Introduction in the capital markets and bvb for bsb year 10

Let’s talk about

financial marketsCapital market

Summary

01. Capital markets

02. The Risk

03. Stock Exchange

04. Listing a company at BVB

05. Market indicators

Capital marketsLet’s talk about financial markets

01

Capital Market

What is the capital market

Capital markets help channelize surplusfunds from savers to institutions orcompanies, who then invest them intoproductive use.

Other said – takes available money andredirect it into the real economy to the onein need.

Capital market is a (virtual) location wherebuyers and sellers engage to trade financialsecurities like stocks, bonds etc. The buying/selling is undertaken by participants suchas individuals represented by financialentities and institutions.

Capital markets are vital to the functioningof an economy, since capital is a criticalcomponent for generating economicoutput.

Buyers

Operators

Sellers

Let’s talk about financial markets

The stock exchange has two different markets

Primary market - the segment of thecapital market in which new issuedfinancial instruments are available forinvestors.

Secondary market - the market where

financial instruments already issuedare traded by investors.

Different types of market

Stock market (spot)

Bond market (spot)

Derivatives market

Alternative trading system

FEATURES:- creates liquidity by giving investors

the possibility to exit

- comes after Primary Market- encourages new investments – portfolio

diversification for covering risk

FEATURES- related with new issued financial instruments –

attracts financing and gives the investor qualification- IPO (Initial Primary Offer Market)

Capital MarketLet’s talk about financial markets

Players on the capital market

Investors and securities issuers

Investment firms (SSIF), banks,investment funds

Counterparties

Intermediaries

Operators and central counterpartiesStock exchanges, clearinghouses, depositories

Protection Investors Compensation Fund


Players on the capital market

An investor is any person who commits capital in financial transactions with the expectation of financial returns. The only goal for an investor is profit.

Investors: retail (individuals), qualified or professionals.

An investor has various risks: counterparty risk,inflation risk, exchange rate risk, default risk etc.

The risk tolerance is different for each individualso, we can talk about varying risk tolerances,divers investment styles, individual preferencesand personal time frames.


If you are an investor that owns share – you are ashareholder.

Shareholders rights:

- the right to participate to General Shareholders’ Meeting;- the right to vote in the General Shareholders’ Meeting; by voting, youcan choose the management team, the management strategy, what todo with the profit etc.;- the right to be informed about the company’s activity;- the right to receive dividends in case the company has profit;- the right to a part of company’s patrimony in case of liquidation.


A financial intermediary is an entity that acts as the middleman between twoparties in a financial transaction, taking some of the risks.

• facilitate transactions between those with excess cash (suppliers of capital)and those with insufficient cash (users of capital) for mutual benefit.

• are buying and selling financial instruments for you and in your account, orwill keep in your account the money or the financial instruments.

• are taking the counterparty risk.• may give advice.


Intermediaries on the stock exchange (investment firms)

02The RiskLet’s talk about financial markets

Important facts to take intoconsideration about one’s exposurewhen investing

-evaluation of the facts prior to

the implementation of an

investment

- RISK = volatility of the

portfolio value

- RISK = possible failure in

achieving of goals

- RISK = permanent loss of

invested capital

Risk = the probability that apresent return on an investmentwill be lower or null than theexpected return.

The RiskLet’s talk about financial markets

The most important feature about the understanding of the risk and it’sconsequences is the ability of the future investor to inform himselfrelated to the possible investments and to diversify the portfolio inorder to reduce the total risk.

portfolio = risk diversification

Investors take investment decisions not only on the basis of their objectivesand available capital, but also on their preference towards risk.- higher risk tolerance – aggressive investment strategy- lower risk tolerance (risk aversion) – moderate investment strategy


ALL INVESTMENTS AND FINANCIAL INSTRUMENTS HAVE A CERTAIN DEGREE OF RISK.

THERE IS NO “NO RISK FINANCIAL INSTRUMENT”!

No matter the theories, there is no formula for calculating all the risk.


INVESTOR

Inflation risk

Delisting risk

Currency risk

Market risk

Liquidity risk

Bankruptcy risk

Fraud risk

Counterparty risk

While an individual is investing, the risk and return cannot be separated.

The risk is an integrated part of any investment.

The higher the potential of return, the higher is the risk associated with it.


Different types of market

BULL MARKET is when:

- the economy is doing well, the GDP is growing and

- the company is doing well, more people want to buy shares and their prices are rising.

The bull market charges ahead.

BEAR MARKET is when:

- the economy is bad, recession islooming

- The company is not doing well, manypeople want to sell shares and theirprices are falling.

A bear market hibernates and movesslowly.

Bull market Bear market


Stock Exchange

03

Let’s talk about financial markets

A stock exchange is an organized and regulated financial market wheresecurities (shares, bonds, notes etc.) are bought and sold at pricesgoverned by the forces of demand and supply.

Stock ExchangeLet’s talk about financial markets

Stock exchanges are indispensable for the smooth and orderly functioning of thecorporate sector in a free-market economy.

A stock exchange acts as a place for safe and profitable investment.

Effective control on the functioning of the stock exchange is necessary in order toavoid misusing the platform for manipulation, excessive speculation, scams andother undesirable and anti-social activities.

Stock exchanges impose rules, listing requirements and statutory requirementsthat are binding on all listed and trading parties.

Secondary market of the stock exchange = buying and selling securities


Need of future money - investment

Need immediate cash

Getting propriety rights Exit of propriety rights

Trades in the older exchanges were conducted on the floor (called the 'trading

floor') of the exchange itself, by shouting orders and instructions (called openoutcry system).

The first stock exchange was opened in Amsterdam in 1602.First listed company – East Indies Company (Vereenigde Oost-IndischeCompagnie)

In 1688 the London Stock Exchange opened for shares trading.

May 17th, 1792 – Buttonwood Agreement – 24 brokers met on Wall Street no.68, signing Buttonwood Agreement, the constitutive act for New York StockExchange, agreeing to trade on established trading hours. But officially NYSEwas named in March 8th, 1817, with strict rules for trading and a management.

On modern exchanges, trades are conducted online.

The three largest exchanges in the world are: New York Stock Exchange (NYSE),London Stock Exchange (LSE) and the Tokyo Stock Exchange (TSE).



Bucharest Stock Exchange (BVB) is the market operator which operates thelargest regulated spot market in Romania and an alternative trading system.

• It has a history tracking back to 1882, when commodities-trade exchangeswere established.

• Between 1948 and 1995 BVB’s activity was interrupted due to thenationalization of Romania’s economy.

• In 1995, BVB is reestablished as public interest institution and on the 20th ofNovember the first trading session takes place. On that date, 6 issuers werelisted.

• In 1996 RASDAQ market is established for trading all shares distributed freeof charge as a result of the mass privatization.

Over time, the BVB’s activity was affected throughout its existence by thesocial and political events of the time, but has developed continuously andtoday it is the main stock exchange in Romania.

Shares, rights attachedto shares, bonds andgovernment securities,fund units (issued byCollective InvestmentSchemes), structuredproducts

Derivatives

Offers access tofinance for start-ups,small and mediumcompanies and othercompanies that are nottraded on a regulatedmarket

Spot market

Alternative trading system

Futures market

Bucharest Stock Exchange:


This market is no longer available due to European legal conditions for the functioning of the

central counterparty.

• Financial instruments issued by companies. A sharerepresents a part of a company’s capital, divided intoequal shares.

• The returns from shares = dividends = a share part of the profit that is not re-invested by the company.

Shares

• Debt financial instrument through which the issuer isborrowing money from the owners of the bonds and isobliged to return regularly an interest (coupon) and torepay the value of the bond (principal) at a certainfuture date (maturity).

Bonds

• Financial instruments that give the owner the rightsand obligations of the shares for which the DepositCertificates were issued and also the rights to obtain,by conversion, the shares behind.

Deposit Certificates


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• Short-term financial instruments (until the date ofsubscribing the new issued shares) that offer theshareholders the right to subscribe for new issuedshares, before such shares are offered for publicsubscription to other investors.

Rights on shares

• Financial instruments for public debt, representing thestate’s borrowing on short-, medium- or long-term innational or foreign coin.

• Either have nor have interest.

T-Bills

• Financial instruments issued by investment funds at aestablished price depending on the net asset value ofthat fund.

Investment Fund Units


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04Listing a company at BVBLet’s talk about financial markets

By European legislation, certain criteria must be accomplished by a company in order to get listed at a stock exchange (regulated spot market) – BVB also

be a joint stock company (SA).

the financial instruments to be registered at ASF, transferable, issued in a

dematerialized form, fully paid and registered into an account; they also need to

belong to the same class.

have the value of anticipated capitalization / shareholders’ equity of at least EUR

1 mil.

have a free-float of at least 25%.

be in function for the last 3 years and have audited financial reports for the last 3

years.

Listing a company at BVBLet’s talk about financial markets

FREE-FLOAT:The proportion between the company’s capital available

for trading on a stock exchange

Choose the listing route based on:

• company’s strategy

• evolution of the markets

• macroeconomic context


• building reputation

• developing credibility

• establishing the market value

of a company

• easing the exit for the existing

shareholders

• accessing cheaper capital on

an ongoing basis

Impact in the company’s development when listing at the Stock Exchange

Why not bank credit?

• no interest to be paid

• lower cost

• shareholders are sharing risk

Listing process at BVB:


• be a joint stock company (SA)

• General Shareholders Meeting decision for listing and/or trading the shares on the stock exchange

• choosing an investment firm – make of the prospectus and intermediary of the IPO

• making the prospectus and getting the authorization from ASF

• preliminary admitting to trade from BVB

• IPO on BVB

• registering the shares at ASF

• admision to trade on BVB regulated market (BVB’s Council decision)

• registering shares at Central Depository

• TRADING… and respecting transparency rules (reporting, publishing etc.).

PRIVILEDGED INFORMATION:

Information that can influence the price,

known by some persons

(i.e. management).The use is forbidden.


AeRO market = equities segment of the Alternative trading system (ATS).

designed from the need of providing a financing alternative for entrepreneurs. a market segment designed for listing of early stage companies, start-ups and SMEs, to finance their projects, growth stories, increase their visibility and contribute to the development of the business environment. AeRO market was launched on February 25th, 2015.

Key features:• addresses all types of companies, regardless of their size or time since establishment.• was created for both shares and bonds and other financial instruments that do not comply with the requirements of the regulated market.• listing features are simplified – no need for a prospectus to be admitted to trading (only for a corporate presentation).• reporting requirements are low compared to the regulated market.

Alternatives options to list at the Stock Exchange

-

• Most common way to attract an investor – first sale of company's shares to the public and the listing them on a stock exchange.

• The shares sold via IPO are either newly-issued shares or existing shares sold by one or more of the company’s shareholders.

• Used by companies seeking funding to expand or develop.

• The issuer needs the assistance of an investment firm to draft a prospectus, to determine the structure of the offering, the offering price and the timing of execution.

Initial public offering (IPO)

• Used by a company already listed at a stock exchange that seeks to be admitted to trade also at the BVB.

• Prospectus is required.Dual listing

• Used by the companies that meet the requested criteria, without having any prior offering.

• Prospectus is required.

Technical listing (listing without an offer)

• Used by the companies that want to attract new investors and increase the liquidity of the shares.

• Prospectus is required.Transfer from ATS



• BET – first BVB index – represents the reference of the market. BET reflects the evolution of the most traded and liquid 10 companies on the regulated market (without SIFs). It is a price index that considers the capitalization of the free-float.

• BET-TR – total return index for BET (reflects prices and dividends)

• BET Plus – evolution of all companies listed on BVB (without SIFs)

• BET-FI – the index for the 5 SIFs

• BET-BK – a benchmark for investment funds (correlated to the needs for investment limits)

• BET-NG – companies from energy and utilities connected sector

• BET-XT – most traded 25 companies including SIFs

• BET-XT-TR – total return index of BET-XT

• ROTX – a common index of BVB and Wiener Borse AG for blue-chips at BVB

A stock exchange index is a financial instrument and a tool for following the market’s or certain companies evolution.

BVB Indexes:

BLUE-CHIP:Big, solid

companies listed

05Market IndicatorsLet’s talk about financial markets

Technical analysis looks at the price movement of a security and uses thisdata to predict its future price movements. Technical analysis is a graphinterpretation for the price trend.

Fundamental analysis looks at economic factors, known as fundamentalsand is used for getting a whole image of the financial status of that company.

The two methods of approach differ but the complementary use of both canlead us to a correct investment strategy.

Market IndicatorsLet’s talk about financial markets

Technical analysis and fundamental analysis are the two main schools of thought in the financial markets.

Technical Analysis

• line graph – simplest graph, based on a single data row (i.e. opening/closing price).

• volume – number of shares traded in a period of time –as volume grow, it confirms the positive evolution of the price.

• stock graph – a graph with more info about trading in a period of time, such as maximum price (up), minimum price (down), opening price (left horizontal line), closing price (right horizontal line). If in the graph we have a growth bar, then the closing price is higher than the opening price.


Technical Analysis

• candle stick graph – is made up of opening price, closing price and maximum price of the day. For an increasing price – a white color, for a decreasing price – a black color of the bar.

• mobile average – arithmetic mean of closing prices from the period of time; visually, are two lines (mean), one for long term and the other for short term; if they intersect, a change of trend will follow; if short term is under long term, is a sign for selling and vice-versa for buying.


underpriced = buy, overpriced = sell or short

Fundamental Analysis

Profit – annual economic result of a company

Turnover – total annual sales – shows a trend in business

Own Capital – total shares owned by shareholders, value of shares minus company’s debt

Capitalization – number of shares x price/share – represents the value that the market gives to a company

DIVY (Dividend Yield) = net dividend/ (price/share) – represents the % earning from dividends (return of the dividends)


underpriced = buy, overpriced = sell or short

Fundamental Analysis

P/E or PER (Price Earnings Ratio) = (price/share)/EPS – represents the period of time (in years) in which an investor recovers the investment made through future dividends.- as small as P/E is, as short is the recovery period and the shares are more attractive

to investors.- P/E < 5 shows a high underpriced share, 5 < P/E < 10 shows a relatively underpriced

share, 10 < P/E < 15 shows a fair priced share, P/E > 20 shows an overpriced share.

EPS (Earning per Share) = net profit/number of shares issued – net gain (return) for a share – shows how much an investor can gain if profit is fully distributed as dividends.

P/BV (Price to Book Value) = (price/share)/book value of the share.- Book value (BV) of a share = own capitals/total number of shares issued – shows

the value of net asset value for a share (the sum of money if the company is sold entirely and the debts are paid).

- P/BV < 1 represents an underpriced share, 1< P/BV < 2 represents a fair valued share and P/BV > 2 represents an overpriced share


Dow Theory

Dow Theory represents the foundation of most of today's technical analysis.

- Charles H. Dow, 1900-1902 in a series of Wall Street Journaleditorials;

- reflects Dow's beliefs on how the stock market behaved and how the market could be used to measure the health of the business environment.


The 7 principles of Dow Theory

1. The Dow Theory accepts only the closing prices

– the most important signs from the mobile markets should be taken into consideration onlyby the closing price.

2. The Market Discounts Everything

– all information (past, present and future) is discounted into the markets and reflected inthe prices of stocks and indexes.

3. Market Indexes Must Confirm Each Other

– more than one index shows similar signals within a relatively close period of time.

4. The 3-Trend Market

– 3 trends within the market: primary (largest trend, lasting for more than a year),secondary (intermediate trend that lasts 3 weeks to 3 months) and minor (lasts less thanthree weeks) and also three directions of movement: upward, downward and side.


upward trend

downward trend



5. The 3 Phases Of Primary Trends

– every primary trend has 3 phase: the accumulation phase (distribution phase), thepublic participation phase and a third phase (excess phase) which attracts variousinvestors and requires a massive participation in the market (major investors start areversal formation).


accumulation phase public participation phase excess phase


6. Volume Must Confirm The Trends

– main signals for buying and selling are based on the price movements of the indexes.

– volume should increase when the price moves in the direction of the trend anddecreases when the price moves in the opposite direction of the trend.

7. Trend Remains In Effect Until Clear Reversal Occurs

– the reason for identifying a trend is to determine the overall direction of the market sothat orders should be given within the trends and not against them.



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Introduction in the capital markets and bvb for bsb year 10

Education

Transcript of Introduction in the capital markets and bvb for bsb year 10