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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
Hong Kong Exchanges and Clearing 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
Hong Kong Exchanges and Clearing Limited
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
Major rules and practices in HKEx
$
$
Hong Kong Exchanges and Clearing Limited
All listed companies must satisfy the rules and requirements set by _____.HKEx
Only the ___________ are allowed to trade in HKEx.participants
Floor trading has been assisted by __________.computers
Major rules and practices in HKEx
Hong Kong Exchanges and Clearing Limited
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
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
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
Methods of issuing shares
Methods of issuing shares in the stock exchange
_____________________Offer for subscription
An offer of shares to the public by a company or its agent.
_______Placing
Methods of issuing shares
Methods of issuing shares in the stock exchange
_____________________Offer for subscription
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
Methods of issuing shares
Methods of issuing shares in the stock exchange
_____________________Offer for subscription
______________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
Methods of issuing shares
Methods of issuing shares in the stock exchange
_____________________Offer for subscription
______________Offer for sale ___________Rights issue
___________Bonus issueA company gives out new shares to existing shareholders.
_______Placing
Methods of issuing shares
Methods of issuing shares in the stock exchange
_____________________Offer for subscription
______________Offer for sale ___________Rights issue
___________Bonus issue
__________________Consideration issueAn issue of shares in a transaction or in connection with a takeover or merger.
_______Placing
Methods of issuing shares
Methods of issuing shares in the stock exchange
_____________________Offer for subscription
______________Offer for sale ___________Rights issue
___________Bonus issue
__________________Consideration issue
____________IntroductionAn application for listing shares already in issue with no marketing arrangements required.
_______Placing
Methods of issuing shares
Methods of issuing shares in the stock exchange
_____________________Offer for subscription
______________Offer for sale ___________Rights issue
___________Bonus issue
__________________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.
Factors affecting the prices of shares
Changes in economic and political conditions
The prospect for the ________ and ________
If the prospect of aviation industry is poor, the price of these shares will rise / drop.
industry
company
Factors affecting the prices of shares
Changes in economic and political conditions
The interest rate
When the bank interest rate is high, the share prices are likely to rise / fall.
Factors affecting the prices of shares
Changes in economic and political conditions
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
Factors affecting the prices of shares
Changes in economic and political conditions
Political factor
If a country is unstable, its share prices are likely to rise / fall.
Dividend yield = x 100%
Factors affecting the prices of shares
Changes in economic and political conditions
Dividend yield
Annual dividendCurrent share
price
Higher dividend yield Share price rises / falls
P/E ratio = x 100%Current per share earnings
Factors affecting the prices of shares
Changes in economic and political conditions
Dividend yield
Current share price
Higher P/E ratio Share price rises / falls
Price-earning ratio (P/E ratio)
Factors affecting the prices of shares
Changes in economic and political conditions
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
Stock exchanges indices
________________Hang Seng Index _________________________Hang Seng Composite Index
It includes the geographical series and industry series.
It is complied by the _____________________.HSI Services Limited
Stock exchange indices show the ______ of securities prices and their ____________.
trendperformance
Stock exchanges indices
________________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
Stock exchange indices show the ______ of securities prices and their ____________.
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