Secondary Markets Flashcards
Authorised share capital
Authorised share capital is the maximum amount of capital that can be raised through share issue
Issued share capital
The number of shares the company has allotted to shareholders
Nominal value
The fixed legal value of a share
Market cap
Number of shares in issue multiplied by the market price of the share
Free float
All shares being held by investors other than: owners holding 5% or more of all shares, restricted stocks, insider holdings
A and B Ordinary shares
Different classes of shares created to separate ownership and control
Redeemable shares
Offered by a company to shareholders that may be bought back by the company at its election. Companies are permitted to issue ordinary shares that can be redeemed as long as conventional non-redeemable ordinary shares are also in issue
Ordinary shares
2nd priority, variable dividend, no voting
Preferred shares
1st priority, fixed dividends, no voting
Partly paid
Each share has a nominal value, which represent the minimum amount that the company must receive from subscribers on the issue of the shares. Occasionally, the company may not demand all of the nominal value at issue, with the shares then referred to as being partly paid
Cumulative shares
The right to receive that dividend is rolled over into the next period
Participating
Opportunity for further dividend
Redeemable
The right for the issuer to buy back the shares
Convertible
The right to convert into ordinary shares, zero dividend - pay no income, redeemed by shareholder above the price at which they were issued.
American depository receipts
ADRs are used by non-US companies in order to encourage US Dollar investors to buy an equity stake
ADR features
US denominated and US dividend Bearer document (American form) Settlement T+2 Rights issues: ADR holders receive cash Bonus issues: alters number of shares
Pre-release (grey market rules)
An ADR, or issuing an ADR, secured by cash collateral rather than deposited securities and can be issued in a pre-release format for up to three months (US$ collateral required)
ADR risks
Market and company specific risk
FX risk
Warrants - Background
Right to subscribe for new shares from a company at a fixed price on a future date
Not part of ordinary share capital of company
Warrants - Issuance
Typically issued as a sweetener with other investments (e.g. corporate debt)
Detachable or non-detachable form
Warrants - Conversion premium
Warrant price + exercise price - current share price
Difference between warrants and options
On exercise, warrants create new shares whereas options and covered warrants are exercised into existing shares
Warrants main features
Issued by - companies
Shares delivered by - new shares
Maturity - normally > one year
Traded on - OTC/LSE
Types - right to buy the underlying
share only
Exercise/settlement - physically settled contractsCovered warrants main features
Issued by - Investment banks
Shares delivered by - Existing shares
Maturity - normally 6 months to 12 months
Traded on - LSE
Types - Call and put warrants available (right to buy and sell)
Exercise/settlement - Cash and physically settled contracts available
Options main features
Issued by - Writer
Shares delivered by - Existing shares
Maturity - normally 3 months to 12 months
Traded on - Derivatives exchange
Types - Call and put options available (right to buy and sell)
Exercise/settlement - Cash and physically settled contracts available
Indices: Headline news
A simple way of summarising market movements
Indices construction: Background
The majority of indices are value-weighted arithmetic.
Exceptions: (NIKKEI Stock 225 & Dow Jones Industrial Average, price-weighted arithmetic index)
FTSE 100
Composition - 100
FTSE All share
Representing 98-9% of UK market capitalisation
DJIA
Composition - 30
Nasdaq Composite
Composition - Over 3,200
Standard and Poor 500
Composition 500
Dow Jones Divisor
As the DJIA is price weighted, splits, consolidations, spin-offs, etc can have a significant impact on the value of the index. The divisor is an adjustment to ensure such events do not alter the numerical value of the DJIA.
Calculated by summing up all the prices of the component stocks and then dividing by the Dow divisor. The present divisor after many adjustments is less than one, meaning the index is larger than the sum of the prices of the components
Nikkei Stock (Japan)
Composition 225
Hang Seng(China/Hong Kong)
Composition - 50 (variable)
Eurofirst (Europe)
Composition 300
DAX (German)
Composition 30
CAC (France)
Composition 40
STOXX (Global)
Composition 600
MSCI (Global)
Composition 1700
Price return
Only the price of the components considered
Total return index
Calculates the performance of a group of stocks assuming that dividends are reinvested into the index constituents
Net total return
Same as total return but after the deduction of withholding tax
