PSE-PDS union hounded by governance issues

MANILA, Philippines  —The head of the powerful Bankers Association of the Philippines (BAP) is looking closely at governance controls in relation to the renewed bid of the Philippine Stock Exchange (PSE) to take over Philippine Dealing System Holdings Corp. (PDS) before casting a deciding vote in favor of the multibillion-peso merger.

The BAP, one of the largest shareholders of PDS, is in discussions with the PSE after the bourse had announced plans to acquire the operator of the country’s bond trading platform, said Jose Teodoro Limcaoco, president of the bankers association and Bank of the Philippine Islands.

“I see how [a merger] makes sense. We just need to understand how it will be governed, particularly the bonds,” Limcaoco told the Inquirer in a recent interview. Last December, the Securities and Exchange Commission removed regulatory hurdles that prevented past efforts by the PSE to acquire PDS, which operates Philippine Dealing and Exchange Corp. (PDEx), Philippine Depository and Trust Corp. and Philippine Securities Settlement Corp.

READ: Stock, bond bourse union finally clears regulatory hurdle

“There are some concerns because the bond exchange is really used by the banks so we need to ensure [that] pricing is transparent. PDEx is not really used by the mass public because it’s the banks that trade on it,” Limcaoco said.

‘One-stop shop’

“We just need some agreement with the PSE on how it will operate in the future,” he added.

The PSE earlier said consolidating both exchanges would transform the PSE into a “one-stop shop” offering multiple asset classes.

A former PSE board member told the Inquirer the merger is a logical step in making capital market operations more efficient. But he noted that the stock exchange, led by president Ramon Monzon, would need to impose stricter governance measures.

“I think Mon is doing his best, but as you know there’s a lot of politics on the PSE board. That’s one issue no one is talking about, but what we don’t want is for the debt markets to be affected by these issue,” said the individual, who requested anonymity.

The unification of the Philippines’ stock and bond trading platforms has been almost a decade in the making.

On and off talks

The PSE and BAP own about 21 percent of PDS each while Singapore Exchange Ltd. owns 20 percent. Other shareholders include Tata Consultancy Services Asia (8 percent), Whistler Technologies Services Inc. (8 percent), San Miguel Corp. (4 percent) as well as government institutions such as Development Bank of the Philippines (3.08 percent) and Social Security System (1.54 percent).

The PSE came close to completing the takeover in 2017 after convincing the BAP to sell its shares in a deal that valued PDS at P2.2 billion.

But the transaction was blocked by the SEC since this would breach individual ownership caps that were outlined under the law.

Six years later, the SEC reversed course and exempted the PSE from those restrictions, allowing merger talks to proceed amid the Marcos administration’s push to develop the country’s capital markets.

There are over P16.8 trillion worth of stocks listed on the PSE versus about P1.4 trillion registered on the PDEx. Last year, new bond listings exceeded P200 billion, overtaking the new stock market listings worth almost P141 billion, as investors shifted to fixed-income securities due to elevated interest rates. INQ