topic 2 stock markets - canalblogstorage.canalblog.com/61/32/366275/68715916.pdf · topic 2 –...
TRANSCRIPT
30/09/2011 Pr. Didier Folus 1
Topic 2 – Stock markets
1. Equities and primary market
2. Stock market transactions : the Euronext case
3. Stock market quotations : Euronext vs Nasdaq
4. Stock pricing
5. Factors that affect stock prices
1. Equities and the primary market
1.1. Types of businesses issuing stocks
• Partnerships issue membership interest certificates
• Corporations & companies issue shares :
– Private ltd companies & close corporations (SA, SAS)
– Public ltd companies & general corporations (SA offrant au public
des titres financiers)
– Ltd partnership by shares (SCA)
• In France, « offering securities to the public » means :
– communication to people on securities issue
– selling securities through a financial intermediary
30/09/2011 Pr. Didier Folus 2
30/09/2011 Pr. Didier Folus 3
1.2. Common vs preferred shares
• A share of stock in a firm represents ownership
• The holder of 1 common stock/share :
i. has an information right
ii. has 1 voting right at the AGM
iii. receives dividend
iv. is the residual claimant
• The holder of 1 preferred share can have :
– double voting right or no voting right
– higher dividend than common
– priority claim over common stocks claims
Max. 25 % of equity
if listed in France
30/09/2011 Pr. Didier Folus 4
As of Dec 31, 2010 :
Shares outstanding 647,921,840
Nominal value….. EUR 0.25
Market value……. EUR 47.020
Capitalization…… EUR 30.5 bn
30/09/2011 Pr. Didier Folus 5
Focus on corporate financing theory
Pecking order theory :
1) Cash
2) Bank loan
3) Bills, notes & bonds
4) Shares
Why being listed ?
Advantages
Increase notoriety
Increase CEO corporate governance
Increase capital flexibility & sources
External firm growth
Disadvantages
Information publication (to divulge ?)
Being « prisoner » of earnings
announcements
Rigid dividend policy
Regulatory public offerings
30/09/2011 Pr. Didier Folus 6
1.3. Public offering in the primary market
• Origination :
– needed amount of capital
– choice of target stockholders : private vs public
– type of security
– calculation of the offered stock price
• Public offering presentation (french context) :
– conforming with laws : Monetary and Financial Code
– authorization from regulator : AMF
– access to the regulated exchange : Euronext Paris
• Securities selling :
– offered price : fixed price, open price, minimum price
– syndication
30/09/2011 Pr. Didier Folus 7
P06/01/09 = 33.41 EUR
Exercise : owning 20 shares (20×33.41 EUR) and cash, you
decide to (1) buy 4 new shares, (2) buy 8 new shares or (3)
not subscribe new shares
1) Buying 4 new shares :
using 17 DPS
paying 4 shares : 98.92 EUR
selling 3 DPS : - 4.96 EUR
2) Buying 8 new shares :
using 20 DPS
buying 14 DPS : 23.15 EUR
paying 8 shares : 197.84 EUR
3) Not subscribe :
selling 20 DPS : - 33.07 EUR
30/09/2011 Pr. Didier Folus 8
24 shares
Total value = 20×33.41 EUR + (98.92 - 4.96) EUR
Value per share = 31.76 EUR
28 shares
Total value = 20×33.41 EUR + (197.84 + 23.15) EUR
Value per share = 31.76 EUR
20 shares
Total value = 20×33.41 EUR - 33.07 EUR
Value per share = 31.76 EUR
Euronext Paris :
Market segmentation (December 2010)
30/09/2011 Pr. Didier Folus 9
A. Blue chips
1 000 M EUR
B. Middle caps
[150 – 1 000]
C. Small caps
150 M EUR
Euronext (614)
Alternext (145)
Shares Indexes Related securities
Marché libre (246)
CA
C 4
0
CA
CM
id 1
00
CA
CS
ma
ll 9
0
SB
F 2
50
CA
C A
ll-s
ha
re
FT
SE
Eu
rofi
rst
NYSE.Liffe
Next.Warrants
Next.Track
Eu
rop
e
Primary market access :
3 last certified financial statements
IFRS
floating capital 25 %
Looser
market access
conditions
Euronext fee
# [0.1 – 0.6 ‰]
NYSE Arca
Europe
SmartPool
Alt
ern
ext
All
-sh
are
E
uro
pe
2. Stock market transactions
2.1. Largest exchanges as of end Dec 2010
30/09/2011 Pr. Didier Folus 10
Investment flows in 2010 (USD bn) Source : WFE 2010 Market highlights.
Market capitalization in 2010 (USD bn) Source : WFE 2010 Market highlights.
Focus on exchanges market shares
30/09/2011 Pr. Didier Folus 11
Value of share trading in 2010 (USD bn) Source : WFE 2010 Market highlights.
Market share in % Source : Chi-X Europe, 2011.
30/09/2011 Pr. Didier Folus 12
Danone common share on February 22, 2011
ISIN : FR0000120644 ICB : 3500
Shares outstanding : 647,921,840 Market capitalization : EUR 29,299,025,605
Exchange : Closing : Last : Volume :
5:35 pm EUR 45.220 1,696,613
5:30 pm EUR 45.34 593,903
8:30 pm EUR 45.22 3,742
10:00 pm EUR 45.164 1,683
4:00 pm USD 12.31 113,297
Depositary bank : ADR = 1/5 share
3500. Food & Beverage 1300. Chemicals
etc…
30/09/2011 Pr. Didier Folus 13
• May 6, 2011 t : – spot buying 500 XYZ at 24 EUR
– ownership transfer on t+3
– delivery/settlement on t+3
• May 16, 2011 :
– spot selling 500 XYZ at 25.20 EUR
– delivery/settlement on May 19
• 10 day-return :
– gross : 5.00 %
– net : 2.95 %
2.2. Spot transactions on Euronext
30/09/2011 Pr. Didier Folus 14
• May 6, 2011 :
– buying DSO 500 XYZ at 24 EUR
– opening a « margin account »
– deposit 20 % : 2 400 EUR
– on t+3 : broker pays stocks, seller delivers
• Tuesday, May 25, 2011 last trading day of DSO :
2.3. Margin buying & short selling on Euronext
2.3.1. Deferred settlement order : buying
Decision : settlement, clearing, putting back D. vs P.
Wed. 25 Thu. 26 Fri. 27 Sat. 28 Sun. 29 Mon. 30 Tue. 31
30/09/2011 Pr. Didier Folus 15
Decision at maturity :
• Stock settlement :
– paying stocks, receiving them on May 31
– ownership transfer on May 31
• Long position liquidation :
– selling DSO 500 XYZ on May 16 at 25.20 EUR
– 10 day-return : 25 % GEARING
• Putting back for 1 month :
– official settlement price on May 25 : 22 EUR
– position clearing + cost of borrowing 500 22 = 11 000 EUR
30/09/2011 Pr. Didier Folus 16
2.3.2. DSO : selling
• May 6, 2011 :
– selling DSO 500 XYZ at 24 EUR
– opening a « margin account »
– deposit 20 % : 2 400 EUR
– on t+3 : broker needs the securities in order to deliver them, buyer pays
• Market for security borrowing/lending
• May 25, 2011 : delivery, clearing, putting back
30/09/2011 Pr. Didier Folus 17
2.3.3. Margin buying, short sale… in short
• Buy on margin = agreement to pay securities at a fixed price and on a future date
(hedging = deposit + loan)
• Sell short = agreement to deliver securities at a fixed price and on a future date
(hedging : deposit + security borrowing)
• Euronext Paris DSO securities : capitalization EUR 1 bn and day-volume EUR 1 M, and all ETFs
30/09/2011 Pr. Didier Folus 18
2.4. Buying and selling order types
• Validity :
– good-till-time
– good-for-day
– good-till-specified (cancelled)
• Price condition :
– limit order
– pure market order (market peg)
– market to limit order (primary peg)
– pegged order
– stop loss order
– stop limit order