CSC - Chapter 12 - Financing and Listing Securities

Governments and corporations often need to raise capital to finance their operations, which they do through the xx process (also known as xx).

financing, underwriting

The Canadian Government issues new fixed-coupon marketable bonds and Treasury bills to the market regularly through the xx system. The securities are issued by way of an auction, whereby the amount won at the auction is based on the bids submitted.

competitive tender

Only institutions recognized as xx are permitted to submit bids to the Bank of Canada. Government securities distributors may submit bids for their own accounts and on behalf of their customers. These institutions include the Schedule I and Schedule II banks, investment dealers, and foreign dealers active in the distribution of government securities. Government securities distributors that maintain a certain threshold of activity are known as xx

government securities distributors, primary dealers

Bids can also be submitted on a xx basis, whereby the bid is accepted in full by the Bank of Canada and bonds are awarded at the auction average yield.

non-competitive tender

new issues of provincial xx are issued in the government's name (e.g., Province of Manitoba bonds).

Direct bonds

xx bonds are issued in the name of a crown corporation, with repayment guaranteed by the provincial government. For example, the Province of Ontario guarantees the bonds issued by the Ontario Electricity Financial Corporation

Guaranteed bonds

With this method, a corporation's management negotiates with a dealer to determine the type of security, price, interest, or valuation multiple, as well as any special features and protective provisions that may be needed to ensure the success of the new issue

negotiated offering

are the maximum number of shares (either common or preferred) that a corporation may issue under the terms of its charter

Authorized shares

xx consist of the portion of authorized shares that the corporation has issued, either to the investing public, to company insiders, or to large institutional investors such as a mutual fund. Collectively, these shares owned by all shareholders are called xx.

issued, outstanding shares

The xx section of the statement of changes in equity indicates the number of shares that a company currently has issued and that are outstanding

capital stock

The xx refers to that portion of outstanding shares that are freely available for public trading. It excludes shares held by company officers and directors and by institutions with a controlling interest in the company.

public float

in a xx underwriting agreement, the dealer acts as an agent and make its best efforts to sell the securities to the public. If the securities do not sell, the issuer does not receive the proceeds of the sale of the securities, and the unsold securities are returned to the issuer. The issuer faces the risk of not raising the capital that it had intended.

best efforts

In a xx underwriting agreement, also known as a xx, the underwriter acts as a principal and commits to buy a specified number of securities at a set price, which it then resells to the public. The firm commitment can be initiated either by the issuing corporation or by the dealer member syndicate. In a firm commitment, the underwriter pays the full proceeds to the issuer, regardless of whether it has been able to resell the securities to the public. The underwriter assumes the risk of selling the security. Presumably, on the basis of having performed due diligence, the underwriter perceives the risk to be low

Firm committment, bought deal

A prospectus is required when?

if the offering or sale of securities is deemed to be a distribution to the public. In simplified terms, a prospectus is the investment contract between the investor and the corporation that is offering its securities for sale. It is designed to provide full, true, and plain disclosure regarding the material facts about the security in question

Red herring prospectus otherwise known as

preliminary prospectus

The dealers may also prepare an information circular, for in-house use only, called a xx. The xx highlights the salient features of the new issue, both pro and con, to help sales representatives solicit interest from the general public.

Greensheet

gives issuers streamlined access to the capital markets in multiple jurisdictions. Under this system, the issuer files a prospectus in its principal jurisdiction with its principal regulator, thus meeting the requirements of one set of harmonized laws. The principal regulator issues a receipt, and the issuer gives notice to the local jurisdictions in which it otherwise would also have filed the prospectus. Upon receiving notice, the other jurisdictions automatically issue a deemed receipt

passport system

The period between the issuance of a receipt for a preliminary prospectus and receipt for a final prospectus is called the xx. During this period, the underwriters may solicit expressions of interest from potential purchasers of the security. A copy of the preliminary prospectus must be provided to anyone who expresses interest, whether solicited or unsolicited.

Waiting period

must contain complete details of the securities being offered for sale. In other words, it must provide the required full, true, and plain disclosure of all material facts relating to the securities to be distributed. It is in this context that an investor evaluating the potential purchase of securities assesses whether he or she wishes to complete the transaction. This decision is based solely on the information contained in the prospectus.

Final prospectus

once approval of the final prospectus is granted, the issue is then said to be xx and may be distributed to the investing public

blue skyed

All Canadian provinces have adopted compatible legislation, policies, and practices that allow certain securities issuers quicker access to capital markets by using a xx

short form prospectus

A xx omits information that can be found in the issuer's annual information form (AIF) and other continuous disclosure documents

short form prospectus

Greenshoe option

penalty bid

stabalizing bid

three types of stabalizing activities

allows the dealer to issue 15% more shares than originally planned. If demand is high, the dealer exercises this option, allowing the dealer to leave additional shares in the market. In effect, the issuer raises more capital. If demand is low, and the price of the stock drops, the dealer buys back the additional shares to cancel them, and the purchase of the shares puts upward pressure on the stock price.

greenshoe option

the lead underwriter penalizes other dealers if their customers flip shares in weak issues. Flipping means selling the shares during, or shortly after, the distribution period. Penalties may include paying back commissions to the underwriter or reducing the number of shares that the investment advisor can receive in future IPOs.

penalty bid

The dealer posts a bid to purchase shares at a price not exceeding the offer price if the distribution of shares is not complete.

stabilizing bid

1. as junior company distributors

2. as options of treasury shares and escrowed shares

3. through a capital pool company

4. the nex board

5. through crowndfunding

other ways securities can be distributed to the public

When the listing application is completed, and supporting documents are assembled, the company signs a xx The agreement details the specific regulations and reporting requirements that the company must follow to keep its listing in good standing.

formal listing agreement

1. prestige and goodwill

2. established and visible market value

3. excellent market visibility

4. more information available

5. simflied valuation for tax purposes

advantages of listing

1. additional conrols on management

2. need to keep market participants informed

3. market indiference

4. additional disclosure

5. additional costs to the company

disadvantages of listing

Outstanding shares of a company which, while entitled to vote and receive dividends, may not be bought or sold unless special approval is obtained.

escrowed shares

The purchase for resale of a security issue by one or more investment dealers or underwriters

underwriting

What action can an exchange take to allow significant news, such as a pending merger or substantial change in dividends, to be reported and widely disseminated fairly?

halt in trading

A new issue of stocks or bonds bought from the issuer by an investment dealer for resale to its clients, usually by way of a private placement or short form prospectus

bought deal

A method of distribution for marketable bonds with primary distributors being allowed to request bonds at the average price of the accepted competitive tenders.

non-competitive tender

A distribution method, often used by the Bank of Canada, where bids are requested from primary distributors and the higher bids are awarded the securities for distribution

competitive tender

What type of prospectus contains information by reference to material filed by the corporation in the Annual Information Form?

short form prospectus

An activity used to stabilize the aftermarket price of a recently issued security; also referred to as a greenshoe option.

over allotment option

The period of time between the issuance of a receipt for a preliminary prospectus and receipt for a final prospectus from the securities administrators

waiting period

Company allowed to seek financing by IPO before having assets or commercial operations?

capital pool company

A group of investment dealers who together underwrite and distribute a new issue of securities or a large block of an outstanding issue.

syndicate

The underwriting of a security and its sale to a few buyers, usually institutional, in large amounts

syndicate

Identify the group that is allowed to submit bids to the Bank of Canada for government securities auctions

Government securities distributors

Why might an issuer prefer to use the Short Form Prospectus System?

It shortens the time period by which a new issue may be offered to the public.

The lead underwriter of a new issue of securities brought to market by an issuing company. Also known as managing underwriters and syndicate managers.

financing group

A group of investment firms, each of which individually assumes financial responsibility for part of an underwriting.

banking group

What is a common method of ensuring some stability in the secondary market for a new issue?

escrowing shares

Escrowing shares ties the value of shares held by these shareholders to what happens to the property used to obtain these shares. In addition, it prevents their owners from selling their shares before a proper market can develop. This ensures some stability in the secondary market performance of the new issue after the completed offering

Which statement best describes the role of escrowed shares

To entice an underwriter to act as a principal in a bought deal rather than as an agent for a best efforts offering, junior companies may grant treasury share options to the underwriter. Optioned shares are set aside and held in escrow by a trust to be released to the beneficiary, based on a formula tied to business progress and/or results. The shares can be released from escrow only with the consent of an exchange administrator or a securities administrator.

Farida asks her IA to sell her shares in CDD Inc., a TSX-listed stock. Her IA placed the order, but had to resort to the OTC market to fill it. What type of trading privileges withdrawal has been invoked by the TSX?

Under a Suspension of Trading order, exchange members are usually allowed to execute orders on the suspended security in the unlisted market except for those securities suspended from trading on the TSX Venture Exchange.

A TSX-listed company is in financial difficulty and in the middle of negotiations with the government for concessions and a possible bailout. What is the type of withdrawal of trading privileges the TSX might invoke while the company is attempting to refinance?

A temporary Halt in Trading is ordered to allow significant news to be reported and widely disseminated. As an example, the Canadian government's intention to refinance the debt of Air Canada and mediate with its unions could have resulted in massive buying activity on the stock. The TSX placed a Halt in Trading on the stock of Air Canada until the announcements were made and distributed through the media

A xx happens before the opening of trade if there is a heavy influx of buy or sell orders and the traders need time to organize the orders

delayed opening

A xx is usually ordered when the company does not meet the Exchange requirement with respect to financial condition or reporting.

suspension of trading