New to the Stock Market?
If you are an individual or entity interested in investing, click this section to find out more information.
WHAT IS A STOCK EXCHANGE?
A stock exchange is simply a marketplace where securities, that is, shares, stocks or bonds are bought and sold efficiently and under strict regulations for the protection of investors.
WHAT ARE THE BASIC FUNCTIONS OF THE STOCK EXCHANGE?
- To provide an additional channel for encouraging and mobilizing domestic savings.
- To foster the growth of the domestic financial services sector.
- To provide savers with greater opportunities to protect themselves against inflation.
- To increase the overall efficiency of investment.
- To facilitate privatization.
- To improve the gearing of the domestic corporate sector and help reduce corporate dependence on borrowing.
A share is a unit of ownership interest in a company. When you buy or receive shares in a company, you become a part owner of that company. This is known as having equity in that company. The more shares you have in relation to the total number of shares issued by the company, the more of the company you own. For example, if a company issued 10,000 shares and you own 100 shares, then you are 1.0% owner. People who own shares in a company are referred to collectively as “shareholders” or “stockholders.”
- Yes, there are two basic kinds of shares:
Ordinary Shares – Also known as “common stock”. As part of the percentage ownership described earlier the ordinary shareholder or common stockholder usually has four basic rights in proportion to the number of shares owned:
- The right to receive dividends if and when these are declared by the Board of Directors. It is possible that the shareholders may not receive any dividends if the company performs poorly.
- The right to vote at meetings of the shareholders.
- The right to claim a portion of the company’s undivided assets.
- The right to subscribe to additional stock or share offerings before they are made available to the general public. This is known as a pre-emptive right.
Preference Shares – Also known as “preferred shares or stocks”. The holders of these shares have certain rights and privileges over ordinary shareholders. There are different classes of preferred shares, which confer different rights. The most common types give the preferred shareholder:
- The right to receive dividends at a fixed rate prior to payment of dividends to ordinary shareholders.
- The first right of payment should the company go bankrupt or be dissolved.
- Ordinarily no voting rights.
The Jamaica Stock Exchange operates like other stock markets in the world. You choose a stockbroker, decide on a stock and place your order to buy or sell with your broker. Once this is done, your broker will purchase or sell your shares. The trade is complete when the trade that is placed by a buying broker on the electronic trading platform matches the trade placed by a selling broker where the price matches.
There are three main benefits of share ownership:
- The shareholder benefits from the growth in the value of his or her shares over time. That is, over time the shares can be worth more than was paid for them. This is known as ‘Price Appreciation’.
- The shareholder can receive income through dividends declared from time to time and paid by the company’s directors.
- The shareholder gets the opportunity to participate in the continuing development of the companies in which they invest. The involvement of shareholders helps the companies and strengthens the economy.
The main reason companies issue shares is to raise capital or money. A company may need start-up capital, to repay debts or to expand. A company may also want to widen its ownership base. When you buy shares you enable the company to carry on business using your money. The number of shares which a company is authorized to issue is set out in its Articles of Incorporation and can only be increased with the consent of shareholders in a General Meeting.
A dividend is a proportionate distribution of earnings (profits) of a company to its shareholders, in keeping with the company’s dividend policy. . With common (ordinary) shares or stocks, the rate of the dividend varies with the company’s performance and the amount of cash on hand. With common shares the Board of Directors of the company decides the amount of the dividend to be paid out. They may also decide to hold back some of the profits to expand the company’s operation. With preferred stocks or shares, the rate can be fixed or variable. Dividends can be paid quarterly, half yearly or once per year.
No one can guarantee success in the market. However, the possibility of success can be improved if, before investing in shares, you:
- Collect and study as much information as possible about the company in which you intend to invest.
- Seek professional investment advice from a broker or other qualified persons.
- Learn how to read and understand the basic financial statements and reports which the companies listed on the Stock Exchange are required to publish.
- Develop the habit of reading and understanding financial publications.
After buying shares, monitor and track your investments by maintaining a daily record of advances or declines in the stock.
Every investment has an element of risk and buying and selling shares is not an exception. Anyone who buys shares should be aware that, although the value of each share can go up, especially over the long term, the value can also go down. It depends among other things, on the performance of the company, the value that investors in general place on owning that company’s shares and on general economic conditions within the country.
Visit or contact a stockbroker (JSE Member/Dealer). This is a person whose business it is to buy and sell shares at one of the brokerage firms authorized by the Financial Services Commission and the Jamaica Stock Exchange to operate in Jamaica.
You can visit or telephone the broker, informing him/her which shares and how many you wish to purchase. Your broker is your link with the market. He or she will buy or sell according to your orders.
Before you can buy or sell stock you must open an account. You might want to arrange a personal meeting with your broker at his firm’s offices.
Contact your broker and advise him or her to buy or sell shares on your behalf. Give him or her clear instructions, whether orally or in writing. The buying/selling process begins when you place the order with your stockbroker (member/dealer) for a specified number of shares in a company. There are three MAIN types of orders that you can place:
- A market order – asks your broker to buy or sell stocks at the market price
- A limit order – sets the price at which you want stocks to be bought or sold.
- A stop order – gives an approximate buying or selling price of stock. When the approximate price is reached the stock order becomes a market order.
Typically, the broker requires that the buyer has available funds in his/her brokerage account prior to executing an order to purchase shares. Upon completion of the order to purchase, you will receive a contract note that states the company whose stock you have bought or sold, the price paid or received, the commission and other fees and the settlement date.
A stockbroker must obtain a member/dealer license to trade on the Exchange. A stockbroker is a member/dealer of the Exchange and is the direct link between the client and the stock market. Orders to buy and sell shares on the stock exchange are handled by this person. Brokers participate electronically on the Nasdaq trading platform and have advanced tools to assist in handling trades on behalf of their clients. He/she provides Investment advice and completes transactions for persons who wish to buy or sell shares. A commission is charged for the services.
Your stockbroker charges a fee called a commission, each time you buy and sell a stock. Commissions are used to pay for the services the firm provides. When you buy, you pay your broker for the value of the stock plus the commission and other charges. When you sell your stock, you receive the value of the stock less the commission and other charges.
Your stockbroker, on your instructions, carries out your orders to buy or sell stocks. Some brokerage houses also provide you with regular information about market conditions affecting your investment, research material and advice on which stocks to buy or sell. He or she will also help you to keep an accurate and complete record of all your market transactions.
After each transaction done on your behalf, your broker will also send you a contract note evidencing the details of your transaction. Your broker will periodically provide statements representing your share holdings and transaction history.
A stockbroker is like any professional. You should deal with the broker with whom you feel most comfortable and in whom you have the most confidence. In order to help determine this, first you need to establish your criteria, then speak with several brokers, and consult other investors. Some firms advertise in the newspapers, business publications, websites, social and other public electronic media.
First, select a new broker whom you believe will be better likely or able to meet your objectives; settle all outstanding transactions with your previous broker; advise her/him of your intention to cease as well as your areas of dissatisfaction. The new broker will advise you on how your account holdings will be transferred in the Jamaica Central Securities Depository.
It is the choice of the investor whether or not to use multiple brokers. There is no restriction on how many brokers an investor can use.
You are protected under civil law and the Compensation Fund administered by the Jamaica Stock Exchange, specifically for that purpose.
However, the Board of the Jamaica Stock Exchange monitors, among other things, the financial status of all brokers. When the Exchange determines that there is a risk to the investor, it can act to prevent a broker from continuing to trade before a situation becomes critical.
We invite you to utilise the Online trading Platform ( JTraderPro) to buy and sell securities at your ease and convenience.