Analysts say PSE negotiated trades proposal fills market structure gap

THE Philippine Stock Exchange’s (PSE) proposed negotiated trades facility would address a long-standing gap in the local equity market by allowing certain legitimate pre-arranged transactions that cannot be executed under the exchange’s existing trading rules, according to analysts.

“The PSE’s proposal to introduce a negotiated trades facility is a constructive and timely market structure reform that addresses a long-standing execution gap in the Philippine equity market,” Toby Allan C. Arce, head of sales trading at Globalinks Securities and Stocks, Inc., said in a Viber message on Thursday.

In a consultation paper released on July 1, the PSE proposed a negotiated trades facility as a new execution venue for pre-arranged transactions that fall outside the exchange’s current block sale and cross transaction rules.

Under the existing framework, regular block sales require a minimum transaction value of P20 million and must be executed within 5% above or below the reference price (previous closing price or the last adjusted closing price following corporate actions), while special block sales require a minimum transaction value of P50 million.

Transactions below those thresholds may instead be executed as cross transactions, provided the agreed price falls within the best bid and offer (BBO).

According to the exchange, there is currently no mechanism for executing pre-arranged trades that satisfy neither requirement.

“One of the limitations of the current framework is that certain legitimate pre-arranged transactions cannot be executed efficiently if they fail to meet the minimum size for block sales or fall outside the best bid and offer required for regular cross transactions,” Mr. Arce said.

The proposed facility would have no minimum value or volume requirement and would allow negotiated trades to be executed during a 15-minute window after the Run-Off/Trading-at-Last session, subject to a price within 5% above or below the full-day volume-weighted average price (VWAP) and a one-firm trade requirement.

Mr. Arce said those safeguards would provide greater flexibility without compromising market integrity.

“The negotiated trades facility fills this gap by allowing these transactions to occur within clearly defined pricing boundaries and through the exchange’s infrastructure rather than forcing participants to restructure transactions or delay execution.”

“These safeguards strike a reasonable balance between providing execution flexibility and maintaining confidence in the integrity of market pricing,” he added.

BDO Securities Corp. President John Tristan D. Reyes also welcomed the proposal.

“For me, this is a welcome proposal. It allows more flexibility and transparency for investors looking to transact negotiated trades in the stock market.”

The exchange is accepting comments from trading participants and other stakeholders until July 7. — Alexandria Grace C. Magno