On Sarajevo Stock Exchange securities are traded on the Official Market and the Free Market.
Official market consists of:
Official Market is the place where our "blue-chips" are beeing traded. In order to be listed at this market segment, an issuer has to meet certain requirements.
The criteria are as following:
The Listing Board decides on issuer’s listing on the Official Market. After a company has been listed on the Sarajevo Stock Exchange, it has the obligation of continuous disclosure to the Stock Exchange and the public of any event or change in its operations that may be important to the company and / or its investors.
It is also obliged to provide the exchange with its three-month, semi-annual and annual financial reports. Their operations should be transparent, so the potential investor could evaluate if investing is profitable for him. Serious investor will not invest in the company whose business is a “black box” for him.
Listing on the Official market is not just a prestige, it includes many privileges for the issuer. If the company operates in a transparent and successful way, then investors have confidence in their management and company has the option of issuing new securities to finance their upcoming projects. This option of securing fresh funds is much more used in developed countries, even though the difference in capital costs between public offer and commercial bank loans is much smaller.
When one looks at interest rates in our banks, the question arises: Why our issuers do not consider public offers as a method of financing? First step towards that is certainly listing on the Official Market. Some foreign investment funds restrict investing in companies who are not listed on the Official Market. Other benefits for the issuer includes less possibilities for manipulations of price of their shares. If security is listed on the Official market,trading is not possible if the price differs more than 10% in regards to the last trading day's official price.
Issuers listed on Official Market of companies are Bosnalijek d.d. Sarajevo and Sarajevska pivara d.d. Sarajevo.
Official Market of Funds is a part of Official market that consists of investment funds registered in the Federation of Bosnia and Herzegovina. Listing of shares of the investment funds is done in a similar manner as those of the companies, the exception being that listing of those shares on the Official market is required by the law and regulations of the Securities Comission of the Federation of Bosnia and Herzegovina. The rest of the regulations of the Official market are sensibly applied to the investment funds as well.
Issuers listed on Official Market of Investment Funds are:
Another subsegment is the Official Market of Bonds in which the debt-based securities are listed. The conditions for listing are: value of the bond series must be above 3 million KM and the issuer must have audited financial reports for the last 3 years. Listing of government securities (any government level) is without conditions and limits.
Free Market consists of:
Free Market of Companies, divided into following subsegments:
Market of Bonds
Free Market of Other Securities
Subsegment 1:
On ST1, 30 most liquid shares that are listed on the Free market who have the minimum free-float factor of 25%, or alternatively have the market capitalization which is available for investors of minimum 2 million KM, and who fulfill their obligations in regards to the regulations of the Securities Comission on disclosing the financial reports. Review of symbols on ST1 is done every six months. Static limits are +/-20% comparing to the last official price.
Subsegment 2:
ST2is the entry segment for all the issuers on the Free Market. Depending on intensity of trading and the transparency of the issuer, shares can move up to ST1, but also down to ST3. So, when the shares are initially listing on the Free Market, they will be listed on ST2 and remain there until conditions are met for transfering to other subsegment of the Free Market. Static limits are +/-50% comparing to the last official price.
Subsegment 3:
On ST3 are listed the shares of the issuers who do not (regularly or at all) fulfill their obligations on disclosing the financial reports. Investing in these issuers’ shares can be very risky, because there are no basic financial ratios nor information on company’s business, based on which market price could be determined. Investors need to be extra cautious while trading these securities. Shares that are listed on ST3 are delisted from the Free Market if following conditions are fulfilled simultaneously:
Subsegment for the issuers in the bankruptcy proceedings:
The shares of the issuers which are in the bankruptcy proceedings opened are listed in this subsegment. They remain there until the proceedings are closed.
Free Market of bonds:
Corporate and municipal bonds are listed in this trading subsegment. Municipal bonds are issued by the municipal units (counties, cities) in order to raise the funds for the public benefit projects. The key motivations for issuing this kind of bonds are the interest rates and the simplicity of organizing the issue.
Corporate bonds are debt securities which are issued with the goal of raising the funds for a period of 3-5 years. They create less expenses for companies than the commercial loans, while they also have the larger interest rates than government and municipal bonds. They carry the bigger risk than the other bonds, depending on credit rating of the issuer.
The trading algorythm for most securities is MFTS – continuous trading. That means that the transaction will be concluded as soon as the buy and sell order have their prices matched. Trading is done continuously, from market opening in 10:00 up to 13:30.
The auction trading algorythm is used only for shares of the issuers listed on Free Market subsegments ST3 and the Market for the issuers in the bankruptcy proceedings.
Different securities of the same issuer can not be listed on the different market segments.
In order to protect investors, SASE has two kind of price limits in place.
Static limits define the maximum daily allowed price fluctuation of a security based on its previous official price. If the price of an order which is to be entered in the trading system outside of the range defined by these limits, the order is transfered to the inactive order book, until its price is inside the static limits (which change along with the official price of the security). Static limit differ according to the market segment a security is traded on.
In order to prevent excessive price movements triggered by small trades made away from the market price and to prolong the order exposure time, SASE introduced volatility interruptions in September 2011. Volatility interruptions are triggered once the dynamic limits of a security are about to be breached. This happens when an order would trigger the conclusion of a trade at a price outside the dynamic limits range. The dynamic limits are based on the prevailing (reference) price. The reference price is the last official price of the security (in case there were no volatility interruptions this day) or the price from the previous volatility interruption.
In case the dynamic limits are breached, trading with this security is temporary suspended for a period of 15 minutes. In this period, the market enters again the pre-open phase, in which only entering and editing of orders is possible, but no trading takes place. After the 15 minutes pass, the market opens again through an opening auction, where the new reference price for the security is calculated. It is important to note that although the reference price can change multiple times per day, it cannot breach the static limits of the security.
Dynamic limits are currently set to +/- 3 % of the reference price, regardless of trading mode or market segment.