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Flashcards in Equity markets Deck (31)
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role of a primary market

Facilitates IPOs
only new shares are bought in primary market


role of secondary market

existing shares are traded through a stock exchange.
-NO NEW FUNDS are raised by issuing company


in primary market what is the role of underwriters

to buy any unsold shares for a fee


secondary market daily operations are?

• Centralised, continuous, organised, auction market Computerised systems - not OTC like FX markets


what role does info play?

efficiency of the share market relates to how quickly price of share changes to new information that is publicly available.
- semi and annual reports are required to be released.


regulatory role

-Aim to operate an open & efficient market.
- aim to keep investors fully informed of company news


NZ Markets Disciplinary panel role

look at listing requirements, & unusual trades. i.e.
price of company unexpectedly increases, Panel can ask
company for a report, to see if something is amiss, e.g.
insider trading


features of ordinary shareholders

• Shareholders have voting rights at general meetings &
rights to vote on important issues
• Shareholders may transfer voting rights to a proxy


features of a IPO

• Major source of equity funding
• Authorised Capital: maximum number of shares authorised under Constitution
• Paid-up Capital: number of shares actually issued
• Shares may be sold ‘fully-paid’ or ‘partly-paid’
• ‘Partly-paid’ shareholders have contractual obligation to
pay remaining amount (the call) to company


features of rights issue

- Issue of ordinary shares to existing shareholders
– Issued pro-rata (e.g. 1:5 means 1 new share for
every 5 currently held by existing shareholders
– Two types
• Renounceable: shareholder may sell their ‘right’
• Unrenounceable: may not be sold
• usually made at a discount to current price


features of a (share) placement

• Traditionally, has been additional new ordinary shares issued
directly to selected investors (institutions)
• Not required to register a prospectus
• Minimum subscription-different countries different rules
• Allows smaller discount & shorter time frame than rights issue


features of dividend Reinvestment Schemes

• Shareholders have option to reinvest (convert)
dividends into additional ordinary shares
• Generally issued at a discount to market price
• No brokerage or stamp duty payable
• In growth periods it allows companies to pay dividends
& pass on tax credits, while increasing equity


features of preference shares

• hybrid securities (i.e. both debt & equity
characteristics) but usually no voting rights
• Have features such as cumulative, convertible, participating,
• Fixed dividend rates - set on issue date- preference shares
have set maturity
• Rank ahead of ordinary shareholders for dividend payment


what is a cumulative preference share?

If the fixed dividends are not paid in one period they are carried forward until paid


what is a redeemable preference share?

entitle the holder to redeem the share on a predetermined date for a cash payment


what is a convertible preference share?

may be converted to ordinary shares at a future date and at a specified price


what is a participating preference share?

holders will receive a higher dividend if ordinary shareholders receive a dividend above a specified amount


what is a convertible note?

• Convertible notes are a hybrid instrument— initially begins
as a debt instrument issued for a fixed term
• Gives potential investors right to convert note into ordinary
shares at specified future date at determinable price


in relation to a convertible note, what happens if share price changes

• If share price falls, holder may not exercise conversion option, & take the notes cash value
• if share price increases there is a gain to be made so note will be converted to ordinary share


what is a share option

• Provide the right but not the obligation to purchase
ordinary shares, at a stated price, at a future date


what is a equity warrant

• Gives holder option to convert warrant into ordinary shares at
a determinable price over a given period
• Warrants may be detachable from bond & traded separately


what is a bull market

a market in which share prices are rising, encouraging buying


what is a bear market

a market in which prices are falling, encouraging selling


when compaines raise new equity finance after listing it is called?

seasoned equity offering


the 6 indicators of company performance

1. Capital Structure
2. Liquidity
3. Debt Servicing
4. Profitability
5. Share Price
6. Risk


features of capital structure

• Proportion of finance (capital) obtained through debt or


features of liquidity

• The ability of a company to meet its short-term financial
• Common measure is current ratio


features of debt servicing

• How effectively the company can meet its debt-related
(i.e. interest) obligations:


features of profitability

Earnings per share (EPS): measures the earnings that
are attributable to each ordinary share after abnormal


features of systematic risk

– arises from factors affecting whole market
– e.g. state of domestic economy & world economy
– Can be measured by beta
– Average share that matches market has beta of one