Investing in the stock market can be rewarding but it also involves risk. To minimise risk, investors need to understand the workings of the stock market and keep abreast of economic and corporate developments.
This section serves to introduce you to the basics of stock market investment. It serves a purely educational purpose and is not an invitation to trade in shares.
Stocks And Shares
What is a stock market?
A stock market is a place where stocks and shares can be bought or sold.
What are stocks and shares?
A share of stock represents a part-ownership of a company. For example, if you buy 10,000 shares in a company that has issued one million shares, you own one percent of that company.
What are ordinary shares?
Ordinary shares are the most common type of shares, and holders of ordinary shares have the right to share in the profits of the company after preference share holders have been paid their dividends. Holders of ordinary shares are paid dividends that vary according to the profitability of the company and the recommendation of the company's directors. Should a company be wound up, its ordinary shareholders will receive a payout only after all other creditors, including unsecured creditors, have been paid.
Scrips
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What is scrip?
Scrip is a certificate representing shares.
What are scripless shares?
Scripless shares are shares which are held in a securities account. In Singapore, physical shares are deposited in The Central Depository (Pte) Ltd (CDP). The CDP records all scripless share transactions electronically, and debits or credits shares to your personal CDP Securities Account with each share transaction you make.
Why scripless trading?
With the increasing volume traded on stock markets, it becomes more difficult to keep up with transactions using traditional methods of delivering physical shares to buyers. Computerised transfer of shares in many markets, including Singapore, means transactions are recorded accurately and almost instantaneously. Share owners no longer have to hold physical shares to prove ownership.
The Central Depository
What is the CDP?
The Central Depository (Pte) Limited (CDP) is a subsidiary of the Singapore Exchange Limited (SGX). CDP provides depository, clearing, settlement and computerised book-entry services for securities traded on the Singapore Exchange Securities Trading Limited (SGX-ST).
The Singapore Exchange
What is the Singapore Exchange?
Inaugurated on December 1, 1999, Singapore Exchange is the first demutualised, integrated securities & derivatives exchange in Asia-Pacific. We have our roots in two established and well-respected financial institutions - the Stock Exchange of Singapore (SES) & the Singapore International Monetary Exchange (SIMEX).
A subsidiary of Singapore Exchange Limited (SGX), Singapore Exchange Securities Trading (SGX-ST) is the organisation responsible for organising the stock market in Singapore. It ensures there is an organised and regulated place for the buying and selling of shares. Only stock broking firms, which are accredited members of the SGX-ST, can trade shares on the Exchange on behalf of their clients.
Can I see the Exchange at work?
The traditional trading floor which exists in many other stock exchanges is not needed in Singapore where the trading system is fully computerised to provide fast and efficient trade execution. All buying and selling activities are shown on brokers' trading screens linked to the SGX-ST's computer system.
Where are shares traded?
The SGX-ST operates the following markets for the trading of its wide array of securities products:
How can I buy or sell shares?
As an investor you need to have a trading account with a broker when you want to buy or sell shares. You must also have an account with The Central Depository (Pte) Ltd (CDP).
You can also open an Internet trading account with a broker to put your orders directly through to the Singapore Exchange Securities Trading Limited.
Alternatively, you can buy or sell shares through Authorised Trading Centres which are located at selected bank branches.
What is a broker?
A broker is a licensed trading representative of a SGX-ST member company. The broker is the intermediary between the investor and the stock market and is paid a commission or brokerage fee for his services.
What is the brokerage fee?
With effect from 1 October 2000, brokerage rates are fully negotiable for all transactions on Singapore Exchange Securities Trading Limited.
Are there any other charges?
Yes. In addition to brokerage, the following charges are payable:
a clearing fee of 0.05% on the value of the contract, subject to a maximum of S$200.
Goods and Services tax (GST) of 4% on brokerage and clearing fees.
How can I find a broker?
The SGX-ST has 25 stockbroking member firms and more than 3,300 approved executive directors and trading representatives who are licensed to buy and sell shares on behalf of clients.
Why do I need to have an account with the CDP?
In the scripless trading environment, an investor needs a securities account to custodise his securities traded on SGX-ST. You must have either a direct Securities Account with the CDP, or a sub-account with a Depository Agent (member of SGX-ST or custodian bank) . Each investor can only open one direct Securities Account with CDP.
How do I open a CDP Securities Account?
You can do this through your broker or directly with The Central Depository (Pte) Ltd, located at 4 Shenton Way, #02-01, SGX Centre 2, Singapore 068807. An applicant must be at least 21 years old and must not be an undischarged bankrupt.
Once I have a CDP Securities Account and a trading account with a broker, how do I buy shares?
Tell your broker what shares you want to buy. Your broker will execute your order and handle all other details.
How can I pay for the shares I buy?
You can pay by cash, cheque, via an ATM or settle via your CPF Investment Account.
How can I sell shares I own?
Tell your broker what shares you want to sell. The shares will be debited from your securities account with the CDP on due date.
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How are prices of shares determined?
Daily share prices in the stock market are determined by market forces of supply and demand. In the long term, share prices are influenced by economic and political events, both at home and abroad.
Can I tell my broker at which price I want to sell or buy shares?
Yes, but because the price of shares depends on market forces of supply and demand, there may not be a market at the price you want to buy or sell.
For example, should you place a buy order for share X at $2 when the best bid (buy price) for that share is $2.20, you are unlikely to find a seller who will sell at your price.
Conversely, should you want to sell share Y at $3.50 when the best ask (sell price) is $2.80, you are unlikely to find a buyer who will buy at your price.
What happens if I want to sell shares and nobody wants to buy them?
If the trading system cannot find an immediate match for your order, that order will be automatically stored in the computerised CLOB trading system until a buyer and a seller can be found. For example, should you make an order to sell share X at $2, it would be matched against an order to buy share X at $2. If there is no order to match the price, the order is added to the list of other buy and sell orders, which are held according to a price, and time, priority system. This system ensures that orders which offer the most attractive price are processed first. If two orders offer the same price, the order placed first will take priority. However, all unmatched orders will expire at the end of the trading day.
Will my profits on share investments be taxed?
No, there is no capital gains tax in Singapore.
Is there a tax on dividends?
Yes. Dividends are taxed at source at the company tax rate. You can claim the difference between the company tax paid at source and your personal tax rate in your income tax returns.
Will I lose money?
There are risks and rewards involved in any share transaction. If you decide to buy shares, it is very important to remember that their value can fall as well as rise.
When does trading take place on the Singapore Exchange Securities Trading (SGX-ST)?
Trading sessions are held daily, Mondays to Fridays from 9.00 am to 12.30 pm and 2.00 pm to 5.00 pm. There is no trading on weekends and public holidays.
Trading In The Stock Market
How does a share transaction take place?
When you give your broker a 'buy' or 'sell' order he will send the order electronically to SGX-ST's fully computerised trading system known as Central Limit Order Book (CLOB) system. The CLOB trading system matches 'buy' and 'sell' orders, keeping a record of every stock traded. If an order can be matched with another it will be executed immediately and confirmed to your broker on his computer terminal. Contract notes for all transactions are generated by SGX-ST.
What is the settlement period?
The settlement period in the Singapore market is fixed on the third market day following trade day (due date). This means that when you sell, your CDP Securities Account is debited on the night of the third market day. Your broker will pay you the net sales proceeds by the market day after the due date of the contract. When you buy, you must pay for your purchases by the due date of the contract, following which the shares will be credited into your CDP Securities Account.
What happens if I fail to deliver shares I have sold?
If an investor does not have the required shares in his account on the due date (the third market day following the trade day), CDP will buy-in shares on the market to satisfy the delivery obligation.
Buying-in starts the day after the due date, and will start at two minimum bids above the closing price of the previous day, the current last done price or the current bid, whichever is the highest.
The investor will pay the difference between his selling price and the buy-in price, including brokerage and other costs.
Keeping Informed
How can I monitor how the stock market is performing?
Stock market indices indicate the overall price movement of the market. In Singapore, a wide range of market indices are calculated by various institutions such as SGX and financial institutions. Some measure the performance of particular sectors while others cover all companies. The most widely followed index is The Straits Times Index.
How can I find out how much my shares are worth?
Immediate information on stock market activities, share prices and the number of shares being traded is available through:
your stockbroker
Teletext
Singapore Exchange website (www.sgx.com)
More information can be obtained in the stock market pages of the major local newspaper.
How can I keep track of the shares I own?
A contract statement, giving details of your trades will be mailed to you the day after shares are bought or sold.
A confirmation note, stating whether your CDP Securities Account has been debited or credited, will be sent to you on the settlement day.
A monthly statement will be sent to you by the CDP if you have bought or sold shares during the month.
Regardless of whether shares have been bought or sold, you will receive a half-yearly statement from the CDP showing all the current balance of shares in your CDP Securities Account.
Shareholder Entitlements And Rights
What are my rights as a shareholder?
You will be informed regularly of the company's progress, major developments and their plans for the future. You receive copies of the company's annual report and interim results. You will also be invited to attend the company's annual general meeting.
While different classes of shareholders have different rights, as an ordinary shareholder you have a right to vote at meetings, as well as make statements and ask questions of the board of directors.
What else will I get?
As a shareholder you are also entitled to receive any dividends, bonus or rights issues given by the company.
What is a dividend?
A dividend is that part of a company's post-tax profits distributed to shareholders. This is denominated as cents per share.
Dividends are paid by a company at the end of its financial year (called a final dividend) or part-way through the financial year (called an interim dividend).
What is a bonus issue?
A bonus issue is the process whereby money from a company's reserves is converted into issued capital, which is then distributed to shareholders as new shares in proportion to their original holdings.
What is a rights issue?
This is an invitation from a company to existing shareholders to purchase additional shares in the company.
How do I know if I will receive any of these entitlements?
Check with your broker if the shares are being traded on a "cum" (with) and "ex" (without) basis. These terms will be linked with one of the terms (such as cum-dividend or ex-rights) to tell you whether the shares come with or without these entitlements.
