PSE sets launch of dollar denominated trading

Setting the stage for cross-border listing of stocks in other foreign markets, the Philippine Stock Exchange will launch its dollar-denominated trading (DDT) facility on July 16.

Cross-border listing refers to the practice by companies to list in several stock exchanges across the globe.

PSE Chairman Alicia Arroyo said the DDT facility will create an attractive environment for cross-border investments into the country and spur greater activity and volume in the equities market.

The dollar board will open simultaneously with the morning trading session for equities. Trading at the PSE starts at 9:30 a.m. and closes at 12 noon.

The trading and settlement with dollar denominations will strictly be for offshore issues which are listed on foreign exchanges such as the US, Canada, Hong Kong and the UK. For the initial launch, the first issue that will be traded is Philippine Long Distance Telephone Co.

Next to PLDT, shares of Manulife Financial Corp. and Sunlife Financial of Canada will be traded under the DDT facility. Additional issues or instruments may thereafter be listed upon the determination and approval of the listing committee of the exchange.

The dollar board is seen to eliminate currency or foreign exchange risks and the cost for conversion of American depository receipts (ADR) and allow multiple currencies for trade transactions.

The dollar-denominated facility was initiated by the bourse through its settlement committee to provide greater flexibility and efficiency in the present trading infrastructure.

The exchange received the approval of the Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange Commission for the board in October 2001. BSP gave its go-signal on the condition that the PSE and its designated cash settlement bank will provide weekly reports on the daily transactions of the dollar board.

Under the guidelines drafted by the PSE, orders to be posted shall be limited to a maximum of $250,000 per order. A separate index will be created for the DDT.

The opening price for each security shall be computed daily by Maktrade the same way that the opening prices are computed in the peso board.

According to the PSE, the DDT facility will lessen the vulnerability of the stock market to international shocks and may generate additional income for the exchange through trading and other miscellaneous fees.

With the DDT, the threat of unforeseen major dollar outflows accruing from portfolio foreign investments perceived to be hot money will be eliminated.

To the extent of the volume of inbound foreign investments shifting from the peso equities trading board to the DDT facility, there may be a major decline in the actual conversion of dollars to pesos which may, in the short-term, adversely affect the gross international reserves of the country.

Bankers may see a decline in their foreign exchange trading profits due to non-conversion into local currency of both inward/outward foreign exchanges.