OLERIANA LILIDELLE S.

BSA 2-B

DESCRIBE THE NATURE OF THE STOCK MARKET

SIGNIFICANCE OF THE STOCK MARKET market, it needs to ensure that whosoever is

qualified and willing to trade gets instant access
Stock markets are vital components of a free-
to place orders which should get executed at
market economy because they enable
the fair price.
democratized access to trading and exchange of
capital for investors of all kinds. Security and Validity of Transactions: While
more participants are important for efficient
The stock market serves two very important
working of a market, the same market needs to
purposes.
ensure that all participants are verified and
1. To provide capital—they provide capital for remain compliant with the necessary rules and
companies that they can use to fund and regulations, leaving no room for default by any
expand their businesses. It allows of the parties. Additionally, it should ensure
companies to raise money by offering stock that all associated entities operating in the
shares.. market must also adhere to the rules, and work
2. Income—it lets common investors within the legal framework given by the
participate in the financial achievements of regulator.
the companies, make profits through capital Support All Eligible Types of Participants: A
gains, and earn money through dividends, marketplace is made by a variety of
or by selling their stocks although, losses participants. All these participants operate in
are also possible. the stock market with different roles and
The stock market works as a platform through functions. The stock market should ensure that
which savings and investments of individuals all such participants are able to operate
are channelized into productive investment seamlessly fulfilling their desired roles to ensure
proposals. In the long term, it helps in capital the market continues to operate efficiently.
formation and economic growth for the Investor Protection: Along with wealthy
country. institutional investors, a very large number of
FUNCTIONS OF A STOCK MARKET small investors are also served by the stock
market for their small amount of investments.
Fair Dealing in Securities Transactions: These investors may have limited financial
Depending on the standard rules of demand knowledge, and may not be fully aware of the
and supply, the stock exchange needs to ensure pitfalls of investing in stocks and other listed
that all interested market participants have instruments. The stock exchange must
instant access to data for all buy and sell orders implement necessary protection to such
thereby helping in the fair and transparent investors to shield them from financial loss and
pricing of securities. Additionally, it should also ensure customer trust.
perform efficient matching of appropriate buy
and sell orders. Balanced Regulation: Listed companies are
largely regulated and their dealings are
Efficient Price Discovery: This refers to act of monitored by market regulators, like the SEC of
deciding the proper price of a security and is the US (and, Philippines SEC in our country).
usually performed by assessing market supply Additionally, exchanges also mandate certain
and demand and other factors associated with requirements – like, timely filing of quarterly
the transactions. financial reports and instant reporting of any
Liquidity Maintenance: While getting the relevant developments – to ensure all market
number of buyers and sellers for a particular participants become aware of corporate
financial security are out of control for the stock happenings. Failure to adhere to regulations
OLERIANA LILIDELLE S. BSA 2-B

can lead to suspension of trading by the  A buyback is when a corporation purchases

exchanges and other disciplinary measures. its own shares in the stock market.
HOW STOCK MARKET WORKS  A repurchase reduces the number of shares
Stock markets provide a secure and regulated outstanding, thereby inflating (positive)
environment where market participants can earnings per share and often, the value of
transact in shares and other eligible financial the stock.
instruments with confidence with zero-to-low-  A share repurchase can demonstrate to
operational risk. Operating under the defined investors that the business has sufficient
rules as stated by the regulator, the stock cash set aside for emergencies and a low
markets act as primary markets and as probability of economic troubles.
secondary markets.
Delisting
A listed company may also offer additional
 Delisting occurs when a stock is removed
shares through other offerings at a later stage,
from a stock exchange
like through rights issue or through follow-on
offers. They may even buyback or delist their  Delisting usually means that a stock has
shares. The stock exchange facilitates such failed to meet the requirements of the
transactions. exchange.
Rights offering (issue)  The most common requirement is that of
price; a price below $1 per share for an
 Rights issue is an invitation to existing
extended period is not preferred for major
shareholders to purchase additional new
indexes.
shares in the company.
 The consequences of delisting are
 each shareholder receives the right to
significant and some companies avoid being
purchase at a pro-rata allocation of
delisted
additional shares at a specific price and
within a specific period (usually 16 to 30 HOW STOCK EXCHANGES MAKE MONEY
days) The primary sources of income for these stock
exchanges are the revenues from the
 Shareholders are not obliged to exercise
transaction fees that are charged for each trade
this right.
carried out on its platform.
Follow-on offerings Additionally, exchanges earn revenue from the
 An offering of shares after an IPO. listing fee charged to companies during the IPO
process and other follow on offerings.
 Raising capital to finance debt or making
growth acquisitions are some of the reasons The exchange also earns from selling market
that companies undertake follow-on data and other technology products.
offerings The exchange may offer privileged services like
high-frequency trading to larger clients like
 Diluted follow-on offerings result in lower
mutual funds and asset management
earnings per share because the number of
companies (AMC), and earn money accordingly.
shares in circulation increases.
The exchange also makes profit by licensing
 Non-diluted follow-on offerings result in an
their indexes (and their methodology) which are
unchanged EPS because it involves bringing
commonly used as a benchmark for launching
new shares to the market
various products.
Buyback
OLERIANA LILIDELLE S. BSA 2-B

Many exchanges also provide courses and affected by the true returns on investment and
certification on various financial topics to the expected risks.
industry participants and earn revenues from
COMPETITIONS OF STOCK MARKET
such subscriptions.
While individual stock exchanges compete
VALUATION OF STOCKS against each other to get maximum transaction
volume, they are facing threat on two fronts.
When originally issued to incorporators, the
value of the stock is based on the par value. In Dark pools which are private exchanges or
other words, subscription of the incorporators forums for securities trading and operate within
at the time of incorporation is issued shares of private groups, are posing a challenge to public
stock on the par value. stock markets. Though their legal validity is
subject to local regulations, they are gaining
Par value refers to the nominal value of the
popularity as participants save big on
shares of stocks appearing on the face of the
transaction fees.
stock certificate. It is usually indicated in the
Articles of Incorporation. Blockchain Ventures—the record keeping
technology behind the Bitcoin.
Shares of stock that do not have par value are
called no-par value stock. Amid rising popularity of blockchains, many
crypto exchanges have emerged. Such
The par value simply fixes the minimum amount
exchanges are venues for trading crypto-
of stocks that a corporate entity may issue. The
currencies and derivatives associated with the
Corporation Code of the Philippines prohibits
asset class. Though their popularity remains
any corporation from issuing shares of stock
limited, they pose a threat to the traditional
below the par value. The shareholders with
stock market model by automating a bulk of the
shares issued below par value shall be held
work done by various stock market participants
liable for the difference between the par value
and by offering zero-to low-cost services.
and the issue price.
Public Stock Markets in the Philippines
For no-par value shares, the stocks are issued
at their stated value which should never be PSE which has two trading centers located at
lower than P 5.00 as required by the the PSE Centre in Ortigas, Pasig—where its
Corporation Code of the Philippines. executive officers are situated—and at the PSE
Plaza in Makati City
However, subsequent to incorporation, the
stocks are issued base on a stock price or the STOCK INDEXES
current market value. The sale of stocks based
The stock exchange often creates and maintains
on their stock price happens when the
various market-level and sector-specific
corporation goes into public for the first time,
indicators, like the S&P 500 index or Nasdaq
during the so-called initial public offering (IPO),
100 index, which provide a measure to track
Stock issuances after the IPO are already based
the movement of the overall market. Other
on the current market value.
methods include the Stochastic Oscillator and
The stock price or the current market value is Stochastic Momentum Index.
considered the “true” or intrinsic value of the
stocks. It is an estimated value, and is primarily
OLERIANA LILIDELLE S. BSA 2-B

NEWS Weekly top price gainers were Universal Robina

Corp., which jumped 18.4 percent to P122,
Stocks may yield to profit taking Jollibee Foods Corp., which climbed 17.6
posted April 12, 2020 at 08:40 pm percent to P120, and Manila Electric Co., which
advanced 10.9 percent to P266.20.
by : Jenniffer B. Austria
Weekly top price losers were Filinvest
Share prices are expected to move sideways
Development Corp., which declined 9.5 percent
this week with an upward bias, with investor
to P8.50, SSI Group Inc., which dropped 6.9
confidence slowly coming back as the
percent to P1.21, and Bank of Philippine Islands
government implements measures to mitigate
which fell 5.8 percent to P57.05.
the impact of the COVID-19 pandemic on the
domestic economy. Asian markets, meanwhile, were mostly higher
on Friday after the latest US coronavirus
The government last week secured World
stimulus measures boosted Wall Street
Bank’s approval for a $500-million to fund an
overnight.
economic stimulus package to contain the virus
and help affected sectors. In its latest attempt to ease the economic pain
inflicted by the COVID-19 pandemic, the US
“Market barometer PSEi rose 3.06% week-on-
Federal Reserve said it would pump $2.3 trillion
week for the third straight week to 5,510.83 as
through new lending programs.
investor confidence is slowly returning back
after government announced concrete The strong close on Wall Street boosted Tokyo’s
measures that would help soften the impact of benchmark Nikkei 225, which finished 0.8
the pandemic and the extended lockdown,” percent higher.
BDO Unibank Inc. chief investment strategist The market remains in a “tug-of-war between
Jonathan Ravelas said. those who are pessimistic (about the pandemic)
“The week’s close at 5,510.83 highlights the and those who are optimistic... they don’t want
bounce has still some room to try 5,800 levels in to miss a rare chance to buy” shares at low
the near-term. Some profit-taking activities may prices, said Mutsumi Kagawa, chief global
have started as we are near the said levels,” he strategist at Rakuten Securities.
added. Seoul also rose, gaining 1.3 percent, and Taipei
The Philippine Stock Exchange Index last week was up 0.4 percent. But Shanghai ended down
rose 3.1 percent to 5,510.83, while the broader one percent.
All Shares Index climbed 2.2 percent to Hong Kong, Sydney, Wellington, and Singapore
3,332.44. were closed for a public holiday.
Except for the financial index which declined 2.2 The Fed appears to be “on a mission to blow
percent, all other sub-indices ended in the holes in every dam that stops the flow of
green led by industrial, which rose 9.9 percent, credit,” said Stephen Innes, chief global markets
holding firms which gained 4.7 percent, services strategist at AxiCorp.
which advanced 2.8 percent, and mining and oil
and property which added 1.4 percent and 0.5 “And it sure sounds like they have plenty more
percent, respectively. dynamite if needed.” With AFP
Foreign investors were net sellers during the
week by P2.5 billion, while the average daily
value traded stood at P5.7 billion, up from the
previous week’s average of P5.35 billion.