Capital Market Development Council

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Capital Market Development Council
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• The CMDC
• Its Purpose Its Organization
• Role of Capital Markets in the Economy
• The Market Players Enabling Environment

• The Present Situation
• CMDCs Share Working Agenda
• Concerns/Issues Pressing Needs

• Legislative Wishlist Recommendations
• The Road Ahead

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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

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What Market Devt Means
SHARED
Responsibility
Commitment
Consumer Satisfaction
Consumer Protection
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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.

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Capital markets deal in promises
Debt Promise
Contingent Promise
Equity Promise
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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

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1 Competitive Parity
Submarkets complement but compete with each other
Ownership Overlaps Product Overlaps

• Banks
• Commercial
• Thrift
• Rural

• Non-Banks
• Invt Houses
• Finance
• Invt Companies
• Insurance
• Pre-Need
• Dealers Brokers
• Etc.

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2 Addressing Diversity
Savers value liquidity but term funds are also
necessary

• Housing needs
• Education for the kids
• Retirement planning
• Insurance Hedging
• Expanding productive capacity

Banks 82
Resources
CASA 67
Deposits
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3 Balance of Incentives
Taxation creates a friction cost but provides a
social net
Framework for Governance
FINANCIAL MARKET
PUBLIC
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Situationer Recent Disincentives toFunds 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.

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Situation Keeps RP Market Size Small Relative to
Neighbors
DOMESTIC MARKET CAPITALIZATION DOMESTIC MARKET CAPITALIZATION   2002 2003 2004 end-Dec 2005
(in billion US) (in billion US)   2002 2003 2004 end-Dec 2005
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
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Need to Improve RPs Low Domestic Savings Rate

• 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

Source ADB
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Need for Faster Development ofDomestic 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.

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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

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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 publicly-listed firms.

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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.

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3-Tier Standard to Strengthen Financial System

• Self-governance
• Corporate Governance
• Accounting and Auditing
• Market
• Operating Environment
• Settlement system/Price discovery/Transaction
  cost/Liquidity
• Rating Agencies
• Financial Literacy
• Government Regulation
• Financial regulation prudential supervision
• Legal reforms

Tier 1
Tier 2
Tier 3
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Capital Markets sharein 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.

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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

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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.

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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

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Thank you