Companies with foreign exchange requirements now have the option to raise equity in US dollars without escalating their currency risks as the Securities and Exchange Commission (SEC) has approved a pioneering framework for the listing, trading and settlement of dollar-denominated securities (DDS) at the local stock market.
Approved at a time when emerging market currency volatility is rising due to policy risks from the election of business magnate Donald Trump as the new US president, the DDS also seeks to reduce the currency risk exposure of foreign investors who trade Philippine Stock Exchange (PSE)-listed securities and offers local investors an alternative investment option for their US currency holdings.
Based on the guidelines approved by the SEC, eligible issuers of DDS are existing listed companies in good standing with the PSE. They must not have any outstanding penalties or other liabilities to the PSE.
The SEC announced Monday that in order to be eligible to issue DDS, the companies should not be the subject of any order of suspension from trading or any involuntary delisting proceedings. They must not be the subject of any pending case, investigation or similar proceeding by the PSE for violation of any applicable laws, rules, regulations or orders.
The PSE may also take into account other material factors, events, circumstances and other related matters that have a negative impact on the issuer.
The issuer is required to engage at least two eligible brokers who are qualified to trade DDS. The eligible brokers are PSE trading participants who have complied with the following requirements:
They have attended the DDS training session or seminar conducted by the PSE;
They must be operationally ready to trade DDS and should issue a sworn certification to the PSE attesting to its operational readiness;
They maintain a US deposit account or foreign currency deposit unit and a separate US dollar settlement account for clearing of trades;
They must open a separate US dollar cash collateral deposit account for DDS, and
They must submit an undertaking to obtain the consent of clients to the disclosure of their names to the SEC if information is requested by the SEC in the course of an investigation, examination, official inquiry or as part of the surveillance procedures or compliance with other pertinent laws.
The brokers will also include the DDS transactions in the market end-of-day reports to the PSE.
The procedures for securities deliveries are the same as with peso-denominated securities. However, settlement will be denominated in US dollars. Thus, brokers intending to participate in the trading of DDS are required to have a US dollar deposit account with any universal or commercial bank and a separate US dollar cash settlement account with the designated settlement bank.
DDS is seen suitable for large companies with dual listing overseas like PLDT Inc., which has depository receipts traded in New York, or Del Monte Pacific, which is dually listed on the Singapore Exchange, as well as for other companies with significant offshore businesses.