PSE allowed to pursue full acquisition of PDS Group

The Securities and Exchange Commission (SEC) has allowed the Philippine Stock Exchange Inc. (PSE) to negotiate its planned acquisition of additional shares in Philippine Dealing System Holdings Corporation (PDS Group) despite ownership limits.

This developed as the Commission En Banc has resolved to allow PSE to apply for exemptive relief from the mandatory limit on ownership and voting rights in an exchange by an individual or an industry once negotiations for the buyout of the PDS Group have been favorably concluded.

It also directed PSE to submit and present a detailed, concrete and time-bound operational plan, which shall be subject to review and approval by the Commission, as well as status reports on the negotiations that the PSE will pursue in relation to the acquisition of the remaining shares in the PDS Group that it does not yet own.

Currently, the PSE owns 20.98 percent of the issued and outstanding capital stock of the PDS Group. The stock exchange intends to acquire up to 100 percent of the operator of the country’s sole fixed-income exchange.

Under Section 33.2(c) of Republic Act No. 8799, or The Securities Regulation Code, no person may beneficially own or control, directly or indirectly, more than five percent of the voting rights of the exchange and no industry or business group may beneficially own or control, directly or indirectly, more than 20 percent of the voting rights of the exchange.

The SEC, however, may adopt rules, regulations or issue an order, upon application, exempting an applicant from the ownership limit if such ownership or control will not negatively impact on the exchange’s ability to effectively operate in the public interest.

The PDS Group includes the Philippine Dealing & Exchange Corp. (PDEx). Incorporated in 2003, PDEx operates the organized secondary market for the trading of fixed-income securities issued by corporations, as well as the government.

PDEx also calculates the Philippine Dealing System Treasury Reference Rates, which form the basis for valuing and marking-to-market interest rate-sensitive instruments.

Based on the initial submissions made by PSE, the proposed acquisition will operate in the public interest, as the resulting integration of the country’s equity and fixed-income exchanges would allow for the delivery of more efficient and more types of products, services and better risk management systems for financial services.

The SEC directed PSE to submit and present a detailed, concrete and time-bound operational plan, which shall be subject to a separate review and approval by the Commission to ensure that the proposed integration of PSE and the PDS Group will lead to greater access to both fixed-income and equity products for retail investors, reduced cost of trading securities, and similar efficiencies and benefits for issuers and other market participants.