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Getting started in shares ASX Australian Stock Exchange

January 12, 2007 · Filed under ASX

CONTENT OF GETTING STARTED IN SHARE ASX

Introduction

What is a share?
Interactive exercise: Investment performance calculator
Better returns over the long-term
Interactive exercise: Financial return graph
Tax considerations
Diversity
Control over your financial future

Creating wealth for Australia
Interactive exercise: Listed company quiz
What is ASX?
Direct and indirect investment
Types of shares
Derivatives
Types of fixed interest products
Interactive review questions

Setting your investment goals
What is a stockbroker?
Types of stockbrokers
Choosing who to use to buy and sell shares
Providing personal information
Questions to ask your adviser/stockbroking firm

Buying shares in a float
Buying existing shares
Interactive exercise: Buying and selling shares
Placing an order with your adviser
Paying and settling
CHESS statement explained
Fees and other costs
Supervision and regulation of the sharemarket
Interactive review questions

Understanding newspaper share tables
External factors impacting on the sharemarket
Tracking the sharemarket using share price indices

ASX services
Other sources of information

Interactive course quiz
Questionnaire
Where to from here?
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(1) Introduction

Whatever your stage of life, you will have hopes and plans for your future. Your goals may be long-term and include financial well-being for you and your family or a comfortable retirement that doesn’t rely on a government pension. Alternatively, you may have more immediate goals such as saving for a home deposit, setting up your own business or planning for your child’s education. It is never too late to establish a regular savings plan and develop an investment portfolio.

The sharemarket provides one of the best opportunities to achieve your long term financial goals. And a significant advantage is that you can start small. Your initial purchase can be a parcel of shares valued as low as $500, although many advisers would recommend starting with at least $2000.

Half of Australia’s adult population – 8 million people (2004, ASX, Australian Share Ownership Survey) – have some exposure to the sharemarket, including 6.4 million who directly invested in shares listed on ASX, in 2004

(2 )What is a share?
When you buy shares in a company, you own part of that company and may benefit by receiving a part of the profits (in the form of dividends) and by sharing in any capital growth in the value of the company.

The company benefits by raising funds (capital) to operate and expand its business without needing to borrow money to do so.

(3) Better returns over the long-term
History demonstrates that shares, as a long-term investment, have the potential to provide better returns than any other major investment.

However, past performance is not a guarantee of future returns.

Share values have historically risen over the long-term, but this has been punctuated with periods of short-term volatility, where prices can go up or down very quickly. For this reason, it is usually important to adopt a medium to long-term share investment view of five years or more. This can assist in realising capital growth and minimising the impact of short-term volatility.

(4) Tax considerations
Because there can be tax benefits associated with share investment, it is important that you consider your taxation position prior to investing funds. GST is not imposed on the purchase or sale value of shares bought and sold, as transactions of this nature constitute a financial supply, which is input taxed for GST purposes. However, GST will be imposed on brokerage fees associated with such transactions. It is up to the discretion of the stockbroking firm/adviser if they pass on the cost to the client.

Three other major changes to the taxation legislation have occurred in recent years that impact on investors. These are: dividend imputation, employee share schemes and capital gains tax (CGT).

Dividend imputation
Prior to the introduction of dividend imputation, company profits paid as dividends were effectively taxed twice: first at the company level and then again when the dividend was received by the shareholder. Dividend imputation now allows the shareholder to gain the benefit of company tax which has already been paid.

Franked dividends are those paid out of profits on which a resident company has paid company tax in Australia. These carry imputation credits which entitle shareholders to a rebate or a reduction in the amount of tax to be paid. If the shareholder’s marginal rate of tax is lower than the company tax rate, the excess franking rebate can be used to reduce the tax payable on other sources of income.

The value of imputation credits depends on the rate of tax the company has paid. Companies may pay fully franked, partially franked or unfranked dividends.

Employee share schemes
Employee share schemes allow employees to purchase shares at a discount to the market price as an incentive to take up shares in the company. This discount is then assessed as income for tax purposes; however, there is a tax exemption threshold up to $1,000. To secure the exemption you must make a written election and the conditions of the scheme must prevent disposal of the shares before cessation of employment or within 3 years of acquisition, whichever is earlier. Additionally for the exemption to apply there should be no conditions in the scheme which could lead to forfeit of the scheme and the share scheme must be non discriminatory.

For information on employee share scheme tax implications, contact your accountant or professional adviser.

Capital gains tax
For many people the growth of their investments’ value is more important than income generated from their shares. If you sell an investment for more than you paid for it, you could be liable to pay capital gains tax. If your shares were purchased on or after 21 September 1999, the new CGT system will apply to you. In this case, if the shares are sold 12 months or more after the date of acquisition, then only half of the realised gain from the disposal of these shares will be included in your taxable income. However, if the holding period was less than twelve months, no concession under the new system will apply and the full value of realised gain will be included in your taxable income. Under the new system, there is no indexation.

If the shares were purchased prior to 21 September 1999 but sold after this date, you have a choice as to how to calculate the taxable capital gain.

You can choose to apply the new discount rules and forgo indexation (see above). Or you can retain a degree of indexation of the cost base, but forgo the discount. Note that indexation does not extend beyond the September quarter 1999.

This choice only has relevance if the shares are held for more than 12 months. Neither the indexation or discount option is available for shares held less than 12 months.

For information and advice on the tax implications of share investments you should consult your accountant or professional adviser.

(5) Diversity
Most people realise the benefits of spreading the risk across a range of investment categories such as shares, property, cash and fixed interest deposits.

You can further diversify your portfolio by making a number of different types of investments within each major investment category.

In relation to shares, this is achieved by investing in a number of different companies within different industries. There are 11 different industry groups to choose from such as Energy, Consumer Staples and Property Trusts.

All stocks listed on ASX are classified under the Global Industry Classification Standard (GICS) which has been developed by Standard & Poors and Morgan Stanley to make possible sector analysis and investment on a global basis. The current groups replaced the 24 industry groups previously developed by the Australian Stock Exchange and its predecessors.

Well-established companies with historically stable performance are known as blue chip companies. You may choose a blue chip company in the expectation of greater reliability or security, or consider shares in one of the more speculative stocks if you are prepared to take greater risks with your capital for the potential to make greater returns.

It is important to remember that generally, the higher the potential return, the higher the risk. Share prices of any company, even a blue chip, are always subject to change as a result of various influences, both domestic and international.

Below is a table listing the 11 sectors with examples of companies which form part of the particular industry group.

Industry Group Companies
Energy Oil Search, Santos, Woodside Petroleum
Materials Anglo Gold Ashanti, BHP Billiton, Rinker
Industrials Brambles, Coates Hire, Qantas
Consumer Discretionary John Fairfax, Domino’s Pizza, TAB
Consumer Staple Coles Myer, Foster’s Group, Woolworths
Health Care CSL, Mayne Group, Blackmores
Property Trusts GPT Group, Stockland, Westfield
Financials (ex Property Trusts) AMP, National Australia Bank, Westpac
Information Technology Technology One, MYOB, Baycorp Advantage
Telecommunication Services Hutchison, SingTel, Telstra
Utilities Australian Gas Light, Australian Pipeline, Envestra

Diversifying into fixed interest
Diversification can also be achieved by having different types of securities within your portfolio. Bond and Hybrid securities can be traded on ASX in the same way as ordinary shares. These securities provide the potential for regular income through interest or franked dividend payments. Talk to your broker or visit the Interest Rate Securities section of the website.

(6) Control over your financial future
To have real control over your investments, you must have an ability to choose, flexibility to act as circumstances change, and the opportunity to earn an income and capital growth to suit your individual needs.

Choice and flexibility are two of the obvious advantages of share investing. With shares your selection can be based on your needs for income or future capital growth. You may also wish to use share investment to manage your tax position. You should obtain independent advice from a licensed professional adviser prior to making any financial decision.

Flexibility comes from the degree of liquidity in the sharemarket. At any one time there are usually buyers and sellers for shares in most major companies. This means you can buy shares when it suits you and sell them again when you want to alter your investment strategy or raise cash to meet any financial requirements.

(7) A company that wishes to set up a new business, or expand its existing business, can raise the money it needs by issuing shares to investors. The investors become shareholders in the company, meaning they are part owners of the company and share in its profits and growth.

The sharemarket serves two functions:

providing a link between companies needing funds to expand and people with funds to invest; and
providing a marketplace for trading shares at the current market price.
Creating wealth for Australia
On a typical day, there would be few Australians who do not buy the goods and services produced by one or more of the companies listed on ASX. For example, if you shop at Woolworths or Coles Myer, bank at Westpac, NAB, ANZ or Commonwealth, or read The Australian Financial Review (John Fairfax Holdings Limited), you are using products and services of ASX listed companies.

The current ten largest companies listed on ASX are: 1. BHP Billiton 2. NAB 3. CBA 4. ANZ 5. Westpac 6. Westfield 7. Telstra 8. Woolworths 9. Macquarie Bank 10. Rio Tinto.

If an ASX listed company increases profits, the company may choose to distribute that profit in a number of ways. Higher profits mean the company can choose to pay higher dividends to its shareholders including you, if you own some of its shares. The company also benefits because if there is strong interest in its shares, it will be able to raise capital at a lower cost when it needs to in the future.

(8) What is ASX?
As Australia’s national stock exchange, ASX has primary responsibility for the operation of a sharemarket where companies and trusts can issue securities (such as shares) to raise equity capital, and investors can invest and trade those securities to create wealth for themselves. There are over 90 stockbroking firms which can assist with these investments.

ASX is one of the largest sharemarkets in the Asia-Pacific region and the eighth largest national sharemarket in the world by domestic market capitalisation. There are approximately 1,700 companies listed on ASX. Over the last decade, the market capitalisation of domestic companies listed on ASX has increased from $280 billion to $975 billion by 30 June 2005. Growth over the last financial year was more than 16%.

Australia has a relatively mature sharemarket with medium to long-term price movements on ASX being similar to those on major overseas exchanges.

To maintain market integrity, there is a high level of regulation and supervision by ASX of its markets. Surveillance systems, business rules and listing rules, which regulate the operation of listed companies and brokers in their dealings on ASX markets, are regularly updated with the co-operation of government regulatory authorities, including the Australian Securities and Investment Commission (ASIC).

(9) Direct and indirect investment
You can buy or sell shares directly through a stockbroking firm, either by accepting the current market price the shares are trading at, or waiting until the price changes to a level to which you are attracted.

Alternatively, you can make an indirect investment by placing your money with a fund manager to invest on your behalf. You can, for example, buy units in a cash management trust, property trust or managed share investment fund, or you can put your money into a superannuation fund that invests in the sharemarket.

Indirect investments are often referred to as managed investments because the fund manager makes the investment decisions, removing the control and responsibility from the individual investors. The fund manager usually charges an ongoing fee for this service. Entry and exit fees may also apply.

Exchange Traded Funds (ETFs)
ETFs are listed unit trusts that combine some of the features of investing in shares with investing in managed funds. Also known as “Tracker Funds”, ETFs provide investors with the ability to gain exposure to a number of companies listed on ASX as easily as buying the shares in the individual companies on ASX.

(10) Types of shares
Not all shares are the same. It is important to know about the different types of available securities in order to understand your rights and responsibilities. The following list summarises the key types of shares and the attributes associated with each.

Ordinary shares

most common form of share ownership
receive benefits of dividend distribution
voting rights at meetings
receive benefits from capital growth
if the company is wound up, shareholders of ordinary shares rank last in priority
Preference shares

usually have a fixed dividend rate
preference dividends are paid before ordinary dividends are announced
preference shares rank before ordinary shares in any distribution of assets
Contributing shares

partly paid
require certain future payments at certain future dates
shareholders are obliged to pay outstanding capital when due, unless the company is a no liability company in which case shares can be forfeited instead
Bonus issue

a free issue of new shares to a company’s shareholders usually on a pre-determined ratio to the number of shares already held
reflects improved value of company’s assets
Rights issue

a privilege granted to existing shareholders to buy new shares in the same company, usually below the prevailing market price
rights may be taken up or, in some cases, sold on the sharemarket

(11) Derivatives
A derivative is a financial instrument that derives (hence the name) its value from the price of another more basic instrument. Types of derivatives traded at the ASX are exchange-traded put and call options and warrants.

Derivatives can be used to reduce the risk of a shareholding by locking in a selling price to protect against a market fall; alternatively they can be used to increase risk, and hence return, by allowing investors to speculate on a move in a particular share price.

Derivatives are used by all kinds of investors from large institutions right through to small investors. To find out more about how you can use derivatives, call ASX Customer Service on 131 279 for a free explanatory booklet, or visit the options and warrants section on the ASX website.

(12) Types of fixed interest products

Bonds
Bonds are issued by a company or financial institution. They are at a fixed rate of interest for a specific period of time. For example, a 10 year bond pays interest (coupons) at specific dates during each of 10 years. At the end of that period (maturity of the bond) the initial amount paid for the securities (the face value) is returned plus the final coupon payment. The price which unsecured notes trade and settle on ASX can be affected by a number of factors including interest rates, strength of the issuer, and supply and demand in the market. Brokers can also assist in the conversion of price to yield for these securities.

Convertible Note
A Convertible Note is a type of coupon paying debt security that converts to the issuer?s ordinary shares (equity) at maturity. Generally speaking these securities pay a fixed (or floating) return until a certain date when the security can be converted into the underlying shares of the issuer.

Floating Rate Notes
Floating Rate Notes (FRNs) return a variable coupon payment for a specific period of time. These coupon payments are set usually semi-annually or quarterly, over an underlying rate such as the Bank Bill Swap (BBSW) rates published by Australian Financial Markets Association (AFMA). These rates will fluctuate as interest rates rise and fall.

Once again the initial investment amount is repaid on maturity. It is important to note that some FRNs are perpetual in nature and do not mature. To exit these types of securities they must be sold on the ASX Interest Rate Market (IRM) – in the same manner as you sell shares. Investors need to be aware that prices in these securities may fluctuate over time.

Hybrids
A broad classification for a group of securities, used by ASX listed companies to raise money, that combine both debt and equity characteristics. Hybrid securities pay a predictable (fixed or floating) rate of return or dividend until a certain date. At that date the holder has a number of options including converting the securities into the underlying share. Therefore unlike a share the holder has a ‘known’ cash flow, and, unlike a fixed interest security, there is an option to convert to the underlying equity. More common examples include convertible and converting preference shares. It is important to note that a Hybrid security is structured differently and while the price of some securities behave more like fixed interest securities, others behave more like the underlying shares into which they convert.

For more information on interest rate products visit the Interest Rate Securities section of the ASX website or call 131 279 for a brochure.

(13) Setting your investment goals
Before investing in shares, it is generally advisable to ask yourself a series of questions to ensure this type of investment is right for you.

Some of these questions are:

what do you want to achieve from your investments?
do you want a return in the form of income or capital growth?
are you prepared to risk some of your investment capital for the opportunity to make higher returns?
do you need additional security?
Your age and time frame for investing may affect your decisions. A full service broker can help assess your current financial situation and set your financial goals for the future. If you have a spouse or partner, ensure they are fully informed about your investment decisions.

An investment in shares can start from as little as $500 plus brokerage costs. Generally people would start with an investment of $2000 due to the cost of transaction.

(15) What is a stockbroker?
A stockbroker has direct access to the market for trading shares. Therefore they can act as your agent to buy or sell shares, for which a fee is charged. A broker may also offer a range of other products and services including providing advice on which shares to buy or sell.

Why do you need a broker?
All shares listed on ASX can only be bought or sold through a broker.

All stockbrokers must have a minimum two years’ experience in the industry, proven business integrity, an appropriate tertiary qualification as well as being PS 146 compliant. Stockbrokers and their representatives must comply with the ASX Market Rules and the Corporations Law. Being a broker involves passing rigorous testing and substantial investment in equipment to access ASX’s markets

What do brokers do?
Apart from buying or selling shares on your behalf, most advisers or stockbroking firms also offer:

advice on traditional investments such as shares, debentures, government bonds and listed property trusts
investment advice on a wide range of non-listed investment options (eg cash management trusts, property and equity trusts, etc)
investment plans tailored to your financial needs
planning, implementing and monitoring of your investment portfolio
retirement planning
research on national and international trends to help maximise your returns and minimise risk.

(16) Types of stockbrokers
The main difference between the two types of stockbrokers is whether they offer advice or not.

Advisory broker (full service)
Full service brokers offer advice on buying and selling shares, make recommendations and provide research. They also offer advice on other investments such as options, debentures and bonds and compile tailored investment plans. As full service brokers offer advice you generally pay a higher brokerage fee to buy and sell shares. Some full service brokers offer the ability for you to place your order online however they will still provide advice about the transaction that you wish to complete. You may incur different charges for placing your order online rather than via telephone.

Non-advisory broker (discount)
As the name suggests, non-advisory brokers offer no recommendations or advice regarding the appropriateness of your decision, consequently their brokerage fees tend to be lower than a full service broker. This is an attractive option for investors confident in their sharemarket knowledge and trading decisions.

Phone non-advisory
A phone non-advisory broker will act on your telephone instructions to execute an order on your behalf.

Internet non-advisory
An internet non-advisory broker will execute an order that you have placed through their internet site by entering it into the trading system. The lower overhead costs of this service frequently mean that the brokerage fee is lower.

(17) Choosing who to use to buy and sell shares
If you need help in selecting a stockbroking firm or adviser, visit the Stockbroker Referral Service on the ASX website.

You need to first decide whether you want advice on what to buy or sell and when to do so. Although broking firms generally do not charge for this advice, this service is reflected in higher brokerage fees on the actual buying or selling of shares.Those firms not offering advice generally charge lower fees.

If you are just starting out in the sharemarket and don’t feel confident in your sharemarket knowledge you will probably value the advice of a full service broker. If you are interested in low cost trading and are confident in your knowledge of the sharemarket you may wish to choose a non-advisory broker.

After deciding what type of services to seek from a broker, you can choose any of the following:

Speak to a client adviser at a stockbroking firm. There are over 70 stockbroking firms, many with branches throughout Australia. Most of them employ a number of advisers to service individual investors.
Your financial planner and/or accountant may have an existing arrangement with a stockbroking firm and can arrange an introduction and/or the purchase or sale of shares.
Some banks offer facilities to purchase shares via their branch network and/or a special customer service area.
Purchase shares directly via a public float ? see the section entitled ‘Buying shares in a float’ for more details.
Use the Internet to buy shares. Your purchase will, however, still be via a broker’s website.

(18) Providing personal information
When a broker provides advice, the broker is generally obligated to ask you about your current financial situation (such as assets, debts etc) before providing advice. You will most likely be asked to fill out a form with your financial details for the advisers’ records.

You don’t have to supply this information; however, the adviser can only make relevant recommendations about investment options with knowledge of your specific circumstances, needs and objectives. It may also be a good idea to meet your adviser in person before you start doing business together. Non-advisory brokers do not require this information as they do not give advice.

(19) Questions to ask your adviser/stockbrocking firm

What type of services do you provide?

Depends on what services you are seeking – do you require advice and/or trading services?

How do you charge for your services?

Depends on your requirements for value for money (eg brokerage or a flat fee).

How might you review my investment portfolio and how regularly would you do that?

Depends on your objectives and how active you want to be. Expect a quarterly review. This could involve reweighting your portfolio and reviewing the overall performance of your shares.

How will you inform me of any new sharemarket opportunities?

Expect email or mailed updates on opportunities, regular newsletters with research, and access to the firm’s website.

Will I receive a newsletter or any other regular information?

If you are looking for a broker to provide you with a full advisory service, the answer should be yes. Ask to see a sample.

Do you conduct client seminars?

If you are looking for a broker to provide you with a full advisory service, the answer should be yes.

Are you or your firm associated with any of the companies whose products are recommended by you?

Should indicate no association unless a full disclosure is given.

What research facilities does the firm make use of?

If you are looking for a full advisory service, the answer should be the use of an internal research department, or subscriptions to local and overseas research organisations.

(20) Buying shares in a float
The word float is used when a company seeks to raise capital by offering its shares to the public for the first time. The company must first submit details of its business and the proposed share issue to ASIC in the form of a prospectus.

Once the prospectus is lodged with and, if applicable, registered by ASIC, it can then be forwarded to potential investors for consideration. If you wish to invest in the company, you must first review the prospectus, fill in the attached application form, specifying the number of shares you want to buy, and send it with your payment to the company or lodge it with your adviser.

Once a company has circulated its prospectus to the public, the shares have been subscribed and the application deadline reached, the underwriter (eg a stockbroking firm) is committed to purchasing any unsold shares. Lodging and/or registering a prospectus with ASIC and ASX listing of a company does not guarantee the company will be successful once share trading begins.

If there is a great deal of investor interest in a new float, you may be allocated fewer shares than the number you applied for or none at all. With some floats, the initial share price (issue price) is not set until just prior to the first day of trading. You should obtain independent advice from a licensed professional adviser prior to making any final decision.

(21) Buying existing shares
Investors’ buy and sell orders are entered into ASX’s Stock Exchange Automated Trading System (known as SEATS).

The orders are entered by approved operators within stockbroking firms using SEATS terminals located in their offices. SEATS matches buying and selling requests by price in the order they were entered into the system. That way, every order gets processed on an equal basis, and larger investors do not gain priority. When a buy order is matched with a sell order a trade occurs.

(22) Placing an order with your adviser
Most stockbroking firms require you to provide funds prior to accepting your first order to buy shares. Many brokers will require that you set up a client account or trading account before you can start trading. This can take up to a week to finalise but can usually be done in 24 hours. Frequently brokers will require that you establish a cash management account with a bank or financial institution. This is to facilitate easy transfer of funds to pay for your purchase of shares and to allocate proceeds to you from the sales of shares. Once your relationship or account has been established, you can place orders to buy and sell shares.

When you place an order to buy or sell shares, you have a choice of two ways to tell your adviser what price you will accept. You can place your order ‘at market’, meaning you will accept a price at or about the market price of the shares at the time you are placing your order. Alternatively, you can place your order ‘at limit’, and inform your adviser of the highest price you are prepared to pay or the lowest price at which you will sell.

When placing an order with your adviser, make sure you are fully informed and that your order is confirmed. Ask the current market price and write it down. Then tell your adviser the details of your order (ie the amount of shares to be bought or sold and the price at limit or at market). They should then repeat the order back to you.

Your adviser will not necessarily call you as soon as your order has been filled. However, if you place an order very near the current market price, it may be filled quickly. If you change your mind about the order after it has already been filled, you are still bound to pay for the shares you have bought, or release the shares you have sold, even if you have not yet received the contract note.

(23) Paying and settling
Within three days of your broker executing your order you will need to enable the transfer of these shares, either by organising payment for the stock you have purchased, or providing access to shares you have sold.

ASX has decreased time it takes for your trade to settle because all holdings are now registered electronically on either CHESS or the issuer sponsored sub-register. CHESS (the Clearing House Electronic Sub-register System) is operated by a subsidiary of ASX on behalf of the listed companies. Issuer sponsorship involves the company (or issuer) through which the shares are issued, controlling the shareholding on your behalf.

To hold shares electronically on CHESS, you enter into an arrangement with your broking firm to act as your CHESS sponsor. The adviser can then electronically register details of any purchases or sales.

The mechanics of how you settle your transactions will depend upon where your shares are registered. If you have sold shares held on the CHESS sub-register you will need to provide your broker with your holder identification number (HIN) to allow access to transfer the shares for settlement. If sold shares are held with an issuer sponsored company, you will need to provide your broker with your Security-holder Reference Number (SRN) to allow access.

(24) CHESS statement explained
CHESS was developed to reduce the amount of paperwork and speed up the share transfer process, thus eliminating the necessity for public companies to issue share certificates. This means that instead of sending out new certificates every time shares are bought and sold, an electronic record is kept. Shareholders receive an initial statement when the holding is established, and then subsequent statements at the end of any month in which the holding balance changes.

Below is an interactive exercise that will provide explanations for various sections of a CHESS statement as you move your mouse over the circled letters. Be sure to scroll the page down until the CHESS statement is fully visible, so that you can see the explanations which will appear toward the bottom of the statement.

CHESS statement explained
CHESS was developed to reduce the amount of paperwork and speed up the share transfer process, thus eliminating the necessity for public companies to issue share certificates. This means that instead of sending out new certificates every time shares are bought and sold, an electronic record is kept. Shareholders receive an initial statement when the holding is established, and then subsequent statements at the end of any month in which the holding balance changes.

(25) Fees and other costs
Once you have appointed a stockbroker to act on your behalf and made your initial investment with them, you should note that other fees and costs will be incurred.

There is a brokerage fee for any purchase or sale of shares. Brokerage will be charged for each transaction. An order to buy or sell shares in two different companies is considered to be two separate transactions.

Brokerage rates on share transactions were deregulated in 1987 and, as a result, the rates are sometimes negotiable. As a first step, you should ask your adviser for the firm’s scale of fees.

Brokerage fees may involve a minimum amount or be based on a percentage of the transaction value. There will be a wide variation in fees depending on whether or not the broker offers you advice. Non-advice or ‘discount’ brokers may buy or sell shares on your behalf for as little as $30. Online broker fees can be as low as approximately $20.00.

As a guide, 2.5% or a higher flat fee brokerage is charged by many advisers on smaller transactions, usually under $5,000, with the percentage reducing on transactions of higher value. Fees currently charged can range from $30 to $120 per transaction.

Sliding scale of brokerage fees (indicative only):

First $5,000 2.5%
Next $10,000 2.0%
Next $35,000 1.5%
Amounts thereafter 1.0%
(For example, on a purchase or sale of shares worth $3,000, the brokerage is $75.00.)

Brokerage fees differ between stockbroking firms depending on the services they offer. Firms which provide company research compiled by their industry analysts will often charge higher brokerage fees to support this additional service. Some full service firms offer trading via the Internet. For information on those firms which have this facility phone ASX Customer Service on 131 279 or visit the Broker Referral service on the ASX Internet site.

Generally, ‘non-advisory’ or ‘discount’ stockbroking firms do not provide investment advice and you can only use these firms to execute a purchase or sale for you on SEATS. Non-advisory firms usually charge reduced or flat rates. Most online brokers fall into this category.

GST will not be imposed on the purchase or sale value of shares bought and sold, as transactions of this nature constitute a financial supply, which is input taxed for GST purposes. However, GST will be imposed on brokerage fees associated with such transactions. It is up to the discretion of the stockbroking firm/adviser if they pass on the cost to the client. For example, if brokerage costs were $28.00 in respect of the example above, then the GST payable would be $2.80 (based on an illustrative rate of 10 percent on the value of the taxable supply). Stamp duty on share transactions was abolished as of 1 July 2001.

(26) Supervision and regulation of the sharemarket
The ASX market is governed by various rules and regulations including the ASX Market Rules and the Corporations Act 2001 (Cth).

The ASX Surveillance Department electronically monitors ASX’s market for any irregularities in the dealings of brokers and listed companies on its markets. If the Corporation Act 2001 (Cth) or the ASX Market Rules are breached, the relevant authorities, including ASX, may take action against the parties involved.

Participating Organisations of ASX may be disciplined or penalised for breaching the Corporations Act 2001 (Cth) or the ASX Market Rules. In addition, the ASX Listing Rules regulates the conduct of ASX Listed Companies.

The National Guarantee Fund (NGF) provides protection for investors who deal via a broker in securities quoted on ASX or in derivatives traded on ASX’s derivative markets. Up until 11 March 2002, the operation of the NGF is set out in Part 7.10 of the Corporations Act 2001 (Cth). After 11 March 2002, the operation of the NGF will be set out in the Regulations to the Corporations Act 2001 (Cth). Investors can make a claim for compensation against the NGF for losses resulting from unauthorised transfers, or loss that results if a stockbroking firm becomes insolvent and fails to meet its obligations under the Corporations Act 2001 (Cth) or the ASX Market Rules.

(27) Keeping track of your investment : Information on shares and individual companies is readily available. You can track share prices and investment performance in most of the major newspapers, and additional information can be obtained from ASX, most stockbroking firms and, more recently, various internet sites. When you become a shareholder in a company, that company will send you, as one of the owners, a copy of its Annual Report.

(28) Understanding newspaper share tables
Newspapers provide daily information on share prices, sales and market movements. The format of newspaper share tables varies at the discretion of the newspaper. The following table is an example of one particular format. Shares are listed in alphabetical order according to the ‘name’ of the company. Industrial and mining shares are often listed separately.

(29) http://www.asx.com.au/webmcq/shwaa2/eim2/courses/o_asxequa/index.html?_1168644097534

(30) External factors impacting on the sharemarket
As with any form of investment, there are a number of specific risk factors that will impact on how well your share portfolio performs over a period of time. Some of these factors relate to the company you are investing in or the industry it is part of; others are more broadly based.

Some industries have more peaks and troughs than others. Mining and resource companies, for instance, can be impacted by world commodity prices for their products, which, in turn, are affected by demand for those products. Other industries are more affected by the business cycle (eg building and construction).

The Australian economy relies heavily on exports, and the level of the Australian dollar can influence demand for exports and the performance of exporting companies. It can also influence demand for shares traded on ASX in general, since many overseas investors buy shares in ASX listed companies.

You also need to be aware that, to some extent, the Australian sharemarket is influenced by large overseas sharemarkets. A significant rise or fall on these markets may be reflected in the Australian market.

(31) Tracking the sharemarket using share price indices
In April 2000, Standard and Poors Index services assumed control of the index business formerly controlled by ASX. Significant changes were made to the All Ords and the other indices. Since that time the main market indicator has been the S&P/ASX 200. These indices are calculated by S&P in relation to the Australian sharemarket.

ASX All Ordinaries (or ‘All Ords’ as it is often referred to) is used as a measure of how the Australian sharemarket is performing. The All Ords share price index is based on the prices of the top 500 listed companies, weighted according to the market capitalisation of these companies. These companies represent approximately 99% of the domestic market capitalisation.

This performs a similar function as overseas exchange indices such as the Dow Jones (USA), Nikkei (Japan) and FTSE (UK).

As an indication of the growth in share prices, the All Ords was set at 500 points on 1 January 1980 and by 30 October 2005 it had grown to over 4,460 points. When there is consistent strong buying of shares, and prices in general are rising, it is called a bull market. When the share prices are steadily falling and look to continue that way, it is called a bear market.

(32) Sharemarket education to suit everyone
ASX Investor Education can guide you through an exciting and informative learning experience that will motivate and educate you on investing in the sharemarket.

Investor Education provides a variety of educational activities available for you to learn more about investing and to gain the confidence you need to assist in making informed decisions, whether you are novice or someone who already owns shares.

Free Online Education
There are other free courses available on www.asx.com.au covering options, warrants and interest rate markets.

ASX Investor Hours
Talks on various investment topics are held regularly at ASX and are presented by professionals within the finance industry. ASX investor hours will keep you up-to-date with current sharemarket topics. Admission is currently $5.00 including GST, and can only be paid at the door prior to entry to the lectures. We advise you to come early as admission is on a “first come, first serve basis” due to limited space at some venues.

ASX Sharemarket Game
If you a sharemarket novice, here is a great way of learning more about the sharemarket. If you already know the market, then this a chance to further test your trading skills. Further information can be found at www.asx.com.au/sharegame

ASX Services
www.asx.com.au
You can access a wide range of information on the sharemarket and other ASX markets at www.asx.com.au

You can view 20 minute delayed prices and company announcements, live indices and lots of other information about individual companies and the sharemarket.

Stockbroker Referral Service
Contact details of advisers from stockbroking firms who suit your requirements can be found by visiting the Stockbroker Referral Service at www.asx.com.au. You will be asked questions regarding your proposed investments so that ASX can provide contact details for a number of advisers to suit your needs. Alternatively you can contact ASX Customer Service on 1300 300 279.

Expos and Events
ASX provides an excellent program of investor education through the ASX Investor Seminar Series and specialist education for more advanced investors and traders. Visit www.asx.com.au/events for more information.

ASX Customer Service
Please contact ASX Customer Service on 131 279 ( for the cost of a local call ) if you would like more information on any of these or other ASX services.

(33) Other sources of information
Information is also available to the public from many sources.

Glossary of ASX sharemarket terms

January 6, 2007 · Filed under ASX

A
(1) Absolute Return Funds : Absolute Return Funds (including Hedge Funds) aim to deliver returns in both rising and falling markets. The investment techniques adopted may be different to methods employed by traditional fund managers as the funds have greater scope to use derivatives, short positions, and exotic securities.

(2) Accounts payable (AP): Amounts owed by an entity as a result of the purchase of goods or services. See creditors, sundry creditors, trade creditors.

(3) Accounts receivable : Amounts owed to an entity as a result of the sale of goods or services. See debtors, sundry debtors, receivables, trade creditors. See debtors, sundry debtors, receivables, trade creditors

accredited derivatives advisersPersons who have been accredited by ASX to advise or make a recommendation (including a recommendation in a research report) to clients in relation to ASX derivative products other than Futures and Futures Options (ie; Warrants and all DTP Products other than Futures or Futures Options).
accredited futures adviser Persons who have been accredited by ASX to advise or make a recommendation (including a recommendation in a research report) to clients in relation to ASX Futures and Futures Options
accumulated depreciationThe aggregate, at a given point of time, of the depreciation charges relating to a fixed asset made against revenue during the useful life of the fixed asset for the purpose of allocating the depreciable costs of the asset to the revenues the asset generates; when deducted from the historical cost or revalued amount of an asset it yields the book value.
ACH See Australian Clearing House Pty Ltd (ACH
actively managed Where the fund manager has the discretion to select the securities in a fund and looks for opportunities to buy and sell to increase its performance
addressed value payment If you hold deliverable warrants but do not exercise them before or at expiry you may be entitled to a cash payment, often called an ‘Assessed Value Payment’ (or AVP).
adjustment to options contractsAdjustments are made when certain events occur that may affect the underlying securities. Examples of adjustments include changing the number of shares per contract and/or the exercise price of options in the event of a new issue or a reorganisation of capital by the issuer of the underlying securities.
after-balance-date eventsSignificant circumstances that occur or information that becomes available between the end of the accounting period (’reporting date’) and the time of approval of the financial statements. Also referred to as ‘Post Balance Sheet Events’ or ‘Events Occurring after Reporting Date’. See Accounting Standards AASB 1002, ‘Events Occurring After Reporting Date’.
AGM (annual general meeting)An annual meeting of shareholders required by law where directors inform shareholders of company performance and future prospects. Shareholders vote on board elections and significant company issues.
All Ordinaries (All Ords) The index is made up of the weighted share prices of about 500 of the largest Australian companies. Established by ASX at 500 points in January 1980, it is the predominant measure of the overall performance of the Australian sharemarket. The companies are weighted according to their size in terms of market capitalization (total market value of a company萸?shares).
All Ordinaries Accumulation IndexTakes into account both capital appreciation and dividends as a return on the companies in the All Ordinaries index.
allotment of sharesThe allocation of shares in a company by the directors, following an application or offer to take up the shares. Decisions as to the persons to whom shares are allotted, and the number allotted to each, are at the discretion of the directors, subject to compliance with the Corporations Law. If an issue of shares is over- subscribed, i.e. the number of shares applied for exceeds the number available for issue, the excess must be eliminated either by rejecting some applications altogether, or by reducing the number of shares allotted to some or all of the applicants.
American Depositary ReceiptsDepositary Receipts are negotiable certificates that represent a non-U.S. company’s publicly traded equity or debt. Depositary Receipts are legal, US. Securities that trade freely on a major exchange or in the over the counter (OTC) market in U.S. Dollars, pay dividends or interest in dollars, and settle, clear and transfer according to standard U.S. practices. The Depositary Receipt evidences the home market security which trades in a foreign country and it is custodised with a local bank, called the custodian.
American exercise, American styleA type of option or warrant contract which allows the holder to exercise at any time up to and including the expiry date. Most options listed on ASX are American Style. See European Exercise, European Style.
amortisationThe process of allocating acquisition cost or other value of assets either to periods as expenses or period costs, or to inventory accounts as product costs. The term is normally used in conjunction with non-physical assets. Contrast depreciation.
AMV Abbreviation for aggregate market value
annual report In the context of the Australian sharemarket, the annual report is a financial report or statement issued by a publicly listed company to its shareholders. The annual report contains a statement of financial performance, a statement of financial position, a statement of cash flow, as well as notice of the Annual General Meeting (AGM) and business resolutions to be discussed
annual yieldAlso known as dividend yield.annual yield represents the dividend return from an investment. It is calculated by dividing the dividend per share by the share price, converted to a percentage.
Yield = (Dividend per share / Last market price) x 100

annualised returnThe return or profit, expressed on an annual basis, the writer of the option contract receives for buying the shares and writing that particular contract. See buy and write.
annuityAn annuity is a series of identical fixed payments to be made for a specified number of years
Approved financial products The ASTC Settlement Rules state that an Approved Financial Product means a Financial Product which is approved under Section 8 of the ASTC Settlement Rules. ASTC is ASX Settlement and Transfer Corporation Pty Ltd (ABN 49 008 504 532) which is licences as a Clearing and Settlement Facility under the Corporations Act
arbitrage The simultaneous buying and selling of the same or equivalent securities in different but related markets
articles of associationThese were formerly the rules adopted by a company when it formed that governed the company’s internal affairs and other matters affecting the shareholders and the company. These matters are now dealt with in the company constitution.
as at date Date upon which the relevant information is recorded
asset allocationThe proportion of your total capital you invest in the different asset classes. This will be largely determined by your risk profile.
asset backingUseful check for investors that can be related to the firm’s earning capacity.asset backing = net assets of a company (in $) / number of issued shares.
For example: XYZ Ltd with $100,000 net assets and 10,000 shares issued has an Asset Backing of $10.00 per share.

assetsAssets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events affecting the entity. The essential characteristics of an asset are:
a probable future benefit exists involving a capacity to contribute directly or indirectly to future net cash inflows;
the entity can obtain the benefit and control the access of others to it;
the transaction or event giving rise to the entity’s claim to or control of the benefit has already occurred.
assignmentIn the context of exchange traded options (ETOs), assignment is the random allocation of an exercise obligation to a writer. This is carried out by Australian Clearing House Pty Ltd (ACH).
associate companySee associated company.
associated companyOne company may be associated with another company if certain types of arrangements exist between the two bodies.Companies may also be considered to be associated when one company has an equity interest in the other.
ASX (Australian Stock Exchange)The main Australian market place for trading equities, government bonds and other fixed interest securities.
ASX codeA unique code used by the Australian Stock Exchange (ASX) to identify listed companies. See listed company.
ASX International Services Pty LtdASX International Services Pty Ltd (ABN 62 089 068 913) is a wholly owned subsidiary of the Australian Stock Exchange Limited. ASX International Services Pty Ltd is the entity that will execute and settle sales and purchases of Participating International Securities on behalf of the broker.
ASX World LinkASX World Link is the brand name of the service provided by ASX International Services Pty Ltd. The service allows an investor to invest in Participating International Securities listed on international markets in Australian dollars through an Australian broker.
at-the-moneyTerm used to describe an option or a warrant with an exercise price equal to the current market price of the underlying asset.
auditA systematic examination of financial statements usually by an independent chartered accountant, with the objective of expressing an opinion on the truth and fairness with which the statements present the financial position, the results of operations and on whether the statements are drawn up in accordance with the relevant law and accounting standards. The auditor’s opinion is customarily conveyed in the form of an audit report to those recipients of the financial statements for whose benefit he is appointed, usually the shareholders of a company.
auditors The company’s auditors as reported in the annual report.
Australian Clearing House Pty Ltd (ACH)The Australian Clearing House Pty Ltd, the subsidiary of ASX which clears options and futures traded on ASX.
Australian Securities and Investments Commission (ASIC) The Government body responsible under the Corporations Law for regulating companies, company borrowings, and investment advisers and dealers
authorised capital The amount of share capital which a company is permitted to issue. Also called nominal capital. See issued capital, uncalled capital, and paid-up capital
awareAn entity becomes aware of information if a director or executive officer (in the case of a trust, a director or executive officer of the responsible entity or management company) has, or ought reasonably to have, come into possession of the information in the course of the performance of their duties as a director or executive officer of that entity.Introduced 01/07/96. Origin: Listing Rule 3A(1). Amended 01/07/98
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B
bad debtsUncollectable accounts receivable. They represent losses which should be written off immediately. Compare doubtful debts.
balance dateThe company’s balance date as reported in the annual report. Also called the reporting date.
balance sheet See Statement of Financial Position
barriers A barrier level is a defined level that causes some event to occur. The disclosure document will provide details
basis risk The risk that movements in the price of a futures contract do not correlate exactly with movements in the price of the underlying financial instrument or commodity.
bear marketWhen share prices are falling and experts expect further falls.
benchmark The yardstick that a fund manager compares the performance of their fund to, such as the All Ordinaries index which may be used as a benchmark for Australian Shares
betaA measure of how changes in a share price correlate to overall movements in the share market as a whole.
bid The price at which someone is prepared to buy shares (opposite to offer).
bill payableA liability of an entity arising either as a result of giving a promissory note or accepting a bill of exchange drawn on it by a creditor.
bill receivable An asset of an entity arising either as a result of receiving a promissory note or drawing a bill of exchange on a debtor
blue chip Shares, usually highly valued, in a major company known for its ability to make profits in good times or in bad, and with reduced risk or default
board of directorsAn elected body or persons formed to control the planning and implementation of corporate objectives.
bond A tradeable debt security, usually issued by a government or semi-government body to raise money. Holders of the bond have lent money for which they receive a fixed rate of interest over a set period of time. The bond is repaid with interest on the predetermined maturity date. Bonds can be traded on the sharemarket
bonus dividendAn abnormal dividend declared out of profits. If paid in cash it is regarded as an increment to the normal dividend and is unlikely to be repeated in future periods, for example an additional dividend paid in the centenary year of a company. Instead of being paid in cash, the bonus dividend may be applied to the payment, in full or in part, of amounts owing on a new share issue. The dividend may also be applied to the payment of any uncalled capital on shares which have already been issued. See bonus shares/bonus issue.
bonus shares/bonus issueAdditional shares issued by the company to existing shareholders for free, usually in a pre-determined ratio to the number of shares already held.
book value The net amount shown in the books or in the accounts for any asset, liability or owners’ equity item. In the case of a fixed asset, it is equal to the cost or revalued amount of the asset less accumulated depreciation. Also called carrying value. The book value of a firm is its total net assets, i.e. the excess of total assets over total liabilities
books closing dateThe date at which a company’s share register is closed off to identify the shareholders and to calculate any entitlement to new issues and dividends.
borrowing costsInterest and other costs incurred by an entity in connection with the borrowing of funds.
brokerage Fee paid to stockbroking firm for buying or selling of shares.
BSPBonus share plan ?usually a plan whereby shareholders may elect to receive all or a portion of the dividend in shares instead of cash. You should refer to announcements by the company or contact the company to obtain further information regarding the rules and operation of the plan.
bull market When share prices generally are rising.
business cycle Also known as the economic cycle. The rise and fall of the economy, from a peak, or boom, to a trough (sometimes called a depression) and back to a peak. The length and duration of each phase is not predictable
business dayMonday to Friday inclusive, except New Year’s Day, Good Friday, Easter Monday, Christmas Day, Boxing Day, and any other day that ASX declares is not a business day.
business rulesThe ASX Market Rules govern the operations and behaviour of Market Participants of ASX and Affiliates.The Market Rules also set out the requirements to become a Market Participant (commonly referred to as ’stockbroking organisations’),
The Rules also set out the requirements to become a Participating Organisation (commonly referred to as ’stockbroking organisations’) and an Affiliate.

The ASTC Settlement Rules govern the operation of CHESS, the electronic transfer and settlement system, and the CHESS subregister.

buy and write A strategy requiring the simultaneous purchase of underlying securities and the writing of calls representing the same number of shares.
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C
callOften No Liability (N.L.) and sometimes Limited Liability (Ltd.) companies have shares that are not fully paid. A call may be made for the payment of part, or all, of this outstanding capital. Holders of shares in N.L. companies may choose not to pay the call and forfeit their shares, hence the name No Liability. Holders of shares in Limited Liability companies cannot forfeit the shares and are legally obliged to pay a call. See contributing share.
call optionAn option contract which gives the holder the right, but not the obligation, to buy the underlying asset at the exercise price at or before a fixed expiry date.
CapSome warrants have their upside potential capped at a certain level. This is sometimes called a cap level. A Cap level is fixed by the issuer when the warrant is issued. The disclosure document will provide details.
capital Funding for investment in capital assets or to operate a business. Also refers to the value of an investment in a business, or in assets such as property or shares
capital expenditure Expenditure which is expected to produce benefits in a future period(s), and which is carried forward as an asset in the balance sheet at the end of the period
capital gain The difference between the proceeds from the sale of a security and the initial cost of the investment. If the proceeds exceed the cost this is said to be a capital gain
capital gains tax Tax on the profit from the sale of capital assets such as shares or property
capital growthAn increase in the value in an asset such as an investment in shares. Capital growth is realised as a capital gain when the asset is sold for more than its purchase price.
capital lossThe difference between the proceeds from the sale of a security and the initial cost of the investment. If the cost exceeds the proceeds then this is said to be a capital loss.
capital protected warrantsCapital Protected Warrants are warrants where the issuer promises that the investor gets back at least a certain value set out by the issuer. The underlying securities for Capital Protected Warrants can be a single security or basket of securities quoted on ASX or an overseas exchange. There are currently two types of Capital protected warrants: Capital Plus and CaPELS.
capital reserveA reserve which is regarded as not being available for distribution as a dividend through the Statement of Financial Performance for statutory reasons or because of the requirements of the constitution of a company or because of a resolution of the directors.Sometimes the term is used to describe a reserve which if distributed as a dividend is not subject to income tax in the hands of a shareholder that is an individual or to bonus issue tax if distributed as a bonus issue
cashCurrency, coins, cheques, and balances in bank accounts – a current asset.

cash covered A derivatives position, such as a written option contract, where the option writer meets their margin obligations with cash
Cash extractionCash extraction is a strategy where investors apply with their shares to receive a similar amount of instalment warrants plus a cash payment.
cash flowThe total cash receipts (inflow) or cash payments (outflow) arising from a given asset, or group of assets, for a given period. Net cash flow is the inflows less the outflows.
cash issues A new issue of shares for cash made to existing shareholders in proportion (e.g. 1 new share for every 2 shares held) to their existing shareholding for the purpose of raising additional capital for the company. It is usually issued at a discount to the market price.
cash settled warrant Cash settled warrants are settled by a cash payment by the warrant issuer to the warrant holder, e.g. most index warrants. The cash payment will be calculated as determined by the terms and conditions of the warrant. Some warrants may offer the choice to investors for cash settlement or physical delivery (e.g. currency warrants).
cash settlement The procedure by which index futures and index options contracts are settled. Because an investor cannot directly buy or sell an index, index futures and options contracts are cash settled by allocating a dollar amount to each index point.
CDI’s – CUFS and DI’sCHESS Depository Interests (CDI’s) is the general term for two products, CHESS Units of Foreign Securities (CUFS), and Depository Interests (DI’s). Both types of CDI are electronic depository receipts issued over different security types and are units of beneficial ownership issued over principal securities. CUFS are the equity component of the product and apply to foreign securities only. DI’s are the debt/bearer component and apply to both foreign and domestic securities.
certificated subregister That part of an entity’s register for a class of its securities that is administered by the entity and records certificated holdings of securities in that class. Note: The register may be of shares, options or other securities
charting Synonymous with Technical Analysis
CHESS ASX’s Clearing House Electronic Sub-Register System which provides the central register for electronic transfer of share ownership
CHESS subregisterThat part of an entity’s register for a class of Approved Financial Products that is administered by ASTC and records uncertificated holdings of Financial Products in that class. Note: The register may be of shares, options, managed investments or other financial products that are Approved Financial Products, including CDI’s which are units of beneficial ownership issued over Principal Financial Products.
child entityA entity is a child entity of another entity if the other entity is its holding company or has control over it. Compare parent entity.
classClass of security on issue. Securities are in the same class only if the same rights and obligations attach to them. Differences arising from the requirements of the listing rules relating to restricted securities are to be ignored. Example: Partly paid securities are in a different class to fully paid securities. Fully paid securities that rank equally except for the next dividend or distribution are in the same class (but may be traded separately until they merge with the other shares in the class). Fully paid ordinary securities classified as restricted securities are in the same class as fully paid ordinary securities that are not classified as restricted securities.
class of optionsOption contracts of the same type – either call options or put options – covering the same underlying security. (See underlying instrument/underlying security).
classified asset An asset of a kind referred to in paragraph (a) of the definition of restricted securities in ASX Listing Rules
clearing accountA clearing account is either an accumulation account (a holder record maintained in CHESS by a broker to facilitate settlement of CHESS approved securities with clients who are not participants) or a settlement account (a holder record maintained in CHESS by a participant non-broker to facilitate settlement of CHESS approved securities with other participants).
closed end fundA fund that has a fixed number of shares or units on issue
closing outA transaction in which a party who has a bought (sold) option or futures position, exits the position by selling (buying) an option or futures contract in the same series.
closing purchase A trade that liquidates an investor’s written position
commissionThe fee that an advisor or a fund manager may receive for the buying or selling of securities.
company announcements officeThe office designated by ASX to process company announcements for release to the market.The fax numbers are:
For announcements sent within Australia: 1900 999 279.
For announcements sent from New Zealand: 0800 449 707.
For announcements sent from elsewhere: 61 2 9347 0005 or 61 2 9778 0999.
company nameComplete name of listed company, as reported to the Australian Stock Exchange.
company optionsA contract by which an entity is bound to issue new securities, usually at a set exercise price, if the option holder wishes to take the new shares.
company reported EPSThe basic and diluted earnings per share (EPS) figures, as reported by the company in the annual report.
company secretary A person required to be appointed under the Corporations Law and usually having the responsibility for all the record-keeping within the company
concise financial reportUnless a shareholder has requested in writing that a Company send the full Annual Report, Section 314 of the Corporations Act 2001 allows a company to send a Concise Financial Report in substitution for its Annual Report.A concise report for a financial year consists of:
a concise financial report for the year drawn up in accordance with Accounting Standards AASB 1039;
the directors’ report for the year (see sections 298 – 300A); and
a statement by the auditor:
that the financial report has been audited; and
whether, in the auditor’s opinion, the concise financial report complies with the accounting standards made for the purposes of paragraph (a); and
a copy of any qualification in, and of any statements included in the emphasis of matter section of, the auditor’s report on the financial report; and
a statement that the report is a concise report and that the full financial report and auditor’s report will be sent to the member free of charge if the member asks for them.
Under AASB 1039 a concise financial report must include

a balance sheet as at the end of the financial year
include the following financial statements:
profit and loss statement for the financial year
a statement of cash flows for the financial year.
Each financial statement must be presented as in the financial report, in accordance with other Accounting Standards, except for the omission of cross- references to notes to the financial statements in the full financial report. The financial statements must be accompanied by discussion and analysis to assist the understanding of members.

conservativeA modest style of investing by a fund manager that wishes to achieve stable returns over a short to medium horizon.
consolidated financial statementsStatements issued by legally separate but related companies that show financial position and income as they would appear if the companies were one legal entity. Such statements reflect an economic rather than a legal entity. The Corporations Act 2001 requires a company with subsidiaries to present to its shareholders group accounts, normally in the form of consolidated financial statements, when its own balance sheet is presented. Compare associated company and parent company.
contingencyA condition or situation, which exists at balance date, the ultimate outcome of which, gain or loss, is uncertain and will be confirmed only on the occurrence or non-occurrence of one or more uncertain future events which are not wholly within the control of the entity after the date of approval of the financial statements. A contingency may or may not give rise to an asset or a liability. The treatment of a contingent asset or liability will vary from inclusion as an item within the financial statements, if there is a high probability of subsequent events confirming the existence of the asset or liability, to inclusion by way of a note to the financial statements where the probability confirmation is remote.
contingent liabilityA potential expense, one that may or may not eventuate, depending how events turn out, but which should be provided for in properly kept accounts or budgets, eg damages from a pending lawsuit.
contract multiplier The number used to determine the dollar value of an index futures or options contract.
contract note A written document confirming a transaction between two dealers or a broker and a client which details the costs, type and quantity of shares traded
contract size The contract size of an exchange-traded equity option is standardised at 1,000 underlying shares. To calculate the dollar value of an index options or futures contract, a contract multiplier is applied
contributing share Shares that have been partly paid for. At a future date the shareholder will be required to pay the balance outstanding, unless the company is a no liability company in which case shares can be forfeited instead
controller A person who, in ASX’s opinion, has a substantial interest in the equity of the holder of, or a substantial economic interest in, restricted securities and each intermediate entity through which that interest occurs
conv. note See convertible note
convergence The process whereby the price of a derivative contract aligns with the price of the underlying financial instrument or commodity. This usually occurs at maturity.
conversion ratio The conversion ratio is the number of warrants that must be exercised to require the transfer of the underlying instrument.
convertible debt security An unsecured note or debenture that is classified as an equity security because it is convertible into an equity security
convertible note loan made to a company at a fixed rate of interest with the right to be either redeemed (i.e. repaid by the company) for cash or converted into ordinary shares at a predetermined date or within a certain period.
convertible securitiesSecurities which are convertible by the holder, or automatically by their terms of issue, into equity securities. Note: convertible securities includes company options.
corporate actionA corporate action is an action taken by an entity for the purpose of giving an Entitlement to Holders of a class of the entity’s securities. Examples of Corporate Actions include rights issues, bonus issues, dividends or other payments, or offers under a buy- back scheme.
corporationA corporation includes all bodies corporate and certain types of unincorporated bodies, but excludes certain corporate bodies.For legal purposes a corporation is treated as a separate legal person.
Corporations LawA national scheme of legislation dealing with the regulation of companies and the securities and futures industries.
cost of carryA cost that is factored into the pricing of derivatives instruments such as futures contracts. It reflects the cost of holding the underlying shares over the life of the futures contract, less the amount that the shareholder would receive in dividends on those shares during this time.
couponInterest voucher usually attached to bonds and exchangeable for cash on its due date (half yearly or yearly).
covered warrantA warrant is said to be covered if the warrant issuer places the underlying securities of a warrant in a trust or other custodial arrangement. See also fully covered warrant.
creditorsSee accounts payable (AP).
cum (general)Meaning “with”. For example, “cum dividend” means that shares are being traded with the current dividend attached and thus the buyer rather than the seller receives the dividend declared.Cum-Dividend Shares quoted “cum-dividend” entitle the buyer to the dividend then current.
Cum-Rights Shares quoted “cum-rights” entitle the buyer to participate in a New Issue of shares then current

cum dividendCum means ‘with’. Shares quoted cum dividend entitle the buyer to the current dividend. The price of the shares will usually reflect the amount of the dividend. Similarly, shares ‘cum rights’ entitle the buyer to participate in the new issue of shares. See ex-dividend.
cum. pref Cumulative preference shares. See cumulative
cumulativeRefers to the right of some preference shares to receive a dividend for each financial period even though no dividend has been declared. When such a dividend has been omitted it becomes an arrear.
cumulative preference dividendsDividends on preference shares that accrue as a commitment of the company if they are not paid in any year. Arrears of cumulative preference dividends must be paid before any dividends are paid to ordinary shareholders. Unless specifically stated to be non-cumulative, dividends on all preference shares are deemed to be cumulative.
currency warrantsCurrency warrants give holders exposure to movements in the exchange rate between two different currencies. Holders of currency warrants may exchange an amount of foreign currency for Australian dollars on or before the expiry date
current assetsCash or other assets of the entity that would in the ordinary course of operations of the entity be consumed or converted into cash within twelve months after the end of the last financial year of the entity.
current liabilitiesObligations that are expected or could be required to be discharged on demand or within twelve months. In a company’s annual report, this figure shows the amount of debt due to be repaid within twelve months.
current ratioA measure of liquidity that shows a company’s ability to pay its short-term debts.Current Ratio = (Current assets / Current liabilities) = number of times covered
CvDebConvertible Debentures.
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D
debenture A loan to a company at a fixed rate of interest and for a fixed term, usually one to five years. The debenture is secured by a trust deed over an asset, or assets, of a company
debt / equity ratioShows the relationship between funds provided by borrowing and funds provided by shareholders. The debt/equity ratio shows to what extent a company is financed by debt (also called the gearing or leverage ratio).Debt/Equity ratio = (total debt / shareholder equity) x 100
debt capitalCapital funds raised by a company through issuing debentures or increasing other liabilities to finance its operations. For example, a company may increase its debt capital by negotiating a long-term loan facility with a bank. An alternative to equity capital (See equity capital or equity funding).
debt finance Sources of funds other than equity finance
debt fundingThe process of debt financing through issuing debentures or bonds; or increasing other liabilities to finance operations. Alternative to equity funding
debt security Debt security means;
an unsecured note, except one convertible to a share or unit;

a debenture, except one convertible to a share or unit;

any security that ASX decides to classify as a debt security;

but not a security ASX decides to classify as an equity security.

* debtors see accounts receivable

debtors repayment period
deferred asset
deferred charge
deferred delivery
deferred expenditure
deferred liability
deferred settlement
delisted
deliverable warrant
delivery not enforceable
delta
depreciable amount
depreciation
derivative
despatch date
directors
disc.
disclosure document
discount
distribution
diversification
diversified portfolio
dividend
dividend amount
dividend cover
dividend imputation
dividend income
dividend or distribution plan
dividend reinvestment plan (DRP)
dividend type
dividend yield
dividends in arrears
doubtful debts
DPS Adjusted
DRP
DTP

E
earnings
earnings before interest and tax (EBIT)
earnings per share (EPS)
economic entity
electronic holding statement
employee incentive scheme
endowment warrants
entity
entry fee
equities
equity
equity accounting
equity capital or equity funding
equity funding
equity interests
equity security
equity warrants
equivalent fully paid shares on issue
equivalent fully paid weighted average (’000)
European exercise, European style
ex bonus, ex bonus date
ex date
ex dividend date
ex rights
ex-dividend
Exchange Traded Fund (ETF)
exchange traded options (ETOs)
exercise
exercise price
exit fee
Exotic instruments
expense
expiry, expiry date, expiration
extraordinary items

F
f.p.ord shares
fair value
FDIs
FID
Fidelity Fund
final payment (loan amount)
financial institution
financial lease
financial period ending
financing activities
FIO
First payment
fixed assets
fixed interest
float
foreign company
Foreign Depositary Interest
franked dividend
franking rate
fully covered warrant
fund manager
fundamental analysis
funds derived from operations
futures contract

G
gearing
GICS (Global Industry Classification Standard)
goodwill
government bond
growth
GST

H
hedge
Hedge funds
HIN
holding lock
home branch
HOT or High yield instalments
Hybrid ETFs

I
Iitial margin
imputation credits
in-the-money
income (general)
Index
index arbitrage
index futures
index LEPOs
Index managed
index options
index warrants
industry sectors
Infrastructure Fund
insolvency
insolvent
instalment warrants
institution
intangible assets
interest
interest cover
interim dividend
intrinsic value
inventory
investment
investment entity
issued capital
issued shares
issuer sponsored subregister

J
joint venture

K, L
lease
leasehold
leasehold improvements
leverage
leveraged lease
liabilities
limit
limit order
limited liability
limited liability company
liquid assets
liquidation
liquidation dividend
liquidator
liquidity
listed company
Listed Managed Investments (LMIs)
listed stock
Listing Rules
low exercise price options (LEPOs)
lower of cost or market

M
main class
Managed investments
management expense ratio (MER)
margin
margin interval
market capitalisation
market order
market participants
market price
market risk
marketable parcel
Master Trust
maturity
memorandum of association
merger
minimum initial investment
minority interest
mortgage
Mutual Fund

N
National Guarantee Fund (NGF)
net asset value (NAV)
net assets
net current assets
net profit
net tangible asset backing
net tangible assets (NTA)
new
no liability company
non current liabilities
non-renounceable rights
number
number of employees

O
objectivity
off-market transfer
offer
offer period
offering circular
official list
Open end fund
open interest
operating activities
operating profit (loss)
option
ordinary share
out-of-the-money
Outstanding Amount
overseas home exchange
owners’ equity

P
paid-up capital
parent company
parent entity
pari passu
participating dividend
participating international security
participating preference shares
partly paid shares
percentage franked
person
placement
Pooled Development Fund (PDFs)
post-balance-date events
PPO Shares
preference shares
preliminary expenses
premium (option)
premium (prem)
premium margin
prepaid expenses
prepayments
price range for day
price-earnings ratio
principal activities
Private Equity Fund
pro rata issue
pro-forma statements
profit
profit and loss statement
profit from continuing operations
promissory note
Property Trusts
proprietorship
prospectus
provision for depreciation
proxy
put option
put warrant

Q
quick assets
quick ratio
quotation

R
raw materials
realisation
receivables
receiver
recognised trustee
reconstruction
record date
redeemable preference shares
redemption
related company
renounceable rights
rental income
repairs and maintenance
reserve
reserve capital
reset date
restricted securities
retained net profit
return on assets
return on equity
return on sales
return/return on investment
revenue
revenue reserve
rights issue
rights issues
risk
risk margin
rolling instalments
routine transaction statement

S
S&P/ASX Indices
SEATS
secondary market
series
share capital
share certificate
share registry
shareholders’ equity (includes outside equity)
shareholders’ funds (equity)
shares
short selling
solicitors
special transaction statement
specific cover
split
SRN
stamp duty
Stapled security
statement
Statement of Financial Performance
Statement of Financial Position
stock
strike price
subscribers
subsidiary
substantial shareholder
sundry creditors
sundry debtors

T
tailor made combination
takeover
taker
Tax Deferred
taxable income
technical analysis
technical and performance requirements
termination benefits
terms of the scheme
theoretical intermarket margining system (TIMS)
time value
total assets
total liabilities
total ordinary dividends ($’000)
trade creditors
trade debtors
trading for DD/MM/YY
trading halt
trading investments
trustee security
trusts (unit trusts)

U
uncalled capital
underlying instrument/underlying security
underwriter
underwriting
unit
Unit NAV
unit trust
unlisted companies
unsecured notes

V
variation margin
vendor
vendor shares
volatility
voting exclusion statement

W
warrant code
warrant holder
warrant issuer
warrant series
warrants
winding up
work in progress (WIP)
working capital
wrap account
write down (up)
write off
writer

X, Y
yield

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Pranay

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