Philippine Supreme Court Asked to Stop Bond-Exchange ‘Monopoly’
A group of former Philippine policy makers has asked the Supreme Court to stop what they see as the monopoly of the nation’s sole bond exchange.
In a 117-page petition, two ex-lawmakers, a former budget secretary and two ex-national treasurers asked the court to void regulatory orders that gave the Philippine Dealing & Exchange Corp., or PDEx, the power to operate the nation’s only debt bourse, according to a legal filing. The Securities and Exchange Commission, Bangko Sentral ng Pilipinas, Finance Secretary Cesar Purisima and National Treasurer Rosalia de Leon were also named as respondents in the petition.
“The hallmark of a free market is freedom of choice,” the petitioners said, alleging PDEx’s status as a self-regulated organization has led to high transaction costs. “PDEx’s requirements unduly impede this freedom and impose barriers to the establishment of a free market.”
The suit, filed on Aug. 22, threatens a planned merger of the country’s stock and bond exchanges that seeks to deepen financial markets. Any court decision that leads to a disruption in Philippine financial markets may fuel fund outflows, according to PCCI Securities Brokers Corp., at a time when the prospect of the U.S. cutting stimulus has already hurt demand for emerging-market assets.
Philippine Dealing & Exchange President Cesar Crisol declined to comment when contacted by Bloomberg, while Bankers Association of the Philippines President Lorenzo Tan didn’t reply to calls and a text message to his mobile phone. Bangko Sentral Governor Amando Tetangco, SEC Chairman Teresita Herbosa and Treasurer de Leon haven’t replied to mobile-phone messages seeking comment.
The average daily bond trading volume in the Philippines has more than doubled to 28.5 billion pesos ($642 million) this year from 10.6 billion pesos in 2009, data compiled by Bloomberg show. Trading peaked at 122 billion pesos on Oct. 15, 2010, according to data going back to August 2008.
“A temporary restraining order that leads to a trading halt could trigger a capital flight because a number of overseas investors hold Philippine debt,” James Lago, an analyst at PCCI Securities Brokers, said by phone. “The most rational move for the court is to compel both parties to present their arguments and settle this issue soonest.”
The high tribunal gave the respondents 10 days to comment on the filing, court spokesman Theodore Te said.
“We are working with regulators who are likewise respondents to the petition to avoid market disruptions and implement mechanisms that will preserve transparency, price discovery and market stability,” Purisima said in a mobile-phone message.
In their filing, former Senator Aquilino Pimentel Jr., ex-Congressman Luis Villafuerte, ex-Budget Secretary Benjamin Diokno and former National Treasurers Caridad Valdehuesa and Norma Lasala accused the SEC of giving PDEx “special favors, undue advantage and unwarranted benefits.”
They also cited conflict of interest when PDEx, incorporated in 2003 as a fixed-income exchange, was allowed to act as a self-regulated organization that also operates the over-the-counter market for government securities.
The twin roles “create distortion in the free market, allowing the shifting or alternate trading in an exchange and in the OTC market under the auspices of a single entity,” according to the suit.
The PDEx’s “imposition of unreasonable fees” is “reprehensible for being confiscatory and coercive,” according to the filing. “None of these exorbitant fees go to the government but instead remain with PDEx.”
“A restraining order shouldn’t hamper trading because transactions are done over the counter,” Paul Joseph Garcia, head of institutional business at BPI Asset Management Inc., said by telephone. “It’s only after transactions are done when the prices are inputed into the bond exchange. A TRO shouldn’t have an impact on trading.”
To contact the editor responsible for this story: James Regan at firstname.lastname@example.org