Montenegrin Stock Exchange Glossary:
Bonds are securities by which the issuer (debtor, borrower) is obliged to pay the buyer (investor, lender) a borrowed amount (principal) and the agreed-upon interest. Investor may keep bonds until their maturity and get the principal and the related interest, or sell them prior to their maturity at the price lower than the nominal value (price at which they are issued).
Montenegro has adopted a special Law by which it has undertaken obligations to pay out old foreign currency savings to citizens from the funds of the Budget of Montenegro, and it has determined the time and dynamics of fulfilling obligations and payment of old foreign currency savings by years until 2017. In order to fulfill these obligations on the basis of old foreign currency savings, the Government of the Montenegro has issued bonds registered at the name of every depositor and transferable, which means that they can be traded on the Securities Exchange. In addition to that, owners may purchase with these bonds shares of companies owned by the state funds that are being privatized. Bonds can also be used for payment of tax liability, but only those bonds with maturity date in the year of tax liability occurrence.
Intermediary in trading in shares in his own name and for a client’s account (commissioner), or in client’s name and client’s account (agent). Brokers charge a commission for their services, and in addition to the aforementioned services, they might provide consulting services.
- Capital Gain
A difference between the price at which the shares are bought and the price at which they are sold later on.
- Central Depository Agency
The Central Depository Agency of Montenegro performs the activities regarding registration of dematerialized securities, clearing and settlement of concluded transactions with these securities, as well as other activities regarding dematerialized securities. Fore more details, see www.cda.me.
- Clearing and settlement
Clearing is the process of preparing trades for settlement. The very process of clearing includes the receipt of information and reports on trade, corrections of trades, cancellation of trades and determination of final obligations for settlement.
Settlement is a final and irrevocable transfer of ownership positions from the seller’s account to the buyer’s account, and simultaneous transfer of monetary funds from the buyer’s account to the seller’s account.
Trader in securities who acts in his own name and for his own account (principal). He makes a profit due to a difference in price of securities, bearing a potential risk to lose.
A portion of profit of a joint stock company paid out to shareholders. The payment may be done in money and/or shares.
Indicators of changes in the price of shares, i.e. movements in the market, can generally be divided into indexes and averages, although it is common to classify them under the same name – Securities Exchange indexes. They can represent the entire market or certain segments of the market (different in industrial areas, different securities, etc.).
In contrast to averages, indexes are substantially more sophisticated and more comprehensive. Averages are exclusively determined by the price of shares, whereas indexes also take into consideration volume of trades, which avoids a simplified image of the direction of market movements. They are calculated as market capitalization at a certain time period (usually daily), which is divided by the adequate capitalization amount on a day when the index is formed, and such a calculated amount is multiplied with arbitrarily determined initial value of index. Index values, thus, depend on two factors: price of shares and number of sold shares, and it represents a more reliable indicator of movements on the market than the average.
Although it relates to price changes in the past, the Securities Exchange indexes represent a great help to investors in a decision-making process regarding purchasing and selling of shares. Thus, certain authors believe that by studying the indexes during the time, it is possible to discover patterns that are repeated in different phases of the market growth and decline. In accordance with their opinion, these forms from indexes can be used to forecast future directions of market movements (technical analysis).
Every buyer of securities, either legal entity or physical person.
- Investment Funds
Diversified portfolios of securities managed by investment managers. There are closed-end and open-end funds. Shares of closed-end funds are traded on the Securities Exchange, whereas the price of shares of open-end funds is not determined on the Securities Exchange, but these funds have the obligation to sell to or redeem their shares from investors, at their request.
A legal entity that issues securities in order to raise lacking capital.
- Market Segmentation
In Montenegro, there is no over-the-counter market, i.e. all transactions with securities must be done through the Securities Exchange. Within the Securities Exchange, there is a segmentation of the market into official market (A and B lists) and free market. Official market is a prestigious segment of the market, and companies must meet a set of requirements regarding the number of shareholders, amount of capital, financial results etc., in order for their shares to be admitted to this segment.
- Market Price
Price established on the Securities Exchange by matching supply and demand.
- Market Value of Companies
Market value of companies (market capitalization) represents a market price of share multiplied with the total number of issued shares of that company. For example, a company whose shares are traded at 10 euros and whose number of shares is 10,000 euros has the market value of 100,000 euros.
Holdings of different securities owned by a physical person or a legal entity.
Securities shall mean documents granting rights to their owners in relation to the issuers. In Montenegro, securities are issued, transferred and kept in dematerialized form. Securities must be registered with the Central Depository Agency. Rights and obligations of securities occur by the moment of their registration with the Central Depository Agency.
- Securities Commission
The Securities Commission of Montenegro has a regulatory and supervisory function at the capital market of Montenegro. Competency of the Securities Commission is prescribed by the Law on Securities, in accordance with which it performs its activities, as well as in accordance with other legal acts regulating the capital market in Montenegro.
Competency of the Securities Commission shall be the following: Approve public offering of securities and record the issues of securities which are not sold by public offering; Supervise public offerings of securities; Issue licenses and give consent to relevant acts of securities markets, authorised participants on the securities market and Central Depository Agency; Issue licenses to collective investment schemes; Give consent to the decision on appointment of executive directors of the entities licensed by the Commission; Keep registries and other records in accordance with provisions of this Law; Determine general requirements to be met by physical persons professionally engaged in trade in securities; Promote and encourage high standards of protection of investors in securities and integrity of authorized participants; Control of operations of entities professionally engaged in trade in securities, including the suspension and revocation of licenses; Undertake measures and provide the functioning of the securities market, in an orderly and fair manner, with transparent provision of information; Regulate the manner and scope of trading on the securities market; Regulate the manner and procedure for takeover of companies. Undertake the activities for the purpose of safeguarding the interests of persons who invested in securities and prevention of illegal, dishonourable and improper practices regarding transactions with securities; Undertake other measures and perform other activities in accordance with law. The Securities Commission shall be responsible to the Parliament of Montenegro.
- Securities Exchange
Organized market where authorized Securities Exchange intermediaries trade in certain, standardized market instruments in accordance with the rules determined in advance. The role of the Securities Exchange, among the rest, is to provide conditions and manner for determining an objective price, which does not mean that prices are determined by employees of the Securities Exchange, but that the Securities Exchange provides equal conditions for matching supply and demand for a certain security, in accordance with the rules and manners applicable to all entities, which are determined beforehand.
Shares represent units of ownership in a joint stock company. By purchasing shares of a company, you are becoming a co-owner of the company, together with other shareholders. Shareholders share the operating risk of the company up to the amount of their investment, i.e. value of shares they possess. If a company operates well, the value of its shares grows i.e. the value owned by shareholders.
Shares may be common and preferred shares. Common shares carry voting rights in decision-making process regarding operations of the company, whereas preferred shares do not carry voting rights, but they do have a priority in payment of dividends. As a shareholder you have the right to participate in management of the company and the right to have insight into its operations. These rights may be exercised at the general shareholders meeting, held at least once a year and where, among the rest, the management (Board of Directors) of the company is elected. We invest in shares to make money, either through capital gain or dividend. Not all of the companies pay dividend, since the companies may instead keep the largest portion of profit to invest it in further operations. If shareholders at the general meeting of shareholders decide to pay a dividend, they can do so in two manners: by paying out cash or by issuing and distributing new shares, in accordance with the proportionate share in ownership.
- Trading Order
Orders that buying and selling clients give to their brokers for buying and selling a specific security.
- Types of securities
Broadly speaking, there are debt and equity securities. Debt securities are bills of exchange, bonds, commercial papers, certificates of deposit; whereas shares are equities. Securities may have a fixed or variable return. It is also common to classify securities with a short maturity, up to a year, as money market instruments, and if they maturity exceeds one year, as capital market instruments.