Transcript Chapter 9
Major Characteristics of Stock Exchanges • • • • • • ________________ market Specialized ________________ market Capital ________________ Strictly organized market ________________ market Closed ________________ market Competitive ________________ market Informed Functions of Stock Exchanges 1. For enterprises: – Raise capital – Reach the targets of merger and takeover – Increase credibility Functions of Stock Exchanges 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 and Clearing Limited Organization Structure Hong Kong Exchanges and Clearing Limited (HKEx) The Stock Exchange of Hong Kong Limited (SEHK) Hong Kong Futures Exchange Limited (HKFE) Hong Kong Securities Clearing Company Limited (HKSCC) The Stock Exchange of Hong Kong Limited (SEHK) • Established on 2nd April, 1986 • Provide a fair, transparent and efficient central 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 Exchange Limited (HKFE) • Incorporated in 1977 • Operate futures markets on the following products: – – – – equity index equity stock interest rate foreign currency Hong Kong Securities Clearing Company Limited (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 Settlement Before and After the Implementation of CCASS Before CCASS After CCASS Physical settlement Electronic settlement Cash or cheque settlement Electronic money settlement No central depository services Central depository services Risk of counterparty failure Reduction of such risk Regulatory Body -Securities and Futures Commission (SFC) Functions 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 The Primary and Secondary 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 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 the Main Board & the GEM Features Theme of market Target investors Main Board GEM For large and established For growth companies companies Professional and All investors informed investors HK$50M (last 3 years) No requirement Operating history 3 years of trading record 2 years of active business pursuits Minimum market capitalization at the time of listing Shares: HK$100M Options, warrants or similar rights: HK$10M Shares: HK$46M Options, warrants or similar rights: HK$6M Profit requirement Methods of Issuing Shares Methods of issuing shares To the general public By prospectus /public issue Offer for sale To designated people Public placing Private placing Rights issue Bonus issue Methods of Securities Dealing An investor places an order A securities company enters the order into the computer system of the SEHK Automatic order matching and execution The Charges in a Securities Transaction • • • • • Commission Transaction levy Ad valorem stamp duty Transfer deed stamp duty Transfer fee Types of Securities • • • • • Ordinary shares Preference shares Warrants Debentures Bonds Characteristics of Ordinary Shares Risks Characteristics of Preference Shares Types of Preference Shares • • • • • ______________ Cumulative preference shares ______________ Non-cumulative preference shares ______________ preference shares Participating ______________ preference shares Redeemable ______________ preference shares Convertible What are the advantages and disadvantages of issuing and investing in preference shares? 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 Disadvantages of Issuing Warrants Advantages Disadvantages Will not affect the existing Affect investors’ confidence shareholding Provide more funds Work as an indicator No need to distribute dividends Reduce the share price Advantages and Disadvantages of Investing in Warrants Advantage Disadvantage Gain in price A warrant may difference worth nothing Characteristics of Debentures • A debenture holder is a creditor. • The holder earns interest even if the company makes a loss. • Have priority in capital repayment. Types of Debentures • • • • • ____________ Secured debentures ____________ debentures Unsecured ____________ Redeemable debentures ____________ Irredeemable debentures ____________ Convertible debentures What are the advantages and disadvantages of issuing and investing in debentures? ？？ Bonds • Debentures issued by the _______________ or government __________________. public corporations • Lower risk _______interest lower Some Common Terminologies • Blue chips • Red chips • Second and third liners • Gilt-edge securities Factors Affecting the Prices of Shares • • • • • • • • Performance of the company Information on takeover and merger Earnings per share Price-earning ratio (P/E ratio) Interest rate of banks Economic factors A&B A&B Company Political crisisCompany Political factors Profit： Speculative activities $100,000,000 Stock Exchange Indexes • 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 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 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 Index • Base date = ______________ 17th March, 2000 • Base index = _____________ 1,000 • Include all GEM __________ stocks Speculation in Stock Exchanges • Speculation = buying and selling of stocks within a short period • People involved in speculation: optimistic – Bulls ___________ – Bears ___________ pessimistic – Stags _____________________________ interested in the newly issued shares Futures Market • Difference between spot deal and futures deal: Spot deal __________ immediate delivery Futures deal __________ delivery future • People involved: Merchants and manufacturers _________________________________ _________________________________ Speculators _________________________________ Hedgers Different Types of Futures Contracts in Hong Kong • _____________ Equity index products • _____________ products Equity • _____________ Interest rate products • _____________ products Currency Characteristics of Hang Seng Index Futures Contracts • Margin trading • Margin deposit • The operation of the Hong Kong Futures Exchange Clearing Corporation Limited (HKCC) Options 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 by the HKSAR Government Rules