Sri Lanka stock trading halt owing to error trade: CSE

An error trade in Distilleries Company of Sri Lanka shares triggered a half-hour market halt on the Colombo stock exchange Friday morning, the bourse said in statement.

The market halt was imposed at 11.00 a.m. after the bourse's Milanka price index dropped over five percent from the previous market day's close. The stock exchange said the MPI had dropped by over five percent owing to an error trade relating to 1,200 shares of Distilleries Company at 100 rupees a share.
The closing price of Distilleries Thursday was 149.60 rupees.
The CSE said broker firm responsible for the error trade had notified the bourse of the error and that it will be conducting an inquiry into it.

Stocks recovered after the trading resumed but were still weaker in afternoon trade. Colombo stocks had fallen 2.7 percent on Thursday.

"A market halt is used internationally by stock exchanges as a procedure for volatility management," the CSE statement said.

"Under such procedures trading may be halted temporarily or, under extreme circumstances, a market may be closed prior to normal close of the trading session." 

Nov 25, 2011 (LBO) 

Learn about Bonds

While stocks, both common and preferred, are equity securities and represent ownership in a corporation,

bonds are debt securities. A bondholder has, in effect, a debtor/creditor relationship with the corporation or governmental agency that issued the bond. Many stocks pay dividends; most bonds pay interest. Bonds are quite important in the financial scheme of things. Most of the money raised in the primary market (the new-issue market) is in the form of bonds rather than stocks. Bonds issued by a given company are safer than any equity security issued by that same company because their interest must be paid in full before any dividends may be paid on either preferred or common stock. Broadly speaking, bonds are higher on

the safety scale than stocks but generally not as rewarding an example of the risk-reward relationship.

Bonds issued by corporations (as opposed to bonds issued by municipalities and the federal government) trade in points and eighths as a percentage of par. One bond is considered to have a par value of  LKR100. or LKR1000. This means that if you own one bond, the company that issued the bond owes you LKR100 and will pay you that LKR100 when the bond matures. This LKR100 is the bond’s par value, also called its face value. Either term means the amount of the loan represented by the bond, that is, the amount the issuing company has borrowed and must repay when the due date (maturity date) arrives.

To be continued.....

Colombo Stocks in Uncertainty

Colombo Stocks in Uncertainty

The Colombo stock markets was acting as worlds no 1 market after the 2009 end of the war. inverters were over confident about Sri Lanka and was investing in our stocks. as usual the government was keen about this and introduces more and more regulation and tried to get maximum use of the situation by introducing continuous IPOs to the market.As a result of too much regulation and trying to get the too much advantage of the situation , finally the stock market has become a mess and its continuously going down  day by day.. so the investors are loosing money day by day....

once the ASI was reaching the 8000 and at this moment 19.11.2011 its more closer to the 6000 mark and expected to decline more. As can be seen in the graph the more liquid stocks has fallen sharply than ASI cause people has taken their money out selling the stocks  and the other stocks has fallen less as its not easy to sell them without incurring a big loss. How ever what ever happens the brokers and the government is getting their commissions for the buying or selling so they are still happy and only the poor investors are suffering.

Although the stock market showed a bull trend on last two days  its not possible to expect that we are in the bottom of the decline now. there was no real backing trend or momentum to take the drive forward and hence it is expected  the ASI to decline more in the next week also. so the investors better be careful on buying new shares  as none knows whether we have reach the bottom or not....

Sri Lankan stocks closed higher

Sri Lankan stocks closed higher Thursday after several days of losses with gains in most shares amidst thin trading, analysts said

They revealed that the Colombo Bourse bloomed in green territory today, after it observed deep steep sliding during recent past. The discounted market reflected an investor buying sentiment after so long days, which had resulted positive closures on both the indices, a stock broker said.  The benchmark All Share Price Index (ASPI) gained 69.68 points to close the day at 6,092.56; the liquid Milanka Price Index (MPI) gained 37.86 points and closed the day at 5,310.85. The market capitalization stands at Rs. 2.19Tn.

217 counters traded during the day to record a turnover of Rs. 827.4Mn which is an increase of 40% compared to the value recorded yesterday. John Keells Holdings (Rs. 205.6Mn), Commercial Bank (Rs. 43.5Mn) and HVA Foods PLC (Rs. 34.8Mn) were the major contributors to the daily turnover.  A Crossing took place on JKH.N for a value of Rs. 74.6Mn.

A total of 57Mn shares changed in hands during the trading day which is a reduction of 37% compared to yesterday. SMB Leasing PLC (14.7Mn), Blue Diamonds Jewellery [X] (8.5Mn) and SMB Leasing PLC (5.4Mn) were the top traded counters for the day further capturing investor’s interest. Price gainers outnumbered the price losers by 168:29. The price gainers were led by People's Fin (Price gain of 19%) on the contrary Autodrome (Price loss of 7.6%) led the price losers. The foreign investors reflected a selling sentiment recording a net foreign outflow of Rs 135.5Mn.(BS) 

-from Times online 17th nov 2011

Predicting Bull and Bear Markets

Predicting Bull and Bear Markets
Investors turn to theories and complex calculations to try to figure out in advance when the market will scream upward or tumble downward. In reality, however, no perfect indicator has been found.
In their attempts to predict the market, economists use technical analysis. Technical analysis is the use of market data to analyze individual stocks and the market as a whole. It is based on the ideas that supply and demand determine stock prices and that prices, in turn, also reflect the moods of investors. One tool commonly used in technical analysis is the advance-decline line, which measures the difference between the number of stocks advancing in price and the number declining in price. Each day a net advance is determined by subtracting total declines from total advances. This total, when taken over time, comprises the advance-decline line, which analysts use to forecast market trends.

Generally, the A/D line moves up or down with the ASI. However, economists have noted that when the line declines while the ASI is moving upward, it indicates that the market is probably going to change direction and decline as well.

Investing During Bull Markets

A key to successful investing during a bull market is to take advantage of the rising prices. For most, this means buying securities early, watching them rise in value and then selling them when they reach a high. However, as simple as it sounds, this practice involves timing the market. Since no one knows exactly when the market will begin its climb or reach its peak, virtually no one can time the market perfectly. Investors often attempt to buy securities as they demonstrate a strong and steady rise and sell them as the market begins a strong move downward.
Portfolios with larger percentages of stocks can work well when the market is moving upward. Investors who believe in watching the market will buy and sell accordingly to change their portfolios.
Speculators and risk-takers can fare relatively well in bull markets. They believe they can make profits from rising prices, so they buy stocks, options, futures and currencies they believe will gain value. Growth is what most bull investors seek.
The opposite of all this is true when the market moves downward.

 

Investing During Bear Markets
Successful investing in bear markets can involve many different strategies. Some investors try to secure their assets in less volatile securities such as fixed-income bonds or money market securities. Others wait for the downward trend of prices to subside. When it does, they begin buying. Still others seek to take advantage of the falling prices.
When the market goes down, portfolios with a greater percentage of bonds and cash fare well because their returns are fixed. Many financial advisors emphasize the value of fixed income and cash equivalent investments during market downturns.
Another strategy is to simply wait for the downward prices to reverse themselves. Investors who wish to remain invested in stocks may seek out companies in industries that perform well in both bull and bear markets -- shares in these companies are called defensive stocks. The food industry, utilities, debt collection and telecommunications are popular defensive stocks. However, there is no guarantee that a defensive stock will perform well during any market period.
Finally, some investors attempt to exploit profits from the downward price movements. One method is to sell at the beginning of a downward turn, when prices are still high. Proponents of this strategy wait for prices to bottom out before reinvesting in the market. However, as simple as it sounds, this process involves the nearly impossible task of timing the market. Another, more complicated way to attempt to profit from falling prices is called selling short.

There are many investment methods that seasoned investment professionals use to take advantage of opportunities during bull or bear markets. Methods such as cost averaging, selling short, and diversification exist. Understanding well-founded strategies will help you to improve your chances for superior performance in either market environment. However, there is no surefire way to always succeed. The best weapon you can employ is education. Do your homework!

Understanding Bull & Bear Markets

Understanding Bull & Bear Markets

Simply put, bull markets are movements in the stock market in which prices are rising and the consensus is that prices will continue moving upward. During this time, economic production is
high, jobs are plentiful and inflation is low. Bear markets are the opposite--stock prices are falling, and the view is that they will continue falling. The economy will slow down, coupled with a rise in unemployment and inflation. In either scenario, people invest as though the trend will continue. Investors who think and act as though the market will continue to rise are bullish, while those who think it will keep falling are bearish.

The basics of bull and bear markets  Specifically we will cover the following:
• What Drives Bull and Bear Markets?
• Predicting Bull and Bear Markets
• Investing During Bull Markets
• Investing During Bear Markets

What Drives Bull and Bear Markets?

What causes bull and bear markets? They are partly a result of the supply and demand for securities. Investor psychology, government involvement in the economy and changes in economic activity also drive the market up or down. These forces combine to make investors bid higher or lower prices for stocks.
To qualify as a bull or bear market, a market must have been moving in its current direction (by about 20% of its value) for a sustained period. Small, short-term movements lasting days do not qualify; they may only indicate corrections or short-lived movements. Bull and bear markets signify long movements of significant proportion.

There are several well-known bulls and bears in American history. The longest-lived bull market in U.S. history is the one that began about 1991 . Other major bulls occurred in the 1920s, the late 1960s and the mid-1980s. However, they all ended in recessions or market crashes.the Sri Lankan great bull market started after 2009 war winning against lasted for around two years and now on a continuous bear market.
The best-known bear market in the U.S. was, of course, the Great Depression. The Dow Jones Industrial Average lost roughly 90 percent of its value during the first three years of this period. There were also numerous others throughout the twentieth century, including those of 1973-74 and 1981-82.

 

 

 

 

The Life of a Trade

The life of a trade can vary a great deal depending on whether the trade involves a listed, CSE or over-the-counter bulletin board security. The following description is intended to give you a general idea of how the process of trading stocks works.

Trading is based on supply and demand. When you buy or sell a stock, you are literally trading with another investor — someone in your city, across the country or on the other side of the world. An order from you to buy a stock must be matched with a seller's order to sell. If you place an order on the CSE, or one of the many other exchanges, this match may be done electronically.
If your order is sent to the trading room floor of one of the exchanges, the auction process begins. A member of the stock exchange walks to the appropriate trading area where your stock is traded and presents your order. Sometimes there will be a broker in the crowd with a sell order at the same price. In this case your order will be completed or filled. Brokers must often act quickly or risk missing the market. If a broker hesitates, a competitive bid could be placed, driving up the market price for the next trade.

The broker may also hand your order to a specialist. The specialist is a person in each trading area, whose job is to guarantee a fair and orderly market by matching buys and sells or by buying or selling themselves if needed. When an order is away from the market, it can be placed under a specialist's care. From this point on the specialist is in charge of representing your order.

If you placed a GTC order with us, it would stay open until it is filled, canceled by you, or until five days in CSE. If the order is filled, the broker or specialist will report the fill to us. You can choose to be contacted by phone, fax or e-mail. Of course, if you monitor the Order Status section of the website, you can also see when the order is filled. You will also receive a  Mail copy of your order confirmation and fill. You should check your order confirmation carefully no matter how it is received.

Once the order is filled another process kicks into place; one which is generally invisible to you. First the fill is reported to the Market Data System of the exchange. This system transmits the trade details such as the stock name, the number of shares traded and the price of the trade to all interested parties through the ticker tape. The trade can be seen online, TV or through other media by the investor and other interested parties. The ticker tape will also update the information (sometimes with a time lag) on your Quote Monitor.
The tickets sent to your brokerage firm and the brokerage firm of the person who bought or sold the stock from you is entered into a computer. Over the next few hours, the two trades are matched to make sure they agree. If they do not agree, the brokers meet again to settle any differences. This will not affect your fill. Once agreement is ensured, the settlement process begins. Settlement of the trade generally occurs three business days from the actual trade date. Upon settlement the brokerage firms exchange (usually electronically) the stock certificates and the money for the stock.

Registered Representatives, Market Makers and Specialists

Registered Representatives
A registered representative is an individual who has passed the CSE's registration process and is therefore licensed to work in the securities industry. The process includes an examination that tests the candidate's knowledge of securities and markets. Further, the registration agreement requires that the candidate agree to follow the rules of the CSE.
Registered representatives sell to the public; they do not work on exchange floors.

Market Makers
Market makers are firms that maintain a firm bid and offer price in a given security by standing ready to buy or sell at publicly-quoted prices. The CSE / Nasdaq is a decentralized network of competitive market makers. Market makers process orders for their own customers, and for other broker/dealers; all securities are traded through market maker firms. Market makers also will buy securities from issuers for resale to customers or other broker/dealers. About 10 percent of  CSE firms are Market Makers; a broker/dealer may become a Market Maker if the firm meets capitalization standards set down by the CSE.

Specialists

Specialists keep markets for securities orderly and continuous. This means they must buy when there are others selling without buyers, and they must sell when others are buying without sellers. They must maintain their own inventories of securities that are large enough for sizable trades. Specialists both buy and sell out of these inventories and mediate between other customers.
Specialists work on the exchanges where they hold seats. Among their duties is buying and selling odd-lots (trades of less than 100 shares) for exchange members. To trade a security, a specialist must be able to keep a position on it with at least 5,000 shares. Specialists, like others, who buy and sell for the public, are subject to rules and regulations. Specialists often choose to keep inventories in multiple securities, often in more than one market sector.

Stock Market Players

As an investor, you need to be familiar with the different players in the investment arena and how they buy and sell securities. Broker-dealers, registered representatives and the others have specific roles in clearing the way for commerce in securities.
This tutorial will cover the following topics:
• Broker-Dealers
• What Broker-Dealers Are Not Allowed to Do
• Other Broker Services
• Registered Representatives, Market Makers and Specialists

Broker-Dealers

A broker is a person or firm that facilitates trades between customers. A broker acts as a go-between and, in doing so, does not assume any risk for the trade. The broker does, however, charge a commission. A dealer is a person or firm that buys and sells for his or her own inventory of securities and for others. A dealer therefore assumes risk for the transactions. Dealers may mark securities up or down to make a profit on their transactions.
Many publications or websites use the term broker-dealer. A broker-dealer is allowed to operate in either role, but never as both at the same time.
To be involved in the buying, selling or trading of securities, a person or firm must be registered with the CSE The CSE is a self-regulatory organization created by the Securities and Exchange Commission (SEC). Brokers and dealers must follow all rules of the CSE and SEC, including the SEC,s Conduct Rules and its rules for arbitration, complaints and dealings with the public

 

Broker-dealer status can be revoked for freely breaking securities rules; for having been expelled or suspended from any self-regulatory organization; for making misleading statements to the SEC or the CSE; or for having committed felonies or misdemeanors in the securities industry.

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What Broker-Dealers Are Not Allowed to Do
The following are practices that broker-dealers are forbidden to do:
• Churning: Excessive trading of a client's discretionary account to increase the broker's commissions.
• Use deception or manipulation to trade securities, or failing to state material facts
• Recommending low-priced, speculative securities without determining whether they are suitable for the customer
• Make unauthorized transactions
• Guarantee that loss will not occur
• Try to talk clients into buying mutual funds inappropriate for their means and goals
• Use fictitious accounts to disguise trades
• State that the SEC has approved or judged positively either the security or the broker
• Not promptly transmitting the client's money or securities
Broker-dealers convicted of any of these actions may be expelled or suspended by theSEC.
Because brokers have so much control over other people's money, their activities are highly regulated.

Other Broker Services

Brokers, when authorized by the client, may set up discretionary accounts. These accounts allow brokers to buy and sell securities for a client's account without contacting the client for each transaction. The authorized broker may determine the security traded, how much of it may be traded, the price and the time of transaction.
Brokers may lend funds to customers who have margin accounts. With margin accounts, customers can buy additional securities with money borrowed from a broker.

Initial Public Offerings (IPOs)

The very first sale of stocks to the public is called an initial public offering (IPO), and occurs on the primary market. This tutorial will cover the following factors involved in initial public offerings:
• The Process of Issuing Securities
• The Basics of Underwriting
• Types of Underwriting Arrangements
• The Prospectus
• Ways a Stock May Be Advertised Before it is Sold
• Newly Issued Stocks: Getting the Names Straight

The Process of Issuing Securities

Corporations sell stock to the public as one way to raise capital. Before it can issue new stock, a corporation must first file registration statements with the Securities and Exchange Commission (SEC).The issuing company may make their registration statement public with a preliminary prospectus called a red herring that summarizes the registration statement. Basic information about the new offering is also provided, including how many shares are being offered and which brokerage companies will distribute the stock to the public. At the time of issue, a final prospectus is presented. This includes the price of the stock (its offering price).

The Basics of Underwriting

A Corporation going public hires an investment banker to help it sell its stock. This process is called underwriting. The investment banker functions as an intermediary between the issuing corporation and the public. In most cases, the underwriter (investment banker) purchases the stocks from the company for resale to the public. To reduce its own risk, the investment banker may form an underwriting syndicate of other investment bankers to co-purchase the shares. The underwriting syndicate forms a selling group to sell specified allotments of the issue. The investment banker (underwriting syndicate) then marks up the price of the offering. This markup represents the fee for the syndicate's service. The difference between the price the underwriter pays and the price the public pays is called the underwriting spread.

The syndicate manager may bid on the stock in the offering to "stabilize" the price. This bid must be less than or equal to the offering price. By law, the prospectus must make this attempt to stabilize the stock price known to the public.
The SEC also requires the underwriter to investigate the issuing company-particularly any audits, how it uses proceeds, its financial statements and the management team. This process is called due diligence.

Types of Underwriting Arrangements

A stock issue can be underwritten by several methods.
The underwriter can act as an agent, in which it tries to sell as much of the issue as it can at market prices. This is a best effort arrangement.
The issuing company can also agree to issue new stock on the condition that all of it is sold. If all of the stock is not sold, then it will withdraw the issue. This is an all-or-none arrangement.
A negotiated underwriting is when the issuer and the corporation negotiate the terms of the issue, the price, the size and other details.
The issue may be subject to competitive bids from investment bankers. The top bidder underwrites the issue and resells it to the public.
When a public company issues more of its stock, it must first offer that stock to existing shareholders; that is their preemptive right. A standby is the public sale of whatever stock the existing shareholders have not yet purchased.
A firm commitment arrangement is when an investment banker buys all of the stock from the corporation and then resells it to the public at a higher price.
A private placement is an offering in which the company sells to private investors and not to the public. Private placements do not have registration fees.

The Prospectus
Prospectuses are legal documents that explain the financial facts important to an offering. They must precede or accompany the sale of a primary offering. The law requires companies selling
primary offerings to send prospectuses to anyone who wants to buy a primary offering. Prospectuses may also be used to solicit orders. Customers should read a prospectus carefully before purchasing any primary offering.
Prospectuses include but are not limited to the following:
• Offering price
• Legal opinions about the issue
• Underwriting method
• The history of the company
• Other costs related to investing in the stock
• The management team
• The handling of proceeds
The prospectus must be provided to customers before they complete any transactions. It must also include the SEC's disclaimers that it does not approve or disapprove of the stock being offered, and that it does not judge the prospectus' statements for accuracy.

Ways an Issue May Be Advertised Before it is Sold

A new issue of stock is allowed to be advertised before it is actually sold, although it may not be sold during the actual registration period.
Registered representatives are allowed to accept oral solicitations from clients. They are not allowed to sell any shares of the new stock. Neither are they allowed to affirm any offers of sale.
Registered representatives may send red herrings, or preliminary prospectuses, to clients. Information in these documents will discuss why the stock is being sold and the offering timetable. Red herrings are only issued for information purposes.
Tombstone advertisements are ads that announce the new stock. Their sole purpose is to function as communication. They are not prospectuses. They are called tombstones because they provide prospective buyers with the "bare bones" information: the name of the stock, the issuer and how to obtain a red herring.

How the Stock Market Works

Why Do Companies Issue Stock?

Companies throughout the world issue new stock shares every day. But what is stock, and why does a company issue it?  to better understand these important concepts we will discuss about below tropics one by one

• What is Capital?
• Equity vs. Debt
• Why Do Corporations Issue Stock?
• Advantages for Stock Holders
Let us begin by defining the word capital.

What Is Capital?

Let's imagine that you decide to start up your own ice cream shop business. You will need to invest in equipment, food supplies and property. All the money that you invest to start your business is called capital. Essentially, the capital of a business consists of all of its assets (or items to assist in the creation of wealth).
What if it dawns on you that you don't have enough cash to buy all the needed assets? Let's see how new businesses and companies deal with this problem.

Equity vs. Debt

To start a new business (or fund a new project) a company can raise money in two ways - by selling shares of equity or by incurring debt. If the owner of our ice cream parlor invested all their own savings to buy the materials necessary to start the business, they made an equity investment in the company. Equity is simply ownership of a corporation. Typically, ownership units in a corporation are referred to as stock.
However, if our owner did not have necessary funds to start their own business they could finance their operation in one of two ways:

1. Issue stock (or certificates of partial ownership in his company) to people who may be interested in helping their venture out in return for a proportional share of the profits that the company might generate.
2. Borrow money that will need to be paid back with interest.

So, what are the advantages of selling stock?

Why Do Corporations Issue Stock?
Businesses issue stock to raise capital.
Advantages of issuing stock:
1. A Company can raise more capital than it could borrow.
2. A Company does not have to make periodic interest payments to creditors.
3. A Company does not have to make principal payments.
Disadvantages of Issuing Stock:
1. The principal owners have to share their ownership with other shareholders.
2. Shareholders have a voice in policies that affect the company operations.


Advantages for Stockholders

As part owner of a corporation, you may be entitled to share in the profits of the company. There is also a chance that the company will grow and the price of the stock may rise.
If the company achieves economic success, the stock value will go up and stockholders will benefit. For example, if you invested $1,000 to buy 100 shares of a company at $10 each and the shares rose to $13 each you would gain $300. This is equivalent to a 30% return. In cases like this, both the stockholders and the business would be pleased.

Why the Stock market is down

The experts views are given below as the news websites has published. They says

Main reasons are govt intervention and Broker's reaction

Under the Govt Intervention they lists down following major points:
(1)Buying shares To show upward trend for political reasons
(2)Regulation introduced by CSE to control Brokers

Under the Brokers Reaction they lists down following major points:
(1)Giving incentives to individuals involved in purchasing of shares in govt institutions and selling at abnormal prices
(2) Providing unlimited credit facilities to certain parties To manipulate the market
(3)Selling shares at low price to react CSE Regulations

As the Solution , the experts proposes that the govt role should be providing facilities for favorable Business environment and not buying shares To show artificial upward trend in the market.