Preferred Stocks and Securities Market: Types, Trading, and Vietnamese Business Law, Schemes and Mind Maps of Investment Management and Portfolio Theory

Download Preferred Stocks and Securities Market: Types, Trading, and Vietnamese Business Law and more Schemes and Mind Maps Investment Management and Portfolio Theory in PDF only on Docsity! Securities analysis and investment • Investment, Bodie Z., Kane A., Marcus A. J., 2012 Fifth Edition. • Phân tích đầu tư chứng khoán, Ủy ban chứng khoán Nhà nước • Financial website and all related website • Attendance 10% • Midterm 30% • Final test 60% Chapter 1: INTRODUCTION 1.1. Instruments of financial markets 1.1.1. Instruments of money markets  Treasury Bills  Negotiable Certificates of Deposit (NCDs)  Commercial Papers (CP)  Bankers' Acceptances  Repurchase agreements (RPs) Treasury Bills • U.S. Treasury bills (T-bills, or just bills, for short) are the most marketable of all money market instruments. • T-bills represent the simplest form of borrowing. The government raises money by selling bills to the public Treasury Bills Characteristics: • Discounted bills, no coupon, sold at a discount from the stated maturity • At the bill’s maturity, the holder receives from the government a payment equal to the face value of the bill. Earnings=Face value-purchase price • Initial maturities of 28, 91, and 182 days LISTED TREASURY BILLS Treasury Bills DATS TO ASK MATURITY MAT BID ASKED CHG TLD Jan 11 OF 6 4.50 4.49 =0.1]1 4.56 Joan 18 OF 13 457 4.56 —0009 4.63 Jon 75 OF m0 4.61 4.60 =—01 4.68 Feb O1 OF a 470 4.69 —0006 AFF Feb O8 OF a 470 469 +001 478 Feb 15 OF 4] 473 472 —0008 461 Feb 27 OF 45 a9 4768 -04 4.58 Mor O1 OF 55 4.83 452 —02 4.972 Mor G8 OF 62 4.36 485 +0001] 4.96 Mor 15 OF 69 4.85 454 -00] 4.95 ior 22 OF fb 4.35 457 -02 4.99 itor 29 OF 83 4.38 457 -002 4.99 Apr 05 OF 0 491 4.90 -—“01 45.03 Apr 12 OF a 490 4.59 —001 S.d2 Apr 19 OF 14 4.90 4.59 -—0“01 45.03 Apr 26 OF 111 4.50 4.59 -—001 4.03 𝐵𝐼𝐷 𝑜𝑟 𝐴𝑆𝐾𝐸𝐷 = 𝐹 − 𝑃 𝐹 𝐷𝐴𝑌𝑆 𝑇𝑂 𝑀𝐴𝑇 360 𝐴𝑆𝐾 𝑌𝐿𝐷 = 𝐹 − 𝑃 𝑃 𝐷𝐴𝑌𝑆 𝑇𝑂 𝑀𝐴𝑇 365 DAYS TO MAT BID ASKED CHG ASK YLD 1. You would like to buy a treasury bill, face value 100USD, days to maturity 91 days, price 98 USD. In addition, you can sell it to dealers at the price of 97,95 USD. How to list it on the listing table? 1.1.1.2. Commercial papers • Large, well-known companies often issue their own short-term unsecured debt notes rather than borrow directly from banks ,called commercial paper • fairly safe assets • maturities range up to 270 days; longer maturities would require registration with the Securities and Exchange Commission, • issued in multiples of $100,000 Bill of Exchange London, 31 January 2000 Amount US# 250,000 At 60 days after sight pay against this Sole Bill of Exchange to the order of Ourselves the sum of US Dollars Two hundred and fifty thousand for value Received To: For and on behalf of: Singapore Import Banking Company UK Export Company Ltd Bank Street Singapore Ss mill Drawn under UK Export Banking Sta Company Ltd, Documentary Credit N° 12345, Dated 29 September 1999 James Smith, Director  • Sometimes, CP is backed by a bank line of credit, which gives the borrower access to cash that can be used if needed to pay off the paper at maturity • In Vietnam, CPs are created on the base of trading between buyer and seller. The difference in business cycle and capital rotation lead to a temporary short of capital in certain businesses. So, with the reputation, buyers can make a payment later to the sellers 1.1.1.3. Negotiable Certificates of Deposit (NCDs) • a time deposit with a bank • may not be withdrawn on demand. • pays interest and principal to the depositor only at the end of the fixed term of the CD • CDs issued in denominations larger than $100,000 are usually negotiable • they can be sold to another investor if the owner needs to cash in the certificate before its maturity date • Short-term CDs are highly marketable • are insured for up to $100,000 in the event of a bank insolvency What are the differences between CDs and deposit? What is Eurodollar? 1.1.1.4. Banker's Acceptances • An order to a bank by a bank’s customer to pay a sum of money at a future date, typically within six months, likely to be a postdated check. • Endorsed the order for payment as “accepted” by bank, assuming responsibility for ultimate payment to the holder of the acceptance • Traded in secondary markets much like any other claim on the bank • Very safe assets • Sold at a discount from the face value of the payment order, just as T-bills sell at a discount from par value sell Security + A (seller) y B (Buyer) Buy security  Repo vs Reverse repo? Repos in Vietnam, what are differences? 1.1.2.1. Stocks • Common stocks, also known as equity securities or equities, represent ownership shares in a corporation. The person who owns stocks is called shareholder. • The common stock of most large corporations can be bought or sold freely on one or more stock exchanges. A corporation whose stock is not publicly traded is said to be closely held. Rights of shareholders: • Income rights • Rights of residual claim • Voting on any matters of corporate governance • Giving ideas Shareholders’ liabilities: • Contributed equities in corporation are eternal. Shareholders can only transfer the title of ownership to other investors directly or through official market. • Limited liability. Example: ABC incorporation issued common stock and preferred stock with details : • Cumulative preferred stock 10% • Non-Cumulative preferred stock 12% • Participating preferred stock 8%, non- cumulative Business operation in recent years: • 2008, no profit • 2009, in progress, small profit , pays 50% of promised dividend. • 2010, better profit, moving and speeding up • 2011, maintain the growth well Year Business status Cumul ative preferr ed stock Non- Cumula tive preferre d stock Particip ating preferre d stock Common stock 2008 Difficulty 2009 A little profit 5 6 4 0 2010 Better profit 25 12 8 0 2011 Fair profit 10 12 10 8 Convertible preferred stock ABC Incorporation issues convertible preferred stocks with the face value 1,000,000VND. If all these stocks are converted into common stocks at the price of 40,000VND/share, while market price is 50,000VND/share, will the investor convert his stocks? Calculate the converting ratio and the profit per one convertible stock through the conversion? 1.1.2.2. Bonds • Long-term borrowing instruments • An agreement between issuer-borrower (government or institution) and the lender, promising either a fixed stream of income or a stream of income that is determined according to a specific formula • Normally, bond holders receive coupon annual or semi-annual and get back the bond face value at the maturity Characteristics: • Fixed income • Get back the face value at the maturity • Less risk than securities • Bond holders are prior residual claim than shareholders. Issuing equity or debt, which is better for a company? Quotation U.S. Government Bonds and Notes in Wall Street Journals Municipal bonds  General obligation bonds – Gos  Revenue bonds Corporate bonds • Debentures • Mortgage bonds • Convertible bonds • Income bonds • Callable bonds What is the convenience and inconvenience when company issues convertible bonds? Callable bonds Some corporate bonds are issued with call provisions. The call provision allows the issuer to repurchase the bond at a specified call price before the maturity date For example, if a company issues a bond with a high coupon rate when market interest rates are high, and interest rates later fall, the firm might like to retire the high coupon debt and issue new bonds at a lower coupon rate to reduce interest payments. This is called refunding. Example: ABC Inc. issues bonds with total value of 10 mil USD, coupon rate 8%. Issued price equals to par value 100USD. Company estimates that market interest rate will decrease within 7 years. To take advantage from this, she issues callable bonds. It means that the bonds can be called at any time after 3 years. At the call time, ABC will buy at the price of 102 USD. In the 4th year, interest rate decrease to 6%. If the bonds are called , what is company profit? Compare Fund certificates and stocks? Discuss why investors buy fund certificates in stead of stocks? 1.1.2.4. Mortgage-backed securities • is either an ownership claim in a pool of mortgages or an obligation that is secured by such a pool. These claims represent securitization of mortgage loans. Mortgage lenders originate loans and then sell packages of these loans in the secondary market 1.1.2.4. Mortgage-backed securities a 1983 1987 1991 1995 199 2003 2007  Is the place where all the transactions of long and short-term securities are happened. 60 Concept  Create the capital for the economy  Build up the investing environment for investor  Raise the securities’ liquidity  Assess the business operation  Place where government regulate the economy and execute macro policy 61 Securities market functions  Types of commodities: bond markets, stock market, derivatives market  Issuance: primary and secondary market Organization: stock exchanges and over-the- counter market (OTC) 62 Categories of securities market 65 Classification of security market • Stock exchanges are the place where all the already-listed securities purchase and sales take place 66 Classification of security market: over-the-counter market • is not a formal exchange • no membership requirements for trading, nor are there listing requirements for securities • All the transactions are through internet and telephone system. Vietnamese OTC is really the defined OTC? Upcom is OTC Types of transaction  Regular transaction  Cash transaction  Forward transaction Trading method  Put-through trading method  Order-matching trading method oPeriodic order-matching oContinuous order-matching Trading time Section Trading method Trading time Stocks and fund certificates Morning Opening periodic order-matching 09h00’ – 9h15’ Continuous order-matching I 09h15’ – 11h30’ Put-through 09h00’ – 11h30’ Intermission 11h30’ – 13h00’ Afternoon Continuous order-matching II 13h00’ – 14h30’ Closing periodic order-matching 14h30’ – 14h45’ Put-through 13h00’ – 15h00’ Bonds Morning Put-through 09h00’ – 11h30’ Intermission 11h30’ – 13h00’ Afternoon Put-through 13h00’ – 15h00’ Market close 15h00’ Price variation range  Shares and investment fund certificates +/- 7% Ceiling price = Reference price x (100% + Price variation range) Floor price = Reference price x (100% - Price variation range)  No price range applied for trading bonds. • Limit orders (LO) • Market price orders(MP) • At the opening order matching (ATO) • At the closing order matching price (ATC) • Stop orders 76 Types of order • Specify prices at which the investors are willing to buy or sell a security. If the stock falls below the limit on a limit-buy order then the trade is to be executed. If Exxon is selling at $68 bid, $68.15 asked, for example, a limit-buy order may instruct the broker to buy the stock if and when the share price falls below $65. Correspondingly, a limit-sell order instructs the broker to sell as soon as the stock price goes above the specified limit.. • Orders also can be limited by a time period. Day orders, for example, expire at the close of the trading day 77 Limit orders Example: VNM is sold at 108,000VND, 109,000; 112,000 VND/share. If the investors put the buy MP order. Immediately, the investors buy VNM at 108,000VND/share Market orders 80 • ATO is buy or sell order that is to be matched at the opening price. • ATO orders receive higher priority than limit orders when comparing to match. • ATO orders are entered into the trading system in time for Periodic order matching to determine the opening price and will be automatically cancelled at the end of the opening session if they are not executed or partially matched. 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Sell orders at lower price will take precedence. • Time Priority: In case buy or sell orders at the same price, those which entered into the trading system earlier will take precedence in execution. • Trading amount Priority: bigger order in amount will take precedence in execution Matching orders principles 87 90  From 9h00 to 9h15(in time for periodic order matching), we have Order Book of HAG Investor Amount Price Buy/Sell 1 15.000 52.000 Buy 2 17.000 53.000 Sell 3 12.000 55.000 Buy 4 13.000 53.000 Buy 5 19.000 52.000 Sell 6 13.500 55.000 Sell 91 Buy Buy accumulating Price Sell accumulating Sell 12.000 (3) 12.000 55.000 49.500 13.500 (6) 13.000 (4) 25.000 53.000 36.000 17.000 (2) 15.000 (1) 40.000 52.000 19.000 19.000 (5) Matching:25.000 shares, details of trading as follow. Executed •Investor 3 bought 12.000 shares at 53.000 đ/share •Investor 4 bought 13.000 shares at 53.000 đ/share •Investor t 5 sold 19.000 shares at 53.000 đ/share •Investor 2 sold 6.000 shares at53.000 đ/share Unexecuted: •Investor 1 cannot buy 15.000 shares •Investor 2 cannot sell 11.000 shares •Investor 6 cannot sell 13.500 shares 92 Make a change in details of investor 5’s trading (sell 25,000 shares in stead of 19,000 shares) and the reference price last day 53.500đ. Investor Amount Price Buy/Sell 1 15.000 52.000 Buy 2 17.000 53.000 Sell 3 12.000 55.000 Buy 4 13.000 53.000 Buy 5 25.000 52.000 Sell 6 13.500 55.000 Sell 95 Buy Buy accumulating Price Sell accumulating Sell 12.000 (3) 12.000 55.000 55.500 13.500 (6) 13.000 (4) 25.000 53.000 42.000 17.000 (2) 15.000 (1) 40.000 52.000 25.000 25.000 (5) Matching:25.000 shares, details of trading as follow : Executed •Investor 3 bought 12.000 shares at 53.000 đ/share •Investor 4 bought 13.000 shares at 53.000 đ/share •Investor 5 sold 25.000 shares at 53.000 đ/share Unexecuted: •Investor 1 cannot buy 15.000 shares •Investor 2 cannot sell 17.000 shares •Investor 6 cannot sell 13.500 shares 96 Investor Amount Price Buy/Sell 1 15.000 52.000 Buy 2 17.000 53.000 Sell 3 10.000 55.000 Buy 4 13.000 53.000 Buy 5 10.000 52.000 Sell 6 13.500 55.000 Sell 7 2.000 ATO Buy 8 9.000 ATO Sell In the order book, there is ATO 97 Buy Buy accumulating Price Sell accumulating Sell 2.000 (7) ATO 10.000 (3) 12.000 55.000 49.500 13.500 (6) 13.000 (4) 25.000 53.000 36.000 17.000 (2) 15.000 (1) 40.000 52.000 19.000 10.000 (5) ATO 9.000 (8) Matching:25.000 shares, details of trading as follow : Executed •Investor 7 bought 2.000 shares at 53.000 đ/share •Investor 3 bought 10.000 shares at 53.000 đ/share •Investor 4 bought 13.000 shares at 53.000 đ/share •Investor 8 sold 9.000 shares at 53.000 đ/share •Investor 5 sold 10.000 shares at 53.000 đ/share •Investor 2 sold 6.000 shares at 53.000 đ/share Unexecuted: •Investor 1 cannot buy 15.000 shares •Investor 2 cannot sell 11.000 shares •Investor 6 cannot sell 13.500 shares