Capital Market - Overview of the Current Philippine Financial System PDF
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Summary
This document provides an overview of the Philippine financial system, focusing on the roles and objectives of the financial market. It covers topics such as the spot market, future market, and the capital market. The document offers insights into how the economy functions and the needs and wants of consumers.
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OVERVIEW OF THE CURRENT PHILIPPINE urchases made by firms to operationalize the p FINANCIAL SYSTEM...
OVERVIEW OF THE CURRENT PHILIPPINE urchases made by firms to operationalize the p FINANCIAL SYSTEM production of goods and services. The Role and Objectives of the Financial Market he economy runs by satisfying the needs T and wants of people, these needs and wants are translated into tangible products and intangible services.Thesearethenboughtbyconsumerswho pay for the purchases of the product. Thus, the cycle goes. In reality, there are not many funds a company can have to operationalizethebusiness; he spot market is the market in which T itwillexperienceafinancialdroughtwhereitcannot commodities or currencies are sold for cash and operate due to lack of money. Individualswhoare delivered immediately. It is also called actual more than willing to lend their funds toinstitutions market or cash market. do so in exchange for an investment. he future market, on the other hand, is the T his is why the financial system exists, T exchange where contracts and options on futures tasked to facilitate the exchange of funds through contracts are traded. Exchanges may trade the sale of financial instruments, exchange of commodities, financial derivatives, or a stocks, and other forms of financial investments. combination of two. Corporations sell securities and issue bonds. The government issues bond, Treasury bills (short-term), or Treasury notes (long-term), both offeredtoindividualsandevenentities.Thiscanbe The Capital Market done directly, meaning borrowers and lenders hecapitalmarketservesasthemarketfor T without anyone in between to facilitate the financial assets withaholdingperiodofmorethan transactionorindirectly,meaningborrowersusean one year before gains,orreturnscanbereceived. intermediary(banks,mutualfunds,iknownsurance These securities are common to companies, etc.) to enable transactions to the government-issuedbonds,corporate-issuedbonds, borrowers. and stocks, etc. he relationship mentioned above and T There are two divisions in the capital market. interdependence are shown below: 1. T he primary market - when a corporation decides to go public,itoffersstocksforthe first time; this is called an initial public offering (IPO), the syndicatedbuyingofthe IPO is done under the primary market. ✔PetronwastradedinthePhilippinestock exchange (secondary) in September 0f 1994. 2. T he secondary market – after the syndicated buying of the new stocks, the n investment is anassetacquiredtoreap A syndicate will now sell someofthesefresh future benefits greater than the acquisition value. stocks to the stock exchange. Here in the This can beinfinancialassetslikesharesofstock Philippines, we have the Philippine Stocks from corporations and bonds issued by Exchange (PSE). corporations and the government. Realassetslike land, plant, and machinery, these investments are Money Markets r epos as a form of overnight borrowing. They are usually very short-term from The focus of money markets is short-term overnight to 30 days or more. investments, not more than a year and low-risk, therefore providing a low return. These highly everse Repo- The reverse repo is the R liquid investments are safe and can readily be completeoppositeofarepo.Inthiscase,a converted to cash. Example of these are: dealer buys government securities from an Some of more money market instruments: investor andthensellsthembackatalater date for a higher price. 1. C ertificate of Deposits (CDs) – is a time deposit with a bank. They bear a specific erm Repo- exactly the same as a repo T maturity date (from three months to five exceptthetermofaloanisgreaterthan30 years), a specific interest rate, and can be days. issued in any denomination. This is an ordinary placement ofdepositof money by an individual in a bank. Commonly known as time deposit where deposited money is held under agreement not to be withdrawn for a certain period of time. If the depositor withdraws the investment before the agreed duration, a penalty is given, and anticipated earningis lost. 2. T reasury Bills (T-Bills) – T-bills are the wayforthegovernmenttoraisemoneyfrom the public. These are short-term securities that mature in one year or less from their issue date. They issued with three-month, six-month, and one-year maturities. T-bills areissuedthroughacompetitiveprocessat auctions.Exemptfromstateandlocaltaxes. MUNIS 3. C ommercial Papers – is an unsecured, short-term loan issued by a corporation, typically for financing accounts receivable and inventories. It is usually issued at a discount, usually not longer than nine months, with maturities between one and two months being the average. 4. B anker’s Acceptance (BA) – is a short-term credit investment created by a non-financialfirmandguaranteedbyabank to make payment. 5. R epurchase Agreement (Repos) –Those who are deal in government securities use Derivatives Market Key Players in the Capital Markets The derivatives market is differentfromthe Four Key Players in the Primary Market tocks or bonds market. This is because the s The four key players are: derivatives market is a contract that binds two or more parties to an undertaking based on an . 1 orporations C outcome, particularly based on the agreement on 2. Institutions the value agreed upon, typically based on the 3. Banks underlying financial asset or set of assets. 4. Public accounting. Derivatives cannot stand alone as a financial market. It requires a basisforittooperatelikethe changes in prices, the interest rate of assets. For this reason, the derivatives market are commonly trading on futures, options, and swaps. ttps://corporatefinanceinstitute.com/resources/careers/c h ompanies/key-players-in-capital-markets/ 1. Corporations These are the initiators of the IPOs in the apital market. Corporations can issue both c securities,proofonthepartofthebuyersofstocks, and bonds, proof of indebtedness by the corporations who issued it. Although the atch-https://www.investopedia.com/terms/d/derivative. W asp governmentispartofthecapitalmarket,itislimited only to the issuance of bonds. Examples of publicly traded corporations: Forex Market . 1 M Investments Corporation. S heforexmarketortheforeignexchangemarketis T 2. BDO Unibank Incorporated. the market for foreign currencies. Investors who 3. JG Summit Holdings Incorporated. have cash can buy other countries' currencies at 4. Ayala Corporation. the prevailing rate and sell it when the rate gets 5. Top Frontier Investment Holdings higher, thus earning from the transaction. Any Incorporated. individual investor can do this in an informal 6. Metropolitan Bank & Trust Company manner reflective of the strategy employed by (Metrobank) formal institutions like banks, investment . Aboitiz Equity Ventures 7 management firms, central banks, hedge funds, ttps://rappler.com/business/philippine-companies-forbe h and investors. s-list-world-largest-listed-firms ike those in banks and airports, money L exchange businesses buy currencies at a small percentage lower than the current rate of the 2. Institutions (“Buy Side” Fund Managers) currency and sell the same at a small percentage Institutionshererefertothatofthebuyersof higher than the current rate of the currency. stocks and bonds in exchange for capital (funds). These institutions are commonly referred to as institutional investors, fund managers, and retail investors.Therelationshipbetweenthecorporation 4. Public Accounting Firms and the institutions are seen in the cycle. Public accounting firms are external to the Examples of top “Buy Side” Fund Managers: ompany. It operates independently and is part of c thecorporateauditsystem,meaningthecompany's . A 1 XA Philippines, Inc. (AXA) internalauditdepartment,beforeitcanreleaseany 2. Bank of Commerce (BoC) financial statement tothepublic,hastobeaudited 3. Bank o f the Philippine Islands – Asset by an independent external accounting firm Management & Trust Corp (BPI-AMTC) (external auditor). This function providesareliable 4. BDO Unibank, Inc. (BDO) source of financialinformationthatbestservesthe 5. BPI Investment Management, Inc. (BIMI) interest of the investors, corporations, and the 6. BSP Provident Fund Office (BSPPFO) government. Checks and balances are 7. China Banking Corporation (CBC) incorporated into the system to safeguard the 8. Citystate Savings Bank, Inc. (CSBI) financial community. 9. CTBC Bank Philippines Corp. (CTBC) 10. De La Salle Brothers, Inc. (DLSBI) Examples of top public accounting firms: 11. Sun Life Asset Management 1. S GV & Co. (SyCip Gorres Velayo & Co.) https://fmap.com.ph/members/ (affiliate of Ernst & Young) 2. Manabat Delgado Amper & Co. (formerly C.L. Manabat & Co.) (affiliate of Deloitte 3. Investment Banks (“Sell Side”) Touche Tohmatsu (DTT)) Another critical player is the investment 3. Isla Lipana & Co. (formerly Joaquin anks. Although common knowledge to many, the b Cunanan & Co.) (affiliate of Philippine Stocks Exchange houses the trading of PricewaterhouseCoopers) stocks.Still,itisadistributingsyndicatethatinitially 4. Manabat Sanagustin & Co. (formerly Laya provides for the pooling of funds to buy the IPOs Mananghaya & Co.) (affiliate of KPMG) and sell the said securities to other investment 5. BDOAlbaRomeo&Co.(PhilippineMember banks, acting as an intermediary to other Firm of BDO International) investment banks. 6. Punongbayan & Araullo Examples of top investment banks: inancial Intermediation Process F . Allied Bank Corporation 1 The difference in the savings and consumption 2. Australia and New Zealand Banking Group patterns in the economy gives rise to an 3. Banco de Oro Universal Bank intermediation process to balance the financial 4. Bangkok Bank system. 5. Bank of America, N.A. 6. Bank of China he intermediation process brings together the T 7. Bank of the Philippine Islands users and suppliers of funds. 8. China Banking Corporation 9. Chinatrust Commercial Bank he banking systemisthemostcommonformof T 10.Citibank financial intermediation in the financial system. 11.Deutsche Bank AG 12.East West Bank igure 4.1 Financial System F https://www.globalbankingandfinance.com/list-of-inv Financial Intermediation Process estment-banks-in-philippines/ Aside from matching lenders with borrowers, the financial intermediaries provide continuous facility of capital flow from the surplus savers to deficit savers in the system. isk management, liquidity, and information R ∙ Currency issue . The BSP has the exclusive disseminationarealsopartoftheservicesprovided power toissuethenationalcurrency.Allnotesand by financial intermediaries. coinsissuedbytheBSParefullyguaranteedbythe Governmentandareconsideredlegaltenderforall he Philippine Financial System T private and public debts. The country’s financial system is comparable to ∙ Lender of last resort . The BSP extends many developed countries in terms of the number discounts, loans and advances to banking of financial institutions and availability ofvarietyof institutions for liquidity purposes. financial instruments. ∙ Financial Supervision . The BSP supervises banks and exercises regulatory powers over he bangko sentral ng pilipinas (BSP) is T non-bank institutions performing quasi-banking responsible for implementing the monetary policy functions. and regulation of the banking system while the ∙ Management of foreign currency reserves . insurance commission (ic) supervises the The BSP seeks to maintain sufficient international operations of the insurance companies. On the reserves tomeetanyforeseeablenetdemandsfor other hand, the Securities and Exchange foreign currencies in order to preserve the Commission (SEC) works with the bsp and ic in international stability and convertibility of the supervising and regulating the activities of the Philippine peso. financial institutions in the country. ∙ Determination of exchange rate policy . The BSP determines the exchange rate policy of the 3:00 minutes on the recording other notes 4 Philippines. Currently, the BSP adheres to a included sa quiz market-oriented foreign exchange rate policy such that the role of Bangko Sentral is principally to .B.BANGKOSENTRALNGPILIPINASANDITS 3 ensure orderly conditions in the market. FUNCTION ∙ Other activities . The BSP functions as the banker, financial advisor and official depository of 3.B.1 OBJECTIVES the Government, its political subdivisions and instrumentalities and government-owned and he BSP’s primary objective is to maintain price T -controlled corporations. stability conducive to a balanced and sustainable economic growth. The BSP also aims to promote and preserve monetary stability and the he Philippine Financial System T convertibility of the national currency. Banking Institutions: ▪ Universal banks are expanded commercial 3.B.2 RESPONSIBILITIES banks capitalized at Php5B or more. he BSP provides policy directionsintheareasof T niversal banks areasysteminwhichtheygivea U money,bankingandcredit.Itsupervisesoperations wide variety of options of comprehensive financial ofbanksandexercisesregulatorypowersovernon services like investment services, commercial bank financial institutions with quasi-banking banking development banking, and insurance. functions. Under the New Central Bank Act, the BSP performs the followingfunctions,allofwhich Examples: relate to its status as the Republic’s central Land bank of the Philippines monetary authority. BDO Unibank ∙LiquidityManagement.TheBSPformulatesand Bank of the Philippine Islands implements monetary policy aimed at influencing East West Banking Corporation money supply consistent with its primaryobjective Philippine National Bank to maintain price stability. ▪ Commercial banks are banks with a minimum GM Bank of Luzon capitalization of Php2.8B(e.g. Bank of Commerce) ▪ Specializedgovernmentbanksaregovernment - It is a private financial institution where most owned institutions engaged in specialized peopledobankingandalsoopentodeposits,gives lending/program for economic development checking account services, loans, and other financialproducts.Theymakemoneyfrominterest, Examples: mortgages, auto loans, and personal loans. D evelopment Bank of the Philippines. Examples: Land Bank of the Philippines Bank of Commerce BDO Private bank , Inc. Philippine Veterans Bank on-bank Financial Intermediaries N Robinsos Bank Corporation ▪ Investment Houses areinvolvedinunderwriting Maybank Philippine Inc. of securities, financial consultancy, among others and have a minimum capital requirement of ▪ Thrift banks are banks with a minimum Php300M (e.g. Uncapital) capitalization of Php325M for those whose head office is within metro manila, and php25m hese are organizations that are engaged in T otherwise. investment banking and numerous financial activities.Also,itisalicensedenterpriseauthorized It is a financial institution that specializesingiving to underwrite securities of another enterprise. savings accounts, and home mortgages. Also, it Examples: offers checking accounts, personal and car loans. StatementInvestmentHouseInc.(CMRecto Ave Davao City Davao) Examples: Abacus Capital & Investment Bank of the Philippines Islands Saving Bank Corporation(East Tower, Philippine Savings Bank Ortigas Center, Pasig Metro Manila) Rizal Commercial Banking Corporation Savings Bank ▪ FinancingCompanieslendtobusinessfirmsand China Bank Savings individuals using equity capital and long-term Philippine Business Bank borrowed funds withminimumcapitalrangingfrom Php2.5-10Mdepending on domicile ▪ Rural banks are normally operating in the rural sector with minimum capitalization of Php3.2M for It is an organization that offers financial help to thosein5thand6thclassmunicipalities,butthose individuals by lending a loan, unlike banking, it in metro manila need a minimum capitalization of doesnotreceivecashdepositsfromindividualsthat Php32M aretheircustomers.Also,ifanindividualacquiresa loan from financial companies they are given an hese are financial institutions which are private T interest so that customers will pay back in time. unit banking in rural areas that mobilise financial resources and control and extend credits to rural Examples: –based economic operators. J.P. Morgan Banco De Oro Examples: Central Bank of the Philippines One Newton Bank East West Rural Bank ▪ InvestmentCompaniessellitsownsecuritiesto Card Bank Inc. the public and invest the proceeds in stocks and Gua Gua Rural Bank bonds (e.g. Sun Life Bond Fund) ith both interests and charges, whetheritisona w Investment Company secured or unsecured basis. Basically they are - These are companies that are obligated and financial institutions who offer help for individuals principally engaged in investing securities for who are out of the sophisticated financial systems. individuals who are in need of financial help. Example: Examples: Pautang Cash PRU life UK Pesogogo Vigattin insurance LoanChamp Chevrolet BF paranaque LoanPh DS FINANCE CORPORATION Prime Loan Plus Loan Star Lending Group Corporation King’s Lending Investor ▪ Insurance Companies are engaged in ▪ Pawnshops provide immediate cash relief to proper-liability, life insurance, and/or multiple-line individual customers but charge higher rates than products most banks. Pawnshops are capitalized at a minimum of Php100,000. It is a financial institution that gives support to an individual'sfinancialloss.Itgivesacertainfundfor hesearebusinesseswhogivehelpforindividuals T the uncertainty of an individual’s future finances. whoareinneedoffinancialhelpbygivingloansin Also, it protects anindividual’sbusinessinrisksof using personal property items as collateral. financial losses. Examples: Examples: Cebuana Lhuiller Sun Life Canada Villarica Pawnshop Pru Life Insurance Corp. PawnHero Pawnshop Manulife Philippines M Lhuiller FWD Life Insurance Corporation Palawan Pawnshop Insular Life Tambunting Pawnshop ▪ SecuritiesDealersareinvolvedinthebuyingand ▪ Government Non-bank Financial Institutions selling ofsecuritiesandhaveaminimumcapitalof are not allowed toperformdeposittakingactivities Php30M and are limited to financing business These are firms or individuals who specialize in securingmarkettransactionsbyofferingassistance hese are institutions that are under the T in giving new securities in the underwriting and government that allocate surplus resources for market placement of new security issues. individuals and companies with financial help or deficits, this will allow them to supplement banks. Examples: BPI Securities Corp. Examples: Cualoping Securities Corp. Government Service Insurance Globalinks Securities & Stocks, Inc. System(GSIS) Optimum Securities Corporation Social Security System(SSS) RCBC Securities, Inc. ▪ Venture Capital Corporations are engaged in ▪ Lending Investors cater to the financial financing start-up companies requirements of smaller firms/individuals hesearefinancialinstitutionswhosepurposeisto T Lending Investors are the ones giving directloans give financial help in start ups such as small usinesses. They also include beneficial help of b expertise, experience and business knowledge. Examples: CLFG Capital Core Capital First Asia Venture Capital Inc. Gideon Golden Gate Cashrounds Inc. on-bank Thrift Institutions N ▪ Both mutual building and loan associations and non-stock savings loans associations are companies catering to a niche market (e.g. AFP Savings and Loans Associations, Inc.) s of September 2018, the country’s financial A system had a network of 24,243 financial institutions broken down into 1,742 head offices and 22,501 branches. " Idon'twantalotofgoodinvestments;Iwantafew outstanding ones." Philip Fisher ,Author, "Common Stocks and Uncommon Profits SECURITIES LAWS & REGULATION 1916: Act No. 2581, the “Blue Sky Law” hePhilippineStockExchange,Inc.(PSE),asa T matter of policy, disclaims responsibility for any 936: Commonwealth Act No. 83, the “Securities 1 private publication or statement by any of its Act” employees. -created theSecuritiesandExchangeCommission (SEC)toanswertheneedforanagencythatwould heviewsexpressedinthispresentationarethose T safeguardpublicinterest,whichwasbroughtabout of the author and do not necessarily reflect the by the local stock market boom in 1936. viewsofthePSEoroftheauthor'scolleaguesupon -patternedafter(a)U.S.SecuritiesActof1933;and the staff of the PSE. (b) U.S. Securities Exchange Act of 1934 Content & Coverage 982: Batas Pambansa Blg. 178, the “Revised 1 History of Securities Regulation Securities Act” Policy Considerations Rule-Making Powers of SRO 000: Republic Act 8799, the “Securities 2 PSE Rules Regulation Code” Legislative Measures (Took effect on August 8, 2000) “Full Disclosure-based regulation” v. “Merit-based . Background A regulation” 1927: Manila Stock Exchange was born 1963:Makati Stock Exchange was born . Policy Considerations B Sec. 2, SRC Declaration of State Policy: 994: PSE incorporated and in 2001, PSE 1 “socially conscious, free market that regulates “demutualized”, transforming from a non-stock, itself” member-governed entity into a stock, shareholder-based organization encourage the widest participation “ of ownership in enterprises” 003: PSE shares were listed at anopeningprice 2 “enhance the democratization of wealth” of P100.00 per share and reached as high as P252.50 before settling at P200.00 at the end of promote the development of the capital “ 2003 market” Less than 1% of Philippine population 008: MOU between NYSE EuronextandPSEon 2 invests directly in stock market (Singapore information sharing and mutual links/strategic 32.6%, Japan 25%, Aus 24.6%, Malaysia alliances to expand the securities markets 17.9%, HK 17.5%, Korea 10.1%) Organizational Structure “protect investors” ensure full “ and fair disclosure about securities” minimizeifnottotallyeliminateinsidertrading “ and other fraudulent or manipulative devices and practices which create distortions in the free market.” . Disclosure-based System a Basic Disclosure Principle - “To ensure full, fair, timely and accurate ec. 10. Exempt Transactions S disclosure of material information from all listed (“Confirmation of Exemption” from SEC is companies.” optional) (Sec 1, PSE Revised Disclosure Rules) A. Any judicial sale; or sale by an executor, administrator, guardian or receiver or tandard and Test for Disclosure S trustee in insolvency or bankruptcy; Information must be disclosed: (a) Where it is necessarytoenabletheissuerand B. B y/forpledgeholder,mortgagee,lienholder the public to appraise their position or standing; or selling or offering for saleordeliveryinthe (b) Where necessary to avoid creation of a false ordinary course of business to liquidate a market; or bona fide debt, a security pledged in good (c) Where such information may reasonably be faith as security for such debt; expectedtomateriallyaffectmarketactivityandthe priceofitssecurities(Sec.4.3,RevisedDisclosure C. Isolated Transaction Rules) An isolated transaction not being made in the course of repeated and successive i. Registration of Securities transactions of a like character; General Rule: Registration of securities is required for selling or offering to sell securities to D. S tock Dividends the public (Sec. 8.1, SRC) Distribution by a corporation, actively engaged in the business authorized by its xceptions: E AoI,ofsecuritiestoitsstockholdersorother 1. Exempt Securities (Sec. 9, SRC); security holders as a stock dividends or 2. Exempt Transactions (Sec. 10, SRC). other distribution out of surplus; Sec. 9. Exempt Securities E. S ale of capital stockbyacorporationto A. Government securities its own stockholders exclusively, where “Issued or guaranteed by the Government of the no commissionorotherremunerationis Philippines, or by any political subdivision or paid or given directly or indirectly in agency thereof”; connection with the sale; B. Principle of Reciprocity “ Issued or guaranteed by the government of any F. S inglePurchaser.Issuanceofbonds/notes country with which the Philippines maintains secured by mortgage to asinglepurchaser diplomatic relations”; at a single date; C. C ertificates issued by a receiver or by a G. R ight of Conversion trustee in bankruptcy duly approved the Issue and delivery of any security in proper adjudicatory body; exchangeforanyothersecurityofthesame issuer pursuant to a right of conversion D. A ny security/derivatives sold/transferred entitling the holder of the security under the supervision and regulationofthe surrendered in exchange to make such Office of the Insurance Commission, conversion; HLURB, or BIR; H. B roker’s transactions, executed upon E. A ny security issued by a bank except its customer’s orders, on any registered own shares of stock Exchange or other trading market;
