BIR grants tax breaks to firms planning to operate alternative trading system

The Bureau of Internal Revenue (BIR) is willing to give tax breaks to entities planning to operate an alternative trading system (ATS)

Under the proposed rules drafted by the Securities and Exchange Commission (SEC), an ATS refers to any organization, association, person or group of persons or system that maintains or provides an electronic market place or facilities for bringing together buyers and sellers of securities.

SEC Market Regulation Department head Jose P. Aquino said the BIR is receptive to the idea of giving tax breaks to ATS operators provided that the necessary safety measures are in place.

The SEC earlier sought the BIR’s opinion on whether the preferential tax rates in the Tax Reform Act will be applicable for stock transactions executed through an ATS.

Under Section 127 of the Tax Reform Act of 1997, any disposition of shares of stock listed and traded through the exchange will be taxed one-half of one percent of the transaction’s gross selling price.

The SEC has come up with a set of proposed rules on ATS in line with efforts to develop innovative financial products and other trading markets.

The rules are based and premised on the Securities regional Code and the international best practices gathered as part of the research effort.

SEC said investors may look into these alternative markets for other investment products which are not currently offered by traditional investment outlets.

The SEC noted that ATS has become integral to the modern securities markets, providing investors with enhanced flexibility and reduced trading costs as well as competition to the established securities exchanges.

Examples of ATS include proprietary trading systems, broker-dealer trading systems or electronic communications networks that are order-matching systems.

To register as an ATS, the proponent must submit a written description of the products to be traded in the system and of the software system or program which shall include a transactional flowchart and its application or function.

To protect investors, the SEC will require ATS applicants to have their board of directors and senior management to be actively involved in the risk control process.

The ATS is also required to establish adequate safeguards and procedures to protect subscribers‚ confidential trading information and to submit a manual on corporate governance.

Qualified investors will need at least P500,000 to open an account with an ATS.

The SEC has already received requests from companies willing to offer innovative financial products.

Those considered for coverage under the proposed rules are automated trading systems and online trading services that may be offered to the public

The SEC is also looking into the possibility of allowing online matching for companies looking for private equity financing from institutional investors.

This will address the current financing problems of small- and medium-sized companies who cannot meet the listing requirements of the Philippine Stock Exchange.