Securities lending is a priority focus area for the Philippine Stock Exchange (PSE) exchange this year, according to the head of the country’s major bourse.
Hans B. Sicat, PSE’s president and chief executive, told Global Investor/ISF that the country has yet to experience the “full vibrancy” of securities borrowing and lending (SBL).
He hopes that will start to change in 2017, noting that PSE executives are currently in the process of drafting implementing guidelines for short selling along with a list of eligible securities.
“The PSE realises the need for increased access to SBL,” Sicat said. “Based on the experiences of exchanges in neighboring countries, the SBL facility improved liquidity when institutional investors started to join the program.
“Increasing the supply available for securities lending and getting our short selling program off the ground are priority initiatives of the exchange.”
The general regulatory framework for securities borrowing and lending (SBL) in the Philippines was put in place in 2006.
However, at present, SBL is bilateral or is transacted directly between the lender and the borrower.
There are currently no registered lending agents in the country who act as SBL intermediaries in other markets.
Under existing rules, trading participants who wish to conduct SBL transactions should enter into a master securities loan agreement (MSLA) among themselves and register this with the Philippine tax agency, the Bureau of Internal Revenue, for the SBL transaction to be tax exempt.
“SBL volumes in the local stock market have been growing but the number of transactions is really driven by demand for fails settlement management,” Sicat added.
“We have been in regular contact with international banks throughout the development process of our SBL and short selling regulations.
“We think that there is significant interest, which we hope to realize by providing regulations that will be acceptable to these participants.”
Meanwhile, pension funds and insurers have expressed their interest to participate in the PSE’s SBL program.
For instance, the Insurance Commission issued guidelines to allow insurance companies to participate as lenders in securities borrowing and lending transactions.
"We are beginning to see the landscape change in regards to more and more owners actively participating in lending," said Brian Leung, equities trading & client development, APAC, agency securities lending, Deutsche Bank.
"While it would be unfamiliar territory for many funds entering the market for the first time, they remain tremendously enthusiastic to partner with proficient lenders that can tailor their programme to suit their exact needs and guidelines while extracting meaningful return."
PSE's Sicat hopes that the exchange can more institutions to participate once the short selling program starts and the bourse launches a more focused market education program for this facility.
He added that the PSE recently assisted the insurance commission in establishing guidelines which allowed insurance companies to invest in ETFs.
PSE has grown significantly over the past 13 years.
Statistics from the World Federation of Exchanges (WFE) show total value of shares traded reached US$40bn in 2015 from only US$3.2bn in 2004.
The PSE and the Singapore Exchange (SGX) launched the SGXPSE MSCI Philippines Index Futures in 2013 providing new investment products and a pathway to establish a derivatives market.