Philippine Stock Exchange Quest towards Financial Success

Investing Procedures Here are the investing procedures taken directly from the Philippine Stock Exchange Website: 1. Choose a stockbroker. The PSE has a complete list of information about all its trading participants who are authorized and qualified to trade securities for you. This list is also available on the PSE's website and the telephone directory's Government and Business listings yellow pages under the category of stock and bond brokers. Aside from representing you in the stock market, a stockbroker can also offer you services such as access to market reports/studies, on-time delivery of important documents, and advise on your investments. It is then important that you trust your stockbroker and that you are satisfied with its services. 2. You shall be required to open an account and fill out a Customer Account Information Form and to submit identification papers for verification. The stockbroker will then assign a trader or agent to assist you in either buying or selling any listed security. There are also stockbrokers who have an online trading facility that allows you to post orders by yourself, but sufficient understanding of how the stock market works is key. If you choose to be assisted by a trader or agent, you can discuss with him/her what stocks you want to buy or sell. 3. Give the order to your trader, and then ask for the confirmation receipt. Your buy or sell orders are relayed to the stockbroker's dealer for execution. In an automated system as in PSE, the order is keyed in through a trading terminal and automatically matched. Confirmation of done trades - via phone, email or online - is made as soon as possible and subsequently, an official confirmation or invoice should be delivered to you. 4. Pay before settlement date. The delivery or payment should be made before the settlement date of T+3. For traditional stockbrokers, settlement of transactions is usually done after three (3) working days from the transaction date. This means that for transactions done on Monday, as an illustration, payment should be received by Thursday. Meanwhile for online stockbrokers, settlement of all transactions is done on the transaction date. Settlement of accounts is performed by the clearing house. 5. You shall receive from your broker either the proceeds of sale of your stocks (after 3 business days) or proofs of ownership of stocks you bought (confirmation receipt and invoice). If you wish to have a physical certificate of the stocks you bought, you can give instructions to your broker and pay the required upliftment fee. You can purchase shares of stocks either through an initial public offering (IPO) or through the open market (also referred to as the secondary market). Shares sold through IPOs are

offered for the first time to the public by the company (primary market) whereby proceeds of the sale go directly to the company. Shares of listed or publicly traded companies are only bought during trading hours. These shares have since been transferred from one owner to another and proceeds of the sales do not go directly to the company but to the owners of the shares.

The Trading Cycle

All equity transactions, whether buying or selling, have a settlement period of T+3 (trading day + 3 working days). This means that a seller should be able to deliver the stock certificate, if any, to his broker and the buyer must have paid the cost of transaction to his broker within 3 working days after the trade was done. Historically, settlement was done manually (27-day cycle). With scripless trading, wherein settlement is done via the book-entry-system (thru Philippine Central Depository or PCD), transactions are settled on the third day after trade date. Under this system, the investor has the option to hold on to his certificate (uplift) or deposit (lodge) this certificate in PCD through his broker-participant account. Board Lot System Equity trading is done by board lot or round lot system. The Board Lot Table determines the minimum number of shares an investor can buy or sell at a specific price range. Therefore, the minimum amount of initial investment varies and will depend on the market price of the stock as well as its corresponding board lot. Prices of stocks move through a scale of minimum price fluctuations.

Table 1. Board Lot Table Market Price (in Php) 0.0001 to 0.0099 0.0100 to 0.0490 0.0500 to 0.2490 0.2500 to 0.4950 0.5000 to 4.9900 5.0000 to 9.9900 10.0000 to 19.9800 20.0000 to 49.9500 50.0000 to 99.9500 Tick Size 0.0001 0.0010 0.0010 0.0050 0.0100 0.0100 0.0200 0.0500 0.0500 Lot Size 1,000,000 100,000 10,000 10,000 1,000 100 100 100 10

Market Price (in Php) 100.0000 to 199.9000 200.0000 to 499.8000 500.0000 to 999.5000 1000.000 to 1999.000 2000.000 to 4998.000 5000.000 and UP

Tick Size 0.1000 0.2000 0.5000 1.0000 2.0000 5.0000

Lot Size 10 10 10 5 5 5

Let's take a look at the illustration below. Buying Transaction: Mr. X wishes to buy a stock whose market price is P10.00. Based on the Board Lot Table, the number of shares he can buy at a regular transaction should be in multiples of 100 shares. In this case, if Mr. X wants to buy 1,000 shares (which is a multiple of 100 shares) his required cash outflow will be as follows: Market price/share Number of shares to be bought P x P Broker's Commission* (0.25% + 12% VAT) SEC Fee (Transaction Value x 0.005%) PSE Transaction Fee (Transaction Value x 0.005%) SCCP Fee (Transaction Value x 0.01%) + + + 10.00 1,000 10,000.00 28.00 0.50 0.50

1.00

Total Cash Outlay

10,030.00

*Broker's commission varies depending on value of transaction, with a maximum allowable commission rate of 1.5% (please refer to Table 2 below) **If a buying client chooses to be issued and maintain a physical certificate in his/her name, an upliftment/withdrawal fee of P50.00 per certificate issuance request and transfer fee of P100.00 + 12% VAT will be charged. In the illustration above, the combined upliftment/withdrawal fee and transfer fee to be paid by the buying client will amount to P162.00 (P50.00 + P112.00). Selling Transaction: Ms. Y wishes to sell a stock that is trading at P10.00. Based on the Board Lot Table, the number of shares she can sell at a regular transaction should be in multiples of 100 shares. In this case, if Ms. Y wants to sell 1,000 shares (which is a multiple of 100 shares), her cash inflow will be as follows: Market price/share Number of shares to be sold P x P Broker's Commission* (0.25% + 12% VAT) Stock Transaction Tax** (Transaction Value x 0.5%) SEC Fee (Transaction Value x 0.005%) PSE Transaction Fee (Transaction Value x 0.005%) SCCP Fee (Transaction Value x 0.01%) Net Cash Receivable 10.00 1,000 10,000.00 28.00 50.00

0.50 0.50

1.00 9,920.00

*Broker's commission varies depending on value of transaction, with a maximum allowable commission rate of 1.5% (please refer to Table 2 below)

**Stock Transaction Tax levied on sellers only ***If a selling client has certificates, he/she needs to have this converted into book-entry form in the PCD system. A cancellation fee of P20.00 + 12% VAT and transfer fee of P100.00 + 12% VAT will be charged. In the illustration above, the combined cancellation fee and transfer fee to be paid by the selling client will amount to P134.40 (P22.40 + P112.00). TRADING/ TRANSACTION FEES AND TAXES Brokerage Commission

A stockbroker is compensated for his services in executing orders on the Exchange through commission charges, which are paid by both the buyer and seller to their respective brokers. For trade transactions covering equity and equity-related products, the maximum commission rate is 1.5% of the total transaction cost plus 12% value added tax (VAT). The minimum commission rates depend on the amount of the transaction. (See Table 2)

Upliftment/Withdrawal Fee

If a buying client opts for a stock certificate to be issued in his name, he must make the request through his broker who will then issue the upliftment request through the PDTC system. Upon receipt, PDTC will then submit the request to the transfer agent for the issuance of the certificate. PDTC will charge the broker an upliftment/withdrawal fee of Php50 per certificate issuance request. The transfer agent will charge their usual issuance fee per certificate on top of PDTC's upliftment/withdrawal fee.

Cancellation Fee

If a selling client has physical certificates, he must have the certificates converted into bookentry form in the PDTC system by requesting, through his broker, for a direct transfer (DT) with the transfer agent, which costs Php100 (plus 12% VAT) per certificate for the transfer of ownership of shares to PDTC Nominee Corporation (PCNC). In addition to the DT fee, a client must pay cancellation fee of Php20 (plus 12% VAT) to the transfer agent for cancellation of the certificates to be lodged in PDTC (for lodgment of shares). This is applicable only to listed equities.

Stock Transaction Tax

Sales of equities listed and traded on the Exchange are subject to a stock transaction tax of of 1% (50 basis points) of the value of transaction charged to the seller, in lieu of the capital gains tax. The sale, barter or exchange of shares of stock listed and traded at the PSE are exempt from documentary stamp tax.

Withholding Tax

Under the National Internal Revenue Code of 1997, and except in cases where tax treaties are in force, dividends received from domestic corporations are subject to a withholding tax of 10% if the recipient is a citizen or resident alien, 20% if the recipient is a non-resident individual engaged in trade or business in the Philippines, 25% if the recipient is a nonresident individual not engaged in trade or business in the Philippines, and 30% if the recipient is a non-resident foreign corporation. Dividends received by domestic and resident foreign corporations are not subject to tax. The rate of income tax withheld on dividends paid to a non-resident foreign corporation may be reduced to 15% if the country in which the nonresident foreign corporation is domiciled (a) imposes no taxes on foreign-source dividends or (b) allows a credit against the tax due from the foreign non-resident corporation for taxes deemed to have been paid in the Philippines equivalent to 15% of such dividends.

Table 2. Schedule of Transaction Fees and Taxes Levied on Investors Type of Fee Brokerage Commission (Min.)1 Transaction Value Php100 million and below Above Php100 million up to Php500 million Above Php500 million up to Php1 billion Above Php1 billion up to Php5 billion Above Php5 billion up to Php10 billion Above Php10 billion Rate Minimum Commission 0.25% 0.15% but not less than Php250,000 0.125% but not less than Php750,000 0.1% but not less than Php1.25 million 0.075% but not less than Php5 million 0.05% but not less than Php7.5 million

Upliftment/ Withdrawal Fee

Php50 per certificate

Type of Fee Cancellation Fee Stock Transaction tax Withholding Tax Php20 + 12% VAT

Rate

0.5% of the value of transaction

Filipino citizen or resident alien: 10% of dividends received Non-resident individual engaged in trade or business in the Philippines: 20% of dividends received Non-resident individual not engaged in trade or business in the Philippines: 25% of dividends received Non-resident foreign corporation: 30% of dividends received

Under Memo for Brokers No. 2008-0467, the minimum commission rates were made effective on October 6, 2008 and subject to further action by the Securities and Exchange Commission.

How to profit from Equity Securities (if you have P50, 000): The Philippine Stocks Exchange is the national stock exchange of the Philippines. It is one of the oldest stock exchanges in Southeast Asia, having been in continuous operation since its inception in 1927. Its vision is to become a premier exchange with world-class standards for trading securities and raising capital that serves as a strong engine for a robust economy. Therefore, its duties are to:

Offer products and services responsive to the needs of investors and other stakeholders. Provide a facility for fair, accurate, complete and timely information about listed companies, while extending market education and awareness programs to investors. Be a preferred venue for raising capital. Practice and promote good governance within the Exchange and among listed companies and trading participants. Operate efficiently to optimize shareholder value. Adopt world-class systems and global best practices for an efficient, fair and orderly market.

Develop a highly motivated and professional workforce, committed to serve and excel.

The Philippine Stock Exchange serves as the stock market here in our country. This is where people can trade the shares of stocks of the different companies. Through investment in equity securities people can obtain profit from an idle cash fund by means of: capital gains (profit through an increase in the market price), cash dividends (income in the form of cash given by the company to a shareholder), stock dividends (dividend in form of additional shares given by the company to a shareholder) and stock rights (options given to the shareholders to buy additional shares for a stock price lower than the market price). According to Mr. Jun Moreno, one of the shareholders whom we interviewed, equity investments are of three types namely Short term, Medium term and long term. Furthermore, short term investment holders are the ones who need to visits at the Philippine Stock Exchange (PSE) to monitor their stocks. While medium and long term investment holders commonly rely on the stock exchange report on newspaper or at the PSE website/internet information. He also shared to us a story of one investor who invested his money at long term investment for an amount of P1,000,000 which after ten years without doing anything (decision intervention) grows into P10,000,000. The shareholders at PSE usually gather at the lobby wherein the PSE Board can be seen. At the lobby there are also sets of personal computer used by the shareholders to have a more vivid picture on the standing of the different share of stocks of the different companies and to regulate their stocks as well. The displayed stocks of the different companies are presented in three colors to classify their standing, namely green, yellow and red. The color green means that the price per share of stocks goes high, color yellow means that there is no change in the price per share and color red means that the price per share of stocks goes down. According to another shareholder, these stocks fluctuations are due to some changes in the global economy as a whole. He further discussed that the economy of one country is affected by the economy of other different countries due to rapid development of trade which also give rise to the birth of multinational companies. Also he mentioned that fiscal disputes can also affect the variations in the share of stocks. Investing in securities is described by some as a high-end gambling because of risk and reward that one can attain depending on the tricks and tactics he used. According to a shareholder, investing in stocks involves knowledge gain from books and from experience as well. No one can succeed in a single try. In order to achieve the gain that one wants, he must be prepared to learn new things through social interaction and financial action. Social interaction means that if one wants to invest he must communicate to the officers at PSE and to the shareholders in order to have knowledge and idea. On the other hand, financial action means doing means investing his money in order to profit. He further added that all of them are beginners and uninformed at some point in time.

The main key points that a newly investor must know regarding investing in equity securities is knowing the right timing on (1) when to buy shares and (2) when to sell shares in order to profit. The brokers bracket ranges from P10,000 pesos and up. So if one has an idle cash fund, it is best to invest it in securities for a chance to yield high returns.