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AN ANALYSIS OF STOCK MARKETS IN

SRI LANKA, USA & UK

An Assignment

Prepared by

BM/2008/036

Course: - BMKT32152 Financial Management

Lecturer: - Sugeeth Patabandige

Year 3 Semester II

THE DEPARTMENT OF MARKETING MANAGEMENT

UNIVERSITY OF KELANIYA.
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Content

1.Background Of The Study

2.Colombo Stock Market

3.London Stock Market

4.USA Stock Exchange5.Conclusion
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01. BACKGROUND OF THE STUDY

A stock market or equity market is a public entity for the trading of company stock (shares)and derivatives at an agreed price these are securities listed on a stock exchange as well asthose only traded privately.

The stocks are listed and traded on stock exchanges which are entities of a corporation ormutual organization specialized in the business of bringing buyers and sellers of theorganizations to a listing of stocks and securities together. The largest stock market in theUnited States, by market capitalization, is the New York Stock Exchange (NYSE). InCanada, the largest stock market is the Toronto Stock Exchange. Major European examplesof stock exchanges include the Amsterdam Stock Exchange, London Stock Exchange, ParisBourse, and the Deutsche Bores (Frankfurt Stock Exchange). In Africa, examples includeNigerian Stock Exchange, JSE Limited, etc. Asian examples include the SingaporeExchange, the Tokyo StockExchange, the Hong Kong Stock Exchange, the Shanghai StockExchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges asthe BM&F Bovespa and the BMV. Australia has a national stock exchange, the Australian

Securities Exchange, due to the size of its population.

According to the above explanation, there are so many stock markets around worldwide, sothis reports efforts is going to clarify followings,

1. Colombo Stock Market2. London Stock Market3. New York Stock Market
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02. COLOMBO STOCKMARKET

02.1. Formation and management of Colombo Stock Market

The CSE is a company limited by guarantee, established under the Companies Act No. 17 of1982 and is licensed by the Securities & Exchange Commission of Sri Lanka (SEC). TheCSE is a mutual exchange and has 15 full members and 13 Trading Members licensed totrade both equity and debt securities, while one member is licensed to trade in debt securitiesonly. All members are licensed by the SEC to operate as stockbrokers. All members arecorporate entities and some are subsidiaries of large financial institutions.

At present the CSE functions as a market operator and through its fully owned subsidiary,Central Depository Systems (Pt.) Limited (CDS), acts as a clearing and settlement systemfacilitator. The CSE also oversees compliance through a set of rules, promotes standards ofcorporate governance among listed companies and is actively involved in educating investors.In the course of its operations, the CSE interacts with many customers and stakeholders whoinclude issuers (such as companies, corporations and unit trusts), commercial banks,

investment banks, fund managers, stockbrokers, financial advisers, market data vendors andinvestors.

The Colombo Stock Exchange (CSE) has 287 companies representing 20 business sectors asat 31st October 2012, with a Market Capitalization of Rest. 2,112.1 Bn.

02.2 Who are eligible to listing on the CSE?

Public Companies incorporated under the Companies Act No.7 of 2007 or any other statutory

corporation, incorporated or established under the laws of Sri Lanka or established under the

laws of any other state (subject to Exchange Control approval) are eligible to seek a listing on

the Colombo Stock Exchange to raise Debt or Equity. Companies desiring to be admitted to

the official list of the Exchange and to secure a listing of their securities will be required to

comply with the relevant provisions of the above act and the Securities & Exchange

Commission Act No.36 of 1987 (as amended) and the Listing Rules of the Exchange.

02.3. Listing Procedure

To list on the CSE, a company should comply with the CSE Listing Rules. Some of the key

requirements are given below.

02.3.1.Amendment to the Articles of AssociationThe company is required to incorporate specific provisions into the company's Articles. Theprovisions are set out under section 6 of the CSE Listing Rules.

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02.3.2. Preparation of Prospectus/ Introductory Document.

A company seeking to list through an Offer for Subscription or an Offer for Sale will berequired to publish a Prospectus in compliance with the Companies Act/CSE Listing Rulesand any other applicable law. A company seeking to list through an Introduction will only berequired to issue an Introductory Document.

02.3.3. Submission of Initial Listing Application

The company must submit an application for the initial listing. The required documents arespecified in Section 2 of the CSE Listing Rules. The requirements are as follows as followsfor equity;

A copy of the Certificate of Incorporation A copy of the company's Articles of Association An extract of the Board Resolution resolving the issue price of shares to be fair. (only

for equity)

Board resolution authorizing the Initial Listing Application. "Listing Undertaking" filled in conformity with Appendix 2B. A certified copy of every document mentioned in the Prospectus/Introductory

Document.

A draft of the Prospectus/Introductory Document Initial Listing application in conformity with Listing Rules Fees as prescribed in Section 10 of the Rules

In addition to the above documents an Initial Listing Application for Debt should include thefollowing:

A declaration by the Entity confirming that the Entity has complied with therequirements of the Companies Act.

A Declaration by the Entity confirming that the Entity has complied with therequirements of the Companies Act and the requirements set out in the CSE ListingRule 2.2.1 (e) (ii), (iii) & (iv) with regard to the Appointment of a Trustee.

02.4. Boards of CSE01.Main Board and Diri Savi Board- (For Equity)02.Main Board and Second Board- (For Depts.)

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02.4.1. Equity

01. Main Board

Eligibility to be listed1. Stated Capital of not less than Rupees Five Hundred Million (Rs.500, 000,000/-) at

the time of listing2. Net profit after tax for three (3) consecutive years immediately preceding the date of

application3. Positive Net Assets as per the consolidated audited financial statements for the last

two (2) financial years immediately preceding the date of application4. A minimum Public Holding of 25% of the total number of shares for which the listing

is sought which shall be in the hands of a minimum number of 1,000 publicshareholders holding not less than 100 shares each. The Exchange may accept apercentage lower than 25% of the total number of listed shares if the Exchange issatisfied that such lower percentage is sufficient for a liquid market in such shares.

02.Diri Savi Board

Eligibility to be listed:1. Stated Capital of not less than Rupees Hundred Million (Rs.100, 000,000/-) at the

time of listing,2. Positive Net Assets as per the consolidated audited financial statements for the

financial year immediately preceding the date of application,3. A minimum Public Holding of 10% of the total number of shares for which the listing

is sought which shall be in the hands of a minimum number of 100 publicshareholders holding not less than 100 shares each, and,

4. An operating history of at least one (1) year immediately preceding the date ofapplication.

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02.4.2. Debt

01. Main Board

Eligibility to be listed:1. The applicant company shall provide a guarantee for the repayment of capital and

interest from a bank licensed by the Central Bank of Sri Lanka, having an A- rating(equivalent or better) from a rating agency registered with the SEC or by aninternational multilateral or bilateral or other agency acceptable to the CSE.

2. OR The Debt Security shall have an investment grade rating for the Securities to belisted obtained from a rating agency registered with the SEC

02. Second Board

Eligibility to be listed:1. The applicant Company shall have been in business for a minimum period of 3 years,

immediately preceding the date of application and2. Shall obtain a rating for the Securities to be listed from a rating agency registered with

the SEC

v Diri Savi Board /Second Board companies may graduate to a Main Board listing,if such companies meet the Main Board listing criteria, at a later date.
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03. LONDON STOCK MARKET

The London Stock Exchange is a stock exchange located in the City of London in theUnited Kingdom. As of December 2011, the Exchange had a market capitalisation ofUS$3.266 trillion (short scale), making it the fourth-largest stock exchange in the world bythis measurement (and the largest in Europe). The Exchange was founded in 1801 and itscurrent premises are situated in Paternoster Square close to St Paul's Cathedral in the City ofLondon. The Exchange is part of the London Stock Exchange Group.

Primary markets

Issuer services help companies from around the world to join the London equity market inorder to gain access to capital. The LSE allows company to raise money, increase theirprofile and obtain a market valuation through a variety of routes, thus following the firmsthroughout the whole IPO process.

03.1 Boards in London Stock Market

03.1.1. Premium Listed Main Market

For the biggest companies exists the Premium Listed Main Market. This operates a SuperEquivalence method where conditions of both the UK Listing Authority as well as LondonStock Exchange s own criteria have to be met. The largest IPO (Initial Publical Offering) onthe Exchange was completed in May 2011 by Glencore International plc. The company raised$10bn at admission, making it one of the largest IPO ever.

03.1.2. Alternative Investment Market

In terms of smaller SME s the Stock Exchange operates the Alternative Investment Market(AIM). For international companies that fall outside of the EU, it operates the DepositoryReceipt (DR) scheme as a way of listing and raising capital.

03.1.3. Professional Securities Market

This market facilitates the raising of capital through the issue of specialist debt securities ordepositary receipts (DRs) to professional investors. The market operates under the status as aRecognised Investment Exchange, and by July 2011 it had 32 DRs, 108 Eurobonds and over350 Medium Term Notes.

03.1.4. Specialist Fund Market

Specialist Fund Market Is the London Stock Exchange dedicated market, designed to acceptmore sophisticated fund vehicles, governance models and security. It is suitable only forinstitutional, professional and highly knowledgeable investors. The Specialist Fund Market isan EU Regulated Market and thus securities admitted to the market are eligible for mostinvestor mandates providing a pool of liquidity for issuers admitted to the market
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04. USA STOCK EXCHANGE

There are number of stock markets available in USA. Among that I have given myconsideration to the main two stock exchanges in USA.

1. New York stock exchange (NYSE)2. NASDAQ stock market3. American stock exchange (AMEX)

04.1. New York Stock Market

NYSE Euronext (NYX), a leading global operator of financial markets and a provider of

innovative trading technologies, is the only exchange operator in the Fortune 500. With

exchanges in the US and Europe, NYSE Euronext equities marketplaces represent one-third of

equities trading worldwide. NYSE Euronext is also one of the worlds leading futures and

options trading venues, with four markets based in the US and Europe offering derivatives on

commodities, FX, equities, bonds, interest rates, indices and swaps. Its commercial technologydivision, NYSE Technologies provides best-in-class transaction, data, and infrastructure

management services and solutions.

04.1.1. NYSE MKT Listing Standards

NYSE MKT has established quantitative and qualitative standards for initial listing of U.S.and foreign companies. For details, please review the NYSE MKT Company Guide.

A.Quantitative Standards

CRITERIALISTING STANDARDSStandard

1Standard

2Standard

3Standard 4

Pre-tax income1 $750,000 N/A N/A N/A

Market capitalization N/A N/A$50

Million

$75 million

ORAt least $75 million in totalassetsand $75 million in revenues

Market value of public

float

$3 million $15 million $15 million$20 million

Minimum price $3 $3 $2 $3

Operating history N/A 2 years N/A N/A

Shareholders' equity $4 million $4 million $4 million N/A
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B.Qualitative Standards

In evaluating listing eligibility, NYSE MKT also considers qualitative factors such asthe nature of a company's business, market for its products, reputation of itsmanagement, historical record and pattern of growth, financial integrity, demonstratedearnings power, and future outlook. NYSE MKT also considers the laws, customs and

practices of the applicant's country of domicile regarding matters such as the electionand composition of the board of directors, issuance of quarterly earnings statements,shareholder approval requirements, and quorum requirements.

04.2. Main Listing Stranded

04.2.1 Domestic Listing Standard

Domestic listing requirements call for minimum financial criteria and minimum distributionof a company's shares within the United States. Distribution of shares can be attainedthrough U.S. public offerings, acquisitions made in the U.S., or by other similar means.

.

1. The number of beneficial holders of stock held in "street name" will beconsidered, in addition to the holders of record. NYSE will perform any

necessary check of such holdings that are in the name of Exchange member

organizations.

2.

In connection with initial public offerings, spin-offs and carve-outs, the NYSEwill accept an undertaking from the company's underwriter to ensure that the

offering will meet or exceed NYSE standards.

3. If a company has either a significant concentration of stock, or changingmarket forces have adversely impacted the public market value of a company

that would otherwise qualify for an Exchange listing such that its public

market value is no more than 10 present below the minimum, NYSE will

consider stockholders' equity of $60 million or $100 million, as applicable, as

an alternate measure of size.

4. Pre-tax income is adjusted for various items as defined in Section 102.01C ofthe NYSE Listed Company Manual.
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5. Represents net cash provided by operating activities excluding the changes inworking capital or in operating assets and liabilities, as adjusted for various

items as defined in Section 102.01C of the NYSE Listed Company Manual.

6. The most recent three months of trading history in the case of Pure Valuationwith Revenues will represent the Global market capitalization for alreadyexisting public companies. For all other standards, the measurement is "point

in time" for existing public companies. The measurement for IPOs and carve-

outs is the as-priced offering in relation to the total company's capitalization.

For spin-offs, the measurement the distribution ratio as priced representing the

valuation of the company.

Distribution & Size Criteriaust meet all 3 of the following:

Round-lot Holders 400 U.S.Public Shares 1,100,000 outstanding

Market Value of Public Shares for IPOs, Spin-offs,Carve-outs, Affiliates All Other Listings

$40 million$100 million

Stock Price CriteriaAll issuers must have a $4 stock price at the time of listing.

Financial Criteriaust meet 1 of the following standards:

Alternative #1: Earnings TestAggregate pre-tax income for the last 3 years $10 million

Minimum in each of the 2 most recent yearsThird year must be positive

$2 million

OR

Aggregate pre-tax income for the last 3 years $12 million

Minimum in the most recent year $5 million

Minimum in the next most recent year $2 million

Alternative #2a: Valuation with Cash Flow

Global Market Capitalization $500 million

Revenues (most recent 12-month period) $100 million

Adjusted Cash Flow:

Aggregate for the last 3 yearsAll 3 years must be positive

$25 million

Alternative #2b: Pure Valuation with Revenues


Revenues (most recent fiscal year) $75 million
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Alternative #3: Affiliated CompanyFor new entities with a parent or affiliated company listed on the NYSE


Operating History 12 months

Parent or affiliate is a listed company in good standingCompany's parent or affiliated company retains control of the entity or is under common

control with the entity

Alternative #4: Assets and Equity


Total Assets $75 million

Stockholders' Equity $50 million

REITs

Stockholders' Equity $60 million

Funds and BDCs

Net Assets $60 million

SPACsOn a case-by-case basis, NYSE will consider listing acquisition companies with no prioroperating history to conduct an initial public offering if the following criteria are met:

Proceeds held in trust upon IPO 90%

Fair Market Value of Acquisitions 80% of net assets

Aggregate Market Value $250 million

Market Value of Public Shares $200 million

04.2.2. Worldwide Listing StandardsNYSE offers two sets of standards worldwide and domestic under which non-U.S.companies may qualify to list. Both include distribution and financial criteria. A companymust meet both the distribution and financial criteria within that particular standard.

This chart is to be used for an initial evaluation only. NYSE will work with each company todetermine which standards best suit it. For a more complete discussion of the minimumnumerical standards applicable to non-U.S. companies, please see Section 103.01 of theListed Company Manual.

04.3. NASDAQ

The NASDAQ Stock Market, also known as simply the NASDAQ, is an American stock

exchange. "NASDAQ" originally stood for National Association of Securities Dealers

Automated Quotations. It is the second-largest stock exchange by market capitalization in the

world, after the New York Stock Exchange. The exchange is owned by NASDAQ OMX

Group, which also owns the OMX stock exchange network.
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04.3.1. Market Tires of NASDAQ

1. NASDAQ Capital Market Small Cap2. NASDAQ Global Market Mid cap3. NASDAQ Global Select Market Large Cap

04.4. AMEX

The American Stock Exchange is the third largest stock exchange in the U.S. after the NYSE

and the NASDAQ, and handles approximately 10% of all American trades. The American

Stock Exchange lists companies from all different industries and of all different sizes.

However, the exchange is known as having the least strict listing requirements among the

three top American exchanges, which results in many small companies joining the exchange.

Once a major competitor of the NYSE, the American Stock Exchange is now mostly known

for trading in small cap stocks, options, and exchange traded funds. The exchange is ownedby NASD (National Association of Securities Dealers), but operated as a separate exchange

from the NASDAQ.

As an auction market, the AMEX conducts its business on a trading floor through brokers andspecialists. Each security traded on the exchange is handled by a specialist whose job it is tobring buyers and sellers together, and ensure that a fair market price is obtained for bothparties. It is also a specialist's job to ensure that a market remains liquid, by buying or sellingfrom their own account if no one else will. Brokers move around the floor, bringing 'buy andsell' orders to the different specialists on behalf of their clients.

The American Stock Exchange options exchange is one of the largest in the world, with over1,700 options traded on stocks, American Depository Receipts, indexes, exchange tradedfunds, and HOLDRS. In addition, the AMEX has an extensive market for exchange tradedfunds (ETFs) as they were the first to trade in this particular market. The AMEX has a listingof over 140 ETFs on general stock markets, industries and corporate bond indexes.

After 2008 AMEX had been fully owned by New York Stock Exchange.
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05. CONCLUSION

According to above report there has big difference between available listing methods in stock

market in selected countries.

1. There is only one stock exchange in Sri Lanka namely CSE while USA has manystock exchanges as NYSE,AMSE,NASDAQ and etc

2. CSE has boards for listing purpose while LSE and NYSE have separate markets forlisting.

CSEA. Main BoardB. Dirisavi Board

LSEA.Premium Listed Market- For biggest companiesB. Alternative Investment Market- For Small and Medium companiesC. Depositing Receipt Scheme- For companies outside Europe.

NYSMA. Domestic Listing rulesB. Worldwide Listing rules

In CSE they have only consider financial factors or quantitative factors to listing in the boards while

LSE and NYSE consider both quantitative and qualitative factors for listing in the markets.
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