New SEC policy to drive away investors - PSE

Philippine Stock Exchange officials have warned of the possibility of the market's collapse in view of a recent Securities and Exchange Commission policy requiring the use of deposits as collateral against stock price fluctuations.

Astra Securities' William Ang, head of the PSE's newly-created Settlements Committee, said this would be more of a disincentive that will prevent more investors from coming to the market.

"It represent added foreign exchange risks to investors. It also adds to the costs of transactions for the public. These deposits have a cost of money that will have to be carried by the investor. We can't afford this policy at this time," Ang said.

Under the so-called mark-to-market policy, investors and their brokers must put up deposits as collateral when their stock purchases fall in price from the time of execution to settlement. The SEC had argued that requiring collateral against market fluctuations is one method of minimizing the possibility of an investor or broker not settling his trades on time.

While the PSE agreed with this reasoning, PSE president Ramon Garcia said that foreign brokers, in particular, want this implemented only on a selective basis and not across-the-board.

Garcia wrote the SEC that with selective collateralization, only volatile stocks whose prices move up or down by 30 percent within three days should be applied the mark-to-market rule.

He said a price movement of 10 percent or more a day for three consecutive days would be a reasonable rule for judging when a stock has become so volatile as to create a settlement risk.

The PSE officials brought up the issue in the tight of the thinning trade at the bourse, with value turnover plunging to a critical level of below P500 million daily, and the composite index dropping to record lows.

"It makes the entry of foreign portfolio investments in a bear market more difficult," Ang added.