Point of Law

Is our capital market really Asean-ready?

/ 12:50 AM April 07, 2016

Not too long ago, I was  a keynote speaker in an investment conference where I was asked to speak about how prepared the Philippine stock market was for the Association of Southeast Asian Nations (Asean) integration.

As I was preparing my speech, I realized that our Congress has already done a lot in this area.


  1. In 2008, Congress passed a law permanently exempting from the documentary stamp tax the trading of listed shares in the stock market. Definitely, this helped reduce the cost of trading in our stock market, which was relatively much higher compared to its Asean neighbors.
  1. In the same year, Congress passed the Personal Equity Retirement Account Act (Peraa) that encouraged people to set aside part of their income for retirement. This law gives tax incentives when one invests his/her Peraa money in listed stocks, debt instruments, etc.
  1. Congress also passed that year the Credit Information System Act (Cisa) to help reduce the cost of borrowing and provide our companies, including companies listed in the stock and fixed income exchanges, the leeway to expand their businesses and declare dividends.
  1. Congress likewise passed in 2008 the Real Estate Investment Trust Act (Reita) that was designed to introduce a new investment product.
  1. In 2010, the Financial Rehabilitation and Insolvency Act (FRIA) was passed giving special privileges to transactions in the financial markets, including transactions done through our stock exchange.
  1. In 2011, Congress enacted the GOCC Governance Act. The law was designed to make our government-owned and -controlled corporations profitable so they would eventually qualify for listing in the stock market. This is practiced in other bourses, such as the Ho Chi Minh Stock Exchange (HOSE).

The big problem is that the executive branch is not as supportive in implementing these laws. No market player has so far taken advantage of the Reita, for example.

This was because the executive prescribed regulations, which served as poison in the law’s takeoff. For example, the BIR imposed a 12% value-added tax (VAT) on the transfer of income-generating assets from the sponsor to the REIT company which, at the time the law was passed, was not subject to VAT.


There was also a rule prescribing a 67-percent minimum public ownership (MPO) on the third year of the REIT.  It was much higher than the MPO requirements in other Asean jurisdictions, which prescribed 25 to 30 percent. Worst, the government required that the tax incentives that the REITs were entitled to for the first two years be put in an escrow to guarantee their compliance with the 67-percent MPO requirement on the third year.

In the process, the Philippine stock market failed to get a share of the $1.4 trillion global REIT market, depriving the PSE of new listed companies and our investors of new investment products.

Our investors instead put their money in investment scams. A flourishing REIT market could have also provided the much needed financing for the country’s infrastructure program.

Indeed, the Philippine Stock Exchange (PSE) has seen growth in recent years. In fact, our local bourse has the distinct honor of being one of only two exchanges in the world that have generally experienced growth in recent  years.

Based on data from the World Federation of Exchanges as of December 2015, however, the PSE  trailed behind several Asean markets in terms of market capitalization, capital raised, value turnover and products.

The market capitalization of Singapore, at $755.4 billion, is almost three times our market capitalization.  Likewise, the  value turnover of the Stock Exchange of Thailand is more than seven times ($285.7 billion) the value turnover of our PSE ($39.6 billion).

The PSE also has the least number of listed companies. Bursa Malaysia has more than three times (904) the number of listed companies in the PSE (262). Even the much younger Vietnam’s HOSE has already overtaken the PSE. It has 307 listed companies.


What the foregoing data shows is that sound economic fundamentals alone are not enough to make our market competitive. We have to be bold enough to take a quantum leap by adopting and implementing structural processes in capital market reforms.

I hope the next administration realizes there are short-term sacrifices (such as temporary lost tax savings) involved in preparing our capital markets.  These sacrifices are necessary to avoid being eaten up by  other Asean economies.

Better still, the government must view these short-term sacrifices as long-term investments that will eventually provide a billion-fold for our economy and countrymen.

The author, former president of the Philippine Stock Exchange, is now a senior partner of the Angara Abello Concepcion Regala & Cruz Law Offices and the president of the Shareholders’ Association of the Philippines. The views in this column are exclusively his and may not be attributed to the institutions he is presently connected with. He may be contacted at

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TAGS: ASEAN, Association of Southeast Asian Nations, capital, Market, PH, Philippine, Stock
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