Philippine Business Magazine: Volume 8 No.2 - Capital Markets
Go Scripless
Trading stocks the hassle-free way

Last 1 April, the Philippine Stock Exchange (PSE) stopped guaranteeing brokers’ lodgments / deposits of stock certificates with the Philippine Central Depository (PCD). The elimination of the PSE guarantee aims to encourage stock market investors to keep their shares in book-entry (scripless form) to facilitate stock market trading.

Without the PSE guarantee, the PCD will not provide immediate credit to brokers’ lodgments. Rather, brokers’ securities accounts will be credited only after certificates are delivered to and verified by transfer agents. This process would take at least 10 business days. An alternative approach (called Direct Transfer) is for the broker to deliver the certificates directly to the transfer agent to shorten the turnaround time.

How does this affect the trading and settlement process? This means that investors may not be able to readily sell their physical certificates as this will have to be converted first to book-entry credits for settlement purposes.

If a broker will accept sell orders against physical certificates, he bears the risk that the book-entry credits may not be confirmed in time for settlement. To remedy the situation, the broker may borrow book-entry shares to cover the sale. However, this exposes him to two risks. First, there may be no available shares to borrow, and second, the physical certificates he receives from the client may be defective.

Investor Options
In light of these market developments, investors are strongly advised to convert all their stock certificates into PCD book-entry credits to be able to take advantage of the opportunities of scripless trading. What are the investor’s options?

First, an investor may lodge (deposit) all of shares through his broker. This way, his shares will be in the PCD book-entry system and can be sold anytime. Any defect on the share certificate would be discovered by the transfer agent via the broker so it can be corrected immediately. This cleansing process prevents the selling of defective shares and ensures smooth settlement. Under this option, the investor’s name will be recorded as owner of the shares in the broker’s backroom system; PCD records will merely reflect the broker’s total share ownership in his PCD account.

Second, an investor may open a Sub-Account Registry (SAR) with PCD through his broker. This way, the investor’s name will be reflected in the PCD’s computerized records as owner of the shares as a sub-account in the broker’s account. The investor can also opt to receive his statement of shareholdings directly from PCD. Stock dividends will automatically be credited to the investor’s SAR account on listing date while cash dividends will be sent to his broker on payment date.

Either way, the investor will enjoy the benefits of holding his shares in book-entry form similar to keeping one’s money in a bank account. It’s time to move on and go all the way with the electronic business environment.

Why Go Scripless?
Scripless is the global practice for settlement of securities transactions. It eliminates the hassles attendant to physical certificates, risks stemming from lost certificates, and unauthorized endorsements. Automated settlement systems can also process more transactions in a much shorter period of time compared to manual or physical settlement.

The electronic transformation of financial markets here and around the world is creating new and better opportunities. On the local front, regulatory changes support this trend such as the passage of the Securities Regulatory Code and E-Commerce Law last year. Local stock market investors should adopt to these changes by totally shifting to PCD’s electronic recording of share ownership.

For more information about this new systems, investors may contact their brokers or the PCD Helpdesk at 840-3312 or 893-5636 local 1202, 1304 and 1307; email address: pcd_helpdesk@pcd.com.ph