The Share Market and The Corporation: Websites: WWW - Asic.gov - Au

Chapter 4
The Share Market

and the Corporation
Websites:
www.asic.gov.au
www.asx.com.au
www.nyse.com
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney 1
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Learning Objectives
• Understand the nature of corporations and
their use of equity as a financing tool
• Describe the role of the stock market
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Chapter Organisation
4.1 Introduction
4.2 The Nature of the Corporation
4.3 The Stock Exchange
4.4 The Development of Share Markets
4.5 Summary
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
4.1 Introduction
• Share market
– A formal exchange facilitating the issue, buying
and selling of equity securities
• Publicly listed corporation
– A company whose shares are quoted and traded
on a formal stock exchange (SX)
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
4.1 Introduction (cont.)
• Ordinary share
– The principal form of equity issued by a
corporation which bestows a claim to residual
cash flows and ownership and voting rights
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
4.1 Introduction
4.5 Summary
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
4.2 The Nature of the
Corporation
• The corporation differs from other business
forms
– Ownership claims are widespread and easily
transferable
– Owners (shareholders) do not affect the day-to-
day affairs of the company
– Shareholder’s liability is limited to the uncalled
amount of the shares
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Corporation (cont.)
• Advantages of the corporate form
– Can obtain large amounts of finance for a
relatively cheap cost
– The liquidity of securities facilitates investor
diversification and encourages investment in
corporate securities
– Specialised management can be chosen (due to
separation of ownership and control)
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Corporation (cont.)
• Advantages of the corporate form (cont.)
– ‘Perpetual succession’—the corporate form is
unaffected by changes in management or
ownership
– The corporate form is suited to large-scale
operations
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Corporation (cont.)
• Disadvantages of the corporate form
– The primary disadvantage arises due to the
separation of ownership and control
 Conflict of interest between owners (shareholders)
and mangers (agents) known as agency theory
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Corporation (cont.)
• Disadvantages (cont.)
– Management may not have strong incentive to
act in the interests of the owners (shareholders)
i.e. maximise shareholder value (share price)
 Moderating influences include
• Investors’ ability to sell shares in a corporation
• Dismissal from the board at AGM by shareholders
• Threat of takeover and loss of employment
• Use of performance incentives like share options
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
4.1 Introduction
4.5 Summary
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
4.3 The Stock Exchange (SX)
• Primary role
• Secondary role
• Derivative market role
• Interest rate role
• Trading and settlement role
• Information role
• Regulatory role
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Primary role
• The SX facilitates the efficient and orderly
sale of new financial securities
– New floats/initial public offerings (IPOs)
 Initial listing of a corporation on the SX
– Rights issue
 Issue of additional shares to existing shareholders on
a pro-rata basis
– Placements
 Issue of new shares to selected institutional investors
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Primary role (cont.)
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Secondary role
• The SX facilitates trading in existing shares
– No new funds are raised by the issuing
company
– An active, liquid, well organised secondary
market increases the appeal of buying new
shares in the primary market
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Secondary role (cont.)
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Derivative market role
• The SX provides a market for trading
equity-related derivative products
– A derivative is a financial security that derives
its price from an underlying commodity (gold)
or financial instrument (Fosters shares)
– Derivative products can be
 Exchange-traded (standardised)
 Over-the-counter contracts (unstandardised)
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Derivative market role (cont.)
• The SX provides a market for trading
equity-related derivative products (cont.)
– Derivatives serve as a
 Risk management tool (hedge)
 Speculative instrument
– Derivatives traded on the ASX include
 Options
 Warrants
 Futures contracts
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Interest rate role
• The listing, quotation and trading of debt
securities on the SX, e.g.
– corporate bonds, floating rate notes (FRNs),
convertible notes, preference shares
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Interest rate role (cont.)
• This role adds value to to a debt issue due
to
– Transparency
– Ease of entry
– Liquidity
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Trading and settlement role
• Shares are traded using an electronic
(computer-based) trading system—Stock
Exchange Automated Trading System
(SEATS)
– Clients’ orders are executed via computer from
the broker’s office
– Orders are executed in order of time received
and the buy/sell price
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
(cont.)
• Shares are traded using an electronic
(computer-based) trading system—Stock
Exchange Automated Trading System
(SEATS) (cont.)
– SEATS has improved the speed and efficiency of
trade-processing and settlement, and the
dissemination of information to market
participants
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
(cont.)
• Bursa SX (Clearing House Electronic Sub-
register System)
– Share ownership and settlement performed
electronically
– Settlement of transactions within three days
(T + 3)
– Under the rules of the T+3 RSS, sellers must
deliver their securities on T+2 via Bursa
Depository Transfer mechanism and obtain
payment on T+3.
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Information role (cont.)
• Listing rules are SX rules with which a listed
entity must comply
• Examples of information disclosures
required by SX listing rules
– A change in forecasted profitability
– Appointment of a liquidator
– Declaration of a dividend
– Notice of a takeover bid
– Disclosure of directors’ interests
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Regulatory role
• The aim of regulation is to ensure market
participants have confidence in the integrity
of market operations
• Examples of secondary market in Malaysia
are :
– Bursa Malaysia Stock Exchange
– Bursa Malaysia Commercial Securities and
– Malaysian Exchange for Securities Dealing and
Autmated Quotation or MESDAQ
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Regulatory role (cont.)
– Ensures listed companies meet specified limited

levels of performance and standards of
information disclosure so investors can make
informed decisions
 Continuous disclosure
– Prescribes appropriate behavior of broker
participants on the exchange
 Penalties include discipline, penalties, loss of license
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
Regulatory role (cont.)
• (cont.)
– Electronic surveillance systems to monitor
trading behaviour of market participants
 Detect trades that fall outside certain limits
 Cross-references all trades against information on the
relevant company, directors and associated parties
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
4.1 Introduction
4.5 Summary
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger
4.1 Introduction
4.5 Summary
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
Accountingand
by Willis
Slides
Slidesprepared
preparedbybyAnthony
Kaye Watson
Stanger

The Share Market and The Corporation: Websites: WWW - Asic.gov - Au

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

The Share Market and The Corporation: Websites: WWW - Asic.gov - Au

Uploaded by

Copyright:

Available Formats

Chapter 4

The Share Market

• Describe the role of the stock market

– Ensures listed companies meet specified limited

You might also like