The Secondary Market

Understanding the Secondary Market in Bursa Malaysia

The secondary market is the marketplace where securities, once issued in the primary market, are bought and sold among investors. Unlike the primary market where companies directly sell their securities to the public, the secondary market facilitates trading between existing investors.

Trading Platforms and Technology

• Online Trading Platforms: Many investors use online platforms to place orders, monitor market movements, and access real-time quotes.
• Mobile Trading Apps: These apps allow investors to trade on the go, making it convenient to manage their portfolios.
• Brokerage Firms: Investors can also use traditional brokerage firms to place orders through their representatives.

Settlement Process and T+2 System

• Settlement: The process of transferring ownership of securities and funds between buyers and sellers.
• T+2 System: In Malaysia, the standard settlement cycle is T+2, meaning trades are settled two business days after the trade date. This ensures timely delivery of securities and funds. T-days are representative of active Trading Days.

Factors Affecting Stock Prices

Understanding what drives stock prices is crucial for any investor. There are three main factors that influence the value of a stock: fundamental analysis, technical analysis, and market sentiment.

Fundamental Analysis

This is like looking under the hood of a company. It involves examining the company's financial health, its business model, and its overall performance. Key factors to consider include:

• Financial statements: Profit and loss, balance sheet, and cash flow statement.
• Company performance: Revenue growth, earnings, and market share.
• Industry trends: Economic conditions and industry outlook.

Technical Analysis

This is like studying the stock's past behavior to predict its future movements. It involves analyzing charts, patterns, and indicators to identify potential trends and opportunities. Key factors to consider include:

• Charts: Line charts, bar charts, and candlestick charts.
• Patterns: Head and shoulders, double tops, and triangles.
• Indicators: Moving averages, relative strength index (RSI), and MACD.

Market Sentiment and News

This refers to the overall mood of the market and the impact of news events on stock prices. Factors to consider include:

• Economic news: Interest rate changes, inflation, and GDP growth.
• Company news: Earnings reports, mergers, and acquisitions.
• Global events: Political instability, natural disasters, and trade wars.

Trading Strategies and Techniques

Understanding different trading strategies and techniques can help you navigate the stock market more effectively. There are various approaches to consider, depending on your investment goals and risk tolerance.

Basic Trading Strategies

• Buy-and-hold: This involves buying a stock and holding it for the long term, regardless of short-term price fluctuations.
• Dollar-cost averaging: This strategy involves investing a fixed amount of money in a security at regular intervals, regardless of the price.
• Value investing: This involves investing in undervalued stocks, where the stock price is believed to be lower than the company's intrinsic value.
• Growth investing: This focuses on investing in companies that are expected to experience significant growth in earnings and revenue.

Advanced Trading Techniques

• Technical analysis indicators: These are mathematical calculations that analyze past price data to identify potential trends and signals.
• Chart patterns: These are recurring patterns in price charts that can indicate potential price movements.
• Trading systems and algorithms: These are automated systems that use predefined rules and criteria to execute trades.

Risk Management Tools

• Stop-loss orders: These are orders that automatically sell a security if the price falls below a specified level, helping to limit losses.
• Position sizing: This involves determining the appropriate amount of money to invest in a particular security based on your risk tolerance and portfolio diversification.
• Portfolio rebalancing: This involves periodically adjusting your portfolio to maintain your desired asset allocation and risk level.

Trading Sessions

Trading at Bursa Malaysia from Monday to Friday, except on public holidays and other market holidays (when the Exchange is declared closed by the Bursa Malaysia Committee).

Public Holiday

Contra Transactions

The procedures in giving orders to buy and sell in a contra transaction are the same. The only difference is that the client pays the broker or the broker pays the client for the difference in price between his buy and sell transaction.

1. If the buy cost is higher than the sell proceeds, it results in a contra loss which the client pays to the broker.
2. If the sell proceeds are higher, it results in a contra profit which the broker pays to the client.

Contra dealing is not a right of the client but rather a privilege accorded by the stockbroking company to its clients. This means that the stockbroking company is not obliged to allow contra dealing facilities for all its clients.

Board Lot

Shares are normally traded in specific amounts called Board Lots of 100 units. Any amount less than board lots are called special lots or odd lots.

Minimum Bids

The tick size is the minimum price variation between the buy and sell price for a stock. The tick size is reduced in line with the current practice by global developed markets and more importantly, to create market depth, enable price discovery and boost liquidity in the local equities market.

The tables below describe the new tick size structure.

Table I - Tick Sizes for Securities Traded and Quoted On Bursa Malaysia

Table II - Tick Sizes for ETF

For bonds, debentures, loan securities, warrants and call warrants, the minimum bid structure has the same minimum trading spreads as for shares.

Buying-In Price For Undelivered Securities

In respect to the bidding price for buying-in, the Exchange will retain the ten (10) ticks. Arising from this, the buying-in price will be based on the current tick structure (Table III) and tick sizes rather than the new tick size structure and to ensure that the buying-in price is attractive to potential sellers.

Table III - Current Tick Size Structure

In computing the buying-in price, the buying-in price will be rounded up to the next tick size if the closing price falls between two tick sizes. For example if the closing price is between RM10.02 and RM10.08, the buying in price will be rounded up to RM11.10 as illustrated below:

Table IV - Buying-In Price Computation

In the case of ETFs, currently the buying-in price is based on (10) ticks of the tick sizes of the ETF. As the tick size is small, in the event of failed trade the buying in price is not attractive for potential sellers to sell. For example in the case of ABFMY1 the minimum tick size is 0.1sen.

Applying 10 ticks to the minimum tick size (0.1x10) would be 1sen. This would not be enough to cover the transaction cost of the potential seller.

For the purpose of buying-in of ETFs, the same buying-in structure for stocks to be applied for ETFs as follows:

Table V - Buying-in Price for ETF will be based on the following tick sizes

For example in the case of FB30ETF if its traded in the range of RM5.77, the buying-in tick will be under the range of RM5.00 to RM9.95 which is 0.05.Therefore the buying-in price premium will be (10 ticks X 5sen) 50sen.