CASE REPORT: THE PHILIPPINE STOCK MARKET

I.

Introduction

The Philippine stock market serves as a venue for firms to raise money or for investors to earn money from their investment. Investors of stocks can earn a return from their shares either through the increase of the stock price over time or the stockholder dividends. A venue where investors could buy and sell stocks in the Philippines is the Philippine Stock Exchange, Inc. (PSE). PSE is a private non-profit and non-stock organization established to give and organize a balanced, efficient, visible, and orderly market for the transactions of securities (either purchasing or selling). It is one of the oldest stock exchanges in Southeast Asia continuously operating since its commencement in 1927. Five individuals (Little, Mackay, Russell, Wakefield and Elliot) felt that increasing trading transactions would stimulate the business world and got together to plan and start the Manila Stock Exchange, the first Stock Exchange in the Philippines which was first located in downtown Manila then in Binondo and then in Pasig. On the other hand, the Makati Stock Exchange was organized by another set of five individuals (Reyes, Gaberman, Ortigas, Lat and Campos). These two stock exchange markets were served to be separate entities but were trading the same listed securities which caused confusion due to different policies, members and prices held by each respective entity. The idea to merge both exchange markets was thought of and thus, the Philippine Stock Exchange, Inc. was born on July 14, 1992. To strengthen its operations and to be more effective in developing the market, the leaders of both entities agreed to join on December 23, 1993 under the PSE. With the merger of the two entities, the Securities and Exchange Commission granted the Philippine Stock Exchange Inc. its license to operate as a securities exchange in the country promoting that a unified stock exchange is vital in developing a strong capital market and a sustainable economic growth.

II.

Synthesis/Framework

Stocks are sold through organized securities exchanges and over-the-counter markets. Organized securities exchange is a specified location where buyers and sellers meet on a regular basis to trade securities using an open-outcry auction model. One example of which is The Philippine Stock Exchange, Inc.

Role of the Philippine Stock Exchange The PSE aims to connect companies which aim to raise capital through issuance of securities. This stock market makes it easier for companies to access funds. Additionally, public offerings make it easier and cheaper when a company is listed in the PSE. The market provides a secured market for the securities transaction to both individuals and companies. The PSE has also committed itself to protecting the interest of the public, developing and maintaining an efficient, fair, orderly and transparent market.

Organization of the Philippine Stock Exchange The PSE is organized into a structure that consists of five groups namely: Listing & Disclosure, Compliance & Surveillance, Operations/Automated Trading, Finance & Investment, and Business Development & Information. The Listing and Disclosure Group processes and rates listing applications, conducts legal due diligence, monitors disclosures, and handles IPO distributions. The Compliance and Surveillance Group performs audits and reviews, monitors compliance to the regulations, and enforces violations to the parties involved. It takes responsibility in the operation of safeguarding the rules and regulation of the Exchange and makes sure that transactions are legal. The Operations/Automated Trading Group handles the operation of the trading, clearing, and settlement for the securities. It also handles the maintenance of the automated network connections needed in trading at the floor. The Finance and Investment Group is handles the management of the companys financial resources by maintaining its accounts, prepares financial statements, and manages PSE funds. Last but not the least, the Business Development and Information Group is in charge of the expansions, developments, and monitoring of the securities, individual shareholders and companies.

The PSE operates on a schedule different from a normal working day (9 A.M. to 5 P.M.).

ACTIVITY Pre-opening Time Open Market Lunch Break Open Market Session Closure

TIME 9:00 AM 9:30 AM 9:30 AM 12:00 PM 12:00 PM 1:30 PM 1:30 PM 3:30 PM 3:30 PM

Management of the Philippine Stock Exchange The PSE is managed by one of the non-broker members, appointed by the Board as the President and Chief Executive Officer (CEO). The President, with the professional judgments of the PSE, governs the policy from of the Board and makes sure that the Exchange is operating efficiently. These polices carry out to the members, companies and the exchange market to ensure that stock market operations in the Philippines is kept within the standards of justice, visibility, professionalism, trust and integrity. It also makes the regulations of the Exchange, checks its implementation and makes sure that the public is given security in the transaction of their investments. The Exchange also ensures that all legal requirements under the Corporation Code and the Revised Securities Act are met by all the parties involved in the transactions regarding these securities.

Current Situation of the Stock Market In the year 2012, the Philippine Stock Market was considered the 2nd best performing market Sicat, 2013). The whole world is starting to notice the Philippines because of the status of the stock investment market. In the statistics, the Philippines have beaten the stock markets of United States and China. This proves how promising investment is and will be in our country. Also, the economic growth of the Philippines is one of the worlds fastest. According to Montealegre (2013), the Philippine economy is one of Asias fastest growing nations, expanding by 7.4% in the first nine months of the year 2013. According to the Chief Executive of Local Bourse, the Philippines is expected to sustain its strong economic growth next year, a factor that should continue to make equities an attractive investment (Montealegre, 2013). This growth in the Philippine economy and the strengthening of the Philippine stock market are tremendous when you take into consideration the faltering US economy and the festering crisis in Europe. The resilience of the Philippine stock market is

highly noticeable amidst all the negative news and events, thus the stock market can now be considered as a safe haven (Sy, 2013). In the year 2013, PSE has introduced the countrys first Exchange Traded Funds (ETF). ETF are formed when a basket of securities is purchased and a stock is created based on this basket that is traded on an exchange, such as the Philippine Stock Exchange (Mishkin, 2012). ETFs primary benefit is diversification. This will provide investors with more avenues for investment, on top of current alternatives such as stocks, bonds, mutual fund, UITFs and etc. With that said, investors may lower the risk of their overall portfolio since they can spread the risk among all investment assets in their portfolio. Another advantage is the ability to invest in variety of assets at lower investment costs.

Investing in the Philippine Stock Market According to an interview with Penaflor, a PSE Sr. Market Education Specialist, investing in the stock market is the one of the best ways to invest money now. History has proven that investing in stocks over the long-term provides greater returns and protection against inflation compared to other form of investment (Dinglasan, 2012). In the Philippines, investing in stocks is not that popular. Most Filipinos think of it as a form of gambling or stock investing is only for the rich and affluent Filipino. Although PSE has been operating since 1927, less than 1 percent of the Philippine population make up the investors in the stock market. Filipinos must then be educated on what stocks are and how they work. Before investing, prospective investors must first invest on knowledge. Stocks are shares of ownership in a corporation. When you buy stocks from a certain publicly listed corporation, let say Philippine Long Distance Company (PLDT) or Manila Water Co, Inc., you become shareholders of these profitable companies. A need for a broker may come in handy because they will be the ones to give advises on which stocks to invest and when is the right time to buy or sell the stock. An initial deposit of at least P 5,000 is needed in setting up an account with a stock brokerage house. From there on, investors can start buying or selling stocks but an investor must continue to monitor and keep tract of investments to avoid incurring losses.

III. Conclusion/Key-Takeaways

Importance of Investing Money in Stocks There are countless reasons why investing in stocks is considered a good investment. This investment will surely create future purchasing power that will keep ahead of inflation and provide a sense of financial securities. Stocks are liquid so this give the investor the ability to quickly and easily sell their securities if they want to. History has shown that the prices of shares and other assets is an significant part of the dynamics of economic activity. Rise in the price of share have a tendency to be related with expanded business venture, household wealth and consumption. Thus, central banks need to keep an eye on the control and behavior of the stock market. With the help of central banks, it will maintain financial stability of the economy and regulate the operation of the stock markets. The smooth functioning of all these activities will in turn have a positive effect in the countrys economic growth, by means of GDP and providing employment. Benefits of Investing in the Philippine Stock Market

The Philippines is considered as the 2nd best performing market and one of the Goldman Sachs' Next Eleven economy position to grow significantly over the coming years.

The whole world is starting to notice the Philippines and all eyes are on the country because of the status of our investment.

The resilience of the Philippine stock market when you take into consideration the faltering US economy and the festering crisis in Europe. The Philippines economy is one of Asias fastest growing nations, primarily known for its business process outsourcing (BPO) service sector and high tech export sector, which is considered as one of the fastest growing industries in the world.

Key-Takeaways Stock price movements are connected to supply and demand. Prices and demand are directly correlated. As prices go up, demand goes up because buyers tend to buy stocks to earn extra income. Prices and supply are inversely correlated. As prices go down, supply goes up because sellers tend to sell their stocks at any price due to competition.

IV. References Dinglasan, R. (April 2012). Investing in Philippine stocks: A quick guide. Retrieved from http://www.gmanetwork.com/news/story/253974/economy/finance/investing-inphilippine-stocks-a-quick-guide Knowing How To Invest in the Philippine Stock Market. Retrieved from http://fglinc. tripod.com/knowinvest.htm Mishkin, F. S., & Eakins, S. G. (2012). Financial Markets and Institutions. Boston: Prentice Hall. Montealegre, K.A. (December 2013). Despite marginal gain in 2013, PSE chief still bullish for stocks next year. Retrieved from http://www.interaksyon.com/business

/77685/despite-marginal-gain-in-2013-pse-chief-still-bullish-for-stocks-next-year Sicat, G. (January 2013). The Philippine stock market boom. Retrieved from http://www.philstar.com/business/2013/01/09/894719/philippine-stock-market-boom Sy, V. (October 2013). The Philippine stock market - a safe haven. Retrieved from http://www.philstar.com/business/2013/10/21/1247531/philippine-stock-market-safehaven