Stock and share

Shares

Definition: Shares are the unit of equity ownership in a corporation. This ownership is represented by a stock certificate, which names the company and the shareowner.

Shares

Dividend is the distribution of earnings to shareholders, prorated by class of security and paid in the form of money, stock, scrip, or, rarely, company products or property.

The amount is decided by the board of directors and is usually paid quarterly.

Dividends must be declared as income in the year they are received.

Shares

Issuing shares-Public issue: Shares can be advertised in the press and can

be sold directly. This is usually done on the advice of a specialist company called issuing house.

-Offer for sale: The shares are sold to the issuing house which then sells them itself to institutions or stockbrokers.

-Placing: With this method the shares are sold in blocks of quite large numbers to institutions. Underwriters are people or companies who agree to buy any shares from an issue which are not sold to the public or to institutions.

-Rights issue: If a company is successful enough it can often go back to its own shareholders to sell them even more shares. In order to make sure that they buy the shares the company will usually offer the new shares at a cheaper price than the normal shares.

Stocks and Shares

The issuing of shares (GB) or stocks (US)

means offering them for sale to the public.

Floating a company or Making a flotation:

offering shares or stocks for sale to the public

for the first time.

IPO: Initial public offering

Stocks and Shares:Transactions

At the LD Stock Exchange, share transactions do not have to be settled until the account day or settlement day at the end of a two-week period. This allows speculators:

To buy shares hoping to resell them at higher price before they actually pay for them, or

To sell shares, hoping to buy them back at a lower price (Short selling)

Stocks and Shares: Companies

Companies use a bank to underwrite the issue.

Bank guarantees to purchase securities at an agreed price on a certain day.

Companies can raise more money by issuing new shares:

offer a rights issue to existing shareholders at lower market price

Stocks and Shares: Companies

Companies can turn part of their profit into

capital by issuing new shares to shareholders

in stead of paying dividends.

GB: Bonus issue, script issue,

capitalization issue,

US: stock dividend, stock split.

Stocks and Shares: Companies

US corporations are permitted to reduce the

amount of their capital by buying back their

own shares, known as treasury stock.

The same applied to VN to award key

personnel (Sacombank)

In the UK, this is not allowed to protect

companies’ creditors.

Stocks and Shares: Markets

Primary markets:

Over-the-counter market: small and new

companies. (Unlisted securities market).

Secondary markets:

Major stock exchanges: companies to fulfill

a large number of requirements, e.g. issue

independently-audited annual reports.

Stocks and Shares: Shareholder rights

Vote at General Meetings

Receive dividend

Receive part of company’s residual value in

case of bankruptcy

Sell their share on the secondary market

Stocks and Shares: Share price

Reflects how well or badly the company is

doing,

May differ from its nominal, face, or par value

Share premium (GB) or paid-in surplus

(US): the amount of money of shares sold at

above their par value

Stocks and Shares:People involved

Institutional investors: pension funds,

banks, insurance companies.

Bulls: buy securities, expect their price to

rise, so they can resell them before the next

settlement day.

Bears: sell securities, hoping to buy them

back at a lower price before the next

settlement day.

Stocks and Shares:People involved

Stags: buy new share issue, hoping to resell

them at a profit (if the issue is over-

subscribed).

Stockbrokers: members of stock exchange,

provide advice to shareholders.

Market-makers: wholesalers, who guarantee

to make a market at all times with brokers.

Stocks and Shares:People involved

In-siders: occupy a position of trust &

possess information not known to the public.

in-sider trading is illegal.

Arbitrageurs: buy stakes in companies

involved (or expected to be involved) in

takeover bids.

Types of Shares

Ordinary shares (Common stock): shares with voting rights.

Participation certificates: shares without voting rights.

Preference shares: receive a fixed dividend which must be paid in full before any dividend is paid on other shares.

(interest payments are deductible, dividends are not companies issue bonds)

Types of Shares

Deferred shares: do not receive a dividend until other

categories of shares have had a dividend, but might earn a higher dividend if the

company does well. Blue chips: considered to be without risk. Widely-held stocks: indicators of market

performance (barometer / bellwether stocks)

Types of Shares

Growth stock: Is expected to appreciate in capital value, Has high purchasing price, and A low current rate of return. Defensive stock (income stock): offers good

yield but limited chance of a rise or decline in price.

Mutual fund (Unit trust): invest small investor’s money in a wide portfolio of securities

Bonds

Issued by companies, governments and

financial institutions when they need to

borrow money.

Pay fixed rate of interest, and are repaid

after a fixed period, known as their

maturity.

Are liquid, can be sold on the secondary

market until they mature

Bonds

Above par: a bond whose market value is higher than its face value.

A floating rate bond: the coupon remains the same but the yield will change.

Coupon: amount of interest a bond pays Yield: coupon payments expressed as a

percentage of its price on the secondary market

Bonds

Private ratings companies provide investment grade to bond-issuing companies.

Treasury Bonds (gilts): long-term government bonds

Treasury Bills: short-term instruments with the government sells to and buys from the commercial banks, to regulate the money supply.