SEC approves dollar trading facility of PSE

The Securities and Exchange Commission (SEC) has approved the rules and procedures on the trading of dollar-denominated instruments by the Philippine Stock Exchange (PSE).

The PSE will launch its dollar-denominated trading (DDT) facility on July 16 with Philippine Long Distance Telephone Co. as the first issue on the board.

The dollar board will open simultaneously with the regular 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.

After PLDT, shares of Canadian insurers Manulife Financial Corp. and Sunlife Financial 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.

Under the rules, trading participants buying on the DDT facility shall always issue an original buy invoice per client or investor in adherence to the foreign exchange regulations of the Bangko Sentral ng Pilipinas. The original buy invoice shall be the basis for determining whether payment to the selling trading participants by the designated DDT cash settlement bank shall be in US dollars or in pesos.

Orders to be posted shall be limited to a maximum of $250,000 per order. A separate index will be created for the DDT.

Trading participants are required to open securities sub-accounts with the Philippine Central Depository for the DDT shares. These accounts shall be used for the credit of DDT shares or to segregate the DDT shares from the peso shares.

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.

Apart from this, 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 foreign portfolio investments perceived to be hot money will be eliminated.

To the extent of the volume of inbound foreign investments shifting from the 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.

The dollar-denominated board 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 BSP and SEC for the dollar board in October 2001. The 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.