SEC commits to study PSE, PDS merger anew

THE SECURITIES and Exchange Commission (SEC) aims to resolve within two months the proposed merger of the country’s stock and bond markets, deemed as a vital step to strengthening the local capital market infrastructure in a competitive global environment.

After receiving on Jan. 26 the reply of the Philippine Stock Exchange (PSE) on the proposed acquisition of a controlling stake in Philippine Dealing Systems Holdings Corp. (PDS) Group, the SEC said it was now carefully studying the proposed acquisition considering that the movements in capital at the fixed income market were very significant.

PDS is the holding firm for fixed income trading platform Philippine Dealing and Exchange Corp. (PDEx), Philippine Depositary and Trust Corp. (PDTC) and Philippine Securities Settlement Corp. The PSE earlier signed a deal to raise its stake in PDS to more than 67 percent, subject to closing conditions. In 2015, value turnover at fixed income platform PDEx amounted to P3.42 trillion while turnover at the PSE totaled P4.3 trillion.

“The commission will endeavor to make a final action on PSE’s application within 60 days from receipt of PSE’s submission,” the SEC said in an update issued Friday.

The SEC said it had asked PSE for detailed information on the market infrastructure and risk mitigation measures on the structure of the consolidated entity, including committed timelines for implementation.

Key issues that SEC wanted the PSE to clarify included, among others, PSE’s plans whether to retain or converge the existing trading platforms and the system for clearing and settlement that it would implement.

The regulatory body also asked the PSE to clarify safeguards and solutions that would ensure the reliability and resilience of both exchanges. These include trade information collection, storage and dissemination.

It also sought the PSE’s commitments on the fee structure of the consolidated entity.

The SEC also asked how the trading platform would be able to meet the Association of Southeast Asian Nations’ economic integration targets.

The SEC has to decide whether or not PSE was exempted from the 20-percent limit on ownership in the unified exchange. But the SEC initially delayed its decision, saying it wanted to ensure that issues on monopoly, hefty depository fees and governance structures would be cleared up.

In a 17-page strongly worded letter dated Nov. 27, 2015, when the deadline to close the deal to buy out other PDS shareholders lapsed, SEC market and securities regulation department director Vicente Graciano Felizmenio Jr. said the SEC could not make a determination on whether the ownership or control of PDS would be detrimental to public interest, citing the absence of sufficient information on the PSE’s plans.

There was concern that the acquisition of shares in PDS may lead to “monopoly and restraint in trade” because of the creation of a single entity. Felizmenio said it was only prudent for the SEC to exercise “utmost care, detail and attention” to this proposal pursuant to provisions of the Philippine Competition Act.

Congress passed in mid-2015 the Philippine Competition Act, which prohibited mergers and acquisitions that weed out competition, the fixing of prices during auctions or biddings and agreements that limit or control production, markets and investments.

The SEC also questioned the high depository fees charged by the PDTC, which the regulator noted violated previous commitments to charge lower depository fees.