SEC Phase 2 Flashcards
IMPORTANT TIME PERIODS
- 1 minute
- First 5 days of the month
- 15 days after the end of calendar quarter
- not later than 30 days filing SEC Form 28-T
- November of each year
- 6 months
- 3 years
- 5 years
- 10 years
execution of negotiation on PDEX Trading System
1 minute
if not traded, considered dormant accounts and shall be required to surrender or turn over to the client’s cash or security position
3 years
the Associated Person
shall submit a sworn statement to PDEX containing the ff:
1) All traders have been executed on the PDEX Trading system
2) all traders arranged or negotiated outside the PDEX trading system have been executed on the PDEX trading system w/in one (1) minute from conclusion of negotiation
3) All trades that have failed have been duly settled.
FIRST 5 DAYS OF THE MONTH
wherein Associated Person must prepare, sign & file with
the Commission a Compliance Report, maintain a logbook
on the firm’s compliance or non-compliance with the
provisions of the Code
15 DAYS AFTER THE END OF CALENDAR QUARTER
period where a resignation or discontinuation of a
salesman or Associated Person shall be provided to the
Commission by the Broker/Dealer
NOT LATER THAN 30 DAYS FILING SEC Form 28 –T
the Commission can hold the client’s security position and after such time, shall be disposed of pursuant to escheat proceedings
10 years
period of telephone call in the file or record shall be made available for PDEX inspection
6 months
issuance of annual license
for every registered salesmen and associated person
NOVEMBER OF EACH YEAR
period of all records concerning orders shall kept and maintained, a separate file of all advertisements
and sales literature
5 YEARS
IMPORTANT AGES
⮚ 18 y/o → applicants for Salesmen
⮚ 21 y/o → applicants for Associated Person
if the order is mentioned by the customer, regardless of who initiated the phone call or other communication
UNSOLICITED
an organization that enforces fair, ethical & sufficient
practices in the Securities & commodities
SELF REGULATORY ORGANIZATION (SRO)
if order is mentioned or ordered first by Salesmen
SOLICITED
a special Negotiated Transaction with a face amount of 10.0m
NEGOTIATED DEALING BOARD
Broker Dealer effecting transaction on behalf of the client without the client’s specific authorization, but shall be specified on the Client Agreement obtaining such authorization
DISCRETIONARY ACCOUNT
An economic condition characterized by a continuing rise in the general level of prices of goods and services
→ affects the ________, when the prices of goods and services goes ____
→ It reduces the ___________________
Inflation
→ value of money; up
→ purchasing power of money
is the resulting interest rate an investor receives if he invests all coupon payments at a constant interest rate until the bond matures
YIELD TO MATURITY
a basic calculation of the annual
percentage receives from his investment
CURRENT YIELD
indicator of the general levels of prices by measuring changes in the prices of a fixed basket of selected goods and services
THE PHILIPPINE CONSUMER PRICE INDEX (PCPI)
a period of declining prices of goods and services; it increases the relative value of ↑ money
DEFLATION
the premier financial institution of the government who controls the
money supply in the Phil.
BANGKO SENTRAL NG PILIPINAS (BSP)
3 stars of BSP
3 stars: Price stability, stable banking system, safe
and reliable payment system
borrowing money from a broker to
purchase stock
MARGIN TRADING
a technology infrastructure that provides the Trading Participants with automated deal capture and price discovery to transact and conclude their trades
PHILIPPINE DEALING & EXCHANGE CORPORATION (PDEX)
a measure of the income an investor received if he holds a bond until maturity
YIELD
REPORTS OF CUSTODIAN – periodic reports of the custodian on __________ shall be at least _________ and shall reflect the _______________ of the security
account balances; QUARTERLY; mark-market valuation
designated by the investor to perform the safekeeping, holding of the title of the securities either to nominee or trustee capacity, reports, rendition, mark-to market valuation, dividends or interest earnings
SECURITIES CUSTODIAN
appointed by the issuer to maintain the security registry book either electronic or in printed form. Records the initial issuance of the securities & subsequent transfer of ownership & issues registry confirmation to the buyer/holders
SECURITIES REGISTRY
International Bonds that pay interest and are bought and sold in US Dollars
YANKEE BONDS
serves as the official registry of government securities, is not subject to BSP accreditation
REGISTRY OF SCRIPLESS SECURITIES (ROSS)
the amount by which the rate of return on a risky investment compensates the investor for taking on risk
RISK PREMIUM
the amount by which the rate of return on a risky investment exceeds the rate of return on a less risky investment
CREDIT SPREAD
issued by National Government
SOVEREIGN BONDS
issued by National Government
in their own currency
GOVERNMENT BONDS
institution that offers financial services
BANKS
An individual or institution which acts as an underwriter or agent for corporations and municipalities issuing securities
INVESTMENT BANK
an enterprise engaged in guaranteed underwriting of securities of another person or enterprise, including securities of government
INVESTMENT HOUSE
for their own account (act as seller)
DEALER
administration of assets in behalf of another
TRUST
are share, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate contract, instrument, whether written or electronic in character
SECURITIES
cooperative FI owned and controlled by its members
CREDIT UNION
originator, maker, obligor, or creator of the secu
Issuer
for the account of others (act as agent)
BROKER
any person who engages on behalf of an issuer of securities, or itself as an issuer of securities (countersign, monitor issuance, register transfer, exchange/ convert and/or transfer record ownership by bookkeeping)
TRANSFER AGENT
provide liquidity (act as broker/dealer)
MARKET MAKER
organized marketplace that brings together buyers and sellers and executes trades
EXCHANGE
acts as intermediary in making deliveries upon payment to effect settlement in securities transactions
CLEARING AGENCY
acting alone or with others, takes initiative in founding and organizing the business or enterprise of the issuer and receives consideration
PROMOTER
is the document made by or on behalf of an issuer, underwriter or dealer to sell or offer securities for sale to the public through a registration statement filed with the Commission.
PROSPECTUS
guarantees on a firm commitment and/or declared best effort basis the distribution and sale of securities of any kind by another company.
UNDERWRITER
contract, transaction or scheme (collectively “contract”) whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others.
INVESTMENT CONTRACTS
issuer, director/officer, relationship that gave him access to material nonpublic info, government employee of an exchange, clearing agency, SRO, communication from any foregoing insiders
INSIDER
not generally dicslosed to the public that would affect the market price; lapse of reasonable time to absorb info; considered important in determining decisions to buy/sell/hold a security.
MATERIAL NONPUBLIC
is the application for the registration of securities required to be filed with the Commission.
REGISTRATION STATEMENT
combination of different assets mixed and matched to serve the purpose of achieving an investor’s goals while maximizing return for each unit of risk
PORTFOLIO
SEC DEPARTMENTS
CORE FUNCTION:Capital Market Regulation
1. MARKET REGULATION DEPT
2. CORPORATION FINANCE DEPT
3. NON-TRADITIONAL SECURITIES & INVESTMENT DEPT
Company Registration and Enforcement Function
4. COMPANY REGISTRATION & MONITORING DEPARTMENT
5. THE COMPLIANCE & ENFORCEMENT DEPT
party that proposes a deal with the
party who posts a quote
CALLING PARTY
party that posts a quote for other
parties to consider
QUOTING PARTY
develops criteria for market participants & supervises them to ensure compliance with registration requirements
MARKET REGULATION DEPT.
registers securities before being sold and ensures compliance by issuers with the Code of Conduct
CORPORATION FINANCE DEPT
registers pre-need plans, commodity features, contracted proprietor or non-prop membership certification
NON-TRADITIONAL SECURITIES & INVESTMENT DEPT.
registers domestic corporations, partnerships and associations, including representative offices and foreign corporations intending to do business in the Philippines
COMPANY REGISTRATION & MONITORING DEPARTMENT
ensures compliance by all market participants
THE COMPLIANCE & ENFORCEMENT DEPT.
SEC SUPERVISED/REGULATED INSTITUTION (ECSSIAOS)
- Exchanges
- Clearing Agencies/Depositories
- Self Regulatory Organizations (SRO)
- Securities Companies/Intermediaries
- Investment Houses
- Alternative Trading Systems
- Over the Counter Markets
- Supporting Institutions
Exchanges
- PSE: market operator for stocks listed in the local exchange
- PDEX: market operator for FI securities in the local exchange
Securities Companies/Intermediaries
- Broker Dealer
- GSED
- GSB
- Underwriters
- MF Distributors
- ICA
Clearing Agencies/Depositories
- SCCP: for PSE
- PDTC: for PDEX
Self Regulatory Organizations (SRO)
- CMIC
- PSE
- PDEX
- SCCP
any organization, association,person or group of persons, or system that constitutes, operates, maintains, or provides an electronic market place or facility that brings together:
a. Primary Market Issuers
b. Secondary Market Buyers and sellers
Alternative Trading Systems
market created by the buying and selling of a security on a bilateral basis between parties that takes place outside of an Exchange or Alternative trading system
Over the Counter Markets
Supporting Institutions
- Transfer Agents
- Securities Custodian
- Trustee
- Registrar for QIB
2 SPECIAL OFFICES OF SEC:
- Office of The General Counsel
- Office of the General Accountant
→ Administered by SEC
→ appointed by the Presidennt of the PH (term: 7 years)
ADMINISTRATIVE AGENCY
Chaiperson vs. Commisssioners
check table
CAPITAL MARKET PROFESSIONALS
- Salesman
- Associated Person
a natural person hired to buy and sell securities on a salary commission basis endorsed by the commission by the broker dealer
SALESMAN
the person employed full time by the broker dealer whose responsibilities include internal control supervision of other employees, agents, salesmen, officers, directors of such broker dealer for compliance with the Code and rules and regulations
ASSOCIATED PERSON
any person or legal entity that has been qualified to trade on the
PDEx trading system
TRADING PARTICIPANTS:
TYPES OF TRADING PARTICIPANTS
- Dealing Participants
- Brokering Participants
- Qualified Investor Participants (Insti Accounts)
- Non-Qualified Investors
members of SRO, who are recognized by a broker or dealer, and bound by the pertinent agreement &/or the internal rules prescribed by the OTC market
QUALIFIED INVESTOR PARTICIPANTS (INSTITUTIONAL
ACCOUNTS)
- Min. annual gross income of P100MM for atleast 2 years prior to registration
- SEC registered portfolio of atleast P60MM or
- Net worth of atleast P100MM
Institutional QIB: (2 year validity)
QUALIFIED INVESTOR PARTICIPANTS (INSTITUTIONAL ACCOUNTS) - (IBIPIEC)
a) Investment House
b) Bank
c) Insurance Company
d) Pension Fund
e) Investment Company
f) Entity, Corporation, Partnership or Trust with total asset of at least P1.20B
g) Corporation
take note of each see screenshot
they may participate through the service of a broker,
investment house or bank
NON – QUALIFIED INVESTOR
Individual QIB: (2 year validity)
- Min. Annual Gross Income: P25MM (2 yrs prior to reg)
- SEC registered portfolio: P10MM or
- Personal Net worth: atleast P30MM
AND: - Engages in securities trading either in personal capacity or
through a fund manager for atleast 1 year - Held a position of responsibility in any professional or
business entitiy that requires expertise in securities trading
for atleast 2 years
PROHIBITED ACTS:
For Dealer vs. For Broker
For Dealer
A dealer shall not deal w/a non-qualified investor except through a broker
For Broker
A broker shall not accept a non-qualified investor as his customer unless the OTC market & the securities traded therein are suitable to the investor
rules covering Registration of salesman and associated persons
SRC RULE 28
QUALIFIED VS. UNQUALIFIED INVESTORS
A. Qualified can directly buy or sell security in an OTC market
B. Unqualified can only transact through an authorized broker or a registered/chartered collective investment scheme
C. Qualified and unqualified cannot deal with each other, it has to be through a broker
D. Dealer has to determine with reasonable effort that the other dealer is authorized to participate in an OTC
Protection of Customer Accounts Where Registration of a Broker Dealer is Suspended or Revoke
SRC RULE 29
should always prioritize their orders even though Member Broker, stockholder, officers, directors, associated person and salesmen’s order is pre-existing
SRC Rule 30.2.1.2.6.1 - Customer First Policy “CUSTOMER FIRST” POLICY ON CLIENT’S ORDER
FEES AND PENALTIES
see table
RC RULE 29 – Protection of Customer Accounts Where
Registration of a Broker Dealer is Suspended or Revoke
- When such Broker Dealer is a Member of an Exchange (Exchange Trading Participant), the Exchange shall _________________________________________________________________________________ any outstanding contracts relating to securities and notify the Exchange in writing of such transfer and the affected customers that said contracts have been transferred.
- Where such Broker Dealer is not a Member of an Exchange (Exchange trading Participant), the _______________________________________________________________, of such suspension or revocation and require that they transfer their account to another Broker dealer
- immediately arrange for another Member or Exchange Trading participant to take over
- Commission shall notify the affected customers
PHILIPPINE DEALING & EXCHANGE CORPORATION (PDEX) VIOLATIONS
see table
TYPES OF AUTO ORDER BOARD:
- LIMIT ORDER
- FILL OR KILL
- FILL AND KILL
- ICEBERG
one that is entered with a specified limit which may be expressed in terms of price or yield
LIMIT ORDER
one that is entered with a specified yield or price with the intention of having the entire amount executed at the indicated price
FILL OR KILL
one that is entered with a specified yield or price with the intention of being matched at the indicated price, and withdrawn with respect to the unmatched volume (may split the volume)
FILL AND KILL
order that is entered with the intention of having the same in tranches (big order split to small orders)
ICEBERG
dealing personnel
Traders
sales personnel
Salesmen
ORDER TICKET SHALL CONSIST OF THE FF: (TSTMNNPS)
- Time of receipt of order
- Subsequent action on order
- Terms & conditions of the order → including a notation if the order is a short sale
- Whether the transaction will be matched through: (1) the Auto order Board or (2) as a Special Negotiated Transaction
- Name of Customer
- Name of Salesmen who took the order
- The price executed
- Whether the order was solicited or unsolicited
REGISTERED PERSONNEL GOVERNING OTC MARKET
1) Traders
2) Salesmen
3) SEC-registered Associated Person
4) Representative Officers
5) Counterparty Limit Officers
designated and authorized
by Trading Participants to enter counterparty limits
Counterparty Limit Officers
STATEMENTS
● MONTHLY STATEMENT
● QUATERLY STATEMENT
● EXCUSED FROM SENDING STATEMENT
CONFIRMATION OF CUSTOMER ORDERS
- Broker Dealer shall report all transactions entered into for
the customer’s account with the written confirmation of purchases and sales and NOT THE EMPLOYEE OR SALEMEN of a Broker Dealer by:
1) Courier
2) Facsimile Transmission
3) Electronic Mail
QUATERLY STATEMENT → a Broker Dealer may issue statement whose accounts:
o have not been traded for 1 yr. (inactive)
o a written request made by the customer
frequency of sending a
statement to the customer by Broker Dealer
MONTHLY STATEMENT
EXCUSED FROM SENDING STATEMENT - after _____________
the mails are returned thru registered mail, and ________,________.
3 attempts; 3 years; 10 years
VOLUNTARY SUSPENSION OR TERMINATION OF TRADING
PARTICIPANTS
- A trading participants shall submit a written request within
__________________ prior to the intended effectivity - PDEX shall write within ___________________ a notice to the Trading Participant to suspend or terminate his participation
- 60 calendar days
- 30 calendar days
CUSTOMER ACCOUNT INFORMATION FORM (CAIF) (CDNSSIOC)
- Customer’s Name, address (present & permanent), residence telephone
- Date & place of birth
- Nationality
- Signature of salesmen introducing the account signature of the partner, officer or manager who accepts the account
- Specimen signature
- Whether customer is an institutional customer
- Option whether confirmation of customer orders would be via courier, facsimile or electronically
- If the customer is a corporation, partnership or other legal entity, the names of any person authorized to transact business on behalf of the entity
THE BUSINESS CYCLE
- Expansion
- pEAK
- Contraction/Recession
- Trough
there is an upturn in business activity where:
a. GNP are increasing
b. unemployment is decreasing
c. more demand on money
d. interest rates will rise
Expansion
the economy starts to overheat, eventually there is a overproduction and build-up of excessive inventory beyond levels of demand
Peak
production starts to go down
a. down interest rates
b. down prices
c. down investments
d. Up unemployment (begins to rise)
CONTRACTION OR RECESSION
occurs when recession bottom out and production levels off, nowhere to go but up. It moves into another cycle starting with expansion
TROUGH
the amount of money exists in the economy at any given time
Money Supply
M1:
M2:
M3:
● M1 – narrow money that includes currency in circulation
paper and demand deposits
● M2 – broad money ( M1 + time deposits + savings
accounts)
● M3 – the broadest measure ( M1 + M2 + assets & liabilities
of financial institutions) (can also be peso deposit subs:
PN, Commercial papers)
HOW DOES BSP CONTROL THE MONEY SUPPLY?
- Restrictive
- Expansionary
RESTRICTIVE Monetray Policy
✔ Sell bonds
✔ Increase overnight interest rates
✔ increase reserves
Monetary POLICY
Supply side
a. OMO: buy and sell GS
b. Policy Rates: repo, rrp
c. Reserve Req
d. Moral suasion
EXPANSIONARY Monetary Policy
✔ Buy bonds
✔ decrease overnight interest rates
✔ decrease reserves
GOVERNMENT POLICY:
- Fiscal Policy
- Monetary Policy
Fiscal Policy
Demand side
GNP= C+I+G+X
Trade surplus: EX>IM
Trade deifict: EX<IM
results in cost-push inflation
RISING OIL PRICES
TYPES OF MARKET
- Primary
- Secondary
- Third (OTC)
- Fourth Market
refers to a market where new securities are sold
PRIMARY MARKET
Involves dealers and brokers who trade shares that are listed on an exchange away from the exchange
THIRD MARKET (OTC)
Direct trade without intermediation
FOURTH MARKET (Black Market)
refers to the market where outstanding securities are bought and sold, provide liquidity, and is done in an exchange
SECONDARY MARKET
INDICES
- Price weighted
- Market Weighted
- Equal weighted
Call Market vs. Continous Market
see table
Pros:
a. can reflect market sentiment more
b. more stable in bear market
Cons:
c. bias towards large cap stocks
d. buy more as prices (up), counter intuitive to buy
low sell high
e. higher risk of a bubble
MARKET WEIGHTED
Pros:
a. Simple to construct/compute
b. Reflects portfolio perf of equal # of shares
Cons:
c. Biased towards high priced stocks
d. Ignored liquidity
e. Do not take into account splits/spinoffs/merger
PRICE WEIGHTED
Computation of average day change from previous day then apply to the base
Pros:
a. Port of same alloc per stock
b. can be more diversified than market cap index
c. focus more on value investing (buy low sell high)
Cons:
d. bias toward small cap stocks
e. higher turnover rate to maintain equal weight
f. transactional costs to maintain
g. more volatile to drop in prices
EQUAL WEIGHTED
CORPORATE FINANCIAL STATEMENTS
BS, IS, Statement of CF, Accumulated Reatined Earnings
represents the financial condition of a corporation (as of specific date)
BALANCE SHEET
shows the profit & loss statement or the operating performance of a corporation (financial performance for a given period)
INCOME STATEMENT
accumulated profits of the company after payment of cash dividends
ACCUMULATED RETAINED EARNING STATEMENT
summary of the cash provided by and used on the cash balance
STATEMENT OF CASH FLOWS
HOW DO COMPANIES RAISE CPITAL?
- Short-term Debt Securities
- Long-term Debt Securities
- Equity Securities
FI vs. Equities
see table
TYPES OF INVESTMENTS
- Stocks
- Bonds
- Mutual Funds
any security that is founded on debt (lending out your money to a company or government in return pay you back the amount w/interest you lent out)
○ Is characterized by: __________
○ Issuers: ____________
BONDS
▪ face value
▪ coupon rate
▪ maturity
▪ issuer
governments and corporations
TYPE OF BONDS:
a. FIXED RATE BONDS
b. FLOATING RATE BONDS
c. ZERO-COUPON BONDS
Debt securities representing an obligation of the issuer to the investor to pay interest (cpn) and principal at maturity date
FIXED RATE BONDS
moves up and down with the rest of the market or along with an index; also referred to as a variable because it can vary over the duration of the debt obligation.
FLOATING RATE BONDS
TAX RATE:
a. PHP Denominated →
b. USD denominated →
a. 20% withholding tax
b. tax exempt
pays no coupon during the tenor and is therefore issued at a deep discount. Redeeemed at par - investors receive time value of money through price appreciation.
ZERO-COUPON BONDS
Accumulated interest since the last interest payment date. Depends on the __________, ___________ and _________.
ACCRUED INTEREST
amount invested; coupon rate; time lapsed
EQUIVALENT TAXABLE YIELD FORMULA
EQUIVALENT TAXABLE YIELD = Tax-exempt/(1 - Tax Rate)
Price of a bond if it is bought at interest payment date (without
accrued interest)
CLEAN PRICE (flat price)
DIRTY PRICE FORMULA
DIRTY PRICE = Clean price + Accrued Interest
Price of a bond if it is bought with accrued interest
DIRTY PRICE
partial payments of the principal amount over a period of time
AMORTIZING
ALL IN YIELD FORMULA
ALL-IN YIELD = Default risk free rate + credit spread
issued without a name holder; person who holds the security can claim bond value
BEARER
bond can be exchanged into equity (common stocks) of the company
CONVERTIBLE
bond without a paper certificate; bond owners registered in a book entry system; for Philippines: NROSS
SCRIPLESS -
A percentage of the coupon interest becomes part of the principal if the
issuer cannot pay as scheduled
CAPITALIZING
issuer has pledged assets increase
credit quality in event of a default
SECURED
an equity; you become a part owner of the business that entitles you to vote at the shareholders and receives dividends
STOCKS
TYPES OF EQUITIES:
i. Common
ii. Preferred
1. Asset
2. Dividends
see sc for explanation
DIVIDENDS
i. Cash
ii. Stock
see sc for explanation
it means not putting all your eggs into one basket
ASSET ALLOCATION
SPLITS
i. Stock Split (Split Up)
ii. Reverse Stock Split (Split down)
see sc for explanation
a collection of stocks and bonds, pooling your money with a number of other investors, paying a professional manager to select a specific securities for you
MUTUAL FUNDS
ASSET ALLOCATION TABLE
see table
MARGIN TRADING
⮚ It increases your buying power
⮚ Initial investment of at least $2,000.00
⮚ Can borrow up to 50% of the purchase price of a stock
⮚ It can act as a collateral for the loan
⮚ Extremely risk
FIXED INCOME INVESTMENT PRODUCTS:
- SHORT TERM COMMERCIAL PAPERS
- LONG TERM COMMERCIAL PAPERS
- REPURCHASE AGREEMENTS
unsecured debt instrument for financing of loans, accounts receivables, inventories, and short term liabilities
SHORT TERM COMMERCIAL PAPERS
⮚ Term should not be more than 270 days not to be able to register with SEC
⮚ Not backed up by collateral but must be of good credit rating
⮚ valid for 1 year (renewed annually) with respect to unissued balance
LONG TERM COMMERCIAL PAPERS
- registered with SEC and rated by Phil. Ratings
⮚ Negotiable and transferrable debt instrument
⮚ 2-7 years in tenor
⮚ Usually a spread over market benchmarks
⮚ usage of unissued balance should be re-applied for
Pre-termination:
- Long term – 730 days
- Includes optional redemption, partial installments, amortization (partial installments and amortization may be allowed if in loan stipulations)
collateralized borrowing or selling that → sells securities to lender/buyer in return for cash and agrees to repurchase the securities at a later date for a greater sum of cash
REPURCHASE AGREEMENTS
collateral is not pledge to the lender but placed in an internal account
DUE BILL REPO
FORMS OF REPO:
1.Due Bill Repo
2. Tri-party repo
3. Whole Loan Repo
4. System Repo
5. Customer Repo
3 TYPES OF REPO:
- OVERNIGHT REPO
- TERM REPO → with a specified date
- OPEN REPO → no end date but typically short term
there is a custodian bank acting as intermediary custodian responsible for collateral allocation, mark-to-market and substitution of collateral
TRI-PARTY REPO
if BSP is one of the transacting parties
SYSTEM REPO
EXEMPT SECURITIES FROM REGISTRATION (SRC RULE 9)
a. EOI of a FI (BSP licensed)
b. EOI issued to the BSP under OMO and/or rediscounting operations
c. EOI issued to banks, their trust accounts
d. Bills od exchange arising from bona fode sale of goods and services (distributed/traded by banks/IH duly licensed by SEC/BSP through organized market)
e. EOI with the ff conditions (PRIVATE PLACEMENTS):
i. Issued to not more than 19 non-insti lenders
ii. Payable to a specific person
iii. Non-negotiable nor assignable
iv. Not exceeding P50MM
delivery of securities to third party
custodian of buyers and sellers
BSP CIRCULAR 392
collateral is in the form of government or corporate bonds
WHOLE LOAN REPO
if trading on behalf of the customer
CUSTOMER REPO
Types of Bidding
see table
EXEMPT TRANSACTIONS FROM FILING A RS
a. Any sale because of ______________
b. Liquidating a _______ in good faith
c. Sale of securities to ____________ during any _________.
d. Distribution by a a corpo/issuer of securities to its shareholders out of surplus, or sale where __________________________
e. _______________ on any registered Exchange or trading market
f. _________ to the qualified buyers
a. insolvency or bankruptcy
b. bona fide debt
c. fewer than 20 people; 12-month period
d. no commission or renumeration is paid
e. Broker’s transaction
f. Sale of securities
BSP CIRCULAR 392 SANCTION
1ST offense: P10,000.00/day
Subsequent offense: P20,000.00/day
implementation of the delivery by the seller of securities to the buyer in his designated 3 rd party custodian
BSP CIRCULAR 524
STRUCTURED BONDS
- CALLABLE BONDS
- PUTTABLE BONDS
- investor has sold a call option to the issuer wherein if market interest rate fall below the coupon rate of the bond on the call date, the issuer will call the bond and investor will be forced to invest the proceeds in a low-interest rate environment
- option of the issuer
- issuer has an option to pay the full amount of the bond at
prespecified times
CALLABLE BOND
CALLABLE BONDS
a. AMERICAN -
b. EUROPEAN -
a. callable anytime
b. callable at specific dates
- the investor has purchased a put option from the issuer, wherein if market rates are above the coupon rate of the bond at the put date, the investor can “put” the bond back to the issuer and reinvest the proceeds of the bond in a high-interest rate environment
- option of the investor
- investors have option to require payment by the issuer at
prespecified price and time
PUTTABLE BOND
FOUR MAJOR STATISTICAL RATING ORGANIZATIONS:
- Moody’s Investor Service Inc.
- Standard and Poor’s Corporation
- Fitch Investor Service Inc.
- Duff & Phelps Credit Rating Co
BOND RATING SYSTEM
see table
could result in the country defaulting country such as political instability (nationalizing the utility industry)
SOVEREIGN RISK
risk wherein an investment value will change due to change in absolute level of interest
PRICE RISK
investing internationally; arises from the price of one currency against another
CURRENCY RISK
it afflicts the bonds more than stocks; as interest rates rise, bond prices fall
INTEREST RATE RISK
lack of marketability of an investment that cannot be bought or sold quickly
LIQUIDITY RISK
value of investment may decline simple because of economic changes or other events that impact large portion of the market
o Day to day potential for an investor to experience losses from fluctuations in securities prices
MARKET RISK
SECURITY
- SECURED
- UNSECURED
SECURED SECURITY
a. First Mortgage
b. Collateral Trust Bonds
c. Equipment Trust Certificates
UNSECURED SECURITY
a. Debentures
b. Subordinated debenture bonds (usually w/ conversion privilege)
type of loan that are payable after other debts have been paid and due to this are more risky for the lender of the money
o it is unsecured and has __________ than that of additional debt
o a debt that takes the ___________ than other debt
o __________ than senior debt because it is more risky
o ____________ in terms of payment in the event of default or corporate liquidation
SUBORDINATED DEBT OR JUNIOR DEBT
o lesser priority
o lower priority
o yield is higher
o lower in rank
CORPORATE DEBT INSTRUMENTS
a. SUBORDINATED DEBT OR JUNIOR DEBT
b. SENIOR DEBT
debt that takes higher priority than Subordinated debt in terms of liquidation
SENIOR DEBT
RANKING IN CASE OF LIQUIDATION (ROLUHO)
- Regular bank Deposits
- Ordinary Debt
- Lower Tier 2 ( Junior debt)
- Upper Tier 2
- Hybrid Tier 1
- Ordinary Shares of stocks/Equity
BANK CAPITAL (COMMERCIAL PAPERS)
- Tier 1 capital
- Tier 2 capital
a. Upper tier 2
b. Lower Tier 2 - Hybrid Tier 1
TIER 1 CAPITAL (eCPR)
→ equity capital, cone capital
→ Common stock
→ paid up perpetual & non-cumulative preferred stock
→ Retained earnings
allows the issuing bank its strengthen capital base, improve capital ratio; additional funding for its various investment programs
LOWER TIER 2
▪ unsecured subordinated debt
▪ lowest risk and yield of the three
▪ 5 yrs. minimum maturity
▪ non-payment of coupons constitutes event of default, coupon deferral not required
▪ not insured by PDIC
▪ negotiable and transferrable
▪ taxable to all type of investor
such as cumulative, preferred stock, redeemable preferred stock, and unsecured subordinated debt with convertibility feature
UPPER TIER 2
▪ moderately risk
▪ issuer may defer coupon if issuer does not pay dividends
▪ minimum 10 yrs. maturity
HYBRID TIER 1
fixed coupon payments but subject to suspension
- Perpetual with option to redeem on or after 10 yrs.
- Has a dilutive effect on shareholders
- Issued only with the approval of BSP
- Minimum denominations of P500k to invest
HYBRID TIER 1 vs. ORDINARY SHARES
see table
LOWER TIER 2 vs. UPPER TIER 2 vs. HYBRID TIER 1
see table
Any money or capital market instrument whose future cash flows
may be contractually defined and can be pre-determined
FIXED INCOME PRODUCTS & FEATURES
→ Can be on a non-interest (discounted) or interest bearing basis
DISCOUNTED: PV = FV/(1+rt)
INTEREST BEARING: FV = PV(1 +rt)
YIELDS and PRICES:
- IR go ⬆️, FI prices go ⬇️
- Current IR > original cpn = priced at DISCOUNT
- Current IR < original cpn = priced at PREMIUM
→ Expresses graphically level of interest rates for different tenors at
a certain point in time
YIELD CURVE:
Normal Yield Curve vs. Flat Yield Curve vs. Inverted Yield Curve
see sc
BASIS POINTS:
→ __________ or _____________
→ A unit that is equal to _____________, and is used to denote the change in a financial instrument.
→ Is commonly used for calculating ___________, equity
indexes and the yield of a fixed-income security.
→ Unit change; movement in yield
→ 1/100th of 1%
→ changes in interest rates
T-BILLS (TREASURY BILLS): (TDRSINASZ)
o Term → 91, 182, 364
o Day count is 360
o Redemption at PAR
o Safety on the principal
o Issued by Phil. Government
o Non-interest bearing (discounted)
o Almost risk-free
o Short- term Treasury obligation
o Zero coupon
FXTN (FIXED RATE TREASURY NOTES): (ITII)
o Interest payment can be quarterly, semi-annual
o Tenor is more than 1 yr.
o Issued at Face value
o Interest is calculated on 360/days
LTNCD (LONG-TERM NEGOTIABLE CERTIFICATE OF DEPOSIT) (5SRNICTNW)
o Minimum maturity of 5 yrs.
o Scripless in form of registered with a 3rd party Registry bank maintaining an Electronic Registry bank
o Should be registered in the name of an individual or corporate
o Negotiable & pre-numbered
o Issued only by BANKS
o Covered by PDIC
o Tax free on individuals; taxable on corporation
o NO-PRETERMINATION
o Who can purchase: Individuals, Corporation & other financial institutional investors
MONEY MARKET INSTRUMENTS (COUPON SECURITIES)
see table
MONEY MARKET INSTRUMENTS (DISCOUNT SECURITIES)
see table
GOVERNMENT SECURITIES
see table
UITF – (UNIT INVESTMENT TRUST FUND) OR MUTUAL FUND
o Funds are managed by a __________________
o Minimum investment amount is ________
o Funds can offer lower investment risk through ___________
o professional investment manager
o P10,000.00
o diversification
FEATURES OF UITFs
(PPAIDSNLCA)
- Pooled funds
- Professional Management
- Ability to access superior investment products normally
unavailable to retail investors - Initiative to shift from common trust funds
- Daily mark to market
- Strictly tradable and marketable securities; loans, real
estate and other illiquid investments are prohibited - Not subject to reserve requirements
- Lower investment risk through diversification
- Cost efficient: low barrier to entry
- Assets are in separate custody
TYPES OF UITFs
- Money market funds
- Bond funds
- Balanced funds
- Equity funds
NET ASSET VALUE FORMULA (PAMTTO)
NET ASSET VALUE = Principal + Accrued Interest + Market gain/loss - tax - trust fees - other expenses
UITF vs. MUTUAL FUND
see table
→ revised Anti-Money Laundering Act (AMLA)
o MARCH 23, 2003 - took effect
REPUBLIC ACT 9194
COVERED INSTITUTIONS SPECIFIED BY AMLA
- Banks and all other entities → including their subsidiaries,
affiliates, supervised and regulated by BSP - Insurance Companies
- Securities Dealers, pre-need companies, foreign exchange
corporations
COVERED AND SUSPICIOUS TRANSACTIONS
Single transactions, in cash or other equivalent instrument, with total amount of P500k within 1 banking day
Suspicious transaction regardless of amount wherein the
following circumstances exists:
- There is no underlying legal/trade requirement
- The client is not properly identified
- The amount involved is not commensurate w/the business or financial capacity of the client
- There is a deviation from the client’s profile/past transactions
- Transaction is related to an unlawful activity/offense
- Transaction is structured to avoid being subject of reporting to AMLA
AMLA OFFENSES AND PENALTIES
See table
REQUIREMENT OF DISCRETIONARY ACCOUNT
- Broker – dealer to obtain signature of each person
authorized to exercise discretion on the account - Record date such discretion was granted
- Parameters of the discretionary arrangement
