Fixed Income Exchange Market
The Fixed Income Exchange (FIE), the country’s first centralized electronic infrastructure for trading of fixed-income securities, was launched in March 2005. The FIE is a comprehensive financial market infrastructure that aims to provide an electronic platform for trading, clearing and settlement, and depository and custodianship fixed-income securities and its derivatives. The creation of the exchange was spearheaded by the Bankers' Association of the Philippines (BAP) and is owned and managed by the Philippine Dealing System Holdings Corporation (PDS Holdings) and its three subsidiaries, namely, the Philippine Dealing & Exchange System (PDEx), the Philippine Securities Settlement Corporation (PSSC) and the Philippine Depository and Trust Corporation (PDTC).
The establishment of the FIE plays a key role in the development of the local capital market by providing an online inter-dealer trading platform for the secondary trading of government securities. The exchange is also expected to improve the price discovery process by providing dealers-bankers the instantaneous ability to scan for the best prices in the market to better manage positions, risks and yields.
The virtual platform is supported by the "X-Stream" system, an electronic computer system designed and developed by Australian firm Computershare Technology Services Pty, Ltd., and Computershare Technology Services, Philippines, Inc., who are responsible for the system running the Shanghai Stock Exchange and Swiss Stock Exchange. The X-Stream is housed in the PDEx office in the Makati Central business district.
Trading at the FIE, which starts at 9:00 am and ends at 4 p.m. (with a lunch break of 12:00nn to 2:00 pm), is similar to the operations of the Philippine Stock Exchange (PSE) except that the trading floor is not physical but virtual. Traders can communicate, negotiate and deal transactions from their respective offices via Application Protocol Interface (API) or through screen terminals of the fixed income workstations (FITW) of PDEx, thereby eliminating errors in verbal or telephone confirmations of transactions between and among traders. After completion of the transaction and the appropriate clearing/settlement procedures have been made, the sold securities are then either delivered physically to the purchaser, or to the designated custodian duly accredited by the BSP, or by means of book-entry transfer to the appropriate securities account of the purchaser or his assigned BSP-accredited custodian in a registry for said securities.
To maintain confidentiality of transaction, the system ensures that all information sent to each transacting party are kept confidential and cannot be viewed by the public. In addition, the system is equipped with a safety feature that prevents double/multiple selling of the same bonds. Fixing rates for benchmarks and statistics on done trades are subsequently posted at www.pdex.com.ph.
In February 2008, the PDEx launched its Public Market trading platform were brokering participants of PDEx may now post the orders they receive from retail investors through this new platform. Retail investors may now have equal access to the price for each of the various fixed-income securities listed on the trading board given that trade transactions are captured automatically and broadcasted on real-time basis on the platform. Such platform is capable of functioning both for the quote-driven market or the order-driven market providing instantaneous price discovery mechanism. In an order-driven market, prices are determined by the publication of orders to buy or sell shares while in a quote-driven market, prices are determined from quotations made by market makers or dealers.
The launching of the platform for retail market was in conjunction with the opening of the Inter-Professional market in November 2007, which aims to expand the specialized inter-dealer market to include other participants such as insurance companies and contractual saving institutions. The expanded roster is critical in attaining a centralized trading market since these institutions are expected to be active providers of market liquidity.
In terms of listing, debt securities issued by corporations and financial institutions may now be listed in the PDEx. The enrollment of Ayala Bond due on 2012 marked the maiden enrollment of a corporate issue in PDEx.
Going beyond the spot market, the PDEx also provided electronic platforms for Securities Lending/Borrowing Transactions (SLT) and Repurchase Agreements (Repo). The SLT program aims to give dealers and market makers a chance to borrow securities, and thereby support their ability to quote firm offer prices to all other market participants. This program shall also help PDEx trading participants to avoid settlement failures because participants that do not have enough securities to fulfill a sale can borrow the securities through the program. The BSP issued a no-objection letter allowing its regulated entities to participate in the SLT program in July 2007.
Meanwhile, the Inter-Professional Repurchase Agreement (“Repo”) Market program shall allow dealers and market makers to borrow cash using their securities holdings as collateral. Aside from providing cash liquidity to the spot market, this program is envisioned to improve the ability of trading participants to quote firm bid prices for securities. The SEC approved the rules governing the PDEx Repo Market Program in September 2007, while the BSP expressed officially that it poses no objection to the participation of its regulated entities in the program in January 2008.