The Philippine Stock Exchange (PSE) could soon see the start of direct market access (DMA) and algorithmic trading, following last year's successful migration to a new trading platform, said PSE president and CEO Hans B. Sicat.
“We are now set up for direct access given that we have moved from our legacy platform to one designed by NYSE Technologies, which allows for a whole host of things,” said Sicat.
Last year, average trading volume was around 4.1 billion pesos (US$91.3 million) a day on the PSE, but as the market improved, volumes went up to 6 billion pesos (US$133.5 million) at the end of December, a level that would not have been possible with the previous platform. Sicat said that the removal of technical constraints was a first step toward the PSE taking a more “market driven” approach.
The main Philippine index is the PSE Composite Index, or PSEi, which is composed of 31 stocks (30 companies). The PSEi reached an all-time high of 4,397.30 points on November 4, 2010. The combined market capitalisation of listed domestic issues in the PSE grew to 6.92 trillion pesos in the first quarter of 2011 compared with 6.89 trillion pesos a year ago.
With the launch in July 2010 of the NSC V900 trading system, built by NYSE Technologies, the PSE has been able to handle significantly larger trading volumes and process trades 10 times faster than under the old system. “Our legacy platform was about 20 years old and we had outgrown some of the physical limitations volume-wise,” Sicat added.
Liquidity in the Philippines has grown significantly over the past year on the back of foreign capital inflows; a surge in the fourth quarter brought full-year economic growth to 7.3% in 2010, the biggest gain in GDP since 1976. However, brokers say the market is still not very liquid by regional standards and the Philippines remains one of the most expensive markets to trade with intraday spreads estimated to range between 100-200bps.
The decision for a new trading system was prompted by the PSE's own needs for higher capacity and better trading performance, and to some degree, the need for more advanced infrastructure to support its participation in the proposed ASEAN trading link. The new trading platform provides the PSE with the appropriate base infrastructure on top of which new modules will be added as market needs evolve and the link between the ASEAN exchanges is implemented. “The base platform is there which allows for direct connectivity. As we get approval for exchange-traded funds, futures, forwards and derivatives, these would require add-on modules,” said Sicat.
The PSE is optimistic about the benefits that the entry of foreign broker-dealers into the local market – as well as high-frequency trading – would bring. Credit Suisse recently opened local securities brokerage operations in the Philippines, having obtained a securities broker-dealer licence for the PSE in February. The firm will offer sales trading, program trading and execution, as well as research and sales services to clients.
“One of our goals is to increase market liquidity, through various means,” said Sicat. “On one end is the participation of broker-dealers. Clearly the other end would be increased issuance and increased liquidity from the issuers themselves. In the brave new world of exchange models, for us being one of the smaller ones, we do welcome increased participation by everyone because that should bring healthier volumes.”
In addition, the PSE has also just completed the upgrade of its existing disaster recovery site, located several kilometres away from the main exchange in Metro Manila. The exchange is now looking into building another disaster recovery site further away in conjunction with the Fixed Income Exchange (FIE), in which the PSE owns a 20% stake.
“The FIE has secured approval to put their own disaster recovery platform in, so clearly there's economies of scale there for us. The site is even further away, because the idea of a disaster recovery site is that it should not be in the same geographic location,” said Sicat.
Author: Jill Wong