Ramon S Monzon, President and CEO, Philippine Stock Exchange (PSE): Viewpoint

Viewpoint: Ramon S Monzon

Two things have become clear to the PSE: global financial markets are moving quickly in terms of developing products and services, and the Philippine market possesses great potential that has yet to be fully realised.

Technology has not just accelerated many businesses, but also disrupted industries, similar to what companies like Grab and Uber have done for transportation. Just as big banking institutions are investing huge sums of money in research on blockchain technology, many stock exchanges are studying how this type of distributed ledger system can improve and enhance their trading, clearing and settlement processes. Financial technology, meanwhile, has demonstrated its disruptive effect on the finance industry, leaving the leading companies no choice but to embrace it. Overall, however, I see the impact of technology as positive, especially for the capital markets, because it has facilitated greater innovation while challenging long-standing norms on the flow and management of funds. These days, one can make financial transactions through a mobile phone without withdrawing any money from the bank. What used to be impressive paperless processes have evolved into even more remarkable cashless transactions.

At the PSE, we have felt technology’s impact the most through the sizeable growth in online trading. Online accounts now comprise 44.8% of stock market investors, up from only 4.3% in 2008. As a country with an archipelagic structure and a significant workforce based overseas, enabling Filipinos from different islands and parts of the world to invest in the stock market is a game changer. The PSE views online trading as one of our strongest drivers in growing the retail investor base.

However, there remains strong resistance to technological changes due to various risks that arise from being increasingly digital and online based. For a company like the PSE that relies heavily on operational availability and stability, there is a need to ensure that adequate infrastructure, plans and processes are in place to withstand events that may cause unnecessary disruption to trading activities. There also has to be sufficient tools to address cybersecurity risks that can lead to massive financial and reputational losses. While technology has allowed us to move forward faster, it has also compelled us to be constantly vigilant for business continuity or cyberthreats that may go unnoticed, out of companies’ desire to keep pace with the competition.

The next thought came as we celebrated the PSE’s 25th anniversary of the unification of the Manila and Makati stock exchanges. Despite being the second-oldest stock exchange in ASEAN, the PSE has failed to keep up with the moves made by other exchanges, and has fallen behind its peers to become the smallest exchange in the region. With the mobility of foreign investments significantly easing over the years, we have seen how the competitive landscape among exchange operators has become more demanding and highly focused on offering the most products and services at the lowest cost. However, every cloud has its silver lining, and the PSE’s situation is not an exception. Being behind its peers, the PSE does not have to reinvent the wheel in the new products it will soon be launching, which include securities lending, short selling, derivatives, real estate investment trusts and others. We have the benefit of selecting best practices to suit our market, while avoiding pitfalls that others have encountered.

The path to catching up seems daunting, but I remain convinced that the PSE is well positioned to do so. The exchange is operating in one of the world’s fastest-growing and most robust economies, with GDP having posted 76 consecutive quarters of growth. In recent quarters Philippine GDP has expanded as quickly, if not faster, than that of China. Long-term sustainable growth is finally becoming more of a reality thanks to on-going reforms instituted by past and present administrations. While recent volatility has caused investors to stay on the sidelines, I am confident that our market will continue to be a resilient and attractive destination for investors. There’s nowhere to go but up for the PSE.