Digitalized stock trading

After almost three decades, the Philippine Stock Exchange (PSE) will soon join the ranks of other stock exchanges in the world that use digital platforms for trading.

Last week, PSE president Ramon Monzon informed the bourse’s trading participants (TP) that it shall “ … shift to a floorless trading, given the technological advances that have made a floorless trading setup efficient and responsive to the needs of the investing public.

“Under the circumstances and the continuous evolution of trading operations in global markets, the Exchange has decided to permanently close the trading floor and migrate to floorless trading.”

In light of this action, the PSE’s sprawling trading floor will soon be cleared of trading booths, computers and other gizmos that facilitate the transaction of the stocks of listed companies.

Until the COVID-19 pandemic hit the country in 2020 and forced the suspension of business activities for months, the idea of adopting the digitalized or online trading system used by stock exchanges elsewhere in the world was just part of the PSE’s wish list.

The lockdown was, in a sense, a blessing in disguise for the PSE. It showed that it can efficiently engage in stock trading without the need to maintain on-site facilities for the TPs and, in the process, save on operating costs.

On the part of the TPs’ staff, the work-from-home arrangement gave them valuable lessons on smooth off-floor trading and coordination with clients and service support groups.

The transition to floorless trading couldn’t have come at a more opportune time. There has been a marked increase in engagement by the public in digital or online transactions for commercial activities, including stock trading.

The latest PSE report showed that in 2021, online investor accounts grew by 20.6 percent to 21.45 million, or 74.7 percent of the total volume, which is equivalent in value to P744.49 billion.

What’s more remarkable about the uptick is it came from investors between the ages of 18 and 29 years, the age group that is just beginning to establish its professional or business careers.

Given this early awareness on sound investment opportunities, it is reasonable to assume that they would quickly take to the PSE’s latest trading scheme because of its convenience and efficiency.

For one, front-running (or the practice of rogue traders who get wind of big buy or sale orders for certain stocks to get “in front” or antedate an order for the same shares and, in the process, profit from the price movement) is expected to be prevented because the time and date of the orders are automatically recorded as they are made.

Any attempts to monkey around with the network server to conceal the front-running can be easily stymied by firewalls and other software security devices.

Like any changes in corporate operational or organizational structures, the PSE’s migration to digitalized stock trading would not be immune from adjustment issues.

Note that hacking and other forms of cybercrimes remain a problem in the country in spite of the measures that the business community, in particular, the banks, have put in place to thwart or prevent the commission of those crimes.

The challenge to the PSE when it transitions to its new trading arrangement is to make sure none of those cybercrimes, or any of the activities that could adversely affect the integrity of that system, happens.

Among others, the “know your client” requirement for opening of accounts may have to be enhanced to prevent the entry of “investors” who may want to game the system.

Once any of them gets a foot at the door, so to speak, there is no telling what mischief he or she can do to use the system to satisfy his or her malevolent intentions. This has happened before in the stock exchanges of other countries.

The stockbrokers have the work cut out for them to assure the investing public that they can ably meet the challenges that are expected to accompany the PSE’s new trading scheme. INQ

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