PSE may invest in fixed-income exchange

The Philippine Stock Exchange is studying the possibility of investing in the country’s first fixed-income exchange, which is expected to be operational by the first or second quarter of the year.

The PSE and the Bankers Association of the Philippines signed yesterday a memorandum of understanding to document their agreement in principle to explore the possibility of an investment by the bourse of as much 20 percent of BAP Consulting Inc.

BAP Consulting was formed by the BAP and the Investment Houses Association of the Philippines, to serve as the corporate vehicle for its planned fixed-income exchange. The BAP holds a 20-percent stake in the fixed-income exchange.

Under the Securities Regulation Code, no industry group can own a maximum of 20 percent of an exchange.

Other parties such as insurance companies, corporate issuers, multilateral agencies and a technology software provider have been invited to invest in the fixed-income exchange as well. Each industry group is seen to invest up to 20 percent of the required capital.

Negotiations are now ongoing for the participation of the Philippine Life Insurance Association, the Asian Development Bank and the International Finance Corp.

The fixed-income exchange is designed to provide a platform for the secondary trading of 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 establishment of a fixed-income exchange has been underway for some time now, which started with the individual initiatives of industry organization. The creation of the fixed-income exchange is the culminating activity of the market’s reform project that would link the series of structural reforms that have been undertaken by market stockholders.

It is seen to be the venue to ensure an efficient, stable and secure market for the trading of fixed-income securities by providing centralized trading facilities that promote price discovery and transparency.

An efficient clearing and settlement shall facilitate the payment for and transfer of such fixed-income securities to minimize settlement risks. Custodianship, on the other hand, shall complete the cycle of trading and settlement through the proper disposition of assets allowing the beneficial owners of the fixed-income securities full enjoyment of the economic rights and full absorption of the attendant risks.

These reforms are aimed at promoting the development of the Philippine financial markets by upgrading the environment to meet global standards, develop medium to long-term funding, create an investor base, promote price discovery, transparency, disclosure and professionalism and strengthen public interest and protection.