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PDS turns up heat as debate on depository system rages

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MANILA, Philippines—The debate on whether the Philippines will benefit from two separate depository platforms for the fixed income and equity markets has just heated up.

This was after Securities Clearing Corp. of the Philippines (SCCP), a clearinghouse owned by the Philippine Stock Exchange, obtained a provisional license from the Securities and Exchange Commission to operate its own depository system for equities, signaling a break from the depository platform under the Philippine Dealing System & Holdings Corp. (PDS).

PDS has called on regulators to remedy what it describes as a “grave regulatory misstep.”

But Securities and Exchange Commission chairperson Teresita Herbosa stood by the SEC’s decision, saying “nobody can rely on a monopoly to be in business.”

In a statement last week, the PDS group said that the existing market architecture—referring to the depository platform for both bonds and equities provided by the Philippine Depository & Trust Corp. (PDTC)—has been very productive across asset classes.

This platform, PDS said, has enabled the conversion of debt assets into equity assets more quickly.

“We should also consider that bonds, particularly government securities, are a critical asset class that is particularly useful for collateralization purposes. As such, distancing bonds from the equities asset class by location only creates unnecessary inefficiencies for the market and investors,” PDS said.

It thus called for a more “consultative deliberation” on the matter. It argued that a single depository system for both bonds and equities would allow flexibility in market management and enable a market to achieve same day values and enhance investors’ earning capacity.

“Markets around the world evolve towards integrating their depository structures, recognizing the market efficiency that results from this model,” the PDS said. “We now seem to be taking a step backward.”

Herbosa countered that PDTC’s license to operate a depository system was “not exclusive.” As such, she said, it was SEC’s duty to consider SCCP’s application.

“And barring any legal prohibition against putting up a second depository and consistent with what everybody says is creating a competitive environment, we should have more than one at this instance to primarily achieve the objective of lowering the fees,” Herbosa said in an interview. Right now, the two platforms “can co-exist. People will have a choice.”


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