2021-01-25 Meeting notes
- Elisa Kendall
Date
Attendees
Agenda
1) Use Case reminder
2) Where we are on our road map.
3) Open Action Items
4) JIRA Issues Review - https://jira.edmcouncil.org/projects/SEC/issues/SEC-7?filter=allopenissues
5) Todays content discussion.
SMIF OWL-UML
SKOS
RDF/S
6) For next week.
Proceedings:
Discussed the latest work on building out preferred shares. If the provision applies to both the holder and issuer, then we need to multiply classify by both redeemable and retractable. In either case, there is no maturity date except in the case where that date is extendable. So the restriction on retractable needs to be min 0 for maturity date (which we already have), and then for the case where it does have it, it needs to be extendable (i.e., new subclass with extendable maturity).
Preferreds technically have an unlimited life because they have no fixed maturity date, but they may be called by the issuer after a certain date. The motivation for the redemption is generally the same as for bonds—a company calls in securities that pay higher rates than what the market is currently offering.
Some preferred shares may also have a "maturity date." When the shares mature, the company gives you back the cash value of the shares when issued. Maturity dates give you some downside protection, since no matter how low the price goes while you're holding a preferred stock, at maturity you will get back the issue price (unless the company goes bankrupt or liquidates).
Retractable preferred shares are a specific type of preferred stock that lets the owner sell the share back to the issuer at a set price. Typically, the issuer can force the redemption of the retractable preferred share for cash when the shares mature. Sometimes, instead of cash, retractable preferred shares can be exchanged for common shares of the issuer. This may be referred to as a soft retraction compared with a hard retraction where cash is paid out to the shareholders.
A “retractable” or “term” preferred share has its maturity set at issue. A five-year retractable preferred would have a $25 “par value” which would be repayable by the issuer five years from the date of issue.
A “soft-retractable” preferred share is a preferred share that has its retraction value payable in “hard cash” or in an equal value of common stock of the issuer, at the choice of the issuer. This provision means that the issuer could avoid a cash payment at maturity or retraction and pay in stock issued from treasury. These issues normally provide for the stock price used to calculate the number of shares required to be 95% of the average price of the common shares in a time period before the retraction occurs. This is meant to penalize the issuer by making the stock payment option expensive to the issuer and other common shareholders because of the dilution effects.
This might mean that we need two additional subclasses of retractable - soft and hard retractable, even if CFI doesn't cover that. See for example https://www.finpipe.com/types-of-preferred-shares/.
A “straight” or “perpetual” preferred share has no fixed maturity date. It pays its stated dividend forever or “in perpetuity.”
Auction rate preferred shares - need to add a class for this as well. Auction market preferred stock refers to preferred equity securities that have interest rates or dividends that are periodically reset through Dutch auctions. Auction market preferred stock typically reset their dividends every 7, 14, 28, or 35 days and are generally structured as preferred shares (issued by closed-end funds). Auction market preferred stock is also known as auction rate preferred stock. So if we call this auction market preferred share, we should have a synonym for auction rate preferred share.
The auction market preferred stock can be a beneficial investment for larger investors. The auction process will most likely reveal the current market yield for less-risky asset classes, such as preferred stock, and will self-adjust for the effects of alternative investments and inflation.
W.r.t. auction rate preferred stock, it has always been that they are holding a relatively liquid security that can be bought and sold rather seamlessly. In a liquid investment, buyers and sellers of a security are not hard to find. Another benefit to investors is that they essentially are investing in a short-term security because they have the option to sell so frequently, but they typically earn interest rates that exceed other short-term investments. This is because, although auction rate securities are technically issued as long-term contracts, they are liquid investments that can change hands at auctions before the contract expires. Investors in auction rate securities are mainly institutional investors and wealthy individuals. The auction market preferred stock can be a beneficial investment for larger investors. The auction process will most likely reveal the current market yield for less-risky asset classes, such as preferred stock, and will self-adjust for the effects of alternative investments and inflation.
Understanding Auction Market Preferred Stock (AMPS) Municipalities, public authorities, student loan providers and other institutional borrowers first issued auction-rate securities to raise funds in the 1980s. Auction-rate securities were marketed to retail investors who were seeking a “cash-equivalent” investment that paid a higher yield than money market mutual funds or certificates of deposit, although they did not have the same level of liquidity as those other instruments.
Traditionally, auction rate securities become short-term investment vehicles, because auctions are held so frequently. The benefit for investors has always been that they are holding a relatively liquid security that can be bought and sold rather seamlessly. In a liquid investment, buyers and sellers of a security are not hard to find.
Another benefit to investors is that they essentially are investing in a short-term security because they have the option to sell so frequently, but they typically earn interest rates that exceed other short-term investments. This is because, although auction rate securities are technically issued as long-term contracts, they are liquid investments that can change hands at auctions before the contract expires. Investors in auction rate securities are mainly institutional investors and wealthy individuals. The auction market preferred stock can be a beneficial investment for larger investors. The auction process will most likely reveal the current market yield for less-risky asset classes, such as preferred stock, and will self-adjust for the effects of alternative investments and inflation.
For our current property of hasSharesIssued, we might also need hasSharesAuthorizedUnIssued ... Basic and Diluted Shares Outstanding The number of shares outstanding can be computed as either basic or fully diluted. The basic number of shares outstanding is simply the current number of shares available on the secondary market, whereas the fully diluted shares outstanding calculation takes into account diluting securities such as convertibles (warrants, options, preferred shares, etc.). Therefore, if a company owns any diluting securities, that would indicate a potential increase in the number of shares outstanding in the future. (and would also increase shares issued in the future). For diluted shares, the term should be 'fully diluted'.