The Philippine Stock Exchange (PSE) aims to introduce short-selling as a hedging mechanism in the stock market by the first quarter of next year.
Short-selling allows investors to sell stocks they do not own yet by borrowing the underlying securities, a practice already allowed under the Securities Regulation Code (SRC).
While a lot of people associate short-selling with speculation, PSE president Ramon Monzon said in a recent forum with the Shareholders Association of the Philippines (SharePHIL) that this was an essential hedging mechanism that could attract foreign investors.
But to be able to launch short-selling, Monzon said the PSE would have to work on securities borrowing and lending.
“The most logical vehicle is PDTC (Philippine Depository and Trust Corp.) because all securities are there,” Monzon said.
PDTC, which has a license to engage in the borrowing and selling of securities, is a subsidiary of the Philippine Dealing System Group (PDS), which the PSE is working to acquire in order to consolidate the country’s capital market infrastructure.
Although the old framework for short-selling had been approved by the SEC as early as 2009, the PSE did not make any big push for this previously because of the Wall Street-epicentered global financial crisis that erupted at that time.
The acquisition of PDS, Monzon said, would allow the PSE to expand its financial products, create a bigger exchange in the face of global financial market integration and enhance risk management.
Once able to take over PDS, the PSE plans to expand the products of the fixed-income trading market as well as increase the products of PDTC and the volume of lodged shares.
The PSE also plans to offer surveillance services for other markets like securities reverse repurchase agreements and interest rate swaps.
Among other initiatives, the PSE also intends to develop more exchange-traded funds, launch new indices and other derivative products.
The PSE has likewise been planning to launch structured warrants. These are financial instruments issued by third-party financial institutions that offer investors an alternative way to ride on the price performance of an underlying asset at a fraction of the underlying asset price in both bullish and bearish markets. It can be used as another hedging tool or to extract cash from equity investment.
The local bourse is also active in discussions to create real estate investment trusts
(REITs) as part of efforts to deepen the local capital market. While an enabling law has been passed for REITs long ago, taxation and public ownership issues have constrained appetite on this instrument.
