What is stock exchange?
A stock exchange is an organized market place where securities (shares, bonds and mutual funds) are purchased and sold. Here industrial and financial securities of public companies, shares of government companies and semi government companies are traded among the investors. It is a secondary market of secondary market of securities where listed companies’ share are traded at the prevailing market price.
A stock exchange helps to raise capital that is necessary for industrial and economic development of any country. Stock exchange refers to stock market or share bazaar or share market.
The Securities and Exchange Commission in Bangladesh is known as BSEC formerly known ans SEC. There are two securities market in Bangladesh- Dhaka Stock Exchange and Chittagong Stock Exchange under BSEC.
What is share?
Share/stock/security is a certificate that represents a claim on the issuer. When the capital of a company is divided into many small parts, then each small part is called a share. Suppose ABC company has a capital of BDT 10,0000000 and the face value of a small unit is determined as BDT 10. Then the number of shares will be 10,0000000/10=1,0000000 (One crore).
Stock/Shares can be divided into the following types.
1.Preferred Stock/Share: Preferred share is a share that gets preference at the time of distributions of dividends. It also takes preference to get back its capital at the termination of a company before other stocks.The preferred stock holders get a certain percentage of profit from the issuer.
2.Common Stock/Share: It is a share that doesn’t get preference at the time of dividend declaration and getting back capital. There is no certainty of profit in that share. After distributing profits among the preferred shareholders, the rest of the profits are distributed among the common share holders. But the common shareholders can take part in the election of board of directors, AGM (Annual General Meeting) and express their opinion.
3.Deferred Stock/Share: Deferred stock is a stock that gets back its capital after the distribution of invested capital among preferred shareholders and common shareholders. At the beginning of the establishment of a company, the owners of the company buy that kind of share.
4.Bonus Stock/Share: Bonus shares represents a distribution of shares among the existing shareholders as an alternative way of cash dividend. The shares are distributed among the shareholders proportionately. Thus the shareholder retain their proportionate ownership of the company. Bonus shares represents a recapitalization of the owners’ equity portion. When a company declares stock dividend, it means the company has a lack of liquidity.
5.Right Stock/Share: Right share means when a company invites its existing shareholders to buy new shares before issuing it in the market for the purpose of raising extra capital. This kind of shares can be sold in the open market but at first the right of the existing shareholders should be considered.
6.Unexpected Stock/Share: Unexpected share is a share that has no described value. After closing the yearly account, if the company deducts it liabilities from its assets, the value of this kind of share is calculated. This kind of share is found in the USA.
What is face value?
Face value is a value that can be calculated with dividing the total amount of capital of a company by dividing the total number of shares. Suppose ABC company has 10000000 crore shares and it total capital is BDT 100000000 ten crore. Then the face value of each share = Total Capital/Total Shares
So, the face value of each share is BDT 10.
What is market value?
Market value is the selling price of a company’s shares at the prevailing rate. Generally the market value is higher than the face value. The the face value of ABC company is BDT 10, it it is sold at the prevailing rate such as BDT 20, this BDT 20 is market value of the share of ABC company. But some times market value can be under the face value. In Bangladesh, you can find, there are many companies’ shares are under face value in DSE (Dhaka Stock Exchange) and CSE (Chittagong Stock Exchange).