The Market Monitor Minding the Nation's Business
By Riza Lozada
The Securities and Exchange Commission (SEC) has approved bourse trading in US dollars or the so-called US-Dollar Denominated Securities (DDS) at the Philippine Stock Exchange (PSE) to provide issuers an opportunity to raise capital without incurring foreign exchange risks.
The PSE supported the introduction of DDS as part of its goal to expand products and services as well to improve liquidity in the market.
In the first nine months, PSE, which operates the local bourse, reported its net income grew by 12.8 percent to P507.93 million from a year ago.
The rules that SEC released for DDS requiring issuers to be existing listed companies in good standing with the PSE and without any outstanding penalties or other liabilities.
The issuers are also required not to be the subject of any order of suspension from trading or any involuntary delisting proceedings, and not the subject of any pending case, investigation or similar proceeding by the PSE for violation of any applicable laws, rules, regulations or orders.
The PSE “may also take into account other material factors, events, circumstances and other related matters that negatively impact the issuer” based on the SEC rules.
The SEC Rules on DDS requires an issuer to engage at least two eligible brokers who are PSE trading participants and complied with the required attendance on the PSE-DDS training session or seminar.
They must be operationally ready to trade DDS and shall issue a sworn certification to the PSE attesting to its operational readiness, maintain a US deposit account or foreign currency deposit unit and a separate US dollar settlement account for clearing of trades open a separate US dollar cash collateral deposit account for DDS; submit an undertaking to obtain the consent of its clients to the disclosure of their names if the SEC requests the information in the course of an investigation, examination, official inquiry or as part of the surveillance procedures or compliance with other pertinent laws.
The brokers shall also include the DDS transactions in the Market End of Day Reports generated by the exchange.
The procedures for securities deliveries are the same as with peso-denominated securities only that settlement shall be denominated in US dollars.
Thus, brokers intending to participate in the trading of DDS are required to have a US dollar deposit account with any universal or commercial bank, and a separate US dollar cash settlement account with the designated settlement bank.
The PSE supported the SEC on US currency-denominated trading of securities as it participated in the drafting of rules on DDS.
“The introduction of dollar denominated securities listing in the Exchange is in line with our thrust of providing more products and services for the market. With this product, we want companies to have the flexibility of raising capital in dollars, while providing both foreign and local investors the ability to trade in the market without necessarily facing foreign exchange risks,” PSE President and CEO Hans Sicat said.
At the time that the DDS was at its stage of rules drafting, the PSE noted that the DDS were on demand both from an issuer perspective and from a funding perspective. “There’s excess liquidity in the system, including maybe an untapped asset class for dollar holders in the exchange,” Sicat said.
The PSE in 2015 achieved a net income of P683 million or 21 percent lower from its net income a year ago.
Listing-related income, which the PSE reported accounting for 40 percent of operating revenues, declined by 41 percent year-on-year to P483 million. The average daily turnover in 2015 was at P8.9 billion compared to P8.8 billion in 2014.