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March 16, 2009

Philippine bourse to allow anonymous trading

The Philippine Stock Exchange (PSE) has set new rules allowing brokerages to trade anonymously in a bid to attract more foreign investors and boost liquidity in the equities market, reported Reuters.

But the move, which comes as countries around the world pursue stricter regulation of financial markets and institutions after the global credit crisis exposed weaknesses in the financial system, raised concern that local trading will become less transparent.

PSE President Francis Lim said in a statement the new policy would align local trading activities with global best practices as a number of developed markets like the United States, Japan and Australia have adopted the practice of broker anonymity.

The policy is also in place in Malaysia, Singapore, Thailand, China, and Korea, he said.

Under the current system, brokers involved in matched transactions are identified through their codes in the PSE trading screens.

Lim said this practice impedes the flow of transactions as some big trades draw unwanted attention, encouraging some brokers to undertake trades outside the market.

"Contrary to perception that taking out the broker identifier is a disservice to market players because it reduces transparency, broker anonymity actually promotes fairness and affords investors with deeper market depth and liquidity," he said.

Lim said the PSE's surveillance department would continue to have access to data on broker identity in case there was need to investigate or monitor any illegal trading activity.

Critics of the move said the measure would aggravate some bad practices in the market such as front-running, in which a broker buys stocks directly or through another broker at a lower price ahead of an order from a client who quotes a higher price.

"With all matched trades posted (now), it's easier to catch whether a broker is doing front-running," a veteran Philippine stock broker said, asking for anonymity because of the sensitivity of the issue. "It will be harder to detect once this rule is in effect."

Lim said with the new policy, investors' purchases would be disclosed only if their transactions trigger limits prescribed under existing bourse rules.


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