Buying shares

Buying in a float

This is a situation where you don't necessarily need a broker to buy shares. All you need to do is to fill in the application in the prospectus and send a cheque. However, this does not mean you should not get appropriate advice before you write that cheque! Check with the bank to make sure the cheque has cleared.

There will be an announcement in the media that gives details concerning the share allocation and the share price.

Read the prospectus

Together with speaking to a broker and/or professional investment adviser, this is the way to decide whether the investment is suitable for your needs. Remember, many companies are speculative. Under the law (The Corporations Act) a prospectus must contain all the information you reasonably need to know to make your investment decision. It should also disclose any risks associated with investing in the company, together with its future prospects. Some issues worth thinking about include:

do I understand this industry?
do I understand this business?
do these shares fit in with my investment strategy?
do I understand why this company is listing?
is the management of the company sound?
is the share issue underwritten and if so by whom?
what assumptions are made in preparing a future forecast for this business?

Refunds

So what happens if you do not get the full allocation (or any) of shares you applied for in the prospectus application? This will happen if the float is oversubscribed. Of course, you have already written a cheque for the full amount, and it will most probably have cleared your account. In this case you will receive a refund.

CHESS

Listed companies can use an electronic settlement system called CHESS (Clearing House Electronic Sub-register System). In the normal course of events you will receive a CHESS statement that includes details of your shareholding. This will happen whenever you buy or sell shares in a particular company.

How to buy shares

Assuming the company is listed on the Australian Stock Exchange, all you have to do is give a "buy" order to your broker. This can be done on the phone or on the internet.

Your broker will ask for your instructions concerning the price you set - this could be a maximum or minimum price per share. It is also possible to simply provide instructions to buy at the best price that they can, or the market price. See our fact sheet for details of the broker's responsibility to act on instructions.

Contract note & settlement

Soon after the buy order, your broker will send a contract note to confirm the share purchase. You will need the contract note, which includes fees and stamp duty, for your tax records. Settlement will take place three days after the purchase. This means you now own the shares. If you don't pay within this time you will have to pay a penalty.

Online trading

Since you are reading this online, you might be interested to know that you can trade in shares online! You can either do this via your broker, which means the transaction will take place in a similar fashion as making the order on the phone, or it is also possible to make the trade yourself.

Either way you must be careful, because you will not be discussing the prospective purchase with your broker. Yes, it may be cheaper, but make sure you have talked to your broker about the ins and outs of online trading.

Finding out about the company

Obviously you want to ask your broker about a company. You can also:

· keep up with the financial media, including newspapers, the internet, business magazines and nowadays specialist cable television stations;

· read the company's annual report. This will give you a lot of information about the company's track record, especially if you look at the last few years. The report will include detailed financial statements such as a balance sheet and profit and loss statement.

· listen to what the company says. You can do this by checking out reports on the ASX and ASIC websites, or ring the ASX Customer Service
phone: 131 ASX (131 279) from anywhere in Australia for the cost of a local call.. Make sure you ask your broker whether the company has a website. You may be surprised at the level of information that is provided.

Ask your broker if they provide analytical reports on listed companies.

LAW FOR YOU

Read this: This fact sheet is intended to be general information about the law in Australia. It is not a substitute for legal or other professional advice. Lawscape Communications Pty Ltd, Fairfax Interactive Pty Ltd or MoneyManager does not accept responsibility for loss to any person, who either acts or does not act because of this fact sheet.

Last Updated – March 2007

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