Financial Markets & Non Bank Financial Institutions

An Overview of the Financial System

Financial Markets & Non Bank Financial Institutions

Atty. Rene B. Betita

Flow of Funds Through The Financial System

INDIRECT FINANCE

Financial Intermediaries

Lenders Savers 1. 2. 3. 4. Households Business Firms Government Foreigners Financial Markets

Borrowers - Spenders 1. 2. 3. 4. Business Firms Government Households Foreigners

DIRECT FINANCE
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita

Direct Finance
Lenders Savers 1. 2. 3. 4. Households Business Firms Government Foreigners

Financial Markets

Borrowers - Spenders 1. 2. 3. 4. Business Firms Government Households Foreigners

Financial Markets & Non Bank Financial Institutions

Atty. Rene B. Betita

Function of Financial Markets

FINANCIAL MARKETS channel funds from savers to spenders FINANCIAL MARKETS are important because They improve the economy They improve the welfare of consumers

Financial Markets & Non Bank Financial Institutions

Atty. Rene B. Betita

Structure of Financial Markets

DEBT & EQUITY MARKETS

Debt Market (Borrowings) e.g. Bond Mortgage Equity Market (Shareholdings) e.g. Common Stock Preferred Stock

Financial Markets & Non Bank Financial Institutions

Atty. Rene B. Betita

Structure of Financial Markets

Primary and Secondary Markets Primary Market
Initial Public Offering (IPO) Rights Offering Private Placement

Secondary Market
Exchanges Over-the-Counter (OTC) Market

Financial Markets & Non Bank Financial Institutions

Atty. Rene B. Betita

OTC in the Philippines

Stocks sold over the counter are outside the jurisdiction of the PSE Some securities such as bonds sold are subject to the requirements of the Bangko Sentral ng Pilipinas (BSP) Circular 392 and its related regulations, including the rules governing the Over-the-Counter (OTC) Fixed Income Market issued by the Securities Exchange and Commissions (SEC) Memorandum Circular 14.
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita

Structure of Financial Markets

Primary Market: Sample IPO Process
ISSUER

Other Inv. Bankers

Originating Inv. Banker

Other Inv. Bankers

SELLING GROUP

Underwriting Syndicate

INVESTORS
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita

Structure of Financial Markets

Money & Capital Markets Money Market
Security Traded: Maturity: Debt < One Year

Capital Market
Security Traded: Maturity: Debt and Equity At least One Year (for debt) No Maturity for Equity

Financial Markets & Non Bank Financial Institutions

Atty. Rene B. Betita

Internationalization of Financial Markets

International bond market (foreign bonds) Eurobonds Eurocurrencies World stock markets

Financial Markets & Non Bank Financial Institutions

Atty. Rene B. Betita

Indirect Finance
Lenders Savers 1. 2. 3. 4. Households Business Firms Government Foreigners

Financial Intermediaries

Borrowers - Spenders 1. 2. 3. 4. Business Firms Government Households Foreigners

Financial Markets & Non Bank Financial Institutions

Atty. Rene B. Betita

Function of Financial Intermediaries

FINANCIAL INTERMEDIARIES are institutions that borrow funds from savers and then lends these funds to others FINANCIAL INTERMEDIATION is the process of indirect finance whereby financial intermediaries link savers and borrowers
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita

Function of Financial Intermediaries

Financial intermediaries are important because:
They can reduce transaction costs They can provide customers with liquidity services

Other Concepts
Risk sharing (asset transformation) Asymmetric information financial panic Adverse Selection Moral Hazard

Financial Markets & Non Bank Financial Institutions

Atty. Rene B. Betita

Financial Intermediaries in the Philippines

Type of Institution Components Regulator/s

Banking

Universal, Commercial, Thrift, Rural, Specialized Government, Microfinance Investment Houses Financial Companies Securities Dealers Investment Companies Insurance Companies Pawnshops Pre-need Companies Venture Capital Corporations

BSP, SEC

Non-Bank Financial

BSP, SEC SEC SEC SEC SEC, IC SEC, BSP SEC SEC

Non-Bank Thrift

Mutual Building and Loan Associations Non-stock Savings and Loans

SEC
SEC
Atty. Rene B. Betita

Financial Markets & Non Bank Financial Institutions