The Market Monitor Minding the Nation's Business
By Riza Lozada
The Philippine Stock Exchange Inc. (PSE) is confident of hurdling the regulatory barriers on its planned merger with fixed-income market operator Philippine Dealing System Corp. (PDS), which is crucial to the country’s goal of meeting the requirements of a cross-border trading platform linking Southeast Asian stock markets under the Associated of Southeast Asian Nations (Asean) economic bloc.
The merger talks started in May 2013. The completion was originally targeted by the end of thatyear, but challenges were raised on the proposal, particularly an anti-monopoly suit filed with the Supreme Court by former legislators Aquilino Q. Pimentel, Jr. and Luis R. Villafuerte, Sr., former Budget Secretary Benjamin E. Diokno and former national treasurers Caridad Valdehuesa and Norma Lasala.
The PDS is the holding company that owns the Philippine Dealing Exchange Corp., the operator of the fixed-income exchange. It also owns the Philippine Depository and Trust Corp. that serves as the depository for equities and fixed-income securities.
The PSE, which operates the local bourse, had asked for “exemptive relief” from the Securities and Exchange Commission (SEC) to own at least two-thirds of the PDS.
The PSE is currently working on providing the SEC with additional information on its application for exemptive relief. The SEC gave the PSE until January 26, 2016, to clarify certain items about the PDS deal.
“We hope the additional requirements we will provide will be sufficient basis for the SEC to approve our request to pursue this landmark transaction,” PSE President and CEO Hans Sicat said.
The PSE submitted its application for exemptive relief to the SEC in April 2015.
The commercial aspect of the transaction has been completed PDS but the agreements signed by the various stockholders of PDS remain subject to regulatory approvals, Sicat said.
“We are looking forward to a favorable action by the SEC so that we can be a step closer to completing the PDS deal. We believe unifying both exchanges will make our capital market more competitive in the region,” Sicat added.
SEC Chairman Teresita Herbosa said the regulator was acting on the proposal with urgency.
“The matter before us is whether we will allow the transaction to go through already even if it will result in the PSE owning 100 percent of the PDS, and not in accordance with what the law provides,” she said.
Section 33.2 of the Securities Regulation Code (SRC) bars one group from owning or controlling, directly or indirectly, more than 20 percent of the voting rights of a financial-market operator.
The bourse will control as much as 95 percent of the PDS once it secures SEC approval, Sicat said.
“The PSE had signed share purchase agreements with the minority shareholders of the PDS, with the SEC’s green light being the last condition that would facilitate the transfer of their stakes,” Sicat said.
But the SEC chief said there was no plan put up a monopoly.
“Even if we get the PDS, there is no legal block for anyone to come in to the exchange to operate the business, except that it will take a lot of capital,” he said.
In July, the PSE signed a deal to acquire the 28.91-percent stake in the PDS of the Bankers Association of the Philippines (BAP). The move made the PSE the single biggest shareholder of the PDS; it now has a 49.89-percent interest in it.
Other stockholders are the Singapore Exchange (20 percent), Computershare Technology Services (8 percent); Tata Consultancy Services Asia (8 percent); The Philippine American Life and General Insurance Co. (4 percent); San Miguel Corp. (4 percent); Financial Executive Institute of the Philippines (3.1 percent); Social Security System (1.5 percent); Investment House Association of the Philippines (1.1 percent); and Golden Astra Capital (0.4 percent).
PSE believes maintaining the business operations of both the PSE and PDS, while reducing operational costs through synergies, can result in greater business scalability and profitability.
“For the market, the single-exchange setup helps achieve efficiencies, reduce risks, and facilitate the development of new products,” the bourse said in a statement.
PSE said the transaction aims to facilitate further growth in the local capital markets by introducing efficiencies in the trading and back-office systems of both the equities and fixed income markets, among other things.