BAFIN 102B - FINANCIAL MANAGEMENT

TOPIC 5: INVESTING IN PHILIPPINE STOCK MARKET

The Trading Cycle

Step 1: Choose a Broker

All stock market transactions are done through stockbrokerage firms or
trading participants (TPs) accredited by the PSE. There are two types of
TPs in the PSE – traditional and online. The former will assign a trader or
agent to execute your transactions while the latter allows you to trade on
your own through their online facility. Decide whether you want to go
with a traditional or online TP.

Here are the things that may help you shortlist potential TPs: minimum
investment requirement, types of services they offer, commissions and
fees, client feedback, and for online TPs, the features and user-
friendliness of their trading platform. It is important that you trust your
TP and that you are satisfied with their service.

The complete list of PSE-accredited TPs is available on this website

Step 2: Open an account

Contact your chosen TP and find out their account opening requirements.
Submit the required documents and identification cards and proceed with
the account opening process. The TP will do its Know Your Customer
(KYC) procedure.

Step 3: Give your Order

Take the first step to becoming a shareholder by giving your buy order to
your assigned trader or by posting a buy order through your online
trading account. Please note that online accounts are required to be pre-
funded before entering buying orders. The buying order is reflected on
the trading terminal and is matched with a sell order with the same or
better price. Your TP should immediately confirm your done trades and
subsequently, an official confirmation or invoice should be delivered to
you. For investors using an online platform, the confirmation is reflected
real-time in the trading platform of the online TP. Inform your TP if you
would like to have a stock certificate for the shares you bought so they
can inform you of the process and fee for this procedure.

Step 4: Pay before your settlement date

Payment for shares bought and delivery of shares sold should be made
before the settlement deadline on settlement date which is two (2)
clearing days from the transaction date (T+2).

For investors dealing with traditional TPs, payment for shares bought and
delivery of shares sold should be made before the settlement deadline on
T+2. To illustrate, for a transaction done on Monday, payment and
delivery by the buyer and seller, respectively, should be done before the
settlement deadline on Wednesday.
 BAFIN 102B - FINANCIAL MANAGEMENT

For investors dealing with online TPs, payment for shares bought and
delivery of shares sold happens on the transaction date.

Step 5: Receive Your Proceeds/Shares

You will receive from your TP either the proceeds of the sale of your
stocks or proofs of ownership of stocks you bought* (confirmation receipt
and invoice) after the settlement processing on T+2. Make sure that the
corresponding confirmation receipt and invoice are provided by your TP.

* Note however, that while the clearing and settlement cycle is

completed within 2 clearing days after the transaction date, purchased
shares are immediately reflected in the portfolio of the buying investor
and the same investor has the option to sell the shares before T+2 of the
initial transaction.

The Trading Cycle

All equity transactions, whether buying or selling, have a settlement

period of T+2 (trading day + 2 clearing days). This means that a seller
should be able to deliver the shares, if any, to his TP and the buyer
must have paid the cost of transaction to his TP within 2 clearing 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 the Philippine Depository & Trust Corp. or
PDTC), transactions are settled on the second day after trade date.
Under this system, the investor has the option to hold on to his
BAFIN 102B - FINANCIAL MANAGEMENT

certificate (uplift) or deposit (lodge) this certificate in PDTC through his

TP-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.

Market Price (in Php) Tick Size Lot Size

1,000,00
0.0001 to 0.0099 0.0001
0

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
BAFIN 102B - FINANCIAL MANAGEMENT

Table 1. Board Lot Table

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:

Type of Fee Rate

Transaction Fee 0.005% of the value of transaction

Clearing and
0.01% of the value of transaction
Settlement Fee
Brokerage Minimum
Transaction Value
Commission (Min.)¹ Commission

Php100 million and below 0.25%

Above Php100 million up to Php500 0.15% but not less

million than Php250,000
Above Php500 million up to Php1 0.125% but not less
billion than Php750,000
0.1% but not less
Above Php1 billion up to Php5 billion
than Php1.25 million
0.075% but not less
Above Php5 billion up to Php10 billion
than Php5 million
0.05% but not less
Above Php10 billion
than Php7.5 million
BAFIN 102B - FINANCIAL MANAGEMENT

Upliftment/
Php50 per certificate
Withdrawal Fee

Cancellation Fee Php20 + 12% VAT

Stock Transaction
0.6% of the value of transaction
tax
10% of dividends
Withholding Tax Filipino citizen or resident alien
received
Non-resident individual engaged in 20% of dividends
trade or business in the Philippines received
Non-resident individual not engaged 25% of dividends
in trade or business in the Philippines received
30% of dividends
Non-resident foreign corporation
received

Illustrative Example

*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).
**** Section 35 of the Securities Regulation Code

Selling Transaction

Transaction Fees & Taxes

Transaction Fee
BAFIN 102B - FINANCIAL MANAGEMENT

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
BAFIN 102B - FINANCIAL MANAGEMENT

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.
 BAFIN 102B - FINANCIAL MANAGEMENT

Table 2. Schedule of Transaction Fees and Taxes Levied on

Type of Fee Rate

Transaction Fee 0.005% of the value of transaction

Clearing and
0.01% of the value of transaction
Settlement Fee

Brokerage Minimum
Transaction Value
Commission (Min.)¹ Commission

Php100 million and below 0.25%

0.15% but not

Above Php100 million up to
less than
Php500 million
Php250,000

0.125% but
Above Php500 million up to Php1
not less than
billion
Php750,000

0.1% but not

Above Php1 billion up to Php5 less than
billion Php1.25
million

0.075% but
Above Php5 billion up to Php10
not less than
billion
Php5 million

0.05% but not

Above Php10 billion less than
Php7.5 million

Upliftment/
Php50 per certificate
Withdrawal Fee

Cancellation Fee Php20 + 12% VAT

Stock Transaction
0.6% of the value of transaction
tax

10% of
Filipino citizen or resident alien dividends
received

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

30% of
Non-resident foreign corporation dividends
received
BAFIN 102B - FINANCIAL MANAGEMENT

Investors
1 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

REFERENCE:

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