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By Keith Richard D. Mariano

Stage set for trading of dollar-priced securities

Posted on December 03, 2016

THE STAGE is set for the listing and trading of dollar-denominated securities (DDS), with The Philippine Stock Exchange, Inc. (PSE) having published on its Web site the relevant rules in their final form.

In a memorandum issued on Friday, the exchange released the Rules on Dollar Denominated Securities, as approved by the Securities and Exchange Commission (SEC) in a Nov. 10 en banc meeting.

“It can provide issuers with dollar-denominated requirements an opportunity to raise capital at the Exchange without incurring foreign exchange risks,” read the rationale of the rules governing the listing, trading and settlement of such securities on the local bourse.

“In the same manner, the product can also reduce the currency risk exposure of foreign investors who trade PSE-listed securities. Moreover, DDS offers local investors an alternative investment option for their USD currency holdings.”

The PSE had released in March the draft of the rules, which provide for disclosure guidelines and relevant fees as well, in order to solicit comments from the public.

The bourse has existing rules for dollar-denominated trading. The framework approved in July 2003, however, provided only a platform for securities simultaneously listed offshore to be quoted and traded in dollars.

Under the new framework, the DDS can be issued by listed companies in good standing with the PSE. Prospective issuers, for instance, must have no outstanding penalty or liability to the bourse.

Moreover, the prospective issuer must not be the subject of any order of suspension from trading, involuntary delisting proceedings or pending cases, investigation or similar proceeding by the PSE for violation of applicable laws, rules, regulations or orders.

“The foregoing criteria [are] illustrative only, and shall not restrict nor prevent the Exchange from taking into consideration any other material factors, events, circumstances and other related matters that negatively impact the Issuer,” the rules read.

The general procedures for listing equities apply to DDS listing applications. The prospective issuer, however, will have to seek approval of the Bangko Sentral ng Pilipinas (BSP), aside from the SEC, in order to sell such securities.

Upon issuing the DDS, the issuer must observe standing listing and disclosure rules along with the other requirements of the exchange.

In addition, the issuer must disclose any action taken by the BSP and/or SEC regarding the validity of the issuance, offering and listing on the exchange of the DDS as well as maintain all relevant regulatory licenses.

Moreover, the issuer must ensure the availability of at least two eligible brokers to trade the DDS. To become eligible, a trading participant of the PSE must attend a training session or seminar and issue a sworn certification on its operational readiness, among others.

The brokers must maintain a US deposit account or foreign currency deposit unit and a separate US dollar settlement account for clearing of trades, as well as open a separate US dollar cash collateral deposit account for DDS.

Also, brokers must submit an undertaking to obtain the consent of clients to the disclosure of their names to the SEC upon request in the course of an investigation, examination, official inquiry or as part of the surveillance procedures or compliance with other pertinent laws.

The PSE further requires an issuer to include and maintain in its investor relations program the relevant detailed information affecting it and the securities. The program must be accessible through the issuer’s Web site or other public platforms.

In trading DDS, the board lot and price fluctuation for any trading day will be based on the reference price. For instance, DDS priced below $1 will have a tick size of one cent and lot size of 100, while those priced at least $1,000 will have a tick size of $1 and lot size of five.

DDS block sales should have a minimum transaction value of $500,000 for regular sales and $1 million for the special ones.

The Securities Clearing Corp. of the Philippines (SCCP) -- the clearing and settlement arm of the PSE -- has designated BDO Unibank, Inc. as settlement bank for the launch of the DDS. The SCCP may appoint more than one settlement bank.

Procedures for securities deliveries are the same as those for peso-denominated securities, except that settlement should be made in US dollars. Hence, brokers intending to participate in DDS trading are required to have a US dollar deposit account with any universal or commercial bank, and a separate US dollar cash settlement account with the designated settlement bank.

Del Monte Pacific Ltd. had disclosed plans to offer DDS on the PSE even before the SEC approved the rules governing the issuance and trading of such securities. The company, which concurrently trades on the Singapore Exchange Main Board, intends to raise as much as $360 million by issuing such securities. It plans to issue $250 million worth of preferred shares initially.