What is Srilanka Stock Market ?

Attractive Colombo Stock Exchange.
The rapid development in the stock market during the past few years has attracted a large number of investors to the stock market as an alternate way of investment. The contribution of the stock market to the economy has been heavily debated. The Colombo Stock Exchange is providing you this introduction to the stock market to enhance your knowledge about the capital market in Sri Lanka and assist you in making a sound investment.

WHAT IS A 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 equity capital, 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

WHEN WAS A 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 formalized in 1985 with the establishment of the Colombo Stock Exchange (CSE).

WHAT IS THE COLOMBO STOCK EXCHANGE (CSE)?
The Colombo Stock Exchange (CSE) is the organization responsible for the operation of the stock market in Sri Lanka. The (CSE) is a company limited by guarantee established under the Companies Act No. 17 of 1982 and licensed by the Securities and Exchange Commission of Sri Lanka (SEC) to operate as a Stock Exchange in Sri Lanka. The Securities and Exchange Commission of Sri Lanka (SEC) is the government regulator for the stock market in Sri Lanka.
The CSE has 15 member firms and 14 Trading Members (stock broking firms). These member firms act as market intermediaries performing a number of services to investors and companies. All member firms are institutions, subject to the regulations of the SEC, and have to obtain a license annually.

WHY INVESTORS NEED MEMBER FIRMS AND TRADING MEMBERS (STOCKBROKERS)?

Shareholders or investors wishing to either buy or sell securities in the stock market must register with one or more stockbroker companies. The relevant transaction will be attended to by the stockbroker/s of your choice. It is therefore mandatory that investors use a market intermediary to buy/sell shares or debentures in companies listed in the stock market. Stockbrokers provide a range of services such as the opening of securities accounts in the Central Depository system (CDS), receiving and executing orders to buy or sell securities,offer investment advice on suitable investments, portfolio management, conducting and publishing research on companies, attending to the settlement of transactions and attending to the necessary documentation in respect of any transaction. In addition, stockbrokers also provide services to companies such as sponsoring listing applications for companies, underwriting share issues, advice and facilitating takeovers and mergers etc.

WHAT ARE THE TRADING INSTRUMENT ON COLOMBO STOCK EXCHANGE? 01.Ordinary Shares      01. Voting Shares      02. Non Voting Shares 02.Warrants 03.Corporate Bonds

WHAT IS A SHARE?

A share is one of the equal parts into which a company’s capital is divided, entitling the owner to a portion of profits which in other words, would mean that a share you own is the stake you have in a company.

If, for example, a company has issued one hundred thousand shares, and you own one thousand shares in it, then you own 1% of the company. As a part owner of a company, you are investing in the future growth of the company. You should invest in companies you feel  confident in and ones that you believe are well managed. Presently, almost 95% of the companies that are listed in the stock market have issued shares to the public.

As a shareholder you have the right to receive company reports, attend and vote at shareholder meetings.

WHAT IS A WARRANT?

A certificate giving you the right to buy shares at a stipulated price within a specified time.

WHAT ARE THE BENEFITS OF INVESTING SHARES?

The return from owning shares can be derived in two forms.
(a) Dividends
(b) Capital Gains

A taxable payment declared by a company's board of directors and given to its shareholders out of the company's current or retained earnings. Dividends are usually given as cash (Cash Dividends) and shares (Scrip Dividend),  Dividends provide an incentive to own stock in stable companies even if they are not experiencing much growth. Companies are not required to pay dividends. The companies that offer dividends are, most often, companies that have progressed beyond the growth phase and no longer benefit sufficiently by reinvesting their profits, so they usually choose to pay it out to their shareholders.

A Capital gain is the amount by which an asset’s selling price exceeds its initial purchase price. A realized capital gain is an investment that has been sold at a profit. An unrealized capital gain is an investment that hasn't been sold yet but would result in a profit if sold. Capital gain is often used to mean realized capital gain. Making a capital gain would depend on the market price of a share. There are instances where one could also make a capital loss. That is, if the market price were to fall beyond the price you purchased the  share at and you sell it at that point, you would stand to make a capital loss.

There are other benefits. For example, as a shareholder you are entitled to participate and vote at annual general meetings and at extraordinary general meetings of the company. You can also use your shares as collateral against loan facilities to banks. Additionally, as a shareholder of a company, you may receive other benefits like the opportunities of a
Rights Issue or a Capitalization of reserves.

DO YOU KNOW ABOUT WHAT IS THE RIGHT ISSUE?

A Rights issue enables shareholders to participate in an additional equity financing from which other investors are pre-empted. This is a privilege therefore, extended to existing shareholders to buy shares at specified and usually discounted price,

WHAT IS A CAPITALIZATION RESEVES?

This is when a shareholder of an existing company is sometimes issued new shares free of cost. This happens when the company has reserves and they use part of these reserves and give new shares. Often called a “free” or scrip issue, a bonus issue is a book keeping transaction that transfers money from a company’s reserve to its capital. Existing share prices tend to decline to reflect the greater number issued but your portfolio value will remain unchanged due to the value of the additional shares.

HOW TO INVEST SRILANKA STOCK MARKET?

Individual Investors

The Colombo Stock Exchange (CSE) offers advanced infrastructure and systems for the trading of equity. The Automated Trading System is an online real-time system which provides for the secondary trading of equity. Post-trade clearing and settlement of transactions are executed through the Central Depository System (CDS). The Exchange is open for continuous trading from Monday to Friday from 9.30 am to 2.30 pm. The settlement for equity transactions is on the third market day after the transaction ie. T+3.More Details For Open CDS account

Download Application to Open CDS Account
Foreign investments

The issuance of shares by resident companies to foreign investors (non-residents) are permitted without prior approval of the Exchange Control Department subject to certain exclusions and limitations. Movement of funds of such transactions must be through a scheme of account titled “Share Investment Account” (SIA). The SIA would be credited by inward remittances received in convertible foreign currencies from the investors. The dividends and sales proceeds realized on this investment account are remittable through this account.

Non-resident applicants have to open a SIA with a bank in Sri Lanka. The applicants could instruct overseas banks to open the SIA with their Sri Lankan corresponding bank (HSBC, Standard Chartered, Citi and Deutsche Bank operate in Sri Lanka). The CDS account can be opened only after the SIA is opened. If a Custodian Bank is involved, the Custodian Bank will open the SIA and the CDS Account.

More Details For Forigeners to Open CDS Account 

Download Application to Open CDS Account 

Choose Your Favourite Bank For  Open SIA Account ( Forigen Investors Only)

HSBC BANK
ICICI BANK
SAMPATH BANK
SEYLAN BANK
PABC BANK
HNB BANK

Please Refer The Get Additional Information www.cse.lk
 You Are Welcome to Colombo Stock Exchange, Happy Investing & Trading.