Philippine Stock Exchange Overview

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Questions and Answers

What is used as the reference price for determining closing prices in trading?

The last traded price of the continuous trading (correct)

The highest price of the day

The previous day's closing price

The average price from the previous week

What is the maximum commission rate a stockbroker can charge for transactions above PhP 100 million?

0.25%

2.0%

1.5% (correct)

1.0%

When did the PSE board approve the extension of trading hours?

October 1, 2009

January 1, 2012

January 1, 2010

October 1, 2011 (correct)

What withholding tax rate applies to dividends received by non-resident individuals engaged in trade or business in the Philippines?

20% Signup and view all the answers

What initiative is seen to enhance liquidity in the PSE?

Merger of the equity and bond markets Signup and view all the answers

At what time does the actual trading on the PSE commence?

9:30 am Signup and view all the answers

What occurs during the 11:57 - 11:59 time frame in the PSE trading cycle?

Entering orders but no modifications allowed Signup and view all the answers

What is the primary function of the pre-posting period before 9:30 am?

To determine opening prices Signup and view all the answers

How long is the market open for trading each day?

4 hours Signup and view all the answers

What is the minimum requirement for purchasing shares in the normal equity market?

A board lot as specified in the board lot table Signup and view all the answers

What happens during the closing period from 12:00 to 12:10 pm?

Only Limit Orders can be entered at the closing price Signup and view all the answers

What is the primary purpose of electronic boards on the trading floors?

To provide real-time trading information Signup and view all the answers

What occurs when a company successfully declares dividends?

It may move to a larger board Signup and view all the answers

What is the primary purpose of an Initial Public Offering (IPO)?

To offer shares to the general public for the first time Signup and view all the answers

Which of the following is NOT a pro of listing on the PSE?

Increased annual PSE fees Signup and view all the answers

What is one of the necessary steps for a company seeking to list on the PSE?

Endorsement by the Board of Directors Signup and view all the answers

What strategy allows companies to bypass the IPO process?

Acquisition of dormant firms for reorganization Signup and view all the answers

What is achieved through market-driven valuation during the listing process?

Company valuation based on public demand Signup and view all the answers

What does the SEC grant after a company's application for listing is evaluated?

Final approval through issued listing orders Signup and view all the answers

Which company was transformed into a manufacturing company after acquiring a dormant mining firm?

Best World Resources Signup and view all the answers

How long does the overall IPO process typically take?

Six months Signup and view all the answers

What is required for a securities to be eligible for short selling according to the Revised PSE Rules?

A market capitalization of at least PhP 10 billion Signup and view all the answers

Which statement correctly describes the 'Up Tick Rule' in short selling?

Transactions must occur at a price higher than the last sale price Signup and view all the answers

What does margin trading allow investors to do?

Buy stocks partly financed by brokers Signup and view all the answers

What happens if the market value of shares purchased through margin trading declines?

Investors need to deposit additional margin Signup and view all the answers

Which of the following is NOT a criterion for determining the opening price at 9:30 am?

The average price of all sales from the previous day Signup and view all the answers

What is the primary goal of a short seller?

To sell borrowed securities and repurchase them later for profit Signup and view all the answers

In terms of tradability, how must qualified securities have been traded prior to short selling approval?

Traded 100%, excluding block sales, during the past six months Signup and view all the answers

Which of the following best describes the nature of block sales related to short sales?

Block sales are completely excluded from the short selling criteria Signup and view all the answers

What triggers the price-freeze rule on the PSE?

When a security's price changes by 50% from the last closing or posted bid price Signup and view all the answers

Which of the following best describes the cumulative volume alert?

An alert for issues deviating significantly in terms of trading volume Signup and view all the answers

What is the primary purpose of the Securities Investor Protection Fund (SIPF)?

To protect investors from losses due to broker insolvency or fraud Signup and view all the answers

Why was the PSE Composite Index renamed to PSEi on April 3, 2006?

To incorporate the free float-adjusted market capitalization method Signup and view all the answers

What does the run-off alert indicate?

Significant trading activity occurring shortly before the run-off period Signup and view all the answers

How is the contribution to the Securities Investor Protection Fund determined?

A percentage based on the broker's gross trading volume of listed securities Signup and view all the answers

What information can the PSE direct issuers to disclose during alert situations?

Information that may explain unusual market movements Signup and view all the answers

What is the main role of alert levels established by the PSE?

To monitor and detect unusual trading activity Signup and view all the answers

Study Notes

Price Fluctuations and Trading Rules

The Philippine Stock Exchange (PSE) freezes the price of a security when it moves up or down by 50% from its most recent closing or bid price.
The PSE establishes alert levels for all listed companies based on price and volume to monitor and detect unusual movements.
Alert levels are categorized as cumulative price alert, cumulative volume alert, run-off alert, share concentration alert, and significant market activity alert.
The Securities Investor Protection Fund (SIPF) protects investors from losses due to broker fraud, failure, or insolvency.

PSE Market Indicators

The PSE Composite Index, formerly known as Phisix, was renamed to PSEi in 2006.
The index is computed using the free float-adjusted market capitalization method.

Listing Procedures and Initial Public Offering (IPO)

An IPO is a company's first offering of shares to the general public.
IPOs are required to be listed on the PSE.
Pros of listing on the PSE:
- Access to capital
- Enhancement of company image
- Lower transfer taxes
- Market-driven valuation
- Increased transparency
- Shareholder protection
Cons of listing on the PSE:
- Annual PSE fees
Steps to list on the PSE:
- Listing agreement
- Evaluation by PSE
- Approval by the board of directors
- SEC approval
- Listing orders
The IPO process typically takes six months.
Companies can utilize "back-door" listing to bypass the IPO process.

Trading Hours and Phases

The PSE trading cycle starts with pre-postings at 9:00 am and actual trading commences at 9:30 am.
Trading ends at 12:00 noon with a 10-minute extension from 11:59 am to 12:00 pm.
The PSE market has multiple phases, including pre-open, opening, trading, continuous trading, closing, and end-of-day.

Trading Floors

The PSE has two trading floors: the PSE Center in Ortigas and the PSE Plaza in Makati.
Both floors have electronic boards, including a bid board for dividend-paying companies and a smaller board for companies that have not yet declared dividends.
The PSE trading terminal also provides an odd-lot board for issues not traded within the minimum lots.

Price Fluctuations and Board Lots

Normal equity market trading is done by board lot or round lot system.
The minimum number of shares that can be purchased or sold at a specific price range is determined by the board lot table.

Short Sales

A short sale is selling borrowed securities with the hope of purchasing them at a lower price to lock in profits.
Short sellers deliver borrowed certificates and purchase the same securities at a later date to cover these certificates.
The Securities and Exchange Commission (SEC) approved revised short selling rules in 2007.
Only qualified securities, with a market capitalization of at least PhP 10 billion and traded 100% in the preceding six months, are eligible for short selling.
All short sale transactions must follow the "Up Tick Rule", meaning the sale must be at a price higher than the last sale price or at the last sale price if it's above the next preceding different sale.

Margin Trading

Margin trading allows investors to purchase stocks partially financed by brokers using the purchased stocks as collateral.
Brokers charge interest on debt balances.
Investors must deposit additional margin if the market value of their purchases declines.

Price Determination

The opening price is determined by analyzing the price with the maximum number of shares matched, minimum number of shares unmatched, highest or lowest price based on market pressure, price closest to the reference price, and the reference price itself.
The closing price determination follows similar rules as the opening price, but uses the last traded price of the continuous trading as the reference price.

Trading Costs

Stockbroker commissions range from 0.25% to 1.5% based on transaction value.
A minimal fee for SCCP is also collected.
Dividends received from domestic corporations are subject to a withholding tax of 10% for citizens and resident aliens, and 20% for non-resident individuals.
Domestic and resident foreign corporations are exempt from dividend tax.

PSE Moving Forward

The PSE extended trading hours to 1:00 pm starting October 1, 2011.
The schedule was then changed to 9:00 am - 12:00 noon for the morning session and 1:30 pm - 3:30 pm for the afternoon session starting January 2012.
The proposed merger of the equity and bond markets operated by the PSE and PDEX is seen to enhance liquidity and improve fundraising capabilities.

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Description

This quiz covers essential concepts related to the Philippine Stock Exchange, including price fluctuations, market indicators, and listing procedures like Initial Public Offerings (IPOs). Test your knowledge on the trading rules, market alerts, and investor protections in the PSE. It's a comprehensive look at the mechanics of trading in the Philippine stock market.