How to find a Stock Broker?

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Last week we spoke about the Stock Market, the Colombo Stock Exchange and about the Primary and Secondary Market.

This week, we will be discussing the services provided by a Stockbroker, and how to find a Stockbroker

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Who is a Stock Broker?

A Stock Broker is a firm that acts as an intermediary for stock market transactions, offering investor a variety of services in addition to investment advice and executing buy and sell orders of investors. The Stockbroker’s fee is the brokerage.

The CSE has licensed 15 Member Firms and 6 Trading Member Firms to trade in both equity and debt securities in Sri Lanka.

What services do they provide?

Client Registration:

* Opening of Securities Accounts

* Deposit of Securities

* Withdrawal of Securities

* Transfer of Securities

* Generation of Contract Notes

* Attending to the documentation

* Settlement of transactions

Investment Advice

*Portfolio Management

* Execute and confirm buy/sell transactions

* Advise and facilitate takeovers and mergers

* Sponsoring listing

applications for companies

* Investment advise

* Settlement of transactions

- T+3 for Equities

Providing information:

* Assistance and information dissemination with regard to new issues

* Research and reports on the performance of listed companies and their securities

It is mandatory for you to obtain the services of a stockbroker in transacting in the secondary market.

How do you select your Investment advisor?

The Stockbroker should act in the client’s best interest. Therefore, he should possess the following qualities.

-Competence

He should be qualified and experienced and have a thorough knowledge of market behaviour.

The Broker should be certified by the CSE or the SEC and hold the Investment Advisor Certification.

- Integrity

The stockbroker should give fair treatment to his clients, and not for his personal gain. He must account for all transactions properly.

- Knowledge about “what’s happening around”

The Broker should possess knowledge on the needs of hte client, market behaviour and Political, Economic, Social & Technological factors.

- Forecasting

This is the process of analyzing current and historical data to determine future trends. Stock analysts use various forecasting methods to determine future stock price movements, earnings, etc.

What research services are offered by Stock Broker Firms?

Most brokers have a research unit that studies the market in general and specific companies in particular.

With this research they are able to recommend shares for you to purchase. They publish research in the form of

- Sector reports

- Daily and Weekly reports

- Company specific reports

- Daily valuation reports

The broker makes recommendations to the best of his ability and should not be liable in case the recommendation is found to be incorrect.

What are their fees?

All brokers charge the same commission for Equity trades up to Rs. 100 Mn. Equity trades above Rs. 100 Mn and all corporate debt trades have negotiable rates of commission.

Transaction Costs:

Transaction cost applicable for equity and debt securities given below:

Equity

Transactions up to Rs. 1 Million - 1.425 percent

Divided as follows:

Net amount to the broker - 1.000

S.E.C. - 0.090

C.S.E. - 0.105

C.D.S. - 0.030

Govt. Cess tax - 0.200

(Subject to a minimum brokerage of Rs. 10/- per contract and a minimum CDS fee of Rs. 5/-)

Transactions over Rs. 1 Million - 1.225 percent

Divided as follows:

Net amount to the broker - 0.800

S.E.C. - 0.090

C.S.E. - 0.105

C.D.S. - 0.030

Govt. Cess tax - 0.200

Transactions over

Rs. 100 Million

Divided as follows:

Minimum brokerage (floor) - 0.1000 percent

SEC Cess - 0.0450 percent

CSE Fees - 0.0525 percent

CDS Fees - 0.0150 percent

Share Transaction Levy

- 0.2000 percent

Intra day Trading:

With effect from February 15, 2006, the transaction fee due to the broker, CSE, CDS and SEC on intra day trades, where a client buys and sells or sells and buys the same day through the same broker will not be charged on one side of the transaction.

Corporate Debt:

All Transactions - 2 basis points

(Divided equally among S.E.C, C.S.E. & C.D.S.)

Broker to Client - Negotiable

Government Debt:

No fees charged as S.E.C, C.S.E. & C.D.S. fees.

Broker to Client - Negotiable

How do you place an order with a Stockbroker?

You can place an order through your Stockbroker by:

- Visiting them: at CSE Branches or their respective offices

- By calling your broker

- Internet Trading

What is Internet Trading?

Investors now have Web access to market data, company information, and educational materials, which greatly reduce the intermediation issues of investing.

The online investor gains convenience and saves time with direct access (through the stock broker) to trading systems and 24-hour access to information.

A benefit of online trading is the improvement in the speed of which transactions can be executed and settled, because there is no need for paper-based documents to be copied, filed and entered into an electronic format. Moreover, with the Online-Trading system, you can execute your trades online. Therefore, you have the benefit of making your own decisions. Eighteen member firms of the Colombo Stock Exchange (CSE) provide online trading facilities to investors. Therefore, you can invest in the Colombo Stock Market from your own home/office.

Online trading platforms offer

- Direct access to trading

- Access to market information 24x7

- Global Reach

- Stockbroker research on listed companies

The safety of transactions on the Internet depends on the systems used. Online stockbrokers of the CSE have implemented security, technology and fraud prevention methods to provide protection for all users of the online trading facilities. Once you open an online trading account, you will receive a secured user ID and password, the secrecy of which should be maintained by you.

How to buy shares from Listed Companies on the Secondary Market?

* If you want to invest in 1000 shares of “XYZ” Company, you need to:

1. Inform your broker of the name of the company, price and amount of shares you want to purchase.

2. The broker will try and match your order.

3. Once the order is processed, he will inform you of the shares you were able to purchase at the price you required.

* Once the Buying process is complete, you will:

4. Receive a bought note by post.

Note:

- Please save all such paperwork

- This is very important in-case your order was not executed properly.

- This said documents will inform you if your broker has bought shares to your account without your knowledge. Source - CSE

To be continued