Chapter 1: Introduction to Financial Market PDF

CHAPTER 1 INTRODUCTION TO FINANCIAL MARKET  Objectives Of Study After studying this chapter, you should be able to understand: 1. Money market and capital market 2. Securities market 3. Participating organization: Investment bank and stock broking firm 4. Types of securities traded in M...

CHAPTER 1 INTRODUCTION TO FINANCIAL MARKET  Objectives Of Study After studying this chapter, you should be able to understand: 1. Money market and capital market 2. Securities market 3. Participating organization: Investment bank and stock broking firm 4. Types of securities traded in Malaysia 5. The history and development of equity market in Malaysia  Securities What are securities? 3 ✓ There are the generic term for any instrument traded on a stock exchange. ✓ Example: stocks/shares, debentures, notes, bill, bonds  It is a document of evidence of ownership or debt.  It is used to describe any interest bearing or dividend payment.  Securities are exchangeable or saleable in the market place. 4  BOND 5  COMMON STOCK 6  Definition securities under CMSA 2007 7 “securities” means– (a) debentures, stocks or bonds issued or proposed to be issued by any government; (b) shares in or debentures of, a body corporate or an unincorporated body; or (c) unit trusts or prescribed investments, and includes any right, option or interest in respect thereof, but does not include futures contracts  Securities Market 8 Consists of Money market and Capital market. 1. Money market 1. It deals with the short term securities (marketable securities or money market instruments). 2. Mature one year or less. 3. Low default risk, short maturities, high liquidity, and high marketability. 2. Capital market - it is a medium to trade long term securities. Example: bonds, common stocks, preferred stocks. - consists of Cash Market and Derivatives Market.  What Is Stock Market? 9 Trading of stocks and related securities on all exchanges including over the counter (OTC) market. It is a central market place for raising fund Place to raise money and to invest Def. of OTC market: which involves trading in a smaller, unlisted securities.  What Is Stock Exchange? 10 An organization providing the market place or facility for the buying and selling of stocks. Such as Bursa Malaysia  Two Types Of Stock Market 11 The stock market is made up of two markets : Primary market Secondary market It is a market in which new It is a market in which issues of securities are sold to securities are traded after the public they have been issued How? How? Go to public: IPO Stock exchange (BM) Issuing a prospectus by Share price determined by company securities Demand &Supply INITIAL PUBLIC OFFERING (IPO) The first time when a company first sells common shares to investors. PROSPECTUS It is a formal legal document to be issued by a company intending to make an issue of shares to the public (provides details about investment) 12  Participating Organization Definition A company which carries on the business of dealing in securities Hold a Dealer’s licensed issued by SC. Universal Brokers – known as Non Universal Brokers Investment Bank merged with or acquired, 3 or Participating Organization which more other SBCs are not Universal Brokers. Fulfilled the necessary qualifying criteria from time to time stipulated by SC/Bursa Malaysia. Been approved in writing by the SC. FIN 344, Hazila Ismail, UiTM Johor 13  Types Of Securities Traded In Malaysia There are many different types of securities which are traded on Bursa Malaysia, as follows: Ordinary shares/stocks -give holders the rights of ownership of the company –such as the right to share in the profits of the company by way of dividend, the right to vote in general meeting and to elect and to dismiss directors Preference shares Bonds Loan stocks/ notes Debentures Property trust units Warrants Call warrants The History & Development of Equity Market in Malaysia 16  Historical Development 1930 Singapore Stockbroker’s Association 1937 Re-registered as Malayan Stockbrokers’ Association, no public trading May, 9, Formation of Malayan Stock Exchange 1960 1961 Introduced Board System with two trading room Shared linkage (direct telephone line) & stock listed. 1964 Formation of Stock Exchange of Malaysia 1965 Secession of Malaysia & S’pore Become Stock Exchange of Malaysia & S’pore (SEMS) 1973 SEMS separated due to termination of currency interchangeability. New KUALA LUMPUR STOCK EXCHANGE (KLSE)  Development of Malaysian Securities Industry 1960s – 1970s 1965 Company Act came into force 1968 Formation of Capital Issue Committee (CIC) 1973 Securities Industry Act 1973 enacted  Development Of Malaysian Securities Industry 1980s 1983 SIA 1983, replaced 1973 Act 1984 Introduction of SCANS (Securities Clearing Automated Network Services 1986 Launching of KLSE Composite Index Corporatisation of SBC 1987 MASA introduced (Real Time Information Dissemination) 1988 Introduction of Second Board SBC’s foreign corporate ownership was moderated from 30% to 49%. 1989 Implementation of SCORE (System On Computerized Order Routing and Execution) – still semi automated Development of Malaysian Securities Industry 1990s 1990 Delisting of S’pore companies from KLSE Setting up of Malaysian Central Depository Sdn Bhd (MCD) for operation of Central Depository System (CDS). Fixed Delivery and Settlement System (FDSS) introduced. Requirement on RM20M minimum paid up capital for all SBC introduced. Setting up of Rating Agency of Malaysia (RAM). 1991 Exchange Main Board All Share (EMAS) Index launched. 1992 Extension of trading hours. Launching of CDS account opening. 1993 Securities Commission (SC) established. Amendment on Listing Requirement. Introduction of new 4 sectors in Main Board. Business Continuity Plan implemented and a Disaster Recovery site set up. 1994 Share application form for new public issues made available in the newspaper. Share transfer form (Form 3A) required to be printed on the reverse of share certificates. Implementation of Broker Front End System, (WinSCORE). Shortening of time period fro Main Board companies to announce their final results from 6 to 3 months. 1995 Implementation of a computerized balloting system. Component of KLCI increased to 100. Call Warrant listed and traded on the KLSE. Introduction of smaller board lots of 200. Guidelines on Electronic Ordering System issued. Amendments to the Listing Requirement of KLSE. Guidelines on Securities Borrowing and Lending issued. Kuala Lumpur Options and Financial Futures Exchange (KLOFFE) began operation. 1996 The Malaysia Monetary Exchange (MME) began its operation. Malaysian Rating Corporation (MARC), second rating agency, established. Ministry of Finance approved listing of foreign company on the KLSE. Related short selling of 50 approved stocks implemented. Completion of prescribing the ordinary shares of all listed companies. 1997 All companies listed on Second Board be categorized into 5 sectors. Launching of new-look KLSE website. KLSE granted with the status of an “approved foreign stock exchange” by Australian Securities Commission. Moving of KLSE and groups to new premises at Bukit Kewangan KL 1997 KLSE launched the KLSE-RIIAM Information System. KLSE implemented the T+5 Rolling Settlement System. MESDAQ was launched. SCANS and MIDFCCS formed a 51:49 Joint Venture Company called SCANS Registration Services Sdn Bhd (SRSS). 1998 2 new SBC: MIDF Sisma Securities Sdn Bhd and PJB Pacific Securities Sdn Bhd become the membership. International Securities Identification Number (ISIN) allocated by KLSE. KLSE acquire KLOFFE Capital Sdn Bhd. Balai Maklumat Bursa Saham Kuala Lumpur (BSKL) in Penang opened. Trading of Malaysia securities on the SES’s Central Limit Order Book International OTC market ceased. 1999 KLSE Syariah Index launched. KLSE become members of International Organization of Securities Commissions (IOSCO). Launching of Institutional Settlement Service (ISS). Balai Maklumat BSKL in JB and Kuching, opened. KLSE Link launched. Launching of Call-Direct.  Development of Malaysian Securities Industry 2000 Jan KLSE successfully completed all system for trading, clearing and settlement, depository, surveillance, stock information and public listed companies disclosure information. April The issuance of Practice Note 1/2000. May Launching of technology sector. June Borneo Securities admitted as member. Sept New brokerage rate introduced. Implementation of new Stock Short Names system. Oct KLSE Corporate Award presentation ceremony. Nov MCD implemented Inter-Branch Transaction (IBT) Dec The T+3 settlement cycle was implemented.  Development of Malaysian Securities Industry 2001 Jan All Provisional Allotment Letters (PAL) prescribed under CDS. KLSE issued revamp Listing Requirement. Feb The Capital Market Masterplan (CPM) was launched. June Launching of Malaysian Derivatives Exchange (MDEX). Listed on Labuan International Financial Exchange (LFX). Signing of memorandum between KLSE and MESDAQ. July Reduction of clearing fee from 0.05% to 0.04% subject to max.of RM2000 per contract. The implementation of Institutional Settlement Service (ISS) for Direct Business. Nov ISS enhanced to allow Trading Clearing Member to perform ISS Inter-Branch Institutions (ISS-IBI).  Development of Malaysian Securities Industry 2002 Jan Clearing Fee for Direct Business Contracts reduced to 0.04% at min.of RM10 and max.of RM200. March PN4 Condition sector implemented. MESDAQ market was launched. The implementation of Stock Market Trading Halt (Circuit Breaker). July Commission rates for all traders will be negotiable subject to a cap of 0.70%. August Establishment of Taskforce on Corporate Disclosure Best Practices. Oct Launching of Consolidated CDS Statement of Accountc (CSA) by MCD. Nov Amendments on Listing Requirement.  Development of Malaysian Securities Industry 2003 Apr Standard Board lot of 100 units for all securities listed. Development of Malaysian Securities Industry 2004 Jan KLSE became a demutulized exchange. April Kuala Lumpur Stock Exchange changed name to BURSA MALAYSIA.  Development of Malaysian Securities Industry 2005 Feb Bursa Malaysia launched its prospectus for the IPO. March Announcement of profit by Bursa Malaysia. Bursa Malaysia made debut on the Main Board. Organization of “Invest Malaysia 2005”  INDIVIDUAL TUTORIAL 1) Explain t h e d i ff e r e n c e o f p r i m a r y m ar k e t a n d secondary market. (6m) 2) Define securities under CMSA 2007. (6m) 3) List any four (4) investment banks in Malaysia. (4m) 4 ) E xp l a i n f o u r ( 4 ) r e a s o n s w h y s t o ck m a r k e t n e e d to be regulated. (8m) 5 ) G i v e t w o ( 2 ) r e as o n s w h y M a l a y s i a s p l i t f r om S i n g a p o r e S t o c k E xc h a n g e. ( 4 m ) 6) Explain two (2) types of participating organization in securities market. (4m) 7 ) S t a t e t h e f o u r ( 4 ) m a j or ma r k e t s i n t h e f i n a n c i a l market. (4m)