12.7 Summary

Summary

In this chapter, we discussed the following key aspects regarding the financing and listing of securities in the capital markets:

• Federal Government Financing: Federal government financing is usually accomplished through an auction. New issues of provincial direct and guaranteed bonds are generally sold at a negotiated price through a fiscal agent.

• Corporate Capital Raising: Corporations issue common or preferred shares to raise capital, which creates the company’s capital stock. They may also raise capital by issuing bonds, debentures, and other debt securities, or by borrowing from lending institutions.

  Securities legislation requires that a prospectus be filed and delivered if the offering or sale of securities is deemed to be a distribution to the public.

• Passport System: The Passport System provides issuers with streamlined access to capital markets in multiple jurisdictions, simplifying the regulatory approval process.

• Short Form Prospectus: An issuer is permitted to use a short form prospectus containing limited information only under certain conditions. For example, the issuer must file electronically using SEDAR and must be a reporting issuer in at least one Canadian jurisdiction.

• Continuous Disclosure Requirements: Continuous disclosure regulations apply to reporting issuers and those who have issued securities under a prospectus. It also applies to securities exchange offerings or securities listed on a stock exchange.

• After-market Stabilization: After securities have been issued, the lead dealer may be required to provide after-market stabilization by various means, such as establishing a short position, penalizing dealers that sell securities shortly after issue, or creating an open bid to buy securities at the offering price.

• Advantages and Disadvantages of Listing Shares:

  • Advantages: Prestige and goodwill, establishment of market value, increased market visibility, wider distribution of company information, easier valuation for tax purposes, and increased investor following.
  • Disadvantages: Additional controls on management, additional costs, visibility of any market indifference, requirement for additional disclosure, and the requirement to provide information to a range of individuals and organizations on a regular basis.

Review Questions

Now that you have completed this chapter, you should be ready to answer the Chapter 12 Review Questions.

Frequently Asked Questions

If you have any questions about this chapter, you may find answers in the online Chapter 12 FAQs.

Example FAQs

What is the Passport System?

The Passport System is a regulatory framework that gives issuers streamlined access to the capital markets in multiple Canadian jurisdictions, simplifying the regulatory approval process.

When can an issuer use a short form prospectus?

An issuer can use a short form prospectus containing limited information only if it meets certain conditions, such as filing electronically using SEDAR and being a reporting issuer in at least one Canadian jurisdiction.

Key Terms and Definitions

• Prospectus: A legal document required by and filed with securities commissions that provides details about an investment offering for sale to the public.

• Debentures: A type of debt instrument that is not secured by a physical asset or collateral.

• SEDAR: The System for Electronic Document Analysis and Retrieval, a mandatory document filing system for issuers to file in electronic format with the Canadian Securities Administrators (CSA).

• Reporting Issuer: A corporation that is subject to continuous disclosure requirements due to having issued securities under a prospectus or being listed on a stock exchange.

Mathematical Formulas and Techniques

Example: Calculating Yield of a Bond

To calculate the yield of a bond, you can use the formula:

$$ Yield = \frac{Coupon \ Payment}{Current \ Market \ Price} $$

Where:

• Coupon Payment: The annual interest payment made to the bondholder.
• Current Market Price: The current price at which the bond is trading in the market.

Charts and Diagrams

Example: After-market Stabilization Techniques

    flowchart TD
	    A[After-market Stabilization Techniques] --> B[Establishing a Short Position]
	    A --> C[Penalizing Dealers]
	    A --> D[Open Bid to Buy at Offer Price]

Key Takeaways

• Corporations and government entities use various methods and instruments to raise capital, each with specific requirements and advantages.
• The Passport System simplifies multiple-jurisdiction market access for issuers in Canada.
• There are specific conditions under which short form prospectuses can be used.
• Continuous disclosure obligations are crucial for maintaining transparency in the market.
• After-market stabilization helps in stabilizing the price of new securities and can be accomplished through several strategies.
• Listing a corporation’s shares on an exchange comes with both advantages and disadvantages that need careful consideration.