Consolidation of exchanges crucial, says Sicat

The proposed merger between the Philippine Stock Exchange and Philippine Dealing System (PDS) Group—in the works for more than two years now —is seen becoming more imperative in the midst of a challenging global marketplace that drives even larger exchanges to consolidate.

This is PSE president Hans Sicat’s pitch to the Securities and Exchange Commission as he remained hopeful that the unification of the local capital market infrastructure would be executed with imprimatur from corporate regulators.

“There’s a challenge for all market operators in terms of global volumes. There’s even much stronger reason for regulators today to approve such a deal. There’s a stronger rationale as well when you talk about the critical mass of products and services,” Sicat told reporters in a recent press briefing.

The PSE chief cited news about the advanced discussions between the London Stock Exchange Group PLC and Deutsche Börse AG to merge, a deal which is seen to create the biggest exchange in Europe.

“In a much larger context, I think the need for more critical mass in a small economy like the Philippines becomes more paramount given the challenges we’ve seen in global liquidity today,” Sicat said. “I think it would be advantageous if the regulators would give us the clearance.”

The PSE earlier signed a deal to raise its stake in PDS—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.—to more than 67 percent.

The closure of this buyout deal with the Bankers Association of the Philippines (BAP) was tied to the approval by the SEC of the exemptive relief from the 20 percent limit on the PSE’s ownership of the unified exchange.

The SEC said it was carefully studying the proposed acquisition and would take final action within 60 days from its Jan. 26 receipt of PSE’s itemized reply to a string of concerns raised by the regulator.  Issues on monopoly, hefty depository fees and governance structures were previously asked to be clarified.

From an overall policy perspective, Sicat said if the government believed in the rationale for the integration of Southeast Asian economies, part of the objective should be to ensure that institutions in this market would have the “correct leverage and critical mass.”  In such case, he said the PSE-PDS unification would be the “best structure” moving forward.

“What’s interesting is, since we’re discussing Asean (Association of Southeast Asian Nations), we’re the only exchange that’s segregated by asset class,” he said.

Asked whether he thought that all concerns raised by the SEC on this merger had been clarified, Sicat said that from the PSE’s point of view, these had been thoroughly explained in the latest documents submitted to the corporate regulator.

“I think that by the end of the day, the big policy decision needs to be made,” Sicat said.

“I think like any business out there, we give our best estimates,” he said.

Sicat said the Bankers Association of the Philippines (BAP)—one of the key shareholders of the PDS—was still committed to an integrated solution and would likely support this even with a forthcoming leadership change.  The BAP is set to elect a new board in the middle of this month.