Financial Market..........!
Financial Market..........!
Financial Market..........!
Financial Market
A financial market is a place or opportunity for those who need money to connect with those who provide money. The financial market is where financial assets are bought and sold.
Financial Markets
1. Interbank call market
2. Domestic and foreign exchange market
3. Government bond market
• Treasury bill market
• Treasury bond market
4. Corporate bond market
• Commercial paper market
• Corporate bond (bond) market
5. Stock market
Activities associated with the Colombo Stock Exchange
. The stock exchange is the market where securities such as shares and debentures issued by Colombo listed companies are bought and sold.
The institution that oversees the buying and selling of shares of listed companies is called the Colombo Stock Exchange.
The Colombo Stock Exchange is a company limited by shares.
Brokerage companies act as its full members. These brokerage companies act as intermediaries on the Colombo Stock Exchange. The regulation and supervision of the activities of the stock exchange are carried out by the Securities and Exchange Commission of Sri Lanka
Some of the reasons why the Colombo Stock Exchange is important to the Sri Lankan economy are as follows:
• Encouraging individuals and companies to invest,
• Investors can obtain various benefits through the Colombo Stock Exchange.
• Companies can raise large amounts of capital.
• Secondary markets for the shares of companies can be created.
• Foreign investors can be attracted to the country.
• The government can obtain the necessary funds through the sale of government bonds.
A value can be created for the shares of companies.
• The goodwill and image of companies will increase.
The primary market is when investors buy shares directly from a company that issues shares.
The secondary market is when investors buy shares from the Colombo Stock Exchange.
There are three ways in which public limited companies can be listed on the Colombo Stock Exchange.
1. An initial public offer is a way for a company to list its shares for the first time by inviting the public to do so.
2. An offer for sale is a way for a company to list its shares for sale through the stock exchange, which is open to the public.
3. An introduction is a way for a company to list its shares through the Colombo Stock Exchange at the time of the introduction, rather than through an offer to the public.
All companies are listed on the stock exchange on a dual-board basis.
1. Main Board
2. Dirisavi Board
Main Board
The main board is the board reserved for companies with a large issued capital.
Some of the requirements to be fulfilled for listing ordinary shares on the main board are as follows:
• The issued capital of the company should not be less than Rs. 500 million.
• It should have made a profit before tax for at least 3 consecutive years immediately preceding the date of application for listing.
• The net assets of the business should be confirmed by audited financial statements for the last two years from the date of application for listing. At least 25% of the value of the issued shares should be held by the public.
Dirisavi Board
The Dirisavi Board is a board reserved for listing companies started with a limited amount of stated capital.
Some of the requirements to be fulfilled for listing on the Dirisavi Board are as follows:
• The stated capital of the company should not be less than Rs. 100 million.
• At least 10% of the issued share capital should be in the public domain.
• The net assets in the business should be confirmed by audited financial statements for one year on the date of application for listing.
• The company should have been in operation for at least one year.
Default board
The watchlist board is a board that contains companies that have violated or do not comply with the conditions for listing on the stock exchange. This is called the default board.
Some of the securities traded on the Colombo Stock Exchange are as follows:
1. Ordinary Shares
2. Preference Shares
3. Share Warrants
4. Cooperate Debentures
5. Government Debt Securities
Ordinary Shares
Investors who purchase ordinary shares are the owners of the company. Although investors who purchase these shares are entitled to a certain amount of the company's profits, the dividend is not fixed. Therefore, the risk is high. The right to participate in annual general meetings is available. Administrative power is also available. Ordinary shares are of two types.
1. Voting Shares
2. Non-voting Shares
Non-voting shareholders do not have the right to vote, but they receive all the other benefits of ordinary shares. https://youtu.be/gCWqy_qMRGE?si=or5agVc-JZQKsMFQ
Preference Shares
These are shares that pay fixed dividends. Preference shareholders get priority when the company is dissolved or when capital is repaid. These shareholders do not have rights in the company. Risk is low. There is no administrative power.
Share Warrants
A share warrant is a document issued by a company at a specific time, giving the holder the right to purchase shares of the company at a specified price in the future. However, if an investor wants to receive any other benefits from the share investment, apart from the capital gain, he must hold the share warrant until it is converted into shares.
Cooperate Debentures
A type of bond issued by a company to raise debt capital for a company. Listed debentures issued by listed companies can be traded on the stock exchange. Debentures provide investors with a fixed rate of interest.
Government Debt Securities
This is an explanation of Treasury bills and Treasury bonds issued by the government. It is considered a very low-risk investment. The interest rate on Treasury bills and Treasury bonds is not fixed and can be seen from time to time under different interest rates by the government.
Some of the direct and indirect benefits obtained from bond investments traded on the stock market are as follows:
Direct Benefits
Dividend
Dividend is the value distributed to the shareholders of the company from the net profit earned by a company through its business activities. Companies generally declare dividends either in cash or in the form of shares. When dividend is declared in cash, it is declared as a monetary value per share. That is, it will be published as a specific monetary value per share. Example: Rs. 2.50 per share.
Interest
Investors who purchase syndicated bonds issued by listed companies will be paid an annual interest by the company. There will be a fixed interest rate available for the bonds. It will be disclosed at the time of issuance of the bonds.
Capitalization of Shares
This involves converting the shares held by the company into share capital. This will result in new shares being issued to the shareholders in a specified manner. When the shares are capitalized, there will be an increase in the stated capital of the company. The full approval of the Colombo Stock Exchange is required for this capitalization process.
Rights Issue / Rights Issue
Rights issue is the re-issuance of shares to the existing ordinary shareholders of the company in accordance with any percentage. During rights issue, investors get the opportunity to acquire shares at a price lower than the market price. Thus, investors get the opportunity to acquire the rights to the shares at a lower price and sell those rights at a higher price and make a profit.
Capital Gain
If any investor sells shares for a higher price than the purchase price, he/she receives capital gain. For example: A share is worth Rs. 30
In-person Benefits
• Ordinary shareholders of a company get voting rights and can also become directors.
• Individuals who purchase government bonds can use them as collateral when they receive them.
• The risk of investing in government bonds is very low and there is high liquidity.
• Capital gain received by selling shares is exempt from taxes.
• Since shares can be sold on the stock market when needed, they can be converted into cash quickly and the shares have high liquidity.
• Rights to shares for allotment
Price indices
There are many common indices used in the world to analyze whether the buying and selling in a stock market is efficient or not. The following indices are used to measure the performance of the Sri Lankan stock market.
1. All Share Price Index (ASPI)
2. S & P Sri Lanka 20 Index
3. Total Return Index (TRI)
All Share Price Index
The All Share Price Index is an index that shows the fluctuations in the price levels of the voting ordinary shares of all companies listed on the Colombo Stock Exchange.
In preparing this index, 1985 is used as the base year and the base index value is used as 100.
S & P Sri Lanka 20 Index
The S & P Sri Lanka 20 Index is an index calculated to measure the changes in the price levels of 20 large and highly liquid companies listed on the Colombo Stock Exchange.
The above 20 companies have been selected based on factors such as • Market capitalization
• Liquidity
• Financial viability.
The base date for the preparation of this index is 2004.12.17 and the base index value is 1 000.
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