Securities and Exchange Commission
Emilio Benito Aquino is the first CPA-Lawyer appointed as
Chairperson and CEO of the Securities and Exchange
Commission (SEC). He will serve for a term of seven years. He
assumed office last June 7, 2018. He was earlier appointed as
SEC Commissioner on December 2, 2016.
2019 Legislation _ Republic Act 8799 (The Securities
Regulation Code)
SECTION 4. Administrative Agency. –
4.1 This Code shall be administered by the. Securities and
Exchange Commission (hereinafter referred to as the
"Commission")
as a collegial body, composed of a Chairperson and four (4)
Commissioners, appointed by the President for a term of seven
(7) years each and who shall serve as such until their successor
shall have been appointed and qualified.
-A Commissioner appointed to fill a vacancy occurring prior to the
expiration of the term for which his/her predecessor was
appointed, shall serve only for the unexpired portion of such term.
-The incumbent chairperson and commissioner, the efectivity
of this code, shall serve the unexpired portion of their terms under
Presidential Decree No. 902-A. Unless the context indicates
otherwise, the term “Commissioner” includes the Chairperson.
4.2 The Commissioners must be natural-born citizens of the
Philippines, at least forty (40) years of age for the Chairperson
and at least thirty-five (35) years of age for the Commissioners,
of good moral character, of unquestionable integrity, of known
probity and patriotism and with recognized competence in social
and economic disciplines: Provided, That the majority of
Commissioners, including the Chairperson, shall be members of
the Philippine Bar.
4.3 The Chairperson is chief executive officer of the Commission.
The Chairperson shall execute and administer the policies,
decisions, orders and resolutions approved by the
Commission and shall have the general executive direction and
supervision of the work and operation of the Commission and of its
members, bodies, boards, offices, personnel and all its
administrative business.
-The salary of the Chairperson and the Commissioners shall be
fixed by the President of the Philippines based on an objective
classification system, at a sum comparable to the members of the
Monetary Board and commensurate to the importance and
responsibilities attached to the position.
SECTION 5. Administrative Agency.
The Commission shall hold meetings at least once a week for
the conduct of business or as often as may be necessary upon
call of the Chairperson or upon the request of three (3)
Commissioners. The notice of the meeting shall be given to all
Commissioners and the presence of three (3) Commissioners shall
constitute a quorum. In the absence of the Chairperson, the most
senior Commissioner shall act as presiding officer of the meeting.
The Commission may, for purposes of efficiency, delegate any of
its functions to any department or office of the Commission, an
individual Commissioner or staff member of the Commission
except its review or appellate authority and its power to adopt,
alter and supplement any rule or regulation.
SEC. 5. Powers and Functions of the Commission.
5.1. The commission shall act with transparency and shall have
the powers and functions provided by this Code, Presidential
Decree No. 902-A, the Corporation Code, the Investment
Houses Law, the Financing Company Act and other existing
laws.
5.1 a Have jurisdiction and supervision over all
corporations, partnerships or associations who are
the grantees of primary franchises and or a license or
permit issued by the Government;
5.1 b Formulate policies and recommendations on issues
concerning securities market, advise Congress and other
government agencies on all aspects of securities market
and propose legislations and amendments thereto;
5.1 c Approve, reject, suspend, revoke or require
amendments to registration statements, and registration
and licensing applications;
5.1 d Regulate, investigate or supervise the activities of
persons to ensure compliance;
5.1 e Supervise, monitor, suspend or take over the
activities of exchanges, clearing agencies and other
SROs;,l
,l
5.1f Impose sanctions for the violation of laws and the
rules, regulations and orders issued pursuant thereto;
5.1 g Prepare, approve, amend or repeal rules, regulation
and orders, and issue opinions and provide guidance on
and supervise compliance with such rules, regulations
and orders;
5.1 h Enlist the aid and support of and/or deputize any
and all enforcement agencies of the Government, civil or
military as well as any private institution, corporation, firm,
association or person in the implementation of its powers
and functions under this Code;
5.1 i Issue cease and desist orders to prevent fraud or
injury to the investing public;
5.1 j Punish for contempt of the Commission, both direct
and indirect, in accordance with the pertinent provisions
of and penalties prescribed by the Rules of Court;
5.1 k Compel the officers of any registered corporation or
association to call meetings of stockholders or members
thereof under its supervision;
5.1 l Issue subpoena duces tecum and summon
witnesses to appear in any proceedings of the
Commission and in appropriate cases, order the
examination, search and seizure of all documents,
papers, files and records, tax returns, and books of
accounts of any entity or person under investigation as
may be necessary for the proper disposition of the cases
before it, subject to the provisions of existing laws;
●
Suspend, or revoke, after proper notice and hearing the
franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds
provided by law; and
Primary Market (corporation)(noted bills stock)
-The Primary Market is where securities are created. It’s in this
market that firms sell new stocks and bonds to the market for the
first time.
●
Exercise such other powers as may be provided by law as
well as those which may be implied from, or which are
necessary or incidental to the carrying out of, the express
powers .granted the Commission to achieve the objectives
and purposes of these laws.
-It enables the government, companies, and other institutions to
raise additional funds through the sale of debt and equity related
securities. For example, primary market securities can be notes,
bills, government bonds, and stocks of companies.
Regulation of the Issuance of Securities
● Underwriting activities are regulated by the Securities and
Exchange Commission. Republic Act 8799 governs the
issuance of securities in the Philippines. The act requires
that registration statement be filed by the issuer of a
security.
●
The information contained the nature of the business of the
issuer, key provisions or features about the security, the
nature of the investment risks associated with the security,
and the background f the management. Financial statements
must be included in the registration by independent public
accountant.
Entities in the Primary Market
1. Company – The company issues securities for the first time
in the primary market. This process is known as Initial Public
Offering.
2. Underwriter – The underwriter decides the sale price of the
new issue securities. Financial institutions such as investment
banks, insurance companies, etc offer underwriting services.
Two Parts of Registration
First is the prospectus that is typically distributed to the public
as an offering of the securities. (background of the
business)(about its business it self)
Second part contains supplemental information which is not
distributed to the public but is available from the SEC upon
request
The underwriter may also be sued if he does not conduct thorough
investigation on the information reported. The most important duty
of an underwriter (bumili ng ipo) is to perform due diligence.
Shelf Registration Rule
● Under the Shelf Registration Program, securities may be
registered for an offering to be made on a continuous or
delayed basis, or in tranches, for a period of not exceeding
3 years(limited time). Capital raising can be done by issuers
as they are needed and/or when market conditions are
favorable for them.
● Private Placement in the Philippines
● Section I Article II of the PSE revised listing rules defines
private placement as the sale of securities to less than 20
persons. Investors in private placements can be large banks,
mutual funds, and pension funds.
3. Investors – They are the purchasers of the new security
(underwriter) in the primary market. Once the company
receives the money, it issues the certificate to the investor.
The certificate can be issued at face value, premium value or
par value.
PRIMARY DISTRIBUTION OF SECURITIES
● Primary distribution refers to the sale of a new security,
public reception to new issue is still unknown factor,
established companies take precautions in marketing a new
issue through experienced institutional security dealer
5 best stock brokers in the Philippines:
● First Metro Sec Pro.
● COL Financial
● BDO Securities
● BPI Trade
● Philstocks
●
Primary distribution is mostly done via the investment
bankers, private placement, or direct sale by a company to
individual investors. New issues are never traded through the
security exchanges.
Secondary Market
The Secondary Market is created for seasonal securities. These
are securities which have passed the test of public acceptance.
Underwriter is a bank of financial institution that pledges to buy
all the unsold shares in an issue of new shares.
Underwriter syndicate is a temporary group of banks and
broker-dealers who come together to sell new offerings of equity
or debt securities to investors.
Investment House
An investment or bank is an intermediary between the sources of
capital, the investors, and its users, the business firm.
The primary business of the investment house is the marketing of
financial instruments.
Investment banker may find itself in the position of creditor,
investor, agent or consultant.
Investment Banker
The investment banker is a financial specialist involved as an
intermediary in the merchandising of security. He or she facilitates
the flow of savings to raise funds. The investment banker work in
an investment banking firm or an investment banking house.
Investment House in the Philippines
1. RCBC CAPITAL
2. AB CAPITAL AND INVESTMENT CORPORATION (Asian Bank)
3. CLSA EXCHANGE CAPITAL, INC
4. INVESTMENT AND CAPITAL CORPORATION
5. ORTIZ JM AND COMPANY INCORPORATED
6. STATELAND INCORPORATED
COMPETITIVE BIDDING
The primary distribution of new issues follows some general
pattern. The marketing of securities may be done through
formal negotiations between the investment banker and the issuer
or through competitive bidding.
NEGOTIATED DISTRIBUTION:
Most issuers prefer to negotiate with particular investment house
who have their confidence, whose ability and integrity they could
depend on. As in the case of competitive bidding, negotiations
may be made with only one investment banker or with a syndicate.
The investment banker who conducts the preliminary
arrangements with the issuer is called “originator”. (wholesale
and retail)
Three Functions of Investment Banker
1. Underwriting
The term underwriting is borrowed from the field of insurance. It
means assuming a risk. The investment banker assume the risk
of selling security issue at a satisfactory price. A satisfactory
price is the one that generates profit for the investment banking
house.
The syndicate is a group of another investment banker who are
invited to help buy and resell the issue.
An underwriting agreement is said to be on firm basis, if the
investment house agrees to purchase the issue from the
corporation. The investment banker or the syndicate takes all the
risks in the disposal of the security. The issuing company is
assured of cash payment at the specific period agreed upon.
In a stand-by underwriting agreement, the investment banker
agrees to purchase whatever portion of the issue will be left
unsold after the offering period.
This type is frequently used in the stock issue where outstanding
stockholders may exercise their preemptive rights.
The portion of the stocks that will not be subscribed by the
stockholders is bought by the investment banker.
The investment banker has to determine its gross profit or spread.
2. DISTRIBUTION OF SECURITIES
Once the syndicate owns the securities, it must get them into
hands of the ultimate investors. The syndicate can be viewed as
wholesaler of security and dealers are retailers of security.
Prospectus. A prospectus is a primer on a security issue. It has a
detailed description of its features and includes factual information
on the operations and financial position of the issuing company.
Offering Period. As soon as the required registration has been
approved by the SEC, the offering period starts.
3. Advising
● The investment banker may advice the firm to issue in a
proper timing to avoid the higher yield that are forthcoming.
●
The banker can analyze the firm’s capital structure and make
recommendations as to what general source of capital should
be issued, at this point the banker is invited to sit with the board
of directors to observe corporate activity and make
recommendations in a regular basis.
Variations in the Underwriting Syndicate
1. Bought Deal the mechanics of a bought deal –used only for
debt securities(bonds). The manger or group of managers offers
a potential issuer of debt securities a firm bid to purchase a
specified amount of securities with a certain interest (coupon rate)
and maturity. (limited time pagbili ng bonds)
The issuer is given a day or few hours to accept or reject the bid. If
the bid is accepted, the underwriting firm has bought the deal. It
can, in turn, sell the securities to other investment banking firms
for distribution to their clients and/or redistribute the securities to
its own clients.
2. Auction Process-the bidders indicate the price they are willing
to pay and the amount they are willing to buy. The securities is
then allotted to bidders on the basis of highest bid price until the
entire issue is allocated.
3. Preemptive Rights Offering grants existing shareholders the
right to buy some proportion of the new shares issued at a price
below market value. The price at which new shares can be
purchase is subscription price. The rights offering insures that the
current shareholders may maintain their proportionate equity
interest in the corporation.
Function of Secondary Market
The secondary market provides regular information to the issuer
about the value of securities.
It provide opportunity to the original buyers of the asset to reverse
their investment by selling it for cash, unless investors are
confident to shift from one financial assets to another as they may
deem necessary.
SECURITIES AND EXCHANGE COMMISSION: an independent
government agency which supervises the securities market,
oversees the operation of the PSE and its members, and ensures
compliance with the provisions of the securities act.
Also issues the rules and regulations subject to the approval by
the Monetary Board.
Functions of SEC
Major Function include: Registration of securities, analysis of
every registered security, evaluation of the financial condition and
operations of applicants for security issue.
●
The PSE facilitates the selling and buying of the issued
stocks and warrants.
●
It provide suitable market for trading securities to
individuals and organization who want to invest their
savings and excess funds.
●
The PSE is committed to protect the interest of the
investing public. Develop and maintain an efficient, fair,
orderly and transparent market.
EFFICIENT MARKET – Orders are executed and transactions are
settled in the fastest possible way.
● Fully automated machine is installed. Installation of
trading terminal outside metro manila to encourage
provincial investors
FAIR MARKET – PSE assures that no investor will have undue
advantage over another market player in manipulating prices and
engaging into insider trading.
● Insider trading is the act of buying and selling a particular
stock based on certain privileged information which is not
available to the public, this is illegal and prohibited by the
PSE.
MARKET TRANSPARENCY – It is an assumption that investor
can only make informed and intelligent stock information about the
particular stocks he wants to buy.
● The PSE required the listed companies to disclose timely,
complete and accurate material information to the
exchange and the public regularly.
The PSE is a private non-profit and non-stock
organization created to provide and maintain a fair,
efficient, transparent and orderly market for the purchase
and sale of securities such as stocks, warrants, bonds,
options and others.
UNIT TRADING
For the convenience in making and executing orders, the
exchanges establishes a unit of trading called board or round lot.
Board lot means buying or selling the securities in an established
amount. The PSE establishes board lots on the basis of respective
price ranges, for example, with an offering price for shares from
P0.01 to P0.024 centavos the board lot is 20,000 shares; for the
P50 to P100 price range per share, the board lot is 10 shares.
That is, orders for stocks prices from one centavo to .025 centavos
should always be in terms of 20,000 shares, and for the P50 to
P100 price, in terms of ten shares.
THE ROLE OF THE PSE
● The PSE bring together companies which aim to raise
capital through the issue of new securities
BUYING AND SELLING ORDERS
The order to buy or sell may either be at the market price basis or
a limit order.
PHILIPPINE STOCK EXCHANGE
● A self-regulatory organization with the authority to police
its ranks through the Compliance and Surveillance Group
(CSG)
●
●
Companies have an easier access to their funds through
the listing of their share in the stock exchange. It is easier
to raise new capital through initial public offering if listed
in Exchange.
●
PSE plays a vital role in the financing of productive
companies that uses the funds for further expansion that
is essential for the economic growth.
The limit order specifies a maximum order price to buy at not more
P10, it means that that the broker is instructed to buy at P10 or
less. A broker ordered to sell at no less than P10 could sell the
security only at any price at over P10.
Trading in the exchange is a continuing auction sale. (The PSE is
open Monday through Friday from 9:30 am to 12:45 pm Philippine
Standard Time.
The PSE does not close for lunch, there is typically less liquidity
during the middle of the day.
Most trading happens near the beginning and the end of the day.
Market resumes 1:30 PM and Pre close 3:17 PM)
Brokers with buy orders compete with each other in purchasing the
stocks at the lowest bid price.
Bid price is the price the buyer is willing to pay for a certain
security. Brokers compete with each other in selling the stocks at
the highest asked price.
METHODS BY WICH FINANCIAL MARKETS TRANSFER
FUNDS IN THE CAPITAL MARKET
1. Direct Finance refers to lending by ultimate borrowers with no
intermediary.
Under this method the Surplus Spending Unit (SSU) give money to
Deficit Spending Unit (DSU) in exchange of financial claims on the
DSU.
Asked price is the price at which the security is offered for sale.
It is evident that exchanges do not fix price of securities on their
floors.
The market price is dictated by supply and demand conditions
and the continuous bargaining between buyers and sellers.
There are many factors that influence stock price; discovery of oil,
world price of copper, available reports on a company etc.
PSE controls price behavior imposing minimum fluctuations for
each security in accordance with its respective range.
Quotations mat not fail below nor rise beyond 20% of the last
sales price.
To illustrate; minimum fluctuations allowed for securities within
the price range of P50 to P100 per share is P1.
Shares for P100 may not be quoted above P101 nor below P99.
Or if the last sales price is P100 the subsequent quoted price may
not rise above P120.
Margin Trading
MARGIN TRADING – An investor may pay in full for the security
he buys or he may just put up a portion of the purchase price.
Margin trading refers to the purchase of securities where the buyer
only pays a part of the purchase price with the balance usually
advance by the broker, payable at specified future time. Thus an
investor Mr. X may buy P5,000 worth of stock and pays only
P2,500 to the broker. The balance is payable at a later date. The
margin payment is commonly expressed in percentage. In our
example, the buyer Mr. X puts up 50% of the purchasing price.
The broker advances the money for the unpaid balance P2,500 to
the seller of the security. Mr. X then owes the his broker the
amount advanced on which the broker may charge interest. The
broker keeps the security purchased as a collateral.
Stop Loss Order
The authority of the broker to sell the purchased security at a
target price is contained in a stop loss order.
The claims issued by the DSU are called direct claims and are
typically sold in direct credit markets such as the money or capital
market
Disadvantages of Direct Financing
1. There are few DSUs of which it can transact in the direct market
because the denominations of securities sold are very large
(usually millions of pesos)
2. It is difficult to match the requirements of SSUs and DSUs in
terms of denomination, maturity, and other factors.
Means of Direct Financing
1. Private placements- refers to the selling of securities by
private negotiation directly to insurance, companies,
commercial banks, pension funds, large scale corporate
investors, and
wealthy individual investors.
2. Brokers and dealers
3. Investment brokers
METHODS BY WICH FINANCIAL MARKETS TRANSFER
FUNDS
2. Indirect Finance (also called financial intermediation) refers to
lending by ultimate lender to a financial intermediary that then
relends to ultimate borrowers.
Financial intermediaries include commercial banks, mutual
savings banks, credit unions, life insurance companies, and
pension funds
CLASSIFICATIONS OF FINANCIAL MARKETS
1. Primary Market – A financial market in which newly
issued primary and secondary securities are traded for
the first time in the public.
2.
Secondary Market – is the financial market through
which existing financial securities are traded.
3.
Capital Market – is that portion of the financial market
where trading is undertaken for securities with maturity of
one or more than one year.
4.
Bond Market - It operates through a system of dealers
using a telecommunications network, rather than in a
single physical location for trading.
5.
Stock Market – is that financial market where the
common and preferred stocks issued by corporations are
traded. It has two components;
(1) organized exchanges and
(2) the less formal over the counter markets
However the broker is no obliged to wait until the specified price is
reached since the order is usually issued by the investor to protect
himself against loss in a highly fluctuating market.
The broker is given the discretion I determining the best price at
which to sell even if the target price is not reached.
6.
Mortgage Market – is that portion of financial market
which deals with loans and residential, commercial, and
industrial real estate, and on farmland.
7.
Consumer Credit Market –involved in loans on autos,
appliances, education, travel is referred to as the
consumer credit market.
8.
Auction Market – it is one where trading is conducted by
an independent third party according to a matching of
prices on orders receive to buy and sell a particular
security.
9.
Negotiation Market – when buyers and sellers negotiate
with each other, regarding price and volume, either
directly or through a broker or dealer.
10. Organized Market is that financial market with fixed
trading rules.
11. Over the Counter Market is that market consisting of
large collection of brokers and dealers, connected
electronically by telephones and computers that provide
trading in unlisted securities.
12. Spot Market- when securities are traded for immediate
delivery and payment, The spot price is the features of
spot market and which is actually the price paid for a
security that will be delivered on the spot immediately.
The term immediately may actually mean on or two days
to one week depending on the facilities used or the
tradition area. The spot market is an alternative to the
futures market.
13. Futures Market is that market where contracts are
originated and traded that give the holder the right to buy
something in the future at a specified price by the
contract.
14. Options Market is one where stock options are traded. A
stock option is a contract giving the owner the right to
either buy or sell a fixed number of shares of a stock
(usually 100) at any time before the expiration date at a
price specified in the option.
15. Foreign Exchange Market is the market where people
buy and sell foreign currencies.