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Transcript of 1 Financial Market 6097
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Professional Development Programme onContemporary Perspectives of
Personal Financial Management
Part I: Fundamentals of Financial Market
Connie Lo
Manager
External Relations
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22
Contents
1. Structure of Financial Market Different sectors and participants
Different types of markets
2. Investor Protection in Hong Kong
Roles of different financial regulators Investors compensation regime
Rights and responsibilities of investorsand consumers of financial services
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1) Structure of
Financial Market
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What are the major sectors of the HK financial market?
Sector
Banking
Insurance
Securities andFutures
Activities
Deposits & loans, insurance,
investment, etc.
Life, medical, travel,investment-linked and otherinsurance
Fund raising, trading of
different investment products,e.g. stocks, bonds, funds,warrants, options, futures, etc.
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Different markets
Money vs. Capital Market
Listed exchanges vs. Over-the-counter
(OTC)
Primary vs. Secondary Market
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Money vs. Capital Market
Money Market ( ) The market for short-term debt
securities with a maturity of one year orless such as commercial papers,
certificates of deposit (CDs), ExchangeFund Bills, etc.
Instruments can be converted into casheasily without substantial loss in value.
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Money vs. Capital Market
Capital Market ()A market where debts or securities are
traded.
Instruments generally have longer term
E.g. stocks, bonds, funds, etc.
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Listed exchanges vs. OTC
Stock exchanges
Stocks need to meet the
listing requirements of astock exchange in order toget listed
Stocks are traded through
the trading system of thatparticular stock exchange
Only qualifiedintermediaries can access
to the trading system A more transparent market
Over-the-counter (OTC)
() A decentralized market
where brokers/dealersnegotiate with each other
directly by phone orthrough computersystems
Stocks traded there canbe listed or unlisted
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Capital Market- Stock Market What is a stock?
Definition A cert ificate representing a
unit of ownership in a company
ABC Company
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Common types of stock
Ordinary shares (
)
Voting right
Receive Dividend
Preference shares (
)
Fixed dividend
Preferential distributionof profits prior to theordinary shareholder
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Classifications of stock By business nature
Finance, utilities, properties, consolidatedenterprises, & Industrials and hotels
H-shares () / A / B shares
Hang Seng Index (): 39 constituents
Several commonly used terms:
Blue-chips (), Red-chips (), Second/ Third liners (), Concept stocks ()
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Roles of different participants
Clearing House
ListedCompanies
SEHK
RegulatorsInvestors
Stockbrokers
Share
Registrars
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Stock Exchange of Hong Kong (SEHK)
Hong Kong Exchanges and Clearing Limited(HKEx) operates an efficient, transparent and
orderly securities marketplace through itswholly-owned subsidiary, The StockExchange of Hong Kong Limited (SEHK).
Investors can buy and sell a wide range ofproducts on the SEHK, including: equities,equity/derivative warrants, debt securities,exchange traded funds (ETFs), unit
trusts/mutual funds and structured products.
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SEHK
StockExchange
(SEHK)
Companies
Go public ()
issuer receives proceedsfrom the sale
PRIMARY MARKET
( ) An open and public market
for exchanging stocks Existing owner sells toanother party
SECONDARY MARKET( )
Investors
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SEHK
There are two markets on the SEHK
Main Board ():For more establishedcompanies with previoustrading and profit records
Grow th Enterprise Market
(GEM) ():For growth companies that maynot have a track record of profits
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Listed Companies
Comply with the Listing Rules
Continuing disclosure obligations Price-sensitive information
Financial informationAnnual, interim, quarterly
(only for GEM companies) reports
Failure to publish reports on time may lead totrading suspension
Corporate actions
Notifiable transactions ()
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2020
Listed Companies
New rules to boost corporategovernance standards
Interested directors cannot vote toapprove certain corporate transactions atshareholder meetings
Directors are subject to a tradingblackout period () 1 month prior to publication of results
announcement and ending on the date ofannouncement
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Share Registrars
Maintain the share register () of alisted company
Issue new share certificates and replace lostcertificates, distribute dividends andcorporate documents to shareholders
Listed
CompaniesInvestors
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Stockbrokers
9 Regulated Activities under the SingleLicensing Regime
RA1Dealing in securities RA4Advising on securities
RA8Securities margin financing
Act as a bridge between buyers and sellers File monthly returns on Financial Resources
Rules requirements to report financial health On-site inspections by SFC on rules
compliance
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Stockbrokers
AMS/3
SEHKBuyer
Seller
Brokers
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Institutional Investors
Substantial shareholders () holding 5% or more of the voting shares
disclose of interests requirements
Controlling shareholders () generally referred to those holding 30%
or more of the voting shares, alone ortogether with concerted parties
may trigger a general offer under certaincircumstances
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2) Investor Protection
in Hong Kong
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Roles of Different
Financial Regulators
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Regulatory Framework of Hong Kong
Major regulatory bodies:
Securities and Futures Commission
(SFC) Stock Exchange of Hong Kong Ltd
(SEHK) Hong Kong Monetary Authority (HKMA)
Office of the Commissioner of Insurance(OCI)
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SFC
Stock Exchange of
Hong Kong Ltd.
Hong Kong
FuturesExchange Ltd.
1. SEHK Options Clearing House Ltd
2. Hong Kong Securities ClearingCompany Ltd.
3. HKFE Clearing Corporation Ltd.
Listing Matters,
ExchangeParticipants ExchangeParticipants
Licensed Corporations
& Individuals (Stock
brokers, Investment
Advisors, etc)
Takeovers &
Share
repurchases
All participants in
trading activities
Collective
Investment
Schemes
ClearingParticipants
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SEHK
Front-line regulator of listing-relatedmatters
Administer the Listing Rules () Pass listing applications and listed
company disclosure materials to the SFCunder the Dual Filing mechanism (
)
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HKMA
Front-line regulator of banks securitiesoperations
Banks must register with the SFC asRegistered Institutions to carry out
securities business Maintain currency stability
Manage the exchange fund
Ensure safety and stability of thebanking system
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OCI
To protect the interests of policyholdersand to promote the general stability of
the insurance industry. Major duties and powers of IA:
Authorization Regulation of insurers
Regulation of insurance intermediaries
Liaison with the insurance industry
Emphasis self-regulation by the players
InsuranceSelf Regulatory Organizations
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(SROs)
Complaints on the conduct of an insuranceagent/broker:
Insurance Agent Registration Board() The Hong Kong Confederation of Insurance Brokers
(
)
Professional Insurance Brokers Association Limited()
Complaints relating to claims arising out ofpersonal insurance policies: Insurance Claims Complaints Bureau ()
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Investors Compensation Regime
I t C ti F d (ICF)
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Investor Compensation Fund (ICF)
ICF is administered by the InvestorCompensation Company Limited ("ICC"), awholly-owned subsidiary of the SFC.
ICF is set up for compensating investors who
suffer pecuniary losses as a result ofdefault of a licensed intermediary orauthorized financial institution in relation to
their trading of exchange-traded products inHong Kong.
I t C ti F d (ICF)
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Investor Compensation Fund (ICF)
"Default" covers insolvency, bankruptcy or winding up,breach of trust, defalcation, fraud or misfeasance.
The source of money used to come mainly from theInvestor Compensation Levy:
Securities transaction : 0.002% on transaction amount,
payable by buyers and sellers Futures contracts:
HK$0.5 per side of a contract or
HK$0.1 per side of a mini contract or stock futures contract.But the Levy was suspended since 19 December 2005
as the net asset value of the ICF exceeded HK$1.4 billion.
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Investor Compensation Fund (ICF)
The ICC is responsible for vettingand determining the claims against
the ICF.
Compensation is applied on a per-investor basis with a limit ofHK$150,000 for trading securities
and futures respectively.
D it P t ti S h (DPS)
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Deposit Protection Scheme (DPS)
The Hong Kong Deposit ProtectionBoard is a statutory body established
under the Deposit Protection SchemeOrdinance to oversee the operation ofthe DPS.
DPS aims to protect depositors and helpto maintain stability of the banking
system in HK.
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Deposit Protection Scheme
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Deposit Protection Scheme
The scheme does not cover Common investment products like stocks,
bonds, warrants, mutual funds, unit trusts and
insurance policies Time deposits with a maturity longer than 5
years
Structured deposits (equity/currency linkeddeposits)
Secured/offshore deposits
Bearer instruments (such as bearer certificate ofdeposits)
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Rights and Responsibilities
of Investors
Rights of Investors as Shareholders
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Rights of Investors as Shareholders
Right to be informedListed companies are required to send
financial reports to registered shareholders Right to receive entitlements, e.g.
dividends, bonus shares
Right to vote in shareholders meetings
Right to raise questions with the seniormanagement
Rights of Consumers of Financial Services
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Rights of Consumers of Financial Services
Right to be informed of the licencestatus, fees and charges
Right to choose a client agreement inthe language you prefer
Right to receive transaction documentse.g. contract notes, account statements
Rights of Consumers of Financial Services
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Rights of Consumers of Financial Services
Right to ask for sufficient information tofacilitate you to manage your investment
Monitor your accountChoose the right products
Right to complain in case of mishandlingof investments
Fees & Charges
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Fees & Charges
Transaction costs on stock tradingBrokerage commission
SFCs Transaction levy(0.004%)SEHKs Trading fee (0.005%)
Stamp duty (0.1%)Investor compensation levy (0.002%)
(suspended since Dec 2005)
Transaction Documents
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Transaction Documents
Contract Notes They are issued by the second trading day
after the dealing day (i.e. T+2)
Statements of account
They are issued on a monthly basis unlessthere have been no transactions and a
zero cash and stock balance in youraccount during the statement period.
Responsibilities of Investors
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Responsibilities of Investors
Do your homework, e.g. read theproduct offering documents
Know your investments, e.g. understandthe features and risks of an investment
before committing your money Dont follow the crowd. Bank on facts,
not rumors
Dont commit beyond your means
Responsibilities of Investors
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Responsibilities of Investors
Know your financial services provider Check the Public Register of Licensed
Persons and Registered InstitutionsLicence Details Types of regulated activities
Licensing conditions
AddressesComplaint Officers
Public Disciplinary Actions
Read the client agreement beforesigning
Responsibilities of Investors
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Responsibilities of Investors
Choose an appropriate account that suitsyour needs
Cash / Margin/ Discretionary account
Investor Participant (IP) account at CCASS
Place clear instructions
Settle transactions directly with your financialservices provider on time
Read transaction documents to monitor youraccount
Dont lend your account to others to trade
Tips on Order Placing
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Tips on Order Placing
When you place a buy/sell order, youhave to specify clearly
the code or name of the stock the purchase/sale price
Quantity (no. of board lots or no. ofshares)
Know Your Risks
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Know Your Risks
Price volatility
Business failures
Corporate misgovernance Liquidity risk
Trading suspension Brokerage failure / fraud
Pooling risk (), misappropriation Leverage risk
kn
risk
yuow
Risk Management
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Risk Management
Diversification
Dont chase rumours
Read corporate news issued by thelisted companies you have invested in
Think twice before engaging in daytrading ()
Invest Wisely
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y
Visit the SFCs investor education portal,
@www.InvestEd.hk to learn more !
Flash Videos
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Flash Videos
Useful links
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Useful links
http://www.dps.org.hk/DPS
http://www.hkicc.org.hk/ICF
http://www.oci.gov.hk/OCI
http://www.info.gov.hk/hkma/index.htm
HKMA
www.InvestEd.hkInvestEd
http://www.sfc.hk/sfc/html/EN/SFC
http://www.hkex.com.hk/index.htmHKEX
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Questions and Answers