COLEGIO DE CALUMPIT

Mac Arthur Highway, Iba O’Este, Calumpit, Bulacan

Telefax No. (044) 202-4759

Tel No. (044) 913-5127

Email Address: [email protected]

SPECIAL TOPICS IN FINANCIAL MANAGEMENT

Name: ERJAS, CHRISTINE MAE T. Year & Course: BSBA-FM IV

Instructor: MRS. CYNTHIA TORRES Date: September 03, 2022

ACTIVITY# 1
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.
 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.
 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.
 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.
 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.
 You’re all set!

The Trading Cycle

  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.

Board Lot System

 Equity trading is done by board lot or round lot system. The Board Lot Table
determines the minimum number of shares an investor can buy or sell at a specific price
range. Therefore, the minimum amount of initial investment varies and will depend on
the market price of the stock as well as its corresponding board lot. Prices of stocks
move through a scale of minimum price fluctuations.

Table 1. Board Lot Table

Market Price (in Php) Tick Size Lot Size

0.0001 to 0.0099 0.0001 1,000,000

0.0100 to 0.0490 0.001 100,000

0.0500 to 0.2490 0.001 10,000

0.2500 to 0.4950 0.005 10,000

0.5000 to 4.9900 0.01 1,000

5.0000 to 9.9900 0.01 100

10.0000 to 19.9800 0.02 100

20.0000 to 49.9500 0.05 100

50.0000 to 99.9500 0.05 10

100.0000 to 199.9000 0.1 10

200.0000 to 499.8000 0.2 10

500.0000 to 999.5000 0.5 10

1000.000 to 1999.000 1 5

2000.000 to 4998.000 2 5

5000.000 and UP 5 5

*Let’s take a look at the illustrations below.

Buying Transaction
Mr. X wishes to buy a stock whose market price is P10.00. 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 P50.00 per certificate issuance request and
transfer fee of P100.00 + 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 P162.00 (P50.00 + P112.00).

Selling Transaction
Ms. Y wishes to sell a stock that is trading at P10.00. Based on the Board Lot
Table, the number of shares she can sell at a regular transaction should be in multiples
of 100 shares. In this case, if Ms. Y wants to sell 1,000 shares (which is a multiple of
100 shares), her cash inflow 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

Stock Transaction Tax** (Transaction Value x 0.6%) – 60.00

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

 Net Cash Receivable ₱ 9,909.94

*Broker’s commission varies depending on value of transaction, with a maximum

allowable rate of 1.5% (please refer to Table 2 below)
**Stock transaction tax levied on sellers only
***VAT included
****If a selling client has certificates, he/she needs to have this converted into book-
entry form in the PCD system. A cancellation fee of P20.00 + 12% VAT and transfer fee
of P100.00 + 12% VAT will be charged. In the illustration above, the combined
cancellation fee and transfer fee to be paid by the selling client will amount to P134.40
(P22.40 + P112.00).

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.
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)
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 Php50 per certificate issuance request. The transfer agent will charge their usual
issuance fee per certificate on top of PDTC’s upliftment/withdrawal fee.

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 Php100 (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 Php20 (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.
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.
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

0.005% of the value of

Transaction Fee
transaction

Clearing and
0.01% of the value of transaction
Settlement Fee

Brokerage
Minimum
Commission Transaction Value
(Min.)¹ Commission

Php100 million and below 0.25%

Above Php100 million up to 0.15% but not less than

Php500 million Php250,000

Above Php500 million up to 0.125% but not less

Php1 billion than Php750,000

Above Php1 billion up to Php5 0.1% but not less than

billion Php1.25 million

Above Php5 billion up to Php10 0.075% but not less

billion than Php5 million

0.05% but not less than

Above Php10 billion
Php7.5 million

Upliftment/
Php50 per certificate
Withdrawal Fee

Cancellation Fee Php20 + 12% VAT

Stock Transaction
0.6% of the value of transaction
tax
 Type of Fee Rate

10% of dividends
Filipino citizen or resident alien
received

Non-resident individual engaged

20% of dividends
in trade or business in the
received
Philippines
Withholding Tax
Non-resident individual not
25% of dividends
engaged in trade or business in
received
the Philippines

30% of dividends
Non-resident foreign corporation
received

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.