Investor Education FAQS

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A stock exchange is a public marketplace where the securities/ shares of companies and other financial instruments are bought and sold, i.e. traded.

Securities are instruments for raising finance by the shareholders of a company. There are two types of securities offered on the LuSE - equity and debt securities. Equity securities, which are also known as shares, give one ownership of a part of a company and with it a right to a share of a company's dividends.
Debt securities represent a debt by an organisation. They can be issued
variously by companies and governments both local and central. They
do not give their owners ownership of the organisation. 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.

A trade is the action of transacting in securities on the LuSE. A trade is
effected when buyers and sellers match at a given price and the
transaction settles on the LuSE.

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

Each security on the LuSE assigned an international Security Identification Number (ISIN) which identifiers each security uniquely. This is one of the features of the modern Stock Exchange. LuSE became the sole financial securities numbering agency in Zambia on 16th June, 2003 by partnering with the Association of National Numbering Agencies(ANNA) and assigns ISIN`s.

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


As of 32 March 2015, there were 16 listed debt security instruments on the LuSE, namely;

A stockbroker is a LuSE member firm and is licensed by the SEC Zambia to buy and sell securities on the LuSE on behalf of investors. To start the process of investing on the LuSE, the stockbroker will usually request the investor to open an account with them.

In order to open an account with a stock broker you will be required to produce the following;

*A National Registration Card/Passport

*A document showing proof of physical address, e.g lease agreement

*Two passport size photos

Some stockbrokers will also require that a minimum amount be deposited with them when opening the account. At the present time, the following are minimum amounts charged for opening accounts by stock brokers:

*Intermarket Securities: K25

*Pangaea Securities: K400

*Madison Asset Management Company: free

*Stockbrokers Zambia: free

*Equity Capital Resources: free

*African Alliance Securities: free

 

The current LuSE guide for transacting on the LuSE is 1.375% of the value of the transaction. For big transactions, the amount can be negotiated down. When investing a small amount, you must weigh up carefully if the amount you invest can absorb the commission. If for instance, you wan to invest K20 and the minimum brokerage commission is K10 then what you will end up investing is actually K10 because the stockbroker will automatically deduct their commission. This will thus effectively reduce the amount you invest by half.

Once this happens, the transactions shows a table on the LuSE. However, if you are buying shares you only acquire formal ownership after three days because the transaction must first be cleared through the LuSE systems. If you are buying debt securities, the transaction can clear on the same day.

The LuSE trades on business days Monday to Friday excluding public holidays. The LuSE implemented its automated trading system on the 7th November, 2008. Trading occurs for 3 Hours continuously from 11:00 to 14:00 Hrs.

It is very easy to keep track of one`s investment on the LuSE. Closing share prices can be obtained freely from the LuSE as well as the website, www.luse.co.zm. They are also published during the weekdays i the Times of Zambia newspaper - business section, and aired daily on the Zambia National Broadcasting Corporation(ZNBC) Main evening news.

The LuSE also has value added subscription services in the form of the Daily Stock News, The Weekly Stock News and The Monthly Stock News Flash. As of 31 March 2015, the subscription rates for the same are as follows:

Daily Stock News - K 3.5 per copy/K 882 annual subscription.

LuSE Weekly Stock News - K4 per copy/ K208 annual subscription.

Monthly News Flash - K 25 per copy/K 300 annual subscription

The P/E ratio is the result of dividing the share price of a company by its earnings per share (EPS); EPS is arrived at by dividing a company's profit after tax by the number of shares a company has in issue. If for example, a company has made a profit after tax of K 1,000,000 and has 1,000,000 shares in issue then its EPS = K 1. If the share price of the same company is K 5 on a given trading day, then the P/E ratio of the company is 5.

The P/E ratio is officially defined as the payback period from investing in a company's shares. However, it can also be used as a measure of whether one's investment is undervalued, valued correctly or overvalued. In the Zambian context, P/E ratios of 10-12 are considered about right for the LuSE market. If therefore the P/E ratio is less than this amount, it may be a good idea to hold onto a share because its value may rise soon. If it is greater than this amount, it may be worthwhile to consider selling the shares because they may fall in price in future on account of being overvalued. However, investors should consult their broker before making this decision.

Dividend Yield (DY) is the dividend return that one obtains from holding a share at a given share price. It is calculated in percentage terms. It is arrived at by dividing DPS by a company's last share price. If for instance a company paid a dividend of K 10 and its last reported share price was K 100, then its DY will be reported as being 10%.

An investment in a LuSE instrument is among the safest investments that one can make. All companies that have their securities listed or quoted on the LuSE are required to publish in the national print media, information that can materially affect the value of the price of one's securities. In addition, all are required to abide the LuSE's Corporate Governance Code which has strict guidelines on how the management and directors of listed and quoted companies must conduct their affairs. Failure to publish information that can materially affect a company's share price in the national press as well as not adhering to the LuSE's Corporate Governance Code can result in severe penalties for the directors and management of a company that has instruments that are listed or quoted on the LuSE.

A dividend is usually a cash payment to the shareholders of a company. It is drawn from the cash reserves that a company has at the end of the year. Sometimes dividends can be issued by companies in other forms such as bonus shares.

This is entirely up to the directors of the company and is dependent on how much free cash the company has. Generally though, most companies pay out dividends at least once a year. If a company has been operating favorably, it sometimes pays out dividends twice a year - usually after every six-month period. A dividend that is paid out during the course of a company's operating year is known as an interim dividend. A dividend that is paid out after the close of a company's Financial Year is known as a final dividend.

There is absolutely no tax on capital gains and dividends on the LuSE.

There are two ways a party can benefit from holding debt securities. The first is through the payment of interest on the debt securities, whilst the second is through the gain in the price of a debt security from the time when it was first bought, the debt securities capital gain.

Yes it is! Holders of debt securities are charged 15% Withholding Tax on the coupon rate indicated on the debt security's certificate of issuance. If for example a debt security had a face value of K 100 and a coupon rate of 10%, then the interest that will be received by the holder would be K 8.5 because a Withholding Tax of 15% - K 1.5 - would be assessed on K 10 (10% of K 100) coupon payment due to the holder of the debt security. It is important to note that it is only the coupon rate that is taxed not the debt security's overall yield.

You can lodge a complaint with the SEC Zambia. The SEC Zambia is empowered by the Securities Act to ensure that the interests of investors are adequately protected.

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

The operations of the LuSE are governed by the Securities Act (No. 38) of
1993 Cap 354 of the Laws of Zambia. The implementation of the
Securities Act is the role of the Securities and Exchange Commission
(SEC) Zambia.

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

The Central Share Depository (CSD) is a computerised central point in
which all the shares of listed and quoted companies and all listed debt securities are held. It Is a type of "warehouse'" of records for the holders of all instruments that are tradable on the LuSE. M account is opened for every holder of a given instrument. On that account is the name of

A listed Company is one which has a presence on the top tier of the LuSE, the "listed tier". The listed tier is composed on public limited companies(plcs) that have met the LuSE listing requirements, have had their listngs approved by the LuSE listing Committee and full LuSE Board and have paid the listng fee commensurate with the market value of their issued capital.

In order 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 quoted on the LuSE`s listed debt securities tier.

Having decided to invest in securities that are listed or quoted on the LuSE, investors must then choose the broker.

As of 31 March 2015, there were seven stock broking firms in Zambia. Their full contact details are listed on the Find A Broker tab.

No! Any monies collected from the investors are held separately from the Stockbrokers own funds.

The stockbroker will advise you on which investments that are listed or quoted on the LuSE are doing well. If you feel like one of the investments and would want to purchase it, you fill out an "Instruction form". By filling out the Instruction form you are authorizing the broker to look for securities you wish to purchase on the LuSE market on your behalf.

The "T + 3" trading system is the three day process required for a transaction involving shares to settle on the LuSE. Literally translated, it stands for "Transaction + 3 business days".

In the case of debt securities, "T + 0" is the trading system. In other words, transaction settles on the same day as it takes place.

Once again, the first step is to see a stockbroker who will guide you through the whole process. You must bear in mind that if you are selling shares in a company that is quoted on the LuSE you will have to pay a Property Transfer Tax (PTT) of 3% in addition to your brokerage commission.

Dividend per share (DPS) is the dividend paid per each company share. It is calculated by dividing the dividend paid by a company by the total number of shares a company has in issue. If for example a company has decided to pay a dividend of K 1,000,000 and it has 500,000 shares in issue, then its DPS is K 2 = K 1,000,000/500,000 shares.

It must be noted that DPS takes into account all of the dividends paid by a company during the Financial Year. If for example a company paid an interim dividend of K 2 and a final dividend of K 2, then the DPS for the year is considered to be K4.

The P/BV ratio is arrived at by dividing a company's share price by its book value per share. A company's book value is equal to its assets minus its liabilities. Book value per share can therefore be obtained by dividing a company's book value by the amount of shares it has in issue. If therefore a company's net assets were equal to K 1,000,000 and it had 100,000 shares in issue, then its book value per share would be equal to K 10. If at the same time the company's share price = K 10, then the company's P/BV ratio would be =1 - the share price (K 10) divided by the book value per share (K 10). The P/BV ratio is a good tool for measuring the value of an investment because it shows a company's market value in relation to its assets. If a company's P/ BV ratio is less than 1 it means its market price is less than the net value of its assets. This may mean that the company's share price has some room to rise so as to reach parity with the value of its assets. If the P/BV ratio is more than 1, it usually means that the company's shares are a premium investment, that investors see more in the company than is reflected by the value of its assets. All things being equal, the company's P/BV ratio is supposed to be 1.

The return on a debt security - also known as its yield - is arrived at by adding the difference between its face value and its sale price to its coupon/interest rate then dividing that sum by the debt security's sale price. For example, if a debt security had a face value of K 100 and a coupon rate of 10% and one paid K 98 for it, i.e. bought it at a discount of K 2, one's yield for the debt security would be:

"K 2" is the difference between the face value and what was paid for the debt security, i.e. K 100 - K 98, 10% is the rate of interest on the debt security and K 98 is what was paid for the debt security.

There are two principal ways in which a party benefits from investing in shares. The first is through the payment of a dividend, whilst the second is via the price appreciation of the shares that are bought, the share's capital gain. Taken together, these two factors determine your return on holding shares in a company. If for example you bought a share for K 10 and the share price has risen to K 12 and you have received dividends worth K 1 from the company that issued the shares, then your total return from holding the share is 30% -the K 2 price appreciation + the K 1 dividend/K 10 price paid for the share.

Dividends are divided up among ordinary shareholders according to how many shares they own in a company. If for example a company pays dividends worth K 1,000,000 and a party owns 10% of a company's shares, then that party will receive dividends worth K 100,000 - 10% of K 1,000,000.

No. Each investor is responsible for ensuring that they comply with their tax obligations.

Capital gain/loss is the price appreciation/depreciation in the value of the shares held by an investor. It is the difference between the price at which an investor bought the shares and what the shares are worth today. If for example the price of a share was K 10 when an investor bought it and it is worth K 15 today, then the person who bought the shares has enjoyed a capital gain of 50% (K 15-K 10 = K 5)/K 10. If however the price of the share has fallen to K 5 then the investor that bought the shares at K 10 has netted a capital loss of 50% (K5-K 10 = -K5)/K 10

A debt security's face value is its price as reported on its certificate of issuance. It is not necessarily the market value of a debt security. A debt security can for instance have a face value of K 100 and be sold on the open market for K 98. If a debt security trades on the market at a price less than its face value, it is said to be trading a discount. If it sells at a price that is higher than its face value.

No there is no tax on a debt security`s capital gain.