Investment and Portfolio Management-3
Investment and Portfolio Management-3
Investment and Portfolio Management-3
Market mechanisms make possible the transfer of funds from surplus to deficit sectors, efficiently and at low cost.
Primary Market
Secondary market
Debt Market
Government Securities Market Corporate Debt Market
Derivatives Market
Money Market
Options Market
Future Markets
GCC Stock Markets TASI (Saudi Stock Market) DFM (Dubai Financial Market) ADX (Abudhabi Securities Exchange) KSE (Kuwait Stock Exchange) BSE (Bahrain Stock Exchange) MSM (Muscat Securities Market) QE (Qatar Exchange) ASE (Amman Stock Exchange)
Stock Exchanges: It is an institution where securities that have already been issued are bought and sold. Presently there are three stock exchanges in Pakistan. The oldest and most important one is Karachi Stock Exchange. Listed Securities: Securities that are listed on various stock exchanges and hence eligible for being traded. Depositories: A depository is an institution which dematerializes physical certificates and effects transfer of ownership by electronic book entries. Brokers: Brokers are registered members of the stock exchanges through whom investors transact. Under-writers: An under-writer agrees to subscribe to a given number of shares (or any other security) in the even the public subscription is inadequate. The under-writer, in a essence, stands guarantee for public subscription. Bankers to an issue: The Bankers to an issue collect money on behalf of the company from the applicants. Venture Capital Funds: A Venture Capital Fund is a pool of capital which is essentially invested in equity shares or equity-linked instruments of unlisted companies.
Analytical reports for different interest groups are published or issued by these brokers. While selecting a brokerage an investor should see the following attributes:
Equipped with a research department Have qualified staff that can provide first hand market analysis Provide assistance to companies for raising funds or new securities. Equipped with a research library
MARKETS FOR SECURITIES Primary Markets: Securities available for the first time are offered through the Primary Markets. These are primarily arranges additional funds for the coffers of the issuer. Whereas in the secondary markets just change in hands takes place. After going through the primary markets the securities can be traded in the secondary markets.
Private Placement: At times issuers make direct sales to the investor groups or institutions. This is called Private Placement. In cases the IB acts as a facilitator to locate investor for direct sales, and charge a commission for it.
MARKETS FOR SECURITIES Secondary Markets: The stock once sold to the investor can be traded in the Secondary Markets. Organized Exchanges are physical marketplaces where the agents of buyers and sellers operate through the auction process. The transactions in the Secondary Markets can be divided into:
Organized Exchange Over-the-counter (OTC)
MARKETS FOR SECURITIES Secondary Markets: The over-the-counter (OTC) market includes trading in all stocks not listed on one of the exchanges. The OTC market is not a formal organization with membership requirements or a specific list of stocks deemed eligible for trading. In theory, any security can be traded on the OTC market as long as a registered dealer is willing to make a market in the security (willing to buy and sell shares of the stock).
MARKETS FOR SECURITIES Secondary Markets: Every market lists certain stocks for trading. KSE has a list of 651 companies. These companies have to follow certain rules and regulations and pay annual fees for maintaining their name in the registered list. The initial listing requirements are:
Number of shareholders Minimum demonstrated earnings Asset size Number of shares outstanding
Day Order: It remains active only for the trading day. Unless and until advised by the investor, the broker continues to execute the order during the day. However, it is suspended with the close of market for that. Week Orders: In general the order expires at the end of the calendar week. Open Orders: It remains effective until it is cancelled by the investor. These are also called GTC (good-tillcancelled) orders. These are generally issued in conjunction with limit orders. However, these orders are susceptible to higher risk.
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Loan
------- = 23%
3,000
To lift the margin to 30% maintenance level requires equity of 30% of Rs.13,000 which is equal to Rs3,900. This will lead to a further deposit of Rs.900 by the customer.
The investor can now buy additional stock of Rs.5,000 without investing a single Rupee. This will decrease its margin to 50% which is the initial requirement under the regulation.
If an investor owns more than a few stocks or bonds, it is cumbersome to follow each stock or bond individually to determine the composite performance of the portfolio. Also, there is an intuitive notion that most individual stocks or bonds move with the aggregate market. Therefore, if the overall market rose, an individuals portfolio probably also increased in value. To supply investors with a composite report on market performance, some financial publications or investment firms have developed stock market and bond market indexes.
As benchmarks to evaluate the performance of professional money managers To create and monitor an index fund To measure market rates of return in economic studies For predicting future market movements by technicians As a proxy for the market portfolio of risky assets when calculating the systematic risk of an asset.
We hear a lot about what happens to the Dow Jones Industrial Average (DJIA) each day. In addition, you might also hear about other stock indexes, such as the S&P 500 index, the Nasdaq composite, or even the Nikkei Average. These indexes change by differing amounts. The indexes are organized by the weighting of the sample of stocks based on:
the price-weighted series - some of the most popular indexes are in this category. The next group is the market-value-weighted series, which is the technique currently used for most indexes.
A price-weighted series is an arithmetic average of current prices, which means that index movements are influenced by the differential prices of the components.
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