Proposed tweaks to PSE listing rules to benefit small investors

By Arra B. Francia, Reporter
TRADING participants welcomed the Philippine Stock Exchange’s (PSE) move to tweak listing rules that would prompt companies seeking to conduct a follow-on offering (FOO) to provide a price range for the benefit of the investing public.
In a memorandum circular posted on its website last week, the PSE said it plans to require firms to indicate a price range when conducting an FOO of common shares and exchange traded funds, as opposed to the current standard of providing only a maximum offer price.
“Small investors, in general, fail to recognize that the price disclosed in the offering documents (i.e., red herring prospectus) is the ceiling and that the final offer price may be lower than the disclosed price. The investors may expect to realize capital gains considering the difference between the market price and the disclosed maximum offer price,” the PSE said.
The PSE aims to address this with the proposed disclosure of a price range consisting of a minimum price and maximum price to better guide small investors on the possible changes in the final offer price.
The price range requirement will only be applied for FOOs, since investors will not have a baseline price during initial public offerings. Preferred shares will not be included as well since investors look at the coupon rate instead of the offer price when deciding to participate in such offerings.
“The objective of the Exchange is to protect small investors by informing them that pending final determination of the offer price, they should be guided by the disclosed price range in any transaction prior to the price-setting date,” the PSE said in its memorandum circular.
The local bourse took cues from existing rules in Bursa Malaysia, the Indonesia Stock Exchange and Shanghai/ Shenzhen Stock Exchange in coming up with the proposal.
Analysts were mostly in favor of setting a price range, saying that this will help guide small investors on whether they will participate in an offering.
“That’s a good proposal. At least there will be a ballpark figure. What’s important is that the price range cannot be too wide,” Eagle Equities, Inc. President Joseph Y. Roxas said in a text message.
COL Financial Group, Inc. Research Head April Lynn C. Lee-Tan noted the same, explaining that this will help investors better analyze the impact on earnings per share, which in turn will help them “assess whether or not to participate in the offer.”
Meanwhile, Philstocks Financial, Inc. Research Head Justino B. Calaycay, Jr. said this will also help in providing guidance as to how low an FOO may be priced. He however added that knowledge of the price is just one aspect that investors should look at.
“Knowledge of the price is but one consideration investors should, must look into when deciding on an investment in general and whether to subscribe to an FOO in particular,” Mr. Calaycay said in a mobile message, saying that investors should also practice due diligence and look at “towards what undertaking will the company earmark the proceeds of the offer to, the fundamental health and prospects of the company.”
The PSE is taking down public comments for the proposed rules until Friday, Oct. 5.