SEC Phase 2-7B Equities Securities Salesman (ESS) Exam - Philippines cheat sheet

RA 8799 (Securities Regulation Code) took effect in 2000 and transferred securities regulation from the SEC's prior decree-based regime to a disclosure-and-licensing framework; the SEC enforces it.

Section 3 defines a security broadly to include shares, bonds, debentures, notes, evidences of indebtedness, investment contracts, certificates of interest in profit-sharing agreements, and options/warrants.

Section 8 requires securities offered or sold in the Philippines to be registered with the SEC unless a specific exemption applies; the registration statement is filed on SEC Form 12-1.

Section 10 exempts classes of securities including those issued by the Philippine government, bank instruments, and securities offered to fewer than 20 non-institutional persons in any 12-month period.

Section 12 exempts broker-dealer transactions on an exchange and certain isolated transactions; Section 12.1 exempts transactions by an issuer not involving a public offering.

A prospectus must be delivered to every offeree before sale; SEC rules require the prospectus to be dated and to contain the information in the registration statement.

Section 26 prohibits fraud and manipulation in the offer, purchase, or sale of securities, including untrue statements of material fact and omissions that make statements misleading.

Section 30 makes insider trading unlawful: insiders may not trade while in possession of material non-public information, and must disgorge profits plus pay up to three times the profit gained or loss avoided.

The SEC may issue cease-and-desist orders, impose fines, suspend or revoke registrations, and refer criminal cases; violations of key sections carry imprisonment of 7 to 21 years or fines, or both.

A broker is a person engaged in the business of buying and selling securities for the account of others; a dealer buys and sells for its own account; a salesman is an individual employed by a broker/dealer to solicit or effect securities transactions.

Salesmen must be registered with the SEC and associated with a registered broker-dealer; registration is not transferable between firms without new application and SEC approval.

The SEC's Broker-Dealer Registration Rules require minimum net capital, a surety bond, and books-and-records maintenance; capital must be maintained continuously, not only at application.

Associated persons must meet fit-and-proper standards: no conviction for a crime involving fraud or dishonesty, and disclosure of administrative or disciplinary history.

A broker-dealer must supervise its registered salesmen; written supervisory procedures, training, and review of client accounts and correspondence are required elements.

Registration may be suspended, revoked, or refused for willful violation of the Code, rules, or orders, or for fraudulent or dishonest conduct in securities dealings.

Firms must notify the SEC of material changes: change of control, cessation of business, changes in principal officers, and disciplinary actions against registered personnel.

Continuing education and periodic renewal of licenses are required; lapsed registration bars the individual from soliciting or executing securities transactions until reinstated.

Anti-fraud liability under Section 26 attaches to registered persons regardless of registration status; registration is not a shield against fraud claims.

Common shares carry voting rights and residual claim on earnings and assets; preferred shares carry a stated dividend priority and typically limited or no voting rights.

Par value is the stated nominal value in the articles of incorporation; no-par shares have no stated value, and issued price above par is paid-in surplus (additional paid-in capital).

A stock dividend issues additional shares pro rata to existing holders; it increases share count and reduces earnings per share without changing total equity.

A cash dividend reduces retained earnings and cash; the record date determines entitlement, and the ex-dividend date determines whether a buyer on the exchange receives the dividend.

A rights offering grants existing shareholders the right to subscribe to new shares, usually at a discount; the theoretical ex-rights price = (market value before + subscription proceeds) ÷ total shares after.

A stock split increases share count and reduces par value proportionally; it does not change total equity or the holder's proportionate ownership.

A reverse stock split reduces share count and raises per-share price proportionally; fractional shares are typically settled in cash.

Treasury shares are reacquired shares that carry no voting or dividend rights and are excluded from outstanding shares for EPS calculations.

Pre-emptive rights allow existing shareholders to subscribe to new issuances pro rata; they may be waived in the articles or by shareholder action as permitted by the Revised Corporation Code.

The Philippine Stock Exchange (PSE) operates the trading market; the Securities Clearing Corporation of the Philippines (SCCP) clears and settles trades, and the Philippine Depository & Trust Corp. (PDTC) holds securities in book-entry form.

Trading follows a continuous session with a pre-open period for order entry and a run-off/threshold phase; the PSE sets the exact session schedule and may adjust it.

The PSE uses a price fluctuation threshold and static/dynamic price bands to limit disorderly moves; orders outside the bands are rejected or held.

Board lots vary by price level; odd lots trade in a separate board and generally have less liquidity and wider spreads.

Settlement follows a T+2 cycle in the Philippine market: trade date plus two business days, with cash and securities exchanged through SCCP and PDTC.

The PSE index (PSEi) is a capitalization-weighted index of a limited number of large, liquid, free-float-adjusted issues; membership is reviewed periodically.

Trading halts may be imposed for price movement, news dissemination pending disclosure, or system issues; the PSE announces resumption conditions.

Short selling is permitted only under PSE rules with borrowing arrangements and marking requirements; naked short selling is prohibited.

The SCCP acts as central counterparty, novating trades and managing counterparty risk through margin and a settlement guarantee fund.

Order types: market orders execute at the best available price; limit orders execute only at the specified price or better; stop orders become market orders when the trigger price is reached.

Time-in-force: day orders expire at session close; GTC orders remain until filled or cancelled; IOC fills immediately and cancels any unfilled remainder.

Best execution requires the broker to seek the best available terms for the client, considering price, speed, likelihood of execution, and size.

Client orders must be time-stamped on receipt and executed in the sequence received; the firm may not trade ahead of a client order (front-running).

A discretionary account requires a written power of attorney and heightened supervision; the salesman may not exercise discretion without it.

Cash accounts require full payment before delivery; margin accounts require a signed margin agreement and maintenance of minimum equity per firm and SEC rules.

Client confirmations must disclose the security, price, quantity, commission, and settlement date; trade errors must be corrected promptly and documented.

Segregation of client assets from firm assets is mandatory; client securities are held in street name through PDTC and reconciled regularly.

Order records, including cancelled and unfilled orders, must be retained for the period required by SEC rules and be available for inspection.

Know-Your-Customer requires identifying the client, verifying identity with reliable documents, and understanding the client's business, ownership, and source of funds.

Suitability requires matching recommendations to the client's investment objectives, risk tolerance, financial situation, and experience; documentation of the basis is required.

The AMLA (RA 9160, as amended) covers brokers and dealers in securities as covered institutions; they must register with the AMLC and comply with reporting duties.

Covered institutions must file Covered Transaction Reports (CTR) for transactions above the threshold (currently PHP 500,000 in a single banking day) and Suspicious Transaction Reports (STR) regardless of amount.

Customer due diligence includes beneficial ownership identification; for corporate clients, identify natural persons owning or controlling the entity.

Enhanced due diligence applies to politically exposed persons, high-risk jurisdictions, and unusual transactions with no apparent economic purpose.

Record retention for AML purposes is at least five years after the transaction or after the business relationship ends, whichever is later, under AMLA rules.

Tipping off a client that an STR has been filed is prohibited; suspicious activity must be escalated internally and reported confidentially to the AMLC.

Refusal to provide required KYC information or an inability to verify identity is grounds to decline or terminate the relationship and consider an STR.

Insider trading: trading on material non-public information in breach of a duty of trust or confidence; tippers and tippees are both liable under Section 30 of RA 8799.

Material information is information a reasonable investor would consider important in making an investment decision; examples include earnings surprises, mergers, and major litigation.

Manipulation includes wash sales (no change in beneficial ownership), matched orders, and painting the tape to create false appearance of activity.

Front-running is trading ahead of a client's known order to profit from the expected price impact; it breaches the duty of loyalty and best execution.

Churning is excessive trading to generate commissions relative to the client's objectives; it is a suitability and fair-dealing violation.

Unauthorized trading, misrepresentation of material facts, and unsuitable recommendations are prohibited under Section 26 and SEC conduct rules.

A Chinese wall separates investment banking from sales and trading; information barriers must be documented and enforced.

Insiders must report changes in beneficial ownership; failure to disclose or trading during a blackout period can trigger liability and disgorgement.

The SEC may impose civil penalties, disgorgement of profits, and refer criminal cases; the PSE may also sanction member firms and personnel.

Price-to-earnings (P/E) = market price per share ÷ earnings per share; a higher P/E implies higher expected growth or lower perceived risk, all else equal.

Dividend discount model: value = D1 ÷ (r − g), where D1 is next year's dividend, r the required return, and g the sustainable growth rate; g must be below r.

Gordon growth requires g = retention ratio × return on equity; if g ≥ r the model is invalid and a multi-stage model is needed.

Enterprise value = market capitalization + total debt − cash; EV/EBITDA allows comparison across capital structures.

Book value per share = total shareholders' equity ÷ shares outstanding; price-to-book is most useful for financial institutions and asset-heavy firms.

Fundamental analysis examines earnings, cash flow, margins, leverage, and industry position; technical analysis uses price and volume patterns and indicators such as moving averages and RSI.

Beta measures sensitivity to market movements; portfolio beta is the weighted average of constituent betas, and CAPM expected return = risk-free rate + beta × market risk premium.

Risk categories: market (systematic, non-diversifiable), credit, liquidity, and operational; diversification reduces unsystematic risk but not systematic risk.

Sharpe ratio = (portfolio return − risk-free rate) ÷ standard deviation of returns; it measures excess return per unit of total risk.

Salesmen owe clients duties of loyalty, care, and fair dealing; client interests take precedence over the firm's compensation interests in conflicts.

Conflicts of interest must be disclosed in writing; personal trading by registered persons is restricted and requires pre-clearance under firm policy.

Gifts and entertainment must be reasonable and disclosed; payments that could influence recommendations are prohibited.

Records of client orders, confirmations, account agreements, KYC documents, and complaints must be maintained for the period prescribed by SEC rules (generally at least five years).

Communications with the public must be fair and not misleading; performance claims require disclosure of the basis and must not be cherry-picked.

Complaints must be logged, investigated, and escalated; retaliation against complainants is prohibited.

Annual compliance certifications and periodic regulatory filings (financial statements, net capital reports) are required of registered broker-dealers.

Insider trading and AML training are mandatory elements of a firm's compliance program; attendance and completion must be documented.

Whistleblowing channels must be available and confidential; the SEC and AMLC receive reports on violations as required by law.

RA 8799 (Securities Regulation Code) took effect in 2000 and transferred securities regulation from the SEC's prior decree-based regime to a disclosure-and-licensing framework; the SEC enforces it.

Section 3 defines a security broadly to include shares, bonds, debentures, notes, evidences of indebtedness, investment contracts, certificates of interest in profit-sharing agreements, and options/warrants.

Section 8 requires securities offered or sold in the Philippines to be registered with the SEC unless a specific exemption applies; the registration statement is filed on SEC Form 12-1.

Section 10 exempts classes of securities including those issued by the Philippine government, bank instruments, and securities offered to fewer than 20 non-institutional persons in any 12-month period.

Section 12 exempts broker-dealer transactions on an exchange and certain isolated transactions; Section 12.1 exempts transactions by an issuer not involving a public offering.

A prospectus must be delivered to every offeree before sale; SEC rules require the prospectus to be dated and to contain the information in the registration statement.

Section 26 prohibits fraud and manipulation in the offer, purchase, or sale of securities, including untrue statements of material fact and omissions that make statements misleading.

Section 30 makes insider trading unlawful: insiders may not trade while in possession of material non-public information, and must disgorge profits plus pay up to three times the profit gained or loss avoided.

The SEC may issue cease-and-desist orders, impose fines, suspend or revoke registrations, and refer criminal cases; violations of key sections carry imprisonment of 7 to 21 years or fines, or both.

A broker is a person engaged in the business of buying and selling securities for the account of others; a dealer buys and sells for its own account; a salesman is an individual employed by a broker/dealer to solicit or effect securities transactions.

Salesmen must be registered with the SEC and associated with a registered broker-dealer; registration is not transferable between firms without new application and SEC approval.

The SEC's Broker-Dealer Registration Rules require minimum net capital, a surety bond, and books-and-records maintenance; capital must be maintained continuously, not only at application.

Associated persons must meet fit-and-proper standards: no conviction for a crime involving fraud or dishonesty, and disclosure of administrative or disciplinary history.

A broker-dealer must supervise its registered salesmen; written supervisory procedures, training, and review of client accounts and correspondence are required elements.

Registration may be suspended, revoked, or refused for willful violation of the Code, rules, or orders, or for fraudulent or dishonest conduct in securities dealings.

Firms must notify the SEC of material changes: change of control, cessation of business, changes in principal officers, and disciplinary actions against registered personnel.

Continuing education and periodic renewal of licenses are required; lapsed registration bars the individual from soliciting or executing securities transactions until reinstated.

Anti-fraud liability under Section 26 attaches to registered persons regardless of registration status; registration is not a shield against fraud claims.

Common shares carry voting rights and residual claim on earnings and assets; preferred shares carry a stated dividend priority and typically limited or no voting rights.

Par value is the stated nominal value in the articles of incorporation; no-par shares have no stated value, and issued price above par is paid-in surplus (additional paid-in capital).

A stock dividend issues additional shares pro rata to existing holders; it increases share count and reduces earnings per share without changing total equity.

A cash dividend reduces retained earnings and cash; the record date determines entitlement, and the ex-dividend date determines whether a buyer on the exchange receives the dividend.

A rights offering grants existing shareholders the right to subscribe to new shares, usually at a discount; the theoretical ex-rights price = (market value before + subscription proceeds) ÷ total shares after.

A stock split increases share count and reduces par value proportionally; it does not change total equity or the holder's proportionate ownership.

A reverse stock split reduces share count and raises per-share price proportionally; fractional shares are typically settled in cash.

Treasury shares are reacquired shares that carry no voting or dividend rights and are excluded from outstanding shares for EPS calculations.

Pre-emptive rights allow existing shareholders to subscribe to new issuances pro rata; they may be waived in the articles or by shareholder action as permitted by the Revised Corporation Code.

The Philippine Stock Exchange (PSE) operates the trading market; the Securities Clearing Corporation of the Philippines (SCCP) clears and settles trades, and the Philippine Depository & Trust Corp. (PDTC) holds securities in book-entry form.

Trading follows a continuous session with a pre-open period for order entry and a run-off/threshold phase; the PSE sets the exact session schedule and may adjust it.

The PSE uses a price fluctuation threshold and static/dynamic price bands to limit disorderly moves; orders outside the bands are rejected or held.

Board lots vary by price level; odd lots trade in a separate board and generally have less liquidity and wider spreads.

Settlement follows a T+2 cycle in the Philippine market: trade date plus two business days, with cash and securities exchanged through SCCP and PDTC.

The PSE index (PSEi) is a capitalization-weighted index of a limited number of large, liquid, free-float-adjusted issues; membership is reviewed periodically.

Trading halts may be imposed for price movement, news dissemination pending disclosure, or system issues; the PSE announces resumption conditions.

Short selling is permitted only under PSE rules with borrowing arrangements and marking requirements; naked short selling is prohibited.

The SCCP acts as central counterparty, novating trades and managing counterparty risk through margin and a settlement guarantee fund.

Order types: market orders execute at the best available price; limit orders execute only at the specified price or better; stop orders become market orders when the trigger price is reached.

Time-in-force: day orders expire at session close; GTC orders remain until filled or cancelled; IOC fills immediately and cancels any unfilled remainder.

Best execution requires the broker to seek the best available terms for the client, considering price, speed, likelihood of execution, and size.

Client orders must be time-stamped on receipt and executed in the sequence received; the firm may not trade ahead of a client order (front-running).

A discretionary account requires a written power of attorney and heightened supervision; the salesman may not exercise discretion without it.

Cash accounts require full payment before delivery; margin accounts require a signed margin agreement and maintenance of minimum equity per firm and SEC rules.

Client confirmations must disclose the security, price, quantity, commission, and settlement date; trade errors must be corrected promptly and documented.

Segregation of client assets from firm assets is mandatory; client securities are held in street name through PDTC and reconciled regularly.

Order records, including cancelled and unfilled orders, must be retained for the period required by SEC rules and be available for inspection.

Know-Your-Customer requires identifying the client, verifying identity with reliable documents, and understanding the client's business, ownership, and source of funds.

Suitability requires matching recommendations to the client's investment objectives, risk tolerance, financial situation, and experience; documentation of the basis is required.

The AMLA (RA 9160, as amended) covers brokers and dealers in securities as covered institutions; they must register with the AMLC and comply with reporting duties.

Covered institutions must file Covered Transaction Reports (CTR) for transactions above the threshold (currently PHP 500,000 in a single banking day) and Suspicious Transaction Reports (STR) regardless of amount.

Customer due diligence includes beneficial ownership identification; for corporate clients, identify natural persons owning or controlling the entity.

Enhanced due diligence applies to politically exposed persons, high-risk jurisdictions, and unusual transactions with no apparent economic purpose.

Record retention for AML purposes is at least five years after the transaction or after the business relationship ends, whichever is later, under AMLA rules.

Tipping off a client that an STR has been filed is prohibited; suspicious activity must be escalated internally and reported confidentially to the AMLC.

Refusal to provide required KYC information or an inability to verify identity is grounds to decline or terminate the relationship and consider an STR.

Insider trading: trading on material non-public information in breach of a duty of trust or confidence; tippers and tippees are both liable under Section 30 of RA 8799.

Material information is information a reasonable investor would consider important in making an investment decision; examples include earnings surprises, mergers, and major litigation.

Manipulation includes wash sales (no change in beneficial ownership), matched orders, and painting the tape to create false appearance of activity.

Front-running is trading ahead of a client's known order to profit from the expected price impact; it breaches the duty of loyalty and best execution.

Churning is excessive trading to generate commissions relative to the client's objectives; it is a suitability and fair-dealing violation.

Unauthorized trading, misrepresentation of material facts, and unsuitable recommendations are prohibited under Section 26 and SEC conduct rules.

A Chinese wall separates investment banking from sales and trading; information barriers must be documented and enforced.

Insiders must report changes in beneficial ownership; failure to disclose or trading during a blackout period can trigger liability and disgorgement.

The SEC may impose civil penalties, disgorgement of profits, and refer criminal cases; the PSE may also sanction member firms and personnel.

Price-to-earnings (P/E) = market price per share ÷ earnings per share; a higher P/E implies higher expected growth or lower perceived risk, all else equal.

Dividend discount model: value = D1 ÷ (r − g), where D1 is next year's dividend, r the required return, and g the sustainable growth rate; g must be below r.

Gordon growth requires g = retention ratio × return on equity; if g ≥ r the model is invalid and a multi-stage model is needed.

Enterprise value = market capitalization + total debt − cash; EV/EBITDA allows comparison across capital structures.

Book value per share = total shareholders' equity ÷ shares outstanding; price-to-book is most useful for financial institutions and asset-heavy firms.

Fundamental analysis examines earnings, cash flow, margins, leverage, and industry position; technical analysis uses price and volume patterns and indicators such as moving averages and RSI.

Beta measures sensitivity to market movements; portfolio beta is the weighted average of constituent betas, and CAPM expected return = risk-free rate + beta × market risk premium.

Risk categories: market (systematic, non-diversifiable), credit, liquidity, and operational; diversification reduces unsystematic risk but not systematic risk.

Sharpe ratio = (portfolio return − risk-free rate) ÷ standard deviation of returns; it measures excess return per unit of total risk.

Salesmen owe clients duties of loyalty, care, and fair dealing; client interests take precedence over the firm's compensation interests in conflicts.

Conflicts of interest must be disclosed in writing; personal trading by registered persons is restricted and requires pre-clearance under firm policy.

Gifts and entertainment must be reasonable and disclosed; payments that could influence recommendations are prohibited.

Records of client orders, confirmations, account agreements, KYC documents, and complaints must be maintained for the period prescribed by SEC rules (generally at least five years).

Communications with the public must be fair and not misleading; performance claims require disclosure of the basis and must not be cherry-picked.

Complaints must be logged, investigated, and escalated; retaliation against complainants is prohibited.

Annual compliance certifications and periodic regulatory filings (financial statements, net capital reports) are required of registered broker-dealers.

Insider trading and AML training are mandatory elements of a firm's compliance program; attendance and completion must be documented.

Whistleblowing channels must be available and confidential; the SEC and AMLC receive reports on violations as required by law.