The deal the Singapore Exchange signed to take a 20% stake in the Philippine Dealing System Holdings Corp would be interesting, if it wasn't so small, and the derivatives market in the Philippines wasn't so poorly developed. I'm all for the SGX regionalising, but one wonders what the dividends of this deal will be.

The statement by the SGX says:

PDS operates a fixed-income exchange, depository and foreign exchange settlement platform. This proposed acquisition will provide SGX the opportunity to expand into a new geographical market and collaborate with PDS on derivatives products. SGX and PDS will also explore depository linkages to custodise securities in each other’s markets, on behalf of their account holders. The proposed collaboration will reinforce SGX’s Asian Gateway strategy and position.

Perhaps, but it is difficult to see how a 20% stake worth just S$5 mln will do this. The Philippines doesn't rate a mention in the World Federation of Exchanges' most recent tabulation of fixed-income and derivatives turnover. Perhaps PDS isn't a member of the Federation.

The wording of the news release is also interesting: "…it has agreed in-principle to accept the offer…" In other words, PDS approached the SGX. Therefore, PDS probably has more to gain from the deal, possibly in terms of the expertise shared by SGX, etc.

The SGX clearly has to keep working to stay relevant, and deals such as this, although small, are an indication that they are doing this. Small companies can grow into bigger companies, as the SGX itself has done.

SGX CEO Hsieh Fu Hua said this morning:

Our proposed stake in PDS will be more than just a financial investment. It will give both parties the opportunity to collaborate on a wider suite of products in a fast-growing geographical market. SGX and PDS will also explore a depository linkage to custodise securities in each other’s markets on behalf of account holders. This proposed depository linkage fits in with the concept of post-trade alliances being a practical way of collaboration in Asia.

He also said:

Einstein was said to have once defined insanity as doing the same thing over and over again but expecting different results each time. If we continue divided as we have been in the past, can we remain relevant in the years to come? This issue is especially pressing for the relatively smaller, disparate exchanges of ASEAN. To achieve a single and more significant marketplace, we propose that multilateral gateways in both trading and clearing be forged amongst the ASEAN exchanges.

All these points a certainly valid.

But beyond the small nature of the deal, there is also the question as to who the target market is. The equities market consists of just 240 stocks worth US$93.8 bln – the smallest market in Asia except New Zealand and Colombo. There are many derivatives listed in Singapore covering equities listed in other markets. For Philippine stocks that are worth covering, wouldn't market makers in Singapore have exhausted the possibilities already? Is the domestic Philippine retail market ready for derivatives trading?

Questions which we either have to wait for the SGX – or time – to explain.


Mark Laudi


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Labels: Philippines, Philippines Dealing And Exchange Corp, SGX, Singapore Exchange