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Chapter 1 Structure and role of the financial market 1.1 Introduction Traditional market (傳統市場)

A market of a physical location (實質地點) where goods (物品) were traded (買賣).

Financial market (金融市場):

A market can be a place or a network (網絡) which buy or sell intangible financial products (無形金融產品) such as

company stocks (公司股票) through a phone call or computer. There are different market participants (市場參與者)

and financial institutions (金融機構). They can group into several major financial sectors (金融界別): banking (銀

行), insurance (保險), securities (證券).

1.2 Financial market (金融市場)

1.2.1 Banking sector (銀行界)

Banks : 1. Commercial banks (商業銀行) 2. Private banks (私人銀行) 3. Investment banks (投資銀行)

Commercial banks (商業銀行): 1. Retail banking (personal banking) (零售銀行)

to provide various financial services such as savings deposits (儲蓄存款), current accounts (往來存款) and

loans to private individuals (私人貸款).

2. Corporate banking (企業銀行)

provides corporate clients (公司客戶) with various financial services for their operations. Commercial lending

(商業借貸) is the main service. Other services include loans (貸款), deposit accounts (儲蓄帳戶), credit cards

(信用卡), insurance (保險) and Mandatory Provident Fund (MPF) (強積金), corporate Internet banking (企業

網上銀行), and payroll services (發薪服務).

e.g. HSBC (滙豐銀行) and Standard Chartered (渣打銀行)

Private banks (私人銀行): Private banks provide tailor-made wealth management (財富管理) and financial planning (財務策劃) services to

high-net-worth individuals (高淨資產值人士), who have a minimum of US$1 million to invest. e.g. ABN AMRO (荷蘭

銀行) and BNP Paribas (法國巴黎銀行).

Investment banks ( merchant banks) (投資銀行):

Focus on major corporate financing activities (企業金融活動) such as raising capital (融資) for businesses and

helping firms to list on stock exchange (證券交易所上市). They also provide advisory services (諮詢服務) for

mergers (合併) and acquisitions (收購). e.g. Morgan Stanley (摩根士丹利) and Goldman Sachs (高盛).

Integrated banking services (綜合銀行服務):

Many large banks are involved in (參與) commercial (商業), private (私人) and investment (投資) banking services.

e.g. Citi (花旗集團), HSBC (滙豐集團) and Bank of China (Hong Kong) (香港中國銀行)

Role of banking sector (銀行界的角色)

It acts as a financial intermediary (金融中介人), channeling (提供渠道) savings into investment (把存款轉化為投

資資本) by receiving deposits (接收存入的款項) from the public (公眾) and then lending the money (再把款項借

給) to borrowers (借款人).

Name : _________________

Serial No: _____

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1.2.2 Insurance sector (保險界)

Everyday, individuals and companies face many risks (風險), e.g. the accidents (意外) and fire damage (火災損失).

Risks are transferred to (轉嫁) an insurer (承保人) in return for payment of premiums (支付保險金) through

insurance. Insurers (承保人) (e.g. insurance company) receive premiums (收取保險金) from their clients (客戶) (i.e.

the insured or policy holders) (投保人)

Various insurance products (各種保險產品)

Insurance products (保險產品), including life insurance (人壽保險) and general insurance (一般保險) ( fire

insurance (火險), motor insurance (汽車保險) and casualty insurance (意外傷害保險)). These products can be

classified: risk management product (風險管理產品) and investment-linked products (投資相連產品).

- Risk management products: life insurance (人壽保險), fire insurance (火險) and motor insurance (汽車保險).

- Investment-linked products: combine life insurance and investment features (結合壽險和投資功能) in one

package.

Role of insurance sector (保險界的角色) Pool and transfer risks (匯集和轉移風險)

- Insurance companies (保險公司) help individuals and firms manage risks (管理風險).

- Enables individuals (讓個人) to receive financial protection (財務上的保障) for their life and assets (生命和資產)

at an affordable cost (可負擔的成本).

Provide a source of capital (提供資金來源) Insurance companies are one of the biggest investors (最大的投資者) in the securities market (證券市場). The

premiums (保險金) are invested in the securities market by insurance companies (保險公司) and serve as a

long-term source of capital (長期的資金來源).

Individuals pay premiums to

insurance companies.

The insurance companies invest

the premiums in the stock and

property markets.

Firms obtain capital from the

investments made by insurance

companies.

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1.2.3 Securities sector (證券界)

Role of securities sector (證券界的角色) A market for raising funds (作為籌集資金的市場) Companies may issue (發行) different kinds of securities (證券) while the government and public corporations (公營

公司) may issue bonds (債券).

An investment channel for individuals (作為個人的投資渠道) Securities are important investment vehicles (投資工具) for retirement (退休) and public (公眾). People can earn

dividends (賺取股息) on shares (股票) and interest (利息) on bonds (債券). They may also earn capital gains (資本

利得) when the prices (價格) of shares and bonds go up (上升).

Types of securities (證券的種類)

1. Common stocks (普通股): (a) Blue chips (藍籌股): HSBC (匯豐), CLP (中電)

(b) Red chips (紅籌股): China Unicom Holding (中聯通)

(c) H-shares (國企股) : ICBC (工商銀行)

(d) Second liners (二線) : Sa Sa (莎莎)

(e) Third liners (三線) : IT

2. Preferred stocks (優先股)

3. Bonds (debentures) (債券) 10 years or longer and the bond-issuing institution (債券發行機構) has to pay back the principal (本金) on the

due date (maturity date) (到期日).

4. Notes (票據) : one to nine years.

5. Exchange Fund Bills and Notes (外匯基金票據及債券) : Issued by Hong Kong Monetary Authority (HKMA) (金管局). Exchange Fund Bills (外匯基金票據) with maturity

of up to one year. Exchange Fund Notes (外匯基金債券) with maturity from 2 years to 15 years.

6. Mutual funds (unit trusts) (互惠基金) e.g. Fidelity Investments (富達投資), Franklin Templeton Investments (富蘭克林鄧普頓投資).

7. Futures (期貨)

8. Options (期權)

9. Equity warrants (認股證)

Derivative securities (衍生證券): The value are determined by the

underlying assets (相關資產).

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1.3 Primary market and secondary market (初級市場和次級市場) 1.3.1 Primary market (初級市場) Initial Public Offering (IPO) (首次公開招股) Step 1 Identify suitable firms for listing by investment banks (投資銀行尋找適合上市的公司)

Step 2 Evaluate the listing candidate (評估候選公司)

Step 3 Obtain approval from government authorities (取得政府機關的批准)

Step 4 Obtain approval from the stock exchange (取得香港交易所的批准)

Step 5 Distribute new shares (分配新股)

1.3.2 Secondary market (次級市場) The secondary market is market for trading securities (買賣證券) that have already been issued (已發行).

Two forms of secondary market (次級市場的兩種形式) 1. An exchange (交易所) e.g. HKEx (港交所)

2. Over-the-counter (OTC) (場外交易市場) e.g. electronic trading system (電子交易系統)

Functioning of the secondary market (次級市場的運作) 1. Matching buyers and sellers (買家和賣家的配對)

Provides a platform (平台) tor trading listed stocks (買賣上市的股票) using the market mechanism (市場機制).

2. Different trading mechanisms (不同的交易機制)

Execute trades (執行交易) with the help of professional middlemen (專業的中間人) e.g. stockbrokers (股票

經紀).

Buy from and sell to investment professionals (投資專業人士) e.g. dealers (證券商)

Access (登入) an electronic trading system and trade stocks directly.

3. Rules on trading activities (交易活動的規則)

Price increments (最低價格變動) ( tick or tick size)

Quantity increments (交易數量單位) e.g. lot (一手)

Regulate (規管) the means and timing (時間和方式) of disclosing (披露) sensitive information (敏感資料)

In China, there are rules governing the maximum price movement (最大的價格變動) e.g. limit (停板) or

circuit breakers (停市)

4. The key players (主要參與者) are government authorities (政府機關), stock exchange (證券交易所), brokerage

houses (經紀行), institutional investors (機構投資者) and the public (公眾).

1.3.3 Interdependence of primary and secondary markets (初級市場和次級市場的密切

關係) The success of the primary market depends on the health (健康), size (規模) and liquidity (流動性) of the secondary

market (次級市場). Without a liquid secondary market, it would be difficult to attract investors (吸引投資者) to buy

new issues (新發行證券) in the primary market (初級市場). Newly issued securities (新發行證券) in the primary

market (初級市場) form the basis (基礎) of the secondary market (次級市場).

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1.4 Money market and capital market (貨幣市場和資本市場) According to the maturity (到期日) of the securities issued and traded, financial markets can be classified into the

money market (貨幣市場) and capital market (資本市場). In the money market, most of basic instruments (基本的

金融工具) are constructed from debt (由債務構成), i.e. debt instruments (債務工具). However, in the capital

market, a significant portion (大部分) of the securities (證券) are equity-based (股權為基礎), i.e., equity

instruments (股本工具).

1.4.1 Money market (貨幣市場) The money market is a financial market where short-term debt obligations (短期債務) of companies and

governments with maturity (到期日) of less than one year are traded. Money market instruments (貨幣市場金融工

具) are safe (安全) and highly liquid (高流動性). They generally yield (產生) higher returns (高回報) than bank

deposits (定期存款).

US treasury bills ( T-bills ) (美國國庫債券)

certificates of deposit (存款證)

commercial paper (商業票據)

Exchange Fund Bills (外匯基金票據)

Certificates of deposit It generally issued (發行) by commercial banks (商業銀行). Holders (持有人) usually enjoy higher interest rates than

time deposit (定期存款).

Commercial paper It is a debt obligation (債務) issued by large banks and well-known corporations (知名企業). It is not backed (支持)

by collateral (抵押品) and is a short-term instrument (短期債務金融工具). It is normally regarded as a safe

investment product (安全的投資產品).

Exchange Fund Bills EFBs are short-term debts (短期債務) issued by HKMA (金管局) with maturities (到期日) of 91 days, 182 days and

364 days. The bills are issued in denominations (面額) of $500,000 each. These bills are fully backed (支持) by

foreign currency reserves (外匯儲備).

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1.4.2 Capital market (資本市場) It provides long-term capital (長期資金) for companies and government with maturity (到期日) of one year or more.

Capital market instruments (資本市場金融工具) include bonds (債券), stocks (股票) and residential mortgage (住

宅按揭貸款). These instruments have a longer investment horizon (長投資期限), which leads to more uncertainty

(不確定) faced by investors. Thus, Capital market instruments (資本市場金融工具) usually yield higher returns (高

回報) than money market instruments (貨幣市場金融工具).

Capital market instruments are issued by companies and government. It can be classified into fixed-income securities (定息證券), equity securities (股本證券) and mutual funds (互惠基金).

Fixed-income securities (定息證券) They are interest-bearing securities (附息證券) which pay a fixed percentage (固定百分比) of return (回報). e.g.

bonds (債券), notes (票據) and Exchange Fund Notes (外匯基金票據).

The holders (持有人) of bonds and notes are creditors (債權人) of the issuing institution (發行機構), not the owner.

They receive interest (coupon or coupon rates) (利息) from the institution. If the issuing institution is liquidated (清

盤), holders of bonds and notes can claim (索賠) the assets of the firm before (先於) shareholders. Exchange Fund

Notes (外匯基金票據) are medium to long-term debts (中期至長期債務) with maturities of 2 years to 15 years with

denominations (面額) of $500,000 each.

Equity securities (股本證券) Investors may earn dividends (股息) and capital gains (資本增值) when stock prices increase. However, they may

suffer a loss (虧損) if the price drops.

1. Common stocks (普通股)

Common stockholders have a voting rights (投票權) and the right to receive dividends (有權獲取股息) if declared

(宣佈派發) but they have the lowest priority (最後次序) on claims against (索賠) the company’s assets when the

company is wound up (清盤).

2. Preferred stocks (優先股)

Preferred stockholders do not have voting rights but they have a priority (優先權) in receiving dividends (獲發股息).

They also have preference (優先權) on claims against (索賠) the company’s assets when the company is wound up

(清盤).

Mutual funds (互惠基金) Mutual funds operate by pooling funds (匯集資金) from investors and investing the money in different securities (不

同證券) such as stocks (股票) and bonds (債券).

1. Popular investment choice for small investors (廣受小投資者歡迎的選擇)

An important investment vehicle (投資工具) for small investors e.g. Fidelity Investments (富達投資), Franklin

Templeton Investment (富蘭克林鄧普頓投資) and JF Asset Management (JF資產管理).

2. Achieve risk diversification (達到風險分散)

Through mutual funds, investors can invest in various securities (不同證券) and achieve risk diversification (分散

風險) with a relatively low investment amount. The diversified portfolio (多元化的投資組合) of unrelated stocks

(不相關股票) can reduce the risk.

3. Various types of mutual funds (不同種類的互惠基金)

Equity funds (股票基金)

Bond funds (債券基金)

Balanced funds (均衡基金)

Regional funds (地區基金)

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1.5 Exchange and the over-the-counter market (交易所和場外交易市場) In general, the stocks of large companies are traded on stock exchanges (交易所) while the stocks of small companies

are traded on the OTC market (場外交易市場). Many types of financial instruments (金融工具) can be traded on

the OTC market, such as stocks (股票), bonds (債券) and foreign currencies (外幣).

1.5.1 Stock exchange (交易所) Hong Kong Exchange and Clearing Ltd (HKEx) (香港交易及結算所有限公司) is the stock exchange (交易所) for

listing and trading stocks in Hong Kong. The process of transaction:

Step 1 Places an order (發出指示) to buy or sell a stock with a stockbroker (經紀).

Step 2 The broker enter the order into the Automatic Order Matching and Execution System (AMS) (自動對盤系統)

of the stock exchange.

Step 3 The investors need to pay commission (佣金) to the brokerage, stamp duty (印花稅) to government, levy (徵

費) to SFC, exchange fee (交易費), clearing fee (結算費用) and trading tariff (交易系統使用費) to HKEx.

1.5.2 Over-the-counter market (場外交易市場) Securities traded on the OCT market do not need to meet (符合) any listing requirements (上市要求). Thus, many

companies which do not meet the listing requirements use OCT to trade. In the OCT market, no brokers (沒有經紀)

are involved (牽涉) and no commission (沒有佣金) is charged.

1.5.3 Trading of mutual funds (互惠基金的買賣) Open-end funds (開放式基金) Open-end funds are traded on the OCT market. There is no restriction (沒有限制) on the number of shares (units) it

can issue (發行的股份). Investors can buy and sell (redeem 贖回) the units to the investment companies. Most

funds in the market are open-end funds.

Closed-end funds (封閉式基金) Closed-end funds are listed (上市) and traded on stock exchange (證券交易所). The number of shares issued is fixed

at its IPO (基金發行的股份數目在首次公開招股時已確定). Units of closed-end funds are not redeemable (不可以

贖回). e.g. HSBC China Dragon Fund (滙豐中國翔龍基金).

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1.6 Roles of different participants in the financial market (金融市場上不同參

與者的角色) Financial market participants include:

Listed companies (上市公司)

Insurance companies (保險公司)

Pension fund companies (退休基金公司)

Banks (銀行)

Securities firms (證券公司)

Regulators (監管機構)

Investors (投資者)

Listed companies (上市公司) Through IPOs and debt issues (透過首次公開招股和發行債務票據), listed company can raise capital (籌集資金) for

their operations in the financial market.

Insurance companies (保險公司) After receiving premiums (收取保費) from clients, insurance companies then invest them in the financial market.

Pension fund companies (退休基金公司) A pension plan (退休金) requires the employees (僱員) and the employer (僱主) to make contributions (供款) to

the plan throughout a person’s employment (個人就業). The funds of the plans are pooled in (匯集) pension funds

and then invest in the financial market. So Pension funds are an important source of capital (重要資金來源) in the

financial market.

MPF system was established in 2000 under the MPF Scheme Ordinance (強制性公積金計劃條例). Under the MPF

system, employees and their employers are required to make contributions during the employment period.

Banks (銀行) It serves as middlemen (中間人) between borrowers (借款人) and lenders (貸款人) of capital in the financial

market.

Securities firms (證券公司) They serve as middlemen (中間人) for investors (投資者) in securities trading (證券交易).

Regulators (監管機構) The Securities and Futures Commission (SFC) (證監會), the Hong Kong Monetary Authority (HKMA) (金管局), the

Office of the Commissioner of Insurance (OCI) (保監處) and the Mandatory Provident Fund Schemes Authority

(MPFA) (積金局) are responsible for regulating (監管) the financial market in Hong Kong.

Investors (投資者) Investors can be individuals (個人) or institutions (機構). Investors need reliable information (可靠的資訊) and fair

market (公平的市場) to make right decisions.