Philippine Stock Exchange, Inc. · PSE:PSE
Philippine Stock Exchange — The Philippine Stock Exchange — Investor Presentation (November 2018)
43 slides from Philippine Stock Exchange's investor presentation, November 2018
Slide 1: An Introduction to the PSE SBL and Short Selling Programs
An Introduction to the PSE SBL and Short Selling Programs November 2018
Slide 2: PSE SBL and Short Selling Milestones
PSE SBL and Short Selling Milestones 16 NOV 2006 PSE Rules on SBL were approved by the SEC 05 FEB 2007 PSE issued Guidelines on SBL 15 FEB 2007 PSE Rules on SBL and SBL Guidelines took effect Revised Trading Rules of PSE were published, which include provisions 08 JUN 2010 on Short Selling 05 JUN 20
Slide 3: Securities Borrowing & Lending
SECURITIES BORROWING & LENDING ®PSE
Slide 4: Overview: Global SBL Market
Overview: Global SBL Market Securities Lending is a trillion dollar global industry… Lendable On-Loan Share of On Loan to (in US$ bn) (in US$ bn) Lendable (in %) EMEA 4,970.00 691.61 13.9% Asia ex-Japan 1,350.00 102.22 7.6% Japan 1,000.00 112.21 11.2% Americas 12,170.00 1,590.00 13.1% Total 19,490.0
Slide 5: What is SBL?
What is SBL? Securities Borrowing and Lending (SBL) is the borrowing of stocks/securities from a lender’s portfolio of assets to a borrower who needs the stocks/securities to meet settlement obligations or to support trading strategies. SBL is similar to a simple cash loan except that what is bo
Slide 6: SBL Fundamentals
SBL Fundamentals SBL is a temporary loan of securities by a lender to a borrower Borrower generally provides collateral and pays a borrowing fee to the lender Securities title is transferred from the lender to the borrower unencumbered and regained upon return of loan Lender still retains the full e
Slide 7: Why Engage in SBL?
Why Engage in SBL? Market Perspective SBL enables long-term investors to loan out their dormant securities, thereby facilitating market liquidity Enhances the development of the local capital markets Borrower’s Perspective Meet settlement obligations Support trading strategies, including sho
Slide 8: Risks
Risks Credit Risk Counterparty Risk Borrower default on Failure to deliver securities contractual obligations Securities Lending is a low risk activity Collateral Risk but risk must be Operational Risks Corporate Actions Collateral liquidity managed Failed Settlements Reinvestment Risk Legal/Contrac
Slide 9: Market Participants
Market Participants Lender Borrower Lender Borrower Beneficial Owners End User Intermediary Intermediary pension funds lending agent prime broker hedge funds insurance cos. custodian bank collateral managers proprietary traders retail funds securities firms securities firms mutual funds banks invest
Slide 10: SBL Transaction Flow
SBL Transaction Flow 1 2 3 4 Execution & Borrowing Borrower delivers Lender delivers registration of initiation collateral securities agreements 7 6 5 Lender returns Borrower returns Collateral is managed collateral securities & manufactures payments/dividends 10
Slide 11: Regulations
REGULATIONS = q PSE
Slide 12: PSE SBL and Short Selling Program: Rules
PSE SBL and Short Selling Program: Rules SEC Memorandum Circular No. 7 Series of 2006 Rules on SBL Provides fundamental regulations for participants to engage in securities borrowing and lending transactions BIR Revenue Regulations 10–2006 BIR Revenue Regulations 1–2008 Tax treatment of SBL tran
Slide 13: PSE SBL and Short Selling Program: Rules
PSE SBL and Short Selling Program: Rules PSE Rules and Guidelines on SBL Sets out requirements for the conduct of SBL transactions in the PSE Article IV, Section 5 of the Revised Trading Rules of the Exchange Includes provision on up-tick rule, prohibition of naked short selling, and penalties P
Slide 14: BIR Regulations
BIR Regulations Registration of Borrowing Agreements Prior to the borrowing of shares of stock/securities by, the parties must have entered into an Master Securities Lending Agreement (“MSLA”) or a multilateral MSLA. An MSLA is a written contract between the Borrower and the Lender (or the Lending
Slide 15: BIR Regulations
BIR Regulations Deemed Sale An SBL is deemed as sale when any of the following circumstances is present: There is no stock return in whole or in part of the borrowed shares at the end of the borrowing period Borrowed shares have been used other than the specified purposes states in BIR-RR Bo
Slide 16: Other Provisions to Note
Other Provisions to Note Borrowing Period Should not exceed 2 years from the date of execution of the SBL Confirmation Notice. (BIR) Manufactured Dividends or Benefits The Borrowed is obliged to manufacture or reimburse to the Lender the amount of dividends or benefits that accrue on the loaned
Slide 17: SBL Documentary Requirements
SBL DOCUMENTARY REQUIREMENTS ®PSE
Slide 18: PSE SBL Program: Documentation
PSE SBL Program: Documentation Documentary Requirements Master Securities Lending Agreement (MSLA) and Addendum Securities Lending Authorization Agreement (SLAA) BSP Registration Document (BSRD) 18
Slide 19: Master Securities Lending Agreement (MSLA)
Master Securities Lending Agreement (MSLA) An MSLA outlines relationship and responsibilities of Lender and Borrower An MSLA and the MSLA Addendum must contain the following details, among others: Purpose of Loan What the borrowed securities will be used for 1. Settlement of sale of Securities lis
Slide 20: Master Securities Lending Agreement (MSLA)
Master Securities Lending Agreement (MSLA) An MSLA outlines relationship and responsibilities of Lender and Borrower Collateral Types of collateral to be accepted (cash, equity, etc.) How collateral is valued If and how the collateral can be reinvested Fees Rate of lending fee charged by Len
Slide 21: Master Securities Lending Agreement (MSLA)
Master Securities Lending Agreement (MSLA) An MSLA outlines relationship and responsibilities of Lender and Borrower Representation and warranties Capacity and authority of the parties concerned Lenders’ Warranties: Duly authorized and empowered to perform its duties and obligations under the MS
Slide 22: Master Securities Lending Agreement (MSLA)
Master Securities Lending Agreement (MSLA) An MSLA outlines relationship and responsibilities of Lender and Borrower Representation and warranties Capacity and authority of the parties concerned Borrowers’ Warranties: Has all necessary licenses and approvals Duly authorized and empowered to pe
Slide 23: Master Securities Lending Agreement (MSLA)
Master Securities Lending Agreement (MSLA) An MSLA outlines relationship and responsibilities of Lender and Borrower Events of default Borrower/Lender fail to comply with their obligations in relation to: Delivery of collateral Manufactured payments Return of securities An act of insolvenc
Slide 24: Securities Lending Authorization Agreement (SLAA)
Securities Lending Authorization Agreement (SLAA) An SLAA outlines relationship by and between the owner of the securities and Lending Agent Pertinent information found in an SLAA include: Authority and Responsibilities of the Lending Agent Fees Amount payable to Lending Agent for services rendere
Slide 25: Recap
Recap PSE SBL Program is heavy on compliance and 1 regulatory requirements, but various stakeholders recognize the need for it… … because it is useful for different purposes and has 2 benefits for the Lender, the Borrower, and the overall market 25
Slide 26: Short Selling
SHORT SELLING ®PSE
Slide 27: Long vs Short Position
Long vs Short Position LONG SHORT Optimistic Opportunistic & bearish & bullish view view Expectations of price Expectations of price increase decline Buy now, sell later Sell now, buy later 27
Slide 28: What is Short Selling?
What is Short Selling? SHORT SELLING is any sale of a security that the seller does not own or any sale of a security that will be settled by the delivery of borrowed securities. Short selling can be used: As a trading strategy employed to benefit from an expected future decline in price To hedg
Slide 29: What is Short Selling?
What is Short Selling? It is a reverse transaction: SELL now (the borrowed stocks) then BUY later (to return stocks borrowed) REGULAR TRANSACTION BUY SELL SHORT SELLING TRANSACTION BORROW SELL BUY RETURN 29
Slide 30: What is Short Selling?
What is Short Selling? Investor expects price of stock XYZ to decline Borrows 10,000 XYZ shares to current price: sell at current price of Php10.00 Php10.00 } 10.00 price diff = profit After three weeks, price of 8.00 Php4.00 XYZ drops to Php6.00, Over time, value of stock does decline investor buys
Slide 31: Media: Short Selling Has Benefits
Media: Short Selling Has Benefits 31
Slide 32: Understanding the Risks of Short Selling
Understanding the Risks of Short Selling PRICE RISK Short selling strategies have to be opportunistic and well-timed Investor’s desired price may not come true (e.g. share price did not decline as expected) SHORT SQUEEZE Positive events may drive stock prices higher rapidly Increase in price
Slide 33: Short Selling in the Philippines
Short Selling in the Philippines INDISPENSABLE TO THE DEVELOPMENT OF THE SBL PROGRAM SBL is at the core of short selling, before you can short you have to borrow shares first GENERATION OF TRADING ACTIVITY AND IMPROVEMENT IN LIQUIDITY In times of a bear market, short sellers will provide additio
Slide 34: PSE Short Selling Guidelines
PSE SHORT SELLING GUIDELINES = ®PSE
Slide 35: Short Selling Guidelines: Salient Features
Short Selling Guidelines: Salient Features All PSEi member companies and exchange traded funds are deemed Eligible Securities An Eligible Security must maintain a short interest of less than or equal to ten percent (10%) of outstanding shares TPs shall determine that the client has entered into the
Slide 36: Short Selling Guidelines: Salient Features
Short Selling Guidelines: Salient Features The Exchange shall publish an end-of-day report on short selling transactions and outstanding short position Short selling transactions are subject to the uptick rule of the Revised Trading Rules of the Exchange Securities borrowing and lending procedures f
Slide 37: PSE Daily Short Selling Report
PSE Daily Short Selling Report PSE to upload a daily short selling report on the PSE website Report contains short volume and value traded per eligible security and per previously eligible security, as well as the aggregate short position of the securities Report is to be made available in .tx
Slide 38: FTSE Quality of Markets Criteria: Philippines
FTSE Quality of Markets Criteria: Philippines Advanced Secondary Criteria Developed Sep-18 Frontier Emerging Emerging Lower World Bank GNI Per Capita Rating Middle Credit Worthiness Investment Market and Regulatory Environment Formal stock market authorities actively Pass monitor the market
Slide 39: FTSE Quality of Markets Criteria: Philippines
FTSE Quality of Markets Criteria: Philippines Advanced Secondary Criteria Developed Sep-18 Frontier Emerging Emerging Custody and Settlement Settlement – Rare incidence of failed Pass trades Custody – sufficient competition to Pass ensure high quality custodian services Clearing & Sett
Slide 40: FTSE Quality of Markets Criteria: Philippines
FTSE Quality of Markets Criteria: Philippines Advanced Secondary Criteria Developed Sep-18 Frontier Emerging Emerging Dealing Landscape Brokerage – Sufficient competition to Pass ensure high quality broker services Liquidity – Sufficient broad market liquidity to support sizeable global
Slide 41: Key Takeaways
Key Takeaways SBL and Short Selling are integral parts of a robust 1 stock market… … and provides investors more options and flexibility 2 with their trading strategies Finally, having both products enhances 3 competitiveness of PH market and supports the development of new products. 41
Slide 42: Find Out More!
Find Out More! www.pse.com.ph 42
Slide 43: Thank you!
@PhStockExchange Thank you! The Philippine Stock CONTACT US Exchange, Inc. Philippine Stock Exchange Tower 5th Avenue corner 28th Street Bonifacio Global City, Taguig City 1634 Philippines @phstockexchange Tel No: +632 876 4888 Email : [email protected] Website : www.pse.com.ph PSE Academy www.pseacad
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