Stock Market and Securities Law Flashcards
What are securities?
Stocks, shares, debentures. notes, bonds, documents that are evidence of ownership and debt = exchangeable and saleable in the market place
List out transactions that would fall under the definition of securities according to the CMSA 2007?
Unit trusts, prescribed investments, shares in a body corporate, debentures issued by any government, debentures in an uncorporated body
SPACs
special purpose acquisition companies - shell companies formed with intentions to merge - e.g. Hibiscus. To promote and facilitate private equity activities and encourage corporate mergers and acquisitions. Only last for 3 years.
Minimum offering to the general public when enlarged issued and paid up capital for minimum public offering size is <200mill
1) 5% of the paid up capital or 2) aggregate of RM3 mill / whichever is more
Minimum offering to the general public when enlarged issued and paid up capital for minimum public offering size is >200mill
1) 2% or 2) aggregate of 10 mill / whichever is higher
Failure to comply with Equity Guidelines - measures to be taken by the SC would be
1) direct the person in breach to comply with the guidelines 2) Impose a penalty in proportion to the severity or gravity of breach not exceeding RM500K 3) reprimand 4) remedy the breach 5) refuse to accept submission from person in breach
To be admitted to the official list companies must comply with -
1) Relevant provisions of the CMSA 2) Companies Act 1955 3) Equity Guidelines 4) Listing Requirements of Bursa Malaysia
Failure / Breach of the Listing Requirements of Bursa Malaysia five possible penalties
1) Public reprimand 2) Suspension in the trading of the securities for any period of time 3) Restriction on all dealings in the securities 4) Delisting of the company from the official list 5) Fine not exceeding RM100K.
The Equity Guidelines set out requirements to be met by public companies intending to undertake offering of securities with listing on Main Market. What are the three listing routes available?
Profit Test, Market Capitalisation Test, Infrastructure Project Capital Test
List out the Profit test requirements
1) PROFIT AFTER TAX uninterrupted for 3-5 FYs = aggregate to RM20mill and at least RM6 mill for the latest FY. 2) Must operate the same core businesses prior to SC submission
List out the Market Capitalisation Test Requirements
1) Ordinary shares to have market cap of min RM500 mill based on issue or offer price 2) Generate operating revenue for 1 FY prior to SC submission
Infrastructure Project Corporation Test
1) Have to right to build 2) Project cost >RM500mill 3) concession or license awarded by government or state agency of at least 15 years from date of submission to the SC. if shorter concession- look at profit test
Equity Guideline requirements for SPAC
1) raise a min RM150mill through its IPO 2) 36 months to complete a qualifying acquisition. 3) 90% of proceeds from IPO must be transferred immediately to a trust fund and guarded by a custodian 4) Qualifying acquisition must account for 80% of the amounts then on deposit held in the trust account.
In assessing secondary listing proposals, the SC would look to
standards in relation to corporate governance, shareholders and minority interest protection and regulation of take-over and merger of the jurisdiction in which a company is incorporated.
Transfer of listing from the ACE Market to Main Market
1) Uninterrupted profit of 3-5 full FY with an aggregate after tax profit of RM20mill 2) Most recent FY after profit tax of at least RM6mill
Whats the role of a principal advisor?
Act as a placement agent for any placement of securities under an IPO. In the event of an underwriting arrangement, the principal advisor must be part of the syndicate of underwriters. Other advisors i.e. accounting and law firms to provide professional advice need to ensure that application is ready for SC proposal.
Penalty for submitting to SC false information/ proposal + misstatement in the prospectus
fine max RM3mill or prison 10 years max or both
Set out the kind of information that must be contained in a prospectus as required by the CMSA
1) Assets & Liabilities, financial position, profits and losses and the prospects of the issuer 2) Rights attached to the securities 3) Merits of investing in the securities 4) Extent of the risk involved in investing in the securities
Hybrid equity securities
characteristics of both debt and equity i.e. preference shares and convertible notes.
List out all 6 corporate actions for capital
1) Bonus Issue 2) Split Issue 3) Rights issue 4) Capital Repayment 5) Capital Cancellation 6) Share Buyback
Bonus Issue: Paid Up, Net Assets, No. of Shares
Increase, Remain, Increase
Split Issue: Paid Up, Net Assets, No. of Shares
Remain, Remain, Increase
Rights Issue: Paid Up, Net Assets, No. of Shares
Increase, Increase, Remain
Capital Repayment: Paid Up, Net Assets, No. of Shares
Decrease, Decrease, Remain
Capital Cancellation: Paid Up, Net Assets, No. of Shares
Decrease, Remain, Remain
Share buyback: Paid Up, Net Assets, No. of Shares
Remain, Decrease, Decrease
Modes of Issuing Securities: Public Issues mean
Issue of new shares for sale to the public at a price agreed upon by the issuer and its Principal Advisor
Modes of Issuing Securities: Rights Issues
Issues of new shares to existing shareholders for cash generally at an attractive price / at a discount- in proportion to their holdings.
Aim: for raising additional capital from the market.
What does it mean for a 1:2 rights issue?
Existing shareholders will be eligible to buy one share for every two shares they own.
What is a split issue? / Stock split?
A stock split is a corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares. Split does not add any real value.
A 3-for-1 stock split means that for every one share held by an investor, there will now be three. In other words, the number of outstanding shares in the market will triple. On the other hand, the price per share after the 3-for-1 stock split will be reduced by dividing the price by 3.
What is a bonus issue?
Also refers to capitalisation issue. Issue as a gift to the existing shareholders depending on the number of shares held by them. Bonus shares do not inject any fresh capital into the company since they are issued without any consideration. It also does not make any changes to the net worth of the entity. Bonus shares are given to the shareholders out of the free reserves created from additional profits made by the company during the year.
Aim: to increase active trading through an increase in a number of outstanding shares.
A company announces a 2:1 bonus issue
for every one share existing shareholders own, they will receive two new bonus shares
Variety of equity securities 1) Capital Raising 2) Trusts 3) Derivatives
Capital Raising: Ordinary shares, preference shares, loan stocks, bonus issues, right issues, convertible notes.
Trusts: Investment companies, real estate investment trusts (REITS)
Derivatives: Call Warrants, warrants
Debt securities
Bonds 1) Debentures 2) Convertible notes 3) Loan stocks
Note: There are two main types of debt securities traded on the market 1) Bonds (gov and companies raise money 2) debentures (companies raise money)
What are bonds?
Known as fixed interest/ or fixed income securities. Long term debt issued by gov & companies in which the amount borrowed will be repaid on a specific date and a fixed rate of interest will be paid at regular intervals for the period of the loan.
What are debentures?
Loan listed on Bursa, at a fixed rate of interest for a fixed period. Low risk investment and secured over company assets.
Debt securities - hybrid securities?
can be converted into shares - part debt and part equity. Hybrid securities listen on Bursa is a convertible loan stock.
Penalty for short selling
fine max 5 million or imprisonment for max 10 years or both
Insiders in insider trading?
All persons who have in their possession information that is not generally available.
Tradeble Indices
1) FTSE Bursa KLCI Index
2) FTSE Bursa Malaysia Mid 70
3) FTSE Bursa Top 100 Index
4) FTSE Bursa Malaysia Hijrah Shariah Index
5) FTSE Bursa Malaysia Asian Palm Oil Plantation Index
Benchmark Indices
1) FTSE Bursa Malaysia EMAS Index
2) FTSE Bursa Malaysia Small Cap Index
3) FTSE Bursa Malaysia Fledgling Index
4) FTSE Bursa Malaysia EMAS Shariah Index
5) FTSE Bursa Malaysia ACE Index
6) FTSE Bursa Malaysia Oalm Oil Plantation Index
