The Philippine Stock Exchange Inc. is considering its options, which could include opening its own fixed-income exchange, and will decide in the second half of the year what action to take after its application to acquire the country’s bond market was denied by the Securities and Exchange Commission.
Hans Sicat, PSE president and chief executive officer, told the Manila Times in an exclusive interview that following the disapproval of their application to the SEC to acquire PDS Holdings Inc. “all options are now on the table,” including the possibility of launching its own bond exchange.
Sicat pointed out that there would be no legal impediment should the PSE decide to operate a fixed-income market in conjunction with its equities market operation.
“We are very much legally allowed to operate a fixed-income market, regardless of the approval of the [PSE-PDS Holdings Inc.] merger. It is in our charter [Articles of Incorporation] that in addition to engaging in equities market operations, we may likewise engage in the operation of a bond market,” Sicat said.
Sicat explained that the PSE may start tapping its issuers and ask them to list their respective bond offerings with the PSE, instead of the issuers having to go to the Philippine Dealing & Exchange Inc. [PDEx], a subsidiary of the PDS Holdings Inc., to have their bond floatation listed and traded with the latter.
“Even prior to the merger, and the SEC is very much aware of this, we could actually operate a bond market. However, it was a question of buy versus build. Although building [on our own]a bond market platform is cheaper vis-a-vis acquiring a bond market, there are other considerations since it would take time for us to build a bond market platform instead of just acquiring one which is already in existence. Thus, it would have been more strategic to buy than to build a new one,” he explained.
The equity market operator’s top executive noted that that the primary consideration on the PSE’s part is to be “truly competitive.” Since the merger, at least for now, has been thumbed down by the regulator, the exchange has begun studying all its options.
“We can just start as soon as we want to. Seriously, a merger is not necessary if we really want to [open a bond exchange]. We can just start going to all our issuers and say, stop listing your bonds in PDS, we have the same platform here,” he stressed.
“In fact, it would be easier for those who issue bonds, and we are going to give a discount… There are so many ways to play… We actually gave that analysis to the SEC. We believe that we will win,” Sicat added.
He said that the rationale behind the merger was to partly keep the country’s fixed-income market financially viable.
Should the PSE decide to operate a bond market in addition to its existing equity market operation, PDEx would most likely gradually lose its clients.
“If we do, PDS might no longer exist after sometime, not instantaneously but after sometime… The reality is if indeed it is a competition [between bond exchanges], as I mentioned, there is a huge cost base to get through. From all points, we can subsidize that competition much longer [than PDS],” the PSE’s top executive said.
In its desire to secure an exemptive relief from the SEC, which is a condition sine qua non in acquiring the PDS, Sicat said the PSE was actually considering the economic welfare of the PDS.
“We are a shareholder of the PDS, we have at least a 20-percent stake at PDS. Therefore, we care for the PDS’ welfare. But we are not in a rush to go back to the SEC,” he said.
“In the third or fourth quarter of the year, we are going to re-engage and try to determine if we want to do something else,” Sicat said.
Market openness bigger issue
Meanwhile, Conrado Bate, president and chief executive officer of COL Financial Group Inc., one of the leading stock brokerage firms in the Philippines, said that the country’s capital markets should be more concerned about the issue of making the bond market much open to retail (individual) investors, rather than having the two platforms merged.
“Even if the merger between the two platforms did not materialize, we are hoping that the country’s bond market would be opened to individual investors. As we can see, there is so much room for investment in the fixed-income market. We hope ordinary investors and not just the government and other institutional investors could avail of this investment platform,” Bate said in an interview.
“Make the bond market open to retail investors. That is what we want to happen whether there is a merger or the fixed-income market continues to operate separately,” he added.