Derivatives, GPDR seen boosting bourse

The Capital Markets are expected to benefit from twin measures to expand investment options and further deepen the country’s capital market.

Under consideration by the regulator Securities and Exchange Commission and bourse operator Philippine Stock Exchange Inc. is the creation of a futures market and the launch of a Global Philippine Depositary Receipts (GPDR).

The PSE is now soliciting comments on the proposed rules for GPBR.

“The Derivative Market Oversight and Regulatory Scheme complements our ongoing efforts to develop regulatory frameworks for commodity futures and an electricity derivatives market, in pursuit of our mandate to deepen capital markets,” SEC Commissioner McJill Bryant Fernandez said.

To pave the way for a derivatives market, the SEC recently hosted a “Derivative Market Oversight and Regulatory Scheme Training.”

The training was conducted in partnership with the United States Commodity Futures Trading Commission (CFTC) and the Asian Development Bank (ADB).

The CFTC, represented by Deputy Director Kevin Piccoli, is a US federal agency that regulates derivatives markets and offers international technical assistance to countries developing commodities markets.

“Developments in the derivatives market as a whole have contributed to more complete financial markets, improved market liquidity, and increased the capacity of the financial system to price and bear risk effectively, ultimately ushering in stronger economic growth over time,” Fernandez said.

Participants in the week-long training included representatives from government agencies and the private sector, such as the Philippine Stock Exchange, Bangko Sentral ng Pilipinas, the Department of Agriculture, the Department of Energy and the Independent Electricity Market Operator of the Philippines.

Other participants included representatives from the Philippine Dealing & Exchange Corp., the University of the Philippines Law Center’s Institute of Government and Law Reform, and the Power Sector Assets and Liabilities Management Corporation.

Meanwhile, GPDRs are peso-denominated instruments representing scrips listed on an overseas stock exchange.

The holder does not possess voting rights but has the option to convert the GPDR to the equivalent shares or units of the security, subject to the requirements and procedures that will be determined by the GPDR issuer.

Cross-border trade coming

“GPDRs will pave the way for cross-border trading in the PSE. Aside from expanding PSE’s product offering, GPDRs will enable investors to diversify their portfolio and hold foreign securities without having to directly trade in overseas markets,” PSE president and CEO Ramon S. Monzon said.

To qualify for listing, the draft rules provide that the GPDR’s underlying securities must be listed, traded and in good standing in a World Federation of Exchanges-member exchange.

Based on the proposed rules, GPDRs may be issued by trading participants of the PSE, banks and non-bank financial institutions authorized by the Bangko Sentral ng Pilipinas to issue the instrument, and investment companies under the Investment Company Act.

The Derivative Market Oversight and Regulatory Scheme complements our ongoing efforts to develop regulatory frameworks for commodity futures and an electricity derivatives market, in pursuit of our mandate to deepen capital markets.

Any of the said firms may be issuers by itself or through a corporate vehicle on condition that they have a three-year operating history in their respective lines of business, and have a minimum paid-up capital of at least P100 million at the time of their application as a GPDR Issuer.

Aside from the qualifications of a GPDR issuer, the rules cover general listing requirements and processing of listing applications, public offering of GPDRs, schedule of fees and entitlements, disclosure rules, trading, and clearing and settlement of GPDRs, among others.

“The rules we came up with were derived from consultations with stakeholders and best practices of our peers in the region. Through this comment period, we hope to get more insights from a broader group of market participants,” Monzon added.