Followers

Powered by Blogger.

You can replace this text by going to "Layout" and then "Page Elements" section. Edit " About "

Categories

Blogroll

Recent Posts

Blogger templates

eXTReMe Tracker

Blogger news

Blogger Tricks

Blogger Themes

Thursday, November 3, 2011
Basic question rises when we hear investment in Capital Market: How do you really make transactions in Capital Market and what do we do to invest in it?
a. Trading Mechanism
�� Primary Market
�� Definition : Primary Market is a transaction process of securities before being listed in Stock Exchange. In Primary Market, the Underwriters through the Selling Agents/Brokerage Companies offer securities newly issued by a company to the investors. The first public securities issue made by a company is referred to as an Initial Public Offering (IPO).
�� conduct; offering, ordering, price, settlement, tax
�� Secondary Market
�� Definition : Secondary Market is a transaction process of securities after it is listed in Stock Exchange. The existence of Secondary Market is to provide investors with the opportunity to buy or sell stocks and other listed securities after the Initial Public Offering (IPO) is over.
In this market, Securities are traded from one investor to another.
This market also provides chances in buying back issued shares which must be based on the existing procedures in rules regarding buy-back.
�� Implementation:
�� Stock Exchange; price priority, time priority, stock price index. ( http://www.jsx.co.id/trading.asp?cmd=menu1)
�� Trading Rules, Cost and Tax
A. STOCK
JSX classifies the market into three segments:
a. Regular Market
b. Negotiated Market
c. Cash Market
a. Regular Market
Stocks which are trading at the Regular Market are based on fix lot and time of the continuous auction market mechanism. The prices formed on the regular
market are used as the quoted prices for the Jakarta Stock Exchange.
Terms and Conditions for Regular Market Transactions currently are as follows:
·The total shares traded in a standard lot of 500 shares
· Price movements (increments) for shares:
- For the price below Rp. 500, the fraction is set at multiplies of Rp 5 and maximum price movement Rp 50
- For the price between Rp 500 to Rp 5,000, the fraction is set at multiplies of Rp 25 and maximum price movement Rp 250
- For the price above Rp 5,000, the fraction is set at multiplies of Rp 50 and maximum price movement Rp 500
· All transaction (matching) is done based on time and price priority.
b. Negotiated Market
In this market, stocks are traded by direct negotiation between buying broker and selling broker based on the last stock price in Regular Market.
c. Cash Market
This market is provided for exchange member who failed to settle their trading obligations in Regular and Negotiated Market. The settlement in this market is based on the cash and carry system.
Settlement
Should a transaction has been matched, the delivery of the share certificates and payment must be settled through The Indonesian Clearing and Settlement Corporation (PT Kliring dan Penjaminan Efek Indonesia/KPEI), and The Indonesian Central Securities Depository (PT Kustodian Sentral Efek Indonesia/KSEI) at 3 exchange days after the transaction or T+3.
Transaction Fees
For every transaction, an investor has to pay a fee to the brokerage firm based on an agreement between them. This fee may not exceed 1 % (one percent) of the value of both buying and selling transaction. Fees varies among brokerage firms, basically it is determined as a certain percentage of total value buying/selling transaction or a% x (number of stock x price per stock). This fee is subject to 10% Value Added Tax.
Taxes
Income Tax amounting 0.1% will be charged on selling transaction or 0.1% x (number of stocks sold x price per stock).
How to obtain dividend
Investors should buy the stock until “Cum Dividend Date”, at the time when buyers become eligible to receive a declared dividend. However, in the case of buying stock in a script way, buyer should register his/her name on the book of company through Registrar until the Recording Date.
B. Bonds and Convertible Bonds
Trading
In Indonesian Capital Market, Surabaya Stock Exchange provides information system for fixed income (bond) market, which is known as OTC-FIS (Over the Counter-Fixed Income Service). It provides bond’s bid and offer quotations, transactions, and trade reporting on a real-time basis. The system enables participants to enter, withdraw and amend bid or sell quotations at anytime before execution of transaction.
There are two types of bond trading transaction in Surabaya Stock Exchange, namely: Negotiation Transaction and Reporting Transaction.
In Negotiation Transaction, participants submit one quotation, either buy or sell through OTC-FIS system. Then other participants who are interested in this quotation can submit sell or buy order through OTC-FIS. Should the agreement has been reached between both parties, they deliver the confirmation through OTC-FIS at the end of the same bourse day when the order submitted.
In Reporting Transaction, transaction is done outside the system between both parties. Then, they report this transaction into the system. Participants are securities companies both member or nonmember of Surabaya Stock Exchange, and some banks which are actively trading bonds.

Fees
Usually, there are no fees charged to the investors in Bond transaction. However, the Securities Companies who act as the Dealer take a “spread” between buying and selling
price, which including some fees charged to the securities companies related to OTC-FIS’s Bond transaction (varies from 0.005% - 0.01%).
Taxes
· Bond which is traded or reported its trading to the Exchange, Interest and Capital Gain are subject to final tax of 20%.
· Bond which is not traded or reported its trading to the exchange, Interest and Capital Gain are subject to With-Holding Tax of 15% not final, which at year end can be credited and will be subject to Corporate Income Tax (maximum 30%).
Settlement
The settlement process will be depending on the type of the bond. For script Corporate Bond, the settlement process is conducted between the participants through the custodian based on the agreement. For scripless Corporate Bond, the settlement is conducted by overbooking between account holders in KSEI. For Government Bond, the settlement is conducted by book-entry settlement in Bank Indonesia.
C. Rights
Most of rights’ trading rules follow the same procedure applied on stock’s trading mechanism. On the exercise date, the investors pay the fund to the issuer through brokerage firm, and in return, they will receive new stocks.
D. Warrant


Warrants holders can convert their warrant into new common stock by paying the exercise price to the issuer through brokerage firm. Most of warrant’s trading rules follow the same procedure applied on stock’s trading mechanism.
E. Stock Index Futures
1. Trading Session in SSX is similar with stock trading in JSX, and it is based on electronic auction system operating continuously during exchange hours.
2. Trading is facilitated by Future Automated Trading System (FATS), and is conducted in each brokerage firm’s office (remote trading), and supported by RMOL system or Risk Monitoring On Line. RMOL is a real time reporting system, which will enables the investors to monitor their current open position and balance of their capital.
Type of Contract:
1. Spot Month Contract, which will be matured on the last exchange day at respective month.
2. Second Month (next month) Contract, which will be matured on the last exchange day at following month, right after spot month.
3. Quarter Contract, which will be matured on the last exchange day at the nearest quarter month (March, June, September and December), right after second month contract.
Similar to stock investment, investors should open an account in brokerage firm. For each contract, the investor should place an initial margin amounting to Rp 3 million for each contract. The order will be inputted by FATS Trader into FATS terminal for further process. The only different thing is the settlement in this Stock Index Future is T+1, not T+3 as prevailed in stock trading in JSX.
Contract Specification of LQ45 index futures
1. Underlying is LQ45 Index that calculated and published by Jakarta Stock Exchange
2. Each index point is converted into Rupiah by using a contract multiplier, currently Rp 500,000 for each point
3. Settlement is in cash
4. Settlement period is T+1
5. Matching mechanism is price priority and time priority.
6. Last Trading Day is the last bourse day in contract month
7. Initial margin is Rp 3 million per open contract
8. Fee is Rp 50,000 excluding VAT, per contract
F. Mutual Fund
In case of the Open-end Mutual Fund, the amount an investor pay to own a piece of a Mutual Fund depends on NAV per unit, which is determined at the end of each day. In case of the Close-end Mutual Fund, trading mechanism follows stock trading mechanism.
Fees
Investment Manager charges selling fee to investors when they buy unit/stock of mutual fund, which varies between 1% to 3% of total value. When the investors would like to sell/redeem their investment, then Investment Manager would charge them a redemption fee, which usually varies between 1% to 2% of total value.
Tax
Mutual Fund investors are exempted from taxation.
�� link to : http://www.jsx.co.id/trading.asp?cmd=menu1

b. Investment Guidance
�� How to Invest in Indonesian Capital Market
Before investing in Capital Market Instruments, an investor must open trading account at one of the Securities Companies. Before choosing appropriate Securities Companies, investors should consider several factors as follow:
• Should the Investors prefer to invest in IPO’s stocks or Bonds, they can choose Securities Companies which actively involved as Underwriter.
• Should the prospective investors need only basic service, such as executing order only, they can choose Securities Companies which have experience of fast and accurate execution, or the one with more booth in Stock Exchange or have many traders.
• Should the investors need more advise in making their investment decision, they can choose Securities Companies which have more qualified and experience analysts.
The investor should open an account first by filling in the required opening account documents. In general, brokerage firms usually require their clients to deposit a certain amount of money – which varies among companies - as a guarantee for settlement. It implies that the clients have sufficient funds to do the transaction. After they have been approved, investors then are able to start the investment by placing a bid or offer on a stock or any other securities.
For stocks transaction:
The transaction starts by placing an order of a stock at a certain price. That order can be delivered through a written note or by phone to the broker-dealer. The order should contain the name of the stocks, the amount to be bought or sold and the price. The order will then be verified by the Brokerage firm and inputted to the trading system in Stock Exchange.
The investors’ bids/offers from various Securities Companies will be pooled at the trading floor via JATS. The system, will then match those order base on price priority and time priority.
For bonds transaction:
• The transaction starts by asking broker-dealer to place a bid or offer into OTC-FIS system, so it can be seen by other participants in real time. Through OTC-FIS, the participants can observe the best quotation about particular bond, then the interested participants can contact the counterpart for further negotiation.
�� How to Choose Capital Market Instruments?
A. Investment Strategy
a. Before starting to invest in Capital Market, investors should consider the following factors:
(1) The funds to be invested should be idle and excess funds.
(2) Decide what investment objectives are and prioritize them.
(3) Risk Tolerance: How much risk are the investors willing and able to bear in pursuing their objectives? It is determined by personality, age, job
security, health, net worth, amount of cash the investors have to cover emergencies, etc.
(4) Time Horizon: The length of time the investors put the funds.
a. Choose Capital Market instruments, which best with the investors’ overall investment strategies.
After instruments have been selected, learn as much as possible about the issuers, and conduct securities screening to narrow the candidates down to a few that the investors will pay closer attention to.
The investors can start by studying the prospectus, which contains:
· The issuers’ line of business and company’s history
· Number of stocks or bonds offered in IPO, Nominal Value of the stocks or bond and Offering Price
· The objectives of the IPO
· The issuer’s business outlook and risks
· Dividend and interest Policy
· Historical Financial Performance
· Selling Agents
· Schedule related to IPO process.
Investors can obtain the prospectus from Securities Companies and also read it on the newspaper during public offering period.
Should the investors have limited time and expertise; Securities Companies usually provide a professional guidance through their Research Analysts. The Analysts prepare reports on a regular basis, which contain both fundamental analysis and technical analysis. Fundamental analysis highlighten on fundamental factors of the issuers, such as their financial conditions, result of operation, and macroeconomic factors, which will influence their prospects. Technical analysis highlighten on the estimation of future securities price movement based on historical price and volume movements.
It also should be noted that some instruments, such as derivatives, can be very risky investment if it is not used properly, and it is therefore highly recommended that the investors should seek independent financial advice before investing in derivatives securities.
B. Evaluation of Capital Market Instruments
a. Evaluation of General Economic and Industry Trend Evaluation of general economic and industry trend plays an important role in Capital Market investment. Fiscal and monetary policies issued by the government such as taxation, interest rate, government spending, inflation rate, will have a significant influence to all industries and companies within the economy. Those policies will affect the revenue, the expenditure and earnings of all industries and companies, which eventually will influence rate of return to the investors.
b. Reading Financial Statement
Investors should screen out companies whose stocks or bonds will be bought, by analyzing thoroughly the issuers’ financial statements. Financial statement is included in the prospectus, and in addition, the issuers are required to publish financial statement regularly (quarterly, semi annually and annually) in newspaper. Financial statement can also be obtained through securities companies.
Financial Statement consists of:
· Profit and Loss Statement/Income Statement:
A financial statement that shows the flow of the firm’s sales, expenses, and earnings over a period of time.
· Balance Sheet:
A financial statement that shows what assets the firm controls at a fixed point in time and how it has financed these assets.
· Cash Flow:
A financial statement that summarizes its sources and uses of cash over a specified period of time.
Financial Ratios
These ratios are widely used by Investors in Capital Market:
C. CREDIT RATING
Compared to stock investment, the investors who interested in bond investment can utilize credit rating, which applied to every bond issues in the country. Since credit risk or default risk is the possibility of loss due to the weak ability to pay the coupon and the principal, bond rating plays important role by providing fundamental analysis for bond issues. Rating concerns with the assessment of the ability of the issuer to fulfill the obligation. Below are rating description provided by PEFINDO.


�� Basic Tips for Investors
The following are basic safeguards when “shopping” for investments:
(a) Don’t buy securities offered in unsolicited telephone calls, ask for
information in writing before you decide.
(b) Beware of sales people who try to pressure you into acting immediately.
(c) Don’t buy on tips or rumors. Not only it is safer to get the fact first, but also it is illegal to buy or sell securities based on “inside information” which is not generally available to other investors.
(d) Get advice if you don’t understand something in a prospectus or a piece of sales literature.
(e) Be skeptical of guarantees or promises of quick profits.
(f) Check the credentials of anyone who tries to sell you securities.
(g) Remember that prior success is no guarantee of future success in an Investment arrangement.
(h) Be careful with illiquid investments. Ask about the liquidity and understand that there may not be a ready market when you want to sell.
(i) Be sure you understand that the risks involved in trading securities especially derivatives instruments.
(j) Be careful with speculation. Speculation can be a useful investment tool for those who can understand and manage the risks involved.

0 comments:

Popular Posts

About Me

My Photo
Suryo Saputro
View my complete profile