PSE in no rush to appeal SEC’s deal-breaking ruling

AS THE Philippine Stock Exchange weighs options on its takeover bid for Philippine Dealing System Holdings Corp. Group (PDS Group), the bourse chief lamented how corporate regulators had spun a deal-breaking ruling into what is perceived as an “unfair” attack against the PSE’s competence to run a fixed income exchange and concern for the investing public.

Following the Securities and Exchange Commission (SEC)’s rejection of the PSE’s request to own 100 percent of PDS, PSE president Hans Sicat told reporters in a chance interview on Wednesday that the PSE was not in any rush to appeal the ruling.

One option, he said, would be for the PSE to adopt the status quo in lieu of the proposal to unify the country’s capital market infrastructure. He said the PSE would continue its strategy of widening its array of services and products offering.

The PSE earlier signed a share purchase agreement with the Bankers Association of the Philippines (BAP) and other shareholders of PDS – the holding firm for fixed-income trading platform Philippine Dealing and Exchange Corp. (PDEx), Philippine Depositary and Trust Corp. (PDTC) and Philippine Securities Settlement Corp. – to buy out all other shareholders and thus own up to 100 percent of PDS. The deal, however, was tied to the SEC’s approval of exemptive relief from the 20 percent limit on ownership by the PSE of the PDS.

“It’s good that there’s a decision now from the SEC on the PDS acquisition. It’s fair to say that it’s better to know what the answer is as opposed to waiting for quite sometime. So we thank the SEC for taking that step,” Sicat said.

However, Sicat said he was personally surprised at the manner at how the SEC had packaged the ruling.

“It appears like they have a new modus operandi wherein they mentioned everything to the press and gave us the official answer by fax some three hours later. I just feel that as a major issuer and partner in capital market development, that’s not the correct process,” Sicat said.

Sicat said he was personally surprised at how some SEC officials – in briefing the press about this decision on Tuesday – had “added adjectives” and resorted to “name-calling” against the PSE.

“It’s quite obvious to us, at least in the way they spun it to be media. Either they intentionally glossed over some of the facts or decided not to tell you a lot of the issues,” Sicat said. “As a professional who has been in the capital markets for close to 30 years, I think that’s not the right way to do things. And i think the adjectives used to describe PSE as either being incompetent, not understanding the themes are distortions of the truth and do not serve the public or the media in terms of trying to understand the issues at hand.”

Sicat said SEC officials had also “intentionally missed bits and pieces” of facts. He took exception to statements made questioning the PSE’s concern on the fixed income business.

“First and foremost, as shareholder of the PDS (where PSE has a 20 percent stake), it’s farthest from the truth that we don’t care about the fixed income exchange nor we do not know anything about it. That’s a very unfair characterization of the PSE,” Sicat said.

The fact that the PSE was willing to retain the existing management of PDS showed its respect for the professionals now on top of the fixed income platform, he explained.

Sicat also refuted claims that the PSE had not addressed trading glitches seen last year. All these had been fixed and a third party international provider was contracted to assess the processes and ensure that the technology platform was working.

The PSE chief added that the SEC’s rejection may have more to do with the proposed structure of the future unified exchanges given that regulators preferred a merger of equals than a scenario whereby the PSE would buy out all other shareholders and take full control of the entire capital market infrastructure. Given that the PSE is five times larger than the PSE, even share-swap scenario will give only other shareholders minimal interest in a unified entity. For instance, the BAP which now controls 30 percent of PDS will only end up with less than 3 percent of a unified bourse, Sicat said.

“So we abandoned that because valuation requirements of different shareholders were different. There was no deal at the share-swap scenario,” Sicat said.

On the common desire to improve services and improve operating efficiency for the public, Sicat said this remained the PSE’s role. He said the PSE was in fact committed to a 10-percent reduction in costs and within a two-year timeframe, to further narrow costs by 25 percent. This commitment, he lamented, had not been mentioned by the SEC.

“It’s a bit strange to think that some of the reasoning that they have put forth- which they had put forth to the public, to the press ahead of feeding it back to us – is a very strange way for a regulator to deal with on a very important topic,” Sicat said.