Week 3: issuing securities

Question 1

What is the UK primary market regulator?

Answer 1

FCA

Question 2

What is the US primary market regulator?

Answer 2

Securities and Exchange Commission

Question 3

How are the UK primary market regulations set?

Answer 3

Largely set by European directives, such as the “prospectus directive” and the “transparency
directive”.

Question 4

What is the goal of the FCA?

Answer 4

To ensure that investors have full

information about newly issued and traded securities

Question 5

What is the equivalent primary market regulative law in the US?

Answer 5

The truth in securities’ act

Question 6

What are the objectives of the Truth in securities act?

Answer 6

require that investors receive financial and other significant information concerning securities being offered for public sale; and

prohibit deceit, misrepresentations, and other fraud in the sale of securities.

Question 7

How are Government Bonds issued?

Answer 7

Through auction by the Debt Management Agency (UK)

Question 8

How are the Gilts (UK Govt bonds) split up?

Answer 8

index linked (IL) from conventional gilts (CV)

Conventional Gilts split to:

• Short maturity
• Mid maturity
• Long maturity

Question 9

What is a conventional Gilt?

Answer 9

Long term UK government bond, offering fixed

payments of “coupon” every six months and the repayment of the original principal at the maturity date.

Question 10

What is a Index Linked Gilt?

Answer 10

Payments are linked to a price index, increasing along with inflation.

Question 11

How are Corporate Bonds issued?

Answer 11

Via an underwriter or bookrunner

an investment bank who (working with other
banks) is responsible for producing the required prospectus and marketing the bond issue (through a so called roadshow).

Question 12

How are IPOs issued?

Answer 12

Underwriting via a lead bookrunner

whose job is to market the issue and use their contacts to establish and indicative market price.

Question 13

What happened during the Twitter IPO?

Answer 13

never made a profit at the time of the IPO, (spent more money on expanding the business than earned)

-sold a small proportion of shares, (a little over 10%)

Question 14

How do investment banks earn money via IPOs?

Answer 14

Earn revenues upwards of 5% of the value of the flotation

Question 15

Whats the problem in establishing market price for IPOs?

Answer 15

Best explained by Keynes in the ‘General Theory’

The price alters based on what people think another person will view the price of the stock at.

Question 16

what are mergers

Answer 16

mergers: 2 companies of identicle size becomes 1 entity

Question 17

what are acquistions

Answer 17

when a company of a large size take over a smaller one

Question 18

What is the rationale behind M&A?

Answer 18

generating synergies

–> combined firm > sum of the parts

Question 19

What is the process in completing a Merger?

Answer 19

shareholders in both companies must agree

–> allocation of new shares depends on the existing share values

Question 20

What are the rules and regulations behind an acquisition?

Answer 20

-any potential acquirer must announce their intentions, when reaching a threshold of total issued shares (in London 30%).

Question 21

what is the M and A cycle

Answer 21

MA are risky
- It is easier to finance M&A and to persuade shareholders when the economy is strong, and market prices are high. As