Research On The Different Types Of Trading

Published Date: 02 Nov 2017

2.4.1 Equities

Equities are the share of stock by individual or firms as each share also represent the ownership in a corporation. The trading of equities at Bursa Malaysia is from Monday to Friday, but not includes public holiday and market holidays. The processes of trading equities at Bursa Malaysia are:

Open a trading account and a Central Depository System (CDS) with a stockbroking company.

Engage a remisier to buy or sell the shares at a specified price.

Make an order through the WinSCORE system to Bursa Malaysia’s central computers.

Orders are match by the system. Prices of the orders are determined through a process of bids and offers.

A trade confirmation which consist of original order number, price and quantity matched, stock number and stockbroking company will be printed out.

Receive a contract notes which includes all the details of transaction from broking house.

A book entry system was used by Central Depository System (CDS) to keep track of the movement of shares.

Other than the cost of shares, clients have to pay for extra charges such as:

Brokerage rates

Both seller and buyer need to pay for brokerage.

Clearing Fees

Two types of clearing fees are Novated and Direct business.

Registration Fees

Each share certificate will be charge for RM3.

Stamp Duty

Bursa Malaysia’s stamp duty is RM1.00 for RM1000.00 which has to be pay by both seller and buyer.

Under the contra transaction, the clients have to pay the broker when there is a contra loss, which is the cost of buying was higher than the proceeds from sell. In contrast, when there is a contra profit, which mean the proceeds from sell was higher than the cost of buying; the broker was required to pay to the clients.

Board Lots of 100 units is the specific amount of shares that normally trade in. Generally, one lot consists of 100 shares. Special lots or odd lots are the name for which the amount of shares trade in was less than the board lots.

Besides that, depositors with two or more CDS accounts will receive a single statement accounts which consist of the details of all CDS transactions through the facility called Consolidated CDS Statement of Account (CDS). The purpose of this Consolidated CDS Statement of Account (CDS) is to help the depositors to manage their securities in different accounts. This facility has not incurred any fees to the depositors who apply it.

2.4.2 Derivatives

Derivative is a financial instrument which acts as an agreement between two persons or parties. There are many types of derivative such as swaps, options and futures. The value of derivatives is determined by the price of underlying assets. Below is the list of underlying assets which the value of derivative based on:

Underlying Assets

Derivatives

Share

Options

Index

Options and Futures

Bonds

Warrants

Interest Rate

Futures

Foreign Exchange

Futures

Commodity

Futures

In Bursa Malaysia, the trading of derivatives were conducted using different trading phases. The trading phrases are shown below:

Pre Opening

Carry out the process of entering, modifying and deleting the orders.

Opening Auction

Orders cannot be enter at this phase. The matching of opening price and contract volume will be distributed.

Continuous Trading

The trading of derivatives continues and the orders can be entered or deleted.

Pre Closing

It is similar to Pre Opening which occurs after the Continuous Trading phase. Theoretical Opening Price (TOP) is distributes to all participants every time it is been calculated.

Closing Auction

It is similar to Opening Auction. The Closing Price was taken from the last transaction price in Continuous Trading Phase if there is no any execution of trades occurs at this phase.

Financial reporting, audits, information-sharing and intra-day monitoring are used by Bursa Malaysia Derivatives Clearing to control its members’ financial position. Besides that, Bursa Malaysia Derivatives Clearing has the authority

To inflict up to RM1 million of penalty to a member.

To request for an extra funds for default case.

To cease a clearing membership.

Make use of any cash of the defaulting Clearing Members to clear their liability.

2.4.3 Bonds

The bond is a debt security. It is usually issued by government to generate extra funds for current expenditure. In the future, the borrower has to pay back the principal followed by an interest to the lender.

At Bursa Malaysia, the bond market was control by a system called Electronic Trading Platform (ETP). The secondary market activities have been simplified by this system. All the secondary trading will be recorded in ETP. The instruments that have been traded in Malaysian bond market are:

Government Securities

The example of government securities are Malaysian Treasury Bills (MTB), Malaysian Government Securities (MGS), Government Investment Issues (GII) and MGS Floating Securities. They are issued by Malaysian Government to control our economy.

Bank Negara Papers

The Central Bank issued Bank Negara Bills (BNB) and Bank Negara Notes (BNN) to operate its market.

Cagamas Papers

Cagamas Berhad issued Notes, Bonds and Sanadat to raise the funds for its business operation.

Private Debt Securities (PDS)

Private corporations issued the short term and long term debt securities on conventional or Islamic basis.

Asset Backed Securities (ABS)

Private or quasi Government corporations issued ABS which backed by assets such as mortgages and loans.

The trading of bonds at Bursa Malaysia is from Monday to Friday, but not includes public holiday which has been stated in Federal Territory of Kuala Lumpur. The trading transactions can be done through:

Order Matching

An acknowledgement will send to both seller and buyer when their identical trades were matched. Types of transaction include Outright Buy and Sell (OBS) and When Issued (WI).

Trade Negotiation

Two parties negotiated electronically to reach with a price or volume that is agreed by both parties. Types of transactions are Outright Buy and Sell (OBS), When Issued (WI) and Repo or Sell and Buy Back (SBBA).

Trade Reporting

It is used to report the trading between buyer and seller outside the system.