Functions of the stock exchange
DEFINITION:
The Stock Market is an institution where the plaintiffs and offerors of securities are found negotiating through their Brokerage Firms. The Stock Exchanges promote the trading of shares, obligations, bonds, investment certificates and other securities registered on the stock exchange, providing the holders of securities and investors with the legal, operational and technological framework to carry out the exchange between the offer and the demand.
MAIN FEATURES:
• Equity: Facilitates the information and negotiation mechanisms so that all market participants have equal conditions.
• Security: There is a legal framework that regulates the roles of the participants, requiring them to comply with regulations that guarantee the efficient and effective operation of the Stock Market.
• Liquidity: Securities that are traded on the Stock Exchange have the ease of sale and placement on the secondary market, that is, they allow the transformation of their Securities into cash when required.
• Transparency: Through the efficient dissemination of information, it is guaranteed that all participants base their decisions on full knowledge of market conditions.
PRINCIPAL FUNCTIONS:
• It promotes a capital market, promoting the participation of the largest number of people, through the purchase and sale of all kinds of securities subject to transaction.
• Holds Trading Sessions daily, providing the necessary technological infrastructure, and facilitating communication between the Agents representing the Brokerage Firms and the issuers of securities and investors.
• It has among its main objectives the efficient channeling of domestic savings towards investment needs that require additional financial resources, be they public or private entities.
• It offers the investor the necessary and sufficient conditions of legality and security in the transactions carried out through it, based on its Internal Regulations.
• It adopts the appropriate measures to promote savings and investment, allowing greater shareholding, and ensures that the rules are followed to maintain seriousness and confidence in the securities, adjusting operations to the laws, regulations and the strictest rules of ethics.
• Keeps the register of effective prices and prices of the securities, and has available to the public information on everything that happens in the stock market.
• The timely delivery of information is an indispensable element in the stock market, which is why the El Salvador Stock Exchange has developed various channels through the different publications of bulletins and online information services.
CONTRIBUTION TO ECONOMIC DEVELOPMENT
Commercial Banks mainly have short-term resources, however productive companies need medium and long-term resources, which are accessible on the Stock Exchanges, since they allow companies to have long-term resources to satisfy needs. of capital, achieving its greatest growth, modernization of processes, thereby generating new sources of work, more competitive productions and an adequate channeling of domestic savings.
WHO PARTICIPATE IN THE STOCK MARKET
• The Stock Market: It is a public limited company with variable capital that facilitates transactions with securities and seeks the development of the stock market.
• The Brokerage Firms: The Brokerage Firms are corporations, authorized and supervised by the Stock Exchange and by the Superintendency of Securities. They provide advisory services in the field of stock trading to issuers and investors. They act as intermediaries in the negotiation of Securities, making all purchase / sale transactions through the Stock Market.
• Issuer: Issuing companies are companies that, in compliance with the corresponding regulatory provisions, offer the Stock Market the securities representing their capital stock (shares) or securities that cover a collective credit charge (obligations). To safeguard the interest of investors, the issuing companies periodically provide the financial and administrative information that allows estimating their probable returns and the strength of their securities.
• Investor: Natural or legal person who contributes his financial resources with the purpose of obtaining a future benefit.
• The Securities Superintendence: Supervises the entire stock market system. The rules with which the Superintendency monitors the actions of the stock market are embodied in the Securities Market Law, which regulates the actions of the Stock Exchange, the Brokers, the Brokerage Firms and the Issuers of securities.
• The Risk Rating Agency: It is a company specialized in the analysis of economic-financial risk, which issues its opinion on the credit quality of a securities issue. The fundamental purpose of the Risk Classification is to inform the investor about the credit quality of the different investment alternatives in the market. It contributes to generating different prices (or rates) based on the risk of the issuing companies.
• The Central Securities Depository (CEDEVAL): It is a specialized entity that receives securities for safekeeping and administration, through a highly secure electronic system. Its objectives are: Minimize the risk in the physical management of securities; and Maximize information by streamlining transactions in the Stock Market. CEDEVAL is a Variable Capital Stock Company, a subsidiary of the El Salvador Stock Exchange.
CEDEVAL's electronic system is interconnected to the information systems of the Stock Market, maintains contact and has trading relations with all the Central Depository and Custody Centers of the Central American countries and Panama.
WHAT IS NEGOTIATED
Among the trading or investment options that exist in our market we have:
• Fixed income securities. An investment in fixed income works as a loan, in which the company captures resources through the issuance of Securities, promising to make interest payments and return the total amount of the debt according to the characteristics of the issue. Investment in fixed income is not without risk, it being essential to know the issuer, its credit rating, and risk classification.
• Shares (Equities)
It allows companies to capture resources in exchange for the issuance of shares representing their share capital. They are called Equities, because the dividends they pay to the shareholders depend on the results obtained by the issuing company.
HOW TO TRADE IN THE STOCK EXCHANGE
The Stock Exchange holds «Trading Sessions» daily, for which it provides the physical, technological, human and operational means that allow efficient communication between Stockbrokers, Issuers and Investors. Transactions on the Stock Exchange can only be made through the Brokerage Houses, who, being specialists in the stock market area, can give you the necessary advice to participate in the market.
In the trading session, in order to find a counterparty, the Brokerage Firms offer their purchase or sale orders, through a Public Offering process, through which all participants have the right to know the trading conditions. When announcing the operation, there may be offers with a better position and at the closing of the operation, the counterparty that offered the best position stays with the business.
During the negotiation process, the function of the Stock Market is to ensure that the characteristics of equality, transparency and equity are met.
HOW TO INVEST IN THE STOCK EXCHANGE
Anyone with a surplus of money looking for a return on their investment can invest in Securities in the Stock Market. To do this, you must have the necessary information to make a good decision. To invest, the following steps must be followed:
• Get in contact with a Brokerage Firm, which through its broker agents disclose the different investment options, according to the client's investment needs and capacities.
• Once the decision to invest is made, an order to execute the operation is issued. After the order is executed, the agent looks for the counterparty of the negotiation, that is, someone interested in selling Securities of the kind that his client wants to buy. Upon finding the counterparty, the negotiation process, described in previous sections, is carried out.
• In order to make a safer investment decision, the agent bases his recommendation to the investor on: the latest quotations made on the stock market for said security, the market supply and demand at that time, the opinion of the Risk Rating Companies, among others.
HOW MUCH DOES IT INVEST?
Investment costs vary depending on the category of service requested. The setting of the percentage as commission is free and can vary between one and another intermediary.
All brokerage houses have at their disposal their official rates, which are published periodically in the newspapers with the largest circulation nationwide.
CLASSIFICATION OF MARKETS IN THE STOCK MARKET SYSTEM
• For the term:
Money market
The money market performs that financial activity that encourages short-term credit. Its main institutions are Commercial Banks.
Capital Market
The capital market is that financial activity that fosters medium-term and mainly long-term credit. Its main institutions are Development Banks, Mortgage Banks, Housing Institutions, and especially the Stock Exchanges.
• By the form of operation:
Due to the operating characteristics of the stock market system, there are 3 types of market: Primary, Secondary and Reportos.
• The primary market is related to the initial placement of securities. On this occasion, investors or buyers acquire directly from issuers, through a Brokerage Firm, the Securities offered to the public for the first time.
• The secondary market operates between holders of securities, this is a "re-sale" of previously acquired Securities in order to rescue financial resources, diversify its portfolio or seek better opportunities for profitability, risk and liquidity.
• The repurchase market is one of the most common negotiations in our Stock Market, it takes place when a person who owns Securities, who are registered for their Stock Market trading, needs money but does not want to get rid of those securities, so it transfers them with a repurchase agreement, that is, with the obligation to repurchase them within the agreed period, which can range from 2 to 45 days. At the end of the agreed term, the investor receives the capital plus the agreed interest rate. For greater guarantee of the interested parties, the securities subject to repurchase are deposited in custody at the Central Securities Depository (CEDEVAL).
WAY OF SETTLING STOCK MARKET OPERATIONS
• In today's operations, settlement or payment takes place on the same day.
• In cash operations, payment is made no later than three business days after the operation.
• In term operations, settlement is within the term agreed between the buyer and the seller, which cannot be greater than 45 calendar days.
• The optional operations are in force, however, they have never been used, since in the optional purchase and sale operations, the delivery of the negotiated securities and their liquidation is carried out within an agreed period between the two that It should not exceed 360 calendar days, but one or both reserve the right to cancel the contract and not carry out the operation, for which a premium is paid in money for the abandonment of the operation in favor of the other contractor.
WHAT IS THE PORTFOLIO ADMINISTRATION
The Brokerage Houses offer services such as Portfolio Management, especially designed for investors with small funds, who alone could not have the strength of negotiation. Portfolio managers are collaborating to promote national savings, through the creation of different savings plans, which are tailored to the different needs of clients, such as having funds on demand, installment plans, retirement plans and others that allow you to diversify your investment in different alternatives and not in one, thus minimizing the risk of your investment.
Download the original file
