LESSON 8

TRADING PROCESS
Trading is the buying and selling of
securities, such as stocks, bonds,
currencies, and commodities, as
opposed to investing, which
suggests a buy-and-hold strategy.
Trading success depends on a
trader's ability to be profitable over
time.
The Philippine Stock Exchange, Inc. (PSE) is a self-regulatory organization that provides
and ensures a fair, efficient, transparent and orderly market for the buying and selling of
securities. The Exchange also offers a convenient and efficient venue in raising capital to
support the growth of businesses.

Considered one of the oldest bourses in Asia, the PSE traces its roots back to the
country’s two former bourses – the Manila Stock Exchange (formed in 1927) and the
Makati Stock Exchange (formed in 1963). The Manila and Makati bourses were unified on
December 23, 1992 to form the PSE.

In 2018, the PSE moved its headquarters to Bonifacio Global City (BGC) in Taguig. The fast
paced environment in the Taguig business district is well-suited for the Exchange as it
aims to fast track the introduction of new products and services to boost investor
participation and liquidity in the Philippine stock market.
PSE Tower, 5th Avenue cor. 28th
Street,
Bonifacio Global City, Taguig City
1634, Metro Manila, Philippines
Investing Procedure
Step 1: Choose a broker
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.
Investing Procedure
Step 2: Open an account

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.
Investing Procedure
Step 3: Give your Order

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.
Investing Procedure
Step 4: Pay before your settlement date

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.
Investing Procedure
Step 5: Receive Your Proceeds/Shares
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.
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.
 Table 1. Board Lot Table
Board Lot System Market Price (in ₱)
0.0001 to 0.0099
Tick Size
0.0001
Lot Size
1,000,000
0.0100 to 0.0490 0.001 100,000
Equity trading is done by board lot or
0.0500 to 0.2490 0.001 10,000
round lot system. The Board Lot 0.2500 to 0.4950 0.005 10,000
Table determines the minimum
0.5000 to 4.9900 0.01 1,000
number of shares an investor can buy
5.0000 to 9.9900 0.01 100
or sell at a specific price range.
10.0000 to 19.9800 0.02 100
Therefore, the minimum amount of
20.0000 to 49.9500 0.05 100
initial investment varies and will
50.0000 to 99.9500 0.05 10
depend on the market price of the 100.0000 to 199.9000 0.1 10
stock as well as its corresponding 200.0000 to 499.8000 0.2 10
board lot. Prices of stocks move 500.0000 to 999.5000 0.5 10
through a scale of minimum price 1000.000 to 1999.000 1 5
fluctuations. 2000.000 to 4998.000 2 5
5000.000 and UP 5 5
Buying
Transaction
Mr. X wishes to buy a stock whose market price is ₱10.00. 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 ₱ 10.00
Number of shares to be bought x 1,000
₱ 10,000.00
Broker’s Commission* (0.25% + 12% VAT) + 28.00
SEC Fee (Transaction Value x 0.005%) + 0.50
PSE Transaction Fee (Transaction Value x 0.005%) + 0.56**
SCCP Fee (Transaction Value x 0.01%) + 1.00
Total Cash Outlay ₱ 10,030.06

*Broker’s commission varies depending on value of transaction, with a maximum allowable commission rate of 1.5% (please refer to Table 2 below)
**VAT included
***If a buying client chooses to be issued and maintain a physical certificate in his/her name, an upliftment/withdrawal fee of ₱50.00 per certificate issuance
request and transfer fee of ₱100.00 + 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 ₱162.00 (₱50.00 + ₱112.00).
Selling
Transaction
Transaction Fees & Taxes

Transaction Fee
The Exchange collects 1/200 of 1% (0.5 basis points) on gross value for every buy
and sell transaction executed. The fee is exclusive of 12% value added tax (VAT).

Clearing & Settlement Fee

The Securities Clearing Corporation of the Philippines collects 1 basis point on
gross value for every buy and sell transaction executed. The fee is inclusive of
12% VAT.
Selling
Transaction
Transaction Fees & Taxes

Brokerage Commision
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% VAT.
The minimum commission rates depend on the amount of the transaction.
(See Table 2)
Selling
Transaction
Transaction Fees & Taxes

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 ₱50 per certificate issuance request. The transfer
agent will charge their usual issuance fee per certificate on top of PDTC’s
upliftment/withdrawal fee.
Selling
Transaction
Transaction Fees & Taxes
Cancellation Fee
If a selling client has physical certificates, he must have the certificates converted
into book-entry form in the PDTC system by requesting, through his broker, for a
direct transfer (DT) with the transfer agent, which costs ₱100 (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 ₱20 (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.
Selling
Transaction
Transaction Fees & Taxes
Stock Transaction Tax
Sales of equities listed and traded on the Exchange are subject to a stock
transaction tax of 3/5 of 1% (60 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.
Selling
Transaction
Transaction Fees & Taxes
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 non-resident 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 non-resident 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 Rate
Transaction Fee 0.005% of the value of transaction
Clearing and Settlement Fee 0.01% of the value of transaction
Brokerage Commission (Min.)¹ Transaction Value Minimum Commission
₱100 million and below 0.25%
Above ₱100 million up to ₱500 million 0.15% but not less than ₱250,000
Above ₱500 million up to ₱1 billion 0.125% but not less than ₱750,000
Above ₱1 billion up to ₱5 billion 0.1% but not less than ₱1.25 million
Above ₱5 billion up to ₱10 billion 0.075% but not less than ₱5 million
Above ₱10 billion 0.05% but not less than ₱7.5 million
Upliftment/ Withdrawal Fee ₱50 per certificate
Cancellation Fee ₱20 + 12% VAT
Stock Transaction tax 0.6% of the value of transaction
Withholding Tax 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

1
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.
Trading Hours
Trading days are from Monday to Friday, 9:00 a.m. to 3:00 p.m.

Time Phase
9:00 am Pre-Open
9:15 am Pre-Open No-Cancel
9:30 am Opening Period - Continuous Trading
12:00 nn Market Recess
1:00 pm Continuous Trading
2:45 pm Pre-Close
2:48 pm Pre-Close No-Cancel
2:50 pm Closing Period - Run-off/Trading-at-Last
3:00 pm Market Close