Post on 28-Dec-2015
Major Characteristics of Major Characteristics of Stock ExchangesStock Exchanges
• ________________ market
• ________________ market
• ________________ market
• ________________ market
• ________________ market
• ________________ market
SpecializedCapital
Strictly organized
ClosedCompetitive
Informed
Functions of Functions of Stock ExchangesStock Exchanges
– Reach the targets of merger and takeover
– Increase credibility
1. For enterprises:
– Raise capital
Functions of Stock Functions of Stock ExchangesExchanges
2. For individuals:– Provide investing opportunities– Protect investors’ benefit– Provide information
3. For the economy:– Better utilization of resources– Raise capital for the government– Provide economic indexes
Hong Kong Exchanges Hong Kong Exchanges and Clearing Limitedand Clearing Limited
The Stock Exchange of Hong
Kong Limited(SEHK)
Hong Kong Futures Exchange
Limited(HKFE)
Hong Kong Securities Clearing Company Limited
(HKSCC)
Hong Kong Exchanges and Clearing Li
mited(HKEx)
Organization Structure
The Stock Exchange of The Stock Exchange of Hong Kong Limited Hong Kong Limited
(SEHK)(SEHK)• Established on 2nd April, 1986• Provide a fair, transparent and efficient centr
al securities market-place• A unification of:
– The Hong Kong Stock Exchange– The Far East Stock Exchange– The Kam Ngan Stock Exchange– The Kowloon Stock Exchange
Hong Kong Futures Hong Kong Futures Exchange Limited Exchange Limited
(HKFE)(HKFE)• Incorporated in 1977
• Operate futures markets on the following products:– equity index– equity stock– interest rate– foreign currency
Hong Kong Securities Hong Kong Securities Clearing Company Limited Clearing Company Limited
(HKSCC)(HKSCC)
• Incorporated in May 1989• Services:
– Securities clearing and settlement– Electronic instructions for money settlement– Depository
• Has an electronic system for securities transactions -- CCASS
Comparison of Securities Comparison of Securities Settlement Before and Settlement Before and
After After the Implementation of the Implementation of
CCASSCCASS
Reduction of such risk Risk of counterparty failure
Central depository servicesNo central depository services
Electronic money settlementCash or cheque settlement
Electronic settlementPhysical settlement
After CCASSBefore CCASS
Regulatory Body -- Regulatory Body -- Securities and Futures Securities and Futures
Commission (SFC)Commission (SFC)
1. Administer the relevant laws
2. Ensure market integrity
3. Protect the interests of investors
4. Support the development of HK as an international financial centre
FunctionsFunctions
The Primary and The Primary and Secondary MarketsSecondary Markets
• Primary market– The market in which new issues of
securities are sold.
• Secondary market– The market in which the issued
securities are traded.
The Growth Enterprise The Growth Enterprise Market (GEM)Market (GEM)
• Reasons for the need of the GEM– Help growth companies to raise capital
– “High growth, high risk” investment choice
– Support the government’s policy to encourage
high-tech and high value-added industries
– Encourage venture capital investments
Features of Features of the Main Board & the GEMthe Main Board & the GEM
Shares: HK$46MOptions, warrants or similar rights: HK$6M
Shares: HK$100MOptions, warrants or similar rights: HK$10M
Minimum market capitalization at the time of listing
2 years of active business pursuits
3 years of trading recordOperating history
No requirementHK$50M (last 3 years)Profit requirement
Professional andinformed investors
All investorsTarget investors
For growth companies
For large and established companiesTheme of market
GEMMain BoardFeatures
Methods of Issuing Methods of Issuing SharesShares
By prospectus
/public issue
Offer for sale
Public placing
To the general public
Private placing
Rights issue
Bonus issue
To designated people
Methods of issuing shares
Methods of Securities Methods of Securities DealingDealing
Automatic order matching and execution
Automatic order matching and execution
An investor places an orderAn investor places an order
A securities company enters the order into the computer system of the SEHKA securities company enters the order into the computer system of the SEHK
The Charges inThe Charges ina Securities Transactiona Securities Transaction
• Commission
• Transaction levy
• Ad valorem stamp duty
• Transfer deed stamp duty
• Transfer fee
Types of SecuritiesTypes of Securities
• Ordinary shares
• Preference shares
• Warrants
• Debentures
• Bonds
Characteristics of Characteristics of Ordinary SharesOrdinary Shares
Voting rights
Voting rightsProfit sharingProfit sharing
RisksRisks
Characteristics of Characteristics of Preference SharesPreference Shares
No voting rightsNo voting rights
Fixed dividendsFixed dividends
Priority in profit sharingPriority in profit sharing
Types of Types of Preference SharesPreference Shares
• ______________ preference shares
• ______________ preference shares
• ______________ preference shares
• ______________ preference shares
• ______________ preference shares
Cumulative
Non-cumulative
ParticipatingRedeemable
Convertible
What are the advantagesadvantages and
disadvantagesdisadvantages of issuing and
investing in preference shares?
What is a Warrant?What is a Warrant?
Warrant is a certificate issued to the existing
shareholders. The holder has an option to
purchase a specified number of shares at a
specified price within a stipulated period of
time.
Advantages and Advantages and Disadvantages of Issuing Disadvantages of Issuing
WarrantsWarrants
Work as an indicator
No need to distribute dividends
Reduce the share priceProvide more funds
Affect investors’ confidenceWill not affect the existing shareholding
DisadvantagesDisadvantagesAdvantagesAdvantages
Advantages and Advantages and Disadvantages of Investing Disadvantages of Investing
in Warrantsin Warrants
A warrant may
worth nothing
Gain in price
difference
DisadvantageDisadvantageAdvantageAdvantage
Characteristics of Characteristics of DebenturesDebentures
• A debenture holder is a creditor.
• The holder earns interest even if the company makes a loss.
• Have priority in capital repayment.
Types of DebenturesTypes of Debentures
• ____________ debentures
• ____________ debentures
• ____________ debentures
• ____________ debentures
• ____________ debentures
Secured
Unsecured
RedeemableIrredeemable
Convertible
What are the advantages
and disadvantagesof issuing andinvesting in
debentures?
What are the advantages
and disadvantagesof issuing andinvesting in
debentures?
????????
BondsBonds
• Debentures issued by the _______________ or
__________________.
• Lower risk _______interest
governmentpublic corporations
lower
Some Common Some Common TerminologiesTerminologies
• Blue chipsBlue chips• Red chipsRed chips• Second and third linersSecond and third liners• Gilt-edge securitiesGilt-edge securities
Factors Affecting Factors Affecting the Prices of Sharesthe Prices of Shares
• Information on takeover and merger• Earnings per share• Price-earning ratio (P/E ratio)• Interest rate of banks• Economic factors
• Performance of the company
• Political factors• Speculative activities
A&B A&B CompanyCompany
ProfitProfit ::$100,000,000$100,000,000
A&B A&B CompanyCompanyPolitical crisisPolitical crisis
Stock Exchange Stock Exchange IndexesIndexes
• A number to reflect the relative level of prices or value of the securities market of a day.
• 3 main stock exchange indexes in HK:– Hang Seng Index (HSI)
– All Ordinaries Index (AOI)
– Growth Enterprise Index (GEI)
Hang Seng IndexHang Seng Index• 33 constituent stocks• The calculation of the HSI:
Sum of market capitalization* of 33 constituent stocks at a specific date ---------------------------------------------- X 100 = HSI at the date Sum of market capitalization of the constituent stocks on the base date*
* Market capitalization = market price x the no. of shares issued Base date = 31st July, 1964 (the index of that day was 100)
All Ordinaries IndexAll Ordinaries Index
• Base date = 2nd April, 1986
• Base value = 1,000
• Comprises all ordinary shares listed on the SEHK except:– Stocks of overseas companies whose principal
activities are outside HK and Mainland China– Stocks suspended for over a year– Stocks not traded in Hong Kong dollars
Growth Enterprise Growth Enterprise IndexIndex
• Base date = ______________
• Base index = _____________
• Include all GEM __________
17th March, 2000
1,000
stocks
Speculation in Speculation in Stock ExchangesStock Exchanges
• Speculation = buying and selling of stocks within a short period
• People involved in speculation:– Bulls ___________– Bears ___________– Stags _____________________________
optimistic
pessimistic
interested in the newly issued shares
Futures MarketFutures Market• Difference between spot deal and
futures deal: Spot deal __________ delivery Futures deal __________ delivery
immediate
future
• People involved: _________________________________ _________________________________ _________________________________
Merchants and manufacturersSpeculatorsHedgers
Different Types of Futures Different Types of Futures Contracts in Hong KongContracts in Hong Kong
• _____________ products
• _____________ products
• _____________ products
• _____________ products
Equity index
Equity
Interest rate
Currency
Characteristics of Hang Seng IndCharacteristics of Hang Seng Index Futures Contractsex Futures Contracts
• Margin trading• Margin deposit• The operation of the Hong Kong Futures Exchange Clearing Corporation Limited (HKCC)
Options MarketOptions Market• Two types of option trading:
– Put option– Call option
• Advantages of option trading:– Reduce risk– Earn premium– Maintain price stability
• 2 main types of option contracts in HK:– stock options– index options
Monitoring and Control Monitoring and Control by the HKSAR by the HKSAR GovernmentGovernment
OrdinancesOrdinancesOrdinancesOrdinances RulesRulesRulesRules
CodesCodesCodesCodes