BARRING a paradigm shift in the Securities and Exchange Commission (SEC), the proposed merger of the Philippine Stock Exchange (PSE) and Philippine Dealing and Exchange Corp. (PDEx) may not happen any time soon.
PSE is the trading platform for the equities or stocks of the country’s top corporations. PDEx, on the other hand, is the venue for trading the fixed-income securities or debt papers of companies with good credit ratings.
Except for Vietnam and the Philippines, the equities and securities markets of our neighbor countries are integrated, i.e., they operate on a single trading platform.
Earlier efforts to merge the two exchanges failed because of personal differences between their leaders and disputes on valuation of assets.
With globalization and the coming Association of Southeast Asian Nations (Asean) economic integration, the two exchanges have, for strategic reasons, early this year been able to come to terms on a possible merger.
PDEx’s major stockholders have agreed to sell their shares to PSE to enable the latter to gain majority control of PDEx that will result to their merger.
The marriage, however, had to be put on hold because the Securities Regulation Code (SRC) prohibits an industry or business group from owning or controlling, directly or indirectly, more than 20 percent of an exchange.
Exemption
The prohibition may be lifted if, upon application, the SEC “finds that such ownership or control will not negatively impact on the exchange’s ability to effectively operate in the public interest.”
PSE filed its application for exemption from the prohibition on April 30, 2015. Upon SEC’s orders, it submitted its justification for the request for exemptive relief.
On Nov. 18 and Nov. 25, Biz Buzz reported the delay in the processing of the application and the adverse effects on the economy if the merger does not push through.
Apparently stung by the unwanted publicity, the SEC ordered PSE to explain how and why its request for exemptive relief was “divulged to the media with the apparent intention of inducting or compelling the Commission to grant the said request before Nov. 27, 2015.” A letter of similar tenor was sent to the Bankers Association of the Philippines from whom PSE bought some PDEx shares.
Not content with these actions, the SEC took the Biz Buzz reporter to task for his report and, after a lecture on ethics, gave a veiled warning on possible prosecution for violation of the Anti-Graft and Corrupt Practices Act for “false and malicious” reporting.
Confidential
The SEC’s sharp reaction to the publication of the request for exemptive relief defies reasonable explanation.
It runs against Sec. 5 of the SRC that states “the Commission shall act with transparency.” Meaning, it should operate under an atmosphere of openness, which is an essential element of a free and efficient market that the SEC is mandated to promote and develop.
This principle is reinforced by Sec. 66, which provides that “all information filed with the Commission in compliance with the requirements of this Code shall be made available to any member of the general public, upon request, in the premises and during regular office hours …, except as set forth in this Section.”
An application for exemptive relief is not one of the documents the SRC requires to be kept confidential or hidden from public view. The default mode for SEC filings is, they should be made accessible to the public unless the SRC says otherwise.
If the SRC considers an act unlawful or imposes a penalty for its commission, it says so in clear and unequivocal terms and does not leave its determination to the imagination.
The SEC should disabuse itself of the idea that reporting on actions or cases pending before it, that is not otherwise prohibited by law, is guided by ulterior motives or aimed at undermining its authority.
Consolidation
The controversy over the merger of PSE and PDEx merger brings to mind the unification of the Manila and Makati stock exchanges in 1992.
Then President Fidel Ramos “forced” the consolidation of the two exchanges into what is now the PSE because he did not see the logic of two stock exchanges in a small capital market separately trading the stocks of companies listed in both bourses.
The apprehensions raised by oppositors and sceptics to the merger were later proven wrong when trading in the PSE grew exponentially on account of investor confidence, not to mention the management efficiency that resulted from the reduction of operating expenses and maximization of resources.
With economic regions forming trading blocs and global trade getting more competitive, the name of the game in the financial world is beefed-up financial muscle, consolidated resources, and efficient transactions with the minimum of costs.
Some governments even enact legislative measures or provide financial assistance to speedily accomplish this objective.
In the Nordic region, for example, the Scandinavian countries are integrating their market operations to achieve more efficiency and to enhance their competitiveness vis-à-vis the European and Chinese markets.
The practice has gained world acceptance and none of the developed economies has complained about it.
It’s odd that while our domestic banks are being encouraged with incentives to consolidate to enable them to effectively compete in the Asean region, the merger of the country’s equity and bond exchanges is going through the wringer.
Incidentally, the SEC letters earlier mentioned end with the imperious words: “Submit your written explanation on the foregoing not later than Nov. 27, 2015.”
Wow! It sounded like a royal edict to lowly subjects.
For comments, please send your e-mail to rpalabrica@inquirer.com.ph.