FX system, bond mart overhaul part of financial market reform, says DOF chief

The central bank’s plan to overhaul the foreign exchange system and fiscal authorities’ push to accelerate the development of the fixed income bourse are linked to an overarching strategy on market reform, according to the head of the Duterte administration’s economic team.

In particular, Finance Secretary Carlos Dominguez III said the two parallel moves on the monetary and fiscal tracks were meant to improve liquidity, price discovery and stability, and the infrastructure of the country’s currency, bond and stock markets.

“Our reforms are geared toward enhancing the overall efficiency of the Philippine capital markets by focusing on their core elements,” he said in an e-mail to the Inquirer. “Deepening and developing the local capital market is a priority for both the Department of Finance and the Bangko Sentral ng Pilipinas.”

One such issue which he wants to overcome is the relatively small size of the country’s financial markets compared to regional peers.

“We have one of the oldest stock exchanges in Asia, established in 1927, but remain weak when it comes to market capitalization,” Dominguez said. “In 2016, the Philippines only had a market capitalization of $239 billion, when Japan was at $4.995 trillion and Indonesia at $425 billion.”|

“We want a deep and inclusive capital market,” he said.

Last month, BSP Govenor Nestor Espenilla Jr. said regulators were seeking to overhaul the foreign exchange market to make the system more transparent, as well as to have more accountability among various stakeholders. As opposed to the current “bilateral” system where foreign exchange trading is supervised by the Bankers Association of the Philippines (BAP), the central bank wants a “multilateral” scheme where market participants abide by a set of preagreed rules under the watchful eye of regulators.

Dominguez, on the other hand, has encouraged state-owned Land Bank of the Philippines to buy Philippine Dealing System Holdings Corp. and take control of the bond bourse from the Philippine Stock Exchange and the BAP, saying the private sector owners had been “dragging their feet” on the badly needed reforms.

“We are actively engaging stakeholders in the process of formulating and implementing these reforms,” the Finance chief said. “With the steadfast commitment of both the regulators and the market in these reforms, despite some headwinds, we believe that we can help the Philippine capital markets reach new milestones in the future.”