Transcript Capital Market Development

Capital Market Development
Council
 The CMDC
Its Purpose & Its Organization
Role of Capital Markets in the Economy
The Market Players & Enabling Environment
 The Present Situation
CMDC’s Share & Working Agenda
Concerns/Issues & Pressing Needs

Legislative Wishlist & Recommendations
The Road Ahead
What is the CMDC
 Public-Private Sector Partnership
• A common desire to develop capital market
 Original Council composed of:
• DoF, CBP (BSP), SEC
• Finex, BAP, IHAP, MkSE, MSE
 Current Council now also includes:
• Insurance Commission
• Phil. Life Insurance Association
• Philippine Insurers and Reinsurers Association
• Phil Federation of Pre-Need Plan Co. Inc.
• Phil. Dealing System Group
What Market Dev’t Means
SHARED
Responsibility
Commitment
Financial market is the
forward- looking bridge
between today and the future
Providing Savers &
Borrowers options to
meet their needs
Consumer
Satisfaction
Consumer
Protection
Role of Capital Market in Economic
Recovery
Chief venue for raising capital (long-term
funds) by domestic enterprises with high
potential for quality employment generation
in competitive business areas.
Main destination of domestic surplus funds
(savings) seeking appropriate returns for
acceptable risks.
Capital markets deal
in promises
Debt Promise
Equity Promise
Contingent Promise
Our Working Agenda
 MARKET: Attaining “competitive parity”
 DIVERSITY: Expanding financial choices
available to the consumer
 EFFICIENCY: Improving the delivery of
financial products and services
Investor Protection: Providing protection to the
investor
#1 Competitive Parity
Submarkets complement but compete with each other
Banks
Non-Banks
• Commercial
• Thrift
• Rural
• Invt Houses
Ownership
Overlaps
Product
Overlaps
• Finance
• Invt Companies
• Insurance
• Pre-Need
• Dealers & Brokers
• Etc.
#2 Addressing Diversity
Savers value liquidity but term funds are also
necessary
Banks
82 %
• Housing needs
Resources
• Education for the kids
• Retirement planning
• Insurance & Hedging
CASA
67 %
Deposits
• Expanding productive
capacity
#3 Balance of Incentives
Taxation creates a friction cost but provides a
social net
Framework for Governance
PUBLIC
FINANCIAL
MARKET
Situationer: Recent Disincentives to
Funds Inflow into the Capital Market
 Series of closures of financial intermediaries.
 Proliferation of financial scams and “Ponzi”
schemes that led to losses and diversion of funds
out of legitimate surviving financial
intermediaries.
 Perception of increasing risks and declining
expected returns.
 Financial difficulties of large pre-need companies.
 Looming problems of public pension institutions.
Situation Keeps RP Market Size Small
Relative to Neighbors
DOMESTIC MARKET CAPITALIZATION
2002
2003
2004
end-Dec
2005
(in billion US$)
Indonesia
Jakarta Stock Exchange
JSX
30.1
54.7
73
81
Malaysia
Bursa Malaysia
BM
122.9
161.0
182
181
Philippines
Philippine Stock Exchange
PSE
18.2
23.2
29
40
Thailand
Stock Exchange of Thailand
SET
45.4
119.0
115
124
In Billion $US
2004
182 181
200
150
100
2005
115 124
73
81
29
50
40
Indonesia
Malaysia
Philippines
Thailand
Need to Improve RP’s Low
Domestic Savings Rate
Source: ADB
ASEAN Domestic Savings Rate, 2004
50
Gross Domestic Savings/GDP, in %
 Philippines 2005
Domestic Savings/GDP =
29%
 Indonesia 2004 Domestic
Savings Rate/GDP =
25.3%
 Thailand 2004 Domestic
Savings/GDP = 33.4%
 Malaysia 2004 Domestic
Savings/GDP = 43.8%
40
30
20
10
0
Philippines
Malaysia
Indonesia
Thailand
Need for Faster Development of
Domestic Debt Market
 Outstanding Domestic Bonds / GNP = 40% in the
Philippines
 Bank Assets / GNP = 85% in the Phil.
 Equity / GNP = 69% in the Phil.
 Bonds Outstanding / GNP = 88% in EuroLand
 Bonds Outstanding / GNP = 151% in the U.S.
Elements Needed for Capital Market
Development
Stable macroeconomic conditions
Good corporate governance
Sound legal, accounting infrastructure
Limited tax distortions
Efficient market operating infrastructure
Conducive and effective supervision & regulation
Skills & professional development
Better Corporate Governance &
Financial Transparency
 Demand higher standards of conduct from external
auditors.
 Complementary: a program for improved financial literacy
so that investors can impose proper market discipline.
 Stringent enforcement of mark-to-market regulations to
improve financial transparency & promote more active
secondary market trading.
 In partnership with ICD, promotes use of scorecard to
measure corporate governance performance of publiclylisted firms.
Conducive Regulatory
Environment
 Establishment of a Financial Sector Forum
(FSF) among the BSP, SEC, Insurance
Commission, & PDIC to achieve a more level
regulatory playing field.
 Objectives of Regulation:
1. Protect against systemic instability;
2. Prevent market misconduct, fraud,
anticompetitive behavior;
3. Information assymetry;
4. Safety nets.
3-Tier Standard to Strengthen
Financial System
Tier 1
Self-governance
Corporate Governance
Accounting and Auditing
Market
Operating Environment
Tier 2
Settlement system/Price
discovery/Transaction cost/Liquidity
Rating Agencies
Financial Literacy
Government Regulation
Financial regulation & prudential
supervision
Legal reforms
Tier 3
Capital Market’s share
in the Task
These much-needed measures are not solely
the call of the capital market participants; to
some extent, they rest with government
institutions in charge of macroeconomic,
sectoral, and social policies and programs.
We in the capital market are eager to do our
share in our own field as reflected in the
Legislative initiatives herein.
Legislative Wishlist
Extension of SPAV Law
Fair Credit Reporting Bill
Amendments of BSP Charter
AMLA Amendments
Corporate Recovery Act
Pre-need Bill
Rationalization of Financial Sector Taxes
PERA
RICA
Amendments to SRC
Amendments to Insurance Code
Amendments to the Corporate Code on the fit-and-proper rule
Repeal/Clarification of “deposit substitutes”
Consolidated Regulator Act
Fire Code of the Philippines
Establish
policies
Build legal and
regulatory framework
Build other
financial sector
infrastructure
Macro stability
Institutions
Companies
Central bank
Bank
Insurance
Pension funds
Fund management
Banking and other
financial supervision
BSP Charter
Consolidated Regulator
Companies/enterprises
Accounting and
acturial professions
Markets
Capital
Securities trading firms
Investment fund
management firms
Payment systems
Banks
Micro and cooperative
Specialized
Commercial
SPAV
Political environment
Legal and judicial
environment
AMLA
CRA
Transparency and
disclosure
Fair Credit
Reporting Bill
Property rights
registries
Share registries
Contracting enforcement
Property rights
Lending/collateral
Financial instruments
Market conduct
Wholesale and retail
investment services
Accounting and auditing
Regulations
Failure-resolution laws
Insolvency
Deposit insurance
Restructuring agencies
Research and rating
agencies
Develop institutions
Central bank
BSP CHARTER
Contractual Savings
Insurance
Pensions
Pre-Need
Insurance Code
RICA
Develop financial
instruments and
markets
Fixed-income instruments
Equities
Currencies
Commodities
Derivatives
Other financial/instruments
term (leasing)
securitization
housing loans
agricultural credit
supplier's credit
guarantees
Tax Reform
PERA
Upgrade skills
Seminars for
policymakers
Training institutes
Institutional
development
Capital markets/exchange
Securities trading and fund
management
Exchanges
Equities
Fixed-income
Government
Municipal
Private sector companies
Commodities
SRC
Fire Code
Lending Investors Act
Benefit of Capital Market
Development to the Real Economy
Channels funds to most appropriate investments;
Sets benchmark for risk-free yield curve;
Provides access to local currency funding;
Provides diversified and higher returns for domestic
savings;
Reprices financial assets continuously;
Helps develop new hedging instruments;
Attracts different types of investors;
Ensures better financial reporting in both financial and real
sectors of the economy.
CMDC Remains Committed
 To be a pro-active public-private sector
partnership that is the very core of CMDC
 To pursue its vision of market development
premised on the Filipino consumer
 To be an active participant in the legislative
process as an integral aspect of market
development
Thank you