Functions of the secondary market

(Continued from yesterday)

The Secondary Market:

A market in which an investor could either buy or sell shares or debentures of a Company from or to another investor, subsequent to the original issuance in the primary market, is known as the secondary market. The Colombo Stock Exchange (CSE) facilitates the function of the secondary market in Sri Lanka.

How do I buy Shares on the Secondary Market?

You must instruct your Stockbroker to buy shares for you. You must clearly provide him with the following particulars:

a) The names of the company you want to invest in

b) The amount of shares you desire to purchase

c) The price you are prepared to pay

When you give these instructions to your Stockbroker, he will take the necessary action to buy you those shares. Afterwards, the shares will be credited into your account in the Central Depository Systems (CDS).

How do I open a CDS account?

You must complete an account opening form of the CDS. All Stockbrokers have this form readily available. The completed form will be forwarded to the CDS by the Stockbroker and an account will be opened in your name. Joint accounts can also be operated. There is no payment involved to open a CDS account.

To open the account you will have to give the broker a photocopy of your National Identity Card (NIC) and make your NIC available for inspection. The passport is also an acceptable document of identification.

Trading on the stock market takes place from Monday to Friday from 9.30 a.m. to 2.30 p.m. except on Public holidays. You could place your orders by visiting any one of the stockbroker offices or the CSE public galleries located in Colombo and other branch officers in Kandy, Kurunegala and Matara.

Alternatively, you could trade via the Internet through stockbroking firms that offer the Internet Trading facility. To use such facilities and to trade on the CSE, you should be over 18 years of age.

What is a Share?

A share represents your ownership in a company. As a part owner you are investing in the future growth of the company.

Here is an example of how buying shares work. If a company release 100,000 shares to the market and an investor purchases 1,000 shares, then we can say that the Investor owns 1% of that said company.

If you are an Investor in a certain company, then you have the right to receive the annual report of the company you have invested in, as well as other benefits offered to shareholders such as dividends (if declared by the company) for profits the company has made and participation in Annual General Meetings.

What is a "Listed Company"?

A listed company is a public company which has listed its shares or debentures for trading on CSE. Listing is open to a corporate body, incorporated in Sri Lanka under the Companies Act no. 7 of 2007.

There are currently 236 companies listed on the CSE. The 236 companies have been divided into 20 Business Sectors and the sectors are given below:

Banking, Finance and Insurance, Footwear and Textiles, Land and Property, Power and Energy, Beverage, Food and Tobacco, Healthcare, Manufacturing, Services, Chemicals and Pharmaceuticals, Hotels and Travels

Motors, Stores and Supplies, Construction and Engineering, Investment Trust, Oil Palms, Telecom, Diversified, Information Technology, Plantations, Trading

What does a company gain by Listing on the Stock Exchange?

A listing on a Stock Exchange offers several benefits for companies.

* Raising capital - The Stock Exchange provides access to a global pool of institutional and retail investors. A listing on the exchange allows a company to raise capital and use it to fund investment and growth. Even after a company is listed, it can raise capital from the market, through the Rights issues or through the issue of new types of securities.

* Price Discovery - A listing enables companies to discover a price for their shares.

* Low cost capital - The chief advantage of raising capital from the market is that it avoids some of the intermediation costs evident in the alternative forms of capital raising. Hence, the market provides companies with capital at a lower cost.

* Value addition - A listing on a stock exchange can add value to a company. A listing can enhance a company's corporate stature and could advance brand awareness of company products. Furthermore, the enhanced profile, coupled with the greater transparency, could enhance the company's ability to borrow from traditional sources of capital. A listing can also be expected to add value to a company's Employee Share Ownership Scheme.

If you have any queries, suggestions or questions you want answered through this column, please forward them to Daily News Stock Market Column, Colombo Stock Exchange, 4th Floor, West Block, World Trade Centre, Echelon Square, Colombo 01.

(To be continued next week)