AN ANALYSIS OF STOCK MARKETS IN SRI LANKA, USA & UK

An Assignment Prepared by BM/2008/036

Course: - BMKT32152 Financial Management Lecturer: - Sugeeth Patabandige Year 3 Semester II

THE DEPARTMENT OF MARKETING MANAGEMENT UNIVERSITY OF KELANIYA.

Content 1. Background Of The Study 2. Colombo Stock Market 3. London Stock Market 4. USA Stock Exchange 5. Conclusion

01. BACKGROUND OF THE STUDY

A stock market or equity market is a public entity for the trading of company stock (shares) and derivatives at an agreed price these are securities listed on a stock exchange as well as those only traded privately. The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The largest stock market in the United States, by market capitalization, is the New York Stock Exchange (NYSE). In Canada, the largest stock market is the Toronto Stock Exchange. Major European examples of stock exchanges include the Amsterdam Stock Exchange, London Stock Exchange, Paris Bourse, and the Deutsche Bores (Frankfurt Stock Exchange). In Africa, examples include Nigerian Stock Exchange, JSE Limited, etc. Asian examples include the Singapore Exchange, the Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV. Australia has a national stock exchange, the Australian Securities Exchange, due to the size of its population. According to the above explanation, there are so many stock markets around worldwide, so this reports efforts is going to clarify followings, 1. Colombo Stock Market 2. London Stock Market 3. New York Stock Market

02. COLOMBO STOCK MARKET

02.1. Formation and management of Colombo Stock Market
The CSE is a company limited by guarantee, established under the Companies Act No. 17 of 1982 and is licensed by the Securities & Exchange Commission of Sri Lanka (SEC). The CSE is a mutual exchange and has 15 full members and 13 Trading Members licensed to trade both equity and debt securities, while one member is licensed to trade in debt securities only. All members are licensed by the SEC to operate as stockbrokers. All members are corporate entities and some are subsidiaries of large financial institutions. At present the CSE functions as a market operator and through its fully owned subsidiary, Central Depository Systems (Pt.) Limited (CDS), acts as a clearing and settlement system facilitator. The CSE also oversees compliance through a set of rules, promotes standards of corporate governance among listed companies and is actively involved in educating investors. In the course of its operations, the CSE interacts with many customers and stakeholders who include issuers (such as companies, corporations and unit trusts), commercial banks, investment banks, fund managers, stockbrokers, financial advisers, market data vendors and investors. The Colombo Stock Exchange (CSE) has 287 companies representing 20 business sectors as at 31st October 2012, with a Market Capitalization of Rest. 2,112.1 Bn.

02.2 Who are eligible to listing on the CSE?

Public Companies incorporated under the Companies Act No.7 of 2007 or any other statutory corporation, incorporated or established under the laws of Sri Lanka or established under the laws of any other state (subject to Exchange Control approval) are eligible to seek a listing on the Colombo Stock Exchange to raise Debt or Equity. Companies desiring to be admitted to the official list of the Exchange and to secure a listing of their securities will be required to comply with the relevant provisions of the above act and the Securities & Exchange Commission Act No.36 of 1987 (as amended) and the Listing Rules of the Exchange.

02.3. Listing Procedure To list on the CSE, a company should comply with the CSE Listing Rules. Some of the key
requirements are given below.

02.3.1. Amendment to the Articles of Association

The company is required to incorporate specific provisions into the company's Articles. The provisions are set out under section 6 of the CSE Listing Rules.

02.3.2. Preparation of Prospectus/ Introductory Document.

A company seeking to list through an Offer for Subscription or an Offer for Sale will be required to publish a Prospectus in compliance with the Companies Act/CSE Listing Rules and any other applicable law. A company seeking to list through an Introduction will only be required to issue an Introductory Document.

02.3.3. Submission of Initial Listing Application

The company must submit an application for the initial listing. The required documents are specified in Section 2 of the CSE Listing Rules. The requirements are as follows as follows for equity;
A copy of the Certificate of Incorporation A copy of the company's Articles of Association An extract of the Board Resolution resolving the issue price of shares to be fair. (only

for equity)
Board resolution authorizing the Initial Listing Application. "Listing Undertaking" filled in conformity with Appendix 2B. A certified copy of every document mentioned in the Prospectus/Introductory

Document.
A draft of the Prospectus/Introductory Document Initial Listing application in conformity with Listing Rules Fees as prescribed in Section 10 of the Rules

In addition to the above documents an Initial Listing Application for Debt should include the following:
A declaration by the Entity confirming that the Entity has complied with the

requirements of the Companies Act.

A Declaration by the Entity confirming that the Entity has complied with the

requirements of the Companies Act and the requirements set out in the CSE Listing Rule 2.2.1 (e) (ii), (iii) & (iv) with regard to the Appointment of a Trustee.

02.4. Boards of CSE 01. Main Board and Diri Savi Board- (For Equity) 02. Main Board and Second Board- (For Depts.)

02.4.1. Equity
01. Main Board
Eligibility to be listed Stated Capital of not less than Rupees Five Hundred Million (Rs.500, 000,000/-) at the time of listing 2. Net profit after tax for three (3) consecutive years immediately preceding the date of application 3. Positive Net Assets as per the consolidated audited financial statements for the last two (2) financial years immediately preceding the date of application 4. A minimum Public Holding of 25% of the total number of shares for which the listing is sought which shall be in the hands of a minimum number of 1,000 public shareholders holding not less than 100 shares each. The Exchange may accept a percentage lower than 25% of the total number of listed shares if the Exchange is satisfied that such lower percentage is sufficient for a liquid market in such shares.
1.

02.Diri Savi Board

Eligibility to be listed: Stated Capital of not less than Rupees Hundred Million (Rs.100, 000,000/-) at the time of listing, 2. Positive Net Assets as per the consolidated audited financial statements for the financial year immediately preceding the date of application, 3. A minimum Public Holding of 10% of the total number of shares for which the listing is sought which shall be in the hands of a minimum number of 100 public shareholders holding not less than 100 shares each, and, 4. An operating history of at least one (1) year immediately preceding the date of application.
1.

02.4.2. Debt
01. Main Board
Eligibility to be listed: The applicant company shall provide a guarantee for the repayment of capital and interest from a bank licensed by the Central Bank of Sri Lanka, having an A- rating (equivalent or better) from a rating agency registered with the SEC or by an international multilateral or bilateral or other agency acceptable to the CSE. 2. OR The Debt Security shall have an investment grade rating for the Securities to be listed obtained from a rating agency registered with the SEC
1.

02. Second Board

Eligibility to be listed: The applicant Company shall have been in business for a minimum period of 3 years, immediately preceding the date of application and 2. Shall obtain a rating for the Securities to be listed from a rating agency registered with the SEC
1.

v Diri Savi Board /Second Board companies may graduate to a Main Board listing, if such companies meet the Main Board listing criteria, at a later date.

03. LONDON STOCK MARKET

The London Stock Exchange is a stock exchange located in the City of London in the United Kingdom. As of December 2011, the Exchange had a market capitalisation of US$3.266 trillion (short scale), making it the fourth-largest stock exchange in the world by this measurement (and the largest in Europe). The Exchange was founded in 1801 and its current premises are situated in Paternoster Square close to St Paul's Cathedral in the City of London. The Exchange is part of the London Stock Exchange Group.

Primary markets
Issuer services help companies from around the world to join the London equity market in order to gain access to capital. The LSE allows company to raise money, increase their profile and obtain a market valuation through a variety of routes, thus following the firms throughout the whole IPO process.

03.1 Boards in London Stock Market 03.1.1. Premium Listed Main Market
For the biggest companies exists the Premium Listed Main Market. This operates a Super Equivalence method where conditions of both the UK Listing Authority as well as London Stock Exchanges own criteria have to be met. The largest IPO (Initial Publical Offering) on the Exchange was completed in May 2011 by Glencore International plc. The company raised $10bn at admission, making it one of the largest IPO ever. 03.1.2. Alternative Investment Market In terms of smaller SMEs the Stock Exchange operates the Alternative Investment Market (AIM). For international companies that fall outside of the EU, it operates the Depository Receipt (DR) scheme as a way of listing and raising capital. 03.1.3. Professional Securities Market This market facilitates the raising of capital through the issue of specialist debt securities or depositary receipts (DRs) to professional investors. The market operates under the status as a Recognised Investment Exchange, and by July 2011 it had 32 DRs, 108 Eurobonds and over 350 Medium Term Notes.

03.1.4. Specialist Fund Market Specialist Fund Market Is the London Stock Exchange dedicated market, designed to accept more sophisticated fund vehicles, governance models and security. It is suitable only for institutional, professional and highly knowledgeable investors. The Specialist Fund Market is an EU Regulated Market and thus securities admitted to the market are eligible for most investor mandates providing a pool of liquidity for issuers admitted to the market

04. USA STOCK EXCHANGE

There are number of stock markets available in USA. Among that I have given my consideration to the main two stock exchanges in USA. 1. New York stock exchange (NYSE) 2. NASDAQ stock market 3. American stock exchange (AMEX)

04.1. New York Stock Market

NYSE Euronext (NYX), a leading global operator of financial markets and a provider of innovative trading technologies, is the only exchange operator in the Fortune 500. With exchanges in the US and Europe, NYSE Euronext equities marketplaces represent one-third of equities trading worldwide. NYSE Euronext is also one of the worlds leading futures and options trading venues, with four markets based in the US and Europe offering derivatives on commodities, FX, equities, bonds, interest rates, indices and swaps. Its commercial technology division, NYSE Technologies provides best-in-class transaction, data, and infrastructure management services and solutions.

04.1.1. NYSE MKT Listing Standards

NYSE MKT has established quantitative and qualitative standards for initial listing of U.S. and foreign companies. For details, please review the NYSE MKT Company Guide. A.Quantitative Standards CRITERIA Pre-tax income1 LISTING STANDARDS Standard Standard Standard Standard 4 1 2 3 $750,000 N/A N/A N/A $50 Market capitalization N/A N/A Million Market value of public float Minimum price Operating history Shareholders' equity $75 million OR At least $75 million in total assets and $75 million in revenues

$3 million $15 million $15 million$20 million $3 $3 $2 $3 N/A 2 years N/A N/A $4 million $4 million $4 million N/A

B.Qualitative Standards In evaluating listing eligibility, NYSE MKT also considers qualitative factors such as the nature of a company's business, market for its products, reputation of its management, historical record and pattern of growth, financial integrity, demonstrated earnings power, and future outlook. NYSE MKT also considers the laws, customs and practices of the applicant's country of domicile regarding matters such as the election and composition of the board of directors, issuance of quarterly earnings statements, shareholder approval requirements, and quorum requirements.

04.2. Main Listing Stranded

04.2.1 Domestic Listing Standard

Domestic listing requirements call for minimum financial criteria and minimum distribution of a company's shares within the United States. Distribution of shares can be attained through U.S. public offerings, acquisitions made in the U.S., or by other similar means. . 1. The number of beneficial holders of stock held in "street name" will be considered, in addition to the holders of record. NYSE will perform any necessary check of such holdings that are in the name of Exchange member organizations. 2. In connection with initial public offerings, spin-offs and carve-outs, the NYSE will accept an undertaking from the company's underwriter to ensure that the offering will meet or exceed NYSE standards.

3. If a company has either a significant concentration of stock, or changing market forces have adversely impacted the public market value of a company that would otherwise qualify for an Exchange listing such that its public market value is no more than 10 present below the minimum, NYSE will consider stockholders' equity of $60 million or $100 million, as applicable, as an alternate measure of size. 4. Pre-tax income is adjusted for various items as defined in Section 102.01C of the NYSE Listed Company Manual.

5. Represents net cash provided by operating activities excluding the changes in working capital or in operating assets and liabilities, as adjusted for various items as defined in Section 102.01C of the NYSE Listed Company Manual. 6. The most recent three months of trading history in the case of Pure Valuation with Revenues will represent the Global market capitalization for already existing public companies. For all other standards, the measurement is "point in time" for existing public companies. The measurement for IPOs and carveouts is the as-priced offering in relation to the total company's capitalization. For spin-offs, the measurement the distribution ratio as priced representing the valuation of the company.

Distribution & Size Criteria Must meet all 3 of the following: Round-lot Holders Public Shares Market Value of Public Shares for IPOs, Spin-offs, Carve-outs, Affiliates All Other Listings Stock Price Criteria All issuers must have a $4 stock price at the time of listing. Financial Criteria Must meet 1 of the following standards: Alternative #1: Earnings Test Aggregate pre-tax income for the last 3 years Minimum in each of the 2 most recent years Third year must be positive OR Aggregate pre-tax income for the last 3 years Minimum in the most recent year Minimum in the next most recent year Alternative #2a: Valuation with Cash Flow Global Market Capitalization Revenues (most recent 12-month period) Adjusted Cash Flow: Aggregate for the last 3 years All 3 years must be positive Alternative #2b: Pure Valuation with Revenues Global Market Capitalization Revenues (most recent fiscal year)

400 U.S. 1,100,000 outstanding $40 million $100 million

$10 million $2 million $12 million $5 million $2 million

$500 million $100 million $25 million

$750 million $75 million

Alternative #3: Affiliated Company For new entities with a parent or affiliated company listed on the NYSE Global Market Capitalization $500 million Operating History 12 months Parent or affiliate is a listed company in good standing Company's parent or affiliated company retains control of the entity or is under common control with the entity Alternative #4: Assets and Equity Global Market Capitalization Total Assets Stockholders' Equity REITs Stockholders' Equity Funds and BDCs Net Assets

$150 million $75 million $50 million

$60 million

$60 million

SPACs On a case-by-case basis, NYSE will consider listing acquisition companies with no prior operating history to conduct an initial public offering if the following criteria are met: Proceeds held in trust upon IPO 90% Fair Market Value of Acquisitions 80% of net assets Aggregate Market Value $250 million Market Value of Public Shares $200 million

04.2.2. Worldwide Listing Standards

NYSE offers two sets of standards worldwide and domestic under which non-U.S. companies may qualify to list. Both include distribution and financial criteria. A company must meet both the distribution and financial criteria within that particular standard. This chart is to be used for an initial evaluation only. NYSE will work with each company to determine which standards best suit it. For a more complete discussion of the minimum numerical standards applicable to non-U.S. companies, please see Section 103.01 of the Listed Company Manual.

04.3. NASDAQ
The NASDAQ Stock Market, also known as simply the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for National Association of Securities Dealers Automated Quotations. It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. The exchange is owned by NASDAQ OMX Group, which also owns the OMX stock exchange network.

04.3.1. Market Tires of NASDAQ

1. 2. 3.

NASDAQ Capital Market Small Cap NASDAQ Global Market Mid cap NASDAQ Global Select Market Large Cap

04.4. AMEX
The American Stock Exchange is the third largest stock exchange in the U.S. after the NYSE and the NASDAQ, and handles approximately 10% of all American trades. The American Stock Exchange lists companies from all different industries and of all different sizes. However, the exchange is known as having the least strict listing requirements among the three top American exchanges, which results in many small companies joining the exchange. Once a major competitor of the NYSE, the American Stock Exchange is now mostly known for trading in small cap stocks, options, and exchange traded funds. The exchange is owned by NASD (National Association of Securities Dealers), but operated as a separate exchange from the NASDAQ. As an auction market, the AMEX conducts its business on a trading floor through brokers and specialists. Each security traded on the exchange is handled by a specialist whose job it is to bring buyers and sellers together, and ensure that a fair market price is obtained for both parties. It is also a specialist's job to ensure that a market remains liquid, by buying or selling from their own account if no one else will. Brokers move around the floor, bringing 'buy and sell' orders to the different specialists on behalf of their clients. The American Stock Exchange options exchange is one of the largest in the world, with over 1,700 options traded on stocks, American Depository Receipts, indexes, exchange traded funds, and HOLDRS. In addition, the AMEX has an extensive market for exchange traded funds (ETFs) as they were the first to trade in this particular market. The AMEX has a listing of over 140 ETFs on general stock markets, industries and corporate bond indexes. After 2008 AMEX had been fully owned by New York Stock Exchange.

05. CONCLUSION
According to above report there has big difference between available listing methods in stock market in selected countries. There is only one stock exchange in Sri Lanka namely CSE while USA has many stock exchanges as NYSE,AMSE,NASDAQ and etc 2. CSE has boards for listing purpose while LSE and NYSE have separate markets for listing.
1.

CSE A. Main Board B. Dirisavi Board

LSE A. Premium Listed Market- For biggest companies B. Alternative Investment Market- For Small and Medium companies C. Depositing Receipt Scheme- For companies outside Europe. NYSM A. Domestic Listing rules B. Worldwide Listing rules

In CSE they have only consider financial factors or quantitative factors to listing in the boards while LSE and NYSE consider both quantitative and qualitative factors for listing in the markets.