Chapter 2 Stock Exchanges Stock exchanges

Chapter 2

Stock Exchanges

Stock exchanges

Securities refer to legal documents that show either a person’s __________ of a company or _____ to buy shares at specified dates, or he/she has ____ money to a business firm or a government.

ownership

rightlent

A stock exchange is an organised market for the trading of _________.securitie

sThe stock exchange in Hong Kong:

_______________________________________Hong Kong Exchanges and Clearing Limited

……Ab Ltd.

Function of stock exchanges

To individuals

To business firms

To the economy

As an ___________ channel

Gaining __________investment protection

Receiving ___________information

Raising _______ Boosting _________

capital

credibility

Raising _______ for the government and public corporations

Fully utilising _________

capital

resources

As an economic ________indicator

Demand Supply

Features of stock exchanges

Keen / Little competition

______________ determine the pricesMarket forces

_____________ as middlemenStockbrokers

Shares in the market are sold in standardised ____.lots

Market information on the stock exchange is _____.open

Trading on the stock exchange is being __________ to ensure fairness in trading.

monitored

Process of securities trading

Investor Stockbroker

1. An investor places a _____________ with the stockbroker.market order

Process of securities trading

Investor Stockbroker

1. An investor places a _____________ with the stockbroker.market order

3. The representative will then carry out the market order by buying from or selling to other broker representatives.

2. The stockbroker then sends the order to her ______________ who is on the trading floor.representative

4. Details of the transaction are transferred electronically to the ____________________________________________ for completion on or before the _______ day of transaction.

Automatic Order Matching and Executive System second

Representative

Hong Kong Exchanges and Clearing Limited

Year 2000

______________________________________________Hong Kong Exchanges and Clearing Limited (HKEx)

The Stock Exchange of Hong Kong Limited

Hong Kong Futures Exchange Limited

Hong Kong Securities Clearing Company Limited


All listed companies must satisfy the rules and requirements set by ______.HKEx

Companies listed on the ___________ have to satisfy higher requirements on assets, profits and performance track records.

Main Board

Companies with potential for growth, but not yet able to meet the requirements of the Main Board, can go public through the _________________________.Growth Market Enterprise

Major rules and practices in HKEx


All listed companies must satisfy the rules and requirements set by _____.HKEx

Only the ___________ are allowed to trade in HKEx.participants

The participants must have ________________________ and sound ________ status.

professional qualificationsfinancial


$

$




Floor trading has been assisted by __________.computers






Floor trading has been assisted by __________.computers

The securities market is under the supervision of _____, the ________________________________ and the ________________________________________.

HKExSecurities and Futures Commission

Financial Services and the Treasury Bureau

Types of securities

_______: evidence that an investor owns a proportion of a companyShares

_________: allow the holder to buy a specified number of shares at a fixed conversion price on or before a given date.

Warrants

______: recognise that a loan has been made to a company or government.Bonds

________________________: investors’ money is pooled together to invest in a portfolio that is managed by a fund management company.

Unit trusts/Mutual funds

For private limited companies, the issue of new shares or the transfer of their existing shares can take place only with the agreement of _______________.all shareholders

If public limited companies go public, their shares are __________________.freely transferable

Methods of issuing shares

_______Placing


Methods of issuing shares in the stock exchange

New shares are not open to the public but are sold to a single buyer or an exclusive group of buyers.

_______Placing



_____________________Offer for subscription

An offer of shares to the public by a company or its agent.

_______Placing




An offer of shares to the public by, or on behalf of the holders of the shares already in issue or agreed to be subscribed.

______________Offer for sale

_______Placing




______________Offer for sale ___________Rights issue

A company gives existing shareholders a right to buy its new shares, based on the amount of shares each shareholder already owns.

_______Placing





___________Bonus issueA company gives out new shares to existing shareholders.

_______Placing





___________Bonus issue

__________________Consideration issueAn issue of shares in a transaction or in connection with a takeover or merger.

_______Placing






__________________Consideration issue

____________IntroductionAn application for listing shares already in issue with no marketing arrangements required.

_______Placing






__________________Consideration issue

____________Introduction

___________Open offer An offer to existing shareholders. It does not have to be in proportion to the shareholders’ existing holdings.

Financial institutions involved in issuing shares

An ____________ acts for a company wishing to issue new shares.

issuing house

Functions of an issuing house

As an ___________: agrees to buy the shares if they are not bought by the public

underwriter

Prepares the ___________ for submission to the HKSAR Government and HKEx.

prospectus

Distributes the prospectus to the public through _____________ and _____.stockbrokers banks

Advertises the public offer

Primary market and secondary market

Primary market

Secondary market

_________ market

It is the market mainly between the ________________ and _____

_________

New issue

issuing institutionpurchaser

It is the market between ________ _________________ and ______ Investors can buy securities that are _

_____________

existing

already in issue

bulk

Firms can ___________ through issuing securities

raise capital

securities holders

buyers

Factors affecting the prices of shares

Changes in economic and political conditions

General economic conditions

economic conditions

If people expect a good economic performance for a certain region, the investment demand will increase / decrease and share prices are likely to rise / fall.



The prospect for the ________ and ________

If the prospect of aviation industry is poor, the price of these shares will rise / drop.

industry

company



The interest rate

When the bank interest rate is high, the share prices are likely to rise / fall.



The foreign exchange rate

When the foreign exchange rate of a country rises, the share prices are likely to rise / fall.

exchange rate

time

share price

time



Political factor

If a country is unstable, its share prices are likely to rise / fall.

Dividend yield = x 100%



Dividend yield

Annual dividendCurrent share

price

Higher dividend yield Share price rises / falls

P/E ratio = x 100%Current per share earnings



Dividend yield

Current share price

Higher P/E ratio Share price rises / falls

Price-earning ratio (P/E ratio)



Dividend yield

Price-earning ratio (P/E ratio)

Speculation

presence of speculative activities share price changes

Securities prices

Speculation in securities market

A ____ buys securities, hoping the price will increase. A _____ sells securities, hoping the price will decrease.

bullbear

Bulls buy securities and buyers to be able to sell them at higher price later. The actual owning of securities is called a ____ position.lon

g Some bears sell securities even though they do not have

the securities in hand, the actual owing of securities is called a ______ position.short

______________ is a method of speculation that involves the use of borrowed funds.Margin trading

An example of margin trading

Stock exchange indices show the ______ of securities prices and their ____________.

trend

Stock exchanges indices

performance

________________Hang Seng Index

The stock can be classified into four sectors:_______, _______, __________ and ____________________finance

utilities properties commerce and industry

An index that shows the changing prices of 33 stocks at HKEx.

It is complied by the _____________________.HSI Services Limited


________________Hang Seng Index _________________________Hang Seng Composite Index

It includes the geographical series and industry series.

It is complied by the _____________________.HSI Services Limited


trendperformance


________________Hang Seng Index _________________________Hang Seng Composite Index S&P/HKEx Index Hong Kong Indices

_________________________ includes Hong Kong’s listed large companies. S&P/HKEx Large Cap Index

_____________________ includes most shares in Hong Kong’s Growth Enterprise Market. S&P/HKEx GEM Index

They are complied by the _________________ and _____.

Standard & Poor’sHKEx


trendperformance

Futures are _________ that will trade on a particular _______ date at an agreed price for commodities and financial products.

contracts

The Hang Seng Index Futures

future

The buyers and sellers of the Hang Seng Index Futures simply speculate on the level of the Hang Seng Index Futures at a _____________________.fixed settlement date

Each index point of the Hang Seng Index Futures contract is valued at ____ per lot.$50

An example of Hang Seng Index Futures trading

Functions of the Hang Seng Index Futures

The Hang Seng Index Futures

________: provides a way for investors to reduce their risks.Hedging

Provision of ___________ on what will happen to the spot price

information

Profit-making

Monitoring institutions in Hong Kong

The monitoring of the securities market

_______________________________________Hong Kong Exchanges and Clearing Limited

_____________________________________The Securities and Futures Commission

____________________________________________The Financial Services and the Treasury Bureau

The Securities and Futures Ordinance

The monitoring of the securities market

establishing the ______________ of the Securities and Futures Commission and stating its functions and powers

accountability

introducing a simplified ________ mechanism for exchange and clearing house participants

licensing

setting up a flexible _______________ mechanism for securities and futures industry

civil and criminal

setting up plans for ________ protectioninvestor

enforcing the rules of disclosure of a listed company’s ______equity

Chapter 2 Stock Exchanges Stock exchanges

Business

Transcript of Chapter 2 Stock Exchanges Stock exchanges