I obtained 79% in the exam with these notes. The notes cover regulation and eligibility requirements, prospectus notes, continuing obligations (MAR 17, MAR 19, MARKET ABUSE, substantial transactions, related party transactions) and secondary issues.
, TABLE OF CONTENTS
OUTCOMES............................................................................................................................................. 2
CONTEXT ................................................................................................................................................ 2
POTENTIAL QUESTION: METHODS TO GO PUBLIC .................................................................................... 4
PREPARATORY TASK ............................................................................................................................... 4
BACKGROUND ................................................................................................................................................. 5
PART 1 ............................................................................................................................................................. 6
PART 2 ............................................................................................................................................................. 8
WORKSHOP TASK 1............................................................................................................................... 12
1
,OUTCOMES
1. Apply the eligibility requirements regulating the admission of equity securities to the Official list and to
trading on the Main Market of the LSE – Look at conditions that need to be met before company can
join the main market
2. Apply the eligibility requirements regulating the admission of equity securities to AIM – this is a
different market known as alternative investment market
3. Explain some of the preliminary steps a company may need to take when preparing for an IPO and the
reasons for them – companies need to make changes before doing an IPO
CONTEXT
PRIVATE V PUBLIC COMPANIES
• Main difference is that public company can offer shares to the public
o Section 755 of the CA states that a private company cannot offer its shares to the public.
TIMELINE
• IPO Preparation – prospectus document
o Verification process – to check information is not misleading (responsibility statement)
• Once listed, continuing obligations
o Substantial transactions – requirements under Chapter 10
o Related party transaction – major shareholders, directors on both sides of transaction
o Disclosure of certain key information or inside information
o Restrictions on share dealing
o Corporate governance rules
• Once listed, secondary issues – to raise finance (after IPO company seeks a further issue of its
shares)
o Rights issues – offer to existing shareholders
o Open offers – fast
o Placings – for institutional investors
o Intermediary offers
*These methods for secondary issue all have different pros and cons in terms of timing, disclosure, cost
and accessibility of the market
REGULATORY FRAMEWORK
• Companies Act 2006 – pre-emption rights
• FCA Listing rules
• Market Abuse Regulation
• Prospectus Regulation
• Admission and disclosure standards – trading of LSE
• AIM Rules
• UK Corporate Governance Code – listing rules say that must state whether have complied with this
but does not say HAVE to comply
• The Investment Association Guidelines
• Pre-emption Group Statement of principles
IPOs
2
, PROS CONS
• Access to larger pool of investors • Expensive
• Reputation + consideration • Management time
• LSE is a regulated and efficient platform to • Loss of privacy
buy and sell shares • Penalties for failure to comply with continuing
• Employee incentive – listed shares may be obligations
used as a bonus scheme or a top-up for the • Investor pressure
shareholder or employee renumeration • Dilution of shareholding and formalities
• High level of compliance + regulation
dampens entrepreneurial spirit
*Some of the cons might be mitigated if seeking to list on AIM or standard section of MM on LSE.
*Difference between S560 CA 2006 and Chapter 6 Listing Rule definition of equity securities: the LR
definition says they are shares not limited by dividend or capital but does not include the right or the
option to subscribe to those shares.
*To note, the LR definition under Chapter 6 only applies to the premium segment of the main market
MAIN ADVISORS
• The key advisor is the project manager/ financial advisor in an IPO
o For MM it will be sponsor
▪ Obligatory for the premium segment under Chapter 8 of Listing rules
▪ No obligation for standard segment of MM
▪ Advisor is approved, supervised and directed by the FCA
• FCA maintained a list containing 40 financial advisors who are approved and
subject to LR Chapter 8 (8.4.1 to 8.4.4 lists the roles of the sponsor)
o For AIM it will be nomad
▪ Under Rule 1 of AIM the nomad must be appointed and retained at all times of
flotation
▪ Nomad owes their responsibility to the LSE not the FCA and subject to Nomad
Rules
• Responsibilities:
o Assess if company in a suitable position to join a particular segment of the market
o Advise on pricing of the issue
o Timing
o Method of issue
o Involved in key disclosure
• Other advisors:
o Underwriters – if company seeks to issues shares to market for a particular reason. To
ensure they get capital, they will have
insurers in the deal who will guarantee
that should the public or investors not
take up some of the shares as expected
they will take up the rest of those
shares
o Global co-ordinator – investment bank
o Broker – Aim must have broker under
rule 35
o Accountants – financial health
o Lawyers – company and for
sponsor/advisor
3
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