chapter 2 stock exchanges stock exchanges 1503

8/8/2019 Chapter 2 Stock Exchanges Stock Exchanges 1503

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Chapter 2

Stock Exchanges


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Stock exchanges

Securities refer to legal documents that show either a persons __________ 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 tradingof _________ .securities

T he stock exchange in Hong Kong:

_______________________________________ H ong Kong Exchanges and Clearing Limited

Ab Ltd.


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F unction of stock exchanges

T o individuals

T o businessfirms

T o the economy

A s an ___________ channelG aining __________

investmentprotection

R eceiving ___________ information

R aising _______ B oosting _________

capitalcredibility

R aising _______ for the governmentand public corporationsF ully utilising _________

capital

resourcesA s an economic ________ indicator


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D emand Supply

F eatures of stock exchanges

Keen / Little competition

______________ determine the pricesM arket forces

_____________ as middlemenStockbrokers

Shares in the market are sold in standardised ____ .lots

M arket information on the stock exchange is _____ .openT rading on the stock exchange is being __________ toensure fairness in trading.

monitored


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P rocess of securities trading

Investor Stockbroker

1. A n investor places a _____________ with the stockbroker.market order


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P rocess of securities trading

Investor Stockbroker

1. A n 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. T he stockbroker then sends the order to her ______________ who is on the trading floor.representative

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

A utomatic Order M atching and Executive Systemsecond

R epresentative


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Hong Kong Exchanges and Clearing Limited

Year 2000

______________________________________________ H ong Kong Exchanges and Clearing Limited (H KEx)

T he Stock Exchange of Hong KongLimited

Hong KongF uturesExchangeLimited

Hong KongSecuritiesClearingCompany Limited


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A ll listed companies must satisfy the rules andrequirements set by ______ .H KEx

Companies listed on the ___________ have to satisfyhigher requirements on assets, profits and performancetrack records.

M ain Board

Companies with potential for growth, but not yet able tomeet the requirements of the M ain B oard, can go publicthrough the _________________________.Growth M arket Enterprise

M ajor rules and practices in HKEx


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A ll listed companies must satisfy the rules andrequirements set by _____ .H KEx

O nly the ___________ are allowed to trade in HKEx.participantsT he participants must have ________________________ and sound ________ status.

professional qualificationsfinancial



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O nly the ___________ are allowed to trade in HKEx.participantsF loor trading has been assisted by __________.computers



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O nly the ___________ are allowed to trade in HKEx.participantsF loor trading has been assisted by __________.computers

T he securities market is under the supervision of _____ ,the ________________________________ and the

________________________________________.

H KExSecurities and Futures Commission

Financial Services and the Treasury Bureau


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T ypes 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 givendate.

W arrants

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

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

U nit trusts/ M utual funds


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Shares

T wo main types of sharesO rdinary shares P reference shares

T he holders have / have novoting power.

Holders returns come from ___________ in the marketvalue of the shares andreceiving company

_________ .

appreciation

dividends

Holders face / do not facehigher risks.

T he holders have / have novoting power.

Holders receive dividends before / after ordinaryshareholders.

Holders can claim thecompanys assets before /after ordinary shareholders if the companies go intoliquidation.


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W hich of the following are preference shares?QCumulative preference shares

Non-cumulative preference sharesO rdinary preference shares

P articipating preference shares

Non-participating preference shares

Convertible preference shares

Shares


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Shares

O ther classification of shares __________ : shares of famous companies that have along history of high earnings and a large daily turnover.Blue chips

____________________________ : shares of smallcompanies.Second liners and third liners

__________ : stocks with the government of the mainlandof China as the main shareholder.Red chips

_________ : shares of companies that are registered onthe mainland but traded on the Hong Kong market inHong Kong dollars.

H shares


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W arrants

T he holders receive / do not receive interest .

T he holders receive / do not receive dividends .

If a holder exercises his/her rights to purchase the shares,the ownership rights of the original shareholders will be

________ .reducedW arrants have no value once they _______ .expire


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W arrants

T he holders earn profit from the difference between _____________ at different periods of time.warrant prices

Example:O n A ugust 1, 200 3 , John bought a warrant at 50 cents.

A CF CompanyW arrant

Conversion price: $2.8

Expiry date:A ugust 1, 2006

Suppose on A ugust 1, 200 4 , thewarrant price increases to 70cents and John sells the warrant.

Johns profit:= ____________________ 70 cents - 50 cents20 cents


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B onds

The bond-issuing institution has to pay back the ________ to the bondholder on the due date. principal

T he bondholder is the debtor / owner of the bond-issuinginstitution.

________ bonds are guaranteed by company assets suchas real estate or machinery.Secured

R edeemable / Irredeemable bonds give the issuing firm

the right to buy them back before they mature.


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U nit trusts and mutual funds

T he risk of investment is ___________ as money isinvested in different types of securities.

diversified

Unit trust is established where investors are the

_______ of the unit as well as the _____________ .holders beneficiariesM utual fund is established in the form of a companywhere the investors are the ____________ of thecompany.

shareholders


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F or private limited companies, the issue of new sharesor the transfer of their existing shares can take placeonly with the agreement of _______________ .all shareholders

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

M ethods of issuing shares


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_______ Placing


M ethods 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.


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_______ Placing



_____________________ Offer for subscriptionA

n offer of shares to the public by a company or itsagent.


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_______ Placing



_____________________ Offer for subscription

A n 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


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_______ Placing




______________ Offer for sale ___________ Rights issueA company gives existing shareholders a right to buy itsnew shares, based on the amount of shares each

shareholder already owns.


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_______ Placing




______________ Offer for sale ___________ Rights issue ___________ Bonus issueA company gives out new shares to existing shareholders.


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_______ Placing




______________ Offer for sale ___________ Rights issue ___________ Bonus issue __________________ Consideration issueA n issue of shares in a transaction or in connectionwith a takeover or merger.


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_______ Placing




______________ Offer for sale ___________ Rights issue ___________ Bonus issue __________________ Consideration issue ____________ I ntroductionA n application for listing shares already in issue withno marketing arrangements required.


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_______ Placing




______________ Offer for sale ___________ Rights issue ___________ Bonus issue __________________ Consideration issue ____________ I ntroduction ___________ Open offer A n offer to existing shareholders. It does

not have to be in proportion to the

shareholders existing holdings.


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F inancial institutions involved in issuing shares

A n ____________ acts for a company wishing toissue new shares.

issuing house

F unctions of an issuing houseA s an ___________ : agrees to buy the shares if theyare not bought by the public

underwriter

P repares the ___________ for submission to theHKS AR G overnment and HKEx.

prospectus

Distributes the prospectus to the public through _____________ and _____ .stockbrokers banksA dvertises the public offer


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P rimary market and secondary market

P rimary market

Secondary market

_________ marketIt is the market mainly between the

________________ and _____ _________

N ew issue

issuing institutionpurchaser

It is the market between ________ _________________ and ______

Investors can buy securities that are ______________

existing

already in issue

bulk

F irms can ___________ throughissuing securities

raise capital

securities holders buyers


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F actors affecting the prices of shares

Changes in economic and political conditionsG eneral economic conditions

economic

conditions

If people expect a good economic performance for a certain region,the investment demand willincrease / decrease and share

prices are likely to rise / fall.


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Changes in economic and political conditionsT he prospect for the ________ and ________

If the prospect of aviation industryis poor, the price of these shareswill rise / drop.

industry company


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Changes in economic and political conditionsT he foreign exchange rate

W hen the foreign exchange rate of a country

rises, the share prices are likely to rise / fall.exchange rate

time

share price

time


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Changes in economic and political conditionsP olitical factor

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


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D ividend yield = x 100%


Changes in economic and political conditionsDividend yield

Annual dividendCurrent share price

Higher dividend yield Share price rises / falls


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



Current share price

Higher P /E ratio Share price rises / falls

P rice-earning ratio ( P /E ratio)


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P rice-earning ratio ( P /E ratio)

Speculation

presence of speculative activities share price changes


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S ecuritiesprices

Speculation in securities market

A ____ buys securities, hoping the price will increase.A _____ sells securities, hoping the price will decrease.bullbearB ulls buy securities and buyers to be able to sell themat higher price later. T he actual owning of securities iscalled a ____ position.long

Some bears sell securities even though they do not havethe securities in hand, the actual owing of securities is

called a ______ position.short ______________ is a method of speculation thatinvolves the use of borrowed funds.M argin trading

A n example of margin trading


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Suppose M rs Chan had $50,000 and wished to buyHutchison W hampoa which were selling at $50 per share.

= _____ shares of Hutchison W hampoa


$5 0,000

1,000

If the share price increased to $55, M rs Chan could earn:

____________________________ ($55 - $50) x 1,000 = $5,000


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Suppose M rs Chan had $50,000 and wished to buyHutchison W hampoa which were selling at $50 per share.If M rs Chan opened a margin account with a financialcompany. B y depositing $50,000 into her account, she

could draw on an extra $50,000.

= ______ shares of HutchisonW hampoa2,000

$5 0,000 $5 0,000

+

If the share price increased to $55, M rs Chan could earn:

__________________________________________ ($55 - $50) x 2,000 = $10,000 (less interest)



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

Stock exchanges indices

performance ________________ H ang Seng I ndex

T he stock can be classified into four sectors: _______ , _______ , __________ and _____________

_______

finance utilities properties commerce and

industry

A n index that shows the changing prices of 33 stocksat HKEx.

It is complied by the _____________________.H SI Services Limited


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________________ H ang Seng I ndex _________________________ H ang Seng Composite I ndexIt includes the geographical series and industry series.

It is complied by the _____________________.H SI Services Limited

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


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________________ H ang Seng I ndex _________________________ H ang Seng Composite I ndexS&P /HKEx Index Hong Kong Indices _________________________ includes Hong Kongslisted large companies.S&P/ H KEx Large CapI ndex

_____________________ includes most shares in HongKongs G rowth Enterprise M arket.S&P/ H KExGEM I ndex

T hey are complied by the _________________ and _____ .

Standard & PoorsH KEx

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


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F utures are _________ that will trade on a particular _______ date at an agreed price for commodities andfinancial products.

contracts

T he Hang Seng Index F utures

future

T he buyers and sellers of the Hang Seng Index F uturessimply speculate on the level of the Hang Seng IndexF utures at a _____________________ .fixed settlement date

Each index point of the Hang Seng Index F utures

contract is valued at ____ per lot.$50A n example of Hang Seng Index F utures trading


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A n example of Hang Seng Index F utures trading

Mr Leung

M iss W ong agreed to buy and M r Leung agreed to sell acontract of Hang Seng Index F utures at 11,000 points to bedelivered on 1 June.

M r Leungs gain:

__________________________

__________________________ ($50 X 200) - brokerage fee= $10,000 - brokerage fee

Suppose the average on 1 June was 10,800 points. So M r

Leung made a profit / loss whileM

issW

ong made a profit / loss.


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A n example of Hang Seng Index F utures tradingM iss W ong agreed to buy and M r Leung agreed to sell acontract of Hang Seng Index F utures at 11,000 points to bedelivered on 1 June.

Suppose the average on 1 June was 10,800 points. So M r

Leung made a profit / loss whileM

issW

ong made a profit / loss.

M iss Wongs loss:

__________________________ __________________________ ($50 X 200) + brokerage fee= $10,000 + brokerage fee

Miss Wong


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F unctions of the Hang Seng Index F utures

T he Hang Seng Index F utures

________ : provides a way for investors to reducetheir risks.H edging

Provision of

___________ on what will happen tothe spot price information

P rofit-making


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M onitoring institutions in Hong Kong

T he monitoring of the securities market

_______________________________________ H ong Kong Exchanges and Clearing Limited

_____________________________________ The Securities and Futures Commission

____________________________________________ The Financial Services and the Treasury Bureau


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T he Securities and F utures O rdinance

T he monitoring of the securities market

establishing the ______________ of the Securities andF utures 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 companys ______ equity

chapter 2 stock exchanges stock exchanges 1503

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