Corporate regulator disapproves takeover of fixed-income exchange

The SEC “resolved to deny the request for exemptive relief by the Philippine Stock Exchange (PSE) in relation to its proposed acquisition of Philippine Dealing Systems Holding Corp.,” according to the statement the corporate regulator issued yesterday, quoting from the draft minutes of its executive session meeting yesterday.

In coming out with its decision, the SEC considered the “PSE’s failure to present clear and convincing evidence that: (1) it is entitled to an exemption from the policy behind Section 33.2 (C) of the Securities Regulation Code (SRC); and (2) Its proposed acquisition of PDS will not negatively impact on PDS’ ability to effectively operate in the public interest.”

“[N]o industry or business group shall beneficially own or control, directly or indirectly, more than 20% of the voting rights of the Exchange Controller,” according to Rule 33.2 (c) of the SRC.

SEC, however, did not shut the door on the plan, saying: “This is without prejudice to any subsequent application by the PSE for similar reliefs in the future.”

SEC officials declined to elaborate on the decision, with Commissioner Ephyro Luis B. Amatong commenting only that the decision was unanimous. The SEC has scheduled a press conference today to explain the ruling.

The regulator had committed to issue a ruling on the PSE’s request within 60 days from receipt of the latter’s itemized responses to SEC’s letter on Nov. 27 last year that sought clarification on several items concerning the merger.

The review focused on the trading platforms that will be adopted, delivery-versus-payment schemes, settlement and clearing systems and cycles, consolidation of the depositories, as well as information technology stability and business continuity.

PSE President Hans B. Sicat had said the bourse may consider putting up its own depository if the merger does not push through. In 2013, the SEC gave PSE’s unit, the Securities Clearing Corporation of the Philippines (SCCP), the green light to operate as a securities depository.

One of the smallest stock markets in the region, the PSE has been pushing for the integration since most of exchanges in Southeast Asia operate both equities and fixed-income securities trading. The creation of one trading platform was expected to bring down costs related to the fixed-income trading operations of banks and other financial institutions.

With the backing of the government, the PSE commenced negotiations to buy out other shareholders of PDS in early 2013, pegging its enterprise value at P2.25 billion.

However, the PSE failed to obtain SEC’s green light on Nov. 27 last year for its application to acquire more than 20% of the fixed-income exchange, as the regulator sought clarification on several issues pertaining to how the stock market operator would operate the merged entity.

As a result, the PSE was unable to consummate its share purchase agreements (SPA) with PDS shareholders. So far, the PSE has signed SPAs with the Bankers Association of the Philippines; Finex Research and Development Foundation, Inc.; Whistler Technology Services, Inc.; and Insular Investment Corp. The four shareholders own a cumulative 40.06% stake in PDS, while PSE itself holds 20.98%.

Source: bworldonlins