1st fixed-income exchange debuts

The country’s first fixed income exchange (FIE) finally marked its debut yesterday after four years in the drawing board.

The FIE, under the Philippine Dealing and Exchange Corp. (PDEx), is a joint collaboration by the Philippine Dealing System Holding Corp. (PDS Corp.), the Bankers Association of the Philippines (BAP), the Bureau of Treasury (BTr), and the Bangko Sentral ng Pilipinas (BSP).

As an electronic and transparent trading system for sovereign government securities and other debt instruments including commercial papers, the FIE is considered a key component in a developed capital market.

The initial transaction yesterday involved Equitable PCIBank offering foreign exchange treasury notes (FXTN) with a 14-percent coupon rate and a maturity of 1.15 years (roughly 421 days). BPI Capital Corp. and Banco de Oro Universal Bank (BdO) each made a transaction of P50 million at an interest rate of 8.975 percent.

While the Equitable-BPI Capital-BdO transaction was basically an inter-bank transaction involving a small amount, the FIE proponents are nonetheless excited on the prospects of opening the exchange to a wider base to include corporations, multinationals, the private sector, the housing sector, and the investing public.

"It becomes a price gateway, a price discovery channel," said Johnny Noe E. Ravalo, a leading proponent of the FIE while serving as the BAP’s chief economist and team leader of Emerge, a consulting firm specializing in banking and capital markets.

Thus, businesses interested in launching debt instruments can have a clearer picture of the price ranges of different debt instruments in different currencies and coupon periods. Likewise, the FIE will allow investors real time views of the real value of debt instruments, government securities, and other instrumentalities.

Without a transparent and electronic trading platform, the spreads of debt instruments are huge, and transactions are almost always unreported.

With the FIE, spreads will be smaller with the transparent and electronic platform, more businesses can access capital locally and reduce its foreign exchange risks, and the regulator can view transactions in real time, increasing its regulatory efficiency, and capital flight reduced to a minimum.

The PDEx is the first and only fulltime FIE in the whole of Asia. South Africa and Thailand have a bond market while other countries have an FIE integrated in their respective stock exchanges. Hence, prospects for a cross-broader regional market becomes another possibility.

PDEx works on a state-of-the-art electronic financial trading system making transactions real time and scripless. It is a high performance, flexible and fault-tolerant financial trading system that integrates an automated trading of financial products.