Financial Markets and Institutions

Gemini gawa

Financial institutions

Entities that serve as intermediaries by channeling the savings of individuals, businesses, and governments into loans or investments.

Financial markets

An organization or system that provides buyers and sellers the means to trade financial instruments, facilitating the flow of capital between savers and borrowers.

Key Customers of Financial Institutions

Individuals who act as net suppliers, along with businesses and governments who act as net demanders.

Role of Financial Institutions

They reduce transaction costs, reduce information costs of screening and monitoring, curb asymmetries, and give savers ready access to funds.

Banks in the Philippines

Entities engaged in lending of funds obtained in the form of deposits.

Nonbanks or Quasibanks

Entities engaged in borrowing funds through the issuance, endorsement, or assignment of deposit substitutes for relending or purchasing obligations.

Republic Act No. 8791

The General Banking Law of 2000.

Bangko Sentral ng Pilipinas (BSP)

A central monetary authority operating as an independent and accountable body corporate responsible for money, banking, and credit.

Republic Act No. 7653

The New Central Bank Act.

Primary objective of the BSP

To maintain price stability conducive to a balanced and sustainable economic growth, and to promote and maintain monetary stability and peso convertibility.

Monetary Policy (BSP Function)

Formulating policies to keep inflation low and stable in order to support balanced and sustainable economic growth.

Monetary Operations (BSP Function)

Utilizing financial tools to effectively manage the demand and supply of central bank money in the economy.

Systemic Risk Management (BSP Function)

Promoting and safeguarding the overall stability of the financial system to prevent widespread disruptions.

Financial Supervision (BSP Function)

Supervising banks and regulating finance companies and non-bank institutions that perform quasi-banking functions.

Payments and Settlements System Oversight (BSP Function)

Overseeing and ensuring safe, secure, and efficient fund transfers across the country's payment infrastructures.

Currency Management (BSP Function)

Exercising the sole legal authority to design, issue, and manage the national currency in the form of banknotes and coins.

Inclusive Finance (BSP Function)

Implementing programs and policies that actively advance financial inclusion, economic education, and consumer empowerment.

Loans and Credit Operations (BSP Function)

Providing rediscounts, advances, and loans to banking institutions, PDIC, and the national government.

International Reserves Management (BSP Function)

Maintaining ample international reserves to support liquidity during times of exchange rate or balance of payments volatility.

International Operations (BSP Function)

Managing the country's external debt, foreign investments, and foreign exchange transactions.

International Economic Cooperation (BSP Function)

Engaging with international financial institutions and global partners to promote regional and global financial stability.

Economic Education (BSP Function)

Offering educational materials and programs to empower citizens to make informed financial choices.

Bangko Sentral Monetary Board

The body that exercises the powers and functions of the BSP, composed of seven members appointed by the President for a term of six years.

Composition of the Monetary Board

It consists of the BSP Governor, a Cabinet member, and five full-time members from the private sector.

Commercial banks

Banks with general corporate powers and the authority to accept drafts, issue letters of credit, discount promissory notes, and accept demand deposits.

Universal banks

Banks authorized to exercise commercial banking powers, investment house powers, and the power to invest in non-allied enterprises.

Thrift banks

Banks composed of savings and mortgage banks, stock savings and loan associations, and private development banks, defined under RA 7906.

Rural banks

Banks defined in RA 7353 that promote the rural economy by providing communities with means to improve productive activities and encourage cooperatives.

Cooperative banks

Banks organized, owned, and controlled by cooperatives to provide financial and credit services primarily to cooperatives, defined in RA 6938.

Islamic banks

Banks established under RA 6848 to accelerate socio-economic development in the Autonomous Region based on the Islamic concept of banking.

Digital Banks

Banks offering financial products and services processed end-to-end through a digital platform or electronic channels with no physical branch.

Philippine Deposit Insurance Corporation (PDIC)

A government instrumentality created by RA 3591 to insure all bank deposits and protect depositors to promote financial stability.

Non-stock savings and loan associations (NSSLAs)

Organizations without stocks that pool the savings of members to provide loans exclusively to other members in need.

Trust corporations

Institutions that specialize in managing assets and investments for clients by acting as trustees and holding property on behalf of others.

Pawnshops

Entities that lend money against personal property as collateral and serve as channels for sending money and paying bills.

Non-bank credit card issuers

Entities that provide credit to consumers by issuing credit cards for purchases, managing accounts, and settling billings.

Money service businesses (MSBs)

Businesses, including remittance agents and transfer companies, that accept money or checks to pay out corresponding amounts to beneficiaries.

Money changers and foreign exchange dealers

Businesses that buy and sell different currencies.

Electronic money issuers (EMI-NBFI)

Non-bank institutions that issue e-money against the receipt of funds, which is stored in digital accounts without earning interest.

Credit granting entities (CGE)

Entities like real estate or vehicle dealers that extend credit through installment or deferred payment sales.

Operators of payment systems (OPS)

Organizations such as BancNet or PCHC that provide clearing and settlement services within a payment system.

Virtual asset service providers (VASP)

Entities facilitating cryptocurrency activities like trading, transferring, safekeeping, or exchanging digital assets for fiat currency.

Republic Act No. 10607

The Insurance Code.

Contract of insurance

An agreement where one undertakes for a consideration to indemnify another against loss, damage, or liability arising from an unknown or contingent event.

Insurance Companies

Firms that accept premiums, which they invest, in return for promising compensation to policyholders under certain events.

Insurance Commission

A national government agency mandated to regulate and supervise the insurance, pre-need, and HMO sectors.

Pension

A fund or regular financial allowance paid to an individual, providing guaranteed income typically after retirement or disability.

Social Security System (SSS)

The pension system in the Philippines that covers private sector employees.

Government Service Insurance System (GSIS)

The pension system in the Philippines that covers government employees.

Raising Capital

A function of financial markets providing a vital source of funds for firms needing to build new facilities, replace machinery, or expand operations.

Price Setting (Price Discovery)

The process in financial markets where the value of items is determined based on what individuals are willing to pay to own them.

Asset Valuation

The use of market prices to offer the most effective way to determine the value of a firm or its assets.

Risk Management

The ability for firms and individuals to trade and manage risks through derivative contracts like futures and options in financial markets.

Commercial Transactions

The function of financial markets that provides the means for arranging payments for international trade or providing working capital.

Arbitrage

The practice where traders profit from price divergences in different locations, helping move prices toward a uniform level.

Private Placement

The sale of a new security directly to an investor or group of investors, such as an insurance company or pension fund.

Public Offering

Raising money through the sale of either bonds or stocks to the general public.

Debt Instruments

Any security that represents a creditor relationship with an entity, such as bonds or mortgages.

Equity Instruments

Any instrument representing ownership shares and the right, warrant, or options to acquire or dispose of ownership shares, like stocks.

Money Market

The financial market used for transactions in short-term debt instruments or marketable securities.

Treasury bills

Short-term risk-free debt instruments issued by the Bureau of Treasury.

Money Market Placements

Low-risk debt instruments that mature in one year or less.

Capital Market

A market that enables suppliers and demanders of long-term funds, like bonds and stocks, to make transactions.

Bonds

Long-term debt instruments used by businesses and governments to raise large sums of money.

Common Stock

Units of ownership or equity in a corporation that typically offer voting rights and dividends.

Preferred stock

A special form of ownership with features of both a bond and common stock, offering fixed dividends preferred over common stockholders.

Primary Market

The market structure where a company or government entity sells original securities directly to investors and receives cash.

Secondary Market

The market where previously issued securities begin to trade between investors, popularly known as a stock exchange.

Broker Market

Securities exchanges where the buyer and seller are brought together to trade securities.

Dealer Market

A market where buyers and sellers have their orders executed by securities dealers rather than meeting directly.

Stock Exchange

An organized secondary market bringing buyers and sellers together to trade shares, debentures, government securities, and bonds.

Listing

The admission of securities to dealings on a recognized stock exchange.

Philippine Stock Exchange, Inc. (PSE)

The national stock exchange of the Philippines, created in 1992 from the merger of the Manila and Makati Stock Exchanges.

Securities and Exchange Commission (SEC)

The Philippine government agency charged with the registration and supervision of corporations, securities, and capital market institutions to promote investor protection.

Self-Regulatory Organizations (SROs)

Entities like the PSE and CMIC licensed to undertake frontline regulation, adopt rules, and enforce compliance over trading participants.

Republic Act No. 8799

The Securities Regulation Code.

SEC Composition

A collegial body composed of a Chairperson and four Commissioners appointed by the President for a seven-year term.

Republic Act No. 12214

The Capital Markets Efficiency Promotion Act (CMEPA), effective July 1, 2025.

Documentary Stamp Tax (DST) on original shares

A tax set at 0.75% of the par value or actual consideration for shares issued without par value.

Documentary Stamp Tax (DST) on transfer of shares

A tax of P1.50 for every P200.00 of par value, or 50% of the DST paid upon original issue for no-par stocks.

Capital Gains Tax (CGT)

A 15% tax imposed on the net capital gains derived from the sale of shares, though shares sold through a stock exchange are exempt.

Stock Transaction Tax (STT)

A tax set at 0.10% (1/10 of 1%) of the gross selling price or gross value in money of the shares sold.