Philippine Top Court Asked to Stop Bond-Exchange ‘Monopoly’Norman P. Aquino and Cecilia Yap
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, a charge that threatens the planned merger of the stock and debt bourses.
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. 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 in the legal filing, 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.
“PDS Group is only interested in pursuing legitimate activities pursuant to the policies of the government,” PDEx’s parent Philippine Dealing System Holdings Corp., which is also a respondent in the case, said in an e-mailed statement today. “Its business rests on well-founded legal and statutory bases and it submits itself to the sound discretion of the Supreme Court.”
Local markets will “conduct business as usual” while the court’s decision is pending, the company said.
The Philippine Stock Exchange is seeking legal advice on its planned merger with the bond bourse, Chairman Jose Pardo said in a phone interview today.
“We’re at the crossroads of trying to unravel what appears to be a complicated transaction now that a lawsuit has been thrown, at least, in PDEx’s way,” he said.
Bankers Association of the Philippines, which was also named a respondent, will meet “to discuss the case and action plan,” President Lorenzo Tan said in a mobile-phone message today. The lenders’ group, the Philippine Stock Exchange and the Singapore Exchange Ltd. hold 65 percent the the Philippine Dealing System, which owns the bond exchange.
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 from the time they receive the order, 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 yesterday.
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.”
Bloomberg LP, the parent of Bloomberg News, provided a platform for interbank trading of peso-denominated Philippine government bonds before PDEx took over.