About us

A

AGMs

The AGM is a statutory requirement. Although the AGM provides an opportunity for all shareholders to question the board, the meetings are visually sparsely attended unless a controversial event is being discussed. Large institutional shareholders rarely attend or vote, leaving AGMs mainly as events for private shareholders. Efforts are underway to encourage more meaningful AGM engagement with institutional shareholders who are encourage to vote their shares. Practical matters to consider include coinciding AGM with company visits by analysts and institutions to encourage their attendance.

AIM

Set up in 1995 and designed to provide a global market for smaller and growing companies. The benefits are lower costs and simpler rules, though once admitted, companies have certain ongoing disclosure requirements. While AIM companies do not fall within the strict definition of ‘listed’ companies, their shares may be described as being quoted or traded on the market.

Annual reports

A key requirement of the directors is to report at the end of each financial year to the shareholders as to the financial performance during the year and the financial position of the company at the year-end. Annual report and accounts have to be filed with the Registrar of Companies at Companies House where they are available for the general public, as well as being sent to individual shareholders.

Auditors

All traded companies are required to have their accounts independently audited before publication of their annual report and accounts and Companies House filing.

top

B

Banks

Commercial banks deal with taking deposits and lending money to individuals and companies.

Retail banking involves high street branches dealing with the public, shops, and small businesses.

Wholesale banking involves dealing with other banks, the central bank, listed and private companies, and investment institutions.

Investment banks are integrated financial institutions which offer a range of services to corporate clients including stockbroking, market making and financial advice. They deal with helping companies to find money and will give advice on the best source of finance. If the choice is bonds or equities, they will help the issuer to price them, assist in selling and underwrite the issue.

Activities of an investment bank include:

• Corporate finance (primary market activity)
  • New issues – bonds/equities
  • Rights issues
  • Mergers and acquisitions
  • Research
• Securities trading (secondary market activity)
• Investment management
  • For companies, pension funds, high net worth individuals
  • Financial analysis separated between sell-side and buy-side
• Syndicated loans
• Foreign exchange

Central banks typically have the following activities that may differ in each country:

• supervision of banking system
• advising the government on monetary policy
• issue of banknotes
• banker to the government
• banker to other banks
• lender of last resort
• control of currency reserves
• raising funds for the government
• international liaison.

top

C

Contracts for difference

A contract for difference (or CFD) is a contract between two parties, buyer and seller, stipulating that the seller will pay to the buyer the difference between the current value of an asset  and its value at contract time. (If the difference is negative, then the buyer pays instead to the seller.) For example, when applied to equities, such a contract is an equity derivative that allows investors to speculate on share price movements, without the need for ownership of the underlying shares.

Contracts for differences allow investors to take long or short  positions, and unlike futures contracts have no fixed expiry date or contract size.

Corporate brokers

Corporate brokers are virtually only found in the United Kingdom. Having one used to be a requirement by the London Stock Exchange plc. Having a sponsor is still a requirements of the Listing Rules.

The role of the corporate broker in IR has developed in recent years. Typically the corporate broker will organise road shows for large companies for institutional investors. The aim is to increase the volume of shares traded in these companies; such services are generally provided free by the broker for large companies although smaller companies may have to pay a fee.

A corporate broker also performs the following services on behalf of its client:

• company’s main interface with market
• provides market with information on company
• feedback to company of market’s view of its stock
• manages contact with institutional investors
• compliance with listing rules.

Corporate governance

In the UK the principles of good governance and code of best practice are outlined in the combined code. Compliance with this code is part of the FSA’s Listing Rules. The new Combined Code incorporating the recommendations of the Higgs Report will apply for reporting years beginning on or after 1 November 2003.

Corporate responsibility and socially responsible investment

Corporate responsibility involves companies taking into account the social and environmental impact of their actions – locally, regionally, nationally and internationally.

The Government’s CSR website

Socially Responsible Investment (SRI) is investment where social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investment, and the responsible use of rights (such as voting rights) in relation to investment. SRI combines investors’ financial objectives with a commitment to social concerns

Business in the Community’s website

UK Social Investment Forum’s website

top

D

Directors

Directors are appointed by the shareholders to run the business on their behalf. Shareholders can exert their voting rights to appoint or dismiss directors, or vote on major operational issues.

Executive directors

Management of the day-to-day operation of the business

Non-executive directors

Role is advisory and supervisory independent of executive directors. The role of NEDS has been the subject of a review by Derek Higgs.

top

F

Financial calendar

As a result of the regulatory requirements of the London Stock Exchange plc and Companies Acts in the UK (and the equivalent in other countries) there are a number of events and obligations for companies in the financial calendar, which can be used as opportunities for IR.

These are:

• Annual reports
• Preliminary statements (if made)
• Periodic reporting (as required by CA 2006)
• Annual general meeting
• Listing obligations.

Financial markets

Financial markets are all about the raising of capital. They are there to match those who want money (borrowers) with those who have money (lenders). In order for a mechanism to exist to enable those who want money to find the lenders, there must be intermediaries to organise this flow of money. Financial markets provide the intermediaries.

Financial Services Action Plan

The key aims of the EU’s Financial Services Action Plan are:

• to create a single EU capital market by modernising the EU’s legislative framework, including a wholesale review of the Investment Services Directive and legislation on prospectuses and accounting;
• to develop open and secure retail markets, for example by agreeing on the “distance selling” of financial services, providing information on mortgages, and preparing an EU-wide e-commerce policy for financial services;
• to revisit prudential supervision, for example by amending the directives governing the capital framework for banks, investment and insurance firms, and by creating a consistent and coherent European regime for financial conglomerates.

The heads of state of the EU have called for implementation of the Action Plan by 2005, and the European Commission is currently presenting many of its formal proposals that will give effect to the legislative initiatives which the Action Plan entails.

FSA

The Financial Services Authority (FSA) is the independent body that regulates the financial services industry in the UK. The FSA has 4 main aims:

• maintaining confidence in the UK financial system by supervising exchanges, settlement houses and other market infrastructure providers; conducting market surveillance; and transaction monitoring.
• promoting public understanding of the financial system by helping people gain the knowledge, aptitude and skills they need to become informed consumers, so that they can manage their financial affairs more effectively.
• securing the right degree of protection for consumers by vetting at entry aims to allow only those firms and individuals satisfying the necessary criteria (including honesty, competence and financial soundness) to engage in regulated activity.
• helping to reduce financial crime by focussing on three main types of financial crime: money laundering; fraud and dishonesty; and criminal market misconduct such as insider dealing.

FTSE

FTSE is an independent company owned by London Stock Exchange plc and the Financial Times. FTSE publishes indices covering trading in equities, bonds and hedge funds in 77 countries worldwide.

The main indices used in the UK markets are FTSE 100, 250 and All Share.

top

H

Hedge funds

The term hedge fund first came to use in the 1950s to describe any investment fund that used incentive fees, short-selling or leverage. Usually hedge funds:

• are organised as private investment partnerships or offshore investment corporation
• use a wide variety of trading strategies involving position taking in a range of markets
• employ an assortment of trading techniques and instruments, often including short selling, derivatives and leverage;
• have an investor base comprising wealthy individuals and institutions and a relatively high minimum investment limit (set at $100,000 or higher for most funds)

top

I

Institutional investors

Institutional investors manage pooled funds (other people’s money) often totalling billions of pounds. Institutions often maintain a core holding but deal small amounts of a company’s stock on a regular basis. Pension funds and insurance companies are examples of institutional investors.

IPOs (Initial Public Offerings)

IPOs are the first sale of stock by a private company to the public. They may be smaller, younger companies seeking to expand their business or they may be larger companies where the owners want to sell out.

top

L

London Stock Exchange plc

The London Stock Exchange plc is one the world’s leading stock exchanges. It is the most international of all stock exchanges, with over 1,600 UK and nearly 450 overseas companies from over 60 countries admitted to trading on our markets. The London Stock Exchange plc provides the markets and means of raising capital for UK and international companies through equity, debt and depositary receipt issues. It also gives investors of all types the opportunity to buy and sell shares in the companies of their choice.

top

M

Market abuse

The term market abuse covers three broad types of behaviour:

• misuse of information;
• creating a false or misleading impression; and
• distorting the market. The FSA has published a detailed code of guidance on market abuse called the Code of Market Conduct.

top

P

Price sensitive information

Price sensitive information is information that would affect the value of a company’s share if it were made public.

PIP (Primary Information Providers)

PIPs disseminate information on behalf of listed companies by passing the announcements to news vendors (secondary information providers or SIPs). Services that have been approved by the Financial Services Authority to disseminate regulatory announcements required by the Listing Rules and Disclosure Rulesact are called regulatory information services (RIS).

top

R

Regulation Fair Disclosure (Reg FD)

Reg FD was introduced in 2000 by the Securities and Exchange Commission (SEC) in an effort to prevent selective disclosure by public companies to market professionals and certain shareholders. In the past, many companies released important information in meetings and conference calls where shareholders and the general public were excluded. The goal of this rule is to even the playing field between individual investors and institutional investors.

The Reg FD rule reads as follows: ‘Whenever an issuer, or any person acting on its behalf, discloses any material nonpublic information regarding that issuer or its securities to [certain enumerated persons], the issuer shall make public disclosure of that information... simultaneously, in the case of an intentional disclosure; and... promptly, in the case of a nonintentional disclosure’

RIS

A Regulatory Information Service is a Primary Information Provider (PIP) service that has been approved by the FSA to disseminate regulatory information to the market. To comply with their obligations, listed companies may contact any one of the following Regulatory Information Services to disseminate their regulatory announcements.

See also

Road shows

The road show is a presentation by the management of a company that is presenting results, issuing securities or doing an Initial Public Offering (IPO) to potential buyers, analysts and fund managers. The road show usually travels around a country or number of countries.

top

S

Sarbanes-Oxley Act

The Sarbanes-Oxley Act was passed in July 2002 in the USA, following a series of corporate scandals. The Act contains some of the most far-reaching changes in the law governing how public companies do business. Among the measures in the Act include, the creation of a new and independent oversight board to regulate the accounting profession, a new requirement that CEOs and CFOs certify that quarterly and annual reports are complete correct and the accelerated disclosure of all director and executive stock dealings.

Shareholder activism

‘Shareholder activism’ is a broad term that encompasses the many ways in which investors have engaged corporate management on an array of issues. Activist shareholders may acquire relatively small stakes in companies to lobby for changes in management or corporate strategy as a way of increasing shareholder value. Socially concerned investors have used a range of tactics to lobby for greater corporate social responsibility, dialogue with management, letter writing campaigns, attending annual corporate board meetings, and filing shareholder proposals, which are voted upon by all of a corporation’s shareholders.

Short selling

Short selling is the selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume the risk that they will be able to buy the stock at a lower amount than the price at which they sold short.

Stock lending

Stock lending is the process by which a long term shareholder lends stock to a short term investor, often to facilitate short selling or the creation of derivative instruments such as CFDs. The lender receives a commission payment for lending stock.

top

U

UKLSA

The FSA, acting as the competent authority for listing, is referred to as the UK Listing Authority (UKLA), and maintains the Official List.

Useful websites

London Stock Exchange plc

UK Listing Authority

ProShare (UK) Ltd

FSA

IASB

NAPF

ABI