CMDC caps accomplishments with first-ever PHL fully digitalized bond float

The Capital Market Development Council (CMDC) has capped its array of accomplishments under the Duterte administration with the successful issuance of the Philippines’ first-ever digital corporate bond using blockchain technology, along with several initiatives to digitalize transactions and make them easier and more convenient for small investors to further expand their participation in the domestic capital market.

Online accounts comprising 71.5 percent of the total investor accounts in the local bourse in 2021 demonstrate the impact of the digital acceleration in the domestic capital market on the Duterte watch.

From 302,516 online accounts in 2016, this number has grown steadily by an average of 30.8 percent over the years up to 2021.

Last year, 1,159,034 of the total 1,620,017 stock market accounts were online accounts, according to a Philippine Stock Exchange (PSE) report to the CMDC.

Digital acceleration in the capital market was also showcased with the listing in the Philippine Dealing & Exchange Corp. (PDEx) last June 2, 2022, of the country’s first digital bond by Union Bank of the Philippines (UnionBank).

This landmark event made the Philippine Dealing System Holdings Corp. (PDS Group) the first Asian national market infrastructure to launch a Distributed Ledger (DL) or blockchain technology-powered Digital Registry and Digital Depository that underpinned the digital bond issuance.

Originally targeted to raise P1 billion among 200 bondholders, the digital bond was oversubscribed 11 times, with UnionBank issuing P11 billion worth of the debt securities to nearly 900 investors, said PDS Group Managing Director Ma. Theresa Ravalo during the CMDC meeting held last June 6.

The meeting was the last one under the Duterte administration.

The digital processes involved in the issuance were completely seamless for the underwriters, issuers, and bondholders with a paperless submission of issuing documents for listing and registry via the e-Securities Issue Portal (e-SIP), Ravalo said. She added that the digital market infrastructure for settlement was also made interoperable with the traditional market infrastructure for trading and clearing while being fully compliant with existing securities laws and regulations.

A coordinating public-private sector body tasked to facilitate the development of the Philippine capital market, the CMDC is co-chaired by Finance Secretary Carlos Dominguez III; lawyer Benedicta Du-Baladad, who is the former President of the Financial Executives Institute of the Philippines (FINEX); and Securities and Exchange Commission (SEC) Chairman Emilio Aquino.

Dominguez thanked the members of the CMDC for their six years of “highly productive” work under the Duterte administration.

Members of the CMDC include top officials from the Bureau of the Treasury (BTr), Bangko Sentral ng Pilipinas (BSP), Securities and Exchange Commission (SEC), Insurance Commission (IC), Bankers Association of the Philippines (BAP), Philippine Stock Exchange (PSE), Philippine Dealing System Holdings Corp. (PDS Group), Philippine Dealing and& Exchange Corp. (PDEx), Investment Houses Association of the Philippines (IHAP), Philippine Life Insurance Association (PLIA), Philippine Insurers and Reinsurers Association (PIRA), Philippine Federation of Pre-Need Plan Co. Inc. (PFPPCI), Philippine Association of Securities Brokers and Dealers Inc. (PASBDI) and the Fund Management Association of the Philippines (FMAP).

During the meeting, the BTr reported that it is on track in the implementation of its digitalization initiatives to expand investor access to government bonds, with the complete integration of the Pesonet and Instapay payment platforms to the Bonds.ph mobile app, and with the end-goal of allowing small investors to easily buy and sell bonds through this and other mobile applications.

The BTr is also working on bond financing options for local government units (LGUs) to help make them more fiscally sustainable in preparation for the full devolution of certain national government functions to them as a result of the Supreme Court (SC) ruling increasing their share in national tax collections, National Treasurer Rosalia de Leon said during the meeting.

To encourage small and medium enterprises (SMEs) to expand their financing options by accessing the capital market, the PSE has been implementing its Listing Engagement and Assistance Program (LEAP) for SMEs and amended its listing rules for its Main and SME (Small, Medium, and Emerging) Boards.

A total of 36 companies are enrolled under the LEAP program, with two of them having already been successfully listed on the SME Board in the first quarter—CTS Global Equity Group Inc, which raised P1.38 billion in April, and Haus Talk Inc., which raised P750 million in January.

Another LEAP enrollee—Raslag Corp.—was listed on the Main Board this June and raised P805 million.

To address the low level of competitiveness in the domestic capital market, regulations and systems have been put in place for products such as exchange-traded funds with the issuance of the SEC Rules on Exchange Traded Funds and the launch of the ASEAN Exchanges’ new tradable ASEAN indices.

Under the Duterte administration, the flawed listing rules for the Real Estate Investment Trusts (REIT) were fixed in 2020, enabling this powerful financial instrument to take off after a decade of dormancy.

After the revisions were made, several REITs were successfully listed in the stock market, opening another attractive investment opportunity for small investors.

The SEC issued key policy reforms to reinforce the stability of the capital markets. These include the Rules on Simplified Onboarding Procedures for Low-Risk Accounts which aims to enable more Filipinos to participate in the ownership of enterprises and other investment opportunities to meet their financial goals.

In addition, the Rules on Corporate Debt Vehicle was issued that will primarily invest in corporate debt papers of large corporations and medium-sized enterprises. This aims to cushion the economic impact of the COVID-19 pandemic and support the liquidity needs and recovery of businesses.

Lastly, the Rules on the Number of Independent Directors, Sectoral Representatives of Exchanges and Other Organized Markets was issued. It aligns with the best practices of major and comparable markets in many economies, where independent directors comprise the majority of the board of securities exchanges.

Moreover, The Financial Institutions Strategic Transfer (FIST) Act IRR took effect after its publication on 29 March 2021 allowing for the establishment of corporations to invest or acquire non-performing assets (NPAs) of covered financial institutions. This resulted to the establishment of five (5) FIST Corporations. This would alleviate the pandemic-induced financial difficulties experienced by some affected financial institutions (FIs).

The amount of initial public offerings (IPOs) cleared by the SEC reached an all-time high in 2021 amounting to approximately Php 145.7 billion, from which Php 66.1 billion are from REITs. In May 2021, the SEC approved the country’s largest and Southeast Asia’s second biggest IPO, which is that of Monde Nissin Corporation for as much as Php 55.89 billion.

The SEC also operationalized the PhiliFintech Innovation Office (PhiliFINNO). The PhiliFintech Innovation Office was launched on 30 July 2021 to foster innovation and customize the fintech landscape in the country.

The SEC was admitted as the fourth signatory of the ASEAN Collective Investment Schemes (CIS) Framework last year, which is a step closer to allowing qualified mutual funds and their fund managers to directly offer to retail investors in Singapore, Malaysia and Thailand, and vice versa.

In 2019, the SEC also issued the rules and regulations governing crowdfunding in recognition of this innovative way of raising capital for business ventures using internet platforms.