Securities :

The type of goods traded on the stock exchange are commonly referred to as securities. These can be classified as share capital and fixed income securities.

SHARE CAPITAL

A share is a security which represents a portion of the owner's capital in a business. Shareholders are the owners of the business. They share in the success or failure of the business. This can be measured by the amount of dividends that they receive and by the price of the share, quoted on the stock market. (In the U.S., shares are referred to as common stock.)

The different types of shares which are traded on the Bursa Malaysia include    

Ordinary Shares Also called equity shares, this is the risk capital of a company. Ordinary shares give holders the rights of ownership in the company, such as the right to share in the profits, the right to vote in general meeting and to elect and dismiss directors. Obligations of ownership are also conferred and this may result in the loss of an investor's money if the company is unsuccessful. Ordinary shares usually form the bulk of a company's capital and have no special rights over other shares. In the event of liquidation, ordinary shares rank after all other liabilities of the company. Preference Shares These are shares which carry the right to dividend (normally fixed) which ranks for payment before that of ordinary shareholders. Preference shares may be preferred also as regards distribution of assets upon dissolution of the company. Preference shares generally carry no voting rights, but voting rights may be made contingent upon failure to pay dividends on preference shares for a certain period of time.                                                                                                        Top There are various types of preference shares: Participating preference shares are entitled to participate in the profits beyond the fixed dividends, by way of an additional fluctuating dividend if the company is successful. Cumulative preference shares are preference shares which, apart from having a preferential right to receive a fixed dividend ahead of ordinary shares, also carry the right of any arrears of the preference dividends which may have built up. Non-cumulative preference shares are preference shares which are not entitled to any arrears in dividends. Redeemable preference shares may be redeemed by the company at a stated redemption price on advance notice of a period of time. It is usual to set a redemption price above the par value to compensate the owner for the involuntary loss of his investment. Convertible preference shares are preference shares which carry the right to be made convertible, at the option of the holder, into another class of shares, normally into ordinary shares.                                                                                                        Top

FIXED INCOME SECURITIES The holders of the fixed income securities are creditors of the company rather than shareholders. Holders of fixed income securities have no rights in the company beyond the payment of a fixed interest on their loans and repayment of the loans in accordance with the terms on which they were issued. Fixed income securities may be secured or unsecured, with the secured fixed income securities ranking before the unsecured. The two (2) principal types of fixed income securities are debentures and loan stocks. Debentures/Debenture Stocks A debenture is similar to a mortgage. It is a long-term loan secured on certain fixed or floating assets of a company. A debenture stock is a debenture issued as a fixed-interest stock. Such securities are issued under trust deeds, and in the event of the borrower defaulting on the interest or capital repayment, the debenture holder has the right to appoint a receiver to sell the company's assets and secure repayment of the loan. Loan Stocks A loan stock is a security issued by a company in respect of a loan made by investors. Loan stocks may be secured, unsecured, convertible or non-convertible, but are often unsecured, unlike debentures. Unsecured loan stocks carry higher risk than debentures, and in the event of a winding-up, unsecured loan stock holders rank alongside all other unsecured creditors. Convertible loan stocks carry the right to convert into ordinary shares of the company on pre-arranged terms and within a limited period. The objective of issuing a convertible loan stock is to obtain fixed interest finance at a relatively low rate of interest and at the same time make it attractive to potential holders by the offer of equity participation at a later date. Notes These are also fixed income securities with a maturity date, and may or may not be redeemable. Bonds Like debentures, bonds are fixed income securities issued to lenders of long-term loans, and with a maturity date.               Top

OTHERS Warrants/Transferable Subscription Rights (TSRs) Warrants/TSRs give the holders the right, but not an obligation, to subscribe for new ordinary shares at a specified price during a specified period of time. The warrants/TSRs, usually attached to an issue of loan stock, are issued by the company. Warrants have a maturity date (up to 10 years) after which they expire worthless unless the holder had exercised to subscribe for the new shares before the maturity date. Call Warrants Call warrants also give a right, but not an obligation, to buy a fixed number of shares at a specified price within a limited period of time. But unlike warrants/TSRs, call warrants are issued by third parties based on existing shares. Therefore, they do not increase the issued capital or dilute the earnings of the company as a warrant/TSR would do. Call warrants have maturity dates of not more than two (2) years. Property Trusts A property trust fund is a listed company which invests its funds in landed properties. It operates just like a unit trust except that it invests in property rather than shares. It therefore provides investors access to retail and commercial properties. Closed-end Funds A closed-end fund is a listed company which invests in shares of other companies. A closed-end fund company has a fixed number of shares in issue at any point of time, the price of which will fluctuate according to net asset value and market forces.

Back | Top