PSE to roll out volume-weighted average price trading on March 1

The Philippine Stock Exchange Inc. (PSE) is rolling out volume-weighted average price (VWAP) trading on March 1 this year, allowing such transactions to be executed during the market’s run-off period for every session from 3:00 p.m. to 3:15 p.m.

This is among a host of new products and reforms the PSE is implementing to bolster liquidity and make the country’s capital market more competitive in the region.

A powerful trend indicator, VWAP allows day traders to determine the average price of a stock since it considers both price and volume.

“The ability to easily place VWAP-based orders expands the options available to investors, especially those who prefer to use this approach in trading,” PSE president and CEO Ramon S. Monzon said in a statement.

“We expect foreign and institutional investors who prefer to look through price volatilities during the trading day and focus on the average price instead to avail of this facility,” he added.

According to the PSE, VWAP trades may only be executed by authorized salesmen or traders of a trading participant with a minimum transaction amount of P500,000.

Welcome development

“The implementation of VWAP trading is a welcome development as this provides an avenue where trades can be done at a certain VWAP price, reducing the market price impact of large transactions,” Rastine Mackie Mercado, research director at China Bank Securities, told the Inquirer.

“Hopefully, this translates to better flows as VWAP trading forms part of the PSE’s initiatives to improve trading liquidity and investor participation,” he added. Mike Macainag, head of retail equities at Maybank Securities, also welcomed the move, saying this would aid “more sophisticated clients and should encourage more trading activity in the future.”

The PSE earlier studied VWAP trading facilities offered by stock exchanges in Malaysia and Thailand before coming up with its own rules. —Miguel R. Camus INQ