Since I kept answering the same few questions time and time again in cna forum, I decided to post it in my blog so that next time I don't have to retype it again. This is what I'll do - i'll collect all the most commonly answered questions about the stock market, then I'll post the answers here. Easier for everyone. Here goes:
(Updated on 4th Feb, 2008)
Summary of questions:
1. What causes the price of a stock to go up or down? How come even though the buy queue is higher than the sell queue, the stock doesn't move up in price?
2. What is the trading hours of Singapore and HK bourse?
3. What actually happens when I buy a stock?
4. What is long? What is short = katek?
5. What is naked short?
6. This short cannot, that short also cannot. Then if market turns bearish, just sit and cry ah? Any other options?
7. What is averaging down?
8. What are bonds, bills, warrants, CFDs?
9. What's XD, CD? Do I get dividends if I buy on XD?
10. What is the x you see just before market opens and after it closes, when looking at the sales and transactions for the day? Married deals?
11. What are right shares? Nil-paid rights?
12. What is force key? I see that option when I'm getting my orders keyed in.
13. I have been using X brokerage firm and now I’m using Y brokerage firm. I bought some shares using X firm, so does the shares that I bought with X be transferred over to Y? If I sell my shares using Y does it constitute a short sell?
14. What are odd lots? Can I sell odd lots?
15. What is contra? (No, it’s not the game)
16. I got a company warrant. How do I exercise the warrants to covert it to shares? (Note: company warrant is not structured warrants)
17. What is pre-open and pre-close?
18. What should I do when I receive the thick annual report every year? Do I have to do anything about it?
19. What are rights warrants?
20. How do I apply for rights? What are the options I have?
21. How is the opening price of a stock determined?
22. Why is it that when I queue to buy at price of $0.50, but when the current price of the stock reaches that, I still haven’t bought my stock yet? Is it because of queuing?
23. What is CE and XE? What is cash distribution?
24. What is BB? I keep seeing people saying BBs are buying/selling.
25. What is shares splitting and what are its implication?
1. What causes the price of a stock to go up or down? How come even though the buy queue is higher than the sell queue, the stock doesn't move up in price?
I'll give an example.
Buying vol | buy price | sell price | sell volume
say initially its 520 | 0.770 | 0.775 | 330
This means that there are currently pple waiting to buy 520 lots at 0.770 and pple waiting to sell 330 lots at 0.775. The key word is waiting, because the buy/sell queue are waiting queue.
If you want to buy 5 lots at 0.770, you join the queue at 0.770, the quotes become
525 | 0.770 | 0.775 | 330
If I want to sell 10 lots at 0.775, i join the sell queue and the quotes become
525 | 0.770 | 0.775 | 340
Notice that up to now, the price didn't move at all. Now if I'm sick of waiting and i'm in a hurry to sell off another 10 lots, i dun sell at the sell price, i sell at the buy price. Immediately i jump the sell queue, quotes become:
515 | 0.770 | 0.775 | 340...price drops to 0.770
Same thing for buying up. If someone is too eager to buy the stock, he wants to get in 10 lots at 0.775 to jump the whole buy queue, here's how the quote look like:
515 | 0.770 | 0.775 | 330.... price increase to 0.775
Basically it's the enthusiasm of buyers to bid higher price that drives the price up, and the desperation of sellers to sell at lower bid that drives price down, not the buy and sell queue.
2. What is the trading hours of Singapore and HK bourse?
Singapore opens at 9 am to 1230pm, break for lunch and resume the afternoon session at 2pm to 5 pm. Hong Kong opens at 10 am to 1230pm, opens again at 230pm to 4 pm. Do take note that if you use most of the 'live' prices for HK stocks, it'll lag by at least 5 to 15 min. Yahoo! finance lags by as much as 30 mins to 1 hr. The livest live price can be found from the following sites:
a. Live HSI charts - This one is good as it even has charts and is detachable
b. Real time HSI forex gold - this one is not real time, but it's not laggy, good enuff for me.
c. HSI stock quotes - this one is straight from the horse's mouth, so to speak. Too laggy for me
The only free HK live price I know from brokerage is from dbs vickers. But it has it own set of problems...
3. What actually happens when I buy a stock?
After you buy a stock, we don't have to pay for it immediately. The day that the stock is purchased is termed T day. We have to pay the stock by T+3 (or T+4, T+5, depending on your brokerage firm or broker). This means that we have to make payment by transaction day plus another 3 market days (market days exclude public holidays and weekends).
For example, if I buy on Thurs, I have to pay on T+3, which is next Tues (usually by evening, but dependent on broker). If payment is not received on end of T+3, the brokerage will sell off your shares. After payment is made, the scripts will be electronically transferred to your central deposit account (CDP). If you have an online password with them, you can check their website and you'll see your shares there. You'll also receive those irritating perforated pieces of paper (two of them!), saying that you made a transaction with your brokerage firm and another saying that the CDP received the shares.
4. What is long? What is short = kateks?
Longing a stock means we buy a stock, wait for the price to move up to sell again to pocket the difference. Shorting a stock means we sell a stock first, wait for the price to move down, then buy it back again to 'cover the short position', thereby pocketing the difference. How come we can do such things - selling something that we dun have?
The reason is because of 'contra'. Basically it just means that it takes some time for the stock you buy or sell to be delivered to your central deposit account (CDP), so if we sell or buy before it's delivered we don't have to pay for anything. Usually contra period is T+3, meaning the day you transacted (T) + another 3 market days. So if I buy a share and sell it all within T+3, I don't have to make any payment and can pocket the difference. Be careful about buying things you can't afford to pay. If you can only buy $1000 worth of stocks and you bust that limit and buy all the stocks your trading limit allows (say $50,000) on contra (meaning that you have no intention to pay and die die have to sell by T+3), you are either skillful or just very optimistic in the face of death.
Shorting, on the other hand, doesn't work on T+3, take note!! We have to cover our position by the end of the day (T+0), otherwise SGX will buy back for you.
5. What is naked short?
Naked short means that you short a counter that you didn't have, AND didn't cover by the end of the day and is subjected to SGX buy back. The procedure is like this
a. You sell short a counter and never cover your position by buying in at the end of the day
b. On T+3, you don't have the scripts in your CDP to deliver to the buyer, so SGX will initiate a buy in for you
c. SGX will buy at 11:30am on T+4 at 2 bids higher than the closing price of T+3 or 11:30am price of T+4, whichever is higher. That is, higher of (closing of T+3 or 11:30am price of T+4) plus another 2 bids. I remember someone saying that the bids will increase every few minutes until someone sells it to SGX. Other penalties may apply.
In other words, you're subjected to the whims of the market and you'll only know the results after 3 or 4 market days. AND DO NOT BUY BACK YOURSELF - YOU'LL JUST BE OPENING ANOTHER POSITION! Good luck to you.
6. This short cannot, that short also cannot. Then if market turns bearish, just sit and cry ah? Any other options?
There are proper ways to short the market. Listed below are the ones I know, but bear in mind that each also have its own risks. It's not within the scope of this faq to discuss.
a. Put warrants
b. CFD - contract for difference
c. Short the market, borrow scripts from SGX to cover your short position . When price drops low enough, buy back the scripts and return to SGX, pocketing the difference.
7. What is averaging down?
This is a method to lower down the average buy price so as to be able to get out of it IF it rebounds at lower price. An example will do the trick.
Suppose I bought a stock, 10 lots at 0.770. The price subsequently tanked and I held on, thinking that it is temporarily. But it tanked to 0.600, a 22% drop in price. For it to rise back to 0.770 (ignore brokerage for simplicity), it has to rise up 28%, which is even harder. So I buy in more to 'average down' my buy in price.
So when it reached 0.600, I bought 10 lots at 0.600...tanked down further
Bought it 5 lots more at 0.550.
My weighted average buy price is 0.658 [ (10x0.770 + 10x0.600 + 5x0.550)/(10+10+5)]. If the price rebound slightly and hit 0.660 (assuming no brokerage), I can break even and sell already, instead of waiting to sell at 0.770.
The risk? You are throwing money into a sinking ship. It might sink and sink and never recover. Do this only if you're sure why the stock is sinking. Otherwise you're just digging deeper in your own grave. Most pple prefer averaging up - if the stock is performing as you expect, then you throw in more funds. Whatever you choose, just know what you're doing and the risks involved.
8. What are bonds, bills, warrants, CFDs? (adapted from veron97, cna forum)
Bond/bills
A debt investment with which the investor loans money to an entity (company or government) that borrows the funds for a defined period of time at a specified interest rate.
The indebted entity issues investors a certificate, or bond, that states the interest rate (coupon rate) that will be paid and when the loaned funds are to be returned (maturity date). Interest on bonds is usually paid every six months (semiannually). The main types of bonds are the corporate bond, the municipal bond, the Treasury bond, the Treasury note, the Treasury bill and the zero-coupon bond.
The higher rate of return the bond offers, the more risky the investment. There have been instances of companies failing to pay back the bond (default), so, to entice investors, most corporate bonds will offer a higher return than a government bond. It is important for investors to research a bond just as they would a stock or mutual fund. The bond rating will help in deciphering the default risk.
A bill is just a shorter term version of bonds. In Singapore, bill is anything less than or equal to 1 yr while bonds are more than 1 yr, like 1,2,5,7,15 and 20yr bonds.
Check this website out to find the difference in prices and yields.
Warrant
A derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue as a "sweetener" to entice investors.
The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months.
Basically, call warrants means that you want the price of the underlying to go up. If the underlying goes up, the call warrants will also rise in price. Put warrants means you want the price of the underlying to go down and it will rise in price if the underlying goes down. Can read this website for more information on the basic of warrants e.g. IV, delta, strike, settlement, expiry.
Contract For Differences - CFD
An arrangement made in a futures contract whereby differences in settlement are made through cash payments, rather than the delivery of physical goods or securities.
This is generally an easier method of settlement because losses and gains are paid in cash. CFDs provide investors with the all the benefits and risks of owning a security without actually owning it.
9. What's XD, CD? Do I get dividends if I buy on XD?
When a stock wants to give dividend, it will put a CD - cum dividend remark. This means anyone who buys now or owns the stock already, will be entitled to get dividends by the time the stock closes its book. XD stands for ex-dividend. If you buy the stocks on XD, it will be too late to reach the registrar so your name will not be in the company's book - so you'll not be entitled to dividends. To make it really simple:
a. If you buy on or before CD, you'll get dividends
b. If you sell on or before CD, you won't get dividneds
c. If you buy on or after XD, you won't get dividends (the seller gets it)
d. If you sell on or after XD, you'll get dividends (the buyer won't get it)
Don't worry about record date or book closure date, it's none of our concern. Just worry about CD/XD will do. Oh, and of cos the payment date.
10. What is the x you see just before market opens and after it closes, when looking at the sales and transactions for the day? Married deals?
The x at the opening and closing is the pre-open and pre-close matching respectively.
For pre-opening, it's basically for those orders that are keyed in before the market is opened AND are transacted. What happens is that there are buyers who bid for a price and sellers who ask for a price. There is some formula to calculate these two bid/ask price, and this calculated price is the opening price of the stock. If there are a total of 10,000 buyers and sellers matched, then you'll see 8:59 x 10,000.
Same thing for pre-close matching, but this time the calculated price is actually the closing price of the stock.
Do not mistake the x when market is open for trading for pre-close/open matching, they are not. These x are married deals, a different ball game altogether. Married deals are private deals with a willing buyer and seller, so the price are decided between the two parties and are independent of the bid/ask quotes you see currently on the screen. Married deals are important, esp if the volume for the transactions are huge - usually indicates to me that institutional buyers are buying/selling.
11. What are rights shares? Nil paid rights?
Cash-strapped companies can turn to rights issues to raise money when they really need it. In these rights offerings, companies grant shareholders a chance to buy new shares at a discount to the current trading price. Let's look at how rights issue work, and what they mean for all shareholders.
Defining a Rights Issue and Why It's Used
A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. More specifically, this type of issue gives existing shareholders securities called "rights", which, well, give the shareholders the right to purchase new shares at a discount to the market price on a stated future date. The company is giving shareholders a chance to increase their exposure to the stock at a discount price.
But until the date at which the new shares can be purchased, shareholders may trade the rights on the market the same way they would trade ordinary shares. The rights issued to a shareholder have a value, thus compensating current shareholders for the future dilution of their existing shares' value.
Troubled companies typically use rights issues to pay down debt, especially when they are unable to borrow more money. But not all companies that pursue rights offerings are shaky. Some with clean balance sheets use them to fund acquisitions and growth strategies. For reassurance that it will raise the finances, a company will usually, but not always, have its rights issue underwritten by an investment bank.
How Rights Issues Work
So, how do rights issues work? The best way to explain is through an example.
Let's say you own 1,000 shares in Wobble Telecom, each of which is worth $5.50. The company is in a bit of financial trouble and sorely needs to raise cash to cover its debt obligations. Wobble therefore announces a rights offering, in which it plans to raise $30 million by issuing 10 million shares to existing investors at a price of $3 each. But this issue is a three-for-10 rights issue. In other words, for every 10 shares you hold, Wobble is offering you another three at a deeply discounted price of $3. This price is 45% less than the $5.50 price at which Wobble stock trades.
As a shareholder, you essentially have three options when considering what to do in response to the rights issue. You can (1) subscribe to the rights issue in full, (2) ignore your rights or (3) sell the rights to someone else. Here we look how to pursue each option, and the possible outcomes.
1. Take up the rights to purchase in full
To take advantage of the rights issue in full, you would need to spend $3 for every Wobble share that you are entitled to under the issue. As you hold 1,000 shares, you can buy up to 300 new shares (three shares for every 10 you already own) at this discounted price of $3, giving a total price of $900.
However, while the discount on the newly issued shares is 45%, it will not stay there. The market price of Wobble shares will not be able to stay at $5.50 after the rights issue is complete. The value of each share will be diluted as a result of the increased number of shares issued. To see if the rights issue does in fact give a material discount, you need to estimate how much Wobble's share price will be diluted.
In estimating this dilution, remember that you can never know for certain the future value of your expanded holding of the shares, since it can be affected by any number of business and market factors. But the theoretical share price that will result after the rights issue is complete - which is the ex-rights share price - is possible to calculate. This price is found by dividing the total price you will have paid for all your Wobble shares by the total number of shares you will own. This is calculated as follows:
1,000 existing shares at $5.50 $5,500
300 news shares for cash at $3 $900
Value of 1,300 shares $6,400
Ex-rights value per share $4.92 ($6,400.00/1,300 shares)
So, in theory, as a result of the introduction of new shares at the deeply discounted price, the value of each of your existing shares will decline from $5.50 to $4.92. But remember, the loss on your existing shareholding is offset exactly by the gain in share value on the new rights: the new shares cost you $3, but they have a market value of $4.92. These new shares are taxed in the same year as you purchased the original shares, and carried forward to count as investment income, but there is no interest or other tax penalties charged on this carried-forward, taxable investment income.
2. Ignore the rights issue
You may not have the $900 to purchase the additional 300 shares at $3 each, so you can always let your rights expire. But this is not normally recommended. If you choose to do nothing, your shareholding will be diluted thanks to the extra shares issued.
3 Sell your rights to other investors
In some cases, rights are not transferable. These are known as "non-renounceable rights". But in most cases, your rights allow you to decide whether you want to take up the option to buy the shares or sell your rights to other investors or to the underwriter. Rights that can be traded are called "renounceable rights", and after they have been traded, the rights are known as "nil-paid rights".
To determine how much you may gain by selling the rights, you need to estimate a value on the nil-paid rights ahead of time. Again, a precise number is difficult, but you can get a rough value by taking the value of ex-rights price and subtracting the rights issue price. So, at the adjusted ex-rights price of $4.92 less $3, your nil-paid rights are worth $1.92 per share. Selling these rights will create a capital gain for you.
Be Warned
It is awfully easy for investors to get tempted by the prospect of buying discounted shares with a rights issue. But it is not always a certainty that you are getting a bargain. But besides knowing the ex-rights share price, you need to know the purpose of the additional funding before accepting or rejecting a rights issue. Be sure to look for a compelling explanation of why the rights issue and share dilution are needed as part of the recovery plan. Sure, a rights issue can offer a quick fix for a troubled balance sheet, but that doesn't necessarily mean management will address the underlying problems that weakened the balance sheet in the first place. Shareholders should be cautious.
12. What is force key? I see that option when I'm getting my orders keyed in.
When buying or selling, you can only key in within 6 bids of the current price. Different price range have different bid size.
So, if a stock is currently trading at say 1.50, you can only sell up to 1.56 or buy up to 1.44 (within 6 bids, each bid being 1 cent). If you need to go beyond, you need to check the 'force-key' option. Some brokerage firm have free force keys, some are subscription based.
Take note that on 24th Dec 2007, SGX will revise a new minimum bids with increased forced key orders. The bid size is reduced according to this:
For stocks:
1. Below S$1, bid size is 0.005
2. S$1 - S$9.99, bid size is 0.01
3. S$10 and above, bid size is 0.02
4. Forced key orders for stocks is +/- 10 bids.
For all ETF
1. Bid size is 0.01 or 0.001 as determined by SGX-ST
2. Forced key order is +/- 30 bids
13. I have been using X brokerage firm and now I’m using Y brokerage firm. I bought some shares using X firm, so does the shares that I bought with X be transferred over to Y? If I sell my shares using Y does it constitute a short sell?
The answer depends very much on whether the shares you bought with X firm are deposited in the central depository (CDP). It will be, after you made payment by T+3 days. If that is the case, the shares you bought have nothing to do with X firm anymore, so you can very well sell the shares using Y firm or any other firms. It will not be a short sell.
If you buy shares using X firm, but within T+3 you sell it using Y firm, then you have an open position with X and a short position with Y. You still need to pay for your shares plus brokerage with X before the shares will be transferred over to CDP. In the meantime, you have to cover you short position with Y by buying back within the same day of transaction, otherwise you will be subjected to SGX buy back.
If you buy shares with X firm, paid for it by say T+1, then sell it by T+2 using Y firm, then I’m also confused! To be sure, check CDP website to ensure that the shares you paid for are already deposited inside before selling using Y firm. Life’s too bland for you? haha
Do yourself a favour, keep a good transaction record of which shares you buy, T+3 payment date and with which brokerage firm.
14. What are odd lots? Can I sell odd lots?
Usually, each lot size in SGX shares consists of 1000 shares. There are some exceptions, for example the STI ETF 100 shares, you can buy at 100 shares per lot instead of the usual 1000 shares per lot. How do we get odd lots? Usually through corporate actions like rights or entitlement, script dividend. For simplification, I assume all shares have a lot size of 1000 shares here.
Since you can only buy or sell a minimum of l lot, there is some problem if you want to buy/sell less than 1 lot, like 800 shares. These are called odd lots, and they can’t be transacted in the normal markets.
I know that for poems, there is a unit shares market – specifically used to buy/sell odd lots. But take note – due to the liquidity (or rather the lack of), expect to sell your odd lots below market price and buy odd lots (to top up to 1 full lot) at a discount. This mean you can buy 1 share of DBS at $20 plus dollars if you so wished.
15. What is contra? (No, it’s not the game)
When you buy a stock, you normally have to pay on T+3. T+3 means that transaction date + 3 more market days (public holidays, sat, sun not counted as market days).
E.g. If I buy on Thurs, T+3 is actually next Tues.
If I managed to sell off the stock I bought before T+3, that means that I don't have to pay any capital upfront and get the difference between the price I bought and the price I sold. This is called contra.
Usually contra are for short term traders, who goes in and out within the T+3 days. Those who contra all the time will also whack huge lots (more than what they can afford to pay) since they don't have to really pay for the stocks upfront and they are going to sell off before the T+3 date, regardless of profit or loss.
Just be careful if you buy more than what you can afford...If the stock went down, you might have to hold or sell at a loss. Not advisable, unless you're a good chart reader who knows when a stock can make spectacular gains all within T+3.
16. I got a company warrant. How do I exercise the warrants to covert it to shares? (Note: company warrant is not structured warrants)
Courtesy of lonewolf from cna forum, who did the sleuthing.
Q. What shall I do when I want to exercise my warrants?
A. When exercising your warrants, you must submit the following to the Warrant Agent:
1. Your latest statement showing the number of warrants you have in your securities account. This can be obtained from The Central Depository (Pte) Ltd or via CDP Internet Access if you have applied and gotten an I-PIN.
2. The exercise notice, a copy of which can be obtained from the Warrant Agent. You need to sign the notice and provide the following details:
a. your name
b. address
c. CDP securities account number
d. NRIC number
e. no of warrants converted *
f. no of shares subscribed *
* The number of shares subscribed for every warrant held depends on the conversion ratio.
3. The subscription amount in the form of a cashier's order made payable to the issuer.
The Warrant Agent will inform CDP of your exercise notice after it has verified your particulars. This date is known as the Lodgement Date (L).
Q. How will I know who the Warrant Agent is?
A. Pulses, a monthly publication by Singapore Exchange, publishes a list of warrants traded and their respective Warrant Agents. You may also check with the company which issued the warrants.
Q. When will the warrants be debited from my account?
A. CDP will debit the warrants from your securities account immediately after notification from the Warrant Agent that they have earmarked the warrants and that your exercise notice is in order.
You cannot sell the warrants once you have exercised them.
Q. How long will CDP take to credit my account with the new shares arising from the exercise of my warrants?
A. After receiving the exercise notice, CDP will credit the shares into the 'Available' balance. The converted shares will be credited to the 'Free' balance of your securities account five market days after Lodgement Date. This is provided the Warrant Agent has sent the new share certificates to CDP and the new shares have been approved for listing.
CDP will notify you in writing after your account has been credited.
Q. When can I sell the converted shares?
A. You may sell your converted shares only after receiving CDP's notification, or when your shares are in the Free balance of your securities account.
If you sell before the shares are in your account, you risk being bought-in. To meet your delivery obligation, the Exchange will buy-in the shares from the market if you do not have them in your account by due date. You will have to pay for the difference between your sale price and the buy-in price, and all other related charges.
Q. I have just sent in my exercise notice to convert my warrants to shares and there is an entitlements distribution. Will I be eligible for the entitlements distribution?
A. Whether you are eligible for the entitlements will depend on how the listed company had defined the entitlements date. Listed companies can set the entitlements date to be either on Lodgement Date (L) or the day after Lodgement Date (L + 1).
Consequently, if your warrants are converted on L, which happens to fall on Books Closure Date and the listed company had defined entitlements date as L, then you will receive the entitlements.
However, if you have converted the warrants on L, which happens to fall on Books Closure Date and the entitlements date had been set as L+1, then you will not receive the entitlements.
Q. What happens if there is a warrant issue or entitlement for the shares I have in my CPF Investment Account?
A. If the warrant entitlement comes free, the warrants can be left in your CPF Investment Account for you to sell or convert to shares with your CPF funds before the expiry date.
However, if you have to pay for the warrant entitlement, i.e. you have to subscribe for the warrants, you will not be able to use your CPF savings to do so. In this case, you can:
1. provide your CPF Agent Bank with the cash to subscribe for the warrants on your behalf; or
2. transfer the right to subscribe for the warrants from your CPF Investment Account to your CDP Securities Account before you subscribe in cash.
However, if you want to sell your rights instead of subscribing for the warrants, you may sell your rights in the same manner as you sell your shares purchased with your CPF savings.
Q. What happens if I do not sell or exercise my warrants by the expiry date?
A. On expiry date, warrants become worthless and cannot be exercised into new shares.
Q. I am still holding the physical warrant certificates although the company's shares and warrants are already traded scripless. How do I exercise the warrants?
A. The exercise procedure is similar to that for the first question. However, you will have to surrender your warrant certificates to the Warrant Agent.
If you wish to have the new shares credited directly to your CDP securities account, you will have to fill in your securities account number in the exercise notice.
Q. How do I sell my new shares if I have opted to receive physical certificates after exercising the warrants?
A. Physical share certificates cannot be used to settle the sale of your new shares. You must first deposit the certificates with CDP. You need to pay a deposit fee of S$10 (excluding GST). Payment may be made in cash, or by cheque made in favour of "The Central Depository (Pte) Limited".
After receiving your share certificates, CDP will send them to the share registrar to have them transferred and registered in CDP's name before they can be credited to your account. The whole process takes 17 market days; 15 days for the registrar to transfer and register, and two days for CDP to credit your account.
You may sell your converted shares only after receiving CDP's notification, or when your shares are in the 'Free' balance of your securities account.
Q. How can I check the expiry dates for warrants?
A. The trading name of the warrant provides the expiry date. It appears in a year-month-day format. For example, CSC W050427 indicates that the warrant expires on 27 April 2005.
17. What is pre-open and pre-close?
'Pre-Open' Routine
It is a 30-minute session before regular trading starts at 0900 hrs. It comprises the 'Pre-Open Period' and the 'Non-Cancel Period'.
During the 'Pre-Open Period' (0830 to 0859 hrs), buy and sell orders can be entered, amended or withdrawn. They will not be matched and executed during this period. The 'Non-Cancel Period' is between 0859 to 0900 hrs, during which input, amendment and withdrawal of orders are not permitted. Orders that are matched are executed at a single computed price, which will be the same as or better than the price at which the orders are entered. This computed price shall be the opening price for the day. Unmatched orders will be carried forward into the regular trading session.
'Pre-close' Routine
At 1700 hrs, all unmatched orders are carried forward to the Pre-Close Routine, which runs for 6 minutes and consists of a 'Pre-Close Period' and a 'Non-Cancel Period'.
Orders can be entered, amended or cancelled during the 'Pre-Close Period' (1700 to 1705 hrs). During the 'Non-Cancel Period' (1705 to 1706 hrs), input, amendment and withdrawal of orders are not permitted. Orders that can be matched are executed at a closing price computed for the day, while unmatched orders will become void.
18. What should I do when I receive the thick annual report every year? Do I have to do anything about it?
The thick annual report consists of a few important information that any serious investors need to pay attention to. Firstly, it gives a snapshot of how well the company is doing in that financial year if you look at their financial statements. Secondly, the chairman/CEO will have give his/her message to shareholders, detailing the next year’s direction, a summary of the company’s performance and generally what to expect in the future. Lastly, there will also details of where and when the annual general meeting (AGM) for the company is taking place. The AGM is a meeting where shareholders and the directors will meet once each year to pass resolutions regarding the company. Examples of such resolutions include approval of director’s fee, re-election of directors, approval of dividend payout, rights issues, etc.
You can choose not to go to the AGM and missed communicating directly with the directors (and the free food) and instead appoint a proxy to vote for you on your behalf. OR you can totally choose to ignore the AGM.
19. What are rights warrants?
In addition to issue rights shares, a company may instead choose to issue rights warrants. Somewhat similar to right shares, rights warrants give the shareholders an opportunity to subscribe to rights that will be converted to company warrants upon ceasing of nil-paid rights trading. These company warrants give the holders the right to convert the warrants to ordinary shares at some point in the future (before the expiry of the warrants) by exercising them.
This is quite different from rights shares. Subscription to rights shares and subsequent ceasing of nil-paid rights converts the rights to ordinary shares immediately, whereas rights warrants are converted to company warrants (so you can choose when to convert to ordinary shares anytime before expiry of the warrants). The benefits of the warrants is thus this – you can save capital that would be otherwise locked up as warrants are leveraged derivatives, so the locked up capital is a fraction of that of ordinary shares. If the company is doing well, the price of the warrants will rise and you might choose to sell it without exercising it. Or if you believe in the long term prospects of the company, you can choose to exercise your warrants by converting it to ordinary shares.
To find out how to exercise warrants, look for the relevant questions in this faq.
------------------------
Paul (see comments) mentioned that there are some warrants that can only be converted on a specified date, an example of which is TechOil@GaeW101126. As always, it's better to check the OIS that comes together with the rights issue for more information that might not be applicable for others.
20. How do I apply for rights? What are the options I have?
Okay, you received a bombshell in the form of rights issue and you don’t know what to do despite reading the thick OIS (offer information statement) mailed to you. You panicked.
If you flip the OIS and look for the section under “Procedures for acceptance, payment and excess applications by entitled depositors” under the Appendix section, you can see that it’s all spelt out clearly for all the possible cases you can imagine.
I’m only going to go through the basics. There are two main ways to subscribe for your rights:
a. acceptance and application by ATM of a participating bank
b. acceptance and application by CDP
First before choosing either options, look at the mailed Form A - white form (ARE for rights shares) or green form (WEWAF for rights warrants). Pay attention to the number of rights shares/warrants provisionally allocated – that is the amount that you are allocated, so you can choose to take it all up, partially, not at all and/or apply for excess. Find out how much you need to pay for and how much you need to pay if you want the excess rights.
If you go by ATM, it’s the easier option. Just go to the ATM screen, click on other transactions, then look for something like “ESA – IPO applications”, then find the company that is relevant. You’ll be guided to type in the amount of rights that you wish to accept out of the allocated (e.g you may be provisionally allocated 5000 rights but may want to accept only 2000), plus another separate screen where you’ll be guided to type how many excess rights you want to subscribe. Then you’ll come to a screen where they will tell you how much you have to pay. Make sure this screen you check carefully before pressing. I know for DBS you need to pay a service charge of $2.00, not so sure of other banks.
If you applied through ATM, then do not send any forms! It’s done – just wait for them to mail you how many excess rights you’ve successfully got and how much you applied for.
If you’re going through application by CDP, then you have to fill form A (the coloured forms). There’ll be instructions to tell you how to fill but I’ll run through a little. First, delete away the I/We* and my/our* that you see accordingly. Then look under Registration – and fill in quantity (the number of rights shares/warrants) you accepted, calculate and fill in the amount payable to CDP (multiply the quantity by issue price per share/warrant). Fill in the number of excess rights you wish to apply and repeat, total it up and sign below.
Next go to the bank to get a cashier’s order or banker’s draft (it’s just a cheque that is issued by the bank – you have to pay the bank a certain fee in addition to the amount for their services) with the following written – “CDP – XYZ RIGHTS ISSUE ACCOUNT” and crossed “NOT NEGOTIABLE, A/C PAYEE ONLY”. On the reverse side, write your name and your securities account number. Finally send the banker’s draft/cashier’s order and the form A to the enclosed envelope mailed to you. Affix your own stamp!
21. How is the opening price of a stock determined?
(from ccloh of cna forum)
This is done by matching the highest bid price and quantity with the lowest ask price and quantity until a common price is met. For example:
BUY
----
100,000 1.10
90,000 1.09
80,000 1.08
70,000 1.07
60,000 1.06
50,000 1.05
40,000 1.04
30,000 1.03
20,000 1.02
10,000 1.01
SELL
------
10,000 1.00
20,000 1.01
30,000 1.02
40,000 1.03
50,000 1.04
60,000 1.05
70,000 1.06
80,000 1.07
90,000 1.08
100,000 1.09
200,000 1.10
300,000 1.11
400,000 1.12
the 100,000 @ 1.10 BUY will match with 10,000 @ 1.00, 20,000 @ 1.01, 30,000 @ 1.02, 40,000 @ 1.03 from the SELL
the 90,000 @ 1.09 BUY will match with 50,000 @ 1.04, 40,000 @ 1.05 from the SELL
the 80,000 @ 1.08 BUY will match with 20,000 @ 1.05, 70,000 @ 1.06 from the SELL
Finally 70,000 @ 1.07 BUY will match with 10,000 @ 1.06, 60,000@ 1.07 from the SELL
Hence, the opening price will be 1.07, with the buy queue of 60,000 @ 1.06 and the sell queue of 20,000 @ 1.07
22. Why is it that when I queue to buy at price of $0.50, but when the current price of the stock reaches that, I still haven’t bought my stock yet? Is it because of queuing?
It’s best to give an example of how the queuing works.
Say for company A, you'll see the quotes as
B vol, Buy price, sell price, sell vol
10, 0.775, 0.780, 12
You queue to sell at 0.780, 5 lots. You'll see the quotes as
10, 0.775, 0.780, 17
I want to buy 2 lots at 0.775, the quotes become
12, 0.775, 0.780, 17
Basically you join the queue to sell at 0.780 while i join the queue to buy at 0.775. Let's say you're impatient and wanted to sell immediately. So you sell another 5 lots at 0.775. The quotes become
7, 0.775, 0.780, 17
TAKE NOTE: I didn't buy anything as my queue is not up. Unless another seller sells at 0.75, 6 lots - i'll get 1 lot (order partially filled). If sells at 0.75 for 7 lots - i'll get 2 lot (order fully filled).
Same thing goes for buying. If I can't wait, I'll just hit 2 lots at 0.780. THe quotes change from
12, 0.775, 0.780, 17 to
12, 0.775, 0.780, 15
Did you manage to sell? No, unless someone buy up 0.780 for another 15 lots, then your order will be fully filled.
23. What is CE and XE? What is cash distribution?
CE means cum-entitlement. This means that the company is going to distribute cash to shareholders as a result of:
a. Delisting – so all the shares held by shareholders will be ‘bought’ back by them with the cash returned to the shareholders
b. Shares cancellation – this is to reduce the number of shares outstanding. They will announce a ratio, say 1 out of every 12 shares will be cancelled at $0.50. So, if you’re holding 6000 shares, 500 shares will be cancelled so you’ll get back $250 (500 x 0.50) with 5500 shares remaining (6000 – 500).
To qualify for entitlement, you need to have shares before or on CE. This means that if the stock went XE (ex-entitlement) and you went to buy it, you won’t get the cash distribution due to the entitlement.
24. What is BB? I keep seeing people saying BBs are buying/selling.
BB stands for a lot of things - chng kay, big boys, big brothers etc. Basically they refer to institutional players like fund managers, brokerage house like JP morgan, Merrill lynch, hedge funds and others. They are the ones who possess the will and the clout to move the markets that retailers investors like us can't. They are able to do a lot of things to the stocks - drive it up, bring it down, issue reports to buy but sell it etc. Basically, you wouldn't want to bet the other direction from what the BBs are doing - it's suicidal.
25. What is shares splitting and what are its implication?
All listed companies have a fixed number of shares outstanding. A shares split is when the company increased the number of shares outstanding by issuing more shares to current shareholders. For example, a 2-for-1 split means that a company initially having 30 million shares will end up having 60 million shares.
There is an ex-date and a record date, which are duly announced beforehand. Normally, the current shareholders will receive the split shares a day after the record date but it is more advisable to check with CDP to confirm that.
The most direct implication is that the value of the company per share will be diluted. Price per share and key ratios like earnings per share (EPS) will also be changed. Obviously the number of shares outstanding and the par value of each shares will be affected. What will not be changed is the accounts as well as the capital structure of the company (same market capitalization)
For example, company A has 10 million issued ordinary shares @ par value of $0.50 each (Capital = 5 million). After splitting, it will have 20 million of issued ordinary shares @ par value of $0.25 each (capital is still 5 million). Hence, there will be no change in the capital structure of the company.
So why do companies do that?
1. Sometimes the share prices of the companies have risen too high for retail investors to participate, so a shares splitting is good to lower the price per share to entice investors to jump in.
Since many small investors think the stock is now more affordable and buy the stock, they end up boosting demand and drive up prices. Another reason for the price increase is that a stock split provides a signal to the market that the company's share price has been increasing and people assume this growth will continue in the future, and again, lift demand and prices. For a good example, look at Chinafish.
2. Shares splitting is good for illiquid stocks with very low floating shares. This can affect the reflection of the company. Basically it's to increase the liquidity of the company. For an example, look at Ezion.
(Courtesy of Jeng)
(Updated on 4th Feb, 2008)
Summary of questions:
1. What causes the price of a stock to go up or down? How come even though the buy queue is higher than the sell queue, the stock doesn't move up in price?
2. What is the trading hours of Singapore and HK bourse?
3. What actually happens when I buy a stock?
4. What is long? What is short = katek?
5. What is naked short?
6. This short cannot, that short also cannot. Then if market turns bearish, just sit and cry ah? Any other options?
7. What is averaging down?
8. What are bonds, bills, warrants, CFDs?
9. What's XD, CD? Do I get dividends if I buy on XD?
10. What is the x you see just before market opens and after it closes, when looking at the sales and transactions for the day? Married deals?
11. What are right shares? Nil-paid rights?
12. What is force key? I see that option when I'm getting my orders keyed in.
13. I have been using X brokerage firm and now I’m using Y brokerage firm. I bought some shares using X firm, so does the shares that I bought with X be transferred over to Y? If I sell my shares using Y does it constitute a short sell?
14. What are odd lots? Can I sell odd lots?
15. What is contra? (No, it’s not the game)
16. I got a company warrant. How do I exercise the warrants to covert it to shares? (Note: company warrant is not structured warrants)
17. What is pre-open and pre-close?
18. What should I do when I receive the thick annual report every year? Do I have to do anything about it?
19. What are rights warrants?
20. How do I apply for rights? What are the options I have?
21. How is the opening price of a stock determined?
22. Why is it that when I queue to buy at price of $0.50, but when the current price of the stock reaches that, I still haven’t bought my stock yet? Is it because of queuing?
23. What is CE and XE? What is cash distribution?
24. What is BB? I keep seeing people saying BBs are buying/selling.
25. What is shares splitting and what are its implication?
1. What causes the price of a stock to go up or down? How come even though the buy queue is higher than the sell queue, the stock doesn't move up in price?
I'll give an example.
Buying vol | buy price | sell price | sell volume
say initially its 520 | 0.770 | 0.775 | 330
This means that there are currently pple waiting to buy 520 lots at 0.770 and pple waiting to sell 330 lots at 0.775. The key word is waiting, because the buy/sell queue are waiting queue.
If you want to buy 5 lots at 0.770, you join the queue at 0.770, the quotes become
525 | 0.770 | 0.775 | 330
If I want to sell 10 lots at 0.775, i join the sell queue and the quotes become
525 | 0.770 | 0.775 | 340
Notice that up to now, the price didn't move at all. Now if I'm sick of waiting and i'm in a hurry to sell off another 10 lots, i dun sell at the sell price, i sell at the buy price. Immediately i jump the sell queue, quotes become:
515 | 0.770 | 0.775 | 340...price drops to 0.770
Same thing for buying up. If someone is too eager to buy the stock, he wants to get in 10 lots at 0.775 to jump the whole buy queue, here's how the quote look like:
515 | 0.770 | 0.775 | 330.... price increase to 0.775
Basically it's the enthusiasm of buyers to bid higher price that drives the price up, and the desperation of sellers to sell at lower bid that drives price down, not the buy and sell queue.
2. What is the trading hours of Singapore and HK bourse?
Singapore opens at 9 am to 1230pm, break for lunch and resume the afternoon session at 2pm to 5 pm. Hong Kong opens at 10 am to 1230pm, opens again at 230pm to 4 pm. Do take note that if you use most of the 'live' prices for HK stocks, it'll lag by at least 5 to 15 min. Yahoo! finance lags by as much as 30 mins to 1 hr. The livest live price can be found from the following sites:
a. Live HSI charts - This one is good as it even has charts and is detachable
b. Real time HSI forex gold - this one is not real time, but it's not laggy, good enuff for me.
c. HSI stock quotes - this one is straight from the horse's mouth, so to speak. Too laggy for me
The only free HK live price I know from brokerage is from dbs vickers. But it has it own set of problems...
3. What actually happens when I buy a stock?
After you buy a stock, we don't have to pay for it immediately. The day that the stock is purchased is termed T day. We have to pay the stock by T+3 (or T+4, T+5, depending on your brokerage firm or broker). This means that we have to make payment by transaction day plus another 3 market days (market days exclude public holidays and weekends).
For example, if I buy on Thurs, I have to pay on T+3, which is next Tues (usually by evening, but dependent on broker). If payment is not received on end of T+3, the brokerage will sell off your shares. After payment is made, the scripts will be electronically transferred to your central deposit account (CDP). If you have an online password with them, you can check their website and you'll see your shares there. You'll also receive those irritating perforated pieces of paper (two of them!), saying that you made a transaction with your brokerage firm and another saying that the CDP received the shares.
4. What is long? What is short = kateks?
Longing a stock means we buy a stock, wait for the price to move up to sell again to pocket the difference. Shorting a stock means we sell a stock first, wait for the price to move down, then buy it back again to 'cover the short position', thereby pocketing the difference. How come we can do such things - selling something that we dun have?
The reason is because of 'contra'. Basically it just means that it takes some time for the stock you buy or sell to be delivered to your central deposit account (CDP), so if we sell or buy before it's delivered we don't have to pay for anything. Usually contra period is T+3, meaning the day you transacted (T) + another 3 market days. So if I buy a share and sell it all within T+3, I don't have to make any payment and can pocket the difference. Be careful about buying things you can't afford to pay. If you can only buy $1000 worth of stocks and you bust that limit and buy all the stocks your trading limit allows (say $50,000) on contra (meaning that you have no intention to pay and die die have to sell by T+3), you are either skillful or just very optimistic in the face of death.
Shorting, on the other hand, doesn't work on T+3, take note!! We have to cover our position by the end of the day (T+0), otherwise SGX will buy back for you.
5. What is naked short?
Naked short means that you short a counter that you didn't have, AND didn't cover by the end of the day and is subjected to SGX buy back. The procedure is like this
a. You sell short a counter and never cover your position by buying in at the end of the day
b. On T+3, you don't have the scripts in your CDP to deliver to the buyer, so SGX will initiate a buy in for you
c. SGX will buy at 11:30am on T+4 at 2 bids higher than the closing price of T+3 or 11:30am price of T+4, whichever is higher. That is, higher of (closing of T+3 or 11:30am price of T+4) plus another 2 bids. I remember someone saying that the bids will increase every few minutes until someone sells it to SGX. Other penalties may apply.
In other words, you're subjected to the whims of the market and you'll only know the results after 3 or 4 market days. AND DO NOT BUY BACK YOURSELF - YOU'LL JUST BE OPENING ANOTHER POSITION! Good luck to you.
6. This short cannot, that short also cannot. Then if market turns bearish, just sit and cry ah? Any other options?
There are proper ways to short the market. Listed below are the ones I know, but bear in mind that each also have its own risks. It's not within the scope of this faq to discuss.
a. Put warrants
b. CFD - contract for difference
c. Short the market, borrow scripts from SGX to cover your short position . When price drops low enough, buy back the scripts and return to SGX, pocketing the difference.
7. What is averaging down?
This is a method to lower down the average buy price so as to be able to get out of it IF it rebounds at lower price. An example will do the trick.
Suppose I bought a stock, 10 lots at 0.770. The price subsequently tanked and I held on, thinking that it is temporarily. But it tanked to 0.600, a 22% drop in price. For it to rise back to 0.770 (ignore brokerage for simplicity), it has to rise up 28%, which is even harder. So I buy in more to 'average down' my buy in price.
So when it reached 0.600, I bought 10 lots at 0.600...tanked down further
Bought it 5 lots more at 0.550.
My weighted average buy price is 0.658 [ (10x0.770 + 10x0.600 + 5x0.550)/(10+10+5)]. If the price rebound slightly and hit 0.660 (assuming no brokerage), I can break even and sell already, instead of waiting to sell at 0.770.
The risk? You are throwing money into a sinking ship. It might sink and sink and never recover. Do this only if you're sure why the stock is sinking. Otherwise you're just digging deeper in your own grave. Most pple prefer averaging up - if the stock is performing as you expect, then you throw in more funds. Whatever you choose, just know what you're doing and the risks involved.
8. What are bonds, bills, warrants, CFDs? (adapted from veron97, cna forum)
Bond/bills
A debt investment with which the investor loans money to an entity (company or government) that borrows the funds for a defined period of time at a specified interest rate.
The indebted entity issues investors a certificate, or bond, that states the interest rate (coupon rate) that will be paid and when the loaned funds are to be returned (maturity date). Interest on bonds is usually paid every six months (semiannually). The main types of bonds are the corporate bond, the municipal bond, the Treasury bond, the Treasury note, the Treasury bill and the zero-coupon bond.
The higher rate of return the bond offers, the more risky the investment. There have been instances of companies failing to pay back the bond (default), so, to entice investors, most corporate bonds will offer a higher return than a government bond. It is important for investors to research a bond just as they would a stock or mutual fund. The bond rating will help in deciphering the default risk.
A bill is just a shorter term version of bonds. In Singapore, bill is anything less than or equal to 1 yr while bonds are more than 1 yr, like 1,2,5,7,15 and 20yr bonds.
Check this website out to find the difference in prices and yields.
Warrant
A derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue as a "sweetener" to entice investors.
The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months.
Basically, call warrants means that you want the price of the underlying to go up. If the underlying goes up, the call warrants will also rise in price. Put warrants means you want the price of the underlying to go down and it will rise in price if the underlying goes down. Can read this website for more information on the basic of warrants e.g. IV, delta, strike, settlement, expiry.
Contract For Differences - CFD
An arrangement made in a futures contract whereby differences in settlement are made through cash payments, rather than the delivery of physical goods or securities.
This is generally an easier method of settlement because losses and gains are paid in cash. CFDs provide investors with the all the benefits and risks of owning a security without actually owning it.
9. What's XD, CD? Do I get dividends if I buy on XD?
When a stock wants to give dividend, it will put a CD - cum dividend remark. This means anyone who buys now or owns the stock already, will be entitled to get dividends by the time the stock closes its book. XD stands for ex-dividend. If you buy the stocks on XD, it will be too late to reach the registrar so your name will not be in the company's book - so you'll not be entitled to dividends. To make it really simple:
a. If you buy on or before CD, you'll get dividends
b. If you sell on or before CD, you won't get dividneds
c. If you buy on or after XD, you won't get dividends (the seller gets it)
d. If you sell on or after XD, you'll get dividends (the buyer won't get it)
Don't worry about record date or book closure date, it's none of our concern. Just worry about CD/XD will do. Oh, and of cos the payment date.
10. What is the x you see just before market opens and after it closes, when looking at the sales and transactions for the day? Married deals?
The x at the opening and closing is the pre-open and pre-close matching respectively.
For pre-opening, it's basically for those orders that are keyed in before the market is opened AND are transacted. What happens is that there are buyers who bid for a price and sellers who ask for a price. There is some formula to calculate these two bid/ask price, and this calculated price is the opening price of the stock. If there are a total of 10,000 buyers and sellers matched, then you'll see 8:59 x 10,000.
Same thing for pre-close matching, but this time the calculated price is actually the closing price of the stock.
Do not mistake the x when market is open for trading for pre-close/open matching, they are not. These x are married deals, a different ball game altogether. Married deals are private deals with a willing buyer and seller, so the price are decided between the two parties and are independent of the bid/ask quotes you see currently on the screen. Married deals are important, esp if the volume for the transactions are huge - usually indicates to me that institutional buyers are buying/selling.
11. What are rights shares? Nil paid rights?
Cash-strapped companies can turn to rights issues to raise money when they really need it. In these rights offerings, companies grant shareholders a chance to buy new shares at a discount to the current trading price. Let's look at how rights issue work, and what they mean for all shareholders.
Defining a Rights Issue and Why It's Used
A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. More specifically, this type of issue gives existing shareholders securities called "rights", which, well, give the shareholders the right to purchase new shares at a discount to the market price on a stated future date. The company is giving shareholders a chance to increase their exposure to the stock at a discount price.
But until the date at which the new shares can be purchased, shareholders may trade the rights on the market the same way they would trade ordinary shares. The rights issued to a shareholder have a value, thus compensating current shareholders for the future dilution of their existing shares' value.
Troubled companies typically use rights issues to pay down debt, especially when they are unable to borrow more money. But not all companies that pursue rights offerings are shaky. Some with clean balance sheets use them to fund acquisitions and growth strategies. For reassurance that it will raise the finances, a company will usually, but not always, have its rights issue underwritten by an investment bank.
How Rights Issues Work
So, how do rights issues work? The best way to explain is through an example.
Let's say you own 1,000 shares in Wobble Telecom, each of which is worth $5.50. The company is in a bit of financial trouble and sorely needs to raise cash to cover its debt obligations. Wobble therefore announces a rights offering, in which it plans to raise $30 million by issuing 10 million shares to existing investors at a price of $3 each. But this issue is a three-for-10 rights issue. In other words, for every 10 shares you hold, Wobble is offering you another three at a deeply discounted price of $3. This price is 45% less than the $5.50 price at which Wobble stock trades.
As a shareholder, you essentially have three options when considering what to do in response to the rights issue. You can (1) subscribe to the rights issue in full, (2) ignore your rights or (3) sell the rights to someone else. Here we look how to pursue each option, and the possible outcomes.
1. Take up the rights to purchase in full
To take advantage of the rights issue in full, you would need to spend $3 for every Wobble share that you are entitled to under the issue. As you hold 1,000 shares, you can buy up to 300 new shares (three shares for every 10 you already own) at this discounted price of $3, giving a total price of $900.
However, while the discount on the newly issued shares is 45%, it will not stay there. The market price of Wobble shares will not be able to stay at $5.50 after the rights issue is complete. The value of each share will be diluted as a result of the increased number of shares issued. To see if the rights issue does in fact give a material discount, you need to estimate how much Wobble's share price will be diluted.
In estimating this dilution, remember that you can never know for certain the future value of your expanded holding of the shares, since it can be affected by any number of business and market factors. But the theoretical share price that will result after the rights issue is complete - which is the ex-rights share price - is possible to calculate. This price is found by dividing the total price you will have paid for all your Wobble shares by the total number of shares you will own. This is calculated as follows:
1,000 existing shares at $5.50 $5,500
300 news shares for cash at $3 $900
Value of 1,300 shares $6,400
Ex-rights value per share $4.92 ($6,400.00/1,300 shares)
So, in theory, as a result of the introduction of new shares at the deeply discounted price, the value of each of your existing shares will decline from $5.50 to $4.92. But remember, the loss on your existing shareholding is offset exactly by the gain in share value on the new rights: the new shares cost you $3, but they have a market value of $4.92. These new shares are taxed in the same year as you purchased the original shares, and carried forward to count as investment income, but there is no interest or other tax penalties charged on this carried-forward, taxable investment income.
2. Ignore the rights issue
You may not have the $900 to purchase the additional 300 shares at $3 each, so you can always let your rights expire. But this is not normally recommended. If you choose to do nothing, your shareholding will be diluted thanks to the extra shares issued.
3 Sell your rights to other investors
In some cases, rights are not transferable. These are known as "non-renounceable rights". But in most cases, your rights allow you to decide whether you want to take up the option to buy the shares or sell your rights to other investors or to the underwriter. Rights that can be traded are called "renounceable rights", and after they have been traded, the rights are known as "nil-paid rights".
To determine how much you may gain by selling the rights, you need to estimate a value on the nil-paid rights ahead of time. Again, a precise number is difficult, but you can get a rough value by taking the value of ex-rights price and subtracting the rights issue price. So, at the adjusted ex-rights price of $4.92 less $3, your nil-paid rights are worth $1.92 per share. Selling these rights will create a capital gain for you.
Be Warned
It is awfully easy for investors to get tempted by the prospect of buying discounted shares with a rights issue. But it is not always a certainty that you are getting a bargain. But besides knowing the ex-rights share price, you need to know the purpose of the additional funding before accepting or rejecting a rights issue. Be sure to look for a compelling explanation of why the rights issue and share dilution are needed as part of the recovery plan. Sure, a rights issue can offer a quick fix for a troubled balance sheet, but that doesn't necessarily mean management will address the underlying problems that weakened the balance sheet in the first place. Shareholders should be cautious.
12. What is force key? I see that option when I'm getting my orders keyed in.
When buying or selling, you can only key in within 6 bids of the current price. Different price range have different bid size.
So, if a stock is currently trading at say 1.50, you can only sell up to 1.56 or buy up to 1.44 (within 6 bids, each bid being 1 cent). If you need to go beyond, you need to check the 'force-key' option. Some brokerage firm have free force keys, some are subscription based.
Take note that on 24th Dec 2007, SGX will revise a new minimum bids with increased forced key orders. The bid size is reduced according to this:
For stocks:
1. Below S$1, bid size is 0.005
2. S$1 - S$9.99, bid size is 0.01
3. S$10 and above, bid size is 0.02
4. Forced key orders for stocks is +/- 10 bids.
For all ETF
1. Bid size is 0.01 or 0.001 as determined by SGX-ST
2. Forced key order is +/- 30 bids
13. I have been using X brokerage firm and now I’m using Y brokerage firm. I bought some shares using X firm, so does the shares that I bought with X be transferred over to Y? If I sell my shares using Y does it constitute a short sell?
The answer depends very much on whether the shares you bought with X firm are deposited in the central depository (CDP). It will be, after you made payment by T+3 days. If that is the case, the shares you bought have nothing to do with X firm anymore, so you can very well sell the shares using Y firm or any other firms. It will not be a short sell.
If you buy shares using X firm, but within T+3 you sell it using Y firm, then you have an open position with X and a short position with Y. You still need to pay for your shares plus brokerage with X before the shares will be transferred over to CDP. In the meantime, you have to cover you short position with Y by buying back within the same day of transaction, otherwise you will be subjected to SGX buy back.
If you buy shares with X firm, paid for it by say T+1, then sell it by T+2 using Y firm, then I’m also confused! To be sure, check CDP website to ensure that the shares you paid for are already deposited inside before selling using Y firm. Life’s too bland for you? haha
Do yourself a favour, keep a good transaction record of which shares you buy, T+3 payment date and with which brokerage firm.
14. What are odd lots? Can I sell odd lots?
Usually, each lot size in SGX shares consists of 1000 shares. There are some exceptions, for example the STI ETF 100 shares, you can buy at 100 shares per lot instead of the usual 1000 shares per lot. How do we get odd lots? Usually through corporate actions like rights or entitlement, script dividend. For simplification, I assume all shares have a lot size of 1000 shares here.
Since you can only buy or sell a minimum of l lot, there is some problem if you want to buy/sell less than 1 lot, like 800 shares. These are called odd lots, and they can’t be transacted in the normal markets.
I know that for poems, there is a unit shares market – specifically used to buy/sell odd lots. But take note – due to the liquidity (or rather the lack of), expect to sell your odd lots below market price and buy odd lots (to top up to 1 full lot) at a discount. This mean you can buy 1 share of DBS at $20 plus dollars if you so wished.
15. What is contra? (No, it’s not the game)
When you buy a stock, you normally have to pay on T+3. T+3 means that transaction date + 3 more market days (public holidays, sat, sun not counted as market days).
E.g. If I buy on Thurs, T+3 is actually next Tues.
If I managed to sell off the stock I bought before T+3, that means that I don't have to pay any capital upfront and get the difference between the price I bought and the price I sold. This is called contra.
Usually contra are for short term traders, who goes in and out within the T+3 days. Those who contra all the time will also whack huge lots (more than what they can afford to pay) since they don't have to really pay for the stocks upfront and they are going to sell off before the T+3 date, regardless of profit or loss.
Just be careful if you buy more than what you can afford...If the stock went down, you might have to hold or sell at a loss. Not advisable, unless you're a good chart reader who knows when a stock can make spectacular gains all within T+3.
16. I got a company warrant. How do I exercise the warrants to covert it to shares? (Note: company warrant is not structured warrants)
Courtesy of lonewolf from cna forum, who did the sleuthing.
Q. What shall I do when I want to exercise my warrants?
A. When exercising your warrants, you must submit the following to the Warrant Agent:
1. Your latest statement showing the number of warrants you have in your securities account. This can be obtained from The Central Depository (Pte) Ltd or via CDP Internet Access if you have applied and gotten an I-PIN.
2. The exercise notice, a copy of which can be obtained from the Warrant Agent. You need to sign the notice and provide the following details:
a. your name
b. address
c. CDP securities account number
d. NRIC number
e. no of warrants converted *
f. no of shares subscribed *
* The number of shares subscribed for every warrant held depends on the conversion ratio.
3. The subscription amount in the form of a cashier's order made payable to the issuer.
The Warrant Agent will inform CDP of your exercise notice after it has verified your particulars. This date is known as the Lodgement Date (L).
Q. How will I know who the Warrant Agent is?
A. Pulses, a monthly publication by Singapore Exchange, publishes a list of warrants traded and their respective Warrant Agents. You may also check with the company which issued the warrants.
Q. When will the warrants be debited from my account?
A. CDP will debit the warrants from your securities account immediately after notification from the Warrant Agent that they have earmarked the warrants and that your exercise notice is in order.
You cannot sell the warrants once you have exercised them.
Q. How long will CDP take to credit my account with the new shares arising from the exercise of my warrants?
A. After receiving the exercise notice, CDP will credit the shares into the 'Available' balance. The converted shares will be credited to the 'Free' balance of your securities account five market days after Lodgement Date. This is provided the Warrant Agent has sent the new share certificates to CDP and the new shares have been approved for listing.
CDP will notify you in writing after your account has been credited.
Q. When can I sell the converted shares?
A. You may sell your converted shares only after receiving CDP's notification, or when your shares are in the Free balance of your securities account.
If you sell before the shares are in your account, you risk being bought-in. To meet your delivery obligation, the Exchange will buy-in the shares from the market if you do not have them in your account by due date. You will have to pay for the difference between your sale price and the buy-in price, and all other related charges.
Q. I have just sent in my exercise notice to convert my warrants to shares and there is an entitlements distribution. Will I be eligible for the entitlements distribution?
A. Whether you are eligible for the entitlements will depend on how the listed company had defined the entitlements date. Listed companies can set the entitlements date to be either on Lodgement Date (L) or the day after Lodgement Date (L + 1).
Consequently, if your warrants are converted on L, which happens to fall on Books Closure Date and the listed company had defined entitlements date as L, then you will receive the entitlements.
However, if you have converted the warrants on L, which happens to fall on Books Closure Date and the entitlements date had been set as L+1, then you will not receive the entitlements.
Q. What happens if there is a warrant issue or entitlement for the shares I have in my CPF Investment Account?
A. If the warrant entitlement comes free, the warrants can be left in your CPF Investment Account for you to sell or convert to shares with your CPF funds before the expiry date.
However, if you have to pay for the warrant entitlement, i.e. you have to subscribe for the warrants, you will not be able to use your CPF savings to do so. In this case, you can:
1. provide your CPF Agent Bank with the cash to subscribe for the warrants on your behalf; or
2. transfer the right to subscribe for the warrants from your CPF Investment Account to your CDP Securities Account before you subscribe in cash.
However, if you want to sell your rights instead of subscribing for the warrants, you may sell your rights in the same manner as you sell your shares purchased with your CPF savings.
Q. What happens if I do not sell or exercise my warrants by the expiry date?
A. On expiry date, warrants become worthless and cannot be exercised into new shares.
Q. I am still holding the physical warrant certificates although the company's shares and warrants are already traded scripless. How do I exercise the warrants?
A. The exercise procedure is similar to that for the first question. However, you will have to surrender your warrant certificates to the Warrant Agent.
If you wish to have the new shares credited directly to your CDP securities account, you will have to fill in your securities account number in the exercise notice.
Q. How do I sell my new shares if I have opted to receive physical certificates after exercising the warrants?
A. Physical share certificates cannot be used to settle the sale of your new shares. You must first deposit the certificates with CDP. You need to pay a deposit fee of S$10 (excluding GST). Payment may be made in cash, or by cheque made in favour of "The Central Depository (Pte) Limited".
After receiving your share certificates, CDP will send them to the share registrar to have them transferred and registered in CDP's name before they can be credited to your account. The whole process takes 17 market days; 15 days for the registrar to transfer and register, and two days for CDP to credit your account.
You may sell your converted shares only after receiving CDP's notification, or when your shares are in the 'Free' balance of your securities account.
Q. How can I check the expiry dates for warrants?
A. The trading name of the warrant provides the expiry date. It appears in a year-month-day format. For example, CSC W050427 indicates that the warrant expires on 27 April 2005.
17. What is pre-open and pre-close?
'Pre-Open' Routine
It is a 30-minute session before regular trading starts at 0900 hrs. It comprises the 'Pre-Open Period' and the 'Non-Cancel Period'.
During the 'Pre-Open Period' (0830 to 0859 hrs), buy and sell orders can be entered, amended or withdrawn. They will not be matched and executed during this period. The 'Non-Cancel Period' is between 0859 to 0900 hrs, during which input, amendment and withdrawal of orders are not permitted. Orders that are matched are executed at a single computed price, which will be the same as or better than the price at which the orders are entered. This computed price shall be the opening price for the day. Unmatched orders will be carried forward into the regular trading session.
'Pre-close' Routine
At 1700 hrs, all unmatched orders are carried forward to the Pre-Close Routine, which runs for 6 minutes and consists of a 'Pre-Close Period' and a 'Non-Cancel Period'.
Orders can be entered, amended or cancelled during the 'Pre-Close Period' (1700 to 1705 hrs). During the 'Non-Cancel Period' (1705 to 1706 hrs), input, amendment and withdrawal of orders are not permitted. Orders that can be matched are executed at a closing price computed for the day, while unmatched orders will become void.
18. What should I do when I receive the thick annual report every year? Do I have to do anything about it?
The thick annual report consists of a few important information that any serious investors need to pay attention to. Firstly, it gives a snapshot of how well the company is doing in that financial year if you look at their financial statements. Secondly, the chairman/CEO will have give his/her message to shareholders, detailing the next year’s direction, a summary of the company’s performance and generally what to expect in the future. Lastly, there will also details of where and when the annual general meeting (AGM) for the company is taking place. The AGM is a meeting where shareholders and the directors will meet once each year to pass resolutions regarding the company. Examples of such resolutions include approval of director’s fee, re-election of directors, approval of dividend payout, rights issues, etc.
You can choose not to go to the AGM and missed communicating directly with the directors (and the free food) and instead appoint a proxy to vote for you on your behalf. OR you can totally choose to ignore the AGM.
19. What are rights warrants?
In addition to issue rights shares, a company may instead choose to issue rights warrants. Somewhat similar to right shares, rights warrants give the shareholders an opportunity to subscribe to rights that will be converted to company warrants upon ceasing of nil-paid rights trading. These company warrants give the holders the right to convert the warrants to ordinary shares at some point in the future (before the expiry of the warrants) by exercising them.
This is quite different from rights shares. Subscription to rights shares and subsequent ceasing of nil-paid rights converts the rights to ordinary shares immediately, whereas rights warrants are converted to company warrants (so you can choose when to convert to ordinary shares anytime before expiry of the warrants). The benefits of the warrants is thus this – you can save capital that would be otherwise locked up as warrants are leveraged derivatives, so the locked up capital is a fraction of that of ordinary shares. If the company is doing well, the price of the warrants will rise and you might choose to sell it without exercising it. Or if you believe in the long term prospects of the company, you can choose to exercise your warrants by converting it to ordinary shares.
To find out how to exercise warrants, look for the relevant questions in this faq.
------------------------
Paul (see comments) mentioned that there are some warrants that can only be converted on a specified date, an example of which is TechOil@GaeW101126. As always, it's better to check the OIS that comes together with the rights issue for more information that might not be applicable for others.
20. How do I apply for rights? What are the options I have?
Okay, you received a bombshell in the form of rights issue and you don’t know what to do despite reading the thick OIS (offer information statement) mailed to you. You panicked.
If you flip the OIS and look for the section under “Procedures for acceptance, payment and excess applications by entitled depositors” under the Appendix section, you can see that it’s all spelt out clearly for all the possible cases you can imagine.
I’m only going to go through the basics. There are two main ways to subscribe for your rights:
a. acceptance and application by ATM of a participating bank
b. acceptance and application by CDP
First before choosing either options, look at the mailed Form A - white form (ARE for rights shares) or green form (WEWAF for rights warrants). Pay attention to the number of rights shares/warrants provisionally allocated – that is the amount that you are allocated, so you can choose to take it all up, partially, not at all and/or apply for excess. Find out how much you need to pay for and how much you need to pay if you want the excess rights.
If you go by ATM, it’s the easier option. Just go to the ATM screen, click on other transactions, then look for something like “ESA – IPO applications”, then find the company that is relevant. You’ll be guided to type in the amount of rights that you wish to accept out of the allocated (e.g you may be provisionally allocated 5000 rights but may want to accept only 2000), plus another separate screen where you’ll be guided to type how many excess rights you want to subscribe. Then you’ll come to a screen where they will tell you how much you have to pay. Make sure this screen you check carefully before pressing. I know for DBS you need to pay a service charge of $2.00, not so sure of other banks.
If you applied through ATM, then do not send any forms! It’s done – just wait for them to mail you how many excess rights you’ve successfully got and how much you applied for.
If you’re going through application by CDP, then you have to fill form A (the coloured forms). There’ll be instructions to tell you how to fill but I’ll run through a little. First, delete away the I/We* and my/our* that you see accordingly. Then look under Registration – and fill in quantity (the number of rights shares/warrants) you accepted, calculate and fill in the amount payable to CDP (multiply the quantity by issue price per share/warrant). Fill in the number of excess rights you wish to apply and repeat, total it up and sign below.
Next go to the bank to get a cashier’s order or banker’s draft (it’s just a cheque that is issued by the bank – you have to pay the bank a certain fee in addition to the amount for their services) with the following written – “CDP – XYZ RIGHTS ISSUE ACCOUNT” and crossed “NOT NEGOTIABLE, A/C PAYEE ONLY”. On the reverse side, write your name and your securities account number. Finally send the banker’s draft/cashier’s order and the form A to the enclosed envelope mailed to you. Affix your own stamp!
21. How is the opening price of a stock determined?
(from ccloh of cna forum)
This is done by matching the highest bid price and quantity with the lowest ask price and quantity until a common price is met. For example:
BUY
----
100,000 1.10
90,000 1.09
80,000 1.08
70,000 1.07
60,000 1.06
50,000 1.05
40,000 1.04
30,000 1.03
20,000 1.02
10,000 1.01
SELL
------
10,000 1.00
20,000 1.01
30,000 1.02
40,000 1.03
50,000 1.04
60,000 1.05
70,000 1.06
80,000 1.07
90,000 1.08
100,000 1.09
200,000 1.10
300,000 1.11
400,000 1.12
the 100,000 @ 1.10 BUY will match with 10,000 @ 1.00, 20,000 @ 1.01, 30,000 @ 1.02, 40,000 @ 1.03 from the SELL
the 90,000 @ 1.09 BUY will match with 50,000 @ 1.04, 40,000 @ 1.05 from the SELL
the 80,000 @ 1.08 BUY will match with 20,000 @ 1.05, 70,000 @ 1.06 from the SELL
Finally 70,000 @ 1.07 BUY will match with 10,000 @ 1.06, 60,000@ 1.07 from the SELL
Hence, the opening price will be 1.07, with the buy queue of 60,000 @ 1.06 and the sell queue of 20,000 @ 1.07
22. Why is it that when I queue to buy at price of $0.50, but when the current price of the stock reaches that, I still haven’t bought my stock yet? Is it because of queuing?
It’s best to give an example of how the queuing works.
Say for company A, you'll see the quotes as
B vol, Buy price, sell price, sell vol
10, 0.775, 0.780, 12
You queue to sell at 0.780, 5 lots. You'll see the quotes as
10, 0.775, 0.780, 17
I want to buy 2 lots at 0.775, the quotes become
12, 0.775, 0.780, 17
Basically you join the queue to sell at 0.780 while i join the queue to buy at 0.775. Let's say you're impatient and wanted to sell immediately. So you sell another 5 lots at 0.775. The quotes become
7, 0.775, 0.780, 17
TAKE NOTE: I didn't buy anything as my queue is not up. Unless another seller sells at 0.75, 6 lots - i'll get 1 lot (order partially filled). If sells at 0.75 for 7 lots - i'll get 2 lot (order fully filled).
Same thing goes for buying. If I can't wait, I'll just hit 2 lots at 0.780. THe quotes change from
12, 0.775, 0.780, 17 to
12, 0.775, 0.780, 15
Did you manage to sell? No, unless someone buy up 0.780 for another 15 lots, then your order will be fully filled.
23. What is CE and XE? What is cash distribution?
CE means cum-entitlement. This means that the company is going to distribute cash to shareholders as a result of:
a. Delisting – so all the shares held by shareholders will be ‘bought’ back by them with the cash returned to the shareholders
b. Shares cancellation – this is to reduce the number of shares outstanding. They will announce a ratio, say 1 out of every 12 shares will be cancelled at $0.50. So, if you’re holding 6000 shares, 500 shares will be cancelled so you’ll get back $250 (500 x 0.50) with 5500 shares remaining (6000 – 500).
To qualify for entitlement, you need to have shares before or on CE. This means that if the stock went XE (ex-entitlement) and you went to buy it, you won’t get the cash distribution due to the entitlement.
24. What is BB? I keep seeing people saying BBs are buying/selling.
BB stands for a lot of things - chng kay, big boys, big brothers etc. Basically they refer to institutional players like fund managers, brokerage house like JP morgan, Merrill lynch, hedge funds and others. They are the ones who possess the will and the clout to move the markets that retailers investors like us can't. They are able to do a lot of things to the stocks - drive it up, bring it down, issue reports to buy but sell it etc. Basically, you wouldn't want to bet the other direction from what the BBs are doing - it's suicidal.
25. What is shares splitting and what are its implication?
All listed companies have a fixed number of shares outstanding. A shares split is when the company increased the number of shares outstanding by issuing more shares to current shareholders. For example, a 2-for-1 split means that a company initially having 30 million shares will end up having 60 million shares.
There is an ex-date and a record date, which are duly announced beforehand. Normally, the current shareholders will receive the split shares a day after the record date but it is more advisable to check with CDP to confirm that.
The most direct implication is that the value of the company per share will be diluted. Price per share and key ratios like earnings per share (EPS) will also be changed. Obviously the number of shares outstanding and the par value of each shares will be affected. What will not be changed is the accounts as well as the capital structure of the company (same market capitalization)
For example, company A has 10 million issued ordinary shares @ par value of $0.50 each (Capital = 5 million). After splitting, it will have 20 million of issued ordinary shares @ par value of $0.25 each (capital is still 5 million). Hence, there will be no change in the capital structure of the company.
So why do companies do that?
1. Sometimes the share prices of the companies have risen too high for retail investors to participate, so a shares splitting is good to lower the price per share to entice investors to jump in.
Since many small investors think the stock is now more affordable and buy the stock, they end up boosting demand and drive up prices. Another reason for the price increase is that a stock split provides a signal to the market that the company's share price has been increasing and people assume this growth will continue in the future, and again, lift demand and prices. For a good example, look at Chinafish.
2. Shares splitting is good for illiquid stocks with very low floating shares. This can affect the reflection of the company. Basically it's to increase the liquidity of the company. For an example, look at Ezion.
(Courtesy of Jeng)
