1. What is a stock market and stock exchange?

The stock market represents the companies that list equity shares for public
investors to buy and sell. Stock exchanges are the infrastructure that facilitate the
trading of those equity securities, or stocks. Without a stock exchange, companies would
have no formal mechanism on which to list shares, and without a stock market,
exchanges would have no reason to exist. Stock exchanges can be electronic or
manual, and they provide telling information about the size of the stock market.
The stock market refers to the collection of markets and exchanges where
regular activities of buying, selling, and issuance of shares of publicly-held companies
take place. Such financial activities are conducted through institutionalized formal
exchanges or over-the-counter (OTC) marketplaces which operate under a defined set
of regulations. There can be multiple stock trading venues in a country or a region which
allow transactions in stocks and other forms of securities.
While both terms - stock market and stock exchange - are used interchangeably,
the latter term is generally a subset of the former. If one says that she trades in the stock
market, it means that she buys and sells shares/equities on one (or more) of the stock
exchange(s) that are part of the overall stock market.

2. What is the over-the counter market?

Over-the-counter (OTC) is the trading of securities between two counterparties
executed outside of formal exchanges and without the supervision of
an exchange regulator. OTC trading is done in over-the-counter markets (a
decentralized place with no physical location), through dealer networks.
Contrary to trading on formal exchanges, over-the-counter trading does not
require the trading of only standardized items (e.g., clearly defined range of quantity and
quality of products). Also, prices are not always published to the public. OTC contracts
are bilateral, and each party could face credit risk concerns regarding its counterparty.

Over-the-Counter Securities
OTC securities comprise a wide range of financial instruments and commodities.
Financial instruments traded over-the-counter include stocks, debt securities,
and derivatives. Stocks that are traded over-the-counter usually belong to small
companies that lack the resources to be listed on formal exchanges. However,
sometimes even large companies’ stocks are traded over-the-counter.
Derivatives represent a substantial part of over-the-counter trading, which is
especially crucial in hedging risks using derivatives. The lack of limitations on the
quantity and quality of traded items allows the parties involved in the trading to tailor the
specifications of the contracts in the transaction to the risk exposure. Thus, these
instruments could be used for a “perfect hedge.”

The Importance of OTC in Finance

While over-the-counter markets remain an essential element of global finance,
OTC derivatives possess exceptional significance. The greater flexibility provided to
 market participants enables them to adjust derivative contracts to better suit their risk
exposure.
Also, OTC trading increases overall liquidity in financial markets, as companies
that cannot trade on the formal exchanges gain access to capital through over-the-
counter markets.
However, OTC trading is exposed to numerous risks. One of the most significant
is counterparty risk – the possibility of the other party’s default before the fulfillment or
expiration of a contract. Moreover, the lack of transparency and weaker liquidity relative
to the formal exchanges can trigger disastrous events during a financial crisis. The
flexibility of derivative contracts design can worsen the situation. The more complicated
design of the securities makes it harder to determine their fair value. Thus, the risk of
speculation and unexpected events can hurt the stability of the markets.

3. What are the advantages of the stock market?

Despite its popularity and presence in the news, the stock market is just one of
many potential places to invest your money. Investing in stock is often risky, which
draws attention to the huge gains and losses of some investors. If you manage the risks,
you can take advantage of the stock market to secure your financial position and earn
money.

Investment Gains
One of the primary benefits of investing in the stock market is the chance to grow
your money. Over time, the stock market tends to rise in value, though the prices of
individual stocks rise and fall daily. Investments in stable companies that are able to
grow tend to make profits for investors. Likewise, investing in many different stocks will
help build your wealth by leveraging growth in different sectors of the economy, resulting
in a profit even if some of your individual stocks lose value.

Dividend Income
Some stocks provide income in the form of a dividend. While not all stocks offer
dividends, those that do deliver annual payments to investors. These payments arrive
even if the stock has lost value and represent income on top of any profits that come
from eventually selling the stock. Dividend income can help fund a retirement or pay for
even more investing as you grow your investment portfolio over time.

Diversification
For investors who put money into different types of investment products, a stock
market investment has the benefit of providing diversification. Stock market investments
change value independently of other types of investments, such as bonds and real
estate. Holding stock can help you weather losses to other investment products. Stock
also adds risk to a portfolio, as well as the potential for large, rapid gains, helping
investors avoid risk-averse or overly conservative investment strategies.
 Ownership
Buying shares of stock means taking on an ownership stake in the company you
purchase stock in. This means that investing in the stock market also brings benefits that
are part of being one of a business's owners. Shareholders vote on corporate board
members and certain business decisions. They also receive annual reports to learn
more about the company. Owning stock in the company you work for can be a way to
express loyalty and tie your personal finances to the success of the business as a whole.

4. Who are the players in the stock market?

Primary Markets
In the primary market, there are four key players: corporations,
institutions, investment banks, and public accounting firms. Institutions invest capital in
corporations that seek to expand and grow their businesses, while corporations
issue debt or equity to institutions in return for their capital investment. Investment banks
are hired to match institutions and corporations based on their risk profile and
investment style. Finally, public accounting firms are responsible for the preparation,
review, and auditing of financial statements, tax work, consulting on accounting systems,
M&A, and capital raising. Hence, public accounting firms in the primary market not only
assist corporations to raise capital but also help prepare, review, and audit financial
statements to ensure a fair representation of their financial performance.
While issuance of new bonds and new shares in exchange for capital occurs in
the primary market, the secondary market is for the sale and trade of previously issued
bonds and shares. Buyers and sellers engage in transactions on an exchange, while
investment banks facilitate this process by providing equity research coverage. This
ability to freely sell and trade securities significantly increases the market’s liquidity.
1. Corporations
In the capital markets, corporations behave as operating businesses that
require capital to grow and run their operations. These corporations can vary in
industry, size, and geographical location.  Careers at corporations that relate to
the markets include corporate development, investor relations, and financial
planning and analysis (FP&A).

2. Institutions (“Buy Side” Fund Managers)

Institutions consist of fund managers, institutional investors, and retail
investors. These investment managers provide capital to corporations that need
the money to grow and operate their businesses. In return for their capital,
corporations issue debt or equity to the institutions in the forms of bond and
shares, respectively. The exchange of capital and debt or equity completes the
cycle of the two key players in the capital markets.

3. Investment Banks (“Sell Side”)

 Acting as an intermediary, investment banks are hired to facilitate deals
between corporations and institutions. The job of investment banks is to connect
institutional investors with corporations, based on risk and return expectations,
and investment styles. Careers in investment banking involve extensive financial
modeling and valuation analysis.

4. Public Accounting Firms

Depending on their divisions, public accounting firms can engage in
multiple roles in the primary market. These roles include financial reporting,
auditing financial statements, taxes, consulting on accounting systems, M&A
advisory, and capital raising. Therefore, public accounting firms are usually hired
by corporations for their accounting and advisory services.

Secondary Markets
Unlike the primary market, where there is an initial issuance of debt or equity in
exchange for capital, the secondary market allows for the sale and trade of issued bonds
and shares. The secondary market allows players to enter and exit securities easily,
making the market liquid.

1. Buyers and Sellers

In the secondary market, fund managers or any investors who wish to
purchase securities or debts will have to locate a seller. Transactions are
facilitated through a central marketplace, including a stock exchange or Over The
Counter (OTC).

2. Investment Banks
While investment banks facilitate the issuance of bonds and shares in the
primary market, they expedite the sales and trading of issued debts and equities
between buyers and sellers in the secondary market. Investment banks
provide equity research coverage on each stock’s upside potential, downside
risk, and rationale to help buyers and sellers make a judgment. Moreover,
investment banks sell and trade securities on behalf of the clients to maximize
their profits.

5. Philippine Regulatory Framework for Philippine Stock Exchange (PSE) – Securities

Regulation Code (SRC)
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6. What does Self-Regulatory Organization mean?

 A Self-Regulatory Organization or SRO is an organization that is formed to
regulate certain professions or industries. They are usually non-governmental
organizations, established with the aim of creating rules to promote order among
businesses and organizations.

Self-Regulatory Organizations exist either in the absence of government

regulation or to support or operate alongside such regulation. They are extremely helpful
in an industry or profession where trust is low. The thing about SROs is that they do not
need a grant of authority from the government to enforce their regulations.

7. Research and study the Listing Rules, Disclosure Rules, Delisting Rules, etc. of PSE
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8. What are the regulatory framework for players in stock market?

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