Banks to launch new system for trading securities

Philippine banks are set to launch a new system for trading domestic securities by the end of the year, despite poor market conditions battered by the weak peso and the kidnapping crisis in the south.

Vicente Castillo, chairman of the Bankers’ Association of the Philippines’ (BAP) Open Market Committee, said the current depressed market strengthened their resolve to proceed with the scheme which has been in the works for the past 18 months.

"Why do we need to develop our own total investment base? Our dependence on the offshore markets has shown that by not developing our own local markets, we are feast and famine," said Castillo, who is also president of Banco Santander Philippines.

"If the foreign markets bypass you and you have not created your own orderly local markets, then it clearly shows the weakness of this economy," he told Reuters.

The association plans to come up with an information package soon to attract capital to fund the scheme, he said.

The BAP project calls for expanding the electronic trading of government securities in the secondary market, to include other debt instruments such as commercial papers and bonds issued by companies, asset-backed securities, and fixed income funds.

The scheme, a private-sector initiative to develop the country’s capital markets, also seeks to open the trading which has been traditionally dominated by banks to other financial institutions such as insurers and brokers.

The supervising government agencies would be the Securities and Exchange Commission (SEC) and the central bank. There will be two trading platforms – one for dealing of own accounts by financial firms and another for brokering deals for clients. Both trading platforms would use a single settlement system.

"Whether it’s a good time or a bad time, as long as it’s an orderly market, people shift from equities to fixed income. And we have not made it available," Castillo said.

"So to me, the issue of bad timing is perfect... now is the time. The bad times practically convinced us that we need this."

A political crisis which saw Joseph Estrada ousted as president and the kidnappings of Filipino and American tourists by Abu Sayyaf rebels in the south, pounded the stock market which have sunk 6.85 percent so far this year, making it the seventh worst performer in Asia.

The Philippine peso hit a fresh five-month low of 53.10 to the dollar in intraday trading yesterday.

Stock brokers said attempts by the government to list and trade fixed-income instruments on the Philippine stock exchange this year have not been hugely successful due to poor investment sentiment.

Asked about the response of the industry to the BAP scheme, Castillo said: "I think most are positive. Those who are inclined to develop are in the capital markets business. Some are negative because they feel that it might eat up into their deposit base."

Castillo remained confident the new debt trading system would create new business opportunities which would override the demerits of changing and complying with the new system.