OVERVIEW OF

FINANCIAL
MARKETS

Marlyn T. Panganiban, LPT

TOPICS
-Financial Markets in Action
-Function of Financial Markets
-What Financial Markets Do
-Structure of Financial Markets
-The Rise of Formal Markets
-The Forces of Change
-Code of Ethics Governing Market
Activities in the Philippines
LEARNING GUIDE
1) Describe what financial markets
2) Distinguish between primary and
secondary market
3) Explain the main functions of the
financial markets
4) Enumerate the activities of financial
markets
LEARNING GUIDE
5) Enumerate the attributes of financial
markets that investors look for
6) Enumerate the factors that brought
major changes in the financial markets
7) Distinguish between debt and equity
market
8) Describe the stock exchange
LEARNING GUIDE
9) Differentiate Organized Stock
Exchange and Over-the-Counter
Exchange
10) Explain how securities are listed on
the stock exchange
Overview of
Financial Markets
Financial markets are platforms where
individuals, businesses, and governments can buy
or sell financial securities, commodities, and
other fungible items at prices determined by
supply and demand. These markets play a
crucial role in the allocation of resources and the
management of risk in the economy.

3
Types of Financial Markets
1.Stock Market
⚬ Platform for buying and selling shares of publicly traded companies.

2. Bond Market
⚬ Where debt securities are bought and sold.

3. Commodity Market
⚬ Deals with the trading of raw materials such as gold, oil, and
agricultural products.

4. Foreign Exchange Market (Forex)

⚬ Facilitates the trading of different currencies.

5. Derivatives Market
⚬ Involves financial contracts whose value is derived from the
performance of an underlying asset.
Participants in Financial Markets
• Individual Investors
⚬ Retail investors who trade securities for personal investment purposes.
• Institutional Investors
⚬ Entities like mutual funds, pension funds, and insurance companies that
invest large amounts of money on behalf of others.
• Banks and Financial Institutions
⚬ They participate in various market activities such as lending, borrowing,
and trading.
• Corporations
⚬ Access financial markets to raise capital through issuing stocks and
bonds.
• Government
⚬ Uses financial markets to finance public spending and manage
national debt.
Market Regulation

Financial markets are typically regulated by

government agencies and industry
organizations to ensure fairness, transparency,
and stability. Regulations aim to protect
investors, maintain market integrity, and
prevent fraudulent activities.
Financial Markets
in Action
Financial markets in action encompass a wide range of activities
that collectively contribute to the functioning of the global
economy. How financial markets operate:
• Primary Market: Companies and governments issue new
stocks and bonds to raise capital for investment and
expansion. Investors purchase these securities, providing the
issuers with the necessary funds for their projects.
• Secondary Market: After the initial issuance, these securities
are traded among investors. This secondary market liquidity
allows investors to buy and sell securities easily, providing
ongoing funding for companies and governments.
Primary Market
• Function:
⚬ The primary market is where newly issued securities, such as stocks
and bonds, are bought and sold for the first time.
⚬ It facilitates the raising of capital by companies and governments.
• Participants:
⚬ Issuers: Companies and governments that issue new securities.
⚬ Underwriters: Investment banks or financial institutions that help
the issuers bring the securities to market.
• Activities:
⚬ Issuance: Companies or governments issue new stocks or bonds to
raise funds for their projects or operations.
⚬ Initial Public Offering (IPO): Companies offer shares to the public
for the first time, allowing them to become publicly traded entities.
• Price Determination:
⚬ Prices are typically set through a process of negotiation between
the issuer and the underwriters, based on the prevailing market
conditions and the company's or government's financial standing.
Secondary Market
Function:
• The secondary market is where existing securities are bought and sold
among investors, without the involvement of the issuing companies or
governments.
• It provides liquidity to investors and allows them to trade previously issued
securities.
• Participants:
• Investors: Both individual and institutional investors who buy and sell
securities among themselves.
• Brokerage Firms: Facilitate the trading of securities on behalf of investors.
• Activities:
• Trading: Investors buy and sell securities among themselves, and the prices
are determined by market forces such as supply and demand.
• Price Determination:
• Prices are determined by market dynamics, reflecting investors' perceptions
of the value of the securities based on factors such as company
performance, market conditions, and economic outlook.
 Key Differences
• Issuance: In the primary market, securities are newly issued by
companies or governments, while in the secondary market, previously
issued securities are traded among investors.

• Role of Issuers: Issuers are directly involved in the primary market,

setting the initial offering price, while they are not directly involved in
the secondary market transactions.

• Capital Formation: The primary market facilitates capital formation

by raising funds for the issuer, while the secondary market provides
liquidity to investors but does not directly contribute to the issuer's
capital.

***The primary market is where new securities are issued, and the
secondary market is where existing securities are traded among investors.
Distinguish between debt and equity market

Debt Market:
The debt market, also known as the bond market, is a marketplace
where fixed-income securities such as government bonds, corporate
bonds, municipal bonds, and other debt instruments are bought and
sold. In the debt market, investors lend money to the issuer (such as
a government or corporation) in exchange for periodic interest
payments and the repayment of the initial investment at a specified
maturity date. Debt instruments in this market have a fixed or
determinable repayment structure and provide investors with a
predictable stream of income. The debt market plays a crucial role
in enabling entities to raise capital for various purposes, including
financing government expenditures, funding corporate operations,
and undertaking infrastructure projects.
Equity Market:
The equity market, also known as the stock market, is a
platform where shares of publicly listed companies are traded.
It provides a marketplace for individuals and institutional
investors to buy and sell ownership stakes in companies.
Investors in the equity market become partial owners of the
companies in which they invest, and their returns are linked to
the performance and profitability of the respective companies.
Equity investments offer potential capital appreciation through
the increase in the value of shares over time and the possibility
of receiving dividends. The equity market plays a vital role in
facilitating companies' access to capital by issuing shares to the
public, enabling them to raise funds for expansion, research and
development, acquisitions, and other corporate activities.
The debt market and the equity market are two primary
components of the broader financial market, each serving
different purposes and catering to distinct investor preferences.
Here's a comparison to help distinguish between the two:
Debt Market:
• Nature:
⚬ The debt market, also known as the bond market, is where
fixed-income securities such as bonds, treasury bills, and
corporate debt instruments are traded.
• Investment:
⚬ Investors in the debt market essentially lend money to the
issuer (government or corporation) in exchange for
periodic interest payments and the repayment of the
principal amount at maturity.
• Risk and Return:
⚬ Debt instruments generally offer a fixed rate of return, and the
repayment of the principal amount is contractually guaranteed.
Therefore, they are considered lower risk compared to equities,
but typically offer lower potential returns.
• Ownership:
⚬ Investors in the debt market do not have ownership stakes in
the issuing entity. Instead, they are creditors and have priority
claims on the issuer's assets in the event of bankruptcy.
• Market Dynamics:
⚬ The debt market is often influenced by interest rate
movements, credit ratings, and macroeconomic factors. It
provides financing for governments, municipalities, and
corporations and is used for both short-term and long-term
borrowing.
Equity Market:
• Nature:
⚬ The equity market, or stock market, is where shares of publicly
traded companies are bought and sold.
• Investment:
⚬ Investors in the equity market become partial owners of the
company, with their returns linked to the company's
performance and profitability. They benefit from capital gains
and may receive dividends.
• Risk and Return:
⚬ Equity investments are inherently riskier than debt instruments
as they are subject to market volatility and do not guarantee
returns. However, they also offer the potential for higher
returns, especially over the long term.
4. Ownership:
⚬ Equity holders have ownership rights and are entitled to
voting rights and dividends. They bear the residual risk of the
company's performance after all other obligations, including
debt payments, are met.
5. Market Dynamics:
⚬ The equity market is influenced by company-specific factors
such as earnings, growth prospects, and industry trends. It
provides companies with a means to raise capital by selling
ownership stakes to the public.
***While the debt market involves lending and fixed-income securities, the
equity market revolves around ownership and the trading of shares
representing ownership in publicly traded companies. Each market serves
different investment objectives and risk profiles, providing investors with
diverse options for building their portfolios.
Describe the stock exchange
A stock exchange is a regulated marketplace where securities, such as
stocks, bonds, and derivatives, are bought and sold. It provides a platform
for companies to raise capital by issuing shares to the public and allows
investors to trade these securities. Here is a detailed description of a stock
exchange:
Function:
• A stock exchange serves as an intermediary that facilitates the buying
and selling of securities between investors and companies. It provides a
centralized and regulated platform for trading, ensuring transparency,
liquidity, and fair pricing.
Listing and Trading:
• Companies that want to offer their shares to the public for trading can
apply to be listed on a stock exchange. Once listed, their shares become
available for purchase by investors through the exchange. Investors can
then buy and sell these shares through licensed brokers who are
members of the exchange.
Regulation:
• Stock exchanges are subject to strict regulatory oversight to ensure fair
and orderly trading. They enforce rules and regulations to maintain
market integrity, prevent market manipulation, and protect investors'
interests.
Market Participants:
• Stock exchanges are accessed by a wide range of market participants,
including individual investors, institutional investors, broker-dealers,
market makers, and listed companies. Each participant plays a role in
the functioning and liquidity of the market.
Price Discovery:
• Stock exchanges facilitate price discovery, which is the process of
determining the fair market value of securities based on supply and
demand dynamics. This process helps in setting the market price for
securities traded on the exchange.
Market Indices:
• Stock exchanges often calculate and publish market indices, which are
benchmarks that track the performance of a specific set of stocks. These
indices provide insights into the overall market performance and are used as
indicators of the economy's health.
Electronic Trading:
• Many modern stock exchanges operate electronically, allowing for seamless
and efficient trading through electronic trading platforms. This has increased
the speed and accessibility of trading, enabling transactions to occur in real-
time.
Market Surveillance:
• Stock exchanges conduct market surveillance to monitor trading activities,
detect irregularities, and ensure compliance with trading rules. Surveillance
helps maintain market integrity and investor confidence.
Global Connectivity:
• Stock exchanges may have international linkages and partnerships, allowing
for global trading and cross-border investment opportunities. This global
connectivity provides investors with access to a wide range of investment
options.
Differentiate Organized Stock Exchange and Over-the-Counter Exchange

Organized Stock Exchange:

An organized stock exchange, also known as a stock market, is a
regulated and centralized marketplace where securities, such as stocks,
bonds, and derivatives, are bought and sold. It provides a platform for
companies to list their shares for public trading and allows investors to
trade these securities through licensed brokers who are members of the
exchange. Organized stock exchanges have stringent listing requirements,
enforce regulations to maintain market integrity, and provide
transparency in price discovery. Examples of organized stock exchanges
include the New York Stock Exchange (NYSE), NASDAQ, London Stock
Exchange, and Tokyo Stock Exchange.
Organized Stock Exchange:
• Centralized Trading Venue:
⚬ An organized stock exchange provides a centralized marketplace
where securities are bought and sold. It operates as a physical or
electronic platform that brings together buyers and sellers to trade
standardized securities.
• Listing Requirements:
⚬ Companies seeking to have their shares traded on an organized stock
exchange must meet specific listing requirements, which typically
include financial disclosure, corporate governance standards, and
minimum market capitalization criteria.
• Regulation and Oversight:
⚬ Organized stock exchanges are subject to stringent regulatory
oversight by government authorities. They enforce rules and
regulations to ensure market integrity, investor protection, and fair
trading practices.
4. Price Discovery:
⚬ Price discovery on organized stock exchanges occurs through an open
and transparent auction process, where the interplay of supply and
demand determines the market price of securities. This process helps
establish fair prices for traded securities.

5. Market Indices:
⚬ Organized stock exchanges often calculate and maintain market
indices, such as the S&P 500, FTSE 100, or Nikkei 225, which act as
benchmarks for the overall market performance and are widely used
as indicators of economic health.
Differentiate Organized Stock Exchange and Over-the-Counter Exchange

Over the Counter (OTC) Exchange:

An over the counter (OTC) exchange refers to a decentralized
marketplace where securities are traded directly between parties, often
facilitated by broker-dealers and electronic communication networks.
OTC trading does not occur on a centralized exchange, and securities
traded in OTC markets may not meet the listing requirements of formal
exchanges. OTC markets commonly include stocks of smaller companies,
foreign stocks, bonds, and derivatives. While OTC markets are subject to
regulatory oversight, they may have different regulatory requirements
than organized stock exchanges. Examples of OTC markets include the
OTC Markets Group in the United States and the OTC Bulletin Board
(OTCBB).
Over-the-Counter (OTC) Exchange:
• Decentralized Trading:
⚬ In an OTC exchange, securities are traded directly between parties
without the centralized structure of a formal exchange. OTC trading
can occur via phone, computer networks, or other electronic means,
and does not require a physical trading floor.
• Listing Requirements:
⚬ OTC markets generally have less stringent listing requirements
compared to organized stock exchanges. Companies whose shares are
traded OTC may not have to meet the same level of regulatory and
disclosure standards.
• Regulation and Oversight:
⚬ While OTC markets are subject to regulatory oversight, they may have
different regulatory requirements than organized stock exchanges.
OTC trading is often governed by the rules of the Financial Industry
Regulatory Authority (FINRA) in the United States.
4. Price Discovery:
⚬ In OTC markets, price discovery is typically less transparent and
standardized than on organized stock exchanges. Prices may be
negotiated directly between buyers and sellers, leading to potentially
wider bid-ask spreads and less liquidity.

5. Securities Traded:
⚬ OTC markets commonly facilitate the trading of securities that are not
listed on formal exchanges, including stocks of smaller companies,
foreign stocks, bonds, and derivatives.
Explain how securities are listed on the stock exchange
Securities are listed on a stock exchange through a well-defined process that
involves meeting specific requirements and abiding by regulatory standards.
The steps for listing securities on a stock exchange generally include the
following:
1. Meeting Listing Requirements:
• Companies seeking to list their securities on a stock exchange must meet
the exchange's listing requirements, which typically include financial
thresholds, corporate governance standards, minimum market
capitalization criteria, trading volume, and other regulatory criteria. These
requirements are designed to ensure the quality and reliability of the
listed securities.
2. Submission of Application:
• The company submits an application to the stock exchange, providing
detailed information about its financial position, corporate governance
practices, ownership structure, business operations, and any other relevant
information required by the exchange.
3. Due Diligence and Review:
• The stock exchange conducts a thorough due diligence process to review
the company's financial statements, corporate governance practices,
compliance with regulatory standards, and other pertinent information.
This process is aimed at verifying the company's eligibility for listing and
ensuring transparency for potential investors.
4. Approval by the Exchange:
• If the company meets all the listing requirements and successfully
completes the due diligence process, the stock exchange's listing
committee or regulatory body approves the company's application for
listing.
5. Determination of Listing Price:
• For an initial public offering (IPO), where a company is listing its shares
for the first time, the stock exchange and the company, often with the
assistance of underwriters, determine the initial offering price for the
securities to be listed. This price is typically based on factors such as
market demand, company valuation, and prevailing market conditions.
6. Trading Commencement:
• Once the securities are listed, they become available for trading on the
stock exchange. Investors can then buy and sell these securities through
licensed brokers who are members of the exchange.

7. Ongoing Compliance:
• After listing, the company is required to comply with the continuing listing
standards of the exchange, which may include regular financial reporting,
corporate governance disclosures, and adherence to regulatory
requirements. Failure to meet these standards may result in sanctions or
delisting from the exchange.
Function of
Financial Markets
1. Capital Allocation
• Companies and governments raise capital by issuing stocks and
bonds in the primary market to fund their operations and
projects.
Sample: When a technology company issues new stocks in the primary
market to raise funds for research and development, it is utilizing the
financial market to allocate capital for innovation and growth.
Investors who purchase these stocks are providing the company with
the necessary capital to fund its projects.
2. Price Discovery
• Investors buy and sell stocks, bonds, commodities, currencies, and
derivatives in the secondary market to manage their investment
portfolios and adjust their exposure to various asset classes.

Sample: In the stock market, the price of a company's shares is

constantly changing based on investors' perceptions of the company's
performance, market conditions, and future prospects. For example, if
positive news about a company is released, the demand for its shares
may increase, leading to a rise in the stock price, reflecting the
market's price discovery mechanism.
3. Price Determination:

• Financial markets facilitate the determination of prices for

various financial assets based on market dynamics, supply and
demand, and investors' expectations.

Sample: An investor who owns government bonds can easily sell them
on the secondary market through a brokerage firm to raise cash. The
existence of a liquid secondary market ensures that the investor can
convert the bonds into cash quickly, providing liquidity and flexibility.
4. Facilitating Mergers and Acquisitions:

• Financial markets play a role in facilitating mergers, acquisitions,

and corporate restructuring activities by providing the necessary
capital and mechanisms for transactions.
Sample: A large technology companies utilize investment banks and the
financial markets to facilitate the acquisition process. Investment banks
assist in raising capital through the issuance of new stocks or bonds in the
primary market and provide advisory services, valuation analyses, and
transaction structuring. Once the acquiring company secures the necessary
funds, the financial markets offer a platform for executing the transaction,
where shares of the target company can be acquired through the
secondary market with the assistance of brokerage firms.
5. Providing Liquidity:

• Financial markets provide liquidity, allowing investors to convert

their investments into cash by easily buying and selling financial
assets.
Sample: An investor holds a significant number of shares in a publicly listed
company and needs to sell a portion of these shares to raise cash for a new
investment opportunity. Utilizing the financial markets, the investor can easily sell
the shares on the secondary market through a brokerage firm. The existence of a
liquid secondary market allows the investor to swiftly find a buyer for the shares,
facilitating a quick and efficient transaction. This ability to convert the shares into
cash without significantly impacting the market price demonstrates how financial
markets provide liquidity, enabling investors to access their funds when needed.
In this scenario, the liquidity provided by the financial markets allows investors to
buy and sell financial assets with ease, providing flexibility and ensuring that their
investments can be converted into cash in a timely manner.
6. Risk Management through Derivatives:

• Investors use derivatives such as options and futures to hedge

against price fluctuations in commodities, currencies, and financial
instruments, managing their exposure to risk.
Sample: A multinational corporation that operates in multiple countries is exposed to
fluctuations in foreign exchange rates, which can impact its profitability. To mitigate this risk,
the company enters into a currency derivatives contract, such as a foreign exchange forward
or option, with a financial institution. By using derivatives, the company can lock in a specific
exchange rate for a future date, thereby protecting itself from adverse currency movements.
This allows the company to effectively manage its currency risk and budget for future cash
flows with greater certainty.

In this scenario, the use of derivatives exemplifies how financial markets offer risk
management tools that enable businesses to hedge against price fluctuations in various
financial instruments, commodities, and currencies, thus enhancing their financial stability and
predictability.
7. Facilitating Foreign Exchange Transactions:

• Foreign exchange markets enable the buying and selling of

currencies, allowing businesses and investors to conduct
international trade and manage currency risk.
Sample: An international import-export company based in the United States needs to pay a
supplier in Japan for a large shipment of goods. To facilitate this transaction, the company
engages in foreign exchange through the financial markets. The company can approach a
commercial bank or a currency broker that operates in the foreign exchange market to convert
U.S. dollars into Japanese yen at the prevailing exchange rate.
Through the foreign exchange market, the company can efficiently and transparently execute
the currency conversion, ensuring that the supplier in Japan receives the payment in their local
currency. This process highlights how financial markets facilitate foreign exchange transactions
by providing a platform for the conversion of one currency into another, enabling international
trade and cross-border transactions to be conducted seamlessly.
In this manner, the foreign exchange market plays a crucial role in supporting global commerce
by providing businesses with the means to conduct transactions in different currencies, thereby
facilitating international trade and economic interactions.
8. Interest Rate Determination:

• Financial markets help determine interest rates through the

trading of government and corporate bonds, influencing
borrowing costs for businesses and governments.
Sample: The central bank of a country, such as the Federal Reserve in the United States, assesses
various economic indicators, including inflation, employment levels, and economic growth. Based on
this assessment, the central bank determines its monetary policy stance, which includes setting the
benchmark interest rate.
When the central bank raises the benchmark interest rate, it indicates a tightening of monetary
policy aimed at curbing inflation. Conversely, lowering the benchmark interest rate signals an
expansionary monetary policy intended to stimulate economic growth.
Financial markets closely monitor the central bank's decisions regarding interest rates, as they
influence the cost of borrowing and the return on savings and investments. These decisions also
impact the yields on government bonds, corporate bonds, and other fixed-income securities, thereby
affecting the broader financial landscape.
In this way, the determination of interest rates by the central bank plays a pivotal role in shaping
borrowing costs, investment returns, and overall economic activity, thereby influencing the behavior
of market participants and the allocation of capital within the financial markets.
9. Information Dissemination:

• Financial markets act as information hubs, reflecting economic

and financial developments, and disseminating valuable
information that impacts investment decisions.

Sample: When the stock price of a leading pharmaceutical company

drops significantly, it may signal to investors and the public that the
company's new drug failed clinical trials. This market reaction
transmits valuable information about the company's performance,
impacting investor sentiment and future investment decisions.
10. Regulation and Oversight:
• Regulatory authorities oversee financial markets to ensure
fairness, transparency, and stability, implementing rules and
regulations to protect investors and maintain market integrity.
Sample: Regulation and oversight in financial markets are crucial for maintaining stability, protecting investors,
and ensuring fair and transparent market operations. Regulatory bodies, such as the Securities and Exchange
Commission (SEC) in the United States, are responsible for overseeing the activities of financial institutions,
investment firms, and market participants to uphold the integrity of the markets.
These regulatory bodies enforce rules and regulations that govern various aspects of financial markets,
including securities trading, investment advisory services, and corporate disclosures. They also conduct
inspections, investigations, and enforcement actions to detect and prevent fraudulent activities, market
manipulation, and insider trading.
Furthermore, regulatory bodies work to enhance transparency by requiring companies to disclose relevant
financial information to the public, thereby enabling investors to make informed decisions. They also establish
mechanisms to protect investors from abusive or fraudulent practices, ensuring the fair treatment of all market
participants.
In summary, regulation and oversight in financial markets are essential for promoting market integrity,
protecting investors, and fostering trust and confidence in the financial system. These measures aim to mitigate
systemic risks, maintain fair and orderly markets, and uphold the overall stability and efficiency of the financial
ecosystem.
What Financial
Markets Do
 Structure of Financial Markets
The structure of financial markets encompasses various components
and participants that facilitate the exchange of financial assets and
securities. Here's an overview of the key elements within the structure
of financial markets:
• Primary Markets:
⚬ In the primary market, newly issued securities are bought and
sold for the first time. This market enables companies and
governments to raise capital by issuing stocks and bonds to
investors.
• Secondary Markets:
⚬ The secondary market is where existing securities are bought
and sold among investors. It provides liquidity, allowing
investors to trade previously issued securities, such as stocks
and bonds, after their initial issuance.
 Structure of Financial Markets
3. Financial Instruments:
⚬ Financial markets encompass a wide range of instruments, including
stocks, bonds, commodities, derivatives, and foreign exchange. These
instruments represent various forms of ownership, debt, or rights to
underlying assets.
4. Financial Intermediaries:
⚬ Financial intermediaries, such as banks, credit unions, and investment
firms, play a vital role in facilitating transactions between buyers and
sellers. They provide services like investment banking, asset
management, and brokerage services.
5. Regulatory Bodies:
⚬ Regulatory bodies, such as the Securities and Exchange Commission
(SEC) in the United States, oversee financial markets to ensure
compliance with regulations, maintain market integrity, and protect
investors' interests.
 Structure of Financial Markets
6. Electronic Trading Platforms:
⚬ With technological advancements, electronic trading platforms have become
integral to financial markets, enabling the electronic execution of trades and
enhancing market efficiency.
7. Investors and Market Participants:
⚬ Investors, including individuals, institutional investors, and corporations,
participate in financial markets to invest capital, manage risk, and generate
returns. Other market participants include traders, market makers, and
speculators.
8. Market Exchanges:
⚬ Market exchanges, such as the New York Stock Exchange (NYSE) and
NASDAQ, provide centralized platforms for the trading of securities. They
establish rules, facilitate price discovery, and ensure orderly trading.
9. Clearing and Settlement Systems:
⚬ Clearing and settlement systems ensure the smooth transfer of funds and
securities between parties involved in financial transactions, reducing
counterparty risk.
Factors that brought major changes in the Financial Markets
• Technological Advancements:
⚬ The rapid advancement of technology has transformed financial markets
through electronic trading, algorithmic trading, high-frequency trading, and
the development of sophisticated trading platforms and systems.
• Globalization:
⚬ Globalization has expanded the reach of financial markets, enabling cross-
border capital flows, international investment opportunities, and the
integration of global economies.
• Regulatory Reforms:
⚬ Significant regulatory changes, such as the implementation of new laws and
regulations following financial crises, have reshaped the landscape of
financial markets to enhance transparency, stability, and investor protection.
• Financial Innovation:
⚬ Ongoing financial innovation has given rise to new products and instruments,
such as exchange-traded funds (ETFs), structured products, and complex
derivatives, which have altered the risk-return profiles and investment
strategies available to market participants.
Factors that brought major changes in the Financial Markets
5. Demographic Shifts:
• Demographic changes, including population growth, aging populations, and
shifts in wealth distribution, have influenced investment behaviors, retirement
planning, and the demand for various financial products and services.
6. Macroeconomic Events:
• Major macroeconomic events, such as recessions, booms, geopolitical
developments, and monetary policy shifts, have had profound impacts on
financial markets, leading to changes in asset valuations, risk perceptions, and
market dynamics.
7. Financial Crises:
• Financial crises, such as the 2008 global financial crisis, have prompted
significant changes in regulations, market structures, and risk management
practices, reshaping the way financial markets operate and are supervised.
8. Environmental, Social, and Governance (ESG) Considerations:
• Increasing focus on ESG factors has led to the integration of sustainability
considerations into investment decision-making, influencing capital allocation
and the development of ESG-focused investment products.
Factors that brought major changes in the Financial Markets

9. Shifts in Investor Behavior:

• Changes in investor preferences, risk appetites, and the rise of retail investing
and online trading platforms have impacted market dynamics, trading volumes,
and the demand for specific asset classes.

10. Cybersecurity Concerns:

• The growing importance of cybersecurity in financial markets has led to
increased focus on protecting market infrastructure, data, and transactions
from cyber threats and attacks.
The Rise of
Formal Markets
 Formal Market
A formal market refers to a regulated
marketplace where financial assets, commodities,
and securities are traded according to established
rules and under the supervision of regulatory
authorities. These markets provide a transparent
and organized platform for the buying and
selling of various instruments, offering investors
greater confidence, security, and legal protection.
The rise of formal markets refers to the emergence and development of
organized, regulated, and transparent market structures for the trading of
financial assets and commodities. This transition from informal or unregulated
trading to formal markets has been driven by various factors and has
significantly impacted global economic systems. Here are some key points on the
rise of formal markets:
• Regulatory Framework:
⚬ The rise of formal markets has been influenced by the establishment of
robust regulatory frameworks aimed at standardizing market practices,
ensuring fair trading conditions, and protecting investors from fraud and
market abuse.
• Increased Transparency:
⚬ Formal markets have brought about greater transparency through the
implementation of reporting standards, disclosure requirements, and
regulatory oversight, enabling market participants to make more
informed investment decisions.
3. Institutionalization of Trading:
⚬ The shift towards formal markets has led to the institutionalization of
trading, with the involvement of licensed brokerages, exchanges, and
other financial intermediaries that facilitate the execution of trades and
ensure compliance with regulatory standards.

4. Enhanced Investor Protection:

⚬ The rise of formal markets has led to improved investor protection
through regulatory measures, investor education initiatives, and the
enforcement of rules governing market conduct and disclosure.

5. Market Integrity and Trust:

⚬ Formal markets emphasize market integrity and trust by establishing
rules and mechanisms to prevent market manipulation, insider trading,
and other illicit activities, thereby fostering confidence among market
participants.
6. Efficient Price Discovery:
⚬ Formal markets provide a platform for efficient price discovery, allowing
buyers and sellers to transact at fair and competitive prices, which is
essential for the allocation of capital and resources.
7. Access to Capital:
⚬ Formal markets have facilitated access to capital for businesses and
governments by providing a regulated platform for issuing and trading
securities, such as stocks and bonds, attracting a wider base of investors
and enhancing liquidity.

8. Technological Advancements:
⚬ The rise of formal markets has been supported by technological
advancements, including electronic trading platforms, clearing and
settlement systems, and market data dissemination, enhancing market
efficiency and accessibility.
9. Integration of Global Markets:
⚬ Formal markets have contributed to the integration of global financial
systems by providing standardized trading practices, harmonized
regulations, and opportunities for cross-border investment and capital
flows.

10. Economic Development:

⚬ The development of formal markets has played a pivotal role in
supporting economic growth, facilitating capital formation, and enabling
efficient allocation of resources within and across economies.
The Forces of
Change
The forces of change refer to the various factors and influences that drive
transformation and evolution across different aspects of society, economy,
technology, and culture. These forces have significant impacts on the way
individuals, organizations, and nations operate and interact. Some of the key
forces of change include:
• Technological Advancements:
⚬ Rapid advancements in technology, including artificial intelligence,
automation, and digitalization, are reshaping industries, business models,
and everyday life, leading to increased efficiency, innovation, and new
opportunities.

• Globalization:
⚬ The interconnectedness of economies, cultures, and societies on a global
scale has led to the free flow of goods, services, and information,
influencing trade patterns, supply chains, and cultural exchange
3. Demographic Shifts:
⚬ Changing demographic trends, such as aging populations, urbanization,
and migration, impact consumer behavior, workforce dynamics, and social
welfare systems, driving the need for new solutions and policies.

4. Environmental Pressures:
⚬ Growing awareness of environmental issues, climate change, and
sustainability is driving changes in business practices, regulations, and
consumer preferences, leading to the development of green technologies
and sustainable practices.
5. Political and Regulatory Changes:
⚬ Shifts in political landscapes, government policies, and regulatory
frameworks have significant implications for businesses, international
relations, and economic stability, influencing trade agreements,
investment climates, and market dynamics
6. Social and Cultural Movements:
⚬ Social and cultural movements, such as advocacy for diversity and
inclusion, gender equality, and social justice, are shaping public discourse,
corporate values, and governance practices, driving changes in societal
norms and expectations
7. Economic Disruptions:
⚬ Economic disruptions, including market fluctuations, recessions, and
technological disruptions, impact industries, labor markets, and
investment strategies, leading to shifts in consumer behavior and business
resilience.

8. Health and Well-being Concerns:

⚬ Events such as pandemics, public health crises, and lifestyle changes are
driving increased focus on health and well-being, influencing healthcare
systems, consumer preferences, and workplace practices.
9. Security and Cyber Threats:
⚬ Heightened concerns about security, cybersecurity, and privacy are
driving changes in technology, regulations, and risk management
practices, impacting digital infrastructure and data governance.
10. Innovation and Entrepreneurship:
⚬ The rise of innovation, entrepreneurship, and startup culture is fostering
new business models, disruptive technologies, and creative solutions to
societal challenges, driving economic growth and transformation.
***These forces of change interact and intersect, creating complex and
interconnected dynamics that shape the present and future landscape of
economies, societies, and industries. Organizations and individuals must adapt
and respond to these forces to navigate and thrive in times of change.
Code of Ethics
Governing Market
Activities in the
Philippines
Code of Ethics Governing Financial Market
Activities in the Philippines provides a
comprehensive framework for ethical conduct and
professionalism in the financial market, aiming to
maintain trust, promote fairness, and enhance
market efficiency.
• The Code of Ethics Governing Financial Market Activities in the Philippines,
developed by the Money Market Association of the Philippines (MART) and
recognized by the Bangko Sentral ng Pilipinas (BSP), provides a set of
principles and standards for market conduct in the financial sector. It is
designed to guide financial market participants, such as banks, brokerage
firms, and other institutions, in determining their responsibilities to one
another, clients, and the market, especially when faced with ethical situations.
• The Code is anchored on the belief that high ethical standards are critical in
maintaining the public's trust in the fairness of financial markets and
allowing markets to function efficiently. It covers various topics including
professionalism, integrity of capital markets, duties to clients, conflicts of
interest, and duties to market counterparties. The observance of these
principles and guidelines seeks to promote greater professionalism in the
market.
• Additionally, the Code is generally principles-based and can be applied as a
minimum standard in trading across financial product markets. It is intended
to function as part of the binding market conventions governing the orderly
conduct and operations of the market, contributing to the objective of
recognizing an over-the-counter market as an organized market 1.

• The Code is intended to be observed by financial institutions including banks,

quasi-banks, thrift banks, investment houses, and brokerage firms, and aims
to set high ethical standards and professional excellence for market
practitioners. It also incorporates references to the codes of ethics of various
associations and emphasizes the importance of observing guiding principles
to promote greater professionalism in treasury markets 1
• Additionally, the Code is generally principles-based and can be applied as a
minimum standard in trading across financial product markets. It is intended
to function as part of the binding market conventions governing the orderly
conduct and operations of the market, contributing to the objective of
recognizing an over-the-counter market as an organized market 1.

• The Code is intended to be observed by financial institutions including banks,

quasi-banks, thrift banks, investment houses, and brokerage firms, and aims
to set high ethical standards and professional excellence for market
practitioners. It also incorporates references to the codes of ethics of various
associations and emphasizes the importance of observing guiding principles
to promote greater professionalism in treasury markets 1
Ethical market activities refer to business practices and conduct within the
marketplace that adhere to moral principles, integrity, and fairness. These
activities are guided by a set of ethical standards that govern how businesses
and individuals interact within the market, ensuring that their actions are not
only legal but also socially responsible and considerate of the well-being of all
stakeholders involved.

Key aspects of ethical market activities include:

• Honesty and Transparency:
⚬ Ethical market activities involve honest and transparent communication
and dealings. This includes providing accurate and complete information
to customers, investors, and other market participants.
• Fair Competition:
⚬ Ethical market activities promote fair competition, discouraging anti-
competitive practices such as price-fixing, market manipulation, and
unfair trade practices that could harm consumers or other businesses.
3. Respect for Customers and Stakeholders:
⚬ Ethical market activities prioritize the respect and fair treatment of
customers, suppliers, employees, and other stakeholders. This involves
honoring commitments, protecting consumer rights, and ensuring the well-
being of all involved parties.
4. Compliance with Laws and Regulations:
⚬ Ethical market activities require adherence to all applicable laws,
regulations, and industry standards. This includes compliance with
financial regulations, consumer protection laws, and environmental
regulations.
5. Corporate Social Responsibility (CSR):
⚬ Ethical market activities often encompass a commitment to corporate
social responsibility, which involves contributing to the welfare of society,
supporting sustainable practices, and giving back to the community.
6. Environmental Responsibility:
⚬ Ethical market activities involve responsible environmental practices,
including sustainable sourcing, energy efficiency, waste reduction, and
minimizing the environmental impact of business operations.
7. Ethical Advertising and Marketing:
⚬ Adhering to ethical market activities involves truthful and non-deceptive
advertising, respecting consumer privacy, and ensuring that marketing
practices are in line with ethical standards.
8. Conflict of Interest Management:
⚬ Ethical market activities require the management of conflicts of interest
in a fair and transparent manner, ensuring that personal interests do not
compromise professional judgment or decision-making.
9. Protection of Consumer Data and Privacy:
⚬ Ethical market activities encompass the protection of consumer data and
privacy, including the responsible handling and safeguarding of personal
information.
10. Professional Integrity:
⚬ Ethical market activities demand professional integrity in all business
dealings, including maintaining confidentiality, upholding professional
competence, and avoiding activities that could damage the reputation of
the market or industry.
Thank You
for Listening!