Business ethics and Corporate Social Responsibility

MODULE 3: LESSON 3
For March 29, 2020

Prepared by: Atty. Angelo Andro M. Suan, CPA

LESSON/TOPIC : Pyramiding
Learning Target(s) : To identify the ethical issues in the business networking
Reference : Business Ethics and Social Responsibility, Roa, latest edition

Concept:

What Is Pyramiding?

Pyramiding is a method of increasing a position size by using unrealized profits from successful
trades to increase margin. Pyramiding involves the use of leverage to increase one's holdings by
making use of an increased unrealized value of current holdings. Since the use of leverage is
involved, this is a riskier strategy than one which only makes use of cash to purchase securities.

Understanding Pyramiding

An investor who is pyramiding uses additional margin from the increasing price of a security in
his or her portfolio to purchase more of the same security. This is generally a slow method of
increasing one's position size, as the margin increases will permit successively smaller
purchases. Additionally, whether the pyramiding involves only a single security or a few
securities, the risk of a portfolio concentration increases with each level of the pyramid.
See margin maintenance and margin call for risk aspects of pyramiding.

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Questions:

Answer the following, in a yellow sheet of paper. It must be handwritten. Further, do not
write anything at the back of the sheet.

1. Identify one company that is engaged in pyramiding scheme. Discuss the nature of its
operation and what happened to the continuity of its business.