By Revin Mikhael D. Ochave, Reporter

THE PHILIPPINE STOCK Exchange, Inc. (PSE) proposed the inclusion of natural disasters as a reason to suspend or close trading in the local market, saying the practice is being done in other Southeast Asian stock markets.

“A review of the internal trading rules of five Asian stock exchanges showed that all permitted the temporary suspension of trading or closure of the market in the event of a natural disaster or extraordinary circumstance,” the market operator said in a memorandum circular posted on its website on Oct. 17.

Under the proposal, the PSE will have the discretion to suspend, halt, or cancel a scheduled trading day if there is an emergency such as earthquake, eruption, fire, flood, civil commotion, terrorist attack, and other “analogous circumstances” that needs evacuation or prevents PSE employees from reentering the exchange’s premises.

The PSE’s Memorandum CN – No. 2023-0055 contained the proposed guidelines covering natural disasters that would halt, suspend, or cancel a scheduled trading day.

The PSE cited Asian market operators such as Singapore Exchange Securities Trading Ltd. and Stock Exchange of Hong Kong where temporary trading suspension or market closure could be permitted due to natural disasters or extraordinary circumstances.   

The PSE also proposed that trading could be suspended, canceled, or stopped during an emergency that disrupts the trading activities of trading participants who collectively account for over 50% of the average daily trading value as of the end of the six-calendar month period preceding the date of determination, excluding block sales.

It added that trading could be affected during any other emergency or analogous situation including fortuitous events that could impact the operation of a “fair, orderly and efficient market.”

“The exchange shall immediately notify the Securities and Exchange Commission (SEC) of its decision to halt, suspend, or cancel a scheduled trading day,” the PSE said.

The PSE’s proposal also said that a scheduled trading day would be canceled if the Philippine Atmospheric, Geophysical, and Astronomical Services Administration issues public storm warning signal numbers 3, 4, and 5 in the National Capital Region. 

Regular market trading will resume if the weather bureau declares warning signal numbers 1 and 2 in the Philippine capital by 6:00 a.m. of the following trading day.

Meanwhile, the PSE also proposed rules for the arrangement of a correspondent trading participant (TP), which would be incorporated in the implementing guidelines of the revised trading rules. 

The PSE suggested that all TPs should be mandated to have a correspondent TP as a business continuity requirement.

“The PSE is of the view that if the order management system that a TP uses is unable to connect to the trading system, alternative means, such as placing trades through another TP on a correspondent broker arrangement, should be considered as an added contingency plan,” the market operator added.

Sought for comment, AP Securities, Inc. Senior Research Analyst Alfred Benjamin R. Garcia said the proposal is a welcome development. 

“Regarding suspension of trading due to natural disasters, it may add a few non-trading days mostly due to typhoons, but it’s actually a welcome development,” Mr. Garcia said via Viber message. 

“This would be a big improvement over the current system where the decision is mostly based on the PSE’s judgment call,” he added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the proposal is in line with other stock markets in the Southeast Asian region, which have similar weather patterns.

However, Mr. Ricafort said that trading activities are more resilient against natural calamities with the automation or digitization of trades that reduce the need for physical trading floors.

“This proposal is consistent with the eventual integration of stock markets in ASEAN and Asia and the harmonization of market rules and regulations,” Mr. Ricafort said. 

He said trading suspensions “are still expected even in developed countries whenever there is an inevitable temporary disruption of trades and other operations on safety grounds of the personnel in areas hit hard by natural calamities.”