BASIC FACTS ABOUT SECURITIES AND THE STOCK MARKET FOR INVESTMENT CLUBS IN ZAMBIA

1. What is a stock exchange?

A stock exchange is a market where the securities of companies and other institutions are bought and sold, i.e. traded.

2. What are securities?

Securities are instruments for raising finance by the shareholders of a company. They come in two types-equity securities and debt securities. Equity securities, which are also known as shares, give one part-ownership of a company and with it the right to a share of a company’s dividends. Debt securities represent a debt by an organization. They can be issued variously by companies and governments both local and central. They do not give their owners ownership of the organization. They are usually issued for a fixed term and the amount of capital represented by them has to be paid-back to their owners at the end of the debt security’s term. Debt securities usually also carry an interest charge which is paid to their holders at specified periods during the debt security’s term.

3. What is trade?

A trade is the action of transacting in securities on the stock exchange. A trade is effected when buyers and sellers orders match at a given price.

4. What is a primary market?

Primary market offerings of securities occur when securities are offered for sale to the public for the first time.

5. What is meant by secondary market trading?

Secondary market trading of securities occurs when shares that have been bought through a primary market offering are traded on a stock exchange.

6. What law governs the operation of a stock exchange?

The operations of the stock exchange are governed by the Securities Act, No. 38 Cap 354 of the Laws of Zambia. The implementation of the Securities Act is the role of the Securities and Exchange Commission (SEC) Zambia.

7. What is the proof of ownership of securities?

There is what is known as a Contract Note (CN). It is issued after a trade has settled on the stock exchange. The CN is produced by the buyer’s stockbroker who then hands it over to the buyer of a security.

8. What is the Central Share Depository?

The Central Share Depository (CSD) is a computerized central point in which all the shares of listed and quoted companies and all listed debts securities are held. It is a type of “warehouse” of records for the holders of all instruments that are tradable on the LuSE. An account is opened for every holder of the instrument. On that account is the name of the instrument, the name of the holder of the instrument, a record of how much of a given instrument an individual owns and when the instrument was purchased.

9. What is meant by a listed company?

A listed company is one which has a presence on the top tier of the stock exchange, the “listed tier”. The listed tier is composed of public limited companies (Plcs) that have met the listing requirements.

10. What is meant by a quoted company?

A company that has registered its issued equity securities with the Securities and Exchange Commission (SEC) will automatically be quoted on the stock exchange. Although a quoted company has not met the requirements to be listed, it is expected that that this company will work towards being a listed company.

11. What is an ISIN Code?

Each security on the stock exchange is assigned an International Security Identification Number (ISIN) which identifies each security uniquely. This is one of the features of a modern stock exchange.

12. What is an Initial Public Offering?

An Initial Public Offering (IPO) occurs when a company offers its shares for sale to the public on the stock exchange for the first time. When a company decides to have an IPO it is said to be “Going Public”. Going Public describes the process through which a company converts itself from a private limited company to a public limited company (Plc) and subsequently sells its shares to the general public via an IPO over a licensed stock exchange.

13. What are listed debt securities?

In order to be listed, debt securities must have first been registered with the SEC Zambia. After the debt securities have been offered and bought on the open market, the listing application is formally applied for after which the debt securities are indicated on the stock exchange listed debt securities tier.

14. What are quoted debt securities?

As with listed debt securities, quoted debt securities must first be registered with the SEC Zambia. However, issuers of these debt securities never formally apply for listing on the stock exchange. As such, they remain on the quoted tier.