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Questions and Answers
Which individuals can be held liable for misleading statements in a prospectus under Section 130 of the SMO?
What must be submitted by the applicant before the close of the securities offer date?
What is the consequence for a person who knowingly makes a misleading statement in a prospectus?
In the context of a supplementary prospectus, what option is available to an investor who accepted the original offering?
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What is required for defendants in legal actions related to misleading statements in a prospectus?
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Which individuals are considered promoters of the prospectus and may be held liable for misleading statements?
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What type of information is typically considered price-sensitive within the context of issuing a prospectus?
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Which of the following actions constitutes a legal violation under the SMO related to misleading statements?
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What must be disclosed in a prospectus if the estimated proceeds from a securities offering cannot fully fund all intended purposes?
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Which scenario requires the submission of a supplementary prospectus?
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What key information is required if assets are acquired from the issuer’s affiliates or associates?
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In which case may an issuer present no specific plans for the proceeds in the prospectus?
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What should a prospectus describe if proceeds are used to discharge or reduce indebtedness?
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What should be included in a prospectus drawn up as a single document?
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Which element is specifically part of a securities note in a separate prospectus?
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What can the Authority allow to be omitted from a prospectus?
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What is the purpose of the prospectus summary?
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When must the issuer file information about price and quantity with the Authority?
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Which of the following statements is true about the investor's decision process regarding a prospectus?
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Which of the following is a requirement when requesting the omission of information from a prospectus?
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What happens if both the final offer price and quantity of securities are excluded from the prospectus?
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Under what condition can the omission of disclosed information be deemed acceptable?
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Which component is NOT typically found in a complete prospectus?
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What types of information must publicly tradable companies disclose to prevent misleading statements in the market?
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Which of the following scenarios requires immediate disclosure by a listed company under regulations?
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A listed company must avoid creating a false market. Which action is critical to achieving this?
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What kind of price-sensitive information is linked to changes in a company's financial obligations?
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Which of the following choices represents a condition that does not require disclosure under the security regulations?
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In the context of price-sensitive information, which item must be disclosed promptly to ensure investor protection?
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Which of the following is NOT an example of price-sensitive information as per the regulations?
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What is a key compliance requirement for a listed company concerning its internal accounting system?
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Failure to disclose which type of information could create a false market in the securities?
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Which of the following statements about price-sensitive information disclosure is true?
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What is the primary purpose of placing pre-allotment proceeds in a separate bank account according to Section 125 of the SMO?
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Under which condition may a company's public offering be suspended?
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What does Regulation 4 of the SMR require a prospectus to provide?
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Who bears the responsibility for the safekeeping of pre-allotment proceeds?
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What action can the Authority take if it determines that a company's public offering information is inadequate?
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If an issuer receives a warning notice after the Authority's decision to suspend an offering, what can the issuer do next?
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Which of the following is NOT a consequence of contravening the requirement to separate pre-allotment proceeds?
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When dealing with price-sensitive information, what must the issuer be cautious about?
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What is the issuer's obligation regarding pre-allotment proceeds, based on the requirements outlined?
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Study Notes
Prospectus and Supplementary Prospectus Requirements
- The prospectus must disclose all necessary information for investors to assess the financial position and prospects of the issuers and guarantors for trading on a regulated market
- The prospectus must disclose how proceeds from the offering of securities will be used.
- The prospectus can be shown as a single document or as separate documents
- For proceeds used to acquire assets not in the ordinary course of business, the prospectus shall describe the assets and their costs.
- For proceeds used to finance acquisition of other businesses, the prospectus shall briefly describe such businesses and information on the acquisition status
- For proceeds used to discharge, reduce or retire indebtedness, the prospectus shall disclose the interest rate and maturity of such indebtedness.
- The prospectus must disclose the estimated net amount and percentage of the proceeds broken down into each main intended use.
- If the estimated proceeds cannot fully fund all the proposed purposes, the issuer needs to disclose the priority order of the purposes, and amount and sources of the shortfall funds needed.
- If there are no specific plans for the proceeds, and the Authority has allowed this, the issuer shall discuss the key reasons for the securities offering.
- If the offer is not fully underwritten on a firm commitment basis, the prospectus shall state the minimum amount which the directors think must be raised.
- If the assets were or will be acquired from the issuer’s affiliates or associates, the prospectus shall disclose the persons from whom the assets will be acquired, and how the cost to the issuer will be determined.
- The prospectus information may refer to previously published documents which were approved by or filed with the Authority. The information shall be the latest available to the issuer.
- If there is a significant new factor, material mistake or inaccuracy on the information provided in the prospectus, the applicant must submit a supplementary prospectus which provides details of such significant new factor, material mistake or inaccuracy before the close of the securities offer date or when trading begins.
- The supplementary prospectus must be submitted before the close of the securities offer date or when trading begins.
- An investor who has accepted the offering (based on the earlier-approved prospectus) can choose to withdraw his acceptance after the supplementary prospectus is published.
Misleading Statements and Practices Relating to Prospectus
- The issuer of prospectus, including the capital markets service provider that facilitate the fund-raising exercise may be subject to risks of being sued for losses or damages, under Section 130 of the SMO.
- The securities buyers or subscribers who feel they have been misled may pursue legal action to recover the loss or damage from:
- The issuer and each director of the issuer at the time of the issue.
- The person who consented or caused himself to be named in the prospectus form as a director, sponsor or solicitor.
- The promoter of the prospectus, such as the controlling shareholder and their associates, and executive directors who have interest in 5% or more.
- The principal adviser who advises the issuer in submitting corporate proposal which includes prospectus to the Authority.
- The person named with his consent as stating something in the prospectus, that is the subject matter expert such as industry expert of the issuer.
- The person named with his consent as a securities broker, underwriter, auditor, banker, advocate or solicitor.
- In defence of any proceeding or legal action taken by the securities buyer or subscriber, the defendant must prove that they have exercised due care, skill and diligence to ensure that the information provided are true, concise and accurate.
- The issuer is guilty of an offence under Section 128 of the SMO if he makes a statement, promise or forecast which he knows is misleading for the purpose of inducing, or is reckless as to whether it may induce the message recipient to enter into or to refrain from entering or offering to enter into an investment agreement.
Prospectus Content
- If a prospectus is drawn up as a single document, it should contain:
- A clear and detailed table of contents
- A prospectus summary
- Identified risk factors linked to the issuer and the type of security covered by the issuer
- Any information required by the Authority
- If the prospectus is to be drawn up as a separate document, it should contain:
- A registration statement
- A securities note which is a short form information document which contains information on the securities being offered and for which admission to trading is sought
- A prospectus summary
- A prospectus summary conveys the essential characteristics and main risks associated with the issuer, the guarantors, and the securities being offered to the public.
- A prospectus summary cautions the readers to read the information in proper context, as follows:
- It shall be read as an introduction to the prospectus
- An investor's decision shall be based on consideration of the prospectus as a whole
- The Authority may authorise the omission of information from the prospectus for the following reasons:
- The disclosure would not be in the public interest
- The disclosure would adversely affect the issuer (but this may be acceptable only if the omission would be unlikely to mislead the public)
- The information is only of little importance
- In order to request for such omissions, the issuer needs to:
- Put the request in writing
- Identify the specific information concerned and the specific reason for its omission
- State the reason(s)
- One would normally expect a prospectus to state the final offer price and quantity of securities to be offered.
- These items may not be disclosed under the following situations:
- If both these items are excluded, then the prospectus must state the criteria and conditions which determine the price and quantity or in the case of price, the maximum price. This information must be filed with the Authority as soon as practicable
- If either one item is excluded, investors shall be entitled to withdraw their acceptance of the acquisition/subscription terms for the securities within two trading days after the publication of these two information items.
Disclosure and Handling of Price Sensitive Information
- Listed companies or publicly tradable companies need to disclose to the public any price-sensitive information or inside information that would materially affect an investor’s investment decision within two business days.
- Types of price-sensitive information include information that:
- Is necessary to enable appraisal of the position of the company and its subsidiaries
- Is needed to avoid the creation or continuation of a false market in the securities, e.g. based on incomplete or inaccurate information
- Might reasonably be expected to materially affect market activity and the price of its securities.
- The types of price-sensitive information to be listed include the following:
- Transactions in securities of the reporting entities made by their executive officers and directors.
- Defaults and other events that may trigger acceleration of direct or contingent obligations.
- Transactions that result in material direct or contingent obligations not included in a prospectus filed by the reporting entities with the Authority.
- Offerings of securities not included in a prospectus filed by the reporting entities with the Authority.
- Waivers of corporate ethics and conduct regulations for officers, directors and other key employees.
- Material modification to rights of security holders.
- Departure of any senior management of the reporting entities.
- Notices that reliance on a prior audit is no longer permissible or that the auditor does not consent to the use of this report.
- Definitive agreement that is material to the reporting entities.
- Loss or gain of a material client or contract.
- Material write-offs, restructurings or impairments.
- Material change in accounting policy or estimates.
- Movement or de-listing of the securities from one quotation system or securities exchange to another.
- Changes in rating agency decisions and other rating agency contacts.
- Any other material events.
Pre-allotment Proceeds
- The company can ascertain the number of securities subscribed versus those eventually allotted only at the closing date of the public offering.
- Section 125 of the SMO requires the issuer to place all pre-allotment proceeds in a separate bank account which is set up solely for this purpose. The issuer does not own the proceeds but is merely holding these proceeds in trust for the applicant.
- The issuer's pre-allotment proceeds must not be mixed up with the issuer’s other bank accounts.
- Contravention of this requirement would result in a fine, imprisonment or both.
- The responsibility for safekeeping lies with the issuer and not the bank to which the moneys are deposited.
- The bank is not obligated to enquire on such moneys provided that the purpose of the deposit is solely for the fund-raising activity.
Suspension of Offering
- The Authority may ask the issuer for further pertinent information if information filed is or has become misleading, incorrect, inadequate or incomplete in any material respect.
- The sale or offer of the registered security may be suspended if it will result in a fraud on investors.
- The Authority may suspend the right to sell and offer for sale of such security.
- If the Authority decides to suspend the issuance, it must give the issuer a warning notice.
- The issuer is then given the opportunity to present its case to the Authority.
- If, despite this presentation, the Authority upheld its decision, then the issuer may appeal to the Financial Markets Services Panel.
Company Accounting Records and Documents
- The company needs to comply with the following:
- Keep the accounting records and documents to comply with the Authority’s regulations.
- Disclose to the public a timely interim report which contains all material information relating to the company’s financial condition and operating performance.
- Have an internal accounting system that is in line with the IFRS or any others that the regulations may prescribe.
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Description
Test your knowledge on the key requirements and disclosures necessary for a prospectus and supplementary prospectus. This quiz covers essential aspects such as financial disclosure, use of proceeds, and acquisition details that must be included for investor assessment.