Philippine Capital Market and Financial Instruments

Capital Markets Institute of the Philippines (CMIP)

• CMIP develops the investment character of Filipinos in the Philippine financial/capital market.
• CMIP promotes awareness and knowledge of the capital market and its role in the national economy.
• CMIP conducts programs, projects, researches, and other activities to upgrade competencies related to dealing with the Philippine Capital Market.

Financial Instrument

• A financial instrument has monetary value or records a monetary transaction.
• It embodies a financial liability for one party and represents a financial asset or equity for the other.

Money Market Instruments

• Money market instruments are paper or electronic debt evidences traded in money markets.
• They're issued by governments and corporations for short-term funding needs.

Cash Management Bills

• Cash management bills are government securities with maturities less than 91 days, often 35 or 42 days.
• They have maturities shorter than T-bills and are theoretically default-free.
• Investing in these bills provides security and liquidity.

Treasury Bills

• Treasury bills are issued by the BTr with 91-day, 182-day, and 364-day maturities.
• The number of days to maturity is set to ensure maturity on a business day.
• They are sold only through government securities eligible dealers (GSED).

Top 10 GSED-Market Makers in 2024

• Banco de Oro Universal Bank
• Bank of the Philippine Islands
• China Banking Corporation
• Citibank N.A.
• Development Bank of the Philippines
• First Metro Investment Corporation
• LandBank of the Philippines
• Philippine National Bank
• Union Bank of the Philippines
• Metropolitan Bank and Trust Company.
• Metropolitan Bank and Trust Company was recognized as the top GSED-Market Maker.

Banker's Acceptances

• A banker's acceptance is a time draft issued by a bank, payable to a seller of goods.
• Before acceptance, the draft is an order by the drawer for the bank to pay a specified amount on a specified date.
• After acceptance, the bank stamps draft "accepted" making it a primary liability.
• A bankable banker's acceptance can be readily resold in the market.
• The bank's creditworthiness substitutes for the drawer's, enhancing marketability.

Letters of Credit

• Letters of credit are guarantees from a bank that a buyer's payment to a seller will be received on time and for the correct amount.
• For importers, it ensures payment only after the supplier provides evidence of shipment.
• For exporters, a letter of credit insures against buyer default.
• Payment may be on "sight".

Negotiable Certificates of Deposit

• A CD is a receipt for money deposited with a commercial bank.
• It's a time deposit with a fixed maturity date (up to one year) and interest rate.
• The bearer receives principal and interest at maturity.
• Unlike regular time deposits, CDs are marketable and cannot be redeemed early.
• CDs are short-term, ranging from 2 to 52 weeks, with large denominations.
• Bearer instruments require extra care.
• Issuing banks attracts by CDs to acquire funds for loans or offset deposit withdrawals.

Repurchase Agreements – Repo

• Repurchase agreements are legal contracts for securities sales by a borrower to a lender, with a commitment to repurchase at a later date at the contract price plus interest.
• A reverse repo involves the purchase of securities with the promise to sell them back later.
• It is generally a short-term overnight loan, often involving idle funds of a corporation, government or any large entity.
• It's closely tied to the interbank call loan function.
• To mitigate purchasing bank repayment risk, the selling bank seeks collateral mainly government securities.

Money Market Deposit Accounts

• MMDAs are PDIC-insured deposit accounts managed by banks or brokerages.
• Convenient for storing funds for upcoming investments or proceeds from recent sales.
• MMDAs typically offer check-writing privileges, offer safe and liquid investments, and pay higher interest than regular savings accounts but lower rates than money market mutual funds.
• MMDA growth has affected MMMF market growth, creating close competition.

Money Market Mutual Funds

• MMMFs pool funds from many investors to invest in money market products.
• A mutual fund uses funds from individual and institutional investors.

Six Basic Types of Mutual Funds

• Growth Funds: invest in assets expected to provide large capital gains.
• Income Funds: invest in stocks that regularly pay dividends and note and bonds.
• Balanced Funds: combine growth and income features.
• Sector Funds: focus on specific industries.
• Index Funds: invest in securities that mirror a market index.
• Global Funds: invest in securities issued in multiple countries for diversification.

Capital Market Instruments

• Capital market instruments involve either equity or debt securities.

Non-Negotiable/Non-Marketable Securities

• Loans: Direct deficit unit borrowings usually banks.
• Lease: Rent agreements between lessor and lessee.
• Mortgage: Borrower uses property as collateral to borrow money.

Lines of Credit

• Lines of Credit are bank commitments to lend depositors up to a specified amount.
• Personal Lines of Credit for households are for home renovation, car purchases, or vacations.
• Commercial Lines of Credit are for businesses and can be used for operating expenditures.

Negotiable Marketable Securities

• Corporate Stock largest capital market Instrument.

Par Value Shares

• Shares where money value is shown on the stock certificate.
• The par value fixes the minimum issue price of share.

No Par Value Shares

• According to the Corporation Code, no par value shares may not be issued for less than five pesos/share.
• No par value shares may be assigned with a stated value.

Common Stock and Preferred Stock

• Companies offer common stock and preferred stock.
• Both stocks ownership of the company's profits.

Common Stock

• Also called "voting share"
• Holders can vote on company policy and elect directors.

Preferred Stock

• Does not carry voting rights.
• Dividends are usually guaranteed set amounts.

Type of Investors

• Income investors preferred stocks.
• Growth investors finds common stock more volatile.

Preferred Shares - Liquidation

• Preferred shares receive preference over shares when liquidating assets.

Preferred Shares - Dividends

• Shares are given a preference in front of stockholders.

Cumulative Preferred Shares

• Shares are entitled to receive all passed dividends.

Non-Cumulative Preferred Shares

• Are not entitled to receive passed dividends.

Cumulative Preferred Shares

• Dividends not declared by the Bod is what is called passed dividends.

Participating Preferred Shares

• Shares are not only entitled to a stipulated shares but to share also in the divident.

Common Dividends

• Cash Dividend: distributed in the form of cash.
• Stock Dividend: dividends given back from the stock.
• Property Dividend: Non-cash divident distribution.
• Strip Dividend: promissory notes

Types of bonds

• Bonds are debt instruments which come from private and government entities which also come from certificates of indebtedness with definite maturity dates.

Classifications bonds Security

• Secured bonds are also known as mortgage/asset-backed bonds.
• Unsecured Bonds also known as debenture bonds.

Classifications Bonds Interest Rate

• Variable rate bonds which interests flactuates.
• Filed bonds which have a fixed interest rate.

Classifications bonds Retirement

• Putable bonds can be exchanged for cash.
• Callable/ Redeeamble Bonds issuer can call the bond.
• Conversible Bonds can be exchanged for common stocks.

Other Classifications of Bonds

• Income bonds are paid interets when the interet is earned as the issuer.
• Junk bonds are speculative yielding bonds.
• Treasury bonds National government bonds.

Retail Treasury Bonds (RTBS)

• Direct unconditional obilitions of the national government.
• Floating Rate Notes. Interest oayment rise and fall based on discount rates.

Municipal bonds

• local governments need their own capital.

General Obligation Bonds (GOS)

• raised to come immediate cost.

Revenue Bonds

• issued to come fund infrastructure costs.

Long-Term Negotiable Certificates of Deposit

• negotiable certificates same as short-term negotiable CDS but it is long term.

Mortgage Backed Securities

• Mortgage companies and banks groupings.

Financial Intermediation

• Financial Intermediaries help both surplus and deficiet units.

Classification of Financial

Intermediaries

• Deository institutions are institutions for accep deposits.

###Time Deposits

• refer to deposits that have maturity.

Comercial Banks

• the biggest of the depository.

Ordinary Commerical Banks

• Commerical Banks do not have investment actions.

Expanded Comercial/Universal Banks

• Combercial banks are expanded dometically and internationally.

Bank Regulation

Consist of the administration

Bank Supervision

• deakr with sounds

Regulatory Agencies

• Bangko Sentral ng Pilipinas
• Bureau of Internal Revenue

Camel Ratings

• capital adequancy

Governance oversights

• It invervences evaluating risks

Thrift banks

• cater to the needs of households, agriculture and industry
• may establish a BRANCH(Independent

Savings and

Mortgage Banks specialinze in grantinf

Second mortgage

• it can be secured with land

Stocks savings loan

• accumalate and savings fo their stokholders

private development banka

• cater to the needs of Agriculture

Micro Finace Thrift banka

• small thrift banks that can be used for stores

Credit Unions

• Not as a banks but instution

Rural Cooperatives

• are more popular

Non Depository intitutions

• issue for contracts

Life insurances companies

• Intermediarties that sells insurance.

Non Insuraces

• if the surrendur its the plicy

accident insurances

• insurance againist disbilty

lloyda of london

• offers custom solution

Auto Insurance

• Package protection for Physical Protection

Windstorm insureances

• Protect home of businesses
• HomeOwner insurances: Insure homeowners house.

Health Insurance

• Insurance individual costs and surgical

Long-Term Care

• Assistance may e Due to Phycisl or mental

Professiona and Liability insurance

• Protect Professionals against Financial losses

Creidt Insurance

• optional loan associated

Fund Manager and inclusion funds

• Penions funds companies and mutual funds

Pension Funds Comapnies

• selles income to policyholders

Mutual funds

• Companies investors allow to purchase various securities

Investemtn Banks

• underwrites equities
• pool money and finance cost
• Finance Companies*: Are are like banks thrifts and may not issue chacking or savings.

Categories:

• provide installement to buy large items
• Comercial Finances*:
• Grant credit to busineess
• Security Dealers and Brokers*:
• Security Brokers by means:
• Act as financial intermediaries

Security Dealars

• buy and sell securities at different prices.

Pawnshos

• Assets where peopple can pawn

Trust Company

• Organized purpose under wills
• Lending Invesnts*:
• Individuals and companies loan funds for borrows
• Changes highly higher.