Financing and Listing Securities

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Questions and Answers

Describe the process governments and corporations use to raise capital to finance funding requirements.

Governments and corporations often need to raise capital to finance their operations, which they do through the financing process (also known as underwriting). Government financing is often accomplished through an auction process, and occasionally through a fiscal agency.

Describe the dealer's advisory relationship with corporations.

When a corporation decides to undertake financing, it secures the services of a dealer. The dealer provides advice to the corporation about the security's specific attributes (e.g. interest rate, redemption process, and refunding provisions). The dealer may also provide advice on various protective clauses of bonds called protective provisions, trust deed restrictions, or covenants. These clauses appear in the trust deed.

How does the Canadian Government issue its new fixed-coupon marketable bonds and Treasury bills to the market?

Through the competitive tender system. The securities are issued by way of an auction, whereby the amount won at the auction is based on the bids submitted.

What does corporate financing entail?

Corporate financing is a careful balancing act in which the dealer must balance the needs of the corporate client seeking funds with those of the investing public who provide the funds. Signup and view all the answers

What does "Authorized shares" refer to?

Authorized shares are the maximum number of shares (either common or preferred) that a corporation may issue under the terms of its charter. Signup and view all the answers

What does "Issued Shares" refer to?

Issued shares 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. Signup and view all the answers

What does "Public float" refer to?

Public float refers to that portion of outstanding shares that are freely available for public trading. Signup and view all the answers

What is the difference between "equity financing" and "debt financing"?

Corporations raise capital by selling shares (equity financing) or by issuing debt or fixed-income securities (debt financing). Signup and view all the answers

What does "Negotiated offering" refer to?

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. Signup and view all the answers

Explain the role of a dealer when a corporation decides to undertake financing.

The dealer provides a variety of important services to the corporation during the financing process. The dealer reviews the corporate structure, financial record, financial structure and future prospects of the corporation. Based on the dealer's assessment of current market conditions, investor preferences, the impact of various financing options on the corporation's existing capitalization, future earnings stability, and prospects, they recommend an appropriate financing vehicle. Signup and view all the answers

What are two types of securities used in long-term debt financing?

Mortgage bonds (B), Debentures (D) Signup and view all the answers

Describe the process of a private placement.

In a private placement, the entire issue is sold to one or several large institutional investors. The issuer solicits one or more large investors such as banks, mutual fund companies, insurance companies, or pension funds. Placements are generally offered to sophisticated investors and institutional clients. Signup and view all the answers

Describe the process of a Public Offering.

In a public offering, the corporation and the dealer come to a preliminary agreement to determine if the dealer will act as an agent or as a principal. Signup and view all the answers

What is a "Preliminary Prospectus"?

Most provinces require the filing of both a preliminary prospectus (also called a red herring prospectus) and a final prospectus. Signup and view all the answers

What is a "Final Prospectus"?

A final prospectus 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. Signup and view all the answers

What does the "Short form prospectus System" do?

This system shortens and streamlines the procedures for qualified issuers to access Canadian securities markets through prospectus offerings. Signup and view all the answers

Explain the importance of "After-Market stabilization"

After an issue is brought to market, one of the duties of the lead dealer may provide after-market stabilization of that security's offering. Signup and view all the answers

What are the main advantages of listing a security on a major exchange?

The main advantages include company prestige and goodwill, established and visible market value, excellent market visibility, more information available, simplified valuation for tax purposes, and access to a wider market. Signup and view all the answers

Explain what "Delayed opening" refers to.

Shortly before the opening of trading, an exchange can order trading in a security to be delayed. Signup and view all the answers

Explain "Halt in trading"

A temporary halt in trading of a security can be ordered or arranged at any time to allow the reporting and communication of significant news, such as a pending merger or a substantial change in dividends or earnings. Signup and view all the answers

Explain "Suspension in trading"

Trading privileges can be suspended for more than one trading session. Suspensions in trading are imposed for various reasons. Signup and view all the answers

Explain what "Delisting" means.

Delisting is the cancellation of listing privileges. A security can be delisted for reasons such as redemption (in the case a preferred share), substitution for another security (as a result of a merger), the company being without assets or going bankrupt, the public distribution of the security reaching an unacceptably low level, or the company failing to comply with the terms of its listing agreement. Signup and view all the answers

Explain the process of crowdfunding.

Crowdfunding is the process of raising start-up capital by soliciting contributions from the public at large, usually aided by online or Internet-based systems. Signup and view all the answers

Explain "Junior Company Distributions"

A listed junior company may decide that it must raise new capital through a distribution of treasury shares to the public. The company must find a dealer member to act either as its underwriter or agent for the offering. Signup and view all the answers

Explain " Options of Treasury Shares and Escrowed Shares"

A company may decide to offer an incentive to an underwriter to provide risk capital as a principal, rather than having the underwriter merely act as agent for the offering. Signup and view all the answers

Explain "Capital Pool Company Program"

For small, emerging private companies, the costs associated with going public through a traditional IPO are not always financially viable. Accordingly, the TSX Venture Exchange, home to many emerging Canadian businesses, developed the CPC program. Signup and view all the answers

Explain the process for listing a security on a major exchange.

When a company wants to be listed on a recognized exchange, it must apply and be accepted for trading. The application form is a lengthy questionnaire designed to obtain detailed information about the company and its operations. When the listing application is completed, and supporting documents are assembled, the company signs a formal listing agreement. Signup and view all the answers

Flashcards

Government Financing

Raising capital by governments, often through auctions or fiscal agencies.

Corporate Financing

Raising capital by corporations, often through negotiated offerings of shares or debt.