Auctions

A safeguard that enables your share purchase to fructify in the event of a counterparty default.

No matter how promptly you pay your broker after your buy order is executed, you get your shares only after settlement on the stock exchange. But, what if the counterparty seller does not deliver the shares? Since you don’t have the shares, you cannot book profits if the share price moves up. If your intention was to make a long-term investment, you would have to buy again at the higher price, with the difference being your loss. Stock exchanges guard against such eventualities by carrying out auctions.

An auction is the exchange’s mechanism for getting shares for the buying broker in case of a default by the selling broker. This default could arise due to non-delivery (or partial delivery) of shares, or delivery of bad shares. It occurs when a short-seller (a speculator who sells shares that he doesn’t own) fails to square up his transaction within a trading cycle, or a seller fails to deliver the shares on time.

On the National Stock Exchange (NSE), a separate auction trading session is held on Wednesday (commencing at 4:45 p.m.), the settlement payout day, or on Thursday. On the Bombay Stock Exchange (BSE), the auction session starts at 1 p.m. on Monday, its payout day.

The process. On the NSE, the clearing corporation draws up the list of shares not delivered by brokers at the end of the pay-in day, which is sent to all brokers on the auction day. Brokers get 30 minutes (termed Solicitor period’) to place sell orders. They can offer their own shares, as well as their clients’.

Unlike regular trading, where order matching is a continuous process, orders placed during the auction session are matched at the end of the solicitor period only. The matching is based on the price-time priority principle; the lowest-priced sell orders entered earliest are matched against fixed buy side quantities. Auction prices are subject to a price band.

On the BSE, however, sell orders are continuously solicited. After an hour-and-a-half, trades are matched on price (though not on time priority since orders are not time-stamped). Trades are allocated between orders, with the same best price, at the exchange’s discretion.

On both exchanges, selling brokers have to deliver shares within two days of the auction day. They receive payment on the auction payout day (Saturday on NSE, Wednesday on BSE), and the shares are passed on to the original buying broker. If the auction price exceeds the original traded price, the defaulting broker has to pay the difference, along with a penalty amounting to 0.05 per cent of the transaction value, to the clearing house.

Suppose you bought a share for Rs 100, which the selling broker failed to deliver. Another broker offers the share for Rs 112 at the auction. The clearing house gets Rs 100 from you, and pays Rs 112 to the successful broker. It recovers the difference (Rs 12) and the penalty (5 paise) from the original defaulter. Had the auction price been Rs 90, the clearing house would have gained Rs 10, which goes to the exchange’s investor protection fund.

Buyer will get compensation. But, what if the shares don’t come in during the auction session? This happens rarely: on an average, there are no sell offers for about 1-2 per cent of the shares put up for auction. In such a case, the transaction is settled at the highest recorded price between the relevant trading period and the auction day, or at 20 per cent above the last closing price, whichever is higher. The defaulting seller pays the difference between the original transaction price and the settlement price. As a buyer, you don’t lose the amount paid for buying the shares, or miss out on any post-purchase price rise.

Opportunity for sellers. The auction process also offers an investor the opportunity to sell shares at rates above the prevailing market price (auction prices are usually 2-15 per cent higher), and realise gains within three to four days. Track the auction list, available with your broker, and place a sell order. If your order is accepted, you will have to deliver the shares to your broker within a day or two.

http://www.outlookmoney.com/scripts/IIH021C1.asp?sectionid=10&categoryid=3&articleid=548

No bailout package for Satyam

The government on Thursday ruled out any bailout package for crisis-ridden Satyam Computer, but assured to do everything required to save jobs under the framework of its responsibilities.”This is a decision that the new board of Satyam would take. This government is not going to directly or indirectly subsidise wrong doing and fraud in Satyam,” Minister of State for Industry Ashwani Kumar told reporters on the sidelines of a Petrotech-2009 conference.

When asked, is government not in favour of bailout package for Satyam as such, Kumar said that the new Satyam board “… are the ones to decide. The government would try and support within the framework of its responsibilities and do whatever it can to preserve and save jobs and to protect the good name of India in corporate sector”.

He said, “The government will try to ensure to the extent possible that the brand equity of the country and Stayam in terms of its intellectual capital is preserved and the jobs are secured to the extent possible”.

The minister said, “I do believe that Satyam aberration should not in any way take away from the great success story of India in the IT sector.”

Earlier speculation was rife that the government is considering a package of up to Rs 2,000 crore (Rs 20 billion) to bail out Satyam Computer.

But shortly after the Prime Minister Manmohan Singh’s review meeting on Satyam on Tuesday, there was media speculation that government would be considering a financial assistance ranging between Rs 500 crore (Rs 5 billion) and Rs 2,000 crore but the PMO office declined to comment on it.

http://specials.rediff.com/money/2009/jan/15slide5-hello-sir-got-a-job.htm

Warren Buffet Timeline

Warren Edward Buffett (born August 30, 1930) is an American investor, businessman, and philanthropist. He is one of the world’s most successful investors and the largest shareholder and CEO of Berkshire Hathaway.^[3] He was ranked by Forbes as the richest man in the world during the first half of 2008, with an estimated net worth of $62.0 billion ^[4].

1943: (13 years old)

 

• Buffett filed his first income tax return, deducting his bicycle and watch as a work expense for $35 for his work as newspaper delivery boy.^[33]

1945: (15 years old)

• In his freshman year of high school, Buffett and a friend spent $25 to purchase a used pinball machine, which they placed in a barber shop. Within months, they owned three machines in different locations.

1949: (19 years old)

• In 1949, he was initiated into Alpha Sigma Phi Fraternity while an undergraduate at the Wharton School at the University of Pennsylvania. His father and uncles also were Alpha Sigma Phi brothers from the chapter at Nebraska, to which Warren eventually transferred.

1950: (20 years old)

• Buffett applied for admission to Harvard Business School, but was turned down.^[34]
• Buffett enrolled at Columbia Business School after learning that Benjamin Graham and David Dodd, two well-known securities analysts, taught there.

1951: (21 years old)

• Buffett discovered Graham was on the board of GEICO insurance at the time. After taking a train to Washington, D.C. on a Saturday, Buffett knocked on the door of GEICO’s headquarters until a janitor allowed him in. There, he met Lorimer Davidson, the vice president, who was to become a lasting influence on him and life-long friend.^[35] They talked for four hours about the insurance business. Davidson recalled that he found Buffett to be an “extraordinary man” after fifteen minutes.
• Buffett was graduated from Columbia and wanted to work on Wall Street. Both his father and Ben Graham urged him not to. Buffett offered to work for Graham for free, but Graham refused.^[34] He purchased a Sinclair Texaco gas station as a side investment, but that venture did not work out as well as he had hoped. Meanwhile, he worked as a stockbroker. During that time, Buffett also took a Dale Carnegie public speaking course. Using what he learned, he felt confident enough to teach a night class at the University of Nebraska, “Investment Principles.” The average age of the students he taught was more than twice his own.

1952: (22 years old)

• Buffett married Susan Thompson.

1953: (23 years old)

• Susan and Warren Buffett had their first child, Susan Alice Buffett.

1954: (24 years old)

• Benjamin Graham offered Buffett a job at his partnership with a starting salary of $12,000 a year. Here, he worked closely with Walter Schloss.
• Graham, who was a tough man to work for, was adamant that a stock provide a wide margin of safety after weighting the trade-off between its price and intrinsic value. Graham’s demand that a stock be worth more than its price made sense to Buffett, but it also made him question whether the criteria were too stringent, causing them to miss out on some big winners that had more qualitative values.^[34]
• Susan and Warren Buffett had their second child, Howard Graham Buffett.

1956: (26 years old)

• Benjamin Graham retired and closed his partnership.
• Buffett’s personal savings were now over $140,000.

• Buffett returned home to Omaha and created Buffett Partnership Ltd., an investment partnership.

1957: (27 years old)

• Buffett had three partnerships operating the entire year.
• Buffett purchased a five-bedroom stucco house in Omaha, in which he still lives, for $31,500.

1958: (28 years old)

• Susan and Warren Buffett had their third child, Peter Andrew Buffett
• Buffett had five partnerships operating the entire year.

1959: (29 years old)

• Buffett had six partnerships operating the entire year.
• Buffett was introduced to Charlie Munger.

1960: (30 years old)

• Buffett had seven partnerships operating the entire year.
• The partnerships were: Buffett Associates, Buffett Fund, Dacee, Emdee, Glenoff, Mo-Buff, and Underwood.
• Buffett asked one of his partners, a doctor, to find ten other doctors who would be willing to invest $10,000 each in his partnership. Eventually, eleven doctors agreed to invest.

1961: (31 years old)

• Buffett revealed that Sanborn Map Company accounted for 35% of the partnerships’ assets.
• Buffett explained that in 1958, Sanborn sold at $45 per share when the value of the Sanborn investment portfolio was $65 per share. This meant buyers valued Sanborn at “minus $20″ per share, and buyers were unwilling to pay more than 70 cents on the dollar for an investment portfolio with a map business thrown in for nothing.
• Buffett revealed that he earned a spot on the board of Sanborn.

1962: (32 years old)

• Buffett became a millionaire because Buffett’s partnerships, in January 1962, had in excess of $7,178,500 of which over $1,025,000 belonged to Buffett.
• Buffett merged all partnerships into one partnership.
• Buffett discovered a textile manufacturing firm, Berkshire Hathaway. Buffett’s partnerships began purchasing shares at $7.60 per share.

1965: (35 years old)

• When Buffett’s partnerships aggressively began purchasing Berkshire, they paid $14.86 per share while the company had working capital (current assets minus current liabilities) of $19 per share. This did not include the value of fixed assets (factory and equipment).
• Buffett took control of Berkshire Hathaway at the board meeting and named a new president, Ken Chace, to run the company.

1966: (36 years old)

• Buffett closed the partnership to new money.
• Buffett wrote in his letter “unless it appears that circumstances have changed (under some conditions added capital would improve results) or unless new partners can bring some asset to the partnership other than simply capital, I intend to admit no additional partners to BPL.”
• In a second letter, Buffett announced his first investment in a private business — Hochschild, Kohn and Co, a privately owned Baltimore department store.

1967: (37 years old)

• Berkshire paid out its first and only dividend of 10 cents.

1969: (39 years old)

• Following his most successful year, Buffett liquidated the partnership and transferred their assets to his partners. Among the assets paid out were shares of Berkshire Hathaway.

1970: (40 years old)

• As chairman of Berkshire Hathaway, began writing his now-famous annual letters to shareholders.

1973: (43 years old)

• Berkshire began to acquire stock in the Washington Post Company. Buffett became close friends with Katharine Graham, who controlled the company and its flagship newspaper, and became a member of its board of directors.

1974: (44 years old)

• The SEC opened a formal investigation into Warren Buffett and one of Berkshire’s mergers due to possible conflict of interest. Nothing ever came of it.

1977: (47 years old)

• Berkshire indirectly purchased the Buffalo Evening News for $32.5 million. Antitrust charges started.

1979: (49 years old)

• Berkshire began to acquire stock in ABC. With the stock trading at $290 per share, Buffett’s net worth neared $140 million. However, he lived solely on his salary of $50,000 per year.
• Berkshire began the year trading at $775 per share, and ended at $1,310. Buffett’s net worth reached $620 million, placing him on the Forbes 400 for the first time.

1987: (57 years old)

• Berkshire Hathaway purchased 12% stake in Salomon Inc., making it the largest shareholder and Buffett the director.

1988: (58 years old)

• Buffett began buying stock in Coca-Cola Company, eventually purchasing up to 7 percent of the company for $1.02 billion. It would turn out to be one of Berkshire’s most lucrative investments, and one which it still holds.

1990: (60 years old)

• Scandals involving Maurice R. Greenberg and John Gutfreund (former CEO of Salomon Brothers) surfaced.

1999: (69 years old)

• Buffett was named the top money manager of the twentieth century in a survey by the Carson Group, ahead of Peter Lynch and John Templeton.^[38]

2002: (72 years old)

• Buffett entered in $11 billion worth of forward contracts to deliver U.S. dollars against other currencies. By April 2006, his total gain on these contracts was over $2 billion.

2004: (73 years old)

• His wife, Susan, died.

2006: (75 years old)

• Buffett announced in June that he gradually would give away 85% of his Berkshire holdings to five foundations in annual gifts of stock, starting in July 2006. The largest contribution would go to the Bill and Melinda Gates Foundation.^[39]

2007: (76 years old)

• In a letter to shareholders, Buffett announced that he was looking for a younger successor, or perhaps successors, to run his investment business.^[40] Buffett had previously selected Lou Simpson, who runs investments at Geico, to fill that role. However, Simpson is only six years younger than Buffett.

2008: (77 years old)

• Buffett became the richest man in the world, worth $62 billion according to Forbes,^[41] and $58 billion according to Yahoo^[42]. Bill Gates had been number 1 on the Forbes list for 15 consecutive years.