How to Trade Shares or Stocks in Bursa Malaysia

Bursa Malaysia new trading system (also known in the industry as BTS or Bursa Trade Securities) will go live on 1st December 2008.

Pro Trade Shares was informed that Bursa did the last familiarity testing last week on 15 November 2008. All stockbrokers have received circulars for any contigencies whereby Bursa will revert to SCORE if on the first day of trading if BTS goes down. Pro Trade Shares will present a series of posts to explain what are the changes involved with the new Bursa Trading System.

Basically, Bursa is changing its trading and matching system. The feel and look of the screen with brokers BFE (broker front end) will not be drastically changed. However there will be some additional information presented. Over the last 2 years all remisiers or dealer representatives has been told to upgrade their PC to use Windows XP with specific monitor resolution in order to display the additional informations in their BFE.

For this posts I will briefly explain the differences between the existing (and soon to be referred to as the old system) and the BTS.

Present system:
Order Matching : 10 seconds interval (yes that long!)
Pre-opening price : Not predictable or Non transparent
Closing price : Uncertain, can be manipulated and its the last done price
Order type : Only has market order and limit order type
Best price : show 3 best price for buy and sell order

BTS
Order matching : REAL TIME !
Pre-opening price : predictable / transparent (there is a formula)
Closing price : predictable / trading at last
Order type : more order types
Best price : 5 best price

As you can see above, there are some differences. The first is the matching time. Many people don’t know that the matching time is 10 second interval. Some people’s order will take the maximum 10 second if his/her dealer’s representatives key-in the order immediately after the last matching was done. Some people will see their order matched immediately if the dealer’s representative (DR) input their order 1 second before the matching interval. With BTS your order can match immediately if there is a corresponding seller or buyer at your requested price. That’s the Pro.

The Con is that in the current old system, you can still amend or cancel your order from the queue if you changed your mind but with BTS, your order might be matched before you can even pick up your phone to call your DR to amend or cancel your order.

The current algorithm for pre-opening will give unpredictable opening price of the counters and the current system also allow manipulation of the last done price (ie. the closing price). A good trader can easily ‘force’ a higher or lower closing price by taking the buyer or seller price.

In the next few postings Pro Trade Shares will explain how the mechanism of deciding the pre-opening and trading at last price so either subscribe to my RSS or visit us regularly for the updates.

In Part 1of my HOW TO START TRADING series, I have explained how to open a CDS and Trading Account.

Are you confused yet? I hope not as this are just the basics. I haven’t gone into the more complicated products and processes involved in the trading of shares.

Part 2 of my series will take you through the basic terms used in the buying and selling of shares in Bursa Malaysia.

BUY STOCKS

Obviously if you have just opened a Trading Account you will need to buy shares before you can sell shares!

Note: Actually you can Sell shares before you buy the particular shares which can be done under the Securities Borrowing and Lending (”SBL”) method but that will be further explain in my future postings.

You start by calling your DR to give your order. What happen after you have given your order is that your DR will key-in or
input into his system which is called Broker Front End (”BFE”) system . He will key-in to buy Y number of stock at RMX.00 for A share. The order will be send electronically to Bursa (ie. the exchange) computer system. The Bursa system will then check whether there is any seller at the price of RMX.00. If there is no seller at that price your order will be put in ‘queue’ until there is a seller or the system match your order based on a certain algorithm to give you the best price which is either at RMX.00 or lower.

After matching your remisier will see the matched quantity at the matched price in his BFE. He is suppose to call you by end of the day to tell you that your order is matched. According to Bursa on the day your order is matched, is called “T day”. You must remember that Brokers and DRs will always use the term “T” for trading.

Note: Most of the time I will use Brokers to refer to PO (Participating Organisations or Stockbroking companies).

You are suppose to get your contract note after T day. If your mail man is efficient then you will get the contract note on T+2. T+2 means 2 working days after T day.

Note: To the Brokers, working day is equivalent to Bursa trading days which are Mondays to Fridays. If Wednesday is a public holiday, than there is only 4 trading days in the week otherwise there will be 5 trading days in a week. If you buy on a Friday then your T day is Friday and T+1 is a Monday, T+2 is Tuesday and T+3 is Wednesday, assuming there is no public holiday.

Note: Public holidays also refer to Bursa declared holiday. There have been occasion in the past that Bursa announced a holiday on a non public holiday so you will have to be aware of such things. Such announcement will be publish in most major Malaysian newspaper and Bursa website.

When you buy, you are suppose to pay, right?. So when do you pay?.

According to Bursa rules, a buyer is supposed to pay by 12.30pm on T+3 to the Brokers. If payment is not received by the Brokers, the Broker have the right to sell your unpaid shares on T+4 morning at any price they like. Sometimes you might not receive you contract note by T+3 so you will have to ask your DR for the your contract details. Your DR is supposed to monitor for you but if your DR is busy, he could forget to remind you. So it is better for you to monitor your own trades. After you have paid for the shares, in your next MCD statement you will see the crediting of the shares that you have bought. If you buy, there will be a credit of shares. If you sell, there will be a debit of the shares.

SELLING STOCKS AND CONTRA

If you are a mid to long term investor, you would probably would have make the payment for your purchase before or by T+3. If you sell your stock after you have made your payment, Bursa rules states that the Brokers must issue payment to you the latest by T+3 at 12.30pm. Most Brokers in Malaysia will have the sales check ready on T+3 before 12.30pm for collection at their counters. Most people will request their DR to collect the check on their behalf and to bank in the check for them.

The order process is the same as when you buy. Your sell order will be routed to the exchange system and the Bursa algorithm will match your sell order at you request price or better.

However, please make sure that you have the particular stock in your CDS account before the end of the trading day on T+2 if you have made the sale. MCD will check your CDS account for the stock you sold to be debited at end of the trading day on T+2. You are allowed to transfer stock from another CDS account with another Brokers upto 4pm on T+2.

Note: In Malaysia you are allowed to open another CDS and trading account with different Brokers. So if you want to open 10 CDS accounts and 10 Trading accounts with 10 different brokers, you can but I don’t know why you want to do that.
You can also open a CDS account without a Trading account but not the other way around.

If by midnight on T+2 you don’t have any shares in your CDS account, Bursa will institute a ‘Buy-in’ on your account.

Note: A Buy-in means Bursa will offer to buy from the open market your specific counter for the same quantity of shares that you can’t deliver at 10bits higher then the last closing price. Below is the bids table for different closing price.

After the Buy-in you will receive a contra for your sales. A contra is the setting off between the unpaind buy and sell contract.

Brokers will set-off or nett-off the value of the sales contract against the value of the buy contract. If your sales contract value is higher than your buy contract value, it is called Contra GAIN. If your sales contract value is lower than your buy contract value, it is called Contra LOSS. Therefore a Buy-in can result in a Contra Gain or a Contra Loss depends on the direction the share price move.

Do you know what are the allowed charges in your buy and sales contract?

You have to wait for the next posting. I hope you have an idea of BUY, SELL and CONTRA by now. Subscribe to my Feed for the next posting for my series on HOW TO START TRADING STOCK IN BURSA MALAYSIA.