RP may not be ready for cross-border listing

The Philippines may not be ready for cross-border listing but exchange officials said the time to seriously consider this possibility would be now when the market is less active than usual.

With private equity funds getting the attention of market watchers as a potent market force, emerging markets such as the Philippines could become attractive alternatives to traditional markets as investors anticipate the resurgence of depressed markets worldwide.

Cross-border listing, according to market experts, was the biggest concern, especially for market players that offer lesser known products hybridized from the mainstream products available today such as mutual funds.

According to Philippine Stock Exchange (PSE) president Ramon T. Garcia, however, preparing the market for cross-border listing would require a serious study of the impact of opening the market.

At present, there are no rules that allow cross-border listing although it has been singled out as an immediate goal as the exchange works towards scripless trading. The Securities and Exchange Commission has yet to formulate the rules to govern cross-border listing.

Garcia said the SEC and the PSE were both reluctant to allow cross-border listing precisely because there has been no dedicated study yet on how this would be implemented and what the impact would be on companies that were already listed as well as companies planning to list.

According to Garcia, there were a number of innovations that could be introduced into the local bourse but an impact assessment would be critical to policy-makers of the SEC and the PSE.

The PSE’s new small and medium enterprise (SME) board, for instance, took almost five years to conceptualize and package as both the PSE and the SEC opted to take the most conservative position in the effort to attract venture capital to finance small mom-and-pop companies wishing to tap the equities market.

"Our retail investors are becoming sophisticated but they are not nearly as sophisticated as the more mature markets," Garcia said. If the PSE should start offering foreign issues, it would attract retail investors that know even less of foreign markets than they do about the local bourse.

The idea of allowing cross-border listing was revived by the entry of a US-based company that plans to offer innovative equities products hybridized from mutual funds called defined portfolio units.

Defined portfolios are a combination of selected stocks and investment instruments lumped together and then sold as units to investors who wish to invest long-term in the stock market.

The units have a maturity period and can be sold either as fixed income or variable income instruments.

The company that plans to offer the product in the country has expressed particular interest in the possibility of opening the market to cross-border listing so that they could offer stocks listed in offshore markets to cross-border listing sothat they could offer stocks listed in offshore markets through the PSE and vice versa.