Develop the Philippines’ capital markets — this is central bank Governor Amando Tetangco Jr.’s main recommendation to whoever ends up leading the next administration.
“We really need to develop the capital market – there’s no question about that. We have a long way to go as far as the domestic capital market is concerned. That is what the next administration should do,” Tetangco said in a roundtable interview with reporters and editors of The Manila Times last week.
The Bangko Sentral ng Pilipinas (BSP) chief said implementation of a capital market development blueprint—put together by the Securities and Exchange Commission (SEC) with the assistance of different agencies—would help a lot in sustaining the country’s economic growth.
Based on a blueprint released by the SEC, the Capital Market Development Plan (CMDP) for 2013-2017 involves activities that will progressively result in the attainment of five objectives. These include a strong, reliable and competitive fixed income market, equities market and alternative investment products; a neutral taxation system and rational tax consequences; and an institutionally strong and capacitated corporate regulator.
Market liquidity is to be pursued via tax unification, wherein a tax-exempt entity will be able to buy from or sell to a taxable entity without restrictions. It may also pursued through programs that are expected to the accreditation of more market makers and through the use of the Securities Stabilization Fund to address settlement failures.
Liquidity in the stock market, meanwhile, will be increased by persuading Board of Investments-registered companies to conduct public offerings; encouraging retail investments by broadening stock market interest and awareness; introducing market-making programs and related rules; refining regulations for short selling and securities borrowing/lending; and allowing direct market access.
A variety of alternative products such as derivatives and structured products, collective investment schemes, personal equity and retirement account products, real estate investment trusts and exchange-traded funds, among others, will also be introduced.
Neutrality in taxation in the capital market will be promoted to provide a better level playing field for all market participants and to encourage more investment in financial products.
“For purposes of this strategy, neutrality means ‘similarly taxing similar financial activities, encouraging savings and discouraging transaction taxes, including those that are so named to have the same effect,’” the SEC noted.
The plan will also be used in part to formulate a revised SEC structure appropriate to its existing core and emerging functions as the corporate regulator. based on a functional review,” it said.
In a September 2014 progress report, the SEC said important steps had already been
Toward enhanced bond market liquidity, it said the restrictions on trading of government securities had been eased via a new regulation issued by the Finance department.
It said listed companies were fully compliant as of June 2013 with the strategy of increasing liquidity, maintaining a minimum public float of at least 10 percent as a condition for continued listing.
The report also noted that House Bill 4142 or the proposed Financial Sector Tax Neutrality Act had been filed in Congress.
Lastly, the organizational review of the SEC was partially accomplished in September 2013 when the regulator undertook a renaming of some departments and created a separate information and communications technology group.
Work in progress
Tetangco, who will end two terms as BSP chief in 2017—which means having helmed the central bank under three administrations – has continually referred to capital market reforms as a work in progress.
Last month, he urged the public-private Capital Market Development Council to continue collaboration efforts even as industry players compete, noting that this would help keep the market stable.
Existing issues, he noted, include the fact that the Philippines remains a bank-centric market, the domestic stock market is small compared to its regional peers, as is trading in government securities, and – again – work in progress market infrastructure.
He stressed the need to continue developing the capital markets, particularly with the planned integration of Association of Southeast Asian Nations economies.
Asean integration, Tetangco said, should be seen as an opportunity, starting with domestic reforms that look ahead to a regional market.
The CMDP, he added, should be the guidepost with regard to three issues: price, volume and infrastructure.
Tax reform, meanwhile, will “always … be a slippery slope,” the central bank chief said, requiring a balance between fiscal and developmental initiatives.
Finally, he said the market development effort would be for naught if the industry disregarded consumer well-being, which requires not just education efforts but also a redress mechanism.
Earlier this year, Tetancgo told industry players that significant strides had been made with regard to capital market development. Key reforms, however, have to be taken to their “logical conclusion,” he said, adding that “there will always be more reforms as markets evolve.”