The Philippine Stock Exchange Inc. (PSE) urged the government to enter into mutual recognition pacts with regional peers to allow cross-border trading of stocks, warning of a possible isolation of the equities market if the country waited for the Asean rules to be first harmonized.
Hans Sicat, President and Chief Executive Officer of the PSE, said that it is “high time” that the Securities and Exchange Commission (SEC) allows foreign shares to be traded and sold in the Philippines without having to go through the tedious process of registering their stocks here.
Sicat said that mutual recognition agreements between the Philippines and other Asean member countries would open up the local market to more foreign investors and support progress toward achieving the Asean Financial Integration Framework (AFIF).
“The SEC had been telling us to connect to the [Asean] trading link, but how can we do so when there are several constraints? One is that the SEC requires any share to be sold in the Philippines to be registered locally,” Sicat said.
Sicat described an “internet sale” through the Asean link as an example, wherein a Filipino wants to buy Singtel (Singapore Telecommunications Ltd.) shares in the Singapore market. Under the present regulations, that sale would be a violation of the SEC’s rules since Singtel is not registered in the Philippines, Sicat explained.
The PSE chief noted that Asean members Thailand, Singapore and Malaysia have already forged a mutual recognition agreement, and can freely buy and sell shares with one another.
“In other words, these countries are now doing mutual recognition, similar to a bilateral or multilateral agreement. These countries have relied on their respective regulator’s counterparts,” he said.
Thus, should the same approach be adapted in the Philippines, other Asean countries would then rely on the PSE and the SEC’s representations, as recognized institutions, Sicat said.
“Hence, the country’s counterpart regulators in other Asean member countries would assume that any shares that are registered and traded with the Philippines’ SEC and PSE are valid and existing, and may likewise be bought and sold in other Asean member countries without having to require our local shares to be registered there and vice versa,” Sicat said.
In addition, Sicat said that mutual recognition is a “necessary condition” for the country’s equities market to benefit from the Asean market integration even before the harmonization of various equities trading rules of 10-Asean member countries.
“The implication of not having mutual recognition is that trading would be a one-way highway: any foreigner can buy any Philippine security, within the equity ownership limits of course, while any Filipino cannot buy a single share. That is not the whole point of trading, in such case, we are building a one-way road,” he said.
Sicat added that waiting for the Asean rules to be harmonized, which could take 50 years or more, might lead to the country’s equity market’s isolation.
“The Philippines’ equities market is very small compared with its counterparts in the region. If we require these Asean shares to be registered here, and redo their entire documentary requirement just to comply with ours, then they [traders]would rather go to the other nine other Asean member countries. It is actually our loss.”
SEC Chairperson Teresita Herbosa, said that the agency is still considering whether to wait for the rules in various member countries to be harmonized, or to enter into mutual recognition agreements with other Asean countries.
“There are two aspects that we are considering now, first is for all the Asean member countries’ rules regarding the sale of shares be harmonized and the second one is the mutual recognition deal,” Herbosa said.