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Questions and Answers
What is the purpose of the prospectus requirement?
What is the purpose of the prospectus requirement?
To provide regulatory information before securities can be offered for sale in the public market.
The primary market is where securities are traded after being initially sold.
The primary market is where securities are traded after being initially sold.
False
What is an initial public offering (IPO)?
What is an initial public offering (IPO)?
Which of the following is NOT a requirement for reporting issuers?
Which of the following is NOT a requirement for reporting issuers?
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The capital market is divided into the primary market and the ______.
The capital market is divided into the primary market and the ______.
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What is a reporting issuer?
What is a reporting issuer?
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What is the role of the preliminary prospectus?
What is the role of the preliminary prospectus?
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What must a company provide promptly after any material changes?
What must a company provide promptly after any material changes?
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Study Notes
Lesson 2: The Public Capital Markets
- This lesson introduces public capital markets in Canada, explaining how securities are initially brought to market and traded in secondary markets.
- The lesson takes approximately 30 minutes.
- Learning objectives include explaining prospectus requirements, discussing continuous disclosure for reporting issuers, describing initial public offerings (IPOs), comparing underwriting methods, describing secondary markets (stock exchanges, OTC, ATS), and describing roles of market participants.
Primary and Secondary Markets
- Capital markets connect corporations, governments, and other entities seeking capital with investors/lenders.
- Capital markets are divided into primary and secondary markets.
- The primary market involves the first sale of securities to investors by an issuer.
- The secondary market allows investors to trade previously issued securities.
- How securities are brought to market depends on whether they're sold via prospectus or an exemption.
Public Offering Process
- An Initial Public Offering (IPO) occurs when an issuer sells securities in the public market for the first time.
- Regulatory requirements must be met before an IPO can be conducted.
- Filing a preliminary prospectus marks the start of the IPO process.
Prospectus Requirement & Passport System
- Issuers must file a prospectus with the securities regulator in each province/territory where securities are sold.
- Reporting issuers (those selling securities) must provide continuous reports including unaudited quarterly financial statements, audited annual financial statements, management's discussion and analysis, and information for security holders' meetings.
- The Passport system simplifies prospectus filing and registration in Canada. The principal regulator handles the filings for most issuers.
- The issuing company is still required to file the document in every applicable province and territory.
- A receipt from the principal regulator triggers deemed receipt in other jurisdictions.
Regulatory Receipt and Agency Agreements
- A receipt for a preliminary or final prospectus signifies conformity with securities legislation, not an endorsement of the investment.
- Preliminary and final prospectuses undergo review by securities commissions before a receipt is issued.
- Once a prospectus has been filed, an issuer and underwriters can enter into an agency/underwriting agreement.
Underwriters' Role and Types
- Investment dealers (underwriters) play a crucial role in selling securities for issuers.
- Underwriters work together in a syndicate to share risk and commissions.
- Three types of underwritings include: best efforts, bought deal, and marketed offerings.
- Underwriters advise on timing, distribution, pricing, and selling to investors.
Soliciting Interest and Advertising
- Underwriters investigate market interest by contacting clients after a preliminary prospectus approval.
- Marketing materials, such as green sheets and roadshows, are used during the waiting period for initial public offerings.
Setting Share Price, Final Prospectus, & Investor Rights
- Underwriters advise on security features, including price and interest rates (in case of fixed-income securities) for the offering.
- The preliminary prospectus is modified to create the final prospectus, incorporating regulatory and investor feedback.
- Investors have rights regarding misrepresentations in prospectuses.
- Misrepresentations can result in actions for damages against the issuer and potentially other parties.
Secondary Market and Participants
- The secondary market allows trading of previously issued securities.
- Secondary market participants include stock exchanges, over-the-counter (OTC) markets, and alternative trading systems (ATS).
- Companies need to follow rules and regulations to be listed on an exchange.
- Benefits of listing on an exchange include increased market exposure and public trust.
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Description
This lesson covers the essential concepts of public capital markets in Canada, including the processes of bringing securities to market and their subsequent trading. Explore key topics like initial public offerings (IPOs), underwriting methods, and the roles of market participants within primary and secondary markets.
