SEC okays proposal on scripless trading of CPs

The Securities and Exchange Commission (SEC) has approved the proposal of the Investment Houses Association of the Philippines (IHAP) to implement scripless trading of commercial papers lodged at the Philippine Central Depository (PCD).

The SEC met with IHAP and PCD last week to discuss the mechanics of scripless securities settlement of commercial papers and to address the settlement risks prevalent in the local commercial paper market.

SEC Chairman Lilia Bautista said the system should be ready and running within the year, depending on how fast IHAP and PCD could work together.

Under the proposal, PCD will provide a book entry system that will provide participants with individual accounts constituting each participant’s CP holdings for one or more issues.

Lodgement into the system, according to IHAP’s proposal, will be aggregated into mother certificates under the name of PCD’s nominee corporation which would hold the CP holdings in trust for the participants.

Settlement of CP trades between or through participants would be undertaken on a scripless basis through debits and credits in the respective accounts of the participants, the IHAP said.

The system, according to Bautista, is expected to alleviate the operational burdens associated with manual monitoring and processing of coupon payments, principal re-payments and other inter-settlement transactions.

It would also cut down the turnaround time radical from the current 30-day period to same-day transfer of ownership.

Once in place, the scripless trading of CPs is expected to promote liquidity through an active secondary market as well as broaden market participation from both local and foreign investors.

It is also expected to encourage and facilitate primary issuances from corporate accounts and allow automated collateral substitution.

Under the scripless system, Bautista said the SEC will no longer have to issue the papers and instead just issue the permit to sell. It would also make it easier for the commission to monitor the movements of commercial papers.