PSE set to start licensing scheme in Q1 2019

The Philippine Stock Exchange will proceed early next year with a plan to introduce a licensing scheme for all funds that use the Philippine Stock Exchange index (PSEi) methodology.

This plan will affect about 15 funds, whether mutual funds or unit investment trust funds, that mirror the PSEi composition. They will soon have to pay yearly a licensing fee equivalent to 3 basis points (0.03 percent) of the total assets under management (AUM) of such PSEi-tracking fund.

This licensing scheme has raised concern from fund managers, but PSE officials explained the bourse would incorporate some of the fund managers’ inputs in the guidelines.

PSE president Ramon Monzon said the three-basis-point licensing fee was reasonable given that fund managers charge 200 to 300 basis points of AUM for actively-managed funds.

Fund that track certain indices are passively managed as the basket only mirrors the composition of a certain index, like the PSEi or MSCI indices.

In introducing the PSEi licensing fee, PSE chief operating officer Roel Refran said the local bourse was only unlocking values from its intellectual property rights. “We explained that this is a mid-point. If you look at our neighbors, others charge as much as six bps [of AUM],” he said. “We’ve provided it free since time immemorial, so it’s really just benchmarking with other [index providers].”

But heeding feedback from the fund management industry, the PSE clarified that the licensing scheme would cover only funds that use the PSEi in its basket composition.

“If it is just to benchmark or compare, then there’s no need to pay. If you’re processing it for your basket, that’s when you have to pay,” Refran said.

The new scheme was originally intended for implementation by end-August 2018 but as fund managers complained on the proposed fees, the PSE deferred its implementation. Now that concerns have been clarified, Monzon said the PSEi licensing scheme should be implemented by the first quarter of 2019.

The PSEi is composed of 30 of the country’s largest, most liquid and most capitalized companies in the local stock market.

Fund managers have complained that a fee-structure based on the AUM would be too costly. Most favor a fixed fee.