Business World, 26 February 2013


On three occasions, I’ve written about an amorphous organization (Philippine Development Exchange) that is lording it over, and has amassed large sums of undeserved profits from, the trading of government securities. It could potentially be the biggest financial scam in Philippine history. It collects fees whether the government securities traders use its trading platform or not. Where it got this virtual monopoly power to run the secondary trading of government fixed income securities and collect fees (taxes, in reality, because of its coercive nature), is a demonstration of government failure.

Worse, it shows how the unholy alliance of a few opportunistic entrepreneurs and some inept, possibly corrupt, bureaucrats and politicians can sap the government, and the general public, of large amount of resources.

The government securities market has grown in leaps and bounds during the last dozen years. From a ₱1-trillion base in 2000, government domestic debt has soared to ₱3.5 trillion by end December 2012.


The potentially biggest financial scam in Philippine history — where PDEx and PDTC are involved in secondary trading and the inventory of government securities — should be addressed once and for all.

The assignment of responsibilities for trading and registry of government securities should be clearly defined and implemented accordingly.

Delegating a purely Treasury function to a private institution constitutes dereliction of duty on the part of the National Treasurer and the Finance secretary. Granting private institution(s) a cloak of legitimacy in the registry function of government securities constitutes abuse of authority on the part of the Securities and Exchange Commission (SEC).

Furthermore, granting the PDEx the authority to charge ad valorem fees — a tax in reality because of its coercive nature — is tantamount to abuse of authority. Congress has the sole authority to pass tax measures.

Clearly, the Securities and Exchange Commission should be responsible for ensuring the integrity of corporate bonds and other fixed income securities. But it should mean privately issued fixed income securities, not government securities. The latter are purely the responsibility of the Bureau of Treasury.

Moreover, consistent with the policy of the State to promote free market and discourage monopolistic practices, the SEC should see to it that the responsibility to operate as securities depository (of corporate bonds and private security instruments) should not be monopolized by one firm.

The assignment of the registry function — exclusively at the moment — to the Philippine Depository and Trust Corp. (PDTC), a private organization, is “illegal and void ab initio” said former National Treasurer Lasala. That the PDTC is allowed access to government facility — the Registry of Scripless Securities (ROSS) — without compensating the government, and without public bidding, is anomalous and certainly disadvantageous to the Filipino people. The Ombudman and the Commission on Audit should look into this.

The Securities and Exchange Commission (SEC) is a recent ruling has granted the Securities Clearing Corp. of the Philippines (SCCP), a subsidiary of the Philippine Stock Exchange, a provisional license to operate a securities depository, subject to the fulfillment of certain conditions and other requirements, including an increase in capital.

The operation of SCCP will be a major departure from the present virtual monopoly control of the Philippine Dealing System (PDS) Group. The group currently handles both equities and fixed income depository through the Philippine Depository and Trust Corp. (PDTC). Expectedly, PDS group or PDEx, is opposed to it.

The SEC’s grant of license to operate a securities depository to SCCP is the right move that would lead to the slaying of the money-making monster. But it is not good enough. It still needs to clearly acknowledge, in clear language, that government securities trading do not fall within the ambit of SEC.

Neither the SCCP or the PDTC should have anything to do with secondary trading of government securities. Remove government securities from the domain of PDEx/PDTC, and the latter will collapse. The role of managing government securities belongs to the Bureau of Treasury, which it has been doing before PDEx got into the picture.


PDEX exercises rule-making powers that makes it more powerful than the Monetary Board or the Department of Finance. Rule 3.8 reads as follows: “Fees shall be levied on each transaction executed on the PDEx Trading System. The Fees shall be based on the tables of fees that PDEx will issue and which PDEx may periodically amend.” The fees are in the nature of a tax since they are coercive in nature.

A trader is obliged to pay PDEX whether it uses the PDEX platform or not. PDEX can amend the rates without any imprimatur from a duly constituted public authority. The DoF can only collect taxes authorized by Congress. In addition, PDEX can use the fees collected for whatever purpose it suits the organization. No public action is required, it can be used for purely private purposes.

Rule 15.5 (Effects of Suspension) states:

1. Where the Trading Participant’s participation is suspended, the Trading Participant shall not be permitted to trade during the period of suspension, unless the Trading Participant does so with the approval of, and under the conditions imposed by, the Market Compliance and Discipline Committee.

2. The Trading Participant shall, during the period of suspension:

a.Be liable for payment of all fees and levies due to PDEx; and

b. Continue to comply with the SRC and these Rules.

3. Should the Trading Participant refuse or fail to pay the required fees despite notice and demand, PDEx may consider terminating the participation of the Trading Participant. Nevertheless, such termination shall not relieve the Trading Participant from payment of the fees due PDEx.”

Many banks rely heavily on trading of government securities for their survival. Taking that away from them — through penalty or denial of the right to trade on the PDEX trading system, or blacklisting or barring from PDEx, or from being otherwise associated with or employed by any trading participant of PDEx — could mean either barely surviving or sinking. It constitutes restraint of trade. And I thought the task of bank supervision rest with the Bangko Sentral Monetary Board, not with PDEx.

This sinister, money-making monster was born during the dark days of the Arroyo administration. Under an open regime that is truly committed to good governance, it should not survive another day. The handling of government securities, including the registry function, should remain where it should be — the Bureau of the Treasury.