Brief intro to Colombo Stock Market
What is a Stock Market? A Stock Market is a place where stocks,
bonds, or other securities are bought and sold. The centre at which all
these activities take place is known as a stock exchange.
The Colombo Stock Exchange (CSE) is the organization responsible for
the operation of the stock market in Sri Lanka.
The CSE is a company limited by guarantee, licensed by the Securities
and Exchange Commission of Sri Lanka (SEC) to operate as a stock
exchange in Sri Lanka. The CSE currently has a membership of 21
Stockbroker firms licensed by the SEC to trade in debt and equity. The
Stockbroker firms act as market intermediaries performing a number of
services to investors and companies.
What is a Share? A share represents your ownership in a company. As a
part owner you are investing in the future growth of the company.
Here is an example of how buying shares work. If a company releases
100,000 Ordinary shares to the market and an investor purchases 1,000
shares, then we can say that the investor owns 1% of the said company.
As an investor of a company, you have the right to receive the annual
report of the said company to participate at Annual General Meetings, as
well as other benefits offered to shareholders such as dividends (if
declared by the company) for profits the company has made.
There are currently 231 companies listed on the CSE, across 20
business sectors.
How do you purchase shares? A market can be split into two main
sections: the Primary and Secondary market. - the primary market is
where new issues are first offered - any subsequent trading goes on in
the secondary market.
The Primary Market
The primary market is the market for new share or debenture issues
and deals with the issuance of new securities. Companies can obtain
funding through a new share issue, i.e. through an Initial Public
Offering (IPO). In the primary market, the security is purchased
directly from the issuer (company). In a primary issue, the company
offering the share/debenture publishes a Prospectus, which is an
invitation to the general public to buy shares or debentures of that
company and includes the details of the offer, the business activities
of the company, its financial standing and future plans, its directors
and management and for what purpose the company is raising this capital.
To decide if an investment is promising, you should read the
Prospectus carefully and if necessary, consult an expert for advice.
Next you need to fill up the application form for the purchase of shares
or debentures. You can send this form directly to the company concerned
or to a stockbroker with payment for the amount due. It is advisable to
request that the shares be directly deposited into your account in the
Central Depository System (CDS) of the CSE. You may do so by filling
your CDS account number on the application form. This will save you time
and worry when you want to dispose of your shares and will be the safest
way to keep custody of the securities you purchase. No fee is charged
for opening a CDS account.
The Secondary Market
A market in which an investor could trade (either buy or sell) shares
or debentures of a Company, subsequent to the original issuance in the
primary market, is known as the secondary market. The CSE facilitates
this function of the secondary market in Sri Lanka.
A newly issued IPO will be considered a primary market trade when the
shares are first purchased by investors directly from the issue; any
shares traded subsequently will be on the secondary market, between
investors themselves. In the primary market prices are often set
beforehand, whereas in the secondary market only forces of supply and
demand determine the price of the security.
How do I buy Shares on the Secondary Market? You must instruct your
Stockbroker to buy shares for you. You must clearly provide him with the
following particulars: a) The names of the company you want to invest in
b) The amount of shares you desire to purchase c) The price you are
prepared to pay
When you give these instructions to your Stockbroker, he will take
the necessary action to buy you those shares. The shares will be
credited to your account in the Central Depository System (CDS).
How do I open a CDS account? You must complete a CDS account opening
form through a Stockbroker. The completed form will be forwarded to the
CDS by the Stockbroker and an account will be opened in your name. Joint
accounts can also be operated.
To open the account you will have to give the broker a photocopy of
your National Identity Card (NIC)/passport and a utility bill and make
the originals available for inspection. Trading on the stock market
takes place from Monday to Friday from 9.30 a.m. to 2.30 p.m. except on
public holidays. You could trade by visiting a stockbroker office or the
CSE public galleries located in Colombo and branch offices in Kandy,
Kurunegala, Negombo and Matara.
Alternatively, you could trade via the internet through stockbroker
firms that offer the facility.
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