BASIC INVESTING GUIDELINES

Why Invest In Stocks?
Investing is making your money work for you by getting your money to generate more money. Investing in stocks has consistently proven to be one of the most profitable forms of investment available.
The benefits include:
Immediate Buy/Sell so you can sell part of your investment any time.
Very low transaction cost.
The freedom to work at your own place, at your pace in your own time.
Easy monitoring — log in to the market from anywhere in the world.
Being able to maximise returns whilst spreading your risk.
A predictable form of investment if you know what you’re doing.
Putting you in control and freeing you of fund management fees.
Considerable tax advantages.
Things to watch out for:
The market can be a volatile place.
You must acquire knowledge of what you are doing.
You must monitor your investments.
You must learn the discipline to enter and exit the market on entry and exit signals.
Can Ordinary People Profit from the Stock Market?
Many people say things like “I’d love to get into the stock market” or “If I had more money, I’d invest in stocks”. Many people also believe that to make a profit from the stock market you either need to be rich already, be a full-time investment trader or be a financial whiz.
Not necessarily so.
Let’s take a look at three different scenarios of ordinary people in the stock market to see how they fared. This will let us view how the process works, the different approaches, and how returns are generated.
Scenario 1 :
Kumara works in a manufacturing plant earning Rs.33,000 a year. After rent, living and personal expenses, Kumara has managed to save Rs.8000 over the past 6 months that he wants to invest in the stock market. Kumara buys 4,800 shares in ABC Company at Rs.1.60 per share (Rs. 7,680). He also pays Rs. 109.00 brokerage fees for buying the shares. In total, Kumara has invested Rs. 7,789.00
Three months later Kumara decides to sell his shares. He has kept an eye on the performance of ABC Company and it has risen to Rs. 1.80 a share. Kumara sells his shares for Rs. 8,640.00. He also pays Rs.123.00 brokerage fees for selling his shares, leaving him with Rs. 8,517.00 That is a profit of Rs. 728.00.
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Rs. 728.00 may not sound a lot, but remember Kumara only invested Rs.7789.00 for 3 months, so he won’t make a huge return. Nevertheless, Kumara made a 9.35 % profit which is far better than he would have made by putting the money into his savings account.
Scenario 2:
Mary and Jude both work full-time in professional jobs. Together, they earn Rs. 120,000 per year. After mortgage repayments, living and personal expenses Mary and Jude have managed to put away Rs. 30,500 that they want to now invest in the stock market. They buy 3,000 shares in AAA Company at Rs 5.00 a share (Rs.15,000) and 2,500 shares in XY Manufacturing at Rs. 6.00 a share (Rs.15,000). They also pay Rs. 428.00 brokerage fees for the two transactions. Their total outlay is Rs. 30,428.00.
Over the next 12 months AAA Company shares have risen to Rs. 10.00 a share and XY Manufacturing shares have moved to only Rs. 7.50 a share. Mary and Jude sell their shares for a total of Rs. 48,750. They pay their broker Rs. 695.00 and are left with Rs 48,055.00. Their initial investment was Rs. 30,428.00 So, they make a profit of Rs. 17,627.00.
Scenario 3:
Amina is retired, owns her own home and earns a comfortable income from several long term investments. Amina would like to invest Rs. 40,000 that she has set aside for buying shares.
Amina selects a portfolio of 5 companies. Amina buys 3,000 shares in ABC at Rs. 2.00 a share (an investment of Rs. 6,000). She also buys 500 shares in AAA at Rs. 14.75 a share (Rs. 7,375) and 2,000 shares in XY at Rs. 10.00 a share (Rs.20,000 ). To complete her portfolio, Amina buys a further 500 shares in MM at Rs.5.00 a share (Rs. 2,500) and 100 shares in BB at Rs.6.00 a share (Rs 600). Amina also pays Rs. 520.00 brokerage fees for buying the shares. In total, Amina has invested Rs. 36,995.00
12 months later Amina sells her shares. Four of the shares have increased in value but BB has dropped to Rs. 4.75 a share. ABC rose to Rs. 5.00 a share returning Rs. 15,000. AAA rose to Rs. 18.50 a share returning Rs. 9,250. XY rose to Rs. 13.00 a share returning Rs. 26,000. MM rose to Rs. 8.00 a share returning Rs. 4,000. BB dropped to Rs. 4.75 a share returning Rs. 475. In total, Amina’s shares returned Rs. 54,725 less Rs.780.00 for brokerage. This gives a total of Rs. 53,945, earning a profit of Rs. 16,950.00 in 12 months.

Understanding The Stock Market
The stock market is where the shares in companies are bought and sold, providing companies options to access capital, and investors opportunities to own a share of the company and enjoy potential gains from the company’s future performance.
The stock market offers people the ability to generate a separate income stream apart from their daily jobs, or income streams which are superior to those from traditional savings deposits. But before you even think about buying and selling shares, you must know the fundamentals of the stock market and of trading.
The Role of Colombo Stock Exchange (CSE)
You can only invest in stocks through a stock exchange, an organized marketplace where stocks are bought and sold under strict rules, regulations and guidelines. The Sri Lankan stock exchange is called The Colombo Stock Exchange. CSE has over 235 listed companies offering a wide range of investment choices to local and global investors. Companies are either listed on CSE Main Board for larger capitalised companies, the Second Board for medium sized companies.
Raising Capital on the Stock Market
All companies need cash to take advantage of growth opportunities. Many start-up companies however find themselves short of capital to fund expansion. One way to acquire this cash is to publicly float the company. This involves selling part of the company to private individuals and institutional investors who are then able to freely exchange these stocks on an open market.
Purchasing stocks in a company that is listed on the stock market is done through an Initial Public Offering or IPO.
Once an IPO has been announced, you can contact the company (phone, fax or email) for a copy of the Prospectus and complete the application to apply for an allocation of shares. Or you can wait until the company is floated and buy shares on the open market. Besides CSE, stock brokers will also have information regarding Initial Public Offerings.
Companies that are already listed can also raise additional money on the stock market by offering existing stockholders the opportunity to buy more stocks in the company. For example, a listed company wanting to raise additional capital might issue one new share at Rs. 5 each for every three shares an existing investor owns.
When you buy shares, you are buying a share in that company and so you own a percentage of that company. When the company makes a profit, you share in that profit in the form of a dividend. Typically, the number of shares that have been issued multiplied by the share price gives us how much a company is worth.
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The Role Of A Broker
Who is a Stockbroker?
A stockbroker is a firm that acts as an intermediary for stock market transactions, offering investors a variety of services in addition to executing buy & sell orders of investors. The Stockbroker’s fee is the brokerage.
There are 15 Stockbroker firms and 6 Trading members at the Colombo Stock Exchange (CSE). They are governed by the regulations set out by the CSE and Securities & Exchange Commission (SEC).
What services do they provide?
It is mandatory for you to obtain the services of a stockbroker in transacting in the secondary market.
Intermediation
• Portfolio Management
• Execute and confirm buy / sell transactions
• Advise and facilitate takeovers and mergers
• Sponsoring listing applications for companies
• Investment advise
• Follow-up on defaulters
• Settlement of transactions - T+3 for Equities and Delivery vs Payment (DVP) for Corporate &
Government debt
Client Registration
• Opening of Securities Accounts
• Deposit of Securities
• Withdrawal of Securities
• Transfer of Securities
• Generation of Contract Notes
• Attending to the documentation
• Settlement of transactions
Providing information
• Assistance and information dissemination with regard to new issues
• Research and reports on the performance of listed companies and their securities
Qualities of an Investment Advisor
The Stockbroker should act in the client’s best interest. Therefore, he should possess the following qualities.
• Competence
He should be qualified and experienced and have a thorough knowledge of market behaviour.
Your broker should be certified by the CSE and hold the Investment Advisor Certification.
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• Integrity
The stockbroker should give fair treatment to his clients, and not for his personal gain. He must
account for all transactions properly.
• Knowledge about ‘‘what’s happening around’’
The Broker should possess knowledge on the needs of the client, market behaviour and
Political, Economic, Social & Technological factors.
• Forecasting
This is the process of analyzing current and historical data to determine future trends. Stock
analysts use various forecasting methods to determine future stock price movements, earnings,
etc.
What are their fees?
All brokers charge the same commission for Equity trades. You will be charged 1.425% on your transaction value for transactions upto Rs.1 Mn and 1.225% for transactions over Rs.1 Mn. Equity trades above Rs. 100 Mn and all corporate debt trades have negotiable rates of broker commission.
What research services are offered?
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. They publish research in the form of
• Sector reports
• Daily & Weekly reports
• Company specific reports
• Daily valuation reports
The broker makes recommendations to the best of his ability and should not be liable in case the recommendation is found to be incorrect.
Investor Complaints
If you have a complaint with regard to a broker, first inform the Compliance Officer of your broker firm. The Compliance Officer should be able to help you and resolve the complaint. If you are not satisfied you can forward your complaint to the CSE for investigation. As a final step you can forward your complaint to the SEC who has statutory authority to investigate complaints.
There are many brokers to choose from ---given below is a list of all the stock brokering firms licensed by the SEC.

Bartleet Mallory Stockbrokers (Pvt) Ltd
Level "G", "Bartleet House", 65, Braybrooke Place, Colombo 2.
Tel. 5220200, Fax: 2434985
E-mail:info@bartleetstock.com
Website: www.bartleetstock.com
Mr. R. Muralidaran
Managing Director


Acuity Stockbrokers (Pvt) Ltd.
Level 6, Acuity House,No. 53, Dharmapala Mawatha, Colombo 3. Tel. 2206206 Fax: 2206298/9 E-mail: sales@dfccstockbrokers.com Mr. Devapriya Ellepola CEO/Managing Director


John Keells Stockbrokers (Pvt) Ltd.
130, Glennie Street, Colombo 2.
Tel. 2326003, 2338066/7, 2342066/7, 2446694/5, 2439047/8, 4-710721-4
Fax: 2342068, 2326863
Email:jkstock@keells.com
Website:www.jksb.keells.lk
Mr. Tivanka Ratnayake
CEO


Asha Phillip Securities Ltd.
Level 4, "Millennium House", 46/58, Navam Mawatha, Colombo 2.
Tel. 2429100, Fax: 2429199
E-mail: apsl@ashaphillip.net
Mr. Dimuthu Abeysekera
Director/CEO


DP Global Securities (Pvt) Ltd.
3rd Floor, "Forbes & Walker Building", 46/38, Navam Mawatha, Colombo 2.
Tel 4700111, 2307366 Fax: 4700112,2307365 E-mail:Colombo.dpglobal@dpmcfs.com
Mr. Travis Waas
Managing Director


Somerville Stockbrokers (Pvt) Ltd.
137, Vauxhall Street, Colombo 2.
Tel. 2329201-5, 2332827, 2338292-3
Fax: 2338291,
E-Mail: ssb@sri.lanka.net
Ms. Shalini Dias
Director


J B Securities (Pvt) Ltd.
150, St. Joseph Street, Colombo 14.
Tel. 2490900, 077-2490900, 077-2490901
Fax: 2430070, 2446085, 2447875
E-mail:jbs@jb.lk
Mr. Murtaza Jafferjee
Chairman & Managing Director


Lanka Securities (Pvt) Ltd.
5th Floor, 86, Galle Road, Colombo 3.
Tel. 5576757, 2431138
Fax: 5576767
Email:lankasec@sltnet.lk
Website:www.lsl.lk
Mr.Kosala Gamage
Chief operating officer


Asia Securities (Pvt) Ltd.
Level 21, West Tower, World Trade Centre, Echelon Square, Colombo 1.
Tel. 2423905, 5320000
Fax: 2336018
Email:enquiry@asiacapital.lk
Website:www.asiacapital.lk
Ms. Priyani Dharshani Ratna-Gopal
Chief Executive Officer

Ceylinco Stockbrokers (Pvt) Ltd.
Ceylinco House, Level 9, 69, Janadhipathi Mawatha, Colombo 1.
Tel. 4-714300, 4-714388, 4-714389, 077-891871, 077-896064
Fax: 2387228
E-mail: info@ecsbl.com
Website: www.ecsbl.com
Mr. Sriyan Gurusinghe
Director/General Manager


Capital TRUST Securities (Pvt) Ltd
42, Mohamed Macan Markar Mawatha, Colombo 3. Tel. 5-335225,
Fax: 5-365725
E-mail: register@lankaorixsecurities.com
Mr. Tushan Wickremasinghe
Managing Director


S C Securities (Pvt) Ltd.
2nd Floor, 55 D.R. Wijewardena Mawatha, Colombo 10.
Tel. 4711000,
Fax: 2394405
E-mail:ceo@sampathsecurities.lk
Website:http://www.sampathsecurities.lk/
Mr. Harsha Fernando
Director / Chief Executive Officer


CT Smith Stockbrokers (Pvt) Ltd.
4-14, Majestic City, 10, Station Road,
Colombo 4.
Tel. 2552290 – 4, Fax: 2552289
E-mail: ctssales@sltnet.lk
Website: www.ctsmith.lk
Mrs. Cecilia Muttukumaru
Managing Director


DNH Financial (Pvt.) Limited.
Level 16, West Tower, World Trade Center, Colombo 01. Tel. 5732222 Fax: 5736264 E-mail: info@dnhfinancial.com Mr. Seedantha Kulatilake General Manager/CEO
NDB Stockbrokers (Pvt) Ltd.
5th Floor, NDB Building, 40, Navam Mawatha, Colombo 2.
Tel. 2314170 to 2314178
Fax: 2314180
E-mail: mail@ndbs.lk
Mrs.Prasansini Mendis
Acting Chief Executive Officer


Capital Alliance Securities (Pvt) Ltd.
Level 5, "Millennium House", 46/58 Navam Mawatha, Colombo 2.
Tel: 2317777
Fax: 2317788
Email:general@capitalalliance.lk
Website:www.capitalalliance.lk
Mr.Ajith Fernando
Managing Director/CEO


SMB Securities (Pvt) Ltd.
Landmark Bldg, 385 Galle Road, Colombo 3.
Tel: 5539593 Fax: 5565316
E-mail: smbsecurities@gmail.com
Website: www.smblk.com
Mr. Nandun Jayatillake
Chief Executive Officer
First Guardian Equities (Pvt) Ltd.
32nd Floor, East Tower, World Trade Centre, Echelon Square, Colombo 1.
Tel: 5884400-5884411, 5884422-5884433Fax: 5884401
E-mail: info@firstcapitalequities.com
Website: www.firstcapitalequities.com
Mr.Rohan Goonewardene
Managing Director/CEO


Taprobane Securities (Pvt) Ltd.
10, Gothami Road, Colombo 10.
Tel: 5328100 Fax: 5328109
E-mail: janaka@tap.eureka.lk, dayan@tap.eureka.lk
Mr.Ashan Dassanayake
Chief Executive Officer


Amana Securities Ltd.
550, R. A. de Mel Mawatha, Colombo 3.
Tel: 2506101-4 Fax: 2506105
E-mail:info@asl.lk
Website: www.asl.lk
Mr. Ishrat Rauff
Chief Executive Officer
SKM Lanka Holdings (Pvt) Ltd
No.377/3, Galle Road Colombo 3
Tel: 0112372415/6 Fax: 0115371139
Mr. Khalil Masood
Chairman/CEO


Reading Market Reports
As an Investor, you will begin to pay more interest to the business section of your local newspaper. Most feature a section that deals with Stock Market prices at close of the previous day. In this section, you will come across the following descriptions:
Stock Name :Name of the particular stock.
Change (Rs) :The increase or decrease in the stock price for that particular day.
Change (%) :The percentage increase or decrease in the stock price.
High :The highest price for a stock in that trading day.
Low :The lowest price for a stock in that particular day.
M Cap(Market Capitalisation) :This is the total market value of all voting ordinary shares of all listed companies. This is also calculated company wise and indicates a company's size in relation to the total Market .It is used to conduct market valuations. Market capitalization is calculated by multiplying the issued quantity of shares by the market price.
VWA price :(Volume Weighted Average Price) ::Closing price will be defined as the Volume Weighted Average Price (VWAP) of trades executed during the last one hour of trading of the specific security. If the security does not trade for one hour the closing price will be the VWAP calculated for the period of time it has traded After close of trading, no activity can occur until the pre-opening begins on the next business day. The option of having a closing auction is available but will not be enabled.
VWAP = total value traded during the last 1 Hour of trading  /// total volume traded during the last 1 Hour of trading


Example 1.
SECURITY X - TRADE RECORDS FOR DD/MM/YYYY
Time           Price           Volume          Value
10.55          120.00          900                108,000
11.05          100.00          10,000           1,000,000
11.15          110.00          500                 55,000
11.23          101.50          300                 30,450
11.25          110.00          200                 22,000
11.53          103.75          1,000             103,750
12.01          110.00          100                 11,000
                                       12,100           1,222,200
In the above example the first trade for security X for the day took place at 10.55 a.m.
The last trade for the day was executed at 12.01 p.m.

The VWAP for security X for day DD/MM/YYYY:
VWAP = TOTAL VALUE TRADED FROM 11.01 A.M.TO 12.01 P.M. /// TOTAL VOLUME  TRADED  FROM 11.01 A.M. TO 12.01 P.M. 12,100
=  1,222,200//12,100
  =   RS.101.00


Example 2
SECURITY Y - TRADE RECORDS FOR DD/MM/YYYY
Time             Price           Volume               Value
09.34           20.00           900                    18,000
09.55           25.00           1,000                 25,000
10.15           20.00           500                    10,000
                                       2,400                  53,000
In the above example, Security Y has traded for less than one hour. The first trade for security Y for the day took place at 9.34 a.m. The last trade in security Y took place at 10.15 a.m.

VWAP = TOTAL VALUE TRADED FROM 9.34 A.M. TO 10.15 A.M. / TOTAL VOLUME TRADED FROM 9.34 A.M. TO 10.15 A.M.
= 53,000/ 2,400
= Rs. 22.00

Reading the stock market performance section of the newspaper is an easy thing to do. You just need to do it a few times until you begin to feel comfortable with it.
Getting A Stock Price
The CSE website displays real time share price information in the home page under the tab “Today’s share price List”
This table of real time data covers the above mentioned description pertaining to listed companies opening, closing Day’s high, Day’s low & share price change information.
You will be able to obtain these information from your broker as well.
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Understanding Indices
What is an Index?
An index is a statistical measure of change in an economy or a securities market. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value.
The CSE calculates indices on Price changes (ASPI, MPI & Sectors) and Total Returns (ASTRI, MTRI & Sectors) on a daily basis.
What is a Price Index?
A market index is a method of measuring or tracking the price movements of a particular group of financial securities. Such an index may be broad in scope (measuring a large group of stocks) such as the ASPI or narrow (measuring only a selected group of stocks) such as the MPI & the sector indices.
The CSE has two main price indices. These price indices are capital weighted.
Capitalization-Weighted
Also it is known as “market-value weighted”
Individual components are weighted according to their market capitalization, so that larger components carry a larger percentage weighting.
Large price moves in the largest components can have a dramatic effect on the value of the index. Some investors feel that this overweighting toward the larger companies gives a distorted view of the market, but the fact that the largest companies also have the largest shareholder bases makes the case for having the higher relevancy in the index.
Importance of Market Indices
Market indices are important for two main reasons:
1. Indices as Benchmarks - Indices are frequently used as performance benchmarks or as a
point of reference by which the relative performance of a particular investment can
be determined.
2. Determining Trading Trends - A stock market index acts as a proxy for the aggregate price
changes of the stocks, which make up that index and, as a result, measures the price direction
or volatility of the particular market.
By understanding how and why the indexes react in the economic trends over time, investors might gain insight that will help them make better investment decisions.
All Share Price Index (ASPI)
The ASPI tracks the price fluctuations of all ordinary shares listed on the CSE. The ASPI was introduced on 1st January 1985.

Milanka Price Index (MPI)
The MPI covers the price fluctuations of 25 selected companies. The 25 companies are selected on their size (measured by market capitalization) and liquidity (measured by number of trades executed & trading value as a % of average market capitalization).
The composition of the index is revised on a biannual basis.
The MPI gives a clear picture of the movements of the more liquid companies listed on the CSE. The MPI is not a Blue Chip index.
The MPI was introduced on 1st January 1999, replacing the Sensitive Price Index (SPI), which was the Blue Chip index of the CSE from 1st January 1985.
Sector Indices
The CSE also calculates price indices for the 20 business sectors. They reflect the price movements of companies in each sector.
What is a Total Returns Index?
Total returns include interest, capital gains, dividends and distributions realized over a given period of time.
The Total Returns Index (TRI) calculated by the CSE takes into account price changes and dividend income of companies listed.
This is hence a better measure of returns from an investor’s perspective.
The ASPI computed on total returns (ASTRI), MPI computed on total returns (MTRI) & the sector indices are published daily along with the Price indices.

Types Of Stocks
What types of stocks are there?
Ordinary Stocks: When purchasing an ordinary stock, you own a share of the company. This entitles you to receive profits from the operations of the company in the form of dividends. At the annual general meeting (also referred to as an AGM), you have voting rights. Ordinary stocks are what you will start to trade in and most traders never venture beyond this.
There are, however, other types of securities and these are:
Preferential Stocks:A preference stock is different from an ordinary stock. Preference stockholders receive dividends before dividends on ordinary stocks are announced. If the company is wound up, preference stockholders rank above ordinary stockholders in the distribution of assets. Preference stock scan often have a fixed dividend rate.
Rights Issue:A rights issue can be granted to stockholders to buy stocks in the company, often below market price.
Warrants:A certificate, usually issued along with a bond or preferred stock, entitling the holder to buy a specific amount of securities at a specific price, usually above the current market price at the time of issuance, for an extended period, anywhere from a few years to forever. In the case that the price of the security rises to above that of the warrant's exercise price, then the investor can buy the security at the warrant's exercise price and resell it for a profit. Otherwise, the warrant will simply expire or remain unused. Warrants are listed on options exchanges and trade independently of the security with which it was issued, also called subscription warrant.
Buying And Selling Stocks
The thought of buying and selling stocks can seem daunting for a beginner but it is quite simple and will grow on you quite quickly once you have some practice. One essential thing to know is that you must go through a broker to buy and sell stocks, only a licensed broker can deal directly with the stock market.
Engaging a Broker
Aside from making the purchases, a broker can also advise you on your purchases. However, you should not depend on them for market knowledge, you must do your own research to succeed in the market.
Buying and Selling Online
Online trading does not come with expert advice but does normally come with live market updates so you can keep track of your purchases online and become an expert yourself.
ACCOUNT- You must open a CDS Account through a stock-broking company.
BUYING-To buy shares, you must have sufficient funds to cover the cost of the shares as well as the transaction costs.
Your CDS account will be credited with the shares bought. All payments must be on T+3.
INVESTMENT ADVISOR-The main contact person at the stockbroking company is your Investment Advisor
SELLING-To sell shares, you must already have the shares in your CDS account.
Your CDS account will be debited and you will receive payments on T+3.
MATCHING-Orders are matched electronically through the Automated Trading System - there is no manual intervention in the process.
CONFIRMATION-Your Investment Advisor will confirm your order after it has been matched.
T-DAY-The day on which shares are bought/ sold is known as T-day.
CONTRACT NOTE-A contract note will be sent to you by your stockbroking company. Confirm that all details such as company name, cost of the shares and transaction costs are correct and keep this document carefully.

When To Buy And Sell
Trading Sessions
The Exchange is open for continuous trading from Monday to Friday from 9.30 a.m. to 2.30 p.m.
Secondary trading of corporate and government debt securities through the DEX takes place from 9.30a.m. to 12.30p.m.
The trading sessions for equity as follows:
Market Phase                Time                    Days
Pre-open                       9:00 - 9:30        
Open Auction                9:30                     Monday - Friday (Except Public Holidays)
Normal Trading             9:30 - 14:30
Closing                         14:30  
         
• Pre-Open
 During pre-open (9.00 am to 9.30 am) the system accepts orders. These orders can be amended and cancelled during pre-open. However, no trades take place during this stage. Orders during this period are held in the ATS and will be forwarded to the execution engine at Open Auction time.
• Open Auction
 During open-auction (09.30 am), the system temporarily closes the order book and starts matching orders. It establishes the opening price and determines the orders to be executed according to the rules for the open-auction period (Automated Trading Rule 4).
• Regular Trading
During regular trading (09.30 am to 2.30 pm) new orders are continually matched to existing orders in the order book. If an order cannot be executed, it is stored in the order book.
• Market Close
 Market closes at 2.30 pm.
There are two ways to place a buy or sell order:
At Market Orders
You can only make ‘at market’ orders during trading hours. you can put an order through your broker as soon as the market opens, the purchase will then be made ‘At Market’ price,.
At Limit Orders
The advantage of ‘At Limit’ orders is that you set the maximum price you will buy or the minimum price you will sell the share for. So, if you have done your research that evening and decided that the most you want to pay for the share is Rs 120 then you place an ‘At Limit’ order for 100 shares at Rs. 120. If your broker can get the shares for Rs. 120 they will buy them for you. If not, they won’t make the trade. This practice is quite good if you want to control the amount you are investing.


For Further clarification, please contact the Business Development Division of the CSE.
Colombo Stock Exchange
Business Development Division
04-01, West Block
World Trade Centre
Echelon Square
Colombo 1.
Tel: 2446581, Fax: 2445279
E-mail: info@cse.lk

A BRIEF INTRODUCTION TO THE COLOMBO STOCK MARKET

A BRIEF INTRODUCTION TO THE COLOMBO STOCK MARKET
The Colombo Stock Exchange (CSE) has recently seen a period of rapid growth. The attractive returns that the stock market has offered investor has been the primary reason for this surge in activity. The stock market offers opportunity to diversify risk with the option of investing in equity and/or debt instruments. Different sectors of the economy are represented in the stock market thus providing opportunities for investors to profit by being part of the growth of sectors such as the Banking & Financial sector, land & property, manufacturing, leisure, telecommunication, power & energy etc.
As a result, for readers to have a better understand of a Stock Market, and of the Colombo Stock Exchange, the CSE has decided to collaborate with The Daily News News newspaper and include an article on a weekly basis. The CSE appreciates your ideas and inquiries and would answer your questions through this column. Please write/send us your inquiries and questions to the Business Development Department, at the Colombo Stock Exchange.
What is a “Stock Market”?
A stock market 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.
A Stock Exchange provides a liquid, open market for buying and selling of shares, debentures etc. of publicly owned companies.
How do you purchase shares?
There are two methods to purchase shares
1. From a new issue of shares by a Company (Primary Market),
2. On the Secondary Market through a stock broker.
The Primary Market:
The primary market is the market for new share 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 publishes a document known as the prospectus. It is an invitation to the general public to buy shares or debentures of that company and includes the details of the offer, the business activities of the company, its financial standing and future plans, its directors and management and for what purpose the company is raising this capital.
If you decide that a particular issue is a promising investment, you need to 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 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. No fee is charged for opening a CDS account.
Most Sri Lankan companies depend on Banks to finance their expansions/developments. A company listed on the stock exchange has the added advantage of being able to raise funds at a relatively low price. This is because, funds raised from shareholders can be used for the company’s capital requirements,
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without the need to make interest payments or dividend for the funds acquired, as when borrowing from other financial organizations.
The Secondary Market:
A market in which an investor could either buy or sell shares or debentures of a Company from or to another investor, subsequent to the original issuance in the primary market, is known as the secondary market. The Colombo Stock Exchange (CSE) facilitates the function of the secondary market in Sri Lanka.
How do I buy Shares on the Secondary Market?
You must instruct your Stockbroker 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
Page 2 c) The price you are prepared to pay
b) The amount of shares you desire to purchase
When you give these instructions to your Stockbroker, 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).
How do I open a CDS account?
You must complete an account opening form of the CDS. All Stockbrokers have this form readily available. The completed form will be forwarded to the CDS by the Stockbroker and an account will be opened in your name. Joint accounts can also be operated. There is no payment involved to open a CDS account. To open the account you will have to give the broker a photocopy of your National Identity Card (NIC) and make your NIC available for inspection. The passport is also an acceptable document of identification.
Trading on the stock market takes place from Monday to Friday from 9.30 a.m. to 2.30 p.m. except on Public holidays. You could place your orders by visiting any one of the stockbroker offices or the CSE public galleries located in Colombo and other branch officers in Kandy, Kurunegala and Matara. Alternatively, you could trade via the Internet through stockbroking firms that offer the Internet Trading facility. To use such facilities and to trade on the CSE, you should be over 18 years of age.
What is a Share?
A share represents your ownership in a company. As a part owner you are investing in the future growth of the company.
Here is an example of how buying shares work. If a company release 100,000 shares to the market and an investor purchases 1,000 shares, then we can say that the Investor owns 1% of that said company. If you are an Investor in a certain company, then you have the right to receive the annual report of the company you have invested in, as well as other benefits offered to shareholders such as dividends (if declared by the company) for profits the company has made and participation in Annual General Meetings.
What is a “Listed Company”?
A listed company is a public company which has listed its shares or debentures for trading on CSE. Listing is open to a corporate body, incorporated in Sri Lanka under the Companies Act no. 7 of 2007.
There are currently 236 companies listed on the CSE. The 236 companies have been divided into 20 Business Sectors and the sectors are given below:
Banking, Finance and Insurance,
Footwear and Textiles,
Land and Property,
Power & Energy,
Beverage, Food and Tobacco,
Healthcare,
Manufacturing,
Services,
Chemicals and Pharmaceuticals,
Hotels and Travels,
Motors,
Stores and Supplies,
Construction and Engineering,
Investment Trust,
Oil Palms,
Telecom,
Diversified,
Information Technology,
Plantations,
Trading
What does a company gain by Listing on the Stock Exchange?
A listing on a Stock Exchange offers several benefits for companies.
• Raising capital - The Stock Exchange provides access to a global pool of institutional and retail investors. A listing on the exchange allows a company to raise capital and use it to fund investment and growth. Even after a company is listed, it can raise capital from the market, through the Rights issues or through the issue of new types of securities.
• Price Discovery – A listing enables companies to discover a price for their shares.
• Low cost capital - The chief advantage of raising capital from the market is that it avoids some of the intermediation costs evident in the alternative forms of capital raising. Hence, the market provides companies with capital at a lower cost.
• Value addition - A listing on a stock exchange can add value to a company. A listing can enhance a company’s corporate stature and could advance brand awareness of company products. Furthermore, the enhanced profile, coupled with the greater transparency, could enhance the company’s ability to borrow from traditional sources of capital. A listing can also be expected to add value to a company’s Employee Share Ownership Scheme.
What is the Colombo Stock Exchange (CSE)?
The CSE is the organization responsible for the operation of the stock market, and being Sri Lanka’s only stock exchange, the CSE currently has 15 member firms, 5 trading members and one specialized debt trading member. 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 and a Not-for-Profit organization.
The Stockbroker firms act as market intermediaries performing a number of services to investors and companies. All member firms are institutions and are subject to the regulations of the SEC, and are required to obtain a license annually.
The CSE has other stakeholders associated with the Secondary Market as stated below:
• Investors
• Listed Companies
• Custodian Banks
• Fund Managers
• SEC
• Government
The Colombo Stock Exchange is situated at the 4th floor of the West Block, World Trade Centre at Echelon Square, Colombo 01. It has branches in Matara, Kandy, Kurunegala and Negombo.
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If you have any queries, suggestions or questions you want answered through this column, please forward them to :
Daily News Stock Market Column
Colombo Stock Exchange
4th Floor, West Block,
World Trade Centre,
Echelon Square,
Colombo 01.
Telephone: 011-2446581
Fax: 011-2445279.

WHEN WAS A STOCK MARKET ESTABLISHED IN SRI LANKA?

WHEN WAS A STOCK MARKET ESTABLISHED IN SRI LANKA?
Share trading in Sri Lanka dates back over a century, and was established when Tea was first introduced to Sri Lanka. The origins of share trading in Sri Lanka date back to the 19th century. The failure of Coffee crops in the late 1870’s led the British planter community to attempt tea plantation. This decision created a need to raise capital to establish tea plantations and hence these plantation companies issued shares in Colombo and London, which led to the emergence of the Colombo Share Market in 1896.
Trading of shares in limited liability companies began with the inception of the Colombo Share Brokers Association (CSBA) in 1896. Initially, the share market consisted mainly of public companies in the plantation sector. The development of Tea & Rubber plantations in the early 1900’s led to the establishment of many commercial companies to provide back-up services to the plantations sector. The Colombo Share Market maintained high levels of activity before independence and as a result, such trading companies caused a growth in listed companies in the commercial sector during the late 1920’s.
Market activity increased continually through to the 1970’s. The share list had expanded to 176 companies by the end of 1983. The share market was opened to the public on 2nd July 1984, as the CBA recognized the importance of mobilization of local savings to meet the capital requirements of the growing private sector. A Public Trading Floor was established with the ‘Open Outcry’ system of trading, instead of the then ‘Closed Door’ system of trading.
The government formalized share trading on 2nd December 1985 with the establishment of the ‘Colombo Securities Exchange (Guarantee) Ltd., which was changed to Colombo Stock Exchange (CSE) on 15th November 1990. The 1990’s saw the automation of the Clearing House of the Exchange with the establishment of the Central Depository System in 1991 and the automation of trading with the Automated Trading System in 1997.
In 1999, the CSE commenced broad basing the stock market and has established regional offices in the Southern, Central, North Western and Western provinces to encourage investment from areas outside Colombo.
MEMBER FIRMS OF THE COLOMBO STOCK EXCHANGE
The CSE is licensed by the Securities & Exchange Commission of Sri Lanka (SEC) to operate as a Stock Exchange in Sri Lanka. The CSE is limited by guarantee and was established under the Companies Act No. 17 of 1982.
A mutualized Exchange, the CSE presently has a membership of 15. Each member is licensed to perform the duties as a stockbroker. Membership has also been granted to 5 Trading Members who are licensed specially to engage in the secondary trading of Government Debt securities. There is one trading member engaged in only secondary trading of Government Debt securities.
Given below is a full list of companies licensed to function as Stockbrokers at the Colombo Stock Market. Please ensure that you trade only through one or more firms mentioned on this list.


MEMBERS – DEBT & EQUITY
• Bartleet Mallory Stockbrokers (Pvt) Ltd.
Tel.5220200; E-mail: info@bartleetstock.com; Website: www.bartleetstock.com
• DFCC Stockbrokers (Pvt) Ltd.
Tel.2446021-2, 2446031-4; E-mail: sales@dfccstockbrokers.com
• John Keells Stockbrokers (Pvt) Ltd.
Tel. 2326003, 2338066/7; E-mail: jkstock@keells.com; Website: www.jksb.keells.lk
• Asha Phillip Securities Ltd.
Tel. 2429100; E-mail: apsl@ashaphillip.net
• DP Global Securities (Pvt) Ltd.
Tel. 4700111, 2307366; E-mail: dpgs1@sltnet.lk
• Somerville Stockbrokers (Pvt) Ltd.
Tel. 2329201-5, 2332827, 2338292-3; E-Mail: ssb@web-lk.com
• J B Securities (Pvt) Ltd.
Tel. 2490900, 077-2490900; E-mail: jbs@jb.lk
• Lanka Securities (Pvt) Ltd.
Tel. 5576757, 2431138; E-mail: lankasec@sltnet.lk
• Asia Securities (Pvt) Ltd.
Tel. 2423905, 5320000; E-mail: enquiry@asiacapital.lk; Website: www.asiacapital.lk
• Ceylinco Stockbrokers (Pvt) Ltd. .
Tel. 4-714300, 4-714388, 4-714389; E-mail: info@ecsbl.com; Website: www.ecsbl.com
• Lanka Orix Securities (Pvt) Ltd.
Tel. 5-335225; E-mail: register@lankaorixsecurities.com
• S C Securities (Pvt) Ltd.
Tel. 4711000; E-mail: cscres@sltnet.lk
• CT Smith Stockbrokers (Pvt) Ltd.
Tel. 2552290 – 4; E-mail: ctssales@sltnet.lk; Website: www.ctsmith.lk
• HNB Stockbrokers (Pvt) Ltd.
Tel. 2663663 (Hotline); E-mail: hnb@hnbstock.com; Website: www.hnbstock.com
• NDBS Stockbrokers (Pvt) Ltd.
Tel. 2314170 to 2314178; E-mail: mail@ndbs.lk
TRADING MEMBERS – DEBT & EQUITY
• Capital Alliance Securities (Pvt) Ltd.
Tel: 2317777; E-mail: general@capitalalliance.lk; Website: www.capitalalliance.lk
• SMB Securities (Pvt) Ltd.
Tel: 5539593; E-mail: smbsecurities@gmail.com; Website: www.smblk.com
• First Guardian Equities (Pvt) Ltd.
Tel: 5884400; E-mail: info@firstguardianequities.com
• Taprobane Securities (Pvt) Ltd.
Tel: 5328100; E-mail: anuradha@taprobane.lk, dinal@taprobane.lk
• Amana Securities Ltd.
Tel: 2372561-4; E-mail: info@asl.lk; Website: www.asl.lk
TRADING MEMBERS – DEBT
• National Wealth Corporation Ltd.: Tel: 4716538; E-mail: info@natwealth.com 2
STRUCTURE AND ORGANIZATION OF THE COLOMBO STOCK EXCHANGE
The CSE does not have a share capital and is a not-for-profit organization and therefore does not distribute profits.
All Members are corporate entities while some are subsidiaries of large financial institutions such as commercial banks, merchant banks and investment banks. Foreign ownership in member firms is permitted. The policy making body of the CSE is the Board of Directors, which consists of 9 persons, one of whom is elected as the Chairman. 5 Directors are elected from the 15 members, while the Minister of Finance appoints 4 Directors.
The Board may set up sub-committees as required to administer the operations of the Exchange.
Currently five sub-committees have been appointed.
1. Rules Committee
2. Arbitration and Disciplinary Committee
3. Dispute Resolution Committee
4. Audit Committee
If you have any queries, suggestions or questions you want answered through this column, please forward them to :
Daily News Stock Market Column
Colombo Stock Exchange
4th Floor, West Block,
World Trade Centre,
Echelon Square,
Colombo 01.
Telephone: 011-2446581
Fax: 011-2445279.

How do you purchase shares?

How do you purchase shares?
There are two ways to purchase shares
• From a new issue of shares (Primary Market),
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.
• On the Secondary Market through a stock broker.
A market in which an investor could either buy or sell shares, debentures and Government Securities from or to another investor, subsequent to the original issuance in the primary market.
Types of securities traded at the CSE
• Shares
• Corporate Debentures
• Government Securities
What is Central Depository Systems (Pvt) Ltd?
The Central Depositors System (Pvt) Ltd is a wholly owned Subsidiary of the CSE. The CDS functions as the Depository and the Clearing House for the Colombo Stock Exchange (CSE).
How do I open a CDS account?
To open a Securities Account in the CDS you should complete an Account Opening Form, which can be obtained from your participant organization of the CDS. Participant organizations are your stockbrokers and custodian banks. There are no fees charged for opening a CDS account. Your participant organisation will call for documents to establish your identity, proof of residency and other personal details as required by law. It is possible to open and operate an account on the same day provided you furnish all the required documentation.
Every account will be identified through a unique account number and all correspondence relating to the account including trading and depository activities, will refer to this account number. For local individuals the number assigned will be the National identity card number whereas for Institutional investors the CDS will assign a unique number.
Your CDS accounts should be operated through your Participant organisation, and any requests for changes to your account will have to be forwarded through the Participant.
What is the purpose of my CDS account?
Your CDS account enables you to participate in scripless trading on the Colombo Stock Exchange. Your account will be maintained electronically and will be updated as and when you effect a transaction through your participant..
What is the reason for holding my securities in scrip-less form?
The trading system at the Colombo Stock Exchange is automated and the share certificate you lodge in your CDS account is converted into an electronic format. When you buy securities, your account will reflect the quantity of shares purchased and that the quantity of shares will be removed from the corresponding seller’s account. Thus the process is automated and does not involve an exchange of certificates.
Who is a Participant?
A participant is an organization which has been authorized and registered by the CDS, to act on behalf of investors. There are two categories of participants. Presently there are 20 Member Firms (Stock Brokers) and 16 Commercial banks registered as participants of the CDS
What can I deposit in a CDS account?
Shares, corporate debentures and Government Treasury Bills
Must I open a CDS account?
Yes, if you intend to trade in a security listed on the CSE ,
Can I use a different broker from the one I have been using?
You may maintain multiple accounts through several or all Participant organisations. You can also transfer securities between accounts held with different Participants with the consent of the relevant Participant.
Will it cost me more to use CDS?
No. There is no added cost for the CDS accountholder.
What is the process of depositing securities?
􀂃 Visit a participant with the certificates you want to deposit..
􀂃 Be sure you have already opened an account or are ready to do so.
􀂃 You will be issued with and assisted to complete a Deposit Form.
􀂃 Sign the form with your usual signature.
􀂃 Return the form to the participant together with the certificates you have included on the form to be deposited.
􀂃 You will be given a receipt as evidence of your deposit.
􀂃 The participant will forward the form and the certificate to CDS
􀂃 CDS will forward the certificates and forms to the company’s shares registrar for verification.
􀂃 When the registrar confirms the authenticity of the certificates the shares will be deposited in your account.
􀂃 Once the shares are in your account you can trade in them.
How do you withdraw shares from CDS
You can withdraw shares from your account, using a withdrawal form that can be obtained from your Participant; the CDS will facilitate the removal of shares from your account so that you may receive a share certificate from the relevant company.
How does Intra- Account transfers occur?
You may also transfer part or all, of your portfolio between accounts opened through different participant firms. Once the Intra-Account transfer is completed and forwarded through the respective participant, the CDS will acknowledge by returning a duplicate of said form. Once checked for accuracy and completeness, the transfer will take effect.
How does Inter-Account transfers occur?
Gifting of securities are permitted between parents and children and between spouses. Prior approval of the Securities and Exchange Commission of Sri Lanka must be sought in order for such transfers to take place. In the instance of death of an account holder, securities may be transferred to the next of kin by submitting the required legal documentation such as the copies of the death certificate, probate etc. to the CDS
What do I get to prove I have deposited securities?
􀂃 You receive the receipt of the deposit form
􀂃 You receive a monthly statement if your account has been active for that month.
􀂃 You receive a quarterly statement if your account has been active during the quarter..
􀂃 You will receive an annual statement if you either have a portfolio or have at least one transaction during the year.
􀂃 The statements are posted to your registered address using the regular postal service of the Department of Posts unless other wise determined by the CDS.
How Safe Is CDS?
CDS has taken adequate measures to ensure the security of your shares. The CDS has back up storage facilities and procedures and also has in place a disaster recovery and business continuity plan. The confidentiality of information in all securities accounts are strictly maintained by the CDS and access to accounts are restricted

How do I purchase Shares or Debentures?

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.

What are my obligations when I purchase shares?

What are my obligations when I purchase shares?
You must pay for the purchase (of your shares) by the 03rd market day after the date of purchase. In some instances, your broker may ask you for an advance payment if you are a new investor.
What are my Transaction Costs?
A transaction cost is charged when buying and selling shares. If the transaction value is below 1 million the transaction cost is 1.425% of the transaction value. If the transaction value is above 1 million the transaction cost is 1.225% of the transaction value. Adding on, if the transactions over Rs. 100 Million, then the transaction cost is 0.42% and nett amount to broker is negotiable. However the transaction cost for debt securities, is a flat rate of 0.2%. These are fixed rates and will not differ from one stockbroker to another.
How do I sell Shares?
In the same way you buy shares. You need to have the shares you intend on selling in your CDS account. Inform your broker of the name of the company, the number of shares you wish to sell and the price you wish to sell at. The broker will then carry out the transaction for you at the earliest possible opportunity, which is when a buyer asks for shares for your intended price. The shares will be sold on the CSE’s Automated Trading System. The broker will pay you by the 03rd market day after the date of sale.
How is the Trading Activity conducted?
Trading is conducted through the CSE’s Automated Trading System (ATS), introduced in 1997, is a transparent and efficient screen-based trading system and is a fully automated process. This replaced the Open Outcry System, where all trading had to be done on the trading floor by stock brokers. The Automated Trading System enables brokers to trade from their offices. If you wish to buy or sell shares, you can give your order by telephone, fax or by a personal visit to the broker’s office. Then your broker will enter your order into one of the terminals located at his office. The order will be transmitted instantaneously, electronically, to the Stock Exchange and entered into the central database of pending transactions.
If there is another order already in the system that matches with your order, the two orders will match and the trade will be carried out immediately. A trade confirmation will be printed immediately at the broker office and thus, you will be notified that your transaction has been carried out.
If there is no other order in the system that matches your order, then your trade cannot be done immediately and your order will remain in the trading system. As soon as an order is received from another investor that matches with your order, the transaction will be executed.
How will I know that my order has been executed?
You will receive a bought note or sold note from your broker, generated on the date of execution of the trade, within 24 hours of the said trade. The broker may also call and inform you that your order has been executed. The contract note that the broker sends you is confirmation of the order being executed. The note will have all the details of the said trade, ranging from the price to the how many shares of what company was bought or sold, and the date of which the transaction was completed/will be completed.
How do I keep track of my Transactions?
In addition to your copy of the contract note (in the case of a purchase or sale of shares) or a deposit form (in the case of a deposit of a share certificate in CDS) you will receive a statement from the CDS. If you have any transactions during the month, you will receive a monthly statement. If you have transactions during a quarter, you will receive a statement for that said quarter. If not, you will receive this statement
annually. This will contain all your transactions for the period including the opening balance and the closing balance stated in terms of the number of shares.
How do I monitor the performance of the Market?
Share prices are published in the daily newspapers and displayed live on the computers installed at stockbroker houses in the CSE public galleries. Radio and TV stations also carry daily updates while daily share prices can be obtained through the CSE website and other information vendors.
You can also read stock market reports published on a daily, weekly, monthly, quarterly and annual basis. These publications of the Stock Exchange contain market statistics, share prices, and other useful information for an investor. You may also obtain information from stockbrokers (since most of them compile regular research reports) and from information vendors.

Methods of Listing

A Company may obtain a listing by one of the two methods described below.
1. Initial Public Offering (IPO)
An IPO can be conducted in either of the two ways given below.
• Offer for Subscription
An Offer for Subscription is an invitation to the public by or on behalf of a company to subscribe for its un-issued equity or debt securities.
• Offer for Sale
An offer for sale is an invitation to the public by, or on behalf of, holder(s) or allottee(s) of debt or equity securities already in issue.
2. Introduction
A company is entitled to be admitted to the official list of the Exchange through an Introduction where the company has 10% of its equity held by the public.
What is an Initial Public Offering (IPO)?
IPO is an acronym for Initial Public Offering. This is the first sale of stock by a company to the public. A company can raise money by issuing either debt (debentures) or equity. A company issues shares to the public for the first time through an IPO. It can be through an offer for subscription or Offer For Sale. In the latter, existing shares are sold and the money collected will be to the existing shareholders while in the former new shares are created and money collected is channeled towards the business of the company.
Companies fall into two broad categories: private and public. A privately held company has fewer shareholders and its owners are not obliged to disclose information publicly about the company.
It usually is not possible to buy shares in a private company. You can approach the owners about investing, but they are not obligated to sell you anything. Public listed companies, on the other hand, have sold at least a portion of the shares to the public and these shares trade on a stock exchange. This is why an IPO is also referred to as "going public."
Public companies have a larger number of shareholders and are subject to rules and regulations. In Sri Lanka, listed public companies have to abide by the rules and regulations of the CSE in addition to complying with the provisions of the Companies Act. Additionally, they are subject to the regulation of the Securities and Exchange Commission of Sri Lanka (SEC). From an investor's standpoint, the most exciting thing about a public company is that the stock is traded in the open market, like any other commodity. If you have the cash, you can invest.
Why Go Public?
By going public companies can raise large amounts of capital. Being listed also has many other benefits.
• Because of the increased regulation and scrutiny, public companies can usually get better rates when they issue debt.
• As long as there is market demand, a public company can always issue more stock. Thus, mergers and acquisitions are easier to do because stock can be issued as part of the deal.
• Trading in the open markets means liquidity. This makes it possible to implement things like employee stock ownership plans, which help to attract top talent.
• Most companies discover a value for their shares through a listing on a stock exchange
How can I get in on an IPO?
All IPO’s are publicly advertised and written about in the business pages of any newspaper. A good way to obtain information is by scrutinizing the CSE web site or any of its regular publications where you are sure to find details of forthcoming new public issues.
The Process When a company wants to go public, it first hires an investment bank. A company could theoretically sell its shares on its own, but realistically, an investment bank is required. There is also requirement at the CSE that every company listing application is sent through a registered sponsor. The sponsor usually will attend to the necessary documentation and check for compliance with the rules and regulations and perfect the offer documentation / Prospectus. The Investment bank will advice the company on the pricing and timing of a share issue. Generally the investment bank will assist the company throughout the IPO process and will manage the issue, even getting involved in marketing the issue through road shows etc.
Things to Consider Before Buying
No History It is hard enough to analyze the stock of an established company. An IPO company is even trickier to analyze since there probably will not be a lot of historical information. Your main source of data is the Prospectus, so make sure you examine this document carefully. Look for the usual information, but also pay special attention to the management team, how they plan to use the funds generated from the IPO, and details regarding the allotment of shares.
Flipping This is reselling a hot IPO stock in the first few days to earn a quick profit. This is not easy to do, and you maybe be discouraged by your broker. The reason behind this is that companies encourage long-term investors who hold their stock, not only traders. There are no laws to prevent selling your IPO stock in the first few days. Many IPOs that have big gains on the first day will come back to earth as the institutions take their profits.
Avoid the Hype Since IPOs only happen once for each company, they are often presented as "once in a lifetime" opportunities. Of course, some IPOs soar high and keep soaring. But others may not. The lesson is that one must not buy a stock only because it's an IPO - do it because it's a good investment.
The prospectus and the application forms are available from Member firms, Managers to the Issue and the CSE Website. The prospectus gives the details required for potential investors about the background of the company going in for an IPO. The Investors, who want to purchase shares of an IPO, can do so directly from the company or through Member firms and Trading Member Firms. If the investor applies directly, they will receive a share certificate. If the investor applied through a Member firm, they will deposit the shares in their respective CDS accounts.