STOCK MARKET The stock market (or Stock Exchange) is a market where securities such as shares, debentures etc.

issued by companies are traded. Companies which use the mechanism of the stock market to raise debt or equitycapital, commonly enter the stock market through issuing shares or debentures to the public. Some companies issue new shares through an Initial Public Offering (IPO) while others may opt to sell aportion of the existing share capital, known as an Offer For Sale. In both instances, the investing public subscribes to the issue directly by paying the value of the share to the company. There is another method by which companies enter the stock market without issuing shares to the public, which is known as an introduction. Companies may also opt to issue debentures (explained later in this booklet) through a debenture issue and issue debentures to the public through a public offer. Once the shares or debentures are allocated to the investors who subscribed, they become shareholders of that company respect of a share issue and debenture holders in respect of a debenture issue. Thereafter these shareholders or debenture holders are free to sell either part of in whole their shares or debentures in the stock market STOCK MARKET ESTABLISHED IN SRI LANKA Share trading in Sri Lanka dates back for a century, in 1896 when the Colombo Stock Brokers Association(CSBA) commenced the trading of shares in limited liability companies. Share training however, was

Typically. Equity is simply ownership of a corporation. Issue stock (or certificates of partial ownership in his company) to people who may be interested in helping their venture out in return for a proportional share of the profits that the company might generate. So. food supplies and selling shares of equity or by incurring debt. You will need to invest in equipment. Equity vs. what are the advantages of selling stock Corporations Issue Stock Businesses issue stock to raise capital. Essentially. If the owner of our ice cream parlor invested all their own savings to buy the materials necessary to start the business. All the money that you invest to start your business is called capital. the capital of a business consists of all of its assets (or items to assist in the creation of wealth). Debt To start a new business (or fund a new project) a company can raise money in two ways . What if it dawns on you that you don't have enough cash to buy all the needed assets? Let's see how new businesses and companies deal with this problem.formalized in 1985 with the establishment of the Colombo Stock Exchange (CSE). . However. 2. ownership units in a corporation are referred to as stock. What Is Capital Let's imagine that you decide to start up your own ice cream shop business. they made an equity investment in the company. Borrow money that will need to be paid back with interest. if our owner did not have necessary funds to start their own business they could finance their operation in one of two ways: 1.

You can send this form directly to the company concerned or to a stockbroker with . a primary market is one where new issues are traded.e. There are some unique characteristics of the shares issued in this market: • • They are issued with the aim of raising capital for the business.Advantages of issuing stock: 1. 3. these issues are sold at a price within a pre-determined range to the investors. Usually. Primary market When a company makes its first public issue of shares. you can fill up the application form for the purchase of shares or debentures. 2. the investors buy from the issuer in this market. A Company can raise more capital than it could borrow. A Company does not have to make periodic interest payments to creditors. The principal owners have to share their ownership with other shareholders. They are offered directly by the company. A Company does not have to make principal payments. In other words. • If you decide that a particular issue is a promising investment. Disadvantages of Issuing Stock: 1. the transactions are said to take place in the primary stock market. All sale proceeds from dealings in the primary market go to the company that issues the shares. 2. Shareholders have a voice in policies that affect the company operations. i.

You can also retrieve this information by logging on to the Stock Exchange SECONDARY MARKET A market in which an investor could either buy or sell shares and debentures from or to another investor. Their names and addresses are given at the end of this booklet. nominated by the relevant company. You may do so by filling your CDS account number on the application form. However. You can request for information on new issues from one of the 15 stockbroker companies while the “Stock Market Daily” publication of the CSE also carries this information. GET INFORMATION ON FORTHCOMING NEW ISSUES All new issues of shares are advertised in the media. subsequent to the original issuance in the . This will save you time and worry when you want to dispose of your shares and will be the best and safest way to keep custody of the shares or debentures you purchase. you should read the prospectus carefully to see whether the investment will give the returns you desire. If necessary. GET A PROSPECTUS You can collect a prospectus either from the relevant company or from one of the 15 member firms (stockbrokers) of the Colombo Stock Exchange. It is advisable to request that the shares be directly deposited into your securities account in the Central Depository Systems (CDS).payment for the amount due. consult an expert for advise. You could also obtain it from other institutions such as banks.

cse. to 12. Be selective in choosing a broker. You must clearly provide him with the following particulars: a) The names of the company you want to invest in b) The amount of shares you desire to purchase c) The price you are prepared to pay when buying shares in market you must first open an account in the Central depository Systems (CDS).30 a.m. There is no fee for opening an account. Alternatively. Place your order with a broker who can provide you with the kind of service you demand. FIND A BROKER Broker has remarkable role in purchasing of stocks in Your broker will help you to do this easily and you can also obtain CDS forms from your stockbroker. BUYING SHARES ON THE SECONDARY MARKET You must instruct your broker to buy shares for you. Some brokers also offer trading via the Internet.m. Matara and Kandy.30 p. Secondary market trading on the stock market takes places from Monday to Friday daily from 9. . you could still follow the market online by logging on to the Stock Exchange website (http://www.primary market. One could visit any one of the stockbroker offices or the CSE public galleries located in Colombo.

The CDS provides your details to the company that you are share holder or debenture holder of so that such companies would be able to dispatch corporate actions such as dividends etc and also send you notices and annual reports etc. The broker makes the recommendation to the best of his ability and should not be liable in case the recommendation is found to be incorrect. When you buy shares. There is no payment involved to open a CDS account.CENTRAL DEPOSITORY SYSTEM (CDS) The CDS is the clearing-house for share transactions. The CDS is also a depository. With this research they are able to recommend shares for you to purchase. You must complete an account opening form. Most brokers have a research unit that studies the market in general and specific companies in particular. these shares will be taken out of your account and transferred into the buyers account. the shares purchased will be transferred into your CDS account. Joint accounts can also be operated. All the shares or debentures you deposit in the CDS will be held by the CDS in your name. To open the account you will have to give the broker a photocopy of your National Identity Card (NIC) and make available your NIC for inspection. those shares must be lodged in your CDS account. All brokers have this form readily available. When the sale is concluded. . If this is not possible the passport is also an acceptable identification document. Similarly before you sell shares. The completed form will be forwarded to the CDS by the brokers and an account will be opened in your name.

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