go to AIM (alternative investment market) where entry rules are slightly lighter.

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21
Q

What is AIM?

A

The Alternative Investment Market (AIM) is a specialized unit of the London Stock Exchange catering to smaller, more risky companies. The companies listed on AIM tend to be small-cap and more highly speculative companies in nature, in part due to AIM’s relaxed regulations and listing requirements.

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22
Q

is the LSE a listed company?

A

Yes

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23
Q

What is a quoted company

A

A “quoted company” means a company whose equity share capital— has been included in the official list

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24
Q

Who administers the AIM rules?

A

The LSE

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25
Q

What is needed to be listed on AIM?

A
  • Nominated advisor
  • Broker who also assists in marketing (often NOMAD and broker are the same) – if lose these then shares will be suspended.
  • Admission document
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26
Q

What is Aquis Growth Market (AQSE) and what did this used to be?

A

NEX

similar to AIM – for smaller start up companies)

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27
Q

What are the conditions for being listed on Aquis Growth Market (AQSE)

A
  • Appoint and retain a NEX exchange corporate adviser
  • Have at least 12 months’ audited accounts
  • Have at least 10% free float
  • Corporate governance (have to observe good levels)
  • 12 months working capital
  • No restrictions on the transferability of shares (have to be easily transferable)
  • Shares eligible for electronic settlement (must be able to be presented on an electronic exchange)
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28
Q

What are the conditions for being listed on Aquis Main Market (AQSE)

A

• Same as the official list

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29
Q

Why is information disclosure needed in terms of shares being issued?

A

Once shares are in the market there is a need to know who’s hands these lie in. In equity in particular often there is rights to vote – so whenever securities are being dealt with need to know who is holding them

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30
Q

Why is a Disclosure of Directors’ Interests in Shares needed?

A

Important as need to know how many of the shares are retained by the directors – these are probably the people who would have the most information about a company – meaning they are under more scrutiny.

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31
Q

What rules does Disclosure of Directors’ Interests in Shares come under?

A

Comes under FCA’s disclosure and transparency rules (DTR)

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32
Q

What is a PDMR?

A

Persons discharging managerial responsibilities’

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33
Q

Under disclosure of directors’ interests in shares when must PDMRs report transactions?

A

‘Persons discharging managerial responsibilities’ (PDMRs) must report transactions in securities to the company within 4 DAYS of the transaction

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34
Q

Under disclosure of directors’ interests in shares when must o Listed companies must notify the market?

A

NO LATER THAN THE END OF THE FOLLOWING BUSINESS DAY.

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35
Q

When a company announces disclosure of directors’ interests what is this most often through?

A

often via a primary information provider.

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36
Q

What is the LSE owned primary information provider called?

A

RNS (regulatory news service)

37
Q

How is information distributed from primary information providers to the rest of the world?

A

Then the information is further disseminated around the world as companies reach out to Quote Vendors (e.g. Bloomberg) – often called secondary market/information providers

38
Q

What does the process of information flowing through primary and secondary information providers ensure?

A

This means the information gets distributed to all and nobody has an advantage.

39
Q

What does disclosure of Majority interests in shares fall under?

A

• FCA’s disclosure and transparency rules (DTR)

40
Q

What is the purpose of disclosing majority interests in shares?

A

• Purpose: information on significant stakes should be made available to the investing public.

41
Q

Under the disclosure of majority interests in shares what is the time scale in which investors must notify a company?

A

WITHIN TWO BUSINESS DAYS

42
Q

What % conditions must be reached whereby investors must notify a company?

A

o Reaches 3%
o (once above 3%) goes up or down to the nearest next whole % point (e.g. if currently holding 3.9% and then purchase new shares and takes overall holding to 4.1% then requires disclosure)
o Falls below 3%

43
Q

When the a company is informed about a significant % change what will they do with this information?

A

o Company would then distribute this information once again through primary and secondary information providers

44
Q

In terms of disclosures of interests in shares what must public companies maintain?

A

must maintain a register of disclosures – so there is an audit trail of the information given to the markets.

45
Q

What must an investor keep in terms of disclosures of interests in shares?

A

Companies may require confirmation of interests held anytime in the last THREE YEARS – thus if there is any feeling of deceit then would need to provide this

46
Q

what is continuing obligation?

A

The ongoing requirements of the Listing Rules which must be followed by a UK listed company in order to maintain its listing.

47
Q

what is the purpose of Information dissemination and disclosure rules for listed companies?

A

Purpose: designed to keep shareholders of public companies properly informed

48
Q

What are the requirements of the Information Dissemination and Disclosure by listed companies rules?

A

o Submit drafts of meetings and circulars (other than routine) to the UKLA for approval
o Release any price sensitive information to the market via a Regulatory Information Service (RIS) or Primary Information Provider (PIP)

49
Q

Who can attend general meetings?

A

If hold equity in a company then this gives the right to attend meetings the company holds.

50
Q

What is an AGM?

A

Annual General Meeting (AGM)

• Requirement placed on a company and its directors

51
Q

When must an AGM occur?

A

Must occur within six months of the year end

52
Q

What is the maximum time-span between AGMs?

A

15 month interval

53
Q

Who calls an AGM?

A

Directors

54
Q

What is the minimum notice time for an AGM and how must this be delivered?

A

21 days - written notice

55
Q

When is electronic communications deemed delivered?

A

48 hours post being sent

56
Q

When is a general meeting called?

A

Called for an extraordinary issue (e.g. name change/ merger)

57
Q

What is the minimum notice time for an General Meeting and how must this be delivered?

A

14 days - written notice

58
Q

Who calls a general meeting?

A

Called by directors, or by 5% or more of shareholders.

59
Q

What do individuals attend general meetings/ AGMs to do?

A

Individuals attend meetings to pass resolutions – e.g. approval of the payment of a dividend/ re-election of a chairman.

60
Q

In a GM/ AGM outline a vote by show of hands

A

o Normal in the first instance
o Each member has one vote – regardless of the size of the position (how many shares owned)
o Used for anything standard

61
Q

In a GM/ AGM outline a vote by poll

A

o More accurate
o One vote per share and proxies counted – have to register every vote can’t net votes – both votes have to be presented.

62
Q

Who can demand a vote by poll?

A

o Can be demanded by;
 5 members; or
 10% or more of shareholders

63
Q

What is a general proxy?

A

Someone appointed to vote as they see fit

64
Q

What is a special/ two-way proxy?

A

o Appointed to vote as directed, for or against a resolution

o This is probably more likely

65
Q

What is an ordinary resolution

A

Standard reoccurring decisions

66
Q

What is needed for an ordinary resolution to pass?

A

> 50% of the votes cast

67
Q

What would be an example of an ordinary resolution

A

E.g. approving a dividend, approval of annual accounts

68
Q

What is a special resolution?

A

More constitutional decisions

69
Q

What is needed for an ordinary resolution to pass?

A

75% of the votes cast

70
Q

What would be examples of a special resolution?

A

E.g. share buy-back, name change, merger

71
Q

what is the largest equity market in the US?

A

NYSE is the largest equity market in the US

72
Q

What is the set up of the NYSE?

A

Floor-based ‘specialist’ system of stock trading

73
Q

how is a price given on the NYSE?

A
  • Designated market makers (DMMs) assigned trading posts – have to approach the trading post for a price
  • The Universal Trading System transmits orders from NYSE members to the trading posts – don’t actually need to go to the post on the floor in person
74
Q

What is a Eurobond?

A

Bonds so is a company raising capital through the debt markets

Eurobond = raising a currency outside of a jurisdiction

but NOT related to europe

75
Q

What is Eurosterling / Eurodollars

A

Sterling raised outside of the UK/ US

76
Q

What type of bond is a Eurobond?

A

International bonds

77
Q

How are eurobonds denominated?

A

In eurocurrency

78
Q

How often are coupons issued for Eurobonds?

A

Annual

79
Q

What is the feature in terms of transfer of eurobonds?

A

They are unsecured bearer securities (most securities are registered – e.g. register of shareholders) this means these are freely transferable the securities can be passed between people without need for registration. These can still physically exist so would have to be careful of looking after the product as no log of who has actual ownership.

80
Q

What is the effect of there being no name registered on a eurobond?

A

o No name registered so would have to claim cash-flows if any yourself or use an entity like Euroclear or Clearstream.

81
Q

How are eurobonds placed?

A

International placing

82
Q

How are eurobonds traded?

A

Trading: OTC market,

83
Q

Who regulates the OTC Eurobonds are traded on?

A

international Capital Markets Association (ICMA)

84
Q

What system handles the trade registration of Eurobonds?

A

TRAX

85
Q

What do Eurobonds settle through and why?

A

o Settle through Euroclear and Clearstream – (these are very safe depositary centres which is needed as per the above and lack of registration) – these tend to Immobilise the product (immobilisation) thus getting rid of the security risk of the holder losing the certificate.

86
Q

What is the trade time settlement for Eurobonds?

A

T+2

87
Q

What is the principle agent problem?

A

Stock markets allow for the separation of corporate ownership and control:
o Ownership = Shareholders
o Control = Directors/managers

The ‘principle-agent problem’
o Owners want to maximise the value of the firm
o Directors/managers want to maximise their own interests
o Concerns are not-aligned

88
Q

What is the solution to the principle agent problem?

A

o Align concerns
o Stock options – given to directors/managers meaning that if the company does well then their bonus in the form of shares will be bigger.
o Non-executive directors – keep the executive directors in line and acts in the interests of the owners (shareholders).

IMC Unit 1 - Chapter 1 (5 decks)

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