3. Major Characteristics of Stock Exchanges ________________ market Specialized Capital Strictly organized Closed Competitive Informed

4. Functions of Stock Exchanges –Reach the targets of merger and takeover –Increase credibility 1. For enterprises: –Raise capital

5. Functions of Stock Exchanges 2. For individuals: –Provide investing opportunities –Protect investors’ benefit –Provide information 3. For the economy: –Better utilization of resources –Raise capital for the government –Provide economic indexes

6. Hong Kong Exchanges and Clearing Limited The Stock Exchange of Hong Kong Limited (SEHK) Hong Kong Futures Exchange Limited (HKFE) Hong Kong Securities Clearing Company Limited (HKSCC) Hong Kong Exchanges and Clearing Limited (HKEx) Organization Structure

7. The Stock Exchange of Hong Kong Limited (SEHK) Established on 2 nd April, 1986 Provide a fair, transparent and efficient central securities market-place A unification of: –The Hong Kong Stock Exchange –The Far East Stock Exchange –The Kam Ngan Stock Exchange –The Kowloon Stock Exchange

8. Hong Kong Futures Exchange Limited (HKFE) Incorporated in 1977 Operate futures markets on the following products: –equity index –equity stock –interest rate –foreign currency

9. Hong Kong Securities Clearing Company Limited (HKSCC) Incorporated in May 1989 Services: –Securities clearing and settlement –Electronic instructions for money settlement –Depository Has an electronic system for securities transactions -- CCASS

10. Comparison of Securities Settlement Before and After the Implementation of CCASS Reduction of such risk Risk of counterparty failure Central depository servicesNo central depository services Electronic money settlement Cash or cheque settlement Electronic settlementPhysical settlement After CCASSBefore CCASS

11. Regulatory Body -- Securities and Futures Commission (SFC) 1. Administer the relevant laws 2. Ensure market integrity 3. Protect the interests of investors 4. Support the development of HK as an international financial centre Functions

12. The Primary and Secondary Markets Primary market –The market in which new issues of securities are sold. Secondary market –The market in which the issued securities are traded.

13. The Growth Enterprise Market (GEM) Reasons for the need of the GEM –Help growth companies to raise capital –“High growth, high risk” investment choice –Support the government’s policy to encourage high-tech and high value-added industries –Encourage venture capital investments

14. Features of the Main Board & the GEM Shares: HK$46M Options, warrants or similar rights: HK$6M Shares: HK$100M Options, warrants or similar rights: HK$10M Minimum market capitalization at the time of listing 2 years of active business pursuits 3 years of trading record Operating history No requirementHK$50M (last 3 years) Profit requirement Professional and informed investors All investors Target investors For growth companies For large and established companies Theme of market GEMMain BoardFeatures

15. Methods of Issuing Shares By prospectus /public issue Offer for sale Public placing To the general public Private placing Rights issue Bonus issue To designated people Methods of issuing shares

16. Methods of Securities Dealing Automatic order matching and execution An investor places an order A securities company enters the order into the computer system of the SEHK

17. The Charges in a Securities Transaction Commission Transaction levy Ad valorem stamp duty Transfer deed stamp duty Transfer fee

18. Types of Securities Ordinary shares Preference shares Warrants Debentures Bonds

19. Characteristics of Ordinary Shares Voting rights Profit sharing Risks

20. Characteristics of Preference Shares No voting rights Fixed dividends Priority in profit sharing

21. Types of Preference Shares ______________ preference shares Cumulative Non-cumulative Participating Redeemable Convertible

22. What are the advantages advantages and disadvantages disadvantages of issuing and investing in preference shares?

23. What is a Warrant? Warrant is a certificate issued to the existing shareholders. The holder has an option to purchase a specified number of shares at a specified price within a stipulated period of time.

24. Advantages and Disadvantages of Issuing Warrants Work as an indicator No need to distribute dividends Reduce the share priceProvide more funds Affect investors’ confidenceWill not affect the existing shareholding DisadvantagesAdvantages

25. Advantages and Disadvantages of Investing in Warrants A warrant may worth nothing Gain in price difference DisadvantageAdvantage

26. Characteristics of Debentures A debenture holder is a creditor. The holder earns interest even if the company makes a loss. Have priority in capital repayment.

27. Types of Debentures ____________ debentures Secured Unsecured Redeemable Irredeemable Convertible

28. What are the advantages and disadvantages of issuing and investing in debentures? ？？

29. Bonds Debentures issued by the _______________ or __________________. Lower risk _______interest government public corporations lower

30. Some Common Terminologies Blue chipsBlue chips Red chipsRed chips Second and third linersSecond and third liners Gilt-edge securitiesGilt-edge securities

31. Factors Affecting the Prices of Shares Information on takeover and merger Earnings per share Price-earning ratio (P/E ratio) Interest rate of banks Economic factors Performance of the company Political factors Speculative activities A&BCompany Profit ： $100,000,000 A&B Company Political crisis

32. Stock Exchange Indexes A number to reflect the relative level of prices or value of the securities market of a day. 3 main stock exchange indexes in HK: –Hang Seng Index (HSI) –All Ordinaries Index (AOI) –Growth Enterprise Index (GEI)

33. Hang Seng Index 33 constituent stocks The calculation of the HSI: Sum of market capitalization* of 33 constituent stocks at a specific date ---------------------------------------------- X 100 = HSI at the date Sum of market capitalization of the constituent stocks on the base date* * Market capitalization = market price x the no. of shares issued Base date = 31 st July, 1964 (the index of that day was 100)

34. All Ordinaries Index Base date = 2 nd April, 1986 Base value = 1,000 Comprises all ordinary shares listed on the SEHK except: –Stocks of overseas companies whose principal activities are outside HK and Mainland China –Stocks suspended for over a year –Stocks not traded in Hong Kong dollars

35. Growth Enterprise Index Base date = ______________ Base index = _____________ Include all GEM __________ 17 th March, 2000 1,000 stocks

36. Speculation in Stock Exchanges Speculation = buying and selling of stocks within a short period People involved in speculation: –Bulls  ___________ –Bears  ___________ –Stags  _____________________________ optimistic pessimistic interested in the newly issued shares

37. Futures Market Difference between spot deal and futures deal:  Spot deal  __________ delivery  Futures deal  __________ delivery immediate future People involved:  _________________________________ Merchants and manufacturers Speculators Hedgers

38. Different Types of Futures Contracts in Hong Kong _____________ products Equity index Equity Interest rate Currency

39. Characteristics of Hang Seng Index Futures Contracts Margin trading Margin deposit The operation of the Hong Kong Futures Exchange Clearing Corporation Limited (HKCC)

40. Options Market Two types of option trading: –Put option –Call option Advantages of option trading: –Reduce risk –Earn premium –Maintain price stability 2 main types of option contracts in HK: –stock options –index options

41. Monitoring and Control by the HKSAR Government Ordinances Rules Codes