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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

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Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Further Considerations in Preparing a Prospectus

Further Considerations in Preparing a Prospectus

Kate Craven

35 years: Capital markets

In the last video on this two part video series Kate covered the contents of a Prospectus and why it might vary. In this video she will cover whether a Prospectus is always required, why investors might prefer a listing and the different types of listing. She will also take us through the responsibilities of issuers and underwriters with respect to the Prospectus and how the risks can be mitigated - as well as commenting upon the impact of Brexit.

In the last video on this two part video series Kate covered the contents of a Prospectus and why it might vary. In this video she will cover whether a Prospectus is always required, why investors might prefer a listing and the different types of listing. She will also take us through the responsibilities of issuers and underwriters with respect to the Prospectus and how the risks can be mitigated - as well as commenting upon the impact of Brexit.

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Further Considerations in Preparing a Prospectus

12 mins 47 secs

Overview

Preparing the Prospectus is a collaborative process, involving the issuer, the underwriters and the listing venue – as well as the issuer’s legal advisors and auditors. It is critical to be familiar with the disclosure standards for various markets and products.

Key learning objectives:

  • Identify an investor’s preferences regarding a prospectus

  • Learn why investors prefer a listing

  • Describe a Medium Term Note Programmes

  • Define Due diligence

  • Define a Subscription agreement

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Summary

What are the exemptions from the requirement to prepare a prospectus?

There are some exemptions to the Prospectus Regulations requirement to prepare a prospectus, which include that:

  • The offer is made to qualified investors only
  • The offer is made to fewer than 150 persons per EEA state
  • The minimum consideration paid is at least Euro 100,000
  • The denominations are at least Euro 100,000
  • The total consideration is not more than Euro 1,000,000

What are investor’s preferences regarding a prospectus?

Majority of the investors prefer their securities to have a listing. Investors are, on the whole, fairly neutral about where the bonds are listed. Equity offerings are usually listed on the company’s home stock exchange (e.g. Frankfurt or Tokyo) but may also be listed on additional international stock exchanges (such as New York) to make them attractive to investors in other jurisdictions. Bond offerings are rarely listed on multiple stock exchanges.

Why do investors prefer a listing?

It is frequently because their "investment mandate" clearly indicates that they will invest in publicly traded stocks. The investment mandate may also impose other criteria, such as only investing in:

  • Investment grade securities
  • Specific currencies
  • Specific industry sectors
  • Specific products

What is Due diligence?

The process of reviewing the prospectus to ensure that it contains all material information, and that, importantly, it does not omit any information, is known as due diligence.

What are the forms of Due diligence?

The forms of due diligence may involve:

  • Meetings and/or interviews with key representatives of the issuer
  • Third parties, such as auditors, who will review the prospectus and provide a comfort letter

What are ICMA’s recommendations on due diligence?

The ICMA recommendation states that:

  • The appropriate level of due diligence to be performed in the context of each issue should be considered carefully.
  • It is impossible to prescribe whether or what due diligence procedures would be appropriate in the circumstances of each issue, and procedures will vary greatly from issue to issue (depending, for example, on the type of securities being issued, the rights attached to those securities and the nature of the issuer and its business).

What is a Subscription agreement?

The Subscription agreement is the contract entered into by the issuer and the underwriters. It deals with the practicalities of the issuance of the bonds and how the underwriters will subscribe for the bonds, and sets out the respective roles and responsibilities of the parties.

In this important contractual document between the underwriters and the issuer, the issuer will give representations and warranties including confirmation of:

  • The accuracy of the prospectus
  • The accuracy of the financial information it includes
  • The existence and good standing of the issuer
  • The proper authorisation and the legality of the issue/notes

What is the impact of Brexit on the listing process and the rules applying to prospectus content?

At the moment, the UK Prospectus Regulation closely resembles the EU Prospectus Regulation. However, the EU is about to make some changes to the EU Prospectus Regulation under the Capital Markets Recovery Package. These changes are unlikely to have a significant impact for debt capital markets, but are the first example of divergence.

The UK is currently conducting a “Listing Review” led by Lord Hill, which could result in some changes to the UK regime and the EU is due to review the Prospectus Regulation by July 2022. So over time we could start to see some divergence between the two regimes.

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Kate Craven

Kate Craven

Kate is a senior member of ICMA and consults on various projects including the recent update of the Primary Market Handbook. Kate previously served as Director at Barclays Plc in the Legal Department. She was responsible for the team specialising in debt capital markets. Prior to joining Barclays, she served as Director at Merrill Lynch. Kate had started in the Transaction Management Group at Merrill Lynch International in 1993 before spending two years in Tokyo with Merrill Lynch Japan Securities. She later headed the team responsible for the documentation of syndicated Eurobonds and EMTN programmes. Kate became chair of the Legal & Documentation Committee of the ICMA in 2001 and was listed as one of the 8 top in-house lawyers in the 2001 edition of Chambers and Partners Index to Leading Lawyers.

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