SEC plans to reopen futures exchange

The Securities and Exchange Commission intends to reopen the financial futures exchange in the third quarter of next year.

"We hope to reopen the country’s futures exchange by the third quarter of 2003. We have been receiving proposals from several groups to revive a futures exchange in the country," Jose P. Aquino, head of the SEC’s Markets Regulation Department, said.

Noting the advantages of a futures contract as an alternative hedge instrument in managing foreign exchange, interest rate and equity portfolio risks, Aquino said it was about time that the government resuscitate the futures market.

Futures contracts are exchange-traded derivatives which are agreements to buy or sell for future delivery a standardized quantity and quality of a commodity, currency, stock index, or debt instrument. Like all derivatives, futures are used to manage financial risks arising from movements or fluctuations in commodity prices, stock indices, foreign exchange and interest rates.

A futures exchange is a facility through which investors bet on the future of a commodity such as gold or copra.

Commodity futures trading in the country was suspended following the closure of the Manila International Futures Exchange Inc. In July 1997 due to alleged anomalies in its operations.

To prevent a repeat of the fraudulent activities that led to the demise of MIFE five years ago, the SEC earlier drafted a set of criteria for operating a future exchange.

According to the SEC, the new futures exchange will first have to set up a clearing house before it is issued a license.

The clearing house must be adaptable to international standards and must provide the link up to other international clearing organizations. Domestic products from the Philippines must be accessible to international players through the Internet and the clearing system must be able to adapt to a trading system that may utilize the Internet as a venue to reach clients from any part of the world.

The SEC will also require the clearing house to be organized as a separate corporation independent from the exchange management.

A joint-venture partner with adequate capital, global operations capability, international credit rank, technology capabilities using real-time systems should be chosen to assure the success of the domestic futures operations, the SEC said.

Members of the futures exchange should compose the domestic ownership of the clearing house and a possible percentage of the clearing corporation may also be sold to the public through the listing of shares.

Proponents who want to operate a futures exchange will also be required to submit a draft of the business plan for the exchange, including its business objectives, estimated timetable for different activities and trading activity flow chart.

The Bankers Association of the Philippines (BAP) wants to ensure that tighter rules and regulations are implemented if and when the country’s futures exchange industry is revised.

The SEC said it will be very careful in screening groups that intend to open a new futures exchange.

Aquino said the SEC will be issuing a license to only one futures exchange. So far, only Pilipinas Mercantile Exchange Inc. has complied with the SEC requirements.

Philmerc is composed of group of stockbrokers and investment bankers, including Victor Limlingan, Eusebio Tanco, Rodolfo Cruz, Paulino Soo, Roberto Panlilio, Don Calderon and Norberto Ong, among others.

The Philippine Stock Exchange (PSE) earlier signified interest to operate a futures exchange. – Zinnia dela Peña