fm2 module

• Equity instruments

  A type of financial instrument wherein the issuer agrees to pay an amount to the investor in the future based on the future earnings of the company, if any
• Equity instruments


  The most common example is shares
• Shares (or Stocks)

  Represent ownership in a company. An individual or party who owns a share is called a shareholder or stockholder
• Among the three forms of business organization (sole proprietorship, partnership and corporation), only corporation can issue shares
• Authorized capital stock


  The total maximum amount stated in the Articles of Incorporation that can be subscribed to or paid by investors of a corporation if the shares have a par value
• Par value

  The nominal value of the share that is indicated in the face of the stock certificate
• Outstanding shares

  The total shares of stock issued under binding subscription agreements to subscribers or stockholders. It doesn't include treasury shares, shares that are repurchased or bought back by the company from shareholders
• Why Invest in Equity Instruments?

  • Capital appreciation - rise in the value of an asset in relation to the increase in its market price
  • Dividends - payments made by corporation to shareholders representing excess earnings of the company
• Preference shares

  A form of share that has a priority claim over the common shares on the company's assets and earnings
• Par value preference share

  Annual dividend is expressed as % of the face value
• No-par preference share

  Annual dividend is usually stated in peso amount per share
• Preference shares normally have no voting rights
• Preference shares have senior rights over ordinary shares
• Preference shares are treated as quasi-debt, the required dividend associated with preference shares is like the interest on debt
• Cumulative preference shares


  All dividends in arrears (dividends not paid in previous periods), together with the current dividend, should be paid prior to paying dividends to ordinary shareholders
• Callable preference shares


  Allows the issuing corporation to retire or repurchase outstanding shares within a predetermined period of time at a specified price
• Convertible preference shares


  Allows shareholders to convert the preference shares to a stated number of ordinary shares after a certain date
• Ordinary shares


  Represents ownership of the company and most directly participate in the profits and equity of the business
• Ordinary shareholders are called as residual owners since they will only receive what will remain after all claims of creditors and preference shareholders on the income and assets are satisfied
• Ordinary shareholders generally possess the voting rights to decide on certain corporate decisions
• Preemptive right


  Permits ordinary shareholders to retain their proportionate ownership in the firm in case of new share issuances, hereby protecting them against dilution of ownership
• Types of ordinary shares

  • Privately owned
  • Closely owned
  • Publicly owned or publicly traded
  • Widely owned
  • Supervoting shares
  • Nonvoting shares
• Stock market


  Another term for Equity Security Market wherein trading of equity securities (in the form of shares) occurs
• Forms of stock market

  • Physical - the physical site where shares are purchased and sold face to face on trading is called a stock exchange
  • Virtual - electronic trading of stock
• Over-the-counter (OTC) market


  A decentralized market in which market participants trade stocks, commodities, currencies or other instruments directly between two parties and without a central exchange or broker
• Electronic Communication Network (ECN)


  A computerized system that automatically matches buy and sell orders for securities in the market
• Advantages of ECN


  • Transparency
  • Cost reduction
  • Faster execution
  • After hours trading
• Exchange-traded funds (ETF)


  A type of security that involves a collection of securities—such as stocks—that often tracks an underlying index, although they can invest in any number of industry sectors or use various strategies
• Stock market index


  An index that measures a stock market, or a subset of the stock market, that helps investors compare current price levels with past prices to calculate market performance
• Bull market


  When stock prices increase by more than 20%
• Bear market


  When stock prices decline by more than 20%
• Philippine Stock Exchange (PSE)


  The national and sole stock exchange of the Philippines, created from the merger of the Manila Stock Exchange and the Makati Stock Exchange
• The trading floor of PSE is currently situated in the PSE Tower in Bonifacio Global City, Taguig
• PSE has a 15-man Board of Directors with Jose T. Pardo as Chairman
• ETFs


  Exchange-traded funds that track an index, although they can invest in any number of industry sectors or use various strategies. ETFs are listed and can be traded as individual shares in the exchange.
• Stock prices increase by more than 20%


  It is usually called a bull market or bullish
• Stock prices decline by more than 20%

  It is a bear market or bearish
• Philippine Stock Exchange (PSE)


  The national and sole stock exchange of the Philippines, created from the merger of the Manila Stock Exchange and the Makati Stock Exchange. Has been in operation since 1927.
• PSE


  • 15-man Board of Directors with Jose T. Pardo as Chairman
  • Granted "Self-Regulatory Organization" (SRO) status by the SEC in June 1998, allowing it to implement its own rules and set penalties
  • Uses the computerized book-entry system through the Philippine Central Depository to transfer ownership of securities
• Regulation of trading activity by PSE

  1. Through the Capital Markets Integrity Corporation (CMIC) to monitor and penalize trading participants that violate regulations

  2. CMIC oversees the market through the Total Market Surveillance (TMS) system