PH Dealing System slams creation of separate PSE depository

MANILA, Philippines—The Philippine Dealing System & Holdings Corp. (PDS) has called on regulators to remedy what it described  as a “grave regulatory misstep” arising from the Philippine Stock Exchange’s setting up of its own depository platform under exchange’s Securities Clearing Corp. of the Philippines (SCCP).

In a statement, the PDS group said the existing market architecture, a reference to the depository platform for both bonds and equities provided by the Philippine Depository & Trust Corp. (PDTC), already achieved productivity across asset classes.

PDS said this platform was already enabling conversion from a debt asset to an equity asset 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,” the statement said.

The provisional depository license given by the Securities and Exchange Commission to SCCP opens up a new – and potentially significant – revenue stream for the PSE but signals a break from the depository platform under the PDS.

PDS, which is led by the Bankers Association of the Philippines, called for a more “consultative deliberation” on the matter. It said there were situations where “singularity is the optimal environment,” especially where depth of liquidity and leverage management are objectives to be achieved. It argued that having a single depository system for both bonds and equities would allow nimbleness in market management, facilitate speed in markets, enable a market to achieve same day values and enhance  investors’ earning capacity.

“Compellingly, as markets around the world evolve towards integrating their depository structures into singularity, recognizing the market efficiency that results from this model, we now seem to be taking a step backward,” the PDS said.

PDS said it has come this far in creating a robust and diversified depository capability that could host multi-currency, multiple-asset classes – in fixed income and equities.

“The proposed depository for equities will usher in a market architecture of specialized depositories, where each depository would cater to a market specific to an asset class, thereby fragmenting the location of securities. This will create difficulties for investors to make their securities productive through collateralization and value substitution, which all depositories around the world are now moving towards,” it said.

PDS said the PDTC depository was envisioned and brought to life in the late 1990s as a central market infrastructure that would bring about order, soundness in settlement, and investor protection.

“We stand by these fundamental market principles as the underpinning foundations of our creation and the basis of our strength as a market institution. We take this mandate seriously and assure our communities of our commitment to continuity and integrity as this process unfolds,” it said.