Title 2 - Fundamentals of Securities (May 2024) - Lester Castolo.pdf ✅

MODULE 1: FUNDAMENTALS OF SECURITIES OUTLINE Overview of Financial Markets Fixed-Income Securities Equity Securities Hybrid Securities Derivatives Client Suitability & Protection International Markets Types of Markets
CAPITAL MARKET STRUCTURE ISSUER FINANCIAL INTERMEDIARY (UKBs & IHs) PRIMARY MARKET INVESTOR Cash (Capital) New Securities Underwriting Agreement Cash (Capital) Issues New Securities (ie. IPO) SECONDARY MARKET EXCHANGE/ BROKER INVESTOR Cash (Buyer) or Securities(Seller) Cash (Buyer) or Securities (Seller) Types of Issuers • Government • LGUs • Corporations • Banks Primary vs. Secondary Market The primary market is where companies sell new stocks & bonds to the public for the first time, while the secondary market is where those securities are traded by investors Capital Market Regulators Regulators include the SEC, the PSE, PDEx and other self- regulatory organizations (SRO). BSP meanwhile regulates most financial intermediaries.
COMMON FEATURES OF FIXED INCOME SECURITIES MATURITY COUPON RATE RIGHTS OF A BONDHOLDER INDENTURE PROVISION Maturity is the date when the issuer is obligated to redeem the bonds, while tenor is the time left to maturity. • The indenture is the contract between the issuer and the bondholder specifying the issuer’s legal requirements The coupon rate is the interest rate that the bondholder will receive. It can either be fixed or floating, and the frequency can differ per issue • The right to receive the face value of the bond at the maturity date. • The right to receive periodic interest payments, at a specified percent of the bond’s face value. • Priority over company assets upon default & liquidation. PAR VALUE The amount the issuer agrees to at maturity date. SOURCES OFINCOME • Coupon interest • Bond price increase resulting from interest rate/credit changes It is an instrument that allow issuers to borrow money from investors. It pays investors interest on certain payment dates, and the principal on maturity date • A sinking fund is a fund containing money set aside or saved to pay off a debt or bond SINKING FUND • A provision in a bond indenture that stops or limits the issuer from retiring the bonds by using proceeds from another issue. It protects bondholders from having their bonds called NONREFUNDING PROVISION
MENU OF FIXED-INCOME SECURITIES Coupon bonds: Floaters and Fixed With step-up provision Zeroes COUPON TENOR Short-term: T-bills (91, 182 & 364 days) and Commercial Paper Long-term: Bonds and Notes. Century (Disney and Saudi Sovereign Wealth Fund) Perpetual: Example: Ayala & Petron Sovereign: T-bills, FXTNs LGUs: Municipal Bonds Corporations: CPs, Bonds Banks: Tier 2, LTNCDs (BDO), AT1s (RCBC) Supranational: Example: ADB (2005), IBRD Global Bonds, IFC Green Bonds ISSUER LEVEL OF RISK Senior secured Senior Junior (Subordinated)