Many new investors are still not au fait with the workings of the stock market, especially after recent initial public offerings (IPO). Today’s Jamaica Observer publication will explain some of the concepts which many people missed during their rush to buy into IPOs.

An IPO is a process where the shares of a company become available to the wider public with an intention to list on a stock exchange. It can involve the issuance of new shares by the company, typically called the issuer, or an existing shareholder selling part or all of his shares to the public. The Dolla Financial IPO was a combined offer in which the company issued $250 million in new shares while First Rock Private Equity and DeQuity Capital Management sold $250 million worth of shares.

The Dolla offer closed on the opening date of May 27 despite the prospectus listing a closing date of June 10. If an offer is oversubscribed, the issuer can request that the offer be closed early.

Most public equity offers can be applied for online through the lead broker or a selling agent’s digital platform. Some issuers will include a form in the prospectus. It’s important that an applicant provides an up-to-date form of identification when applying. It would also be recommended that one only transfers the money once you’ve reached the stage at which payment details are requested. Don’t forget to send the money to the respective account as the application can be cancelled once the funds aren’t present. Also, follow up with your broker if they are supposed to transfer funds to the lead broker to satisfy the payment requirements of the offer.

Once the offer is closed, the lead broker will send the Jamaica Stock Exchange (JSE) the basis of allotment details which will outline how many shares each successful applicant should receive. The lead broker will then send the refund to each applicant’s brokerage account or the bank account listed to receive the refunds. The issuer will then apply to the JSE to be listed. The JSE listing committee will review the application and if approved, the company will be listed.

While one might have missed the chance to apply during the IPO, anyone with a JCSD (Jamaica Central Securities Depository) account can buy the shares of the company on the open market once the company is listed. Numerous investors flocked to purchase Dolla shares days after the listing. As a result, the stock halted up as the market opened at 9:30 and closed up 32 per cent for various days. The circuit breaker is a tool used by the JSE to manage volatility in the market. If a trade occurs which sees the stock trading 15 per cent above or below the reference price, the stock will be halted for an hour. The new reference price will be an average of the trigger price and close price. Thus, even if a stock closes at $30, if the reference price is $31, then the halt price would be $26.35 or $35.65.

If you bought 10,000 units of a stock at $1 and the price is now $3, then you have an unrealised gain of $20,000. If you decide to sell the stock, you should recall that there’s a commission fee which varies by broker, a JSE fee and general consumption tax (GCT) applicable to those two fees which will be deducted from the proceeds of that sale. When you sell a stock, you either realise a gain or loss. Also, those proceeds would not be immediately available as cash if you had a transaction to do later in the day or tomorrow. The JSE uses a T+2 (Trade + two business days) settlement system which means a sale on a Monday would not be settled until Wednesday. Otherwise, most online trading platforms allow you to use the proceeds of a sale for other stock transactions despite the settlement time not being complete as yet.

Although this new journey can be somewhat daunting, investing is not as complex as it’s made out to be. Just start the process and build your portfolio over time. Remember your goals and always monitor what’s happening in the environment as things change along with stock prices.