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Regional Insights: Starting a securities business in the Philippines (2/2)

The Philippines won the investment grade rating from Standard & Poor's and Fitch earlier in 2013, and Moody's has also revised their outlook on the Philippines' to positive with rating to Investment grade (Ba1) in Oct 2013. Strong resilient growth, boosted by favorable regulatory environment and the potential of the outsourcing industry attracted higher levels of foreign direct investments to support the country's economy. Here we demonstrate how to building-out a securities firm, what are the challenges ahead and our recommendations to tackle them.


Guidelines in setting up a securities business in the Philippines

With the favorable market conditions and strong regulatory framework, the timing is right to set up a securities business in Philippines. Foreign corporations have more flexibility as SEC issued memorandum on May 20, 2013 to remove contested rules of 40% limitation to foreign ownership. In order to be eligible to run business in secondary market in Philippines, the company has to register their business entities (primary registration) and apply for a license (secondary registration) with the Securities Exchange Commission (SEC). Figure 1 below describes the different steps to setup the securities business.

Figure 1. High level roadmap in setting up securities business

Figure 1.High level roadmap in setting up securities business

Setting up new entities and licensing process

Foreign entities planning to register their businesses in the Philippines can choose amongst the following legal setups: Subsidiary, Branch Office, Representative Office, Regional Headquarters, and Regional Operating Headquarters. These entities possess different paid up capital requirements and documentation (for example, authenticated certification is needed in setting up Regional operating headquarters but not for other legal forms).

To obtain a license in the Philippines, the following minimum requirements (governed by Securities Regulation Code) need to be observed:

  • Minimum Paid-Up Capital and Net capital requirement:
Source: Philippines Stock Exchange (PSE)

Source: Philippines Stock Exchange (PSE)

1 Except for dealing purposes, a minimal Paid-Up Capital PHP 100 million is needed to engage in market making activities
2 Initial Net Capital (SRC Rule 49.1-l) is required, (1) PHP 5 million or 5% of aggregate indebtedness (whichever is higher), except (2) PHP 2.5 million or 2.5% of aggregate indebtedness (whichever is higher) for Dealing only in Proprietary shares without holding
3 Investment house license are granted with underwriter license directly
  • Fulfill requirement related to file documentations based on Securities Regulation Code rules for each type of business entities. This encompasses: schedule of minimum commissions charges to clients, organization chart, business plan including proposed operations and projected volume of business;
  • Written supervision and control procedures, including procedures for establishing and maintaining segregation of functions in pursuant to SRC 34.1 ("Chinese Wall"), and manual on applicable requirements under the Anti-Money Laundering Act (RA 9160).

Once all documentation and capital requirements are ready, companies have to pay filing fees to apply through SEC i-Register (an online platform for registration). Processing for registration is completed within thirty days.

Setup as trading participants

Philippines Stock Exchange (PSE) is a non-ID market with the number of exchange trading participants limited to 184 by the PSE Board. Entities can either apply for a vacant seat by maintaining unimpaired minimum paid-up capital requirement of PHP 30 million, securing majority approval from the PSE board members (8 out of 15), and fulfilling other application requirements such as reference letters; or buy from PSE board if available. Entities can also negotiate with existing participants to transfer the rights with PSE board approval.

Challenges and Recommendations

In order to analyze the challenges and future prospect for the Philippines, we have critically analyzed using the PESTEL framework. We identified issues that affecting their performance and key influences over other emerging markets.

Figure 2. PESTLE analysis on securities business in the Philippines

Figure 2. PESTLE analysis on securities business in the Philippines

Among these areas, we observe the following as the potential challenges which leads to project risk in setting up the securities license.

On a final note

Asia's securities industry is experiencing an exponential growth amid an uncertain economic environment. Integration of the Philippines and the ASEAN markets, as well as trading growth is expected to support the Philippines market. The political scams that are still on court, as well as the uncertain economic environment, cloud the prospect for rapid improvement to a more robust growth. Setting aside this drawback, the Philippines Stock Exchange is getting more prepared with technological and market changes to face the rapid development on their securities businesses.

Sia Partners


Philippines Stock Exchange (PSE)

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