AFM Final Ppt

8/4/2019 AFM Final Ppt

1/40

Click to edit Master subtitle style

4/18/12

ADR & GDR


2/40

4/18/12

Copy

right

2007

Pears

o nAddison-We

sley.

Allrig

h tsreserved.

What is Depository Receipt?

A depositary receipt (DR) is a type of negotiable(transferable) financial security that is traded on alocal stock exchange but represents a security,usually in the form of equity that is issued by a

foreign publicly listed company.

The DR is created when a foreign company wishesto list its already publicly traded shares or debt

securities on a foreign stock exchange.

Before it can be listed to a particular stockexchange, the company in question will first have

to meet certain requirements put forth by theexchange.


3/40

4/18/12

Copy

right

2007

Pears

o nAddison-We

sley.

Allrig

h tsreserved.

Types of DR

American Depository Receipts(ADR)

Global Depository Receipts(GDR)


4/40

4/18/12

Copy

right

2007

Pears

o nAddison-We

sley.

Allrig

h tsreserved.

American Depository Report

A negotiable certificate issued by a U.S.bank representing a specified number ofshares (or one share) in a foreign stock

that is traded on a U.S. exchange.

ADRs are denominated in U.S. dollars,with the underlying security held by aU.S. financial institution overseas.

ADRs help to reduce administration and

duty costs that would otherwise be


5/40

4/18/12

Copy

right

2007

Pears

o nAddison-We

sley.

Allrig

h tsreserved.

Types of ADR

There generally are three different types ofsponsored ADR programs:

Level I,

Level II, and

Level III,


6/40

4/18/12

Copy

right

2007

Pears

o nAddison-We

sley.

Allrig

h tsreserved.

Level I ADRs are used when an issuerdoes not wish to, or is not allowed to, list

its securities on a national securitiesexchange; Level I ADRs are traded in thepink sheets. Level I ADRs must beregistered with the SEC.

Level II ADRs can be listed and traded onnational securities exchanges and mustcomply with the full registration and

reporting requirements of the SecuritiesAct and the Securities Exchange Act of1934.

Level III ADRs are the hi hest rofile


7/40

4/18/12

Copy

right

2007

Pears

o nAddison-We

sley.

Allrig

h tsreserved.

Benefits of ADR

Help investors to invest in big foreign

Help the investors to profit from manyemerging market companies.

All transactions are done in U.S. Dollars.The competitive rates of Euro and U.S.Dollar over other market currencies also

benefit the investor.Offers more transparency and stability.


8/40

4/18/12

Copy

right

2007

Pears

o nAddison-We

sley.

Allrig

h tsreserved.

Global Depository Receipt

A bank certificate issued in more than onecountry for shares in a foreign company. Theshares are held by a foreign branch of aninternational bank. The shares trade as

domestic shares, but are offered for saleglobally through the various bank branches.

A financial instrument used by private

markets to raise capital denominated in eitherU.S. dollars or euros.


9/40

4/18/12

Copy

right

2007

Pears

o nAddison-We

sley.

Allrig

h tsreserved.

Foreign Investment through GDRs is treated asForeign Direct Investment.

An applicant company seeking Government'sapproval in this regard should have a consistenttrack record for good performance (financial orotherwise) for a minimum period of 3 years.

There is no restriction on the number of GDRs to befloated by a company or a group of companies in afinancial year.


10/40

4/18/12

Copy

right

2007

Pears

o nAddison-We

sley.

Allrig

h tsreserved.

Benefits of GDR

For the Company

A company may opt to issue a GDR to obtaingreater exposure and raise capital in the worldmarket. Issuing GDRs has the added benefit ofincreasing the shares liquidity while boosting the

companys prestige on its local market.

For the InvestorInvestors gain the benefits of diversification, whiletrading in their own market under familiarsettlement and clearance conditions. Moreimportantly, GDR investors will be able to reap thebenefits of usually higher-risk, higher-returnequities, without having to endure the added risks

of going directly into foreign markets, which may


11/40


4/18/12

Option contract


12/40

4/18/12

Copy

right

2007

Pears

o nAddison-We

sley.

Allrig

h tsreserved.

DERIVATIVE

A security derived from a debt instrument ,share, loanwhether secured or unsecured, risk instrument or

contract for differences or any other form of security.

A contract which derives its value from the prices, or index ofprices, of underlying securities.


13/40

4/18/12

Copy

rig ht

2007

Pears

o nAddison-We

sley.

Allrig

h tsreserved.

Forwards

A forward contract is customized contract between two entities, where settlement

takes place on a specific date in the future at todays pre-agreed price.

Futures

An agreement between two parties to buy or sell an asset at a certain time in the

future at a certain price . Futures contacts are special types of forwardcontracts in the contracts in the sense that the former are standardizedexchange-traded contracts.

Options

Options are of two types calls and puts. Calls give the buyer the right but notthe

obligation to buy a given quantity of the underlying asset, at a given price on or

before a given future date. Puts give the buyer the right, but not obligation to sella

TYPES OF DERIVATIVES


14/40

4/18/12

Copy

rig ht

2007

Pears

o nAddison-We

sley.

Allrig

h tsreserved.

Option Basics

Financial Option A contract that gives its owner the right (but not the

obligation) to purchase or sell an asset at a fixed priceas some future date

Call Option A financial option that gives its owner the right to buy

an asset

Put Option A financial option that gives its owner the right to sell

an asset

Option WriterThe seller of an option contract


15/40

4/18/12

Copy

rig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

OPTION TERMINOLOGY (For The Equity Markets)

Important concepts in option contract:Strike Price -This is the stated price per share for which an

underlying stock may be purchased (for a call) or sold (for aput) upon the exercise of the option contract.Expiry Date - This shows the termination date of an optioncontract. Expiry date of U.S.-listed options is on the third Fridayof the expiry month

Volume - This indicates the total number of options contractstraded for the day. The total volume of all contracts is listedBid - This indicates the price someone is willing to pay for theoptions Contract.Ask- This indicates the price at which someone is willing tosell an options contract.Open Interest - Open interest is the number of optionscontracts that Are open; these are contracts that have notexpired nor been exercised.


16/40

4/18/12

Copy

rig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Call Option Put Option

OptionBuyer

Buys the right to buy theunderlying asset at theStrike Price

Buys the right to sell theunderlying asset at theStrike Price

OptionSeller

Has the obligation to sellthe underlying asset to theoption holder at the StrikePrice

Has the obligation to buythe underlying asset fromthe option holder at theStrike Price


17/40

4/18/12

Copy

rig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Hedgers - Operators, who want to transfer arisk component of their portfolio.

Speculators - Operators, who intentionallytake the risk from hedgers in pursuit of profit.

Arbitrageurs - Operators who operate in thedifferent markets simultaneously, in pursuit of

profit and eliminate mis-pricing.

Operators in the derivatives market


18/40

4/18/12

Copy

rig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Understanding Option Contracts

The option buyer (holder)Holds the right to exercise the option and has a

long position in the contract

The option seller (writer) Sells (or writes) the option and has a short

position in the contract

Because the long side has the option to exercise,the short side has an obligation to fulfill the

contract if itis exercised.


19/40

4/18/12

Copy

rig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Interpreting Stock OptionQuotations

At-the-moneyDescribes an option whose exercise price is equal

to the current stock price

In-the-money

Describes an option whose value if immediatelyexercised would be positive

Deep in-the-money describes an option that is in-the-money and for which the strike price and stock price arefar apart

Out-of-the-moneyDescribes an option whose value if immediately

exercised would be negativeDeep out-of-the-money describes an option that is out-

of-the-money and for which the strike price and stockprice are far apart


20/40

4/18/12

Copy

rig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Options on Other Financial Securities

HedgeTo reduce risk by holding contracts or securities

whose payoffs are negatively correlated with some riskexposure

SpeculateWhen investors use contracts or securities to place a

bet on the direction in which they believe the market islikely to move


21/40

4/18/12

Copy

rig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Option Payoffs at Expiration

Long Position in an Option Contract

The value of a call option at expiration is

Where S is the stock price at expiration, Kis theexercise price, C is the value of the call option, and maxis the maximum of the two quantities in theparentheses

max ( , 0)C S K=


22/40

4/18/12

Copy

rig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Payoff of a Call Option with a StrikePrice of $20 at Expiration


23/40

4/18/12

Copy

rig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Option Payoffs at Expiration

Long Position in an Option Contract

The value of a put option at expiration is

Where S is the stock price at expiration, Kis theexercise price, P is the value of the put option, and maxis the maximum of the two quantities in theparentheses

max ( , 0)P K S=


24/40

4/18/12

Copy

rig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Short Position in an Option

An investor that sells an option has anobligation.

This investor takes the opposite side of thecontract to the investor who bought the option.

Thus the sellers cash flows are the negative ofthe buyers cash flows.


25/40

4/18/12

Copy

rig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Short Position in a Call Optionat Expiration


26/40

4/18/12

Copy

rig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Factors Affecting Option Prices

Strike Price and Stock Price

The value of a call option increases (decreases) as

the strike price decreases (increases), all other

things held constant.The value of a put option increases (decreases) as

the strike price increases (decreases), all otherthings held constant.


27/40

4/18/12

Copy

rig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Arbitrage Bounds on Option Prices

Intrinsic Value

The amount by which an option is in-the-money,or zero if the option is out-of-the-money\

Time Value (sometimes called Option Value)

The difference between an options price and itsintrinsic value


28/40

4/18/12

Copy

rig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Option Prices and Volatility

The value of an option generally increaseswith the volatility of the stock.


29/40


4/18/12

Private placement

Copyright

2007

Pearson

Add

ison-Wesl ey.A

llrights

rese

rved.

2920-29


30/40

4/18/12

Copyrig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

What is PrivatePlacement?The sale of securities to a relatively small

number of select investors as a way of raisingcapital

SEBI DIP Guidelines

Companies Act U/s. 81(1A)

For public company only

SEBI id li


31/40

4/18/12

Copyrig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

SEBI guideline

Eligibility

qThe SEBI DIP Guidelines apply to a preferentialissue of equity shares/ Fully ConvertibleDebentures (FCDs)/ Partly Convertible Debentures(PCDs) or other Convertible

q

Preferential issue cannot be made if it is not incompliance with the Conditions of continuouslisting

q A listed company cannot make a preferentialallotment during the period commencing from thesubmission of offer document to the SEBI onbehalf of the Company for public or rights issues,till the securities referred to in the said offerdocument have been listed or the application

moneys refunded on account of non-listing or


32/40

4/18/12

Copyrig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Exemptions

q An allotment pursuant to a

Merger and Amalgamation

Scheme approved by the High

Court

q An allotment pursuant to

rehabilitation packages approved

by BIFR


33/40

4/18/12

Copyrig ht

2007

PearsonAddison-We

sley.

Allrig

h tsreserved.

Pricing of instruments

qThe Guidelines only lay down what mustbe the minimum price

q price in case of a preferential issue ofshares must be the higher of the:

Average of the weekly high and low ofclosing prices during six monthsPreceding the Relevant date, or

Average of weekly high and low ofclosing prices during two weeksPreceding the Relevant date

company as een


34/40

4/18/12

Copyrig ht

2007

PearsonAddison-We

sley.

Allrightsreserved.

company as eenlisted for less than six

yearIt must be higher thanq IPO price

q Average of the weekly high and low ofthe closing prices of the shares duringthe period they have been listed

q Average of weekly high and low of

closing prices during two weeksPreceding the Relevant date

Procedural


35/40

4/18/12

Copyrig ht

2007

PearsonAddison-We

sley.

Allrightsreserved.

ProceduralRequirements

qThe Explanatory Statement u/s. 173(2)to the Notice for the General Meetingmust contain several prescribeddetails

q

Practice Pointer: The CompanysAuditor must certify compliance withthe SEBI Guidelines

q A copy of such Auditors Certificate

must be placed before the GeneralMeeting held for considering the issue

q Practice Pointer: If the issue is topromoters, relatives, associates,

related entities for non-cash


36/40

4/18/12

Copyrig ht

2007

PearsonAddison-We

sley.

Allrightsreserved.

cont

the valuation of the assets received bythe company in return and such Reporthas to be filed with the Stock

Exchanges where shares are listed.The valuer could be a CA or aMerchant Banker

Practice Pointer: The proceeds of thepreferential issue must be separatelydisclosed in the Balance Sheet

f i i i d


37/40

4/18/12

Copyrig ht

2007

PearsonAddison-We

sley.

Allrightsreserved.

If it is issued toforeign investorIt is treated as FDI

It need to comply with FEMA & FIPB

Its equity shares of the same class are

listed on the NSE or BSE for at leastone year

Clause 40A the listing agreement. Atleast 10% of the issue shall be tomutual funds.


38/40

4/18/12

Copyrig ht

2007

PearsonAddison-We

sley.

Allrightsreserved.

Cont

The minimum number of allottees foreach placement of specified securitiesmade shall not be less than:

2 where the issue size is less than orequal to Rs. 250 crores;

5 where the issue size is greater than Rs.250 crores.


39/40

4/18/12

Copyrig ht

2007

PearsonAddison-We

sley.

Allrightsreserved.

All previous QIPs made in the samefinancial year shall not exceed 5 times the

net worth of the issuer

There is a lock-in of 1 year from the date ofallotment, except for sale on a recognized

stock exchange

Restrictions on amount

raised


40/40

4/18/12

Copyrig ht

2007

PearsonAddison-We

sley.

Allrightsreserved.

Thank you

AFM Final Ppt

Documents

Transcript of AFM Final Ppt