Banks not obliged to trade at PDS – BSP

Thrift banks and other banks that do not want to trade at the Philippine Dealing System (PDS) could organize a separate exchange, central bank officials said over the weekend.

Amid complaints about high fees and charges charged by the Philippine Dealing and Exchange Corp. (PDEX), Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor Espenilla Jr. said that existing rules allowed the entry of more than one exchange operator in the market.

Banks have been pressing the BSP to intervene on their behalf, complaining that using the PDEX-run exchange made it more expensive for them to trade their government securities.

The problem arose when the Securities and Exchange Commission (SEC) started requiring that all secondary market transactions involving government securities should be conducted in an organized exchange, specifically the PDEX-operated exchange since it is the only one that exists for the purpose.

According to Espenilla, however, there was a clear line of demarcation between the jurisdictions of the BSP and the SEC. “We only regulate banks and the capital market is really the purview of the SEC,” he said.

“We can not intervene in what is largely a market concern,” he said. “We do not regulate the capital market, only the banks that engage in such transactions.”

Espenilla said that if there were banks that did not like PDEX, there was nothing in the rules preventing them from organizing and operating their own exchange.

“There are standards and criteria for that, there are clear rules and all they really have to do is to comply,” Espenilla said. “That is largely a business decision.”

Espenilla said it would even be good for the capital market in general to have competition in order to remove distortions that the players did not want to put up with.

The SEC, however, would have to be satisfied that should a second exchange be created by bond holders that did not like the PDEX, it would satisfy the same requirements PDEX had to satisfy.

The House committee on banks and financial intermediaries has also been persuaded to investigate complaints that PDEX had been instrumental in the sharp decline in government securities trading.

According to the Chamber of Thrift Banks, PDEX’ operations have reduced the secondary market from a peak of about P30 billion in daily trades down to P6 billion daily.

PDEX is the country’s only organized exchange for trading government securities and CTB said the cost of trading at the PDEX exchange was so prohibitive for their clientele comprising mostly of small and medium scale entrepreneurs and borrowers.

CTB said PDEX charged mapping fees and other charges that ate up into their margins from GS trading, making it difficult for TBs and rural banks to access the exchange.