Capital Market

Module 1
Topic 2 The Philippine Financial System
I. Learning Activities

3.1 BOND MARKET in PHILIPPINES

• Philippine bond market has long been present in the country’s

history but managed to gain wider traction starting 1905.
• 1905 when Bureau of Treasury launched an Electronic Auction
System
• Introduction of scripless government securities in 1997
• In 1998, the government securities were also democratized with the
launch of Small Investors Program, which lowered the minimum
denomination of such investments from Php10 million to as low as
Php25, 000.
• First listing and trading of government bonds happened at the PSE
in 2001
• March 2005 when the Fixed Income Exchange started to operate,
albeit on an exclusive interdealer platform
• The creation of exchange was spearheaded by the Bankers
Association of the Philippines (BAP) which owned and managed
by the Philippine Dealing System Holdings Corporation (PDS)
together with three (3) subsidiaries:
- The Philippine Dealing & Exchange Corp. (PDEx)
- Philippine Securities Settlement Corpo. (PSSC)
- Philippine Depository & Tryst Corp. (PDTC)
• In 2008, the SEC granted PDEX to operate an over-the-counter
market and function as a self-regulatory organization consistent with
OTC rules
• PDEx was also licensed by the SEC as an exchange under the
Securities Regulation Code

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 Capital Market

• Figure 3 shows that Philippine debt capital market stood at Php6.6

trillion or USD131.2 billion as of year-end 2019.
• Its equivalent to just 34% of the country’s GDP over the same period
• The total breakdown of the Philippine bond market as of year-end
2019 is Php5.1 trillion or USD101.5 billion 77.4% of it comes from
government securities
• 80% is denominated in Philippine pesos or the total outstanding
government dept market
• Corporate paper stood at Php1.5 trillion or USD 29.7 billion or
22.6% of the market
• 60% of figure is denominated in foreign currency
• On the new issuance side, a total of Php1.5 trillion or USD 29.2
billion of government securities was raised in 2019 while only Php
366.6 billion or USD7.1 billion was raised by the corporates
• Clearly, the Philippine debt market is heavily skewed toward
government paper
• 2019, a total of Php5.3 trillion of fixed-income securities changed
hands and of this figure, 98.7% was attributable to government
securities.
• The Philippine domestic bond market consists of short- and long-
term bonds.
• Mainly issued by the National Government
• The Philippine bond market is dominated by Treasury Notes and
Bonds. Although, the size of the Philippine corporate bond market
is still small relative to government bonds that has been growing
rapidly over the years.
• Corporate bond issuance came from various sectors, mostly, banks,
real estate and telecommunication companies, toll way operators
and a beer-based conglomerate.
• The growth in the region’s bond market was driven partly by huge
demand from region investors looking for more attractive returns

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 Capital Market

than those available in United States, Europe and other developed

markets

Types of Securities
Issued by the National Government through the Bureau of the
Treasury (BTr)
• Treasury Bills (fixed-rate)
• Treasury Bonds (fixed-rate, coupon-bearing and zeroes)
• Retail Treasury Bonds (RTBs, fixed-rate coupon bearing)
• Multi-currency Retail Treasury Bond (MRTBs, Fixed-rate coupon
bearing)
• Dollar-linked Peso Notes (fixed-rate)

Issued by the National Government through Other Entities

• Debt Securities issued by Government-owned and -controlled
Corporations (GOCCs)
• Debt Securities issued by Government Agencies

Challenges and Opportunities

✓ Poor liquidity and low retail participation

✓ In 2020, the PSE listed its first real estate investment trust (REIT)
✓ The PSE disclosed plans to relax listing rules by removing the
Php500 million or USD10 million minimum market-capitalization
requirement for a company to be listed in the main board.
✓ The PSE also plans to remove the requirement that companies must
generate a positive EBITDA in at least two of the last three fiscal
years
✓ Reduced the required operating history from three years to two years
and replace Php100 million or USD2 million minimum authorized
capital stock market requirement with PHP25 million or
USD500,000 paid-up capital to qualify for the listing on the SME
✓ The Philippines deepen the local bond market through the
implementation of the ASEAN+3 Multi-Currency Bond Issuance
Framework
✓ Gradually reduce taxes on bonds (which are currently among the
highest in the region)
✓ Plans to reduce tax rate on interest income from 20% to 15%
✓ Reduce tax on trading gains slowly from as much as 30% to 20%
✓ The PSE in 2009 signed a memorandum of agreement with DepEd
for the integration of a capital market segment in the High School
curriculum in the senior year economics subject
✓ 2013, the PSE launched its online service bureau
✓ In 2019, the PSE launched the PSE Electronic Allocation System
(PSE EASy) website and mobile application, allowing investors

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 Capital Market

who want to take part in the Local Small Investor (LSI) tranche an
IPO to subscribe online.
✓ To encourage more retail participation in the bond market, the
Bureau of Treasury, together with a private bank, launched in July
2020 the first mobile app in the country that allows small investors
to purchase retail Treasury bonds for as low as Php5,000 or
USB100.
✓ Digitization of Personal Equity and Retirement Account Products
(PERA) – an act that aims to promote a voluntary retirement savings
account for working Filipinos by providing annual tax incentives.
✓ BSP relaunched PERA allowing Filipinos to open an account and
make their contributions online.
✓ The central bank has a target of at least 5 million of these accounts
over the next five years.
✓ This development would boost demand for the stocks and bonds,
leading to greater market liquidity, to the benefit of the local capital
market

II. Assessment

Activity 3. 1
Research for the following and elaborate it precisely.
1. Total bond debt of the Philippines as of 2021
2. Describe the Philippine debt/bond market for the past 5 years
through graph
3. List at least five (5) Corporations involved in the Philippine Bond
Market
4. Duties and Responsibilities of Bureau of the Treasury
5. Significance of The Philippine Dealing & Exchange (PDEx)

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III. References

• https://cbonds.com/country/Philippine-bond/
• https://www.bworldonline.com/phl-bond-market-
continues-to-grow-in-
q1/#:~:text=Year%20on%20year%2C%20however%2C%
20corporate,the%20first%20quarter%20of%202020.&text
=However%2C%20even%20as%20it%20expanded,only%
20Vietnam's%20%2471%2Dbillion%20market.
•

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