Risk Based Capital Adequacy requirements

Risk-Based Capital Adequacy Regulations

The globalisation of financial institutions and the resultant change in their risk profiles, necessitated regulatory requirements for firms to maintain, at all times, adequate capital commensurate with the level of risk inherent in their business activities. The Basel Committee on Banking Supervision (BCBS), which operates through the Bank for International Settlements, has led regulatory efforts at establishing risk-based capital adequacy standards with the introduction of Basel I in 1988. The BCBS has enhanced its standards over the years taking into consideration the growing complexity of banking activities and gaps in regulations that was most evident given the financial crisis of 2007/ 2008. Basel II was introduced in 2004 and Basel III in 2010. The Basel III Accord is based on three pillars:

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Raising Capital in the Securities Market

Raising Capital in the Securities Market

The sale and purchase of financial assets, such as stocks and bonds, take place in the securities market. The securities market is comprised of both the primary and secondary markets. Most investors are familiar with the operations of the secondary markets where existing securities are traded. The trade is carried out between a buyer and a seller, with the stock exchange facilitating the transaction. Transactions can also occur “over the counter” which is direct trading among broker-dealers. In the secondary market, the company that issues the security is not involved in its sale, as the amount invested by the buyer goes to the seller. However, firms use the primary market to issue new securities, to raise capital for growth and investment. In this article, we will discuss the various methods of raising capital in the primary securities market.

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Investment Strategies-Active vs Passive

Investment Strategies: Active vs. Passive

As simply defined by one of the most successful investors of all time, Warren Buffet, “investing is laying out money now to get more money back in the future.” Investors may hire financial professionals who possess the analytical skills, expertise and knowledge of the market and securities to assist them in attaining returns on their investments. One such professional is a portfolio manager. The portfolio manager develops and implements investment strategies aligned to their client’s objectives, risk tolerance, liquidity needs, etc. as outlined in their client’s Investment Policy Statement. This week’s article discusses the difference between two types of investment strategies which the portfolio manager may utilise in the management of a client’s portfolio of securities.

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Impact of Global Conflict

Impact of Global Conflict

This week’s article seeks to discuss some potential effects of global conflict on the local securities market. Globalisation has led to the international community becoming quite interconnected. This interconnectedness has increased contagion risks. Contagion refers to a situation where a shock in a particular economy or region spreads out and affects others. With the global economy recovering from the impact of the COVID-19 pandemic, the conflict between Russia and Ukraine has been causing knock-on effects throughout the world. The distribution and cost of oil have been greatly impacted and the conflict has also fueled the weakening of Russia's and Ukraine's financial markets. There is also the risk of the entire European financial market being affected.

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Equity Valuations

Equity Valuations

Before investing, it is important to understand the value of a stock and whether it is worth your investment. The stock’s value is the price that you are willing to pay for part ownership of a company. Equity valuation is a methodology which is utilised for deriving the fair value of a firm or its equity stock. If the estimated value:

• exceeds the market price, the analyst infers the security is undervalued.
• equals the market price, the analyst infers the security is fairly valued.
• is less than the market price, the analyst infers the security is overvalued

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