Leaked document of PSE’s proposed changes to PSEi spooked market

A leaked internal document from the PSE [link], which appears to be soliciting feedback from market participants on proposed changes to the eligibility criteria for inclusion in the 30-stock PSEi, caused considerable volatility on Friday. The document was a simulation of how the makeup of the PSEi would change under a certain configuration of the proposed rules, and the stocks that were shown in that simulation to be excluded from the index (Chinabank [CBC 65.70 ?9.1%] and San Miguel [SMC 79.00 ?0.6%]) suffered losses. The stocks that were shown to be eligible under the proposed rules (Aboitiz Power [AP 39.60 ?3.9%] and Wilcon [WLCON 7.31 ?0.7%]) shot up considerably. The PSE said that it was only soliciting comments on proposed changes from “key stakeholders (e.g., fund managers and certain foreign and local brokers)”, and that, “only after such comments are received and evaluated will PSE consider if there is even a need to change its present index rules.”

 MB BOTTOM-LINE:  One of the proposed changes (I could only find this tweet summarizing it [link]) is lowering the public float size from 20% to 15% for companies with a marketcap of greater than P120 billion. Not sure if this is some kind of bending of the knee by the PSE to the Zobel Family’s interest in listing GCash with a smaller float while still preserving the opportunity for the stock to perform its way into PSEi inclusion, or if it’s just a short-sighted idea to juice listing activity. Studies show that market health is improved by higher public float ownership levels. At the end of the day, if this is something the PSE is considering just so that it can maximize revenue, maybe we need to ask ourselves: why? What’s the point of operating the exchange in this manner, if doing so just milks the capital market at the expense of the health of that market? Perhaps this is something the new SEC Chairman can weigh in on, as it would seem (IMO) that the PSE is about to commit an unforced error.

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