|Q:||How can I buy and sell shares?|
Once you determine which shares you wish to buy or sell, you can visit any of the seven stockbroking firms. If you wish to purchase shares but are unsure about which one is best suited to your investment objectives, the broker can advise you accordingly but the final decision depends on you.
Before a broker can buy or sell shares on your behalf, you must open an account with the broker and an account with the Trinidad & Tobago Central Depository (TTCD) by completing and signing a client agreement in the presence of a witness. In opening an account, the broker may require certain information such as your name, address, age, investment objectives, National ID number etc.
The generally accepted method of payment for trades executed is by cash or cheque and should be made by the settlement date, which is currently three business days after the date on which the transaction was executed.
If you wish to sell shares and have the share certificates in your possession, you will have to deposit these shares into your TTCD account before they can be sold. Once the registrar of the company confirms that the shares are valid, the broker will then be able to place an order to have the shares sold. This process usually takes three (3) business days.
When placing an order to buy or sell shares the following types of orders can be used:
After the broker has purchased or sold shares on your behalf you will receive a contract note which is a legal document which specifies the volume and value of shares bought or sold, the transaction price, the Stock Exchange transaction charge and the commission payable to the broker. In the case of a purchase, the contract note is your proof of legal ownership until the settlement date.
It is important, to remember that the Stock Exchange does not own any of the shares that are traded nor does it buy or sell any of the shares that are made available on the market. These shares are owned either by organizations or members of the public.
Many small investors who would like to buy shares don't do so simply because they do not know how to go about it. Many people have the false idea that investing in the stock market is only for wealthy individuals
|Q:||What shares can be bought and sold?|
Only the shares of companies registered with the Securities and Exchange Commission and listed with the Stock Exchange, can be bought or sold on the Exchange. This means that a company wishing to make its stocks available for trading must meet the Listing Requirements of the Exchange, which are a set of pre-determined standards.
Presently, there are thirty two (32) companies listed on the First Tier Market of the Stock Exchange, two (2) companies on the Second Tier Market and three (3) on the Mutual Fund Market. These companies are classified into the following sectors, based on the nature their business operations,
Currently there are 40 securities listed on the Exchange which differs from the number of listed companies because some companies have both ordinary and preferred shares listed.
|Q:||When can I buy or sell shares?|
|A:||Trading takes place on all business days, excluding public holidays and Carnival Monday and Tuesday from 9:30am - 12:00pm and is open for viewing by the general public. On these days, the stockbrokers or traders enter orders via the electronic trading system from their respective offices to buy or sell stocks on behalf of their clients.|
|Q:||What are the benefits of buying shares?|
Investors in the local stock market have the opportunity to own shares in some of the largest and most profitable companies in the country and in the region. Shares provide investors with the opportunity to earn extra income from dividends, which are paid out of the profits of a company and an opportunity for wealth accumulation and appreciation. Shares can also be used as collateral to obtain loans from financial institutions.
|Q:||How are prices determined?|
The Exchange does not fix the price at which a stock may be bought or sold. The price is determined by the demand and supply for the security.
Between 8:00am and 9:30am on every trading day, there is a pre-open session during which brokers enter orders into the trading system, but they are not immediately matched. The pre open market state determines the opening price for each security which may be different from the previous day’s closing due to news about the company released overnight, changing economic forecasts or because of a trading halt. The trading system determines the total volume available on both the buy and sell side of the market at each price level to arrive at an opening price.
Once the market opens at 9.30 a.m. trades are executed on a continuous basis which means that any security can trade at any time during the trading session. All orders entered are queued by price and then by time using the FIFO methodology. Trades are also executed using these criteria.
The closing price of a security listed on the Exchange is the Volume Weighted Average Price (VWAP). VWAP is calculated as the total value of the trades executed for a security divided by the total volume of shares traded.
An example of the VWAP Calculation is presented below:
If a security does not trade in any designated trading session, the closing price of that security will be the same as the closing price of the previous day.
|Q:||How can I track the performance of the Stock Market?|
|A:||The Daily Trading Summary is published in the daily newspapers and can also be accessed on the website of the Stock Exchange. Interested individuals can also subscribe to receive the trading summaries via email at the end of every trading day.|
|Q:||What do I do if I have lost or misplaced my physical certificate?|
|A:||Go directly to the Company Registrar of the listed company. Usually you will be required to sign a letter of indemnity and have information on your lost certificates published in a daily newspaper for one day. Upon completion of this exercise, a new certificate will be issued.|
|Q:||What is the relationship between Stockbroker & Client?|
The relationship between stockbroker and client should be one of confidence and goodwill. As frequently happens, the stockbroker will have relatively varying amounts of his customers' cash and/or stocks. At other times, the client may be in debt to his broker. Custom, law and good business practice regard certain standards as fundamental to a satisfactory relationship between client and stockbroker. It is important to note that before dealing with any firm, an investor must ensure that it is a member firm of the Exchange and has a duly registered and licensed stockbroker.
As a new investor, you may not know much about the financial strength, business practices and technical competence of a stockbroking firm. The Exchange however, maintains constant surveillance over member firms to ensure compliance with operational procedures and capital rules.
While the final decision about which companies to invest in is usually made by the investor the broker should nevertheless offer sound investment advice based on a careful assessment of the client’s financial objectives and develop an investment portfolio based on the level of risk that the client is willing to undertake. The stockbroker should do proper research, and should not make any false statements or misrepresentations regarding the value of a particular stock or its operations. The customer must remember however, that stockbrokers can make errors in judgment, and may not always interpret the market correctly.
|Q:||Can I have more than one broker?|
|Q:||If I have a formal complaint against my broker, what should I do?|
Submit the complaint in writing to the Chief Executive Officer of the Trinidad and Tobago Stock Exchange Limited.
|Q:||What type of information is required when making an investment decision?|
Shares or stocks should be selected through the process of investment analysis and portfolio management, functions which can be performed by your stockbroker. The process of investment analysis takes into consideration the operational and financial policies of a company, its operations in the context of the larger economy, its sources of growth and the quality of its management team. When this is completed, the stockbroker selects an investment portfolio or a mix of different stocks, which best fits your risk tolerance and investment objectives.
Some of the tools used in investment analysis are:
a) Balance Sheet
b) Income Statement
c) Retained Earnings Statement
d) Statement of Changes in Financial Position
The Balance Sheet shows what a company owns, what it owes and what it is worth; in other words, its financial position as at a fixed date at the close of a financial period.
The Income Statement shows how profitable a company was over a financial period by summarizing and/or detailing revenue and expenditure (income and expenses).
The Retained Earnings Statement is part of the Balance Sheet, though it is not unusual to find it separate; it provides a record of the profits that have been kept in the business year after year.
A Statement of Changes in Financial Position tells you where the money came from (the source) and how it was spent (the application, during a financial period).
Some useful ratios are:
Net Income= $1,500,000
Price Earnings Ratio (P/E)
Share price per ordinary share = $10.00
Annual Dividends = $0.50
Investing In The Stock Market