Module 7 • Secondary Markets - where financial instruments that

have been sold previously are traded among

Financial Markets -refer broadly to any marketplace where the
investors.
trading of securities occurs.

Functions of Financial Market

Broad Segments of the Stock Market or Exchange
• Price Determination (Price Setting)-performs the
function of price discovery of the different financial 1. Organized Stock Exchange - organized secondary market,
instruments with a physical location where trading takes place
- the prices are determined by the market forces i.e.,
Stock Exchange- a facility where stockbrokers and traders can
demand and supply in the market.
buy and sell securities.
• Funds Mobilization (Raising Capital)- funds available Stock Exchange Listing- the admission of securities of a
from the lenders or the investors of the funds will get company to trading on a stock exchange.
allocated among the persons who are in need of the
funds. - provides an exclusive privilege to securities on the stock
exchange.
• Liquidity- provides an opportunity for the investors to -only listed shares are quoted on the stock exchange.
sell their financial instruments at its fair value
prevailing in the market at any time during the -provides transparency in transactions of listed securities and
working hours of the market. equality and competitive conditions.

Objectives of Listing
• Risk sharing (Risk management)- derivatives transfer
1. To provide liquidity to securities.
part of the risk from the party who agrees to the 2. To provide a mechanism for effective control and
contract to the party accepting the instrument. supervision of trading.
3. To mobilize savings for economic development.
• Easy Access- the industries require the investors for 4. To provide free negotiability to stocks.
raising the funds and the investors require the 5. To support ability to raise further capital.
industries for investing its money and earning the
returns from them.
2. Over-the-Counter Exchange - a decentralized market in
which market participants trade stocks, commodities,
• Reduction in Transaction Costs and Provision of the
currencies or other instruments directly between two
Information- the trader requires various types of
parties exchange; do not have physical locations; instead,
information while doing the transaction of buying and
trading is conducted electronically.
selling the securities.
- the financial market helps in providing every type of
information to the traders without the requirement of Day Trading- buying and selling financial instruments within
spending any money by them the same trading day, such that all positions are closed before
the market closes for the trading day.
• Capital Formation- financial markets provide the - traders who trade in this capacity with the motive of
channel through which the new savings of the profit are therefore speculators.
investors flow in the country which aid in the capital - trades are “close out” at the end of the day to guard from
formation of the country. off-hours movements
- High risk, Stressful, & Expensive
Methods of Obtaining Funds

1. Debt instrument- a tool that an individual, government What Day Traders Should Be Familiar With
entity, or business entity can utilize for the purpose of
obtaining funds. It is a documented, binding obligation 1. Market data and news playing- is to buy a stock which has
that provides funds to an entity in return for a promise just announced good news, or short sell on bad news. day
from the entity to repay a lender or investor in accordance traders pay a premium for access to real-time data.
with terms of a contract. 2. Trend following or trend trading- is a strategy to which one
the contract includes: detailed provisions on the deal such should buy an asset when its price trend goes up, and sell when
as collateral involved, the rate of interest, the schedule of its trend goes down.
payments for interest and principal, and the date of 3. Contrarian investing- an investment strategy that is
maturity which can be: characterized by purchasing and selling in contrast to the
short term = less than 1 year prevailing sentiment of the time. it assumes that financial
intermediate term = 1-10 years instruments that have been rising steadily will reverse and
long term = 10 years or more. start to fall, and vice versa.

4. Range trading- a trading style in which stocks are watched

2. Equity instrument- a document which serves as a legally
that have either been rising off a support price or falling off a
applicable evidence of the ownership right in a firm, like a
resistance price, such a stock is said to be "trading in a range",
share certificate. issued to company shareholders and are
which is the opposite of trending
used to fund the business
• Primary Markets- users of funds raise funds by - a related approach to range trading is looking for moves
issuing financial instruments new stocks and bonds outside of an established range, called a breakout (price moves
are sold to the public for the first time through an up) or a breakdown (price moves down)
initial public offering or through an investment bank.
5. Swing trading- a speculative trading strategy in financial • Mobilization of funds- transferring of funds from one
markets where a tradable asset is held for between one and sector to another, thus mobilizing the resources for
several days in an effort to profit from price changes or the country’s development.
‘swings’; typically held longer than a day trading position, but
shorter than buy and hold investment strategies that can be
held for months or years. Types of Money Market Instruments

6. Scalping- the shortest time frame in trading and it exploits • Commercial paper
small changes in currency prices; - it normally involves • Bankers’ acceptances
establishing and liquidating a position quickly, usually within • Treasury bills
minutes or even seconds. • Government agency notes
• Local government notes
7. Bid-offer spread- is simply the difference between the price • Interbank loans
at which you can buy a share and the price at which you can • Time deposits
sell it.- to make the spread means to buy at the Bid price and • Repurchase agreements
sell at the Ask price, in order to gain the bid/ask difference.

Bid price - what buyers are willing to pay for it. High grade commercial papers- an unsecured, short-term debt
instrument issued by a corporation, typically for the financing
Ask price - what sellers are willing to take for it.
of accounts payable and inventories or meeting short-term
8. Margin trading- the buying of securities with cash borrowed liabilities. Maturities on commercial paper -270 days.
from a broker, using the bought securities as collateral.
The most fundamental type of commercial paper is a
Some Attributes of Financial Markets promissory note, a written pledge to pay money. A promissory
note is a two-party paper.
• Liquidity
• Transparency Bank acceptance note- an instrument representing a promised
• Reliability Legal procedures future payment by a bank. The payment is accepted and
• Suitable investor protection and regulation guaranteed by the bank as a time draft to be drawn on a
• Low transaction cost deposit. The draft specifies the amount of funds, the date of
the payment, and the entity to which the payment is owed.
Forces of Change
Treasury bills, notes and bonds- Marketable government debt
• Technology securities
• Deregulation
• Liberalization
• Consolidations • Repurchase agreements - a contract in which the vendor of
• Globalization a security agrees to repurchase it from the buyer at an agreed
price.

Primary Issuers of Capital Market Securities

Module 8
• National and local government- for funding national
Money Markets and Capital Markets
debt and to finance capital projects (national and
Money Markets- markets that trade debt securities local)

with maturities of one year or less (e.g. Treasury bills). • Corporations- to finance capital expenditures and
Capital Markets- markets that trade debt (bonds) and other investment opportunities.

equity (stock) instruments with maturities of more than one Capital Market Trading
year. Covers both Primary Market and Secondary Market

Users of Money Market Bonds - cash flows received by the investor or paid by the
• Companies- sourcing cash for operational issuer
requirements; investing excess cash in short-term 1. periodic interest payments,
instruments.
• Banks- as the acceptor of short-term commercial 2. principal (par value or face value) returned at maturity.
papers; issuer of certificates of deposit.
Bonds Trading Process
• Investors/individuals- as savers in the form of bank
deposits or short-term financial instruments. 1. Private placement to a small group of investors which
are frequently financial institutions.
What Money Markets Do
2. Public offering - using an investment bank as a
• Economic development- providing funds to public security underwriter:
and private institution to finance their needs; liquidity the bank guarantees the firm a price for the whole lot
help to promote trade, commerce and industry. of newly issued bonds by paying the bid price, at a
• Borrowing by the government- avoids deficit discount from par and reselling to investors at an
financing or printing more notes increasing the offer price which is a higher price
money supply and price level.
Firm Commitment Underwriting- the underwriter guarantees typically sees depreciation in its currency and is usually
to purchase all the securities offered for sale by the issuer accompanied by higher interest rates.
regardless of whether they can sell them to investors. it is the
2. Interest Rates- higher interest rates provide higher rates to
most desirable agreement because it guarantees all of the
lenders, thereby attracting more foreign capital, which causes
issuer's money right away.
a rise in exchange rates.
Competitive Sale- Any broker dealer or dealer bank may bid on
3. Country’s Current Account / Balance of Payments- consists
the bonds at the designated date and time. The bonds are
of total number of transactions including its exports, imports,
awarded to the bidder offering the lowest interest cost.
debt, etc. A deficit in current account due to spending more of
Negotiated Sale- the terms of the bonds and the terms of the its currency on importing products than it is earning through
sale are negotiated by the issuer and the bond purchaser. the sale of exports causes depreciation.
issuer should have sufficient knowledge of debt financing to
4. Government Debt- Government debt is public debt or
take an active role in establishing the terms of the issue and
national debt owned by the central government. A country
sale. an independent financial advisor can serve as a third-
with government debt is less likely to acquire foreign capital,
party negotiator.
leading to inflation.
Best Effort Underlying Basis- a legal agreement between an
5. Terms of Trade- the ratio of export prices to import prices.
underwriter and a bond issuer, whereby the underwriter
agrees to do the best it can to sell as many as possible to the 6. Political Stability & Performance- A country with less risk for
public. - does not guarantee that all of the securities in the political turmoil is more attractive to foreign investors, as a
issue must be sold. result, drawing more investments from other countries. Sound
financial and trade policy strengthen the value of a country’s
currency but a country prone to political confusions may see a
Advantages of Using Bonds (Borrower’s View) depreciation in exchange rates.

[Link] interest payment. 7. Recession- When a country experiences a recession, its

interest rates are likely to fall, decreasing its chances to acquire
2. Interest expense is tax deductible.
foreign capital.
3. Holders do not share in the company’s huge profit.
8. Speculation- If a country's currency value is expected to rise,
4. Holders do not have a hand in managing the business. investors will demand more of that currency in order to make
a profit in the near future. As a result, the value of the currency
5. The total cost incurred by a company in offering its bonds to will rise due to the increase in demand. With this increase in
the public is generally lower than those of common equity currency value comes a rise in the exchange rate as well.
shares.
9. Government Intervention Monetary Policy - the process by
Disadvantages of Using Bonds (Borrower’s View) which the central bank, or government controls the supply and
availability of money, the cost of money, and the rate of
[Link] and interest payments should be met.
interest.
2. Debt and interest payments are fixed.

3. At maturity date, payment of debt requires a huge cash

Exchange Rate Determination
outflow.
Currency prices can be determined in two main ways:
4. Holders do not have a hand in managing the business.
• Floating rate- determined by the market forces of
5. Restrictive covenants may restrict the company’s financial
supply and demand on the global currency markets.
flexibility.
rates fluctuate freely and may result to either
devaluation or revaluation or upvaluation

• Managed Float - Short-term moves in a floating

Module 9 exchange rate currency reflect speculation, rumors,
disasters, and everyday supply and demand for the
Foreign Exchange Market currency. Extreme short-term moves can result in
intervention by central banks, central banks and
Foreign Exchange Market - a global decentralized or over-the-
governments may step in if a nation's currency
counter (OTC) market for the trading of currencies.
becomes too high or too low, hence, the term
- determines foreign exchange rates for every currency. “managed float”.
- It includes all aspects of buying, selling and exchanging
currencies at current or determined prices. • Fixed exchange rate- A country's decision to tie the
- assists international trade and investments by enabling value of its currency to another country's currency,
currency conversion. gold (or another commodity), or a basket of
currencies. A fixed or pegged rate is determined by
Exchange Rate- the price of one country’s currency expressed
the government through its central bank. The rate is
in terms of another country’s currency.
set against another major world currency (such as the
U.S. dollar, euro, or yen).

Factors Affecting Exchange Rates

1. Inflation Rates- A country with a lower inflation rate than The “Law of One Price”- an economic concept that states that
another's will see an appreciation in the value of its currency. the price of an identical asset or commodity will have the same
A country with a consistently lower inflation rate exhibits a price globally, regardless of location, when certain factors are
rising currency value while a country with higher inflation
considered. It is the foundation of purchasing power parity Module 10
(PPP).
Mortgage and Derivatives Market
PPP - states that the value of two currencies is equal when a
basket of identical goods is priced the same in both countries. Mortgage- a legal agreement by which a bank or other
It ensures that buyers have the same purchasing power across creditor lends money at interest in exchange for taking title of
global markets. the debtor's property, with the condition that the conveyance
of title becomes void upon the payment of the debt.- a debt
instrument that is secured by real estate. the interest rates on
Kinds of Foreign Currency Exchange Transactions mortgage loans tend to be lower than for unsecured debt.

1. Spot Transactions - an agreement between two parties to Mortgage Market

buy one currency against selling another currency at an Primary Mortgage Market- the market where borrowers can
agreed price for settlement on the spot date. obtain a mortgage loan from a primary lender. Banks,
• Spot or Settlement date - exchange is done mortgage brokers, mortgage bankers, and credit unions are all
immediately; the standard settlement timeframe for primary lenders and are part of the primary mortgage market.
foreign exchange spot transactions is two business
days from the trade date (T+2). Secondary Mortgage Market- where lenders and investors buy
and sell mortgages and their servicing rights. Its purpose is to
• Spot exchange rate- the exchange rate at which the give lenders a steady source of money to lend, while also
transaction is done. alleviating the risk of owning the mortgage.

1. Direct Quote- one unit of foreign currency is

expressed in terms of domestic currency.
Features that Borrowers Should Know
2. Indirect Quote- one unit of domestic currency is
1. Mortgage interest rates
expressed in terms of foreign currency.
2. Loan terms
3. Cross Rate- a foreign currency exchange a. Collateral
transaction between two currencies that are both b. Down payment
valued against a third currency. c. Private mortgage insurance
d. Amortization
2. Forward Transactions- an agreement with the bank to 3. Borrower qualifications
purchase one currency against selling another currency at a
fixed price for delivery on an agreed date in the future. Types of Mortgage Loans
• Forward Rates- the exchange rate at which a bank 1. Conventional mortgages - a type of mortgage loan that is not
agrees to exchange one currency for another at a insured or guaranteed by the government; it is backed by
future date when it enters into a forward contract private lenders, and its insurance is usually paid by the
with an investor. borrower.
• Spot rate - the immediate exchange rate.
- can be harder to qualify for and require that the borrower
have a higher credit score.
Factors Affecting Exchange Rates in the Future 2. Insured mortgages - protected by mortgage default
insurance; the insurance protects the lender, not the
In the long run, exchange rates are determined by:
borrower, against losses in the event of failure of mortgage
1. Relative price levels payments or default on the loan.
2. Trade barriers
3. Fixed Rate Mortgages the mortgage carries a constant
3. Preference for domestic against foreign goods
interest rate from beginning to end.
4. Productivity
4. Adjustable Rate Mortgages - the interest rate applied on the
outstanding balance varies throughout the life of the loan; the
Foreign Exchange Risk - is a financial risk that exists when a interest rate for is reset based on a benchmark or index.
financial transaction is denominated in a currency other than
the domestic currency of a business entity. [Link] Payment Mortgages - the payments increase
gradually from an initial low base level to a higher final level;
Preventing Exchange Rate Risk in Foreign Currency Markets the payment starts out low and then gradually rises.
1. Hedging, not speculation 6. Growing Equity Mortgages - monthly payments increase
over time according to a set schedule, rather than remaining
2. Establishment of netting centers, particularly for large
fixed and equal over the loan term. The interest rate on the
multinational companies.
loan does not change, and there is never any negative
3. Trigger pricing amortization.

4. Diversification [Link] Appreciation Mortgages - the borrower or purchaser

of a home shares a percentage of the appreciation in the
home's value with the lender; in return for this additional
compensation, the lender agrees to charge an interest rate
which is below the prevailing market interest rate.

8. Equity Participating Mortgages - the lender and the

borrower undertake a joint investment and agree to a future
division of profit (or losses) according to specified shares.
9. Second Mortgages - A second mortgage or junior-lien is a Module 11
loan you take out using your house as collateral while you still
Globalization of Financial Markets
have another loan secured by your house.
International/Global Financial Markets- the place where
10. Reverse Annuity Mortgages - the lender advances funds to
financial wealth is traded between individuals and between
the owner, secured against the value of the property; it allows
countries; it can be seen as a wide set of rules and institutions
you to cash in some of your home's equity, without having to
where assets are traded between agents in surplus and agents
sell or move out.
in deficit and where institutions lay down the rules. include the
market for foreign exchange, the Eurocurrency and related
money markets, the international capital markets, notably the
Mortgage Securitization
Eurobond and global equity markets, the commodity market
Securitization- the financial practice of pooling various types of and last but not least, the markets for forward contracts,
contractual debt such as residential mortgages, commercial options, swaps and other derivatives.
mortgages, or other debt obligations and selling their related
Importance of International / Global Financial Markets-
cash flows to third party investors as securities.
- offer access to foreign capital needed for expansion
Mortgage- backed security- a type of asset-backed security
- facilitate trading in foreign currencies
which is secured by a mortgage or collection of mortgages; a
- allow investors to channel funds to other countries
common type is the mortgage pass through.
- create policies for good governance and control.
o governance in the financial market can be
defined as a set of rules useful in interconnecting
Participants in a Derivatives Market the agents who operate within it and the
institutions; these rules define the market.
Hedgers- persons or entities investing in financial markets to
reduce the risk of price volatility, i.e., eliminate the risk of
future price movements.
World’s Largest Financial Markets- The New York Stock
Speculators- Investors engaged in the purchase of any financial Exchange (NYSE) is the largest in the [Link] are more
instrument or an asset that an investor speculates the future. than 500 non-U.S. stocks from 46 countriesnon-U.S.
to become significantly valuable in companies must comply with SEC and accounting regulations,
thus providing a more overall transparent process to investors.
Speculation - is the buying of an asset or financial instrument
with the hope that the price of the asset or financial
instrument will increase in the future. It is a risky activity that
investors engage in. Speculation is driven by the motive of Cross-Border Financing- any financial arrangement that
potentially earning lucrative profits in the future. originates in one country for the benefit of someone in another
country. it can include loans, letters of credit, and bank
Arbitrageurs- investors who make profit from buying a acceptances.
commodity or shares, or currency in one place and sells them
in another where they can get a higher price at the same time. • constraints: laws, collection of money, tax,
transaction cost are different in different countries.
Arbitrage - is the practice of taking advantage of a price
difference between two or more markets.
Categories of Investors
Margin traders - investors who are trading assets using funds
provided by a third party. Retail or Individual Investor- someone who invests in
securities and assets, such as stocks, bonds, securities, mutual
Margin -is the collateral deposited by an investor investing in a funds, on their own, usually in smaller quantities.
financial instrument to the counterparty to cover the credit
risk associated with the investment. Institutional investor- an entity which pools money to
purchase securities, real property, and other investment assets
Derivatives Market- the financial market for financial or originate loans. an organization that invests money on
instruments such as futures contracts or options. there are behalf of other people.
four kinds of participants in a derivatives market:
International Credit Markets- a marketplace for the exchange
1. Hedgers of debt securities and short-term commercial paper. a form for
2. Speculators the movement of loan capital between countries.
3. Arbitrageurs
4. Margin traders
Types of International Credit Markets

Eurocredit Market- comprises of banks that accept deposits

and provide loans in large denominations and in a variety of
currencies different from the lender's national money; the
loans carry variable or floating rates.

Eurobond Market- a MARKET based in Europe, comprising a

web of international banks and money brokers, which is
engaged in the borrowing and lending of FOREIGN
CURRENCIES such as US dollars OUTSIDE their countries of
origin, as a means of financing trade and investment
transactions.

-the main instrument used in the Eurocurrency market to

finance long-term investment is the Eurobond - a debt
instrument that's denominated in a currency other than the Risk Management in Banking- theoretically defined as
home currency of the country or market in which it is issued. “the logical development and execution of a plan to deal
Foreign Bond Market - where international (foreign) bonds are with potential losses”
issued by foreign issuers in a foreign national market and are
• Liquidity risk- the ability of a bank to access cash
denominated in the currency of that market.
to meet funding obligations which include
- Foreign bond issuance is regulated by the rules of the host allowing customers to take out their deposits.
national market. an example of a foreign bond is a bond
denominated in US dollars issued by a German company - bank run occurs when many customers withdraw all
in the United States. their money simultaneously from their deposit
accounts with a banking institution for fear that the
institution is, or might become, insolvent.
Module 12
Financial Institutions and Intermediaries
• Credit risk- occurs when borrowers or
Financial Institutions- companies engaged in the counterparties fail to meet contractual
business of dealing with financial and monetary obligations. banks can lower their exposure
transactions such as deposits, loans, investments, and through diversification, analysis, credit risk
currency exchange. imposing requirements, collateral, covenants
rationing, restrictive banking and relationship
Financial Intermediaries- are financial institutions such
as banks, building societies, credit unions, insurance
• Market risk- mostly occurs from a bank’s
companies, pension funds or mutual funds. they are
activities in capital markets due to the
entities that act as the middleman between two parties
unpredictability of equity markets, commodity
in a financial transaction.
prices, interest rates, and credit spreads

- to decrease market risk: diversification of

Flow of Funds through the Financial System investments is important, hedging e.g., interest rate
Indirect Finance – funds go through the financial swaps, use of floating interest rates for loans.
intermediaries. Lenders - Financial Intermediaries -
Borrowers
• Operational risk- the risk of loss due to errors,
Direct Finance – borrowers get fuds directly on financial breaches or fraud, interruptions, or damages
markets. Lenders – Financial Markets – Borrowers caused by people, failed internal systems or
processes, or any external event that disrupts a
financial institution’s operations. operational
loss becomes prevalent if internal control is weak

Module 13 - Internal Control- Comprises the plan of the

Fundamentals of Commercial Banking organization and all of the methods and procedures
adopted by a business to:
Commercial banks- depository institutions whose major
assets are loans and major liabilities are deposits. > safeguard its assets
> check the accuracy and reliability of its accounting
data
> promote operational efficiency and
The Bank Balance Sheet
> encourage adherence to prescribed managerial
Bank Assets: policies.

• Reserves and Other Cash Assets-

• Securities-
• Loans Receivable-
Module 14
• Other Assets
Other Banking Activities
Bank Liabilities:

• Demand or Current Account

Off-Balance –Sheet Activities (OBS), or incognito
• Deposits
leverage, usually means an asset or debt or financing not
• Nondemand Deposits- on the company's balance sheet.
• Borrowings

Bank Capital or Net Worth

Off-Balance –Sheet Activities

1. Loan commitment- a lender's promise to offer a loan

or credit of a specified amount to a borrower.
- commitment fee is charged by a lender to a borrower Restriction on Bank Exposure to Directors, Officers,
as a way of guaranteeing that the bank will keep the Stockholders and their Related Interests (DOSRI)
funds available.
- Dealings of a bank with any of its DOSRI should be in the
2. Standby letters of credit - a legal document that regular course of business and upon terms not less
guarantees a bank's commitment of payment to a seller favorable to the bank than those offered to others.
in the event that the buyer – or the bank's client defaults
- No director or officer of any bank shall, directly or
on the agreement.
indirectly, for himself or as the representative or agent
3. Loan sale - a sale by a bank, under contract of all or of others, borrow from such bank nor shall he become a
part of the cash stream from a specific loan, thereby guarantor, endorser or surety for loans from such bank
removing the loan from the bank's balance sheet. to others, or in any manner be an obligor or incur any
contractual liability to the bank except with the written
4. Trading Activities - cover transactions for hedge
approval of the majority of all the directors of the bank,
instruments like futures, options, and interest rate
excluding the director concerned.
swaps; it includes hedging services provided to bank
customers

The New Central Bank Act (RA 7653 as amended by RA

11211) – states that the State shall maintain a central
Shadow Banking – a term for the collection of non-bank
monetary authority that shall function and operate as an
financial intermediaries that provide services similar to
independent and accountable body corporate in the
traditional commercial banks but outside normal banking
discharge of its mandated responsibilities concerning
regulations.
money, banking and credit. In line with this policy, and
Investment banks – a special segment of banking considering its unique functions and responsibilities, the
operation whose areas of business helps individuals or central monetary authority established under this Act,
organizations raise capital and provide financial while being a government-owned corporation, shall
consultancy services to them. enjoy fiscal and administrative autonomy.

Divisions Within Investment Banks

• Industry coverage groups – Differentiated by Creation of the Bangko Sentral

what types of clients the groups serve, e.g.,
* The capital of the Bangko Sentral shall be two hundred
Healthcare, Technology, Media, Telecom, etc.
billion pesos (₱200,000,000,000) to be fully subscribed
by the Government of the Republic.
• Product groups – Differentiated by what types of
services the groups provide. These groups focus Currency – refer to all Philippine notes and coins issued
only on their specific products/services and can or circulating in accordance with the provisions of this
work across all industry groups. Act.

Currency Exclusive Issue Power

• The BSP shall have the sole power and authority

to issue currency, within the territory of the
Philippines.
Module 15
• No other person or entity, public or private, may
Introduction to Banking Laws and the PDIC Law put into circulation notes, coins or any other
object or document which, in the opinion of the
Monetary Board, might circulate as currency, nor
General Banking Law of 2000 (RA 8791) – an act reproduce or imitate the facsimiles of Bangko
providing for the regulation of the organization and Sentral notes without prior authority from the
operations of banks, quasi-banks, trust entities and for Bangko Sentral.
other purposes • Violation of this provision or any regulation
issued by the BSP pursuant thereto shall
Quasi-banks - refer to entities engaged in the borrowing constitute an offense punishable by
of funds through the issuance, endorsement or imprisonment of not less than five (5) years but
assignment with recourse or acceptance of deposit not more than ten (10) years.
substitutes for purposes of relending or purchasing of • In case the Revised Penal Code provides for a
receivables and other obligations. greater penalty, then that penalty shall be
Deposit substitutes – an alternative form of obtaining imposed.
funds from the public through the issuance, Legal Tender Power – means that when the currency
endorsement, or acceptance of debt instruments for the is offered in payment of a debt, public or private, the
borrower’s own account, for the purpose of relending or same must be accepted.
purchasing of receivables and other obligations.
THE POWERS:

• Philippine currency notes have no limit to their

legal tender power. All notes and coins issued by
 the BSP shall be fully guaranteed by the Risk Covered by PDIC
Government of the Republic of the Philippines
only the risk of a bank closure ordered by the Monetary
and shall be legal tender in the Philippines for all
Board. thus, bank losses due to theft, fire, closure by
debts, both public and private.
reason of strike or existence of public disorder,
• In the case of coins in denomination of: 1, 5 and
revolution or civil war, are not covered by PDIC.
10 peso they shall be legal tender in amounts not
exceeding P2,000.00 – coins in denomination of Maximum liability
1, 5, 10 and 25 Sentimo shall be legal tender in
In determining the insured amount, the outstanding
amounts not exceeding P200.00.
balance of each account is adjusted, such that interests
are updated, withholding taxes are deducted, accounts
maintained by a depositor in the same right and capacity
PDIC Law (RA 3591, as Amended by RA 10846 to
are added together; and whenever applicable, unpaid
strengthen the mandatory deposit insurance coverage
loans and other obligations of the depositor are
system to generate, preserve, maintain faith and
deducted; and in no case shall insured deposit exceed
confidence in the country’s banking system, and protect
P1,000,000.
it from illegal schemes and machinations.
- Deposits in different banking institutions are insured
- the Corporation, while being a government
separately. however, if a bank has one or more
instrumentality with corporate powers, shall enjoy
branches, the main office and all branch offices are
fiscal and administrative autonomy.
considered as one bank.
Insurable deposits - The claim for the uninsured portion of the deposit is
a claim against the assets of the closed bank. - The
Deposits of all commercial banks, savings and mortgage
claim may be filed with the Liquidator of the closed
banks, rural banks, private development banks,
bank within sixty (60) days from publication of notice
cooperative banks, savings and loan associations, as well
of closure.
as branches and agencies in the Philippines of foreign
banks and all other corporations authorized to perform Requirements for Claims
banking functions in the Philippines, are insured with
- Depositors will be advised through the national
PDIC.
and/or local media and posters at the premises of
Exclusions: the closed insured bank & other public places within
the locality on:
1. Investment products such as bonds, securities and
1. the schedule of distribution of claim forms by
trust accounts;
PDIC,
2. Deposit accounts which are unfunded, fictitious or 2. receiving of claim forms by PDIC,
fraudulent; Insurable deposits Exclusions: 3. and the prescriptive date of filing claims by the
depositors.
3. Deposit products constituting or emanating from - depositor of the closed insured bank has 24 months
unsafe and unsound banking practices; from date of bank takeover to file his insurance
4. Deposits that are determined to be proceeds of an claim. Failure to file the claim with PDIC would mean
unlawful activity as defined under the Anti Money that all rights of the depositor with respect to the
Laundering Law. insured deposit shall no longer be honored. But he
may still make a claim against the assets of the closed
* As for Philippine banks with branches outside the bank.
country, subject to the approval of the Board of
Directors, any insured bank with branch outside the Processing of Claims
Philippines may elect to include for insurance its deposit - Deposit records are subjected to an examination
obligations payable at such branch. prior to the start of servicing/settlement of claims.
* Foreign currency deposits are also insured by PDIC.
Depositors may receive payment in the same currency in - Claims are evaluated and processed according to
which the insured deposit is denominated. PDIC's standard procedures.

Insured Deposit- the amount due to any bona fide - The claim for insured deposit should be settled
depositor for legitimate deposits in an insured bank net within six (6) months from the date of filing, provided
of any obligation of the depositor to the insured bank as all requirements are met- but the claim must be filed
of date of closure, but not to exceed P1,000,000.00. within twenty-four (24) months after bank takeover.

- The six-month period shall not apply if: the

Are All Banks Insured or Members of PDIC? documents of the claimant are incomplete or if the
validity of the claim requires the resolution of issues
Membership of banks to PDIC is mandatory; hence, all
of facts and law by another office, body or agency,
operating banks are members of PDIC.
independently or in coordination with PDIC.
Module 16 The Securities and Exchange Commission – the national
government regulatory agency charged with supervision
Regulators of the Financial System
over the:

• corporate sector,
Principal Regulatory Agencies • capital market participants,
• securities and investment instruments market,
• Bangko Sentral ng Pilipinas
• protection of the investing public.
• Philippine Deposit Insurance Corporation
• Securities and Exchange Commission
Main Responsibility:
• Insurance Commission
- enforcing all laws affecting corporations and other
Objectives of Financial Regulations forms of associations not otherwise vested in some
other government offices.
a. To ensure the soundness of the financial system, the
- the Commission also implements and acts either as
following regulations are being implemented:
lead or support agency in administering and
1. Restrictions on entry enforcing special laws.
2. Stringent reporting requirements o Anti-Money Laundering Act of 2001 (RA
3. Restriction on assets and activities 10365), as amended
4. Deposit insurance o Lending Company Regulation Act (LCRA) of
5. Limits on competition 2007 (RA 9474)
6. Restriction on interest rate

b. To increase the information available to investors. Money laundering – defined as transacting or moving
proceeds from unlawful activities (e.g., kidnapping, drug
c. To improve control of the financial system.
trafficking, corruption) to make them appear legitimate.

The Role of BSP in Financial Regulation

Other Special Laws where SEC implements and acts
Primary objectives: either as lead or support agency

- to maintain price stability conducive to a balanced • The Anti-Money Laundering Act of 2001 (RA 10365),
and sustainable growth of the economy and as amended
employment; • Lending Company Regulation Act (LCRA) of 2007 (RA
- it shall also promote and maintain monetary stability 9474)
and the convertibility of the peso. • Financing Company Act (FCA) (RA 8556), as amended
• Investment Company Act (RA 2629), as amended,
Responsibilities:
and its IRR
- provide policy directions in the areas of money, • Investment Houses Law (PD 129)
banking, and credit. • Retail Trade Liberalization Act of 2000 (RA 8762)
- have supervision over the operations of banks and • Foreign Investments Act of 1991 (RA 7402), as
exercise such regulatory and examination powers amended
over the quasi-banking operations of non-bank • Omnibus Investments Code of 1987 (E.O. 226, Book
financial institutions. III)
- exercise regulatory and examination powers over • Anti-Dummy Law (Commonwealth Act 108), as
money service businesses, credit granting amended
businesses, and payment system operators. • Civil Code of the Philippines (RA 386, Title IX –
o the Monetary Board is empowered to Partnership)
authorize entities or persons to engage in • Securitization Act of 2004 (RA 9267)
money service businesses. • Real Estate Investment Trust Act of 2009 (RA 9856)
• Personal Equity and Retirement Account Act of 2008
The Role of PDIC in Financial Regulation (RA 9505)
• Ease of Doing Business and Efficient Government
The Corporation shall promote and safeguard the Service Delivery Act of 2018 (RA 11032)
interests of the depositing public by providing insurance
coverage on all insured deposits and helping maintain a
sound and stable banking system. The Securities and Exchange Commission
Functions
VISION
1. Deposit insurance By 2028, the SEC with its driven, highly-trained and
2. Risk mitigation customer-centric team of professionals, equipped with
3. Receivership and liquidation innovative technology and automated registration and
data management systems, is the premier investor
champion and catalyst of a broadened and informed
investor-based capital market and business sector
considered among the best in the Southeast Asian
Region.

MISSION
We are the gateway to doing business in the Philippines.
We provide a competitive and secure environment for
easy company registration, efficient capital formation,
and broad investor participation.

CORE VALUES
• Integrity
• Professionalism
• accountability
• Teamwork
• Independence

The Insurance Commission – an attached agency of the

Department of Finance (DOF) committed to protect the
interest and welfare of the insuring public and to develop
and strengthen the insurance industry.
- as a regulator, the commission shall provide an
opportunity for every Filipino to secure insurance
protection and shall observe practices at par with
regional and global standards.

VISION
We are committed to implement prudent and
progressive regulatory and supervisory policies at par
with international standards.

MISSION
Strong, sustainable and globally competitive regulated
entities, as pillars of the economy, to serve every Filipino.

Mandate
To regulate and supervise the insurance and pre-need
industries in accordance with the provisions of the
Insurance Code, as amended, the Pre-Need Code of the
Philippines and Executive Order No. 192 (s. 2015).

Major functions:
- to promulgate and implement policies, rules and
regulations governing the operations of entities
engaged in insurance and pre-need activities.
- to handle licensing of insurance, reinsurance
companies, its intermediate, mutual benefit
associations, trusts for charitable uses and pre-need
companies and its intermediaries.

Is PDIC Under the Insurance Commission?

- the Philippine Deposit Insurance Corporation (PDIC)
is a government instrumentality created to insure
bank deposits.
- the Insurance Commission supervises and regulates
the insurance industry