BAP leads group setting up first fixed-income exchange in RP

Formalizing its bid to operate the country’s first fixed-income exchange, a group of financial institutions and capital market players, headed by the Bankers Association of the Philippines will soon apply for a corporate license with the Securities and Exchange Commission.

Jose P. Aquino, head of the SEC’s Markets Regulation Department, said the new entity, which will serve as the group’s corporate vehicle, will file with the SEC its articles of incorporation during the first quarter of the year.

Aquino said the BAP is just making sure that the new entity will meet the P100-million minimum capital requirement for the establishments of an exchange.

The new entity is expected to be owned by banks, insurance firms or qualified individuals, corporate issuers, multilateral institutions, investment houses and the Philippine Stock Exchange.

The BAP will hold a 20-percent stake in the fixed-income exchange. Under the Securities Regulation Code, industry groups can own only as much as 20 percent of an exchange.

Negotiations are underway for the participation of other investors such as the Philippine Life Insurance Association, the Asian Development Bank and the International Finance Corp.

The fixed-income exchange is designed to provide for the secondary trading a fixed-income securities such as government securities, commercial papers and asset-backed securities issued by companies. It will be the country’s first official electronic market for public and private debt instruments.

The fixed-income exchange will open more avenues for the private and public sector issuers to tap low-cost capital for the investing public to earn stable returns from fixed-income instruments. It is expected to be fully operational by the second quarter of the year.

It is envisioned to provide an efficient and sound clearing and settlement system and promote transparency, disclosure and professionalism in the banking community.

The creation of a fixed income exchange is aimed at making more efficient the existing loose structure of bond trading and other forms of indebtedness in the secondary market. It is also expected to benefit the government as it would narrow the spread of bonds.

At present, bond prices are quoted based on indicative prices instead of actual transacted prices — a situation which the electronic exchange hopes to correct.

The exchange may also serve as an avenue for insurance firms to get a matching issue or instrument based on their longer-dated requirement.

The United States Agency for International Development (USAID) has agreed to provide technical assistance to the project.

The USAID had been instrumental in the creation of the Philippine Central Depository, which revolutionized secutiries transactions with the introduction of scriptless trading.

According to the BAP, the proposal has drawn positive reactions from potential corporate issuers like the Ayala Group, San Miguel Corp. and Pilipinas Shell Petroleum Corp.

The SEC has thrown its full support for the establishment of a fixed-income exchange as it believes such move will stimulate the growth of Philippine financial markets.