Longer trading hours

The Philippine Stock Exchange management is looking at the possibility of extending trading hours to boost volume of business and income.

PSE’s revenue fell to P624.38 million in 2009 as a result of the harrowing economic meltdown arising from the subprime crises in the US that broke out toward the end of 2008.

This translated to a 14.55-percent dip in overall revenue which, in turn, drove down bottom line to P6.81 from P9.55 per share, or a drop of 28.69 percent from the previous year’s earnings.

This was completely reversed in 2010. The bourse experienced increased business as the free-world equity markets regained economic strength.

Total revenue jumped to P938.02, or by as high as 50.23 percent. Together with efforts to stomp costs, the bourse was able to realize an increase in net earnings to twice as much at P13.66 per share.

Owing to this recent favorable development, the PSE declared a 100-percent stock dividend (ex-date, May 25; record date, May 30; and payable on June 8) following the declaration a month earlier of a regular cash dividend equivalent to P6.16 per share and a special cash dividend amounting to P5.84 per share (ex-date, March 21; record date, March 24; and payable on April 11).

Again, with the very favorable first-quarter results of the bourse’s operation this year, the present management now appears to believe that the imposition of longer trading hours may just do the trick to further bolster total revenues and earnings.

Musings

Though that tentative, this proposition has now stirred silent but passionate discussions—for or against it—from those involved and affected by it.

Assuming but without conceding, according to those opposed to the plan, just how much longer will the trading session be extended? To their recollection, old-timers observe that trading hours had been extended several times with no permanent positive results.

There was a time when trading was extended up to 2 or 3 p.m. There was this time, too, when trading lasted all day long.

Both measures gradually lost relevance. Volume of business just did not stay stable and consistent. Too much time also went to waiting for more orders that did not come, or came only at the very last hour, for big clients often preferred to trade that way.

The present setup is, therefore, just fine. It isn’t too long or too short to accommodate present business, according to some quarters.

But I can also see where the present management of the PSE is coming from. The bourse can’t just stand still or abdicate from its duty and responsibility in searching for ways that should produce a continual increase in its business and income.

“That’s precisely the point of the plan,” says one who is excited enough to try the idea again. “Things are changing, and we just might have more business if we extend trading hours now,” was his exact words in reference to the continuing increase in the revenue of the bourse per the first-quarter report.

“Is it?” begs one against the plan. “The lunch break (in the shorter extended schedule that lasted up to 2 or 3 p.m.) somehow created some distraction or disruption to the rhythm of trading. It created some inertia. Before people could restart to work, it was already time to close again.”

“Why not try to extend the trading hours for just 30 minutes,” comes one suggestion. “Slide this trading time in the afternoon,” adds another. “This will make our trading period to straddle between the trading time of the Asian markets and the opening of markets in continental Europe,” says another.

“We can even change the trading hours to start at 3 p.m., if we need to adapt,” says another trader.

Bottom-line spin>/strong>

Looking closer at the source of revenues and resulting net earnings of PSE, trading-related fees continue to outweigh listing fees. In the 17.18 percent increase in revenue in the first quarter, trading-related fees grew 26.87 percent while listing fees grew only by 14.44 percent.

This makes the plan of extending the trading hours a logical option: trading-related fees are growing faster and longer trading hours would further help to develop it.

But based on the more critical but simple observations of old-timers, the management of the PSE is looking at the wrong strategy to foster more permanent and positive ways of enhancing growth in revenues and earnings.

The PSE management should rather step up their promotional efforts. They should instead drum up more stock listings, for “how can you increase overall revenues (through listing and/or trading-related fees) when you have very little to sell?” In short, the bourse must have “more issues and more variety of stocks for sale,” says one simple analysis on the matter.

The PSE management should resort to look for more creative ways to increase public float. To this day, the more attractive issues have the least amount of public float.

In addition, the bourse must conscientiously maintain the integrity of its data. PSE’s website, quipped one researcher, is inconsistent and/or inaccurate. A case in point is the way the first-quarter net income of Rizal Commercial Bank was presented compared with Metropolitan Bank and Trust Co. They were totally different and confusing.

Thus, instead of belaboring the mechanical ways such as extending and/or changing the trading hours, management should first do its primary job. It must exert more effort to promote stock listings to have more number and variety of issues to select from for investments or trading purposes in order to foster a more permanent and positive solution to bolster revenue and income growth. But as one old-timer observes, this would require more marketing-capable personnel which, according to another old-timer, is another problem at hand.

(You may reach the Market Rider at [email protected] or directly at www.kapitaltek.com.)