Investors largely ignored the launch of the dollar-denominated trading (DDT) facility of the Philippine Stock Exchange (PSE) last July despite the PSE’s campaign to drum up interest. In fact, there was only one transaction – consisting of 300 shares of Philippine Long Distance Telephone Co. (PLDT) – traded on the DDT.

Investors were wary to try the DDT primarily because of possible complications in the settlement and pricing of the transactions. PSE’s Hannah Nouns, however, says that the PSE recognizes these concerns and has already made moves to modify some of the rules to make it easier for investors to trade using the DDT facility.

The DDT is a mechanism implemented by the PSE to allow trading and settlement of shares in foreign currency – in this case, US dollars. Through this facility, dollar-denominated trading of offshore listed securities such as PLDT shall be opened simultaneous with the morning peso trading session for equities.

The objectives of offering the facility are to eliminate currency or foreign exchange risks, to have greater flexibility in the present trading infrastructure by allowing multiple currencies for trade transactions, to eliminate the costs involved in the conversion of American Depository Receipts (ADRs) such as those of PLDT, and to prepare for cross-border trading.

PSE figures show it is cheaper to purchase shares through the DDT compared to ADRs in the US market. For example, if one buys 1,000 ADRs worth $8,720 through Fidelity Investments in New York, he will have to pay a fee of approximately one percent of the transaction or $87.20. Under the DDT, the transaction cost is only P250 per Buy or Sell invoice, or approximately $4.55. If all other fees will be included such as interbank payments and trading fees, the total cost goes up to only $21.05, still just a fraction of the cost of purchasing ADRs in the US market.

The DDT is open to both residents and non-residents of the Philippines, subject to the foreign exchange regulations of the Bangko Sentral ng Pilipinas.

The trading limit for DDT is set at $250,000 a day, compared to P30 million in the peso equities trading.

Former PSE director and listing committee chair Joseph Roxas, however, says there is a problem in the settlement procedures that makes it too cumbersome to trade DDT shares compared to regular trading. “The fluctuation is also inaccurate. The DDT follows the fluctuations of peso stocks but remember that it is denominated in dollars. In common stocks, fluctuations amount to only P5, but it gets bigger there because of the exchange rate conversion,” Roxas explains.

Nonetheless, another PSE official clarifies that the DDT is still a work in progress and modifications would be implemented soon to address investors and brokers’ concerns. One of the major areas for modification is the requirement of the Bangko Sentral ng Pilipinas (BSP) to issue a separate Buy invoice for a client or investor, which would be the basis for determining whether the transaction should be paid in US dollars or Philippine pesos. PSE is reportedly asking the BSP for some leeway on this rule to increase interest in the DDT.

There is also the problem of the repatriation of the proceeds, particularly for foreign investors. But once these issues are settled, the PSE expects more transactions to be listed on the DDT.

PSE President Ernest Leung said during the launch of the DDT that the PSE may consider listing shares of even those companies that are not yet listed abroad, to allow multiple-currency trading. The plan, however, would have to be approved by the BSP and the Securities and Exchange Commission. PSE chair Alicia Rita Arroyo added that the DDT was means to expand the market for Philippine issues over the long term and diversify the PSE’s product offerings.