Philippine Stock Exchange Bids for Futures Exchange Operation

While recognizing the need to separate the cash market from the futures contract market, the Exchange has geared up its bid to SEC for the creation of what it called "PSE-independent but affiliated futures exchange." The application to operate an independent futures exchange is a result of a decision made by majority of its members. This decision was made in spite of the unexpected formation of a splinter group within its 166 active membership who opted to bid independently and exclusively from that of the majority of Exchange member-brokers. "The paramount objective of the Exchange in bidding for the creation of an independent futures exchange is not commercial, but to ensure an efficient and competitive Philippine national market which may be described as partitioned according to types of trading, but at the same time, well-integrated for better transparency and cost-effective trading," said Jose Fernando Alcantara, VP for Business Development. Alcantara further noted that this policy is the underlying reason why the Exchange is bidding for the creation of a futures exchange. He said that "the creation of a fragmented and disparately layered markets must be avoided because this produces a spaghetti effects on the Philippine capital market, where multi-market transparency is contorted, price discovery becomes twisted, and market interdependence is distorted." Moreover, Alcantara explained that the uneconomical effects of fragmenting the markets may be "likened to requiring the operational separation of a grocery business that sells fresh milk from the one that sells processed milk." He further elaborated that "if you could imagine the annoyance and expense of moving from one grocery to another just to buy or supply two types of milk, then it is easier to internalize the impact of market fragmentation." Accordingly, however, the Exchange bid for the creation of a separate futures exchange does not exclude the possible formation of a joint venture with other interested parties like Philmerc and a group of banks. Alcantara disclosed that the Exchange is presently finalizing its alliances with two Asian and two North American futures exchanges. In a resolution, the Exchange Board of Governors has created a special action committee tasked to implement its bid for the creation of a legally separate entity to operate the futures exchange. The committee is chaired by veteran broker Ang Biao of B.A. Securities, Inc, together with former chairman Harry Liu, Dr. Francisco Gaisano of Evergreen Stockbrokers, Inc., Joseph Madrid of Merrill Lynch, Gregorio Kilayko of ABN Amro, and Francisco Villaroman of Securities Specialist Inc.