Questions and Answers / How a share cost is defined?How a share cost is defined?
During a period established to attain the standard activities of a joint investment institution (JII), securities of JII are distributed by their face value determined in the JII prospectus. The cost of securities distribution may only be increased by the amount of the agent fee.
An agent is a securities trader acting in the interests of an issuer under agreement with the AMC for services in the placement and buy-out of the JII’s securities.
After the JII has reached the asset structure standards (requirements are dependent on fund type), the JII’s securities are sold at a price calculated by the AMC as of the date an investor files an application to purchase the JII’s securities. The cost is determined as a result of the division of the overall value of the JII’s net assets by the number of the JII's securities in circulation as of the date of calculation.
The cost of 1 share or of a fund share (FSC) is determined as a ratio of the net asset value (NAV) to the number of shares (NS) in circulation as of the date of calculation (FSC = NAV/NS).
NAV is determined as the difference between the fund asset amount (A) with an account of their market value and the fund liabilities amount (L) (NAV = А-L).
Fund assets (А)
The fund asset amount is the fund’s cash vested in securities of Ukrainian issuers, in cash on the fund’s accounts and in real property (А = А1+А2+А3).
Securities valuation
For securities listed on stock exchanges
Residents’ and non-residents’ securities traded on organized markets, a list of which is made by the SSMSC and meets the listing conditions are valuated at their market value, which is determined based on a recent formal quotation in an organized market.
Formal quotations are considered those of stock exchanges where at least 1% of valuated securities out of a total securities issue is traded (individually for each type of securities issued by a specific issuer), or where the previous month’s sales were at least UAH 10,000. For domestic government loan notes of the same issue, at least 5% of the total amount of the issue should be traded, or the previous month’s sales should be at least UAH 100,000.
The market value of securities circulated in more than one organized market is valuated in NAV calculation at the lowest of recent quotations established in each market for the previous month.
The stock exchange provides information about the best bid price, ask price and last transaction price for each of the securities listed. Therefore, the necessity to form the securities market value arises based on these three factors.
Keeping in mind the features of the Ukrainian stock market, for the purpose of providing an investor with the most unprejudiced information on asset value, it has been decided not to consider transactions effected outside the market, i.e., when the price of a transaction is lower than the ask price or is higher than the bid price.
This decision is based on that transactions below market are normally the result of the purchase of shares from individuals, and they do not express real market dynamics. That is, a transaction with an individual effected on the PFTS below market is not actual evidence that the price of a specific issuer's shares went down; it means such transactions should be out of consideration when calculating their real market value.
As for transactions significantly above market, they are normally made in large packs previously owned by a major shareholder and not circulated on the market. These securities did not take part in the formation of the overall offer of an issuer's shares in the market, and the market usually gives no response to such transactions.
Here, the methodology for calculating a quotation, which is the current market value of a listed security, provides the following mechanism:
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When Bid > Last, quotation = (2*Bid + Ask) / 3
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When Ask < Last, quotation = (Bid + 2*Ask) / 3
For securities not listed with stock exchanges
In calculating NAV, shares of issuers who had profits pursuant to their previous year's financial performance are considered in the calculation at their balance sheet value (purchase cost, prime cost). Shares of issuers who had losses are considered at a value, which is calculated with the use of a share balance sheet value discounting mechanism, i.e., the share balance sheet value is discounted by 25% for the first year of losses, by 50% for the second year, and by 75% for the third and more years. The value is determined as of the first reposting date, after which valuation of these shares at market value is impossible (shares are neither traded in an organized market nor are excluded from listing).
Securities, the circulation of which is suspended, are included in the calculation in the amount of 75% of their balance sheet value.
Valuation of real property
Real property is valuated pursuant to an agreement between a company and an independent valuator. The calculation is made once a month by the 10th day of the month.
Fund liabilities (О)
Fund liabilities include the amount of expenditures calculated once a month by the 10th day of the month (О=Р1+Р2+Р3+Р4+Р5).
List of expenditures included in the calculation:
Cost of 1 fund share (FSC)
After the asset (A) value and liability (L) value have been determined, net asset value is calculated as the difference between А and L.
The faith value of 1 fund share (FSC) is the ratio of the fund’s net asset value to the number of securities.