How do I purchase Shares or Debentures?
There are 2 ways to purchase shares:
(1) From a new issue of shares (Primary market) – for example, new shares are offered to the public through an Initial Public Offering (IPO).
(2) On the Secondary Market through a stock broker
What is a Primary Market and a Primary Issue?
The primary market is the market for new shares or debenture issues. In the primary market, the security is purchased directly from the issuer (company). In a primary issue, the company offering the share/debenture issue publishes a document known as the prospectus. It is an invitation to the general public to buy shares or debentures of that company. The prospectus will include the details of the offer, the business activities of the company, its financial standing, future plans, its directors and management and for what purpose the company is raising this capital for.
If you decide that a particular issue is a promising investment, you can fill up the application form for the purchase of shares or debentures. You can send this form directly to the company concerned or to a stockbroker with payment for the amount due. However, you should read the prospectus carefully to see whether the investment will give the returns you desire. If necessary, consult an expert for advice. It is advisable to request that the shares be directly deposited into your securities account in the Central Depository Systems (CDS). You may do so by filling your CDS account number on the application form. 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.
How do I get a Prospectus?
You can collect a prospectus either from the relevant company or from one of the 20 member firms (stockbrokers) of the Colombo Stock Exchange. You could also obtain it from other institutions such as banks, nominated by the relevant company.
How do I get information on forthcoming New Issues?
All new issues of shares are advertised in the media. You can request for information on new issues from one of the 20 stockbroker companies while the “Stock Market Daily” publication of the CSE also carries this information. You can also retrieve this information by logging on to the Stock Exchange website at www.cse.lk.
What is the Secondary Market?
A market in which an investor could either buy or sell shares and debentures from or to another investor, subsequent to the original issuance in the primary market. Secondary market trading on the stock market takes places from Monday to Friday from 9.30 a.m. to 2.30 p.m. except on Poya days, Mercantile and bank holidays. You could place orders with a stock broker by visiting their offices. You could also visit any one of the stockbroker offices or the CSE branch officers in Kandy, Kurunegala Negombo and Matara. Alternatively, you could trade via the Internet since most stock broking firms offer Internet Trading facilities.
How to find a Stock Broker?
We have 20 stock broking firms working with the Colombo Stock Exchange. Stock broker names and addresses are given at the end of this booklet and can also be obtained by ‘The Stock Market Daily”. For further information and clarification, you can visit the official websites of the said stock brokers. All stock brokers provide the same information and charges are equal among all brokers.
How do I buy Shares on the Secondary Market?
You must instruct your broker to buy shares for you. 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 you give these instructions to your Stock Broker, he will take the necessary action to buy you those shares. Afterwards, the shares will be credited into your account in the Central depository Systems (CDS). There is no fee for opening an account. Your broker will help you to do this easily and you can also obtain CDS forms from your stockbroker.
Will the Broker advise me on which Shares to buy?
Most brokers have a research unit that studies the market in general and specific companies in particular. With this research they are able to recommend shares for you to purchase. The broker makes the recommendation by taking into account the market as well as the political environment of the country. The market is sensitive to change and could change according to situations that can not be stopped. Therefore, your broker will, to the best of his ability, give you recommendations and should not be liable in case the suggestion is found to be incorrect.
Is it better to make my own decision?
It is always better to make your own decisions as the investment you make is ultimately your money and your responsibility. But remember, this is an area that requires both skill and hours of research. Therefore, if you lack confidence, seek the advice of your broker and then make your own decision.
Research services offered by Brokers:
Almost all the broker companies have research divisions. These research divisions compile regular research reports. They also release special market forecasts on future earnings of companies, based on their findings. Such information is made available by stockbrokers to their clients. It is advisable to study such market information before making your investment decisions in the stock market.
Market Regulation: How do I ensure fair treatment from the Broker?
All brokers are licensed by the Securities & Exchange Commission of Sri Lanka (SEC). Brokers employ trained staff and must work in accordance with the rules and regulations of the Securities & Exchange Commission of Sri Lanka and in accordance with member regulations of the CSE. Brokers have procedures to ensure that each client, however big or small, is treated fairly and equally.
If you have a complaint, the first step would be to inform the Compliance Officer of your broker about your complaint. The Compliance Officer should be able to help you resolve the complaint.
If not, how will the Investor get help?
You can forward your complaint to the Colombo Stock Exchange for investigation by the Exchange. As a final step, you can forward your complaint to the Securities & Exchange Commission of Sri Lanka who has statutory authority to investigate complaints.
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