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Overview of Stocks
Companies
PRIMARY MARKET
Main Board: For more established companies with previous trading and profit records
Growth Enterprise Market: For growth companies that may not have a track record of profits
Roles of financial institutions Sponsors Underwriters Investors How to subscribe for IPO shares? White vs. Yellow vs. Pink application forms
White
Investors who Physical share prefer to have certificate shares registered in their own name Investors who Immobilised prefer to have form their shares entrusted to their intermediary Staff of the tobe-listed company only Physical share certificate
Legal owner
Yellow
Pink
Legal owner
Order execution
Investors
SEHK
HKSCC
Operates the trading system AMS/3 Automatic order matching Administers the Trading Rules and monitors compliance by its Participants Disseminates stock market information to the market via information vendors
Clearing and settlement via CCASS under an immobilised mode Settlement cycle : T+2 at brokerage level Investor Participant Account: a stock custody account for investors
Stockbrokers
The intermediation role Must be licensed by SFC A SFC licence is not a guarantee of future performance or quality of service Range of services: Cash, margin, discretionary account Execution-only, other value added services (e.g. research) On-line trading
Listed Companies
Comply with the Listing Rules On-going disclosure obligations Price-sensitive information Financial information Annual, interim, quarterly (only for GEM companies) reports Corporate actions Notifiable transactions, some may need shareholders approval
Key factor: Corporate Governance Post-Enron era Accounting issue Company transparency Conduct of senior management, directors manage the business instead of the numbers
Share Registrars
Investors
Listed Companies
Maintain the share register of a listed company Help a listed company to issue share certificates, distribute dividend and corporate documents to shareholders, etc.
Find the right broker Deal properly and exercise your consumer rights Bank on facts, not rumours Know your rights as a shareholder Understand the risks of stock trading
Check if the brokerage and account executive are licensed with the SFC Public register Details of licensee records, including any licence conditions, 5-year disciplinary records Beware of boiler-room operators Understand the brokerages range of services and check the fees and charges
Fallacy There is always a prior notice before the brokerage cashes in your shares in your margin account when there is a margin shortfall. You have a say on which shares to be disposed of. Truth Subject to the terms of the client agreement, normally, it is not necessary to have prior notification. Brokerage has the discretion to pick which stock to sell.
Fallacy Your shares in your margin account are not subject to any liquidation risk as they are more than sufficient to cover the margin requirement. Your shares are not at risk as you never borrow from the brokerage even though you have a margin account. Truth Depending on the terms of the authorisation which allow the brokerage to re-pledge your shares for its loan at banks and the pooling arrangement, you may not get back your shares if your brokerage becomes insolvent.
Read the client agreement carefully Understand the trading and settlement procedures Place your orders clearly Always check your contract notes and account statements Settle your trades directly with the brokerage, never deposit money into the account executives personal bank account or issue a cheque payable to the executive
Read the prospectus before you subscribe for a new stock Read annual reports, shareholder circulars and company announcements to keep yourself up-todate of the companys development Dont chase rumours Herd investing is not smart investing
Information rights Voting rights Pre-emptive rights Rights issue Entitlements Dividend (cash / scrip), bonus shares, subscription warrants
Higher expected return, higher risk Watch out for possible risks: Price risk Business risk Liquidity risk Corporate misgovernance Brokerage failure Pooling risk of margin account Investment scams
Regulatory Structure
Takeovers & Share repurchases Hong Kong Exchanges & Clearing Ltd
Investment Arrangements
Exchange Participants
Clearing Participants
Clearing Participants
Clearing Participants
A SFC Licensee
Licensing
Intermediaries Supervision
Enforcement
Investor Education
Policy Making
Single Licensing Regime under SFO 9 Regulated Activities Licensed Corporations, Representatives and Responsible Officers Registered Institutions Risk-based supervisory approach Monthly returns on Financial Resources Rules requirements On-site inspections Broker Fidelity Insurance Scheme
Regulate takeovers, mergers and share buy-backs Dual filing mechanism under SFO Extended powers to inspect documents of listed companies connected parties under SFO Oversee SEHKs role as the front-line regulator of listing-related matters Ensure HKExs own compliance with Listing Rules
Enforcement
Monitor unusual market movements Investigate and take action against mark malpractice (e.g. market manipulation, insider dealing, intermediary misconduc listed companies suspected prejudicial o fraudulent transactions)
Investor Education
Help investors get the facts Highlight the pros and cons of different financial products and services Give health warnings and explain the risks Empower investors to protect themselves