Buying and Selling Shares on the Securities Market (MSM)

When you buy shares in a company you literally take a share in the ownership of that company. There are two ways in which you can do this. You can either buy new shares when a company sells them for the first time to raise money to invest in the business (the primary market), or you can buy existing shares from an individual or an institution that wishes to sell them in the secondary market.

THE ROLE OF THE MSM - A REGULATED MARKET:

The MSM is a trading Facility that will perform the function similar to those of a fully-fledged stock exchange until the necessary legal and regulatory framework for a full-fledged stock exchange is put in place. This Trading Facility will exist to provide a central, regulated market where bonds and shares can be bought and sold safely.

It does this in several ways:

1. providing a trading floor;

2. helping to create liquidity in shares by bringing together buyers and sellers in one place;

3. ensuring transparency, by publishing information about companies, share prices and trades; 

4. through its rules and regulations, creating a level playing field for all participants.

The Trading Facility plays more roles in the secondary markets, although the secondary and the primary markets are related. This means that it determines which securities may be admitted to trade on the platform, and ensures that all participants conduct their business according to the rules and regulations. It has the power to investigate and, if necessary, to discipline anyone who breaks those rules.

THE ROLE OF LICENSED STOCK BROKERS AND DEALERS

All trading must be undertaken by licensed Stock Brokers. Stock Brokers are firms or qualified members of such firms, which are authorised by the Registrar of Capital Markets to buy or sell securities on behalf of their clients according to their instructions. The broker must operate according to the Rules and Regulations of MSM and the Capital Markets Regulations of 2014, which are designed to protect investors from fraud or unfair dealing.

Brokers may simply buy or sell shares as instructed, but they can also give trading advice to their clients, and will provide up-to-date information about the securities traded in the market. The broker will charge a fee, or commission for providing these services. Dealers are brokers that are additionally authorized to buy and sell shares for their own account.

HOW TO BUY OR SELL SHARES

To buy or sell shares in the market you will first have to register with a stock broker. When a stockbroker has an order from a client, he will buy (or sell) the shares at the best price available on the trading floor. When the deal is completed, the broker sends a contract note to his client confirming the details of the transaction, such as the number of shares bought or sold, the price of the shares bought or sold, and the commission due.

Once payment has been made for the shares and the transaction is complete, a Central Securities Depository (CSD) account will be opened on behalf of the buyer and credited with the number of shares acquired. CSD is a computer based system that keeps an electronic registers of securities (shares, bonds, etc.). Details of every listed company’s shareholders are maintained by this system. If you do not get your name registered for the newly bought shares, you are not a legal owner of those shares and will not be entitled to receive any dividend exercise any rights with regard to the company. Just like a bank account, it is important to keep track of your shareholding as you buy or sell securities.

WHAT DETERMINES SHARE PRICES?

Various factors can combine to determine the price at which shares will be traded. Some of the most significant ones are:

1. Supply and demand:

As in any market, if the number of people wishing to buy exceeds those wishing to sell, the price will rise. Of course, the reverse is also true. Institutional investors tend to have a significant impact on a share price, because they will deal in much larger quantities than private investors.

2. The performance of the company:

If, for example, information about the company indicates negative prospects about the company, its shares will often drop in value as investors anticipate a fall in profits. If, however, information suggests that the company performing well, the shares are likely to rise in value, with expectations of increased profits. It is important to monitor this information on a regular basis as it is clear that it affects how well your shares are performing in the end.

3. General economic outlook and associated investor sentiment:

The health of the national (and regional) economy has a fundamental influence on share prices because it will have an impact on company profits. Very broadly speaking, if the economy is growing, company profits can be expected to improve and shares become more highly valued. If on the other hand, the economy is weakening, companies are likely to perform negatively, and share prices can be expected to follow suit.

4. Interest rates:

Interest rates generally affect the cost of capital to companies and so can impact on their profitability. However, different sectors of the economy may be affected in different ways. For example, a rise in interest rates can be bad news for housing market as people feel less confident about taking on mortgage to buy houses. On the other hand, pharmaceutical companies are less likely to be affected as demand for medicines is generally less affected by the strength of the economy.

5. Press Comment:

Positive or negative coverage of a company in the press can influence investor sentiment and consequently the share price. This list is not exhaustive and there are many other factors that may affect the share price for a particular company. But generally, anything that affects profitability for a company should affect its share price.