The Philippine Dealing and Exchange Corp.’s (PDEx) operation of the country’s sole fixed-income platform is being challenged in the Supreme Court, with financial regulators being accused of extending “special favors, undue advantages and unwarranted benefits” to create a “monopoly” in the government securities market.
The 117-page petition, which is essentially an antimonopoly case against PDEx, adds a potential stumbling block to the planned merger of the country’s fixed-income and stock exchanges. The five petitioners are former senator Aquilino Pimentel Jr., former congressman Luis Villafuerte, former budget secretary Benjamin Diokno and former national treasurers Norma Lasala and Caridad Valdehuesa.
Named respondents are PDEx and its parent Philippine Dealing System Holdings Corp. (PDS), Philippine Deposit and Trust Corp., Philippine Securities Settlement Corp., PDS chair Vicente Castillo and the Bankers Association of the Philippines as the private sector respondents as well as regulators Bangko Sentral ng Pilipinas, Department of Finance, Securities and Exchange Commission, the secretary of finance and the national treasurer as public respondents.
The petition was filed on Aug. 22, a copy of which was obtained by the Inquirer. It alleged that PDEx’s status as an SRO had resulted in “abusive practices” as well as created a “monopoly against public interest and in restraint of trade.” The petitioners sought a writ of certiorari and prohibition against the private respondent PDS Group’s “monopolistic” activities of requiring so-called OTC trading of government securities to pass through its trading system for “hefty” fees and charges.
The petitioners also sought to stop various rules allegedly sanctioned to promote the exclusive use of PDEx such as the SEC’s requiring of membership on self-regulatory organization (SRO) as precondition to trading, empowerment of PDEx as SRO for the over-the-counter (OTC) market, mapping into PDEx trading platform of deals done outside it, SEC regulation of government securities, custodianship functions of PDTC and the compulsion allegedly exerted by BAP on its members to exclusively use the PDEx trading platform.
“Apart from the requirement of compulsory mapping (reporting for a fee) for transactions done within or outside the PDEx trading platform, PDEx was unlawfully authorized to impose exorbitant transaction fees, which prior to the entry of PDEx in the government securities market were never charged to the trading participants therein,” the petition said.
It also alleged that PDEx could also cut off the trade dealings of members who questioned the propriety of such fees from transacting with the rest of the SRO in the OTC market in violation of the antimonopoly laws.
“This petition seeks to unravel and expose how private respondent PDS Group, a group of related entities, acting in concert and below the public radar, have managed to create and inject a monopoly into the securities trading markets, particularly the government securities market where once it did not exist, where it was never proven necessary and where it was never proposed, required or demanded by the trading participants in these markets,” the petition said.
The Bangko Sentral was accused of issuing and implementing various “questionable” circulars allegedly designed to allow the PDS Group to “penetrate the financial market, clothe it with the fig leaf of legality and apparently legitimize its unlawful operations.”
“What’s happening here is a usurpation of the government’s role in the trading of treasury bills and bonds by a private institution,” according to an official familiar with the position of the petitioners. “This function should not be delegated to a private institution.”
The official, who asked not to be named because the petition is pending in court, said that PDEx’s foreign stakeholders—the Singapore bourse operator SGX—also exposed the country to the risk that an overseas entity is in charge of a function vital to the national economy.
He also pointed out that the present PDEx setup required banks to pay a regular fee to the bourse for the privilege to trade on its platform, whether this privilege was used or not.
“This is basically a tax,” the official said. “And only the government can impose a tax.”
The official alleged that PDEx was created under the auspices of the BSP during the previous decade to serve as an “exit program” for the late BSP Gov. Rafael Buenaventura, whose term ran until 2006.
The daily volume average at the PDEx is slightly under P30 billion, the bulk of which involved the trading of government securities.