Let the good times roll

Minimum brokerage commissions are restored in the Philippines. Champagne corks pop across Makati.

The Philippine Stock Exchange (PSE) has restored the minimum brokerage commision rates that brokers on the exchange can charge their clients. The new minimum will be 25bps. The Philippine Securities and Exchange Commission (SEC) approved the move on Monday after a request by the PSE to change the rules. "We have written a letter to the PSE approving their proposed rules to set a minimum commission rate," said Graciano Felizmenio, assistant director of the SEC in Manila.

The new rates will have to fall within the band set by presidential decree 154 (amended) which states that the maximum commission must be 150bps and the minimum must be above Ps20 per trade. As long as the new rate is within that band it is approved.

The move should bring loud cheers from the beleagured stockbroking community of Manila who have seen a combination of slumping trading volumes and diminishing commission rates over the last few years.

The request by the PSE to the SEC came after a few high profile stockbrokers wrote to the exchange suggesting such a move. In particular they were inspired by what has happened in Thailand. Since mid January, the Stock Exchange of Thailand has set a 25bp minimum commission rate (20bps for online transactions).

The results of the change have been spectacular. Local Thai broker Seamico, for instance, earned Bt112 million ($2.8 million) in the first quarter this year. In the same quarter in 2001 it lost Bt16 million. Taiwanese brokerage KGI Securities saw its Thai profits explode to Bt247 million in the first three months of this year after it earned a paltry Bt41 million profit in the same period last year.

Brokers in the Philippines will be hoping for a similar explosion in profits. However, Thailand is exceptional as it has enjoyed a stock market boom in the last year. In that time, trading volumes have doubled. A boom such as this cannot be taken for granted in the Philippines over the coming year.

Nevertheless, the move is welcomed. Filipino brokers talking to FinanceAsia off the record say that while the 25bp commission figure was already being paid by retail investors, large cross trades for corporate finance or M&A deals were essentially being done for free. "Now [with the new minimum commissions] if we get just one of the big deals - such as the PLDT share transfer to the Gokonwei Group - it will pay for our broking operation for the entire year," said one president of a leading local house.

Ironically, on the day the new minimum rate was announced, one foreign firm announced that it had decided to pull out of the market. DBS Vickers confirmed that it will close its Philippine operations on August 31, with no more client orders after July 29th. The move came despite it being the ninth most active broker on the exchange so far this year. Time will tell if this move was somewhat premature.