Philippine Stock Exchange

The Philippine Stock Exchange (PSE) is the only stock exchange in the Philippines. It is one of
the oldest stock exchanges in Asia, having been in continuous operation since the
establishment of the Manila Stock Exchange in 1927. It currently maintains a trading floor at
the PSE Tower in Bonifacio Global City, Taguig City. The PSE is composed of a 15-man Board
of Directors with Jose T. Pardo as Chairman.

The main index for PSE is the PSEi, which is composed of a fixed basket of thirty (30) listed
companies. The PSEi measures the relative changes in the free float-adjusted market
capitalization of the 30 largest and most active common stocks listed at the PSE. The
selection of companies in the PSEi is based on a specific set of public float, liquidity and
market capitalization criteria. There are also six sector-based indices as well as a broader all
shares index.

Trading in the PSE is a continuous session from 9:30AM to 3:30PM daily with a recess from
12:00PM to 1:30PM.

History
The Philippine Stock Exchange was formed from the country''s two former stock exchanges,
the Manila Stock Exchange (MSE), established on August 8, 1927, and the Makati Stock
Exchange (MkSE), which was established on May 27, 1963.

Although both the MSE and the MkSE traded the same stocks of the same companies, the
bourses were separate stock exchanges for nearly 30 years until December 23, 1992, when
both exchanges were unified to become the present-day Philippine Stock Exchange.

In June 1998, the Securities and Exchange Commission (SEC) granted the PSE a ""Self-
Regulatory Organization"" (SRO) status, which meant that the bourse can implement its own
rules and establish penalties on erring trading participants (TPs) and listed companies.

In 2001, one year after the enactment of the Securities Regulation Code, the PSE was
transformed from a non-profit, non-stock, member-governed organization into a shareholder-
based, revenue-earning corporation headed by a president and a board of directors. The PSE
eventually listed its own shares on the exchange (traded under the ticker symbol PSE) by
way of introduction on December 15, 2003.

What are Stocks?

Stocks are shares of ownership in a company. When you buy stocks of a publicly listed
company, you become a stockholder or shareholder of a company. In other words, you
become a part-owner of that company. As a part-owner, you participate in the company’s
growth and future profits. Conversely, you may also lose if the company suffers a loss or
performs below market expectations. The number of stocks you acquire will determine how
big or small your ownership is. As you acquire more stocks, your ownership stake in the
company becomes greater. Other terms for stocks are “shares” or “equities”.
TYPES OF STOCKS
Stocks are classified according to types and classes, depending on the characteristics and
earnings potential.

According to RIGHTS
a. Common stock – It is a security usually purchased for participation in the profits and
control of ownership and management of the company. A common stockholder
exercises control through voting rights during annual or special stockholders’ meetings,
but can only claim rights to the company’s assets and earnings when preferred
shareholders are already paid in full. Most of the issues traded in the local stock market
are common stocks. Common stocks are also known as “ordinary shares.”
b. Preferred stock – It is a security whereby the holder has a higher claim on the assets
and earnings of the company. In terms of dividend payment and liquidation, preferred
shareholders have priority over common shareholders. Though preferred stockholders do
not have voting rights, they are entitled to receive dividends before any dividends are
paid to the common stockholders. Preferred stocks usually have a specified limited rate
of return or dividend and a specified limited redemption and liquidation price. Preferred
stocks are also known as “preference shares.”

According to OWNERSHIP
Common shares may further be classified into:

a. Class A – These are stocks that can be exclusively traded by Filipino investors.
b. Class B – These are stocks that can be bought and sold by both Filipino and foreign
investors.

Both classes have the same privilege and receive the same amount of dividends. Such
classification of common shares is done to monitor the equity ownership of both local and
foreign investors.

According to SECTORS
Stocks listed and traded on the PSE are classified into six (6) sectors:

1. Financial Sector – includes companies engaged in banking, investments, and finance.

2. Industrial Sector – includes companies involved in the following:
a. Electricity, Energy, Power, and Water
b. Food, Beverage, and Tobacco
c. Construction, Infrastructure, and Allied Services
d. Chemicals
e. Diversified Industrials

3. Holding Firms Sector – includes companies or firms that control or manage partial or
complete interest in another company or other companies. Usually, these companies do
not produce goods or services itself; rather, its purpose is to own shares of other
companies.
4. Property Sector – includes companies involved in land and property development
5. Services Sector – includes companies involved in the following:
a. Media
b. Telecommunications
 c. Information Technology
d. Transportation Services
e. Hotel and Leisure
f. Education
g. Diversified Services

6. Mining and Oil Sector – includes companies engaged in mineral extraction, oil
exploration, extraction and production

According to CHARACTERISTICS
Though there is no formal definition or criteria to classify a stock according to its
characteristics, analysts generally describe stocks as:

a. Blue Chip stocks – are shares of well-established and financially sound companies
that have demonstrated their ability to pay dividends in both good and bad times.
They also exhibit more modest but dependable returns and are relatively of lower
risk.
b. Income stocks – are shares of those companies with good dividend payment history
due to steady profits. Since they are stable, income stocks generally have a lower
level of volatility.
c. Growth stocks – also called “glamour stocks”, are shares of corporations whose
earnings are expected to grow at an above-average rate relative to the market. A
growth stock does not usually issue dividends as earnings are reinvested in capital
projects.
d. Defensive stocks – are shares that provide regular dividends and stable earnings,
regardless of the overall condition of the stock market. Defensive stocks remain
stable under difficult economic conditions. Generally, these are stocks of food, oil,
and utilities companies, which are characterized by steady demand amidst hard
times.
e. Cyclical stocks – are those sensitive to business conditions or cycles strongly tied
with the economy’s performance. These companies produce or offer services that
are low in demand during slowdown and increase when business peaks.
f. Speculative stocks – are those that rise quickly when economic growth is strong
and falls rapidly when growth is slowing down. A speculative stock is considered very
risky because of its volatility. It increases or decreases rapidly depending on the
economic conditions.

INVESTORS
Investors, also referred to as stockholders or shareholders, are those who own shares of
stock of a publicly listed company. They are accorded certain privileges like the right to fair
and equal treatment, the right to vote and exercise related rights, and the right to receive
dividends and other benefits due to stockholders. They are classified as either retail or
institutional, and local or foreign.

STOCKBROKERS
A stockbroker or trading participant is licensed by the Securities and Exchange Commission
(SEC) and is entitled to trade at the Exchange. They act as an agent between a buyer and
seller of stocks in the market. For their services as stockbrokers, they receive from their
clients either a buying or a selling commission.

The PSE originally issued 184 trading rights. To date, the PSE has 133 active stockbrokerage
houses.

The representatives (licensed salesmen) of these accredited stockbrokers convene daily, at

certain specified hours, on the “trading floor” of the exchange, where they sell and buy
shares of stocks for the account of their clients. They execute orders in the market to the
greatest possible advantage of their customers, by buying at the lowest possible price or by
selling at the highest possible price.

There are two (2) types of stockbrokers:

• Traditional – those who assign a licensed salesman to handle your account and to take
your orders via a written instruction or a phone call
• Online – those whose main interface is the internet where clients execute their orders
and access market information online

CLEARING HOUSE - Securities Clearing Corporation of the Philippines (SCCP)

The SCCP is a wholly owned subsidiary of the Exchange. It was established to ensure the
orderly settlement of equity trades executed at the PSE. The SCCP uses the Central Clearing
and Central Settlement (CCCS) system purchased from the Capital Markets Co. (CAPCO) of
Belgium.

SCCP is responsible for establishing the cash and securities liabilities and entitlements of its
clearing members, synchronizing the settlement of funds and the transfer of securities
based on the delivery-versus-payment model or multilateral net settlement; guaranteeing
the settlement of trades in the event of a trading participant’s trade default in order to
ensure the finality and irrevocability of all Exchange trades through its fails management
procedures; implementing appropriate risk management measures in order to mitigate risks
inherent in the clearing and settlement of Exchange trades and the maintenance and
administration of the Clearing and Trade Guarantee Fund (CTGF).

DEPOSITORY - Philippine Depository and Trust Corp. (PDTC)

The PDTC acts as securities depository or “custodian” of listed shares of stock that are
traded at the PSE. It was organized to establish a central depository in the Philippines and
to implement scripless trading.

The PDTC performs book-entry transfer of securities:

1. From seller’s to buyer’s accounts during settlement of Exchange trades;

2. From one PDTC participant to another per client instruction, and;
3. From lender’s to borrower’s account for loan transactions.