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1. Open Account
• Before a person can trade in the shares of Bursa Malaysia listed company, and investor will first need to open a trading account with one of the stockbroking company.
• A person can only buy or sell shares through a licensed remisier or dealer.
• With the implementation of the central depository system (CDS), an investor must also open a CDS account with one of the stockbroking company which act as the authorized depository system (ADA) of the Bursa Malaysia Depository Sdn Bhd.
2. Engage Dealer
• A transaction starts off with an order given by a client to his remisier to buy or sell a specified number of shares of a company at a specified price.
• The client will also need to quote a CDA account number CDS counter.
3. Placing an Order
• This order will be keyed into the WinScore terminal at the stockbroking company, and then relayed to Bursa Malaysia’s central computers. An order confirmation is immediately routed back to the stockbroking company.
4. Match Order
• The order for the shares will then be matched automatically by the system, assuming that it is match in the first place.
• The price at which an order is matched Is not fixed by Bursa Malaysia. All price are determined by the market force of supply and demand through a process of bids and offers.
• The price transacted for a buy order will be either at a same time keyed in or lower if the seller’s price is below the buyer’s price.
5. Trade Confirmation
• Once the order has been matched, a trade confirmation will be printed out at the broker’s office providing details such as the original order number, stock number, price and quantity match and the counterparty stockbroking company.
• The remisier will confirm the client the specified number and price of the share bought.
6. Contract Notes
• The broking house will then sent out contract notes in different colors buying and selling to the clients that contains detail of the transaction such as brokerage fee, stamp duty and clearing fees payable as well as the purchase of proceed of the sale.
7. T+3
• Under the CDS, there is no physical delivery of shares. Instead, the CDS uses a simple book entry system (credit and debit account) to keep track of the shares movement arising from trade affected on Bursa Malaysia.
• Sellers must have adequate shares in their CDS account by 12.30 pm on T+2 and buyer’s account will be credited on T+3.
CDS Facilities
Stockbroking companies in Malaysia which have been appointed by BMD as ADAs are authorized under Section 13 of the Securities Industry (Central Depositors) Act 1991 (SICDA) to provide CDS facilities and services to the investing public. All investors who intend to trade in any type of securities listed on the Bursa Malaysia must open a CDS account with an ADA of their choice.
CDS Account
Individual investors are allowed to open only (1) CDS account per ADA, but he/she can do so with as many ADA as he likes. A corporate investor can open multiple accounts with the same ADA.
ADAs are authorized to execute any of the following depositor’s transactions stipulated under Rule 25.04(2) of the Rules of Bursa Malaysia Depository, which are :
1. Opening, updating, suspending, or closing a cds account
2. Processing a deposit of scripts
3. Book entry delivery of deposited securities, whether in respect of a
trade or dealing in securities
4. Enquiry into status of depositor’s CDS account
5. Request for additional statement of accounts
Companies traded normally in the official Bursa Malaysia Securities Berhad or the Malaysian stock exchange market.
Financial ratios has selected as predictor variables based on their popularity and predictive ability in the bankruptcy. In this study, the financial ratio that have been found to be useful in at least 10 previous studies on the prediction of financial distress companies.
Advantages and disadvantages of financial distress.
Clearing is the process of determining obligation and accounting for the exchange of money and securities, between market counter-parties to a trade.
Completion of transaction, wherein securities and corresponding fund are “delivered” and credited to the appropriate accounts.
• the company is able to reject burdensome contracts and leaving the other parties to those contracts and leases to get in line with the general unsecured creditors in the case.
• Face dramatic drop in its market value of equity as investors will shun away from buying the company’s share.
• the company also be able to undo transactions that occurred prior to the bankruptcy filing, for instance, that it gave up something valuable and did not receive something of reasonably equivalent value in return.
• the company may experience bankruptcy or be forced into liquidating its company in the worst case scenario.
• May compare measurement of industry-adjusted costs of financial distress against different quartiles of industry performance.
• brings bad reputation for the
company because investors
would see the company as an
incompetent firm.
- The trading desk serves as a backstop to the investment bank’s efforts by ensuring an orderly market for the firm’s financial products. The trading team works closely with the sales team to provide clients with necessary access to the market transactions. The sales team also provides information on market flows to the trading desk so that traders can better position themselves.
- Once the Treasury securities is issued, trading mainly occurs over-the-counter, with dealers, brokers, and other investors making trades by phone. In recent years, some dealers have set up electronic trading systems. The most active trading is generally in the on-the-run issues.
OBJECTIVE OF SCANS :
1. To provide facilities for clearing contract between clearing member and for “delivering” or “receiving” stocks and securities or paying or receiving payment for members in connection with securities transactions.
2. To provide clearing facilities between clearing members and their clients.
THE SCANS RULES
A condition where a company cannot meet or has difficulty paying off its financial obligations to its creditors. The chance of financial distress increases when a firm has high fixed costs, liquid assets, or revenues that are sensitive to economic recessions.
• Also call as front office. The other terms used are dealing-room and trading-floor.
• All trading of securities of the stock market maintained by the exchange shall be affected through Automated trading system (ATS) shall be done from Monday to Friday.
- Morning session: 9.00 am to 12.30 pm
- Afternoon session: 2.30 pm to 5.00 pm
The population of this study are companies listed as financial distress by Bursa Malaysia under the requirements of PN4, PN17 and Amended PN17 respectively from 15 February 2001until 31 December 2010. The estimation sample includes approximately half of the companies that were listed in the PN4 category from 15February 2001 until 2 January 2005. This was the last day before PN17 was introduced on 3 January 2005. Approximately half of the companies that were listed in the PN4 category from15 February 2001 until 2 January 2005 are used as holdout sample for internal validation purposes.
10.0 The Trading System in Secondary Market
As for the PN17 companies, there were 17 companies which were delisted out from Malaysian Stock Exchanges and 34 companies still active under PN17 list, with one PN17 company that has been regulated.
A company which is in financial distress can experience costs linked to the situation, such as more exclusive financing, opportunity costs of projects and less dynamic employees.
The cost of borrowing additional capital of the firm will generally increase.
The employees of a financial distressed firm usually have lower confidence and higher stress because of increasing the chance of bankruptcy.
Financial statements for financial distress companies and non-financial distress companies were collected for the five fiscal years prior to being listed under the PN4, PN17 and Amended PN17 categories by Bursa Malaysia. The five years relative to the financial distress date are defined as year’s t-1, t-2, t-3, t-4, and t-5. It would produce a serious bias if ratios were calculated for one reporting period prior to financial.
Since its implementation in May, 1989, Bursa Malaysia’s computerized trading system has undergone several major changes. It started as a semi-automated system and was converted into a fully automated trading system in October 1992. The system was again enhanced in 1994 particularly in the area of broker end front trading at the stockbroking companies. By early 1995, all stockbroking companied were equipped with Bursa Malaysia latest computerized broker end front system known as WinSCORE system.
• SCORE : System on computerized order routing and Execution which is the central computer engine that responsible for the matching of all orders.
• WinSCORE : The broker front end trading system, which is responsible for credit
Control management, order, and trade routing as well as confirmation.
- Investors trade outstanding shares in the secondary market. Although corporations do not raise capital directly in the secondary market, this market plays an important role in the process. After all, investors would be very reluctant to purchase stock in the primary market if they had no easy way of later selling these securities for cash.
- The secondary market provides a place for investors to trade securities that have already been issued. It allows investors to shift their assets into different securities and different markets. The secondary market also provides pricing information, thus making a firm’s valuation transparent.
4. Call Market System
-Bursa Malaysia uses the call market system to determine the matching price. The trading rules are as follows:
a) The match price of stock is the price at which the most number of shares can be executed.
b)Where there is more than one price at which the most number of shares can be executed, the price closest to the last traded price shall be matching price.
c) All buy orders quoted below the matching price are executed at the matching price.
1. Trading Time
-Matching of orders is done from 9.00am to 12.30 pm for the morning time session and from 2.30pm to 5.00 pm for the after session.
2. Matching Priority
-Matching of orders is by price preference and time preference.
-Markets orders have priority over limits orders.
-For limits orders, preference is given to the highest buy orders and lowest sell orders.
3. Matching Interval
-It is the elapse time between two matches.
-Bursa Malaysia reserves the right to set the interval between one second and 99 seconds and each stock may have different matching interval from the other.
4. Cancellation of Orders
-An order can be cancelled or reduced if it has not been fully executed (cancellation or reduction can be made only to the unexecuted quantity of the order).
5. Quantity and Value Limit per Order
-The SCORE trading system located at Bursa Malaysia limits each order to a maximum of 500 lots of a particular stock.
-However, each stockbroking house can further reduce the limit per order by lots and or by value per order.
6. Upper and Lower Limit
-All order must be entered within a certain price or better.
-Similar to the quantity limit per order, each stockbroking company can narrow range of the upper and lower limits.
7. Limits and Market Orders
-Limit order is to be executed at the entered price or better.
-Market order is to be executed at any price within the upper and lower limit price.
1. Direct Order Entry by Dealers
- Orders are entered directly by dealers into WinSCORE workstations at the stockbroking companies.
2. Order Entry Time
- Orders may be entered between 8.30 am and 12.30 pm for the morning session and 2 pm and 5 pm for the afternoon session.
- Orders entered for each trading session are good for that trading session only.
- Unexecuted orders at the end of a trading session must be re-entered into the system for execution.
3. Order Entry Sequence
- All orders entered between 8.30 am to 9 am for the morning session and from 2 pm to 2.30 pm for the afternoon session and randomized.
- The central SCORE computer system will be decide on the sequence on the order queue based on the randomized algorithm for all orders input during the period.
- Orders entered after 9 am and 2.30 pm will be a first come,first serve basis
The flow of shares trading:
PN17 stands for Practice Note 17/2005 and is issued by Bursa Malaysia relating to companies that are in financial distress. PN 17 Company is a listed company in the Malaysian Stock Exchange that is facing financial difficulties. Company that fall within the definition of PN17 is required to submit their regulation plan to the Securities Commission to address its PN17 status and to report its business revival result.
1. Direct order entry
-Orders received from clients are entered directly into the Dealer Trading Workstation by the respective dealers.
-The orders will be checked to make sure that they do not exceed the client, dealer, and the stockbroking company trading limits.
-It will only be accepted if they are within the limits set by the respective stockbroking companies in the WinSCORE system.
2. Order Confirmation
-Once the orders are accepted by the system, they will be automatically time-stamped by the system and confirmed as accepted via an order status online screen on the respective dealer’s WinSCORE workstation.
-The dealer can also choose to have the order confirmation printed out.
3. Order Queue
-The orders will get into the order queue waiting to be matched.
4. Trade Confirmation
-Once an order is matched, the information is immediately relayed to the stockbroking company’s office electronically.
-The information can be viewed on the order status online screen on the respective dealer’s WinSCORE workstation.
The use of financial analysis by establishing standards and criteria of the sector of such markets may monitor and assist in establishing the decision.
The advancement is one factor led to the necessity of providing investors with the many needed financial criteria.
A PN17 Company need regularize its condition by undertaking regularization plan to increase shareholder value.
Shareholders’ fund is equal or less than 25% of the total issued and paid up capital of the listed company
Receivers or managers have been appointed to take control of at least 50% of the total assets employed of the listed company on a consolidated basis
Winding up of a subsidiary or associate company which makes up at least 50% of the total assets employed of the listed company on a consolidated basis
The auditors have expressed adverse or disclaimer opinion on the listed company’s latest audited accounts
For any default in payment, the listed company must announce its inability to provide a solvency declaration through Practice Note 1/2001 or PN1
The listed company has suspended or ceased all or a major part of its operations.
What is Share?
A unit of ownership that represents an equal proportion of a company's capital. It entitles its holder (the shareholder) to an equal claim on the company's profits and an equal obligation for the company's debts and losses.
The Fixed Delivery and Settlement System (FDSS) was established by the KLSE to facilitate clearing and settlement. The FDSS is summarized in the table below. In describing the FDSS, the starting point is the date of the contract known as T.
Each step that needs to be undertaken is then described in terms of having to be completed by a specified number of market days from this date. A market day is a day on which the KLSE is open for trading. In general, there are five market days per week, however, this will not always be the case as the Exchange will not be open on certain holidays.
Delivery and settlement refers to what occurs after a client has been executed on the market and the client has been issued a contract note. It refers to the fulfillment of the transaction entered into. As all securities are in the CDS system, there will be no actual physical delivery or receipt of scrip, but a debit or credit to their CDS account which will take place on the day specified in the FDSS.
• The Central Depository System (CDS) which was implemented in1993 is the automated clearing and settlement system of the exchange. The CDS replaced the practice of holding and moving physical scrip of quoted shares with a safe and dependable computerized book entry system. Looking at the companies listed in Bursa Malaysia, it can be classified into a range of diverse sectors reflecting their core businesses.
• The CDS is based on the fundamental principle of book-entry as a means of representing ownership and movement of securities. CDS account holders enjoy the convenience of electronic securities transfer and trade settlement besides being able to obtain up-to-date information on their shareholdings. They also reap the benefits of reduced cost and risks previously associated with physical scrip-settlement environment.
• Investors use the CDS for safekeeping of shares and also for custodian and pledging services. Participating Organizations or Stockbroking Companies are appointed as Authorized Depository Agents (ADAs) to provide CDS facilities and services to the investing public. All investors, whether individual or corporate, are required to open CDS accounts with an ADA if they wist to trade in prescribed securities.
• The CDS attracts wide local and international market participants with Bursa Malaysia Depository Sdn.Bhd. Providing a wide and comprehensive array of services through its network of ADAs and Authorized Direct Members (ADMs).
• ADM is an acronym for ‘Authorized Direct Member’. ADM is a member of Bursa Malaysia Depository Sdn.Bhd. who is allowed to open, maintain, and operate CDS accounts for itself as well as for its wholly-owned nominee companies via Bursa Depository’s Central Depository System.
Clearing and settlement of Trades in Bursa trading system
1. Cash settlement – Via Clearing house
2. Shares settlement –(delivered by way of book entries in CDS accounts by Bursa Depository)
Settlement Mode practice by the industry
1. FDSS Settlement
2. ISS Settlement-DVP
FDSS settlement -Purchase Contracts.
Shares credited into buyer’s CDS account maintain with stockbrokers on T+3. Cash settlement with brokers done in the following settlement mode:
1. Electronic funds transfer
2. Issuance of cheques
3. Cash
4. Telegraphic transfer
Failure to settle by T+3, force selling activities will be performed on T+4.
Payment to selling clients will be done on T+3 from the trust account maintained by PO after delivery of the securities.