NO 247 – SEPTEMBER 2013

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WFE Focus
WFE INTERVIEWS THE PHILIPPINE STOCK EXCHANGE
HANS B. SICAT
Philippine Stock Exchange,
President and CEO

FOCUS: Could you give us a bit of background about your exchange?

PSE: The Philippine Stock Exchange (PSE), the only stock exchange in the Philippines, was incorporated in July 1992 and began operations in 1994. It is the product of the unification of two exchanges, the Manila Stock Exchange (MSE) and the Makati Stock Exchange (MkSE). The predecessor firms each had histories dating back to 1927 and 1965, respectively.

The Securities and Exchange Commission (SEC) granted the PSE a “Self-Regulatory Organization” (SRO) status in June 1998.

In 2001, one year after the enactment of the Securities Regulation Code, the PSE was transformed from a non-profit, non-stock, member-governed organization into a shareholder-based, revenue-earning corporation headed by a president and a board of directors. The PSE listed its own shares on the exchange (traded under the ticker symbol PSE) on December 15, 2003.

As of September 6, 2013, total market capitalization of the PSE stands at Php 11.22 trillion (USD 252.90 billion). Average daily turnover for the year is Php 10.84 billion (USD 258.70 million).

The PSE currently maintains two trading floors, one at its principal office at the Ayala Tower One in Makati City’s Central Business District and one at the PSE Centre (Tektite), Ortigas Center in Pasig City

FOCUS: How active are foreign investors in your exchange? How accessible is your market?

PSE: Foreign investors are very active in the Philippine stock market. Since January 2013, half of the market’s total value of trades were accounted for by foreign investors. Despite the foreign selling in emerging markets including the Philippines in the recent weeks, the PSE still registered net foreign buying of Php 37.39 billion (USD 892.72 million) from January to September 6, 2013.

The Exchange has been using PSETrade since July 2010 as its trading system. It allows more flexibility for the introduction of new products and services in line with the technologies and systems employed in other markets. PSETrade is developed by NYSE Euronext Technology SAS. Brokers trade through the Poste D’Access Aux Marche (PAM) or the Trading Workstation, which may be on-site (PSE trading floor) or off-site (respective broker offices).

Online investor accounts have been growing at a rapid pace. For now, only 10 broker-dealers offer online trading. To assist brokers who want to offer a web-based trading platform, the PSE recently rolled out PSETradex. It is a service provided by the Exchange so brokerage firms do not have to develop their own online trading facility. PSETradex is a web-based trading management system that will allow users to trade shares of stock, monitor the order status and manage the stock portfolio, and gather relevant market information through their computers. In addition, it will provide a mobile wireless application for equity trading for smart phones. It enables investors, who have registered with stockbrokers, to trade in a totally mobile environment.

The PSE is also in the process of coming out with rules that will govern direct market access (DMA) services given by the broker-dealers to its clients. The proposed DMA rules, which have already been submitted to the SEC for review, should help increase volumes and bolster both institutional and retail participation. More forms of DMA are expected to be introduced in the future. Through these initiatives, the Exchange seeks to continue expanding retail participation in the market as evidenced by the nearly 50% growth of online retail accounts in 2012 from the previous year.

There are no general restrictions on foreign participation in the Philippine stock market except for ownership limits on securities belonging to certain sectors and industries. In such firms, the aggregate foreign ownership is limited to 40% of its equity capital

In terms of investor breakdown, retail accounts comprised 96.4% of the total number of accounts in 2012. Local accounts on the other hand accounted for 98.5% of the total number of accounts in 2012.

The Philippine Stock Exchange Index (PSEi) is the composite index of the Philippine stock market. Listed companies are classified into six sectors: Financial, Industrial, Holding Firms, Mining and Oil, Property and Services. These sectors are subdivided into 19 subsectors. There are other indices which cover Philippine firms run by independent, third party index providers.

FOCUS: What new project/product are you currently working on?

PSE: The PSE launched this year its three-year strategy. At the core of it is the vision to be a premier exchange with world class standards for trading securities and raising capital. Hence the focus is on the creation and development of new products and services to unlock the market’s full potential. The main goal is to support increased liquidity for all asset classes, as well as an increase in the number of listed companies and securities traded in the Exchange.

On top of the product line up of the PSE are Exchange Traded Funds. The Exchange expects the listing of the first ETF to happen this year.

Other products in the pipeline that are in various development phases include: the Personal Equity and Retirement (PERA) account which is similar to the 401K in the U.S.), Shariah Compliant Listed Companies, and Index Options and Futures.

The PSE is working with the government to iron out the details needed to establish the PERA product. The Bangko Sentral ng Pilipinas, the country’s central bank, the SEC, the Insurance Commission and the Bureau of Internal Revenue are finalizing the requirements for qualified institutions and products for the PERA program. Last March 2013, the first accreditation exam for qualified PERA administrators was held.

To attract investments from the Muslim community, the PSE aims to publish within the year a list of Shari’ah Compliant Listed Companies.

Another target this year is to launch and list index options and futures in Singapore. In March 2013, the PSE inked a memorandum of understanding with the Singapore Exchange (SGX) for mutual cooperation on the development of Philippines-linked derivative products.

To improve the service it provides to trading participants and investors alike, the PSE is also developing several service programs.

To equip brokers with online trading infrastructure for their clients, the Exchange rolled out its online trading platform called PSETradex last April.

Another technology related project is the upgrading of the PSE’s issuer disclosure system. Co-developed with the Korea Stock Exchange, the PSE EDGE aims to make the disclosure system more efficient not just for the listed companies but the PSE and SEC as well. It will also upgrade the investor experience as the features allow for real-time updates of issuer information. Those accessing the PSE website will also be able to download and customize issuer data with ease.

Our securities borrowing and lending program are also carefully being built up by facilitating the entry of potential lenders and users of SBL.

The PSE launched this year its three-year strategy. At the core of it is the vision to be a premier exchange with world class standards for trading securities and raising capital.

FOCUS: What are the challenges you see in your market today and in the future?

PSE: The Philippine growth story is very well intact. In the first half of 2013 alone, the country registered a 7.6% GDP growth, well above the 6.4% it posted in the same period a year ago. Growth in domestic consumption and remittances from Overseas Filipino Workers continue to be robust. The government’s accelerated infrastructure building program will be an engine of economic activity. As such, this dynamic economic environment will remain to be the key driver for the stock market to do well.

But as seen in the performance of the local equity market in the last few weeks, the head winds for stocks have been affected significantly by external developments.

FOCUS: How do you assess your exchange’s position at a time of increased globalization?

PSE: The PSE is very excited about the opportunities brought about by the globalization of capital markets, though we are also aware of the challenges.

When we look at fundamentals, our current strategic thrusts (discussed earlier) should widen the “menu of options” in product and service offerings. These should bode well for how the market, and investors in particular, look at the relevance of the Philippine capital market in a regional and emerging markets sense.

The PSE is very much part of the ASEAN Exchanges Marketing Initiative, which aims to promote ASEAN as an asset class. This is a precursor to the ASEAN Trading Link, which is already participated in by Malaysia, Singapore and Thailand exchanges.

Last May, the PSE signed a Memorandum of Agreement with the Bankers Association of the Philippines (BAP) and the Singapore Exchange, the major shareholders of the Philippines’ fixed income exchange, called the Philippine Dealing System (PDS). The Agreement calls for shareholders to review the consolidation options for the PSE and the PDS. If successful, the depository and fixed income products will be part of the PSE. These should add even more products and services to enable the PSE to remain relevant and competitive.