FINANCIAL

MARKET
Cherry Anne N. Gumabay, CMA, LPT, JD, DBM
PARTICIPANTS
IN INVESTMENT
PROCESS
 The three key participants in the
investment process are
government, business and
individuals.
• They can either be a demander
or supplier of funds.

Who are the Participants in the

investment process?
• Both local and national government need large amounts of money.
Funds are needed to finance capital expenditures like long-term
infrastructure projects – road building, schools and hospitals through the
issuance of different types of long-term debt securities.
• Government needs to fund operating costs that keep it running.
• Funds are sourced from taxes and fees collections.
• In cases where the operating expenditures exceed government revenues
or if government receipts are not yet available to meet government
payments, government resorts to borrowing funds by issuing short-term
debt securities.
• If government has temporary idle cash, it sometimes makes short-term
investments to earn positive returns. Then, government becomes
suppliers of funds.

Government
• Most businesses require big sums of money to support
operations in both the long term and short-term.
• On the short-term, funds are used to meet operating cost like
financing inventory and accounts receivables.
• Long-term needs of businesses are concentrated on seeking
funds to develop products, build plants and buy equipment.
• Financing these needs require businesses to issue a variety of
debt and equity securities.
• Like government, business firms also supply funds if they have
excess cash.
• At the same time, they are both net demanders of fund since
they demand more funds than they supply.

Business
• We are more familiar of the fact that people need
money, in the form of loans, to buy property like cars
and houses.
• Individuals supply funds to help meet the needs of both
government and businesses through deposits in savings
accounts, purchases of debt or equity securities, buy
insurance or various types of property.
• As a group, individuals are net suppliers of funds; they
put money into the financial system than they take out.

Individuals
THE INVESTMENT
SCENARIO
An investment is any vehicle into which
funds can be placed with the expectation
that they will generate positive income
and/or their value is preserved or
increased.

What is an investment?
• The overall investment process is the mechanism for
bringing together suppliers (those having extra funds)
with demanders (those needing funds).
• Normally, suppliers or savers and demanders or issuers
are brought together through a financial institution or a
financial market although there are instances, such as
property transactions, where buyers and sellers directly
deal with one another.

What is the Investment Process?

• Financial institutions are organizations through which the
savings of individuals, corporations and governments are
channeled into loans or investments.

• Example of financial institutions is banks, investment houses,

mutual funds, pension funds and insurance companies.

• Financial markets provide the legal and tax

framework/environment that bring together suppliers and
demanders of funds to make safe and quick financial
transactions, often though intermediaries such as organized
securities exchanges.
Suppliers or savers may transfer their funds through
financial markets, financial institutions, or directly to
the demanders or issuers. Financial institutions can
also participate in the investment process either as
suppliers or demanders of funds.

The financial markets consist of two parts, namely, the

money market and the capital market. The money
market deals with short-term investments while the
capital market is for long-term investments.
 Investors can either be individual
or institutional.

What are the different types of

investments?
• Individual investors personally handle
their funds to meet their financial goals.
• Earning interest from idle funds, ensuring
the family’s security and building a
retirement fund are some reasons why
the individual investor invests.

Individual
• People with large sums of money for investment or who are too busy
or lack expertise for investment decisions often hire an institutional
investor.
• Institutional investors commonly know as fund managers, are
investment professionals paid to manage the funds of others using
their expertise and sophistication in both investment knowledge and
method.
• Aside from rich individuals and professional investors include
financial institutions and large non-financial corporations. Individual
investors trade in large amounts of securities to earn high returns that
can be used as additional sources of interest payments (for banks) and
benefits to policyholders or beneficiaries (for insurance companies).

Institutional
The life of an investment can either be short
or long-term.
• Short-term investments usually mature
within one year while long-term
investments have longer maturities, like
bonds, or with no maturity at all, like
common stocks.

What is the life of an investment?

 Securities are investments that represent
evidence of debt or ownership interest
in a business or other assets.
• Bonds and stocks are the most
frequently used types of securities.

Securities
• Investment in securities represents either a debt or an
equity interest.
• Debt represents funds borrowed in exchange for receiving
interest income and the promise that the loan will be
repaid at a given future date.
• Bonds and commercial papers are example of debt
securities.
• Equity represents a current ownership interest in a specific
business or property. Typically, an investor obtains an
equity interest in a business by buying securities
collectively known as stocks (i.e., common, preferred and
convertible preferred).
• Debt securities are similar to bank loans, in that the corporation
promises to pay the face value on the maturity date together with
interest payments at regular intervals.
• But unlike a bank loan, bonds and commercial papers are
represented by certificates, which are handed over to the buyer who
becomes the holder of the certificates.
• In this way, stocks are also similar to debt securities – a stock
certificate is issued – but differ in a way that the issuing company
does not have the obligation to pay interest to the holder or
repay the face value of the stock.
• Examples of short-term investment are deposit accounts,
Treasury bills (T-bills), commercial papers, certificates of deposit,
promissory notes and the like.
• The maturity of all these instruments is under one year.
• These instruments are suitable for temporarily investing idle
funds and earning a return, usually interest.
• Generally, they are popular to conservative investors because
they carry little or no risk at all.
• They are highly liquid since they can be easily converted to cash
with little or no loss in value, thus, enabling the investor to
quickly obtain funds to meet unexpected obligations or shift to
more attractive investment opportunities.

Short-term investment
Buying a share of common stock is in fact buying a
share of a business.
• An individual who owns shares in, say Petron or PLDT
has an ownership interest in that company and is called
a stockholder or shareholder.
• The he holds are evidence of ownership in the
corporation.
• The percentage or proportion of ownership depends
on how many of the company’s shares he owns.

Common stock
For example, 1000 shares of common stock in a corporation
that has 100,000 outstanding shares represent 1,000/100,000
ownership interest.
• This means you have a one percent ownership interest in the
company’s plant, its building, its inventories and, last but not
the least, its management.
• You own one percent in everything that the company has or
may have in the future.
• This type of ownership is also referred to as having equity in
a company; hence, stocks are also called equity securities.
Common examples of fixed-income securities
are bonds, preferred stocks and convertible
securities.
• These groups of investment offers a fixed
periodic return and are quite popular
investments during periods of high interest
rates since investors like to have guaranteed
high returns.
Fixed-income securities
Are long-term debt instruments that offer
the holder a known interest return along
with a return of the bond’s face value
(the value stated on the face of the
certificate) at maturity (usually 20 years).
Bonds are commonly issued by
corporations and governments.

Bonds
Represent an ownership interest in a firm and
like common stocks, has no maturity date.
• It has however a specific dividend rate. This
dividend payment has preference over stock
dividends paid to common stockholders.
• Aside from the dividends it pays, investors buy
preferred stocks for the possibility of
earning capital gains from its sale.

Preferred stocks
Is a special type of fixed-income obligation
(bond or preferred stock) with a feature permitting
the investor the benefit of earning fixed income
such as interest (for bonds) or dividends (for
preferred stocks), while offering the potential of
capital gains (like common stocks)

Convertible security
A mutual fund is the commonly used name for an
investment company, which pools the money of
many investors into a large fund.
• It is managed by a financial professional, called
an investment adviser or fund manager. who
invest this large accumulation of funds into a
large portfolio of securities, such as debt and
equity securities, and other financial instruments.

Mutual funds
 Investments in property
can either be in real
property or tangible
personal property.
Property
 This term usually refers to land, buildings and
that which is permanently affixed to the land
such as residential homes, commercial property
(condominiums, office and apartment buildings),
and the like.
• Returns normally received from this form of
investment are in the form of capital gains,
rental income, etc.

Real estate
Examples of tangibles include gold,
precious metals and gemstones, along
with collectible items such as artwork,
antiques, coins and stamps.
Investors purchase these in anticipation
of price increases.

Tangibles
TYPES OF
MARKET
Financial markets are classified into the money market
and the capital market.
• The money market is where short-term funds are raised
through the buying and selling of short term debt
securities such as commercial papers.
• The capital market is where long-term funds are
raised through the bond market, which deals with
long-term debt securities such as bonds, the stock
market which deals with equity securities or stocks.

WHAT ARE THE MONEY AND

CAPITAL MARKETS?
WHAT ARE THE PRIMARY AND
SECONDARY MARKETS?
• In the primary market, new shares are
issued and sold to the investing public
for the first time.
• It is where capital is actually raised by the
company selling stock directly to investors
typically through an initial public offering

PRIMARY MARKET
• For instance, if San Miguel Corporation decides to sell a new
stock to raise equity funds, it will be a primary market
transaction.
• Since it is the first time the company has sold stock to the
public, it is called an initial public offering (IPO).
• The proceeds of the sale go to San Miguel Corporation, the
issuing company.
• Investors who have subscribed to the IPO have provided the
company with the necessary funds to continue its operation
and expansion, and become part owners of the company.
The secondary market is where securities can
be bought and sold after they have been
issued to the public in the primary market.
Thus, if you decide to buy existing shares of San
Miguel Corporation, you cannot buy them
directly from the issuing company anymore
since they have all been sold to the investing
public during the initial public offering.

SECONDARY MARKET
• Investors can only buy these shares from
existing shareholders who are willing to sell
their shares.
• When they do so, it is a secondary market
transaction.
• The proceeds from this transaction do not go
to the issuing corporation; instead they go to
the investor who sold his shares.

HOW CAN YOU AVAIL OF SAN MIGUEL SHARES

WHEN THE IPO HAS BEEN COMPLETED?
 WHAT IS A STOCK MARKET
AND STOCK EXCHANGE?

37 CONTOSO ALL-HANDS
• A stock market is an organized activity
involving the buying and/or selling of
securities done within a stock exchange.
• A stock exchange brings buyers and
sellers together whose function is to
facilitate the purchase and sale of stocks
and other securities
KEY PLAYERS IN
STOCK MARKET
 • Stockbroker
• Stock exchange
• Transfer agent
• Clearing House
• Listed company

Who are the players in the stock market?

• Anyone who wishes to buy shares of stocks or bonds must
have a stockbroker.
• He acts as an agent or middleman between the investor and
other buyers/sellers.
• As an intermediary, the stockbroker executes orders for
clients, purchasing or selling the stocks on the stock exchange.
• He is the only person or corporation authorized and licensed
by the Securities and Exchange Commission to trade in
securities.
• They are commonly known as members, member-brokers, or
member-firms of the Philippine Stock Exchange.

Stockbroker
This is the organization that oversees the
transactions of the buyers and sellers
placed through the member-brokers. Its
professional management ensures that the
market is efficient, fair, transparent and
orderly by enforcing its rules and
regulations.

Stock exchange
When shares are purchased and transferred from the seller to the buyer, the
transaction should be recorded in the stock books of every listed company
which record the complete shareholdings of each stockholder of the
company. But most companies have his record keeping done by a separate
agency, called the transfer agent.
• When a transaction has been done, the details are kept in a ledger or
record book by the company’s transfer agent. As such, the transfer
agents maintains the ledgers for each issuer company showing the
name and address of, and the number of shares held by each
registered stockholder.
• Another function of a transfer agent, which is either a commercial bank or
trust company, is to cancel old certificates, issue new certificates and
change the name of the certificates into the buyer’s name when the
shares have been sold.

Transfer agent
When a transaction has been made, the seller – through his stockbroker – has
to deliver the stock certificate to the buyer who in turn orders his stockbroker
to pay for the shares purchased
• For thousands of transactions executed everyday and the nearly 200
stockbrokers involved, broker-to-broker payments and delivery of
certificates would become complicated.
• To facilitate transactions and make the market more orderly, all payments by
all stockbrokers are done to a centralized institution, called the
clearinghouse.
• All stockbrokers will make payments to and receive payments from the
clearinghouse for purchases and sales they have made for their clients.
• At the same time, all stock certificates will be delivered to and obtained
from this central institution.

Clearing House
When a corporation that offers and lists its shares in the stock
exchange is called a listed company or issuer.
• A listed company is also known as a publicly owned company in
view of the fact that its shares were sold to the investing
public.
• These are the companies that raised their required funds through
such issuance of securities to the public.
• The capital raised provides the company with the necessary funds
to be invested in business facilities and equipment.
• An issuing company becomes a listed company, whose shares are
traded in the stock market, after it has met the strict listing
requirements imposed by the stock exchange.

Listed company
FINANCIAL
REGULATORY
AUTHORITIES
The Bangko Sentral ng Pilipinas (BSP) is the central
bank of the Philippines.

The National Privacy Commission (NPC) monitors

compliance with the Data Privacy Act 2012.

The Securities and Exchange Commission (SEC)

regulates and supervises the corporate sector, capital
market participants, the securities and investment
instruments market, and the investing public.

WHO ARE THE FINANCIAL REGULATORY

AUTHORITIES IN THE PHILIPPINES
BSP
 The BSP's main responsibility is
to formulate and implement policy
in the areas of money, banking and
credit with the primary objective of
preserving price stability

BSP responsibility
Financial Supervision

The Bangko Sentral has supervision over the

operations of banks and exercises such regulatory
powers as provided in the New Central Bank Act and
other pertinent laws over the operations of finance
companies and non-bank financial institutions
performing quasi-banking functions.
How does BSP regulate financial
markets?
ROLE of BSP (See PDF of BSP)
SEC
 Protect investors. Maintain
fair, orderly, and efficient
markets. Facilitate capital
formation.
ROLE of SEC in Financial Market
 • It provides day-to-day oversight of
major securities market participants and
also oversees the Securities Investor
Protection Corporation.
• Additional responsibilities include
reviewing proposed new rules and
proposed changes to existing rules,
and market surveillance.
How does the SEC regulate the market?
The Securities and Exchange
Commission oversees securities
exchanges, securities brokers and
dealers, investment advisors, and mutual
funds in an effort to promote fair dealing,
the disclosure of important market
information, and to prevent fraud.

What is the purpose and function of the

SEC?
Rule 4.2.2. of the 2015 Implementing Rules and
Regulations of Republic Act No. 8799 or the
Securities Regulation Code
• provides that the Corporate Governance and Finance
Department [of the Securities and Exchange
Commission] shall monitor compliance of
Foundations with existing laws, rules and regulations
and endorse infractions thereof to the Enforcement
and Investor Protection Department.

FUNCTIONS AND RESPONSIBILITIES OF

THE SEC
DIGITAL
IDENTITY
AND
THEFT