PSE plans hike in settlement and clearing fees, broker’s contribution

The Philippine Stock Exchange (PSE) plans to increase the amount of the clearing and trade guaranty fund (CTGF) in line with efforts to enhance the reliability of and confidence in the settlement system.

The PSE said the amount of the CTGF will be augmented by increasing the contribution rate applied to the broker firms’ monthly turnover volumes.

Apart from this, the PSE plans to increase the fees for settlement and clearing by next year.

The CTGF is a credit management tool designed to protect market players against the failure of other trading participants to deliver committed securities and/or cash in PSE transactions as well as against broker firms’ temporary liquidity.

The CTGF is supposed to cover commitments of the defaulting parties on all eligible trades executed at the PSE that are scheduled for settlement on the day of default plus all trades that have not reached their scheduled settlement day.

As of end-September this year, the book value of the CTGF stood at P232 million, P80 million of which represents the PSE’s initial contribution. The balance of the fund was generated from interest income and fees applied on the broker firms’ monthly turnover volume.

In addition, a broker whose trading volume for a specific period exceed the allowable trade limit equivalent to his contribution to the fund will be required to increase his contribution for the succeeding period.

The PSE said a higher fund level will increase coverage of possible risks of failure to deliver by trading participants on a transaction done in the exchange.

The assets of the CTGF are invested primarily in government securities.

The exchange also intends to increase its percentage ownership in the Securities Clearing Corporation of the Phils. (SCCP) from the current 51 percent to 100 percent. The acquisition of the SCCP, together with the implementation of its own clearing and settlement system, will enable the inflow of revenues to the exchange for settlement-related services such as stock lending and borrowing, registry services and fund management in addition to clearing fees.

The exchange likewise plans to invest in a clearing and settlement system that will be utilized solely for its operation. The operation of the system, through SCCP, is expected to eliminate PSE’s share in losses as a consequence of the existing unprofitable operations of the Philippine Central Depository Inc. and SCCP.

The system, which is expected to be in place by the second quarter of 2004, will be a fully integrated system with risk monitoring and straight-through processing capabilities. It will be able to support various settlement models and may perform settlement for instruments other than equities.