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Security Types

ASX Security Descriptions

Equities

Ordinary Shares – equivalent to “Common Stock” in the U.S. – the most common form of share ownership. Ordinary shareholders are part-owners of a company. They have voting rights and are entitled to dividends out of company profits, although preference share-holders are always paid first. Ordinary shareholders also rank behind preference shareholders and secured creditors in claims to a company’s remaining capital in the event of liquidation.

Preference Shares – shares that rank before ordinary shares in entitlement to dividends and capital (see above). Preference shares are often assigned a fixed rate of dividend return.

Partly-paid Shares – also known as Contributing Shares – shares on which the holder owes an outstanding balance to the company, which may be called at some later date. If the case of a No Liability Company, the holder has the option of forfeiting the shares rather than paying the balance.

Unit Trusts – pooled investments, where the funds are held with a trustee company and a manager is employed to invest the funds on behalf of the unitholders.

Rights & Entitlements – new shares made available to existing shareholders for purchase, the number of shares  being  in proportion to the current holding. The new shares are often issued at a discount to the current price. A rights issue (renounceable) may be on-sold by an existing holder but an entitlement issue (non-renounceable) must be either taken up or allowed to lapse.

Company Options – securities issued by a company, which bind it to issue shares to the option-holder at a certain price (and at a certain time) if the holder chooses to take up those shares.

Exchange Traded Fund Units – hybrid securities that trade on the ASX equities market. An ETF is a managed index fund whose units trade like ordinary shares. ETFs offer direct and convenient exposure to the performance of an index like the S&P/ASX 200.

Indices

The S&P/ASX Indices are those indices calculated and managed by Standard & Poor’s that are published daily by the ASX.

In April 2000, the ASX’s Index business was contracted out to Standard & Poors. The exchange’s hope was that a global index manager working to international standards would bring a higher international profile to the exchange. S&P immediately began to make changes to the indices, introducing the S&P/ASX 200 (amongst others) and modifying the existing All Ordinaries Index.

Further changes are planned. In particular, the existing method of classifying ASX industry sectors will be phased out and replaced by a new system based on the Global Indices Classification Standard. The existing 24 ASX sector indices will disappear.

The GIC standard, as applied to the ASX, will involve12 core economic sectors. S&P began calculating prices for indices based on these sectors in June 2001. Springing from these core sectors will be 23 industry groups, 59 industries and 123 sub-industries.

Exchange Traded Options

Exchange traded options are options created and traded through a derivatives exchange rather than directly between counter-parties.

Call Option – a security which gives the holder the right (but not the obligation) to buy a fixed number of shares from the grantor of the option at a certain price (the exercise price) by a certain time (the expiration date).

Put Option  – a security which gives the holder the right (but not the obligation) to sell a fixed number of shares to the grantor of the option at a certain price (the exercise price) by a certain time (the expiration date).

Interest Bearing Securities

Convertible Notes – fixed interest loan securities issued by a company which may be redeemed for cash or converted into shares in the company by a certain date according to the terms of the particular issue.

Warrants

Option-like securities that are traded on the ASX’s equities market. Warrants are issued by approved financial institutions rather than granted by individuals operating through a derivatives exchange mechanism. They may be issued over company shares, indices, currencies or commodities. Generally-speaking, warrants have a much longer life-span than options.

Indicators

Total Market Advance Decline Line (code ASX_AD) – the number of advancing issues minus the number of declining issues, kept as a daily running total.

ASX 100 Advance Decline Line (code XTO_AD) – as above, but calculated on the ASX 100 rather than the total market.

Put/Call Ratio (code ASX_PC) – the number of Put Option contracts traded divided by the number of Call Option contracts traded.

International Index Descriptions

BRIDGE/CRB Futures Index

The Bridge/CRB Futures Index is a broad index of commodity prices as calculated from prices in the futures market.

First published by Commodity Research Bureau Inc. in 1957, using 28 futures markets and 2 spot markets, the Index has undergone 9 revisions in its composition since then, in an effort to stay relevant. Many other commodity indices are published, but the CRB Index remains the one most quoted.

The last revision in 1995 saw the Index reduced to 17 markets across 5 groups:

  • Softs    –    Cocoa, Coffee, Orange Juice, Sugar
  • Energy    –    Crude Oil, Heating Oil, Natural Gas
  • Livestock    –    Lean Hogs, Live Cattle
  • Industrials    –    Copper, Cotton
  • Precious Metals    –    Gold, Platinum, Silver
  • Grains & Oilseed    –    Corn, Soybeans, Wheat

The Index is calculated by first producing an average price for each market across a number of delivery months (in this way the Index is an average across time as well as across sectors). For instance, the average for Cotton might be the average of the March, May and July delivery month prices. This calculation is based on a minimum of 2 and a maximum of 5 delivery months extending out to a limit of 6 calendar months from the present. Once the arithmetic average for each market is determined, the prices are all multiplied together and then a geometric average for the whole is derived by taking the 17th root. This number is adjusted by the 1967 base year average and further adjusted to account for all revisions since then before finally converted to a percentage figure.

The New York Board of Trade offers a futures contract over the CRB Index, which in effect is a futures contract based on other commodity futures prices.

 CAC 40

The CAC-40 consists of 40 of the leading stocks on the Paris Bourse, as measured by market capitalisation and turnover.

The Index is based on a value of 1000, as at the base value date, December 31, 1987.

 DAX 30

The DAX (Deutsche Aktienindex) covers 30 blue-chip stocks from The Frankfurt Stock Exchange and is published by the Deutsche Boerse Group, of which the exchange is a subsidiary.

The DAX differs from most international market indices in that it is a performance index rather than a price index. Dividends and rights issues are folded back into the calculation, so as to measure total returns.

The Index is based on a value of 1000, as at the base value date, December 30, 1987. The original DAX Index was based solely on floor trading. The XETRA DAX incorporates price information from XETRA, the exchange’s electronic share trading platform.

DAX futures are traded on the Eurexchange.

 Dow Jones EuroSTOXX 50

STOXX Limited, which publishes the Dow Jones STOXX family of indices, is a partnership between Deutsche Boerse AG, Euronext Paris, the Swiss Exchange and Dow Jones & Company. The Euro STOXX 50 is made up of 50 blue-chip stocks drawn from the 10 Eurozone exchanges (exchanges linked by having the Euro as a common currency).

The major success of the EuroSTOXX 50 futures contract traded on Eurex has meant that the underlying index is now the most important in Europe.

 Dow Jones Industrial Average

Introduced by Charles Dow in 1896 (and published in his Wall Street Journal from that year) the first Average consisted of 12 long-forgotten stocks. It was originally calculated in a very straight-forward fashion – the prices of the constituent stocks were simply added together and then divided by 12. The DJIA is a narrowly-based, price-weighted average, so movements in a few higher-priced stocks can affect it disproportionately.

The 30 stocks that presently constitute the Dow represent the established elite of American Industry and read like a who’s who of famous brand names – McDonalds, Coca-Cola, American Express, Johnson & Johnson, IBM etc. These 30 stocks account for about a fifth of the market value of all American stocks. The latest significant component changes occurred in November 1999, when the Nasdaq-listed Microsoft and Intel were introduced as the first Dow stocks not to be traded on the Big Board. In spite of these changes, the Dow remains very much an “old economy” index, in contrast to the Nasdaq 100. But its long history and close association with market folk-lore assure it of continuing popularity, whatever shortcomings it may have.

In 1997, the Chicago Board of Trade introduced a futures contract based on the Dow.

 FTSE 100

The Financial Times/Stock Exchange 100 Index is the leading index of U.K. stocks. It is a capitalisation-weighted index composed of the top 100 U.K. companies as ranked by market value. The weightings of the constituent stocks are re-calculated on a daily basis and the composition of the Index is reviewed quarterly.

The Index is based on a value of 1000, as at the base value date, December 31, 1983.

FTSE 100 futures are traded on LIFFE.

 Hang Seng 

The Hang Seng Index is a capitalisation weighted index published by Hang Seng Services Ltd, a wholly owned subsidiary of Hang Seng Bank. It is the best known barometer of the Hong Kong market.

The Index is currently composed of 33 stocks, drawn from 4 industry groupings. These stocks account for about three quarters of the market value of all stocks traded on the Stock Exchange of Hong Kong.

To be eligible for the index, a company must be defined as a local company by the SEHK and must have been listed for at least two years. The index is covered by a liquid futures contract traded on the Hong Kong Futures Exchange.

 Nasdaq Composite

The Nasdaq Composite Index is a capitalisation-weighted index that measures the value of all common stocks (over 5,000 in number) traded on the Nasdaq Market.

The Nasdaq Stock Market (so named in 1990) developed from the National Association of Securities Dealers Automated Quotation network to become the world’s first all-electronic stock exchange. By hosting such major technology issues as Microsoft, Cisco Systems, Dell Computer and Intel, it managed to surpass the New York Stock Exchange in volume of shares traded in 1994.

 Nasdaq 100

The Nasdaq 100 features the largest of the Nasdaq-listed stocks, with financial stocks excluded. To be eligible, stocks must have been listed for a “proving” period of at least two years and must have an average trading volume of at least 100,000 shares.

In 1996, the CME introduced a Nasdaq 100 futures contract and complemented this with a “mini” contract in 1999.

 Nemax 50

In 1997, Deutsche Boerse AG created the Neuer Markt, a sector of the Frankfurt Exchange dedicated to fledgling high technology stocks. The Nemax 50 represents the top 50 of these stocks as measured by turnover and market capitalisation. There are two Nemax 50’s – one a price index and the other a performance index. The futures contract at Eurex is based on the performance index.

 New York Stock Exchange Composite

The NYSE Composite Index measures the aggregate value of all the common stocks listed on the Exchange. The Index is based on a base value of 50, at the base value date, December 31, 1965.

 Nikkei 225

The Nikkei 225 is published by Neihon Keizai Shimbun Inc. (Nikkei), the largest publisher of business news and information in Japan.

Its Nikkei 225 Index was formerly called the Nikkei-Dow (until 1985), in deference to its method of calculation, which follows the Dow Jones averaging principle. Like the Dow, the Index is price-weighted. Therefore, like the Dow, it is often criticised for being outdated, but that doesn’t stop people from following it.

The Index dates back to May 16 1949, with a base value of 100. In 1991, new deletion rules were introduced to ensure that the component stocks were sufficiently liquid. The Index is checked annually and a maximum of 6 stocks can be replaced every year. The 225 stocks are drawn from The Tokyo Stock Exchange’s “first section” and represent 36 industry groupings.

In 1986, the Singapore International Monetary Exchange introduced a successful futures contract based on the Nikkei 225. In 1993, the value-weighted Nikkei 300 was first published, but the 225 continues to be the market’s favourite.

 S&P 500

The S&P 500 Index, while perhaps not as widely loved as the Dow Jones Industrial Average, is followed more closely by market professionals and remains the key index for the performance of American stocks.

It was introduced by Standard and Poor’s as the S&P 90 in 1928, being the first index weighted by market capitalisation. This means that each stock’s weighting in the index is proportionate to its market value (its price multiplied by the number of shares outstanding).

There are always 500 stocks in the Index, a new one being selected by Standard and Poor’s Index Committee when an existing one is delisted as a result of financial failure, merger, acquisition, re-structuring or similar. Stocks are selected according to their liquidity and size as well as to ensure proper representation from various industry groups. About 90% of the stocks are drawn from the New York Stock Exchange with the remainder coming from the newly merged Nasdaq/Amex.

In the early 1980’s, the Chicago Mercantile Exchange secured the licensing rights to base a futures contract around the S&P 500. By the end of the decade, the daily value of trade in this contract exceeded the daily value of all stocks traded on the floor of the New York Stock Exchange, further cementing the index’s status as the industry benchmark.

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