Getting things done RIGHT

As I noted in my previous posting, I do not believe that there is any disagreement on the goal of improving the Philippine Capital Markets.

For historical reference, it is important to record the fact that the BTr was in numerous meetings with its Government Securities Dealers and the custodian banks throughout most of 2004 inclusive of public consultations. With respect to helping them meet their concerns regarding Circulars 392 and 428, we had done the following:

a) Drawn up a workflow consistent with the dealers' and custodians' concerns and requirements which we discussed with the BSP starting Nov. last year:

Proposed Schematic I was working on last year with the BSP

b) Secured the necessary budget to effect the following enhancements for RoSS;

c) Announced a 31st March 2005 initial delivery date to the GSeD community through Bloomberg to begin meeting the requirements of the GSeDs and custodians;

From November last year to the time that I left, we could not seem to make headway with respect to our proposal.

With this as historical context and reference, it is critical to understand the significance of the re-articulated position paper of the BSP as released by them through the BusinessWorld edition of 11 March 2005.

In the Arguments Section, the BSP said,

"...What this means is that, in the case of government securities, the investor may take direct delivery of securities bought by instructing the dealer to instruct RoSS to credit his securities account. This is perfectly acceptable, provided that RoSS has the capability to directly confirm to the investor his transaction on a timely basis.

However, the Client Interface System of the RoSS is deemed non-compliant at the moment because of this material deficiency, as well as its inability to render periodic securities statements directly to the investor. It will be considered compliant as soon as these deficiencies are remedied."

Rather than resort to 3rd party custodians for safeguarding the investor, the investor protection mechanism that the BSP is affirming is that provided there is an independent means for the investor to be informed of what is going on with his securities account, then the BSP is meeting part of its objectives. At the same time, by empowering the investor direct access to RoSS, we would be joining a select group of countries in terms of best practices for investor protection. The readers might want to refer to the Direct Registration System implemented in the US by the Depositary Trust Corp. last year following a 1994 exposure draft issued by the US SEC. (please click on the links to the referenced sites)

In addition, with the BSP agreeing to BTr pursuing our original proposal, we would also be able to resolve the ticklish issue of costs for implementing 392. Because the BTr already has an approved budget, we would then be only talking about a very small one time cost. Any way you look at it, I would like to think it is WIN-WIN for all the stakeholders.

As an aside, the BSP and readers may be interested to know that even before I left, the BTr was already doing test SMS messages for government securities (GS) informing investors of the latest GS prices through their cell phones.

For the very specific issue of investor protection, I leave it to BSP, BTr, and the GSeDs to earnestly study the abovementioned recommendation which is realistic, proven, and deliverable.

I believe the foregoing to be in the realm of operational issues and approaches.

What will continue to be troubling with respect to Circulars 392 and 428 deal with the legal aspects surrounding such issues as:

1. GS issuances and RoSS are strategic infrastructure that the government relies on for its funding requirements. Again, what is the proper disposition of government infrastructure? What is the proper means for accessing government infrastructure?

2. To use Sen. Roxas words, can regulatory fiat be used as a substitute for legislation in creating franchises? Does it make sense for the national government to limit the trading of its securities to a single market? Would building capital market infrastructure need to be bid out ala Italian Treasury and everywhere else there is an exchange centralizing GS and seek enabling legislation? (This is a point that the people in FIE seem to gloss over whenever they cite these examples of "G-30 best practices");

3. Where are the regulatory boundaries between SEC and BSP? We are talking about efficiencies and transparencies related to securities and yet the BSP is setting the agenda? How do we avoid overlaps and opaque and conflicting operations in the future;

4. Should an exchange be deemed as a quasi-public entity, more in keeping with a franchise? If so, should its revenues be subjected to a cost-recovery formula that is approved by a toll-regulatory commission no different form other utilites. Should major expense items such as IT infrastructure be supervised because the amortization costs of these decisions are still passed back to the investor and government alike?

5. How should we understand the term "disadvantageous the government". Shouldn't all the purported benefits and overall reductions in costs be quantified and guaranteed by the proponent similar to the way other privatized utility operators have been required to do.