This article provides a brief overview of fixed income exchange market in Philippines.
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.
Trading at the FIE, which starts at 9:00 am and ends at 4 p.m., 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 is 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.
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.