What is a Stock Market?
A stock market is a place where stocks and shares are traded; it may either be a physical room where the traders gather together or a communications network linking the traders’ offices.
What is being implemented in Guyana?
The securities market in Guyana is being operated by the Guyana Association of Securities Companies and Intermediaries (GASCI). Trading takes place at the GASCI office where orders to buy and sell are matched on a computer-based “Limit Order Book”.
What financial products are traded on exchange?
Shares and bonds.
Why does there have to be a special market for stocks and shares?
Stock markets need to be regulated more than other markets because they deal in large amounts of money and because the customers and the members of the market must have confidence in it. In particular they must be confident that prices are fair and equally available to everyone; they must also be confident that any trade executed on the market will be honoured.
What is a Stock Exchange?
A stock exchange is a company which organises and supervises a stock market to be used by its members, either on their own behalf or on behalf of their customers.
Does the Stock Market have to be organised by a Stock Exchange?
A stock market in Guyana must legally be organised and supervised by a company whose members are traders on the market. Technically it is possible to trade some securities in some countries without involving a stock exchange, but it would not be feasible in Guyana even if it were legal.
What is the use of a Stock Market – in general?
A stock market allows owners of stocks and shares to dispose of them at a fair price, it allows new investors to buy them at a fair price, and it allows companies to sell new shares to finance the growth of their businesses. Most new investment is by or for people saving up for their retirement. People buy stocks and shares with the expectation that they will be able to sell them again, unlike companies who generally issue stocks with no expectation of ever having to buy them back. This means that older people selling their shares when they retire have to dispose of them, not to the companies that issued them, but to younger people who are building up their savings. This process cannot take place unless there is a reliable marketplace in which to buy and sell. A further benefit of a market is that it provides a basis for valuing businesses, whether for the purposes of stock trading, or for establishing credit with banks and other lenders, or for negotiating mergers and acquisitions.
What is the use of a stock market – in Guyana when so many people have so little money?
The total volume of savings in Guyana is quite high, but it is held mainly in cash or short term bonds. If it could be mobilised to help finance the growth of the economy through purchase of new shares issued by companies, savers would have a better return on their savings and the economy would grow. There is, in fact, a shortage of stocks and shares in which to invest. If there were more stocks available and a reliable market savings should increase and funds should be attracted from overseas.
Why does it not use the Trinidad Stock Exchange?
It might well be possible for some trading to take place in Trinidad through the “listing” of Guyanese securities on the Trinidad and Tobago Stock Exchange, but there would still be a need for trading to take place in Guyana, under Guyanese law, settled in Guyanese dollars, recorded in Guyanese companies’ shareholder records and subject to Guyanese procedures and regulations.
Who pays for the Stock Market?
Initially most of the costs of the GSC and GASCI are being paid for by the British Government. In the longer term the main contribution to financing GASCI is expected to come from issuers, through listing fees.
What does “Listing” mean?
“Listing” literally means being admitted to the Stock Exchange Official List which indicates that the stocks and shares that are listed are freely transferable and validly issued – not non-transferable, or forged, or otherwise tainted; it also means that the issuer meets the requirements of law and regulation in the management of its business and in the disclosure of adequate, timely and accurate information about its business to investors.
How can the Exchange enhance a company’s access to new capital?
Listing makes companies more credit-worthy and reduces the cost of borrowing. Listing also permits institutional investors who are not permitted to hold unlisted securities to buy a stock. Listing also increases the visibility of a company.
Why should companies want to be “listed”?
“Listing” is a seal of approval; it is good for a company’s image; it may reduce its cost of borrowing from banks; it may make it eligible to be invested in by major financial institutions like certain US mutual funds which are only permitted to buy listed securities. Listed shares are usually more highly valued than unlisted; this usually makes the cost of new finance for listed companies lower than for unlisted.
When should a company consider listing on the Exchange?
When the conditions for raising money at advantageous rates are favourable – because the market is buoyant, or because the company is doing well, or both.
How does a company prepare to list on the Exchange?
It consults its professional advisers – lawyers, accountants and bankers. It starts a dialogue with the Exchange or the listing authority. It starts preparing as early as possible.
Why should companies issue shares to the public?
At first companies may be reluctant to issue shares because they may think that it dilutes the ownership and that it requires them to disclose information about their business that they would not otherwise have to reveal. But there is a trade off; they can obtain additional capital and they can increase the value of their business through public issue; they may also be able to issue new shares to merge with or acquire other businesses. Most important of all, they can reduce over dependence on bank borrowing which can be very risky.
What else can companies issue besides shares?
They can issue bonds which can replace borrowing from the bank at a lower interest rate and for a longer term before repayment.
Will unlisted companies also be traded on the GASCI stock market?
How can a stock market succeed if the economy is doing badly?
Stock markets can function in bad times as well as good. Prices are lower and trading less active, but the task of providing buyers and sellers with a service can continue to be met. The important thing is to avoid excessive operating costs which lead to the market organisation operating at a loss.
How can a stock market succeed if there are very few stocks?
Most stock markets round the world – excluding the senior markets of New York, Tokyo, London and Frankfurt – concentrate the major volume of trading activity on a relatively small number of stocks. This is particularly true in the Caribbean. Whatever the size of the market and whatever the number of securities traded, it is essential to match costs to expenditure. Very small informal exchanges can succeed and fulfil their economic function just as well as large formal exchanges.
How can investors obtain reliable information from companies?
Under the law all publicly held companies are required to be “Reporting Issuers” subject to strict requirements on disclosure to investors and the market, under the regulation of the GSC.
What information must issuers provide investors?
Issuers must provide investors with the information specified in the Securities Industry Act making regular periodic reports and special ad hoc disclosures when there has been a significant change in their business or their prospects.
What factors are important when analysing a company?
Profits, dividends, assets, management and prospects.
How are stocks and shares valued?
Common stocks represent a share in the ownership of a company and their value mainly depends on the level of profits. Bonds represent debts owing by a company and their value mainly depends upon financial strength.
Bonds – which are documents acknowledging a debt by the issuer of the bonds to the holders of the bonds – are valued by reference to the rate of interest paid to the holders of the bonds. The Government can raise money at the lowest rate of interest; publicly owned bodies may have to pay a little more and private borrowers have to pay more again, depending on their creditworthiness and the size and liquidity of the issue. In other markets good quality corporate bonds can have an interest rate about one percent more than a government bond (meaning that if the Government is borrowing at 5%, a good corporate issuer may borrow at 6%)
Shares – which represent part ownership of a company – are usually valued partly by reference to the dividend they pay (which is comparable with the interest received on a bond) and partly by reference to the profits earned by the company and available to pay dividends or to be reinvested by the company in fixed or working capital.
For both bonds and shares, the income is measured by the “yield” and for shares the profit is measured by reference to the “price earnings ratio”.
Other measures that affect valuation of shares are “cash flow” and “asset value”.
What makes the price of common stocks and bonds go up and down?
The stock market rises and falls with investor confidence.
What are the benefits of owning stocks?
It gives the investor an opportunity to participate in the success of a company through increasing dividends or increasing asset value.
What risks are involved in owning common stocks?
The risk that the companies who have issued the stocks are unsuccessful or, ultimately, insolvent, in which case the value of the common stock may be nil, In addition the price of common stocks is relatively volatile, moving up and down with the market.
What makes the price of bonds go up and down?
Bond prices rise and fall with interest rates, partly on changes in inflation expectations and partly on the supply and demand for credit.
What are the benefits of owning bonds?
A relatively secure and predictable monetary return in the form of interest and/or repayment at a premium over the cost of purchase. The price of bonds is relatively more stable than of common stocks.
What risks are involved in owning bonds?
Default in the payment of interest and/or the repayment of capital.
What are the risks of investing on the stock market?
The price of stocks and shares can go down as well as up
Who can use the market?
Only brokers and dealers who are both registered with the GSC and who are members of GASCI are permitted to trade directly on the stock market, but anyone may place an order with a broker dealer to buy or sell stocks and shares.
How can you buy or sell securities on the Exchange?
How can you buy or sell securities on the Exchange?
What does a limited service broker do?
A limited service broker executes transactions on behalf of investors, but does not provide advice or other ancillary services.
What does a broker/dealer do?
A broker dealer carries on business both as an agent for his customers and as a principal for his own account.
How are securities paid-for on the Exchange?
The buyer of a security pays his broker who pays the seller’s broker who pays the seller; at the same time, the seller passes evidence of ownership to his broker who passes it to the buyer’s broker who passes it to the buyer. It is good practice for payment of money to be matched by transfer of ownership at each stage.
When does trading take place on Exchange?
Initially once a week during a short trading session; in the future it will be continuous between brokers’ offices
What about private deals outside the market?
Private deals are permitted but they are subject to stamp duty.