PDEI submits rules on trading of fixed-income instruments

As a prelude to the opening of the country’s first bond exchange, the Philippine Dealing & Exchange Inc. (PDEI) has submitted to the Securities and Exchange Commission its rules and guidelines on the trading of fixed-income instruments.

PDEI is owned by a group of financial institutions, headed by the Bankers Association of the Philippines (BAP) and other capital market players. The BAP holds a 20-percent interest in PDEI.

Under the Securities Regulation Code, industry groups can own only as much as 20 percent of an exchange.

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.

Based on documents filed with the SEC, PDEI will ensure an efficient, stable and secure market for the trading and settlement of securities by providing facilities that promote price discovery, transparency and efficient clearing and settlement systems that comply with best practices internationally.

PDEI said it will work in close cooperation with the SEC, Bangko Sentral ng Pilipinas, other relevant government agencies and financial institutions to develop and improve the ability of the Philippine market participants to compete with global players.

The PDEI board of directors shall be composed of nine members, which shall include a president and independent directors. The president shall be the chief operating officer and shall hold office for one year and until his successor has been elected.

The independent directors shall be elected from a shortlist of candidates prepared and pre-screened by the nomination and remuneration committee. They must have sufficient working knowledge of the business and operations of the exchange.

The PDEI shall also set up an investor protection committee, which shall be composed of at least an independent director as well as the chairman and/or president. The committee shall develop and enact policies, rules and measures to protect the interests of persons who invest in instruments being traded in the exchange.

It shall also have a separate compliance and surveillance department to look into possible illegal trading activities to safeguard the interest of investors.

The fixed-income exchange will open more avenues for the private and public sector issuers to tap low-cost capital for the investing public to earn stable returns from fixed-income instruments. It is expected to be fully operational by the second or third quarter of the year.

The creation of a fixed income exchange is aimed at making more efficient the existing loose structure of bond trading and other forms of indebtedness in the secondary market. It is also expected to benefit the government as it would narrow the spread of bonds.

At present, bond prices are quoted based on indicative prices instead of actual transacted prices – a situation which the electronic exchange hopes to correct.