Introduction to Capital Market PDF

Serve as a mechanism to determine fair INTRODUCTION TO CAPITAL MARKET value of financial securities through price discovery. Interaction...

Serve as a mechanism to determine fair INTRODUCTION TO CAPITAL MARKET value of financial securities through price discovery. Interaction of supply and demand in these HUMAN GRAPH: MARKET SENTIMENT securities help establish market prices for Based on how strongly you agree or disagree with trade assets. the statement, move to the spot in the room that best represents your opinion: "Strongly Agree," "Agree," VI.ENABLE RISK TRANSFER AND HEDGING "Neutral," "Disagree," or "Strongly Disagree. Provide various derivative instruments to facilitate risk transfer and hedging. WHAT IS CAPITAL MARKET? Allow market to mitigate their exposure to Is a financial market where individuals, price fluctuation, interest rate change, and companies, and governments come together other market risks to buy and sell financial securities, such as stocks, bonds, derivatives, and commodities. VII.FOSTER ECONOMIC GROWTH AND This market facilitates the flow of capital DEVELOPMENT between investors and borrowers, offering Play pivotal role in stimulating economic them a platform to trade and raise funds. growth and development Attract domestics and foreign investment PURPOSE OF CAPITAL MARKETS leading to increased economic activities. I. FACILITATE EFFICIENT ALLOCATION OF TYPES OF CAPITAL MARKETS CAPITAL Match investors who have excess funds with PRIMARY MARKET borrowers who need capital for investment Is where new securities are issued and sold and expansion. for the first time by companies or Allows investment capital to flow to projects governments to raise capital. and companies that have higher growth Facilitates capital formation by enabling potential and economic growth. businesses and governments to raise funds II. PROVIDE A PLATFORM FOR COMPANIES TO for expansion, infrastructure projects, or debt RAISE CAPITAL refinancing. Serve as a source of long-term financing for companies. TYPES OF PRIMARY OFFERINGS Companies can raise funds for various purposes such as research and I.Initial Public Offerings (IPO) development, infrastructure development, Is the first offering of shares to the public by and working capital. a private companies. It is the process through which a company III. ENABLE INVESTMENT OPPORTUNITIES FOR becomes publicly traded on a stock INDIVIDUALS exchange. Enable individuals to invest their savings in various financial securities. I I.Seasoned Equity Offerings (SEO) By investing, individuals can diversify their Already listed companies issues additional portfolio, accumulate wealth , and secure shares to the public their financial future. SEOs are typically undertaken by more established companies that have a track IV. ENHANCE LIQUIDITY record and in the market. Provide liquidity to financial securities, allowing investors to buy and sell securities I II.Private Placement easily. Involve the sale of securities directly to a Investors can convert their investments into select group of investors without offering cash quickly without significant price impact. them to the general public. V. PRICE DISCOVERY AND RISK MANAGEMENT  Used by companies that prefer to avoid the cost and regulatory requirements associated Provide a transparent and regulated with public offering marketplace where buyers and sellers can interact and trade shares in companies. I V.Debt Issuances Allow issuers to borrow money from the I I.Bond Markets (US Treasury, OTC) investors and promise to repay the principal Market for fixed-income securities such as amount with the interest over a specified government bond, and municipal bonds period of time. Allow investors to earn interest income on Allows companies and government to borrow their i nvestments, as well as diversify their money for infrastructure project or capital portfolion beyond stocks. investment. I II.Commodity Exchange (CME, LME) PRIMARY MARKETS IN THE PHIL. Commodity Exchanges facilitate the trading of physical commodities such as metals, PHILIPPINE STOCK EXCHANGE (PSE) energy product, and agricultural products, Primary market for stocks, allowing and other raw materials. companies to raise capital through IPOs and Promote Price discovery and risk secondary offerings management. PHILIPPINE DEALING & EXCHANGE CORP. I V.Derivatives Markets (CBOE, CME) (PDEx) Secondary Market for financial contracts Primary market for fixed-income securities. derived form underlying assets or indices Use to raise capital by issuing bonds and Allow investors to speculate on the future other debt securities. price movements of assets and or hedge against potential risk. BANGKO SENTRAL NG PILIPINAS Auction is another form of capital market in V.Foreign Exchange Markets the Phil. conducted by the central bank. Secondary market where currencies are They offer T-bills, and bonds. bought and sold. Enables individuals, businesses, and REAL ESTATE INVESTMENT TRUST institutions to exchange one foreign currency Allow investors to invest in i for another, facilitating international trade ncome-generating real estate properties. and investments. REITs are listed in the PSE. PHILIPPINE STOCK EXCHANGE (PSE) TYPES OF CAPITAL MARKETS It is where securities are traded after their initial issuance in the primary market. SECONDARY MARKET Is where previously issued securities are PHILIPPINE DEALING & EXCHANGE CORP. bought and sold among investors after (PDEx) their initial issuance in the primary Provide platforms for investors to trade market. securities, and determine the price at which Facilitates price discovery based on trades occur. supply and demand dynamics. TYPES OF SECONDARY MARKET I.Stock Exchanges (NYSE, NASDAQ, LSE, TSE) These centralized platforms facilitate publicly listed stocks.  PARTICIPANTS OF CAPITAL MARKET & THE These investors typically have significant PHIL. capital to invest and often engage in large-scale transactions. Their actions can influence market prices due to the size of their trades. MAJOR PLAYERS IN THE CAPITAL MARKET Foreign Investors I. Issuers Individuals or institutions based outside of Issuers are entities that raise capital by the country i n which the securities are offering securities for sale to the public or issued. private investors. Their participation adds to the globalization The primary role of issuers is to generate of capital markets and can influence funds for various purposes such as exchange rates and capital flows. expansion, debt repayment, or operational needs. I II. Intermediaries Entities that facilitate the functioning of the Corporations capital markets by acting as a bridge Companies issue stocks to raise equity between issuers and investors. capital. By selling shares, they allow They help ensure that the market operates investors to own a portion of the company. smoothly, providing services such as Corporations can also issue bonds to borrow underwriting, trading, and advisory. money, which they agree to pay back with interest over time. Brokers Brokers act as agents for investors, Governments executing buy or sell orders on behalf of their Governments issue bonds to finance public clients in exchange for a commission. projects like infrastructure, schools, and They do not own the securities themselves hospitals, or to manage national debt. but connect buyers and sellers. These are typically seen as low-risk investments, especially in stable economies. Dealers Dealers buy and sell securities for their own Municipalities accounts. Local governments or municipal authorities They provide liquidity in the market by being issue municipal bonds to fund local projects ready to buy and sell securities at any time, such as roads, schools, and public utilities. thus helping to maintain market stability. I I. Investors Investment Banks Investors are individuals or institutions that These institutions help issuers raise capital purchase securities with the expectation of by underwriting and selling securities. earning a return on their investment. Investment banks play a crucial role in the They are the ones who provide the capital initial public offering (IPO) process, where a that issuers seek to raise company first offers its shares to the public. Individual Investors Clearinghouses These are private individuals who invest their Clearinghouses ensure that trades are own money in the capital markets, typically settled efficiently and securely by managing for purposes such as retirement savings, the process of transferring securities and wealth accumulation, or specific financial money between buyers and sellers. goals. They reduce the risk of counterparty default and ensure that trades are completed. Institutional Investors Large entities such as mutual funds, pension funds, insurance companies, hedge funds, and endowments. Stock Exchanges investors, with lower denominations to attract Platforms like the New York Stock Exchange smaller investors. (NYSE) or NASDAQ where securities are 7. Pag-IBIG Bonds- Bonds issued by the listed and traded. Home Development Mutual Fund (Pag-IBIG Stock exchanges provide a regulated and Fund) to finance housing programs, often organized environment for buying and selling backed by government guarantees. securities, ensuring transparency and fairness in the market. Corporate Debt Instruments 1. Corporate Bonds- Bonds issued by private Credit Rating Agencies companies with varying maturities, typically Firms like Moody’s, Standard & Poor’s, and ranging from 3 to 10 years. These may have Fitch assess the creditworthiness of issuers fixed or floating interest rates. and their securities. 2. Commercial Papers (CPs)- Short-term Their ratings help investors gauge the risk unsecured promissory notes issued by associated with investing in particular corporations, typically with maturities of up to securities. 270 days. 3. Securitized Debt Instruments- Includes PHILIPPINE CAPITAL MARKET mortgage-backed securities (MBS) and asset backed securities (ABS), which are less common but used to finance specific pools of assets. 1. Debt Market 2. Equity Market Municipal Debt Instruments 3. Foreign Exchange Market 1. Municipal Bonds- Issued by local 4. Derivatives Market government units (LGUs) to finance public i nfrastructure projects or other community I.DEBT MARKET initiatives. These are less commonly issued The debt market in the Philippines involves in the Philippines. the buying and selling of debt securities, such as bonds. It is a crucial component of Development and Special Purpose Bonds the capital market, allowing issuers to raise 1. Social Bonds- Bonds issued for financing funds by borrowing from investors. projects with social benefits, such as housing, education, or healthcare. They may Government Debt Instruments be issued by either the government or 1. Treasury Bills (T-bills)- Short-term private entities. government securities with maturities 2. Green Bonds- Bonds issued to finance ranging from 91 days to 364 days. environmentally friendly projects, such as 2. Treasury Bonds (T-bonds)- Medium to renewable energy or sustainable long-term government securities with infrastructure. maturities ranging from 2 to 25 years. 3. Infrastructure Bonds- Issued to fund large 3. Retail Treasury Bonds (RTBs)- infrastructure projects, these can be Government bonds targeted at retail government-backed or issued by private investors, typically with maturities of 3 to 5 companies involved in infrastructure years, offering lower denominations to development. encourage broader participation. 4. Premyo Bonds- A special type of retail bond Foreign Currency Denominated Bonds that combines fixed income returns with 1. Global Bonds- Issued by the Philippine lottery-like rewards, with a low minimum government in international markets, investment amount. typically denominated in U.S. dollars, to raise 5. FXTNs (Fixed-Rate Treasury Notes)- foreign currency. Long-term government bonds with fixed 2. Eurobonds- Bonds issued in a currency interest rates, typically issued in pesos. other than the currency of the country where 6. RDBs (Retail Dollar Bonds)- Government it is issued. The Philippine government and bonds issued in U.S. dollars, aimed at retail  corporations may issue Eurobonds to access such as stocks, bonds, or commodities, international investors. offering diversification. 6. Real Estate Investment Trusts (REITs)- Hybrid Securities Companies that own, operate, or finance 1. Convertible Bonds- Bonds that can be income generating real estate, offering converted into a specified number of shares investors a way to invest in real estate of the issuing company’s stock under certain without directly owning property. conditions. While less common, some 7. Depositary Receipts (e.g., Global Philippine companies may issue these as Depositary Receipts)- Financial part of their capital-raising strategies. instruments representing shares in a foreign 2. Perpetual Bonds- Bonds with no maturity company, allowing domestic investors to date that pay interest indefinitely. These are invest in companies abroad. often issued by banks or financial institutions 8. Small and Medium Enterprise (SME) and can be considered a hybrid between Board Listings- A special platform on the equity and debt. Philippine Stock Exchange for small and medium enterprises to list their shares and Special Government Programs raise capital, with less stringent requirements 1. Agrarian Reform Bonds- Issued by the than for larger companies. government to support the agrarian reform program, typically offered to landowners as I II.Foreign Exchange Market compensation for land acquisition. The foreign exchange (forex or FX) market in 2. BSP Special Bills- Short-term bills issued the Philippines is where currencies are by the Bangko Sentral ng Pilipinas (BSP) for traded. monetary policy purposes It is a decentralized market, operating over-the counter (OTC), where participants I I.EQUITY MARKET buy and sell foreign currencies. The equity market in the Philippines is where stocks (equities) of publicly listed companies Foreign Exchange Instrument are bought and sold. 1. Spot Contracts- Agreements to buy or sell a It provides a platform for companies to raise currency pair at the current market rate, with capital by issuing shares and for investors to settlement typically occurring within two buy ownership stakes in these companies. business days. 2. Forward Contracts- Customized Equity Instruments agreements to buy or sell a currency pair at 1. Common Stocks- Shares representing a specified future date and rate, used for ownership in a company, entitling holders to hedging against currency risk. vote at shareholder meetings and receive 3. Futures Contracts- Standardized contracts dividends. traded on exchanges to buy or sell a 2. Preferred Stocks-Shares that have priority currency pair at a future date and price, with over common stocks in the payment of a standardized contract size. dividends and assets in the event of 4. Options- Contracts that give the holder the liquidation but typically do not have voting right, but not the obligation, to buy or sell a rights. currency pair at a specified price before a 3. Warrants- Securities that give the holder the certain date. right, but not the obligation, to buy a 5. Swaps- Agreements to exchange cash flows company’s stock at a specific price before a or principal amounts in different currencies, certain date. typically involving a spot transaction and a 4. Rights Offerings- Offers by a company to forward contract. its existing shareholders to purchase 6. Currency Exchange-traded funds that additional shares at a discount, typically in invest in a basket of currencies or a single proportion to their current holdings. currency, allowing investors to gain exposure 5. Exchange-Traded Funds (ETFs)- to currency movements. Investment funds that are traded on the stock exchange, holding a basket of assets  7. Currency Notes-Physical banknotes used 10. Volatility Derivatives- Instruments that for international travel or trade, though less derive their value from the volatility of an common in modern forex trading. underlying asset, such as volatility futures or 8. Foreign Currency Certificates-Certificates options. issued by banks representing a deposit in foreign currency, typically used for Compared to more developed markets, the investment or hedging purposes. Philippine capital market is characterized by limited depth and liquidity. I V.Derivatives Market Historical issues, economic challenges, poor The derivatives market in the Philippines investor confidence, and global uncertainty involves trading financial instruments whose have hampered its growth. value is derived from underlying assets such as stocks, bonds, commodities, interest Limited Product Offerings rates, or currencies. The Philippine capital market mainly offers bonds and equities, with limited availability of Derivatives Instruments hybrid securities and no active options or 1. Futures Contracts- Standardized contracts futures markets. traded on exchanges to buy or sell an asset (such as commodities, currencies, or Low Liquidity financial instruments) at a predetermined Monthly trading volumes in both the stock price on a specific future date. and bond markets are low, particularly when 2. Options Contracts- Contracts that give the compared to neighboring countries in the holder the right, but not the obligation, to buy region. or sell an asset at a specified price before or on a certain date. Historical and Economic Challenges 3. Forward Contracts- Customized The market's development has been slowed agreements between two parties to buy or by economic instability, controversies, and sell an asset at a specified future date and low investor confidence. price, typically traded over-the-counter (OTC). Small Investor Base 4. Swaps- Agreements to exchange cash flows A thin investor base contributes to the lack of or principal amounts in different currencies, market depth and liquidity, necessitating interest rates, or other financial variables, efforts to attract more participants to improve often used to manage risk or speculation. market turnover. 5. Interest Rate Swaps-A type of swap where parties exchange fixed interest rate Old but Underdeveloped payments for floating rate payments based Despite being one of the oldest capital on a notional principal amount. markets in Asia, the Philippine market has 6. Currency Swaps- Agreements to exchange not kept pace with its regional peers in terms cash flows or principal amounts in different of growth and sophistication. currencies, usually involving both spot and forward exchanges. 7. Credit Default Swaps (CDS)- Contracts that provide protection against the default of a borrower by transferring the credit risk from one party to another. 8. Equity Derivatives- Derivatives based on stock prices or stock indices, including equity options and equity futures. 9. Commodity Derivatives- Contracts based on the price of commodities like oil, gold, or agricultural products, including futures, options, and swaps. CAPITAL MARKET REGULATORY ENVIRONMENT APPROVAL REQUIREMENTS FOR CAPITAL STOCK CHANGES A corporation cannot increase or decrease its capital stock, or create or increase LAWS AND IMPLEMENTING ARMS bonded indebtedness, without approval by a majority vote of the board of directors and Securities and Exchange Commission stockholders representing at least two thirds The SEC is a government agency created of the outstanding capital stock. under Commonwealth Act no. 83 by law in 1936 (the Securities Act). APPROVAL REQUIREMENTS FOR CAPITAL Its reorganized functions were outlined in STOCK CHANGES 1975 under PD no. 902-A These changes must be approved during a stockholders' meeting specifically called for Securities and Exchange Commission this purpose. The primary government agency Any increase or decrease in capital stock responsible for regulating the securities also requires prior approval from the market, protecting investors, and Securities and Exchange Commission ensuring that corporations operate within (SEC). the legal framework. This helps maintain a fair, efficient, and EXAMPLE: transparent financial environment, IRC Properties, Inc. increased its capital stock attracting both domestic and foreign through a combination of preferred shares issuance investments. and private placement, announced in June 2018. Securities and Exchange Commission The primary government agency TREASURY STOCKS responsible for regulating the securities market, protecting investors, and ensuring that corporations operate within Treasury shares are stocks that a corporation has the legal framework. issued and fully paid for but later reacquired through This helps maintain a fair, efficient, and purchase, redemption, or donation. These shares are transparent financial environment, not entitled to dividends or voting rights while held as attracting both domestic and foreign treasury stock. investments. LEGAL FRAMEWORK Corporations may purchase or acquire their CORPORATION CODE OF THE PHILIPPINES own shares as long as they have unrestricted retained earnings. Banks are an exception under Section 10 of RA 8791 or From a capital market investor's point-of-view, the The General Banking Law of 2000. provisions of the Corporation Code of the Philippines that are vital in the creation of CONDITIONS FOR BUYBACK securities are: A corporation can repurchase its shares 1. Capital Stock under certain conditions: 2. Treasury Stock 1. To eliminate fractional shares from stock 3. Pre-emptive rights dividends. 4. Dividends distribution 2. To collect unpaid subscriptions in a 5. Merger or Consolidation delinquency sale. 3. To pay dissenting or withdrawing CAPITAL STOCKS stockholders entitled to compensation for their shares. EXAMPLE: San Miguel Corporation (SMC) bought back 350 million of its shares (10.97% of its outstanding shares) after the 1997 Asian financial PRE-EMPTIVE RIGHTS crisis to stabilize share prices. These shares were later sold in 2005 to strategic investor Kirin Holdings Co., Ltd. Pre-emptive Rights give existing stockholders the right to subscribe to new shares issued DIVIDENDS DISTRIBUTION by the corporation before the shares are offered to outside i nvestors. This right is proportional to their existing PAYMENT OF DIVIDENDS shareholding. Dividends can only be paid out of unrestricted retained earnings. These are EXCEPTIONS TO PRE-EMPTIVE earnings not subject to any restrictions RIGHTS and are available for distribution to Pre-emptive rights do shareholders. not apply to shares Corporations with surplus profits issued to comply with exceeding 100% of their paid-in capital laws requiring stock must declare and distribute the excess offerings or minimum profits as dividends to their stockholders. stock ownership by the public. TAX ON UNDISTRIBUTED EARNINGS Pre-emptive rights do If a corporation fails to distribute the not extend to shares excess profits as required, the improperly issued in good faith, with accumulated earnings are subject to a the approval of 10% tax. stockholders Corporations planning a significant representing two-thirds expansion may be exempt from this of the outstanding dividend distribution requirement and the capital stock, in associated tax. exchange for property needed for corporate EXAMPLE purposes or to pay off Universal Robina Corporation (URC), previously contracted despite having a rising dividend payout debts. as of 2004, had retained earnings in excess of its paid-in capital but may have EXAMPLE: been exempt from the requirement and In January 2018, Robinsons Land tax due to its planned expansion. Corporation (RLC) conducted a ₱20 billion rights offering. Existing EXAMPLE shareholders were granted pre-emptive Universal Robina Corporation (URC), rights with a subscription ratio of one despite having a rising dividend payout right for every 3.721 shares held, at a as of 2004, had retained earnings in price of ₱18.20 per share. excess of its paid-in capital but may have been exempt from the requirement and tax due to its planned expansion. MERGERS AND CONSOLIDATIONS EXAMPLE Universal Robina Corporation (URC), Merger: Two or more corporations despite having a rising dividend payout combine into a single corporation, with as of 2004, had retained earnings in one of the existing corporations excess of its paid-in capital but may have continuing as the surviving entity. been exempt from the requirement and Consolidation: Two or more corporations tax due to its planned expansion. combine to form a new, single  corporation, which is the consolidated 3. Management entity. 4. Financials Merger: Two or more corporations 5. Relevant corporate developments combine into a single corporation, with This information helps investors assess one of the existing corporations risks, opportunities, and determine the continuing as the surviving entity. appropriate price for the securities. Consolidation: Two or more corporations combine to form a new, single corporation, which is the consolidated SELF REGISTRATION entity. The board of directors of each corporation involved in the Shelf registration allows an issuer to reorganization must approve the plan for register a specific number of securities the merger or consolidation. with the SEC and issue them in tranches over a period not exceeding three years EXAMPLE: from the effective date of the registration In January 2018, Robinsons Land Corporation statement. (RLC) conducted a ₱20 billion rights offering. This process provides flexibility for Existing shareholders were granted pre-emptive issuers to issue securities in portions as rights with a subscription ratio of one right for market conditions become favorable. every 3.721 shares held, at a price of ₱18.20 per Shelf registration allows an issuer to share. register a specific number of securities with the SEC and issue them in tranches SECURITIES REGULATION CODE OF THE over a period not exceeding three years PHILIPPINES from the effective date of the registration statement. The SRC regulates the sale of securities This process provides flexibility for by market intermediaries and securities issuers to issue securities in portions as market professionals in the Philippines. market conditions become favorable. The SRC, effective from August 8, 2000, regulates securities transactions in the REQUIREMENTS Philippines and replaced the RSA and Advance Disclosure- At least five parts of PD No. 902-A. Its 2015 IRR business days before offering or updates ensure the regulations align with selling additional tranches, the market developments. issuer must disclose relevant information to the SEC using SEC Form 12-1 SR. REGISTRATION OF SECURITIES The total filing fee is computed based on the value of the securities for each tranche, as "Securities shall not be sold or offered for sale or per Section 12.5(a) of the SRC. distribution within the Philippines, without a Fees for subsequent tranches registration statement duly filed with and must be paid within seven approved by the Commission. Prior to such sale. business days prior to the start information on the securities, in such form and of the offering or sale. with such substance as the Commissioner may The issuer must undertake to pay prescribe, shall be made available to each any remaining registration fees prospective purchasers.” no later than thirty business days before the three-year period DISCLOSURE REQUIREMENTS expires from the effective date of The registration process requires disclosure of the registration statement. relevant and material information, including: 1. Track records 2. Ownership  REGULATION OF INVESTMENT COMPANIES AND INVESTMENT PROFESSIONALS REGULATION ON TRADING OF SECURITIES The ICA requires that certain The SEC oversees the regulation of documentation and policies be filed securities trading in both formal and regularly with the SEC, including informal secondary markets. separate advertisements and disclosure Private entities like the PSE (Philippine documents for investment solicitors. Stock Exchange) and PDEX (Philippine They are required to pass certification Dealing and Exchange System) ensure examinations administered by the SEC. compliance with relevant laws. Violations of these requirements result in The PSE has the authority to penalize and penalties and sanctions under the ICA fine member brokers for violations, and the SRC. including manipulative practices and unlicensed trading activities. QUALIFIED INDIVIDUAL BUYER Minimum annual gross income of PHP 10 Going public and maintaining a listing million for at least two years prior to incurs various fees and fines. registration. 1. Initial Listing Fee Rate Total portfolio investment in 2. Annual Listing Maintenance Fee SEC-registered securities of at least PHP 3. Annual Listing Maintenance Fee for 10 million. Subscription Warrant Personal net worth of at least PHP 30 The PSE can penalize listed firms for million. failing to comply with reportorial and disclosure requirements. QUALIFIED INDIVIDUAL BUYER Minimum annual gross income of PHP 10 DISCLOSURE REQUIREMENT AND million for at least two years prior to DISSEMINATION registration. Total portfolio investment in SEC-registered securities of at least PHP Structured Reports- Regularly required, 10 million. including quarterly and annual reports. Personal net worth of at least PHP 30 These reports must detail operations and million. major items affecting the company. They Must have engaged in securities trading are first submitted to the SEC and then to for a minimum of one year or held a the PSE. position requiring expertise in securities Unstructured Reports- Filed as needed, trading. covering significant business developments, management changes, QUALIFIED INSTITUTIONAL BUYER and legal matters. These can be filed with Minimum gross assets of PHP 100 the SEC and PSE simultaneously or million. initially with the PSE. If deemed Total portfolio investment in significant, the PSE may halt trading to SEC-registered securities or ensure proper dissemination. government-issued financial instruments Structured Reports- Made available on of at least PHP 60 million. the SEC and PSE websites and further disseminated by media and securities NON-QUALIFIED INVESTORS data providers. Through the service of another person Unstructured Reports- Also posted on the such as a broker, investment house, or PSE website and disseminated by media bank, each in capacity as an authorized and securities data providers. The PSE broker in the OTC market. may halt trading to allow proper Through participation in registered or dissemination if necessary. chartered collective investment schemes. REGULATION OF SRO REGULATION OF SRO closing prices of certain stocks and bonds. J.P. Morgan was fined for engaging in practices that sought to manipulate the closing prices of Self-Regulatory Organizations (SROs) like securities to benefit its trading positions. the PSE and PDEX are regulated by the SEC. HYPE AND DUMP SROs are responsible for: The Enron scandal involved executives who used 1. Enforcing compliance with relevant misleading statements and accounting practices securities laws and regulations. to inflate the company's stock price. They created 2. Promulgating and enforcing their own a false impression of the company's financial rules, subject to SEC approval. health, encouraging investors to buy in at higher 3. Ensuring fair, ethical, and efficient prices before selling their shares at a profit, practices in the securities and leading to a dramatic collapse when the truth was commodities markets. revealed. SQUEEZING THE FLOAT UNLAWFUL MANIPULATIVE PRACTICES In the early 2000s, Volkswagen experienced a "short squeeze" when it was revealed that Porsche had accumulated a significant stake in The SRC prohibits manipulative practices in the company, leaving short sellers scrambling to securities trading, as detailed in SRC Rule 24.1 of cover their positions. This caused Volkswagen’s its IRR. Examples of unlawful practices include: stock price to skyrocket as short sellers bought 1. Painting the Tape- Creating a false shares to cover their positions, creating an impression of market activity or price artificial price surge. movement. 2. Marking the Close- Manipulating the WASH SALES closing price of a security by trading at In 2018, the SEC charged several traders for the market close. engaging in wash sale schemes. These traders 3. Hype and Dump- Inflating prices through executed trades that involved no genuine change buying activity and then selling at the in ownership, but were designed to create the inflated prices. appearance of market activity. This was done to 4. Squeezing the Float- Exploiting a manipulate the market and deceive other shortage of securities to create artificial investors. prices. 5. Wash Sale- Engaging in trades where IMPROPER MATCHED ORDERS there is no genuine change in ownership. The 2008 financial crisis saw several instances 6. Improper Matched Orders-Colluding to where improper matched orders were used to execute buy and sell orders at the same manipulate the market. Traders would execute price and quantity to manipulate the buy and sell orders at the same price and quantity market. to create false impressions of liquidity and market activity. PAINTING THE TAPE EXAMPLE At the PSE Level- Fines for manipulative In 2013, the SEC charged several traders practices range from PhP 1,000 to PhP involved in a scheme to manipulate the 100,000. stock prices of penny stocks by engaging Under SRC Violations- Fines range from in a series of trades to create the PhP 50,000 to PhP 5 million, with appearance of active trading. The traders potential imprisonment from 7 to 21 years executed a large volume of trades among for serious offenses. themselves, thereby misleading other investors about the stock's activity. MARKING THE CLOSE The infamous case of J.P. Morgan in 2012 involved "marking the close" to manipulate the