THE Securities and Exchange Commission (SEC) has granted the application of the Philippine Stock Exchange, Inc. (PSE) for exemptive relief, allowing it to exceed the mandatory ownership in Philippine Dealing System Holdings Corp. (PDS Group).
In a media release on Thursday, the SEC said that its Commission En Banc approved on Dec. 19 the petition of PSE for additional shares in PDS Group, the operator of the fixed-income exchange.
This means PSE is now allowed to exceed the mandatory limit of 20% on ownership and voting rights in an exchange, permitting it to own up to 100% of the PDS Group, subject still to certain conditions.
As of today, PSE owns 20.98% of the issued and outstanding capital stock of the PDS Group.
Earlier, PSE announced its intention to acquire full ownership of the PDS Group.
With this move, the SEC is permitting unified or integrated local bourses, referring to a financial market where assets like stocks and bonds are traded under a single entity.
The Securities Regulation Code states that no industry or business group may beneficially own or control, directly or indirectly, more than 20% of the voting rights of the exchange.
“The SEC, however, may adopt rules, regulations or issue an order, upon application, exempting an applicant from the ownership limit if such ownership or control will not negatively impact on the exchange’s ability to effectively operate in the public interest,” the commission said.
“In this case, PSE would essentially merge with Philippine Dealing & Exchange Corp. (PDEx) and the Philippine Depositary & Trust Corporation (PDTC) to create a unified marketplace,” Globalinks Securities and Stocks, Inc. Head of Sales Trading Toby Allan C. Arce said in a Viber message.
The PDS Group is composed of the Philippine Dealing & Exchange Corp. (PDEx), which operates the organized secondary market for trading fixed-income securities issued by corporations. It also calculates the Philippine Dealing System Treasury Reference Rates, which serve as the benchmark for the valuation and marking-to-market of interest rate-sensitive instruments.
“Combining operations could streamline processes, reduce overhead, and optimize infrastructure, leading to cost savings and improved profitability,” Mr. Arce added.
The Commission En Banc has also approved the transfer of the shares of stock of an exchange controller to allow the PSE to acquire shares in PDS that are currently owned by other PDS shareholders.
“An integrated bourse would enable the PSE to offer efficient listing and trading solutions across a variety of securities, including equities, bonds, and eventually options. Hopefully this leads to a deeper and more active secondary market for bonds and other fixed income instruments,” China Bank Capital Corp. Managing Director Juan Paolo E. Colet said in a Viber message.
A larger and diversified exchange could be more “competitive,” as it would attract international capital and investments, Mr. Arce said.
“On the other hand, a dominant PSE could stifle competition and innovation, making it harder for smaller players to compete and limiting investor choice,” he said.
The SEC has also ordered the PSE to submit regular updates, which include timelines of plans, commitments, reduction in fees, valuation, enhancements of systems, and launch of new products quarterly after the acquisition.
“Increased control over markets raises concerns about the PSE’s influence on price discovery and potential manipulation. Strong oversight and transparency are crucial. While the overall market benefits, smaller investors may face challenges adapting to a new structure and potentially higher fees,” Mr. Arce said. — Ashley Erika O. Jose