Type of Equity Securities

1. Common Stock- A security that represents ownership in a corporation.

Holders of common stock exercise control by electing a board of directors and
voting on corporate policy. Common stockholders are on the bottom of the
priority ladder for ownership structure. In the event of liquidation, common
shareholders have rights to a company's assets only after bondholders,
preferred shareholders and other debtholders have been paid in full.
2. Preferred Stock- A class of ownership in a corporation that has a higher claim
on the assets and earnings than common stock. Preferred stock generally has
a dividend that must be paid out before dividends to common stockholders
and the shares usually do not have voting rights.
3. Convertible Security- An investment that can be changed into another form.
The most common convertible securities are convertible bonds or convertible
preferred stock, which can be changed into equity or common stock. A
convertible security pays a periodic fixed amount as a coupon payment (in
the case of convertible bonds) or a preferred dividend (in the case of
convertible preferred shares), and specifies the price at which it can be
converted into common stock.
Equity Markets
1. Primary Market- A market that issues new securities on an exchange.
Companies, governments and other groups obtain financing through debt or
equity based securities. Primary markets are facilitated by underwriting
groups, which consist of investment banks that will set a beginning price
range for a given security and then oversee its sale directly to investors.
2. Secondary Market- A market where investors purchase securities or assets
from other investors, rather than from issuing companies themselves. The
national exchanges - such as the New York Stock Exchange and the NASDAQ
are secondary markets.
Secondary markets exist for other securities as well, such as when funds,
investment banks, or entities such as Fannie Mae purchase mortgages from
issuing lenders. In any secondary market trade, the cash proceeds go to an
investor rather than to the underlying company/entity directly.

Equity Trading
1. OTC- A security traded in some context other than on a formal exchange such
as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" can be used to
refer to stocks that trade via a dealer network as opposed to on a centralized

exchange. It also refers to debt securities and other financial instruments

such as derivatives, which are traded through a dealer network.
2. PSE- is the national stock exchange of the Philippines, one of the oldest stock
exchanges in Southeast Asia, having been in continuous operation since its
inception in 1927. It currently maintains two trading floors, one at its
headquarters at the PSE Plaza Ayala Triangle, Ayala Tower One in Makati
City's Central Business District, and one at the Philippine Stock Exchange
Centre (Tektite Towers), Ortigas Center in Pasig City. It also has an upcoming
Philippine Stock Exchange office tower/building in Bonifacio Global City,
expected to be fully constructed by mid-2016. [2] The PSE is composed of a 15man Board of Directors, chaired by Jos T. Pardo.
Global Market
1. Short Sale- A market transaction in which an investor sells borrowed
securities in anticipation of a price decline and is required to return an equal
number of shares at some point in the future.
The payoff to selling short is the opposite of a long position. A short seller will
make money if the stock goes down in price, while a long position makes
money when the stock goes up. The profit that the investor receives is equal
to the value of the sold borrowed shares less the cost of repurchasing the
borrowed shares.
2. Market Order-An order that an investor makes through a broker or brokerage
service to buy or sell an investment immediately at the best available current
price. A market order is the default option and is likely to be executed
because it does not contain restrictions on the buy/sell price or the timeframe
in which the order can be executed.
3. Limit order- An order placed with a brokerage to buy or sell a set number of
shares at a specified price or better. Because the limit order is not a market
order, it may not be executed if the price set by the investor cannot be met
during the period of time in which the order is left open. Limit orders also
allow an investor to limit the length of time an order can be outstanding
before being canceled.
4. Stop Order- An order to buy or sell a security when its price surpasses a
particular point, thus ensuring a greater probability of achieving a
predetermined entry or exit price, limiting the investor's loss or locking in his
or her profit. Once the price surpasses the predefined entry/exit point, the
stop order becomes a market order.
Regulation of Equity Market
Day Trading
Day trading is the practice of buying and selling stock shares on the same day.
While nearly anyone can buy stock to sell at a later time, day trading carries strict

restrictions. This protects novice traders from themselves in a highly risky form of
stock market participation, where ignorant traders can quickly lose extraordinary
sums of money. Additionally, the restriction reduces use of the stock market as a
form of gambling for the common man. Day traders are required to use only margin
accounts, a type of brokerage account that gives clients access to cash on loan from
the broker. Additionally, day traders must maintain a minimum daily balance of
$25,000 in their brokerage accounts, which may be a combination of cash and
stocks. If this is not met, the account is suspended until new funds are added or a
period of 90 days passes.
Going Public
The stock market's primary purpose is to facilitate public ownership of a
corporation. When a company chooses to "go public," it has access to large
investment capital from the investing public. But to ensure that the public has
accurate knowledge of a company's health, regulations require public
businesses to disclose much more information than private companies. The
company must file regular financial statements that provide a comprehensive look
at the company's debt, earnings, salaries of its principal officers and other
information.
Related Reading: General Understanding of the Stock Market
Broker Registration
Brokers are the middle men who provide the investing public with access to activity
on a stock market exchange. Without a broker, most investors are unable to buy
and sell shares. The government regulates the actions of brokers to ensure fairness
in this large part of the stock market's industry. The most important
regulation determines who in fact may operate as a broker. Registration with the
Securities and Exchange Commission is a fundamental requirement for any
company that engages in stock market transactions on behalf of a client. The
regulations further distinguish between brokers and "dealers," who execute stock
transactions for the own corporate accounts. Many companies operate as both
brokers and dealers, which requires the corporation to file under both roles.
Trading Business
Some people earn their living mostly or entirely through stock market trading. For
these individuals, the government regulates how their capital gains are taxed. The
Internal Revenue Service provides a special "trader status" to individuals who meet
certain criteria. Once granted trader status, these individuals are not restricted to
many of the limitations associated with capital gains taxes. Instead, their trading
activity is treated as regular income. To qualify, a trader must demonstrate that she
earns the majority of her income from trading and that her profits are significantly
affected by daily fluctuations in market activity. Her trading records must indicate a
year-round daily participation in the markets to demonstrate full-time work.
Equity Valuation Basics

Common Stock
There are 3 models used in the dividend discount model:
1.

zero-growth, which assumes that all dividends paid by a stock remain the
same; Stocks Intrinsic Value = Annual Dividends / Required Rate of
Return

2.

the constant-growth model, which assumes that dividends grow by a

specific percent annually;

Constant-Growth Rate DDM Formula

D1
Intrinsic Value

3.

k-g

D1 = Next Year's Dividend

k = Capitalization Rate
g = Dividend Growth Rate

and the variable-growth model, which typically divides growth into 3

phases: a fast initial phase, then a slower transition phase that ultimately ends
with a lower rate that is sustainable over a long period.

Preferred Stock Valuation

where

Pp = the preferred stock price,

Dp = the preferred dividend, and

r = the required return on the stock.

Equity Risk
a. Systematic risk-The risk inherent to the entire market or an entire
market segment. Systematic risk, also known as undiversifiable risk,

volatility or market risk, affects the overall market, not just a

particular stock or industry. This type of risk is both unpredictable and
impossible to completely avoid. It cannot be mitigated through
diversification, only through hedging or by using the right asset
allocation strategy.
b. Unsystematic Risk- Company- or industry-specific hazard that is
inherent in each investment. Unsystematic risk, also known as
nonsystematic risk, "specific risk," "diversifiable risk" or "residual
risk," can be reduced through diversification. By owning stocks in
different companies and in different industries, as well as by owning
other types of securities such as Treasuries and municipal securities,
investors will be less affected by an event or decision that has a strong
impact on one company, industry or investment type. Examples of
unsystematic risk include a new competitor, a regulatory change, a
management change and a product recall.

Measuring Systematic Rsik

1. Beta- A measure of the volatility, or systematic risk, of a security or a
portfolio in comparison to the market as a whole. Beta is used in the
capital asset pricing model (CAPM), a model that calculates the
expected return of an asset based on its beta and expected market
returns.
2. Security Market Line- A line that graphs the systematic, or market, risk
versus return of the whole market at a certain time and shows all risky
marketable securities.
Also refered to as the "characteristic line".
3. CAPM- A model that describes the relationship between risk and
expected return and that is used in the pricing of risky securities.

The general idea behind CAPM is that investors need to be

compensated in two ways: time value of money and risk. The time value of
money is represented by the risk-free (rf) rate in the formula and

compensates the investors for placing money in any investment over a period
of time. The other half of the formula represents risk and calculates the
amount of compensation the investor needs for taking on additional risk. This
is calculated by taking a risk measure (beta) that compares the returns of the
asset to the market over a period of time and to the market premium (Rm-rf).
Stock Market Index
1. Price Weighted Index- A stock index in which each stock influences the
index in proportion to its price per share. The value of the index is
generated by adding the prices of each of the stocks in the index and
dividing them by the total number of stocks. Stocks with a higher price will
be given more weight and, therefore, will have a greater influence over
the performance of the index.
2. Market Value Weighted Index- A type of market index whose individual
components are weighted according to their market capitalization, so that
larger components carry a larger percentage weighting. The value of a
capitalization-weighted index can be computed by adding up the
collective market capitalizations of its members and dividing it by the
number of securities in the index.
3. Dow Jones Averages- is a stock market index, and one of several indices
created by Wall Street Journal editor and Dow Jones & Company cofounder Charles Dow. The industrial average was first calculated on May
26, 1896.[1] Currently owned by S&P Dow Jones Indices, which is majority
owned by McGraw-Hill Financial, it is the most notable of the Dow
Averages, of which the first (non-industrial) was first published on
February 16, 1885. The averages are named after Dow and one of his
business associates, statistician Edward Jones. It is an index that shows
how 30 large publicly owned companies based in the United States have
traded during a standard trading session in thestock market.[3] It is the
second oldest U.S. market index after the Dow Jones Transportation
Average, which was also created by Dow.

4. Straight Through Processing- An initiative used by companies in the

financial world to optimize the speed at which transactions are processed.
This is performed by allowing information that has been electronically
entered to be transferred from one party to another in the settlement
process without manually re-entering the same pieces of information
repeatedly over the entire sequence of events.
5. NASDAQ- A global electronic marketplace for buying and selling securities,
as well as the benchmark index for U.S. technology stocks. Nasdaq was
created by the National Association of Securities Dealers (NASD) to enable
investors to trade securities on a computerized, speedy and transparent
system, and commenced operations on February 8, 1971. The term
Nasdaq is also used to refer to the Nasdaq Composite, an index of more
than 3,000 stocks listed on the Nasdaq exchange that includes the worlds
foremost technology and biotech giants such as Apple, Google, Microsoft,
Oracle, Amazon, Intel and Amgen.
PSE
Book history- The PSE Rule Book consists of five (5) volumes which are: (1)
Corporate Rules, (2) Membership Rules, (3) Listing and Disclosure Rules, (4)
Trading and Settlement Rules, and (5) Compliance and Surveillance Rules.
StructureMembership
Department
This
department
manages,
implements and coordinates members requirements, planned activities and
projects with the end in view of assisting PSE management in the expansion,
consolidation and development of its membership. It also processes membership
applications and various corporate changes of member-brokers for approval by
the Membership Committee. It is in charge of circular preparations concerning
membership, and the monitoring of financial statements of brokers and SEC
licenses of its stock traders. In coordination with the Membership Committee, it
facilitates memberships arbitration. Further, the Membership Department
organizes and prepares social activities for all members.

Human Resources Management Department

This department, under the
Office of the President, handles employee career management, administration of
employee compensation and benefits, management of corporate culture and
organization development, implementation of the companys performance

management system and formulation and enforcement of company policies. To

ensure continuing organization and employee development, this department
integrates the organizational structure/processes and workforce issues into the
business equation and evaluates group processes and dynamics to tailor-fit
results with a corporate staff training and management development program.
Office of the General Counsel
The Office of the General Counsel renders
corporate legal services and serves as the primary legal advisor to the Board of
Governors, the President, the Chief Operating Officer, the various departments,
officers and employees of the Exchange. It also coordinates with the external
legal consultants on matters referred by the exchange; represents the Exchange
before judicial and administrative/quasi-judicial bodies; and, attend legislative
and administrative hearings or meeting as well as draft position papers and/or
comments to pending legislation and administrative issuances.
Shareholders Protection
1. Prize freeze ruleOccurs when the trading price of the shares moves 50% upward or 40% downward
from the previous closing price. Trading is still allowed but the movement of the
price is not.
2. Alert levels-When a company advises its earnings will not meet
analyst expectations. The profit warning is made prior to the
public announcement of the company's earnings.
Selected Market Indicators
A Trend-Following Tool
It is possible to make money using a countertrend approach to trading. However, for
most traders the easier approach is to recognize the direction of the major trend
and attempt to profit by trading in the trend's direction.
A Trend-Confirmation Tool
Now we have a trend-following tool to tell us whether the major trend of a given
currency pair is up or down. But how reliable is that indicator? As mentioned earlier,
trend-following tools are prone to being whipsawed. So it would be nice to have a
way to gauge whether the current trend-following indicator is correct or not. For
this, we will employ a trend-confirmation tool. Much like a trend-following tool, a
trend-confirmation tool may or may not be intended to generate specific buy and

sell signals. Instead, we are looking to see if the trend-following tool and the trendconfirmation tool agree.
A Profit-Taking Tool
The last type of indicator that a forex trader needs is something to help determine
when to take a profit on a winning trade. Here too, there are many choices
available. In fact, the three-day RSI can also fit into this category. In other words, a
trader holding a long position might consider taking some profits if the three-day
RSI rises to a high level of 80 or more. Conversely, a trader holding a short position
might consider taking some profit if the three-day RSI declines to a low level, such
as 20 or less.
Market Size
A share classification structure based on the number of shares outstanding. This
determines the number of shares that a market maker can trade at the quoted
price.
Number of Listings and Market Value
Rank

Company

Country

Sales

Profits

China Construction Bank

M
V

China

$148.7 B

$42.7 B

$3,124.9
B

China

$121.3 B

$34.2 B

$2,449.5
B

ICBC

Assets

Rank

Company

Country

Sales

Profits

JPMorgan Chase

5
Berkshire Hathaway

6
Exxon Mobil

7
General Electric

8
Wells Fargo

M
V

China

$136.4 B

$27 B

$2,405.4
B

United
States

$105.7 B

$17.3 B

$2,435.3
B

United
States

$178.8 B

$19.5 B

$493.4 B

United
States

$394 B

$32.6 B

$346.8 B

United
States

$143.3 B

$14.8 B

$656.6 B

United
States

$88.7 B

$21.9 B

$1,543 B

Agricultural Bank of China

Assets

Rank

Company

Country

Sales

Profits

PetroChina

M
V

China

$105.1 B

$25.5 B

$2,291.8
B

China

$328.5 B

$21.1 B

$386.9 B

Bank of China

10

Assets