Financial Adviser | How to buy stocks on the Jamaican market

QUESTION: I am interested in buying stocks on the stock market. However, I am not so knowledgeable about doing so. May I have some assistance please?

T. Hall

FINANCIAL ADVISER: To buy shares listed on the Jamaica Stock Exchange (JSE), you should contact one or more of the twelve stock brokerage companies authorised by the Financial Services Commission and the Jamaica Stock Exchange (JSE) to trade shares in Jamaica. They are listed at jamstockex.com/investor-centre/jse-brokers/.

You will be required to open an account with the company. The account may be for one person only or for more than one person. The account-opening procedure requires that you complete a client agreement form, which asks for personal information such as name, date of birth, address, Taxpayer Registration Number or TRN, nationality, number of dependents and matters relating to your employment.

 

RISK PROFILE

 

Expect to answer questions relating to your risk profile as well. Determining your risk profile can be useful in helping the broker to make suitable recommendations to you. A responsible broker should be prepared to bring attention to any actions that you may want to take that would be inconsistent with your risk profile.

You will also be required to provide valid forms of identification and, possibly, at least one recommendation.

You will be able to place your order to buy the stocks of your choice, indicating the quantity and the price once you have opened the account. As a new client, it is very likely that you would be required to make a deposit before the order is executed.

Your stock broker processes orders electronically on the JSE and has a duty to secure the best price for you regardless of the type of order. This means that you could secure stock below the price you indicate to your broker, but not above.

Among the types of orders are a market order, a limit order and a stop order. By placing a market order, you tell the broker to buy at the prevailing market price. A limit order sets the maximum price you are prepared to pay for the stock and a stop order gives an approximate price for buying the stock. When that price is reached, the order becomes a market order.

Your broker will not necessarily succeed in buying all of the stock you order on the same trading day. Indeed, although the stock may trade at the price you are prepared to buy at, there is no guarantee that your broker may get any or that you may get any even if your broker does get any. This is due to how the rules of trading are, as well as to demand and supply factors.

As soon as the broker secures some or all of the stock that you order, the brokerage company will send you a contract note which gives details of the transaction, including the name of the company in which you have bought the stock, the quantity, the price, the charges such as the commission and stock exchange cess and general consumption tax, and the amount you are required to pay.

Transactions are done on a cash basis, meaning you are required to pay by cash or cheque for the stock you purchase.

The JSE operates on a T+3 settlement system. This means that settlement is due up to three days after the transaction date. Buyers make settlement by paying the full cost of the transaction.

With the advent of the Jamaica Central Securities Deposit (JCSD), it is no longer absolutely necessary for investors to receive a physical certificate as evidence of their ownership of stock. You would be required to open an account at the JCSD through your broker to facilitate the electronic settlement of your transaction through the book entry system that it uses.

The JCSD provides a statement periodically to enable investors to see what they own. The absence of physical certificates does not deprive investors of the right to use their stocks to secure loans in situations where lenders are inclined to lend against such assets.

 

RESEARCHING STOCKS

 

Before you buy shares, though, you should do some research so you can select which stocks to buy. It would make sense to understand the stock market trading reports that the Jamaica Stock Exchange publishes after each trading day.

It is also prudent to make an effort to read and interpret basic financial statements and reports to assist you with your research. Further, it is worthwhile to seek advice from your stock broker in the process of making your final decision, which is yours ultimately.

After making your investment, you should devote some time to monitoring it, but this does not mean that you should be quick to sell if the price declines.

Investing in ordinary stocks is a long-term matter. If you are patient and make wise decisions, you can expect to make good returns, if not in the short term, in the long-term.

- Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. Email finviser.jm@gmail.com