New rules and initiatives introduced to ensure that the Philippine Stock Exchange meets changing investor needs

Within the global financial market, the Philippine Stock Exchange (PSE) has recognised the importance of evolving and adapting to the changing needs of investors. At the same time, it is also important that the PSE understands when operational and structural improvements are needed. To this end, the exchange has introduced a series of regulatory reforms to ensure it continues to deliver high-quality services that meet international standards.

Technology & Innovation 

Technological advancements in the 21st century have transformed the way people interact, making communication across borders possible in ways that were previously unimaginable. This disruption is particularly apparent in global trade and finance, and the capital markets are no exception. The PSE has recognised the opportunity to capitalise on technological developments to fast-track the rollout of new products and services.

With the growing popularity of online trading, the PSE sought to create adequate regulatory measures to encourage brokers to provide online trading services while ensuring that safeguards are in place to protect investors. In October 2013 the exchange introduced a list of official rules on direct market access, an arrangement that allows a trading participant’s client to send orders to buy or sell securities directly to the PSE’s trading system. The same rules also led to the creation of PSET radex, an internet-based trading management system for participants wishing to offer cost-effective online trading services to their clients. As a result of these efforts, the number of stock market accounts increased to 1.1m in 2018, exceeding the 1m threshold for the first time.

As access to trading facilities continues to improve with the development of new technologies, investors are also looking for new ways to increase their market knowledge. The PSE, the primary source for stock market information, hopes to capitalise on this through its new market data strategy. In order to make information accessible to as many investors as possible, the exchange has embarked on a number of digital initiatives in recent years.

Digital Solutions 

The use of mobile apps has been an integral part of this strategy. In 2014 the PSE launched its first app, a mobile version of its disclosure website called PSE Electronic Disclosure Generation Technology (PSE EDGE). The PSE EDGE app, which features a user-friendly interface and the ability to receive push notifications if a listed company posts a new disclosure, is available for free. In the same year the PSE also introduced a mobile app companion to PSET radex. The PSET radex app can also be downloaded for free and allows users to access basic market data. Its full features, including real-time information and order management capabilities, can be used by clients of brokers subscribed to the PSET radex platform.

In addition, local small investors (LSIs) are able to partake in initial public offerings (IPOs) more easily via a new web-based subscription portal, known as the PSE Electronic Allocation System. The portal will allow retail investors from even the most remote regions to subscribe to an IPO.

A self-service data analytics platform is also under development. The platform, which is set to be operational in the first quarter of 2020, will provide investors with a convenient way to view market information. This PSE-sponsored project will contain stock prices, charts for technical analysis, fundamental data, financial ratios and other reports to make it easier for investors to analyse specific stocks or sectors.

In May 2019 the PSE invested in a new IT subsidiary, Premier Software Enterprise, also known simply as Premier, in order to meet growing demand for technology services and offer solutions to its stakeholders. Premier is responsible for the development of innovative trading solutions, the automation of critical exchange processes, and the exploration of new technologies such as blockchain and cloud services. As an institution that relies heavily on technology and maintaining reliable operational systems, the PSE can tap Premier’s expertise in expanding the exchange’s IT capabilities. This is expected to result in a more efficient delivery of services to the PSE’s stakeholders and position the company to take advantage of business opportunities in the years ahead.

Collaboration  

The PSE is committed to fostering partnerships with its regional peers in order to share knowledge, support its product development initiatives and improve its technological capacities. The exchange most recently strengthened its connections with the Singapore Exchange (SGX) and China’s Shenzhen Stock Exchange (SZSE). All products and services that will be produced in partnership with these bourses will be endorsed to the Securities and Exchange Commission (SEC) for regulatory approval.

The collaboration between the PSE and SGX began in 2013 with the launch of the SGX-PSE MSCI Philippines Index Futures product, which was listed on the SGX in November of that year. The cooperation entered its second phase in November 2018, following the signing of a memorandum of understanding (MoU). With SGX’s expertise, the PSE is developing regulations for domestic-listed derivatives, which will be made available to onshore investors. SGX provides additional support to the PSE through consultations and sessions with product experts.

Meanwhile, an MoU was signed between the PSE and SZSE in April 2009 to promote information sharing, capacity building, product development and cross-border listing and trading. Since then the partnership has continued, with the PSE and SZSE holding several exchange visits between 2017 and 2019 to discuss potential areas for collaboration. In May 2019 the SZSE conducted an initial market study on select PSE systems to assess the possibility of transitioning to SZSE-developed technology. The two exchanges are also discussing the development of an index cooperation project. This will include the cross-promotion of indices on respective websites, which is scheduled to be completed in the fourth quarter of 2019, and a co-branded SZSE-PSE index.

Rules & Regulations 

The PSE has invested considerable effort in updating its rules and regulations as equity markets continue to develop. The most notable reforms relate to real estate investment trusts (REITs) and the LSI programme to promote financial inclusion. The PSE also amended its listing rules in response to changes in market practices.

Though the REIT Act was first passed in 2009, it has not yet been implemented due to restrictions on minimum public ownership, tax provision and escrow requirements. In 2018 discussions regarding REITs resumed as a result of the passing of the Tax Reform for Acceleration and Inclusion (TRAIN) law, which addressed one of the major regulatory issues on the applicability of the value-added tax (VAT) on the transfer of the income-producing asset at the time of the incorporation. Under the TRAIN legislation, the initial transfer of assets of a corporation to REITs will no longer be subject to VAT.

The PSE is also working closely with the SEC to address concerns from the Department of Finance about the retention of REIT proceeds within the country. In this regard, the PSE published the proposed amendments to listing rules for comments from REIT stakeholders in June 2019. These amendments reflect the domestic reinvestment requirement for REITs, and include the monitoring and enforcement of adherence to this requirement, as well as the penalties to be imposed in the case of violation of said requirement. Comments will then be submitted to the SEC.

Expanding its investor base is one of the PSE’s main objectives, as less than 1% of Filipinos invested in the stock market in 2019. In addition to its educational initiatives, the exchange carries out activities to make the stock market more accessible to local investors.

In September 2018 the PSE revised its rules for LSIs, specifically the regulations for subscription to IPOs. The changes to the LSI rules concern:

• Increasing the maximum LSI subscription from P25,000 ($465) to P100,000 ($1860);

• Requiring the issuer to provide a distribution mechanism to facilitate greater LSI participation; and

• Removing the 10% discount for LSIs and requiring the issuer to prioritise LSIs with subscriptions lower than P100,000 ($1860) in the allocation.

Listing & Disclosure 

In 2019 the PSE added a new provision requiring listed companies to disclose a price range for follow-on and stock rights offerings of common shares and exchange-traded funds. This includes a floor price and a cap, offering a guide to the investing public, particularly smaller investors.

The PSE also plans to revise its listing and disclosure regulations to rationalise requirements and provide a more streamlined process for applicants. The revised rules will update provisions to ensure greater compliance of applicant companies to IPO requirements, while also protecting the interests of the investor.