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FINAL SEC PHASE 1 > SEC Phase 2 > Flashcards

SEC Phase 2 Flashcards

1
Q

IMPORTANT TIME PERIODS

A
  • 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
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2
Q

execution of negotiation on PDEX Trading System

A

1 minute

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2
Q

if not traded, considered dormant accounts and shall be required to surrender or turn over to the client’s cash or security position

A

3 years

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3
Q

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.

A

FIRST 5 DAYS OF THE MONTH

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3
Q

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

A

15 DAYS AFTER THE END OF CALENDAR QUARTER

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3
Q

period where a resignation or discontinuation of a
salesman or Associated Person shall be provided to the
Commission by the Broker/Dealer

A

NOT LATER THAN 30 DAYS FILING SEC Form 28 –T

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3
Q

the Commission can hold the client’s security position and after such time, shall be disposed of pursuant to escheat proceedings

A

10 years

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4
Q

period of telephone call in the file or record shall be made available for PDEX inspection

A

6 months

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4
Q

issuance of annual license
for every registered salesmen and associated person

A

NOVEMBER OF EACH YEAR

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5
Q

period of all records concerning orders shall kept and maintained, a separate file of all advertisements
and sales literature

A

5 YEARS

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6
Q

IMPORTANT AGES

A

⮚ 18 y/o → applicants for Salesmen
⮚ 21 y/o → applicants for Associated Person

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7
Q

if the order is mentioned by the customer, regardless of who initiated the phone call or other communication

A

UNSOLICITED

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7
Q

an organization that enforces fair, ethical & sufficient
practices in the Securities & commodities

A

SELF REGULATORY ORGANIZATION (SRO)

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7
Q

if order is mentioned or ordered first by Salesmen

A

SOLICITED

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8
Q

a special Negotiated Transaction with a face amount of 10.0m

A

NEGOTIATED DEALING BOARD

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9
Q

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

A

DISCRETIONARY ACCOUNT

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10
Q

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 ___________________

A

Inflation
→ value of money; up
→ purchasing power of money

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11
Q

is the resulting interest rate an investor receives if he invests all coupon payments at a constant interest rate until the bond matures

A

YIELD TO MATURITY

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11
Q

a basic calculation of the annual
percentage receives from his investment

A

CURRENT YIELD

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11
Q

indicator of the general levels of prices by measuring changes in the prices of a fixed basket of selected goods and services

A

THE PHILIPPINE CONSUMER PRICE INDEX (PCPI)

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11
Q

a period of declining prices of goods and services; it increases the relative value of ↑ money

A

DEFLATION

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12
Q

the premier financial institution of the government who controls the
money supply in the Phil.

A

BANGKO SENTRAL NG PILIPINAS (BSP)

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12
Q

3 stars of BSP

A

3 stars: Price stability, stable banking system, safe
and reliable payment system

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13
Q

borrowing money from a broker to
purchase stock

A

MARGIN TRADING

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13
Q

a technology infrastructure that provides the Trading Participants with automated deal capture and price discovery to transact and conclude their trades

A

PHILIPPINE DEALING & EXCHANGE CORPORATION (PDEX)

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13
Q

a measure of the income an investor received if he holds a bond until maturity

A

YIELD

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14
Q

REPORTS OF CUSTODIAN – periodic reports of the custodian on __________ shall be at least _________ and shall reflect the _______________ of the security

A

account balances; QUARTERLY; mark-market valuation

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15
Q

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

A

SECURITIES CUSTODIAN

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16
Q

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

A

SECURITIES REGISTRY

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16
Q

International Bonds that pay interest and are bought and sold in US Dollars

A

YANKEE BONDS

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17
Q

serves as the official registry of government securities, is not subject to BSP accreditation

A

REGISTRY OF SCRIPLESS SECURITIES (ROSS)

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17
Q

the amount by which the rate of return on a risky investment compensates the investor for taking on risk

A

RISK PREMIUM

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18
Q

the amount by which the rate of return on a risky investment exceeds the rate of return on a less risky investment

A

CREDIT SPREAD

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19
Q

issued by National Government

A

SOVEREIGN BONDS

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19
Q

issued by National Government
in their own currency

A

GOVERNMENT BONDS

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20
Q

institution that offers financial services

A

BANKS

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21
Q

An individual or institution which acts as an underwriter or agent for corporations and municipalities issuing securities

A

INVESTMENT BANK

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22
Q

an enterprise engaged in guaranteed underwriting of securities of another person or enterprise, including securities of government

A

INVESTMENT HOUSE

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23
Q

for their own account (act as seller)

A

DEALER

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23
Q

administration of assets in behalf of another

A

TRUST

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24
Q

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

A

SECURITIES

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25
Q

cooperative FI owned and controlled by its members

A

CREDIT UNION

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26
Q

originator, maker, obligor, or creator of the secu

A

Issuer

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26
Q

for the account of others (act as agent)

A

BROKER

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27
Q

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)

A

TRANSFER AGENT

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27
Q

provide liquidity (act as broker/dealer)

A

MARKET MAKER

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27
Q

organized marketplace that brings together buyers and sellers and executes trades

A

EXCHANGE

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28
Q

acts as intermediary in making deliveries upon payment to effect settlement in securities transactions

A

CLEARING AGENCY

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28
Q

acting alone or with others, takes initiative in founding and organizing the business or enterprise of the issuer and receives consideration

A

PROMOTER

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29
Q

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.

A

PROSPECTUS

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30
Q

guarantees on a firm commitment and/or declared best effort basis the distribution and sale of securities of any kind by another company.

A

UNDERWRITER

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31
Q

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.

A

INVESTMENT CONTRACTS

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31
Q

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

A

INSIDER

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31
Q

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.

A

MATERIAL NONPUBLIC

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31
Q

is the application for the registration of securities required to be filed with the Commission.

A

REGISTRATION STATEMENT

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32
Q

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

A

PORTFOLIO

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33
Q

SEC DEPARTMENTS

A

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

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33
Q

party that proposes a deal with the
party who posts a quote

A

CALLING PARTY

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33
Q

party that posts a quote for other
parties to consider

A

QUOTING PARTY

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34
Q

develops criteria for market participants & supervises them to ensure compliance with registration requirements

A

MARKET REGULATION DEPT.

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35
Q

registers securities before being sold and ensures compliance by issuers with the Code of Conduct

A

CORPORATION FINANCE DEPT

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36
Q

registers pre-need plans, commodity features, contracted proprietor or non-prop membership certification

A

NON-TRADITIONAL SECURITIES & INVESTMENT DEPT.

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36
Q

registers domestic corporations, partnerships and associations, including representative offices and foreign corporations intending to do business in the Philippines

A

COMPANY REGISTRATION & MONITORING DEPARTMENT

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36
Q

ensures compliance by all market participants

A

THE COMPLIANCE & ENFORCEMENT DEPT.

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36
Q

SEC SUPERVISED/REGULATED INSTITUTION (ECSSIAOS)

A
  1. Exchanges
  2. Clearing Agencies/Depositories
  3. Self Regulatory Organizations (SRO)
  4. Securities Companies/Intermediaries
  5. Investment Houses
  6. Alternative Trading Systems
  7. Over the Counter Markets
  8. Supporting Institutions
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36
Q

Exchanges

A
  1. PSE: market operator for stocks listed in the local exchange
  2. PDEX: market operator for FI securities in the local exchange
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36
Q

Securities Companies/Intermediaries

A
  1. Broker Dealer
  2. GSED
  3. GSB
  4. Underwriters
  5. MF Distributors
  6. ICA
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36
Q

Clearing Agencies/Depositories

A
  1. SCCP: for PSE
  2. PDTC: for PDEX
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36
Q

Self Regulatory Organizations (SRO)

A
  1. CMIC
  2. PSE
  3. PDEX
  4. SCCP
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37
Q

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

A

Alternative Trading Systems

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38
Q

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

A

Over the Counter Markets

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38
Q

Supporting Institutions

A
  1. Transfer Agents
  2. Securities Custodian
  3. Trustee
  4. Registrar for QIB
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39
Q

2 SPECIAL OFFICES OF SEC:

A
  1. Office of The General Counsel
  2. Office of the General Accountant
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39
Q

→ Administered by SEC
→ appointed by the Presidennt of the PH (term: 7 years)

A

ADMINISTRATIVE AGENCY

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39
Q

Chaiperson vs. Commisssioners

A

check table

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40
Q

CAPITAL MARKET PROFESSIONALS

A
  • Salesman
  • Associated Person
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40
Q

a natural person hired to buy and sell securities on a salary commission basis endorsed by the commission by the broker dealer

A

SALESMAN

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40
Q

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

A

ASSOCIATED PERSON

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40
Q

any person or legal entity that has been qualified to trade on the
PDEx trading system

A

TRADING PARTICIPANTS:

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41
Q

TYPES OF TRADING PARTICIPANTS

A
  1. Dealing Participants
  2. Brokering Participants
  3. Qualified Investor Participants (Insti Accounts)
  4. Non-Qualified Investors
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42
Q

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

A

QUALIFIED INVESTOR PARTICIPANTS (INSTITUTIONAL
ACCOUNTS)

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42
Q
  • 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
A

Institutional QIB: (2 year validity)

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42
Q

QUALIFIED INVESTOR PARTICIPANTS (INSTITUTIONAL ACCOUNTS) - (IBIPIEC)

A

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

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42
Q

they may participate through the service of a broker,
investment house or bank

A

NON – QUALIFIED INVESTOR

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42
Q

Individual QIB: (2 year validity)

A
  • 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
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42
Q

PROHIBITED ACTS:
For Dealer vs. For Broker

A

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

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42
Q

rules covering Registration of salesman and associated persons

A

SRC RULE 28

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42
Q

QUALIFIED VS. UNQUALIFIED INVESTORS

A

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

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42
Q

Protection of Customer Accounts Where Registration of a Broker Dealer is Suspended or Revoke

A

SRC RULE 29

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43
Q

should always prioritize their orders even though Member Broker, stockholder, officers, directors, associated person and salesmen’s order is pre-existing

A

SRC Rule 30.2.1.2.6.1 - Customer First Policy “CUSTOMER FIRST” POLICY ON CLIENT’S ORDER

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43
Q

FEES AND PENALTIES

A

see table

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43
Q

RC RULE 29 – Protection of Customer Accounts Where
Registration of a Broker Dealer is Suspended or Revoke

  1. 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.
  2. 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
A
  1. immediately arrange for another Member or Exchange Trading participant to take over
  2. Commission shall notify the affected customers
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44
Q

PHILIPPINE DEALING & EXCHANGE CORPORATION (PDEX) VIOLATIONS

A

see table

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45
Q

TYPES OF AUTO ORDER BOARD:

A
  1. LIMIT ORDER
  2. FILL OR KILL
  3. FILL AND KILL
  4. ICEBERG
46
Q

one that is entered with a specified limit which may be expressed in terms of price or yield

A

LIMIT ORDER

47
Q

one that is entered with a specified yield or price with the intention of having the entire amount executed at the indicated price

A

FILL OR KILL

48
Q

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)

A

FILL AND KILL

49
Q

order that is entered with the intention of having the same in tranches (big order split to small orders)

A

ICEBERG

50
Q

dealing personnel

A

Traders

50
Q

sales personnel

A

Salesmen

50
Q

ORDER TICKET SHALL CONSIST OF THE FF: (TSTMNNPS)

A
  1. Time of receipt of order
  2. Subsequent action on order
  3. Terms & conditions of the order → including a notation if the order is a short sale
  4. Whether the transaction will be matched through: (1) the Auto order Board or (2) as a Special Negotiated Transaction
  5. Name of Customer
  6. Name of Salesmen who took the order
  7. The price executed
  8. Whether the order was solicited or unsolicited
51
Q

REGISTERED PERSONNEL GOVERNING OTC MARKET

A

1) Traders
2) Salesmen
3) SEC-registered Associated Person
4) Representative Officers
5) Counterparty Limit Officers

52
Q

designated and authorized
by Trading Participants to enter counterparty limits

A

Counterparty Limit Officers

52
Q

STATEMENTS

A

● MONTHLY STATEMENT
● QUATERLY STATEMENT
● EXCUSED FROM SENDING STATEMENT

52
Q

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:

A

1) Courier
2) Facsimile Transmission
3) Electronic Mail

53
Q

QUATERLY STATEMENT → a Broker Dealer may issue statement whose accounts:

A

o have not been traded for 1 yr. (inactive)
o a written request made by the customer

53
Q

frequency of sending a
statement to the customer by Broker Dealer

A

MONTHLY STATEMENT

54
Q

EXCUSED FROM SENDING STATEMENT - after _____________
the mails are returned thru registered mail, and ________,________.

A

3 attempts; 3 years; 10 years

54
Q

VOLUNTARY SUSPENSION OR TERMINATION OF TRADING
PARTICIPANTS

  1. A trading participants shall submit a written request within
    __________________ prior to the intended effectivity
  2. PDEX shall write within ___________________ a notice to the Trading Participant to suspend or terminate his participation
A
  1. 60 calendar days
  2. 30 calendar days
55
Q

CUSTOMER ACCOUNT INFORMATION FORM (CAIF) (CDNSSIOC)

A
  1. Customer’s Name, address (present & permanent), residence telephone
  2. Date & place of birth
  3. Nationality
  4. Signature of salesmen introducing the account signature of the partner, officer or manager who accepts the account
  5. Specimen signature
  6. Whether customer is an institutional customer
  7. Option whether confirmation of customer orders would be via courier, facsimile or electronically
  8. 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
55
Q

THE BUSINESS CYCLE

A
  1. Expansion
  2. pEAK
  3. Contraction/Recession
  4. Trough
56
Q

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

A

Expansion

56
Q

the economy starts to overheat, eventually there is a overproduction and build-up of excessive inventory beyond levels of demand

A

Peak

57
Q

production starts to go down
a. down interest rates
b. down prices
c. down investments
d. Up unemployment (begins to rise)

A

CONTRACTION OR RECESSION

57
Q

occurs when recession bottom out and production levels off, nowhere to go but up. It moves into another cycle starting with expansion

A

TROUGH

58
Q

the amount of money exists in the economy at any given time

A

Money Supply

59
Q

M1:
M2:
M3:

A

● 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)

60
Q

HOW DOES BSP CONTROL THE MONEY SUPPLY?

A
  • Restrictive
  • Expansionary
60
Q

RESTRICTIVE Monetray Policy

A

✔ Sell bonds
✔ Increase overnight interest rates
✔ increase reserves

60
Q

Monetary POLICY

A

Supply side
a. OMO: buy and sell GS
b. Policy Rates: repo, rrp
c. Reserve Req
d. Moral suasion

61
Q

EXPANSIONARY Monetary Policy

A

✔ Buy bonds
✔ decrease overnight interest rates
✔ decrease reserves

62
Q

GOVERNMENT POLICY:

A
  1. Fiscal Policy
  2. Monetary Policy
62
Q

Fiscal Policy

A

Demand side
GNP= C+I+G+X

Trade surplus: EX>IM
Trade deifict: EX<IM

62
Q

results in cost-push inflation

A

RISING OIL PRICES

63
Q

TYPES OF MARKET

A
  1. Primary
  2. Secondary
  3. Third (OTC)
  4. Fourth Market
64
Q

refers to a market where new securities are sold

A

PRIMARY MARKET

64
Q

Involves dealers and brokers who trade shares that are listed on an exchange away from the exchange

A

THIRD MARKET (OTC)

64
Q

Direct trade without intermediation

A

FOURTH MARKET (Black Market)

64
Q

refers to the market where outstanding securities are bought and sold, provide liquidity, and is done in an exchange

A

SECONDARY MARKET

64
Q

INDICES

A
  1. Price weighted
  2. Market Weighted
  3. Equal weighted
64
Q

Call Market vs. Continous Market

A

see table

65
Q

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

A

MARKET WEIGHTED

65
Q

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

A

PRICE WEIGHTED

66
Q

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

A

EQUAL WEIGHTED

67
Q

CORPORATE FINANCIAL STATEMENTS

A

BS, IS, Statement of CF, Accumulated Reatined Earnings

67
Q

represents the financial condition of a corporation (as of specific date)

A

BALANCE SHEET

68
Q

shows the profit & loss statement or the operating performance of a corporation (financial performance for a given period)

A

INCOME STATEMENT

69
Q

accumulated profits of the company after payment of cash dividends

A

ACCUMULATED RETAINED EARNING STATEMENT

69
Q

summary of the cash provided by and used on the cash balance

A

STATEMENT OF CASH FLOWS

70
Q

HOW DO COMPANIES RAISE CPITAL?

A
  1. Short-term Debt Securities
  2. Long-term Debt Securities
  3. Equity Securities
71
Q

FI vs. Equities

A

see table

72
Q

TYPES OF INVESTMENTS

A
  1. Stocks
  2. Bonds
  3. Mutual Funds
73
Q

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: ____________

A

BONDS

▪ face value
▪ coupon rate
▪ maturity
▪ issuer

governments and corporations

73
Q

TYPE OF BONDS:

A

a. FIXED RATE BONDS
b. FLOATING RATE BONDS
c. ZERO-COUPON BONDS

74
Q

Debt securities representing an obligation of the issuer to the investor to pay interest (cpn) and principal at maturity date

A

FIXED RATE BONDS

75
Q

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.

A

FLOATING RATE BONDS

75
Q

TAX RATE:
a. PHP Denominated →
b. USD denominated →

A

a. 20% withholding tax
b. tax exempt

75
Q

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.

A

ZERO-COUPON BONDS

76
Q

Accumulated interest since the last interest payment date. Depends on the __________, ___________ and _________.

A

ACCRUED INTEREST

amount invested; coupon rate; time lapsed

77
Q

EQUIVALENT TAXABLE YIELD FORMULA

A

EQUIVALENT TAXABLE YIELD = Tax-exempt/(1 - Tax Rate)

78
Q

Price of a bond if it is bought at interest payment date (without
accrued interest)

A

CLEAN PRICE (flat price)

79
Q

DIRTY PRICE FORMULA

A

DIRTY PRICE = Clean price + Accrued Interest

79
Q

Price of a bond if it is bought with accrued interest

A

DIRTY PRICE

79
Q

partial payments of the principal amount over a period of time

A

AMORTIZING

80
Q

ALL IN YIELD FORMULA

A

ALL-IN YIELD = Default risk free rate + credit spread

81
Q

issued without a name holder; person who holds the security can claim bond value

A

BEARER

81
Q

bond can be exchanged into equity (common stocks) of the company

A

CONVERTIBLE

81
Q

bond without a paper certificate; bond owners registered in a book entry system; for Philippines: NROSS

A

SCRIPLESS -

81
Q

A percentage of the coupon interest becomes part of the principal if the
issuer cannot pay as scheduled

A

CAPITALIZING

82
Q

issuer has pledged assets increase
credit quality in event of a default

A

SECURED

83
Q

an equity; you become a part owner of the business that entitles you to vote at the shareholders and receives dividends

A

STOCKS

83
Q

TYPES OF EQUITIES:

A

i. Common
ii. Preferred
1. Asset
2. Dividends

see sc for explanation

83
Q

DIVIDENDS

A

i. Cash
ii. Stock

see sc for explanation

83
Q

it means not putting all your eggs into one basket

A

ASSET ALLOCATION

83
Q

SPLITS

A

i. Stock Split (Split Up)
ii. Reverse Stock Split (Split down)

see sc for explanation

83
Q

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

A

MUTUAL FUNDS

83
Q

ASSET ALLOCATION TABLE

A

see table

84
Q

MARGIN TRADING

A

⮚ 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

85
Q

FIXED INCOME INVESTMENT PRODUCTS:

A
  1. SHORT TERM COMMERCIAL PAPERS
  2. LONG TERM COMMERCIAL PAPERS
  3. REPURCHASE AGREEMENTS
86
Q

unsecured debt instrument for financing of loans, accounts receivables, inventories, and short term liabilities

A

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

87
Q

LONG TERM COMMERCIAL PAPERS

A
  • 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)

87
Q

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

A

REPURCHASE AGREEMENTS

88
Q

collateral is not pledge to the lender but placed in an internal account

A

DUE BILL REPO

88
Q

FORMS OF REPO:

A

1.Due Bill Repo
2. Tri-party repo
3. Whole Loan Repo
4. System Repo
5. Customer Repo

88
Q

3 TYPES OF REPO:

A
  1. OVERNIGHT REPO
  2. TERM REPO → with a specified date
  3. OPEN REPO → no end date but typically short term
88
Q

there is a custodian bank acting as intermediary custodian responsible for collateral allocation, mark-to-market and substitution of collateral

A

TRI-PARTY REPO

88
Q

if BSP is one of the transacting parties

A

SYSTEM REPO

88
Q

EXEMPT SECURITIES FROM REGISTRATION (SRC RULE 9)

A

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

88
Q

delivery of securities to third party
custodian of buyers and sellers

A

BSP CIRCULAR 392

88
Q

collateral is in the form of government or corporate bonds

A

WHOLE LOAN REPO

88
Q

if trading on behalf of the customer

A

CUSTOMER REPO

88
Q

Types of Bidding

A

see table

88
Q

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

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

89
Q

BSP CIRCULAR 392 SANCTION

A

1ST offense: P10,000.00/day
Subsequent offense: P20,000.00/day

90
Q

implementation of the delivery by the seller of securities to the buyer in his designated 3 rd party custodian

A

BSP CIRCULAR 524

91
Q

STRUCTURED BONDS

A
  1. CALLABLE BONDS
  2. PUTTABLE BONDS
92
Q
  • 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
A

CALLABLE BOND

93
Q

CALLABLE BONDS
a. AMERICAN -
b. EUROPEAN -

A

a. callable anytime
b. callable at specific dates

93
Q
  • 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
A

PUTTABLE BOND

94
Q

FOUR MAJOR STATISTICAL RATING ORGANIZATIONS:

A
  1. Moody’s Investor Service Inc.
  2. Standard and Poor’s Corporation
  3. Fitch Investor Service Inc.
  4. Duff & Phelps Credit Rating Co
95
Q

BOND RATING SYSTEM

A

see table

96
Q

could result in the country defaulting country such as political instability (nationalizing the utility industry)

A

SOVEREIGN RISK

97
Q

risk wherein an investment value will change due to change in absolute level of interest

A

PRICE RISK

98
Q

investing internationally; arises from the price of one currency against another

A

CURRENCY RISK

98
Q

it afflicts the bonds more than stocks; as interest rates rise, bond prices fall

A

INTEREST RATE RISK

99
Q

lack of marketability of an investment that cannot be bought or sold quickly

A

LIQUIDITY RISK

100
Q

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

A

MARKET RISK

101
Q

SECURITY

A
  1. SECURED
  2. UNSECURED
101
Q

SECURED SECURITY

A

a. First Mortgage
b. Collateral Trust Bonds
c. Equipment Trust Certificates

102
Q

UNSECURED SECURITY

A

a. Debentures
b. Subordinated debenture bonds (usually w/ conversion privilege)

103
Q

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

A

SUBORDINATED DEBT OR JUNIOR DEBT

o lesser priority
o lower priority
o yield is higher
o lower in rank

104
Q

CORPORATE DEBT INSTRUMENTS

A

a. SUBORDINATED DEBT OR JUNIOR DEBT
b. SENIOR DEBT

105
Q

debt that takes higher priority than Subordinated debt in terms of liquidation

A

SENIOR DEBT

106
Q

RANKING IN CASE OF LIQUIDATION (ROLUHO)

A
  1. Regular bank Deposits
  2. Ordinary Debt
  3. Lower Tier 2 ( Junior debt)
  4. Upper Tier 2
  5. Hybrid Tier 1
  6. Ordinary Shares of stocks/Equity
107
Q

BANK CAPITAL (COMMERCIAL PAPERS)

A
  1. Tier 1 capital
  2. Tier 2 capital
    a. Upper tier 2
    b. Lower Tier 2
  3. Hybrid Tier 1
107
Q

TIER 1 CAPITAL (eCPR)

A

→ equity capital, cone capital
→ Common stock
→ paid up perpetual & non-cumulative preferred stock
→ Retained earnings

108
Q

allows the issuing bank its strengthen capital base, improve capital ratio; additional funding for its various investment programs

A

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

108
Q

such as cumulative, preferred stock, redeemable preferred stock, and unsecured subordinated debt with convertibility feature

A

UPPER TIER 2

▪ moderately risk
▪ issuer may defer coupon if issuer does not pay dividends
▪ minimum 10 yrs. maturity

109
Q

HYBRID TIER 1

A

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

110
Q

HYBRID TIER 1 vs. ORDINARY SHARES

A

see table

111
Q

LOWER TIER 2 vs. UPPER TIER 2 vs. HYBRID TIER 1

A

see table

112
Q

Any money or capital market instrument whose future cash flows
may be contractually defined and can be pre-determined

A

FIXED INCOME PRODUCTS & FEATURES

113
Q

→ Can be on a non-interest (discounted) or interest bearing basis

A

DISCOUNTED: PV = FV/(1+rt)
INTEREST BEARING: FV = PV(1 +rt)

114
Q

YIELDS and PRICES:

A
  1. IR go ⬆️, FI prices go ⬇️
  2. Current IR > original cpn = priced at DISCOUNT
  3. Current IR < original cpn = priced at PREMIUM
115
Q

→ Expresses graphically level of interest rates for different tenors at
a certain point in time

A

YIELD CURVE:

115
Q

Normal Yield Curve vs. Flat Yield Curve vs. Inverted Yield Curve

A

see sc

116
Q

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.

A

→ Unit change; movement in yield
→ 1/100th of 1%
→ changes in interest rates

117
Q

T-BILLS (TREASURY BILLS): (TDRSINASZ)

A

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

117
Q

FXTN (FIXED RATE TREASURY NOTES): (ITII)

A

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

117
Q

LTNCD (LONG-TERM NEGOTIABLE CERTIFICATE OF DEPOSIT) (5SRNICTNW)

A

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

118
Q

MONEY MARKET INSTRUMENTS (COUPON SECURITIES)

A

see table

119
Q

MONEY MARKET INSTRUMENTS (DISCOUNT SECURITIES)

A

see table

120
Q

GOVERNMENT SECURITIES

A

see table

120
Q

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 ___________

A

o professional investment manager
o P10,000.00
o diversification

120
Q

FEATURES OF UITFs
(PPAIDSNLCA)

A
  1. Pooled funds
  2. Professional Management
  3. Ability to access superior investment products normally
    unavailable to retail investors
  4. Initiative to shift from common trust funds
  5. Daily mark to market
  6. Strictly tradable and marketable securities; loans, real
    estate and other illiquid investments are prohibited
  7. Not subject to reserve requirements
  8. Lower investment risk through diversification
  9. Cost efficient: low barrier to entry
  10. Assets are in separate custody
121
Q

TYPES OF UITFs

A
  1. Money market funds
  2. Bond funds
  3. Balanced funds
  4. Equity funds
121
Q

NET ASSET VALUE FORMULA (PAMTTO)

A

NET ASSET VALUE = Principal + Accrued Interest + Market gain/loss - tax - trust fees - other expenses

122
Q

UITF vs. MUTUAL FUND

A

see table

123
Q

→ revised Anti-Money Laundering Act (AMLA)
o MARCH 23, 2003 - took effect

A

REPUBLIC ACT 9194

124
Q

COVERED INSTITUTIONS SPECIFIED BY AMLA

A
  1. Banks and all other entities → including their subsidiaries,
    affiliates, supervised and regulated by BSP
  2. Insurance Companies
  3. Securities Dealers, pre-need companies, foreign exchange
    corporations
124
Q

COVERED AND SUSPICIOUS TRANSACTIONS

A

Single transactions, in cash or other equivalent instrument, with total amount of P500k within 1 banking day

125
Q

Suspicious transaction regardless of amount wherein the
following circumstances exists:

A
  1. There is no underlying legal/trade requirement
  2. The client is not properly identified
  3. The amount involved is not commensurate w/the business or financial capacity of the client
  4. There is a deviation from the client’s profile/past transactions
  5. Transaction is related to an unlawful activity/offense
  6. Transaction is structured to avoid being subject of reporting to AMLA
125
Q

AMLA OFFENSES AND PENALTIES

A

See table

126
Q

REQUIREMENT OF DISCRETIONARY ACCOUNT

A
  1. Broker – dealer to obtain signature of each person
    authorized to exercise discretion on the account
  2. Record date such discretion was granted
  3. Parameters of the discretionary arrangement

FINAL SEC PHASE 1 (9 decks)

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