Gov't urged to go slow on PSE demutualization

The Asian Development Bank (ADB) said legislating the demutualization of the Philippine Stock Exchange (PSE) will not guarantee the improvement of the stock exchange.

In a recent forum on the Philippine capital market organized by the Philippine Economic Society and the Foundation for Economic Freedom, Shamshad Akhtar, ADB manager for finance and industry division (East) warned of the temptation to mandate demutualization without properly considering the impact of such an alternative.

"There is danger in the context of emerging markets that governments, eager to derive the perceived benefits of demutualization, particularly in relation to improving standards of self-regulation, will mandate such as a process," Akhtar said.

Akhtar said that while there are advantages in demutualizing the PSE, he said it may not be the only option to cure the current ills of the local stock exchange and the seeming helplessness of the Securities and Exchange Commission (SEC) to put its foot down when the bourse is acting "like an old boys' club."

"Demutualization is not necessarily a panacea for poor self-regulation by an existing stock exchange. There is also no guarantee that a stock exchange with a poor market image will achieve a broad level of public ownership. Unless the new owners of a demutualized exchange are committed to consistent and effective self-regulation, the regulatory benefits of demutualization are likely to be illusory," Akhtar pointed out.

Akhtar said that while desirable in theory, demutualization as a solution to broaden the ownership of the stock exchange and offering at least 70 percent of its issued capital to investors not associated with the current broker members of the PSE, will be wrought with the practical problems of restructuring. -