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Acceleration Order
(USA) An order by the SEC declaring a registration statement effective (and
thereby making sales of securities permissible) before expiration of the statutory
20 day period from the date of filing. The filing of an amendment to a registration
statement by the issuing company restarts the 20 day clock. See ‘Acceleration
Request’, ‘Effective Date,’ and ‘Going Effective’.
Acceleration Request
(USA) A letter (or in some cases, oral communication) to the SEC
from both the issuer and the managing underwriters of a public
offering, requesting that the SEC declare a registration statement
effective. The SEC’s policy, often waived, is that the acceleration
request be received at least two business days prior to the date
the registration statement is to become effective.
Accountant’s Opinion
A report signed by an independent accountant that describes the
scope of the accountant’s review and expresses an opinion
on the quality of the financial statements presented. Also called
accountant’s letter. See ‘Long Form Report’ and ‘Short
Form Report’.
Accredited Investor
(USA) A term defined in Regulation D under the Securities Act of
1933 to include any of certain financial institutions; certain
corporations and trusts; an officer or director of the issuer;
a natural person with a net worth (with spouse) of $1 million or
more; or a natural person with individual income in excess of $200,000
in each of the two most recent years (or $300,000 jointly with
spouse) and an expectation of the same level in the current year.
Accreted Value
The theoretical price a bond would sell at if market interest rates
were to remain at current levels.
Accrual Basis
The most commonly used accounting method, which reports income
when earned and expenses when incurred, as opposed to cash basis
accounting, which reports income when received and expenses when
paid. See ‘Cash Basis’.
Accrued Expenses
Expenses which are incurred, but for which payment is not yet made,
as of a given date.
Accrued Market Discount
An increase in the market price of a discounted bond resulting
from an approaching maturity date rather than from declining interest
rates.
Accumulated Earnings Tax
An additional tax on earnings that a business retains in an attempt
to avoid the higher income taxes the owners would be subject to
if the earnings were paid out to them as dividends. Also called “accumulated
profits tax.”
Accumulated Profits Tax
See ‘Accumulated Earnings Tax’.
Acid Test Ratio
See ‘Quick Ratio’.
Adjustable Rate Preferred Stock
Preferred stock whose dividend rate changes periodically based
upon changes in a reference interest rate.
Admission
The event evidencing commencement of trading of securities on either
the Official List of the London Stock Exchange or on AIM.
ADR or ADS (American Depositary Receipts or American Depositary
Shares)
The terms ADR and ADS are interchangeable with GDR and GDS, and
typically refer to depositary receipt facilities based in the United
States. See ‘GDR or GDS’.
ADV Form
(USA) The form required to be filed with the SEC in order to register
as an investment adviser under the Investment Advisers Act of 1940.
Affiliate
(USA) A person that controls, is controlled by, or is under common
control with (directly or indirectly) the entity specified. The
SEC takes the position that a corporate officer, director or 10%
stockholder is presumed to be an affiliate of the corporation.
An individual officer’s, director’s or 10% stockholder’s
spouse and children living at home are normally considered affiliates
as well.
Aftermarket
The trading activity in a security in the period immediately following
its public offer to the public.
All Hands Meeting
A meeting during the public offering process attended by representatives
of the issuer, the underwriters, their respective lawyers, and
the issuer’s accountants. A public offering will typically
involve several all hands meetings to conduct due diligence and
to draft the registration statement and prospectus.
All-or-None
An offering of securities that provides that unless all the offered
securities are sold, the offering is terminated and all funds received
by the issuer, underwriter, or escrow agent are returned to the
investors. See ‘Best Efforts Underwriting’ and ‘Firm
Commitment Underwriting’.
Alternative Investment Market (AIM)
The London Stock Exchange’s market for new, fast growing
companies. AIM offers the benefit of operating both an electronic
quote and order trading facility. Dealings began on AIM in June
1995. Unlike the Official List of the London Stock Exchange, there
is no general three year trading history requirement as a precondition
of admission on AIM.
AMEX (American Stock Exchange)
(USA) An exchange or a securities market which generally lists
securities of small or newer corporations than those listed on
the New York Stock Exchange. It has historically been popular for
trading of companies involved in the production and sale of natural
resources and option trading. It is located in New York. In 1998,
Nasdaq and the American Stock Exchange combined into one corporate
organisation: The Nasdaq-Amex Market Group.
Analyst
A research analyst, usually employed by an investment bank, who ‘follows’ a
company and issues reports regarding the condition and prospects
of the company and the company’s securities. The quality
and reputation of an investment bank’s analyst will often
be a key component in selecting an underwriter, since analyst coverage
of the company after the public offering helps to generate interest
in the company’s securities.
Angel
A person or entity that typically provides financing to companies
that have progressed beyond the start-up phase but are not yet
ready for venture financing. Also known as “business angels.”
Angel Network
A typically informal network of Angels that invest together as
a group.
Anti-dilution Provisions
Provisions in an option or a convertible security (such as convertible
preferred stock, which is the typical form of venture capital or
mezzanine investment) which protect the holder’s investment
from dilution as the result of later issues of stock at a lower
price than the investor paid by adjusting the option price or conversion
ratio. Allowance is usually made for some degree of dilution as
a consequence of issuance of options to employees under share in
stock option plans. See ‘Anti-dilution, Full Ratchet’ and ‘Anti-dilution,
Weighted Average’.
Anti-dilution, Full Ratchet
(USA) Anti-dilution provisions that apply the lowest sale price
for any shares of common stock (or equivalents) sold by the company
after the issuing of an option or convertible security with anti-dilution
protection as the adjusted option price or conversion ratio. As
an example, if a prior round of financing raised capital at $2.00
per share with investors receiving full ratchet anti-dilution protection,
and a subsequent round of financing was completed at $1.00 per
share, the prior round investors would have the right to convert
their shares at the $1.00 price, thereby doubling the number of
shares they would receive. See ‘Anti-dilution Provisions’ and ‘Anti-dilution,
Weighted Average’. In the UK, ‘ratchet’ is customarily
associated with a mechanism whereby the equity share of a management
team may vary depending on achievement of milestones or level of
exit valuation. See ‘Ratchet’.
Anti-dilution, Weighted Average
Anti-dilution provisions that apply a weighted average formula
to adjust the option price or conversion ratio of an early-round
investor, based on the sale price and number of common equivalent
shares sold by the company after the issuing of the option or convertible
security. As an example, if a first round of financing raised $1
million of capital at $2.00 per share and the first round investors
received weighted average anti-dilution protection, and a second
round of financing was consummated for another $1 million at $1.00
per share, then the first round investors would have the right
to convert their shares at a weighted average adjusted price of
$1.50 per share. See ‘Anti-dilution Provisions’ and ‘Anti-dilution,
Full Ratchet’.
Anti-flowback Rules
(USA) SEC rules under Regulation S that apply to offerings initially
made outside the USA to prevent subsequent sales into the USA in
violation of applicable restrictions or registration requirements.
See ‘Regulation S’.
Anti-takeover Provisions
(USA) Provisions in a company’s organisational documents
that are designed to discourage undesired takeover bids. See ‘Blank
Cheque Preferred Stock’, ‘Poison Pill’, ‘Shark
Repellent’ and ‘Staggered Board of Directors’.
In the UK, company law combined with the provisions of the Takeover
Code, which discourages attempts to frustrate bona fide takeovers,
would likely result in such provisions being unenforceable.
Antitrust Laws
(USA) The United States laws regulating competition and monopolies.
Although similar in general purpose to the European Union’s
competition regulations, US rules may differ in details forbidding
businesses from monopolising a market or restraining free trade.
APCIMS (Association of Private Client Investment Managers and Stockbrokers)
APCIMS is the rapidly growing trade association of more than 240
firms who, on more than 400 sites, deal in stocks and shares for
the UK’s 12 million private investors as well as many overseas
clients. In March 2002, APCIMS merged with the European Association
of Securities Dealers (EASD) to create a pan-European association
to address the concerns of investment firms.
Arrearage
Unpaid dividends due to holders of preferred stock. See ‘Cumulative
Preferred Stock’.
Audit Committee
A committee of the board of directors responsible for selecting
and overseeing the work of outside auditors and the conduct of
various audit activities, normally composed of independent directors.
Public issuers traded on major US markets are now required to appoint
an audit committee of not less than three financially knowledgeable
independent directors, one of whom must have a background in finance.
The definition of an ‘independent’ director may vary
from one market to another. In the EU, audit committee requirements
can vary and in some instances may not exist.
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