equity

• Equity Security Market


  Also known as the Stock Market, the market for trading equity instruments
• Equity instruments


  Financial instruments where the issuer agrees to pay an amount to the investor in the future based on the future earnings of the company, if any. 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.
• 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 on 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.
• Why invest in equity instruments

  • Investors may earn through capital appreciation (rise in market price) and dividends (payments made by corporation to shareholders representing excess earnings)
• Differences between Debt and Equity

  • Debt: Certain payment, No voice in management, Prioritized claim on assets and income, Temporary financing, Lower risk and return
  • Equity: Uncertain payment, Voice in management, Subordinate claim, Permanent financing, Higher risk and return
• Preference shares


  A form of share that has a priority claim over the common shares on the company's assets and earnings. They have a fixed periodic dividend promised to holders.
• Ordinary shares


  Represent ownership of the company and most directly participate in the profits and equity of the business. Ordinary shareholders are called residual owners and generally possess voting rights.
• 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 where trading of equity securities (shares) occurs. It is composed of exchanges and over the counters where shares are issued and traded publicly.
• Types of stock markets

  • Physical (stock exchange)
  • Virtual (over-the-counter market, electronic communication network)
• Over-the-counter (OTC) market is a decentralized market where market participants trade stocks, commodities, currencies or other instruments directly between two parties and without a central exchange or broker.
• Electronic Communication Network (ECN) is a computerized system that automatically matches buy and sell orders for securities in the market, connecting major brokerages and individual traders.
• Exchange-traded funds (ETF) are a type of security that involves a collection of securities, such as stocks, that often tracks an underlying index.
• Electronic Communication network (ECN)


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


  • Connects major brokerages and individual traders so they can trade directly between themselves without going through a middleman
  • Makes it possible for investors in different geographic locations to quickly and easily trade with each other
• Some ECNs


  • Instinet
  • SelectNet
  • NYSE Arca
• 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
• If stock prices increase by more than 20%, it is usually called bull market or bullish
• If 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, in operation since 1927
• The trading floor of PSE is currently situated in the PSE Tower in Bonifacio Global City, Taguig
• The PSE has a 15-man Board of Directors with Jose T. Pardo as Chairman
• The PSE has been granted a "Self-Regulatory Organization" or SRO status by the SEC in June 1998, allowing it to implement its own rules and set penalties on erring trade participants and listed companies
• Scripless trading


  A system where settlement is carried out via book-entries, rather than the movement of physical certificates
• Capital Markets Integrity Corporation (CMIC)

  Regulates trading activity on the PSE to monitor and penalize trading participants that violate regulations
• CMIC


  • Oversees the market through a world class and sophisticated system called Total Market Surveillance (TMS)
  • Has the power to restrict, halt and suspend the trading of a listed security or by a trading participant
• Initiatives to safeguard interest of investors

  • Enforcement of static and dynamic thresholds to protect against unusual share price fluctuations
  • Disclosure requirement for publicly listed companies
  • Securities Investors Protection Fund Inc (SIPF)
• The PSE sets rules for compliance of companies who plan to list publicly, general criteria for admission to listed in the PSE and disclosure rules
• Platforms for Capital Market

  • Conventional Brokerage
  • Online trading
  • Mutual funds
• Market capitalization


  The total market value of all outstanding shares of a company
• Share valuation


  The value of the share is equivalent to the present value of the future cash flows that can be received from an investment
• Share valuation models/techniques


  • One-period or Multiple period Valuation model
  • Dividend-based valuation technique
• One-period or Multiple period Valuation model


  Used when the investor has no plan to take over control in the firm, instead the investors look at share purchases to receive a greater return and intends to sell the share after a fixed number of years
• Dividend-based valuation technique


  Used when the investor intends to hold the shares long-term and has no plans on selling this in the near future, the most relevant input is the future dividends
• Zero-growth model


  Assumes the dividend will be fixed and not change in the future, true especially for preference dividends