TWO YEARS ago, the Philippine Stock Exchange (PSE) and the Philippine Dealing Systems Holdings Corp. (PDS) group got together to discuss the creation of a unified capital market infrastructure in the country. Consolidating the trading platforms in the country was seen in line with global best practices and market structure—a transparent and efficient bourse with central clearing and settlement facilities across multiple asset classes.
Markets in other parts of Southeast Asia, Hong Kong, Korea and Japan each has an exchange that operates both equities and fixed income securities trading.
After a year of discussions, the PSE was able to sign a share purchase agreement with the Bankers Association of the Philippines (BAP) and other shareholders of PDS, which is the holding firm for fixed-income trading platform Philippine Dealing and Exchange Corp. (PDEx), Philippine Depositary and Trust Corp. (PDTC) and Philippine Securities Settlement Corp., effectively raising its stake in PDS to more than 67 percent subject to closing conditions.
The closure of the deal, however, was tied to the approval by the Securities and Exchange Commission (SEC) of PSE’s exemptive relief from the 20 percent limit of ownership in the unified exchange. The SEC subsequently raised a string of concerns on the proposed acquisition, including issues on monopoly, hefty depository fees and governance structures.
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In a 17-page strongly worded letter penned by SEC market and securities regulation department director Vicente Graciano Felizmenio Jr. dated Nov. 27, when the deadline to close the deal to buy out other PDS shareholders lapsed, the corporate watchdog said it could not make a determination whether the ownership or control of PDS would adversely affect PDS’ ability to operate for public interest. It cited the absence of sufficient information on the PSE’s plans.
One key concern highlighted by the SEC letter, a copy of which was obtained by the Inquirer, was that the acquisition of shares in PDS could lead to “monopoly and restraint in trade” once a single entity emerged. The letter said it was only prudent for the commission to exercise “utmost care, detail and attention” to this proposal pursuant to the passage of the Philippine Competition Act.
