The Daily Tribune <<< Without Fear or Favor >>>

»HEADLINES

»NATION

Brokers to be anonymous under new bourse policy

03/16/2009

The board of the Philippine Stock Exchange (PSE) approved a policy on broker identifier anonymity in market transactions as a means to level the playing field among market participants and increase liquidity.

PSE president Francis Lim said removing the display of the broker identifiers for executing orders during trading is considered best practice in major markets such as US, China, Japan, Korea and Australia.

Among the Asean exchanges, the Bursa Malaysia, Singapore Exchange Ltd., and the Stock Exchange of Thailand have implemented this policy.

“By applying international best practices in our operations, the board’s decision to adopt this policy realizes our vision of raising the level of the exchange at par with developed exchanges,” Lim said.

“The current practice where broker identifiers are displayed for matched trades has the unnecessary consequence of impeding the order flow of transactions and encouraging market participants to undertake trades outside the market, thereby depriving other investors from taking part in the trade auction process.” Lim explained.

“Contrary to perception that taking out the broker identifier is a disservice to market players because it reduces transparency, broker anonymity actually promotes fairness and affords investors with deeper market depth and liquidity,” he noted further.

Under the current system, the broker codes of buying and selling brokers in every matched trade are displayed in the trading screens of market participants. When market players know who is buying and who is selling, investors may tend to be more worried of the possibility of front-running or unnecessarily facing higher execution costs.

Various literatures suggest that liquidity increased and bid-offer spreads narrowed in stock markets in Australia and Canada when broker anonymity was implemented in these markets. Other European exchanges have also expressed plans of undertaking the same measure.

Lim added that the investing public, especially institutional investors, will also benefit as they can transact with their brokers without drawing unwanted attention.

“This policy also improves investor confidence because an investor will face lesser risks that his orders will move the market. Their orders would be disclosed only if they trigger the limits prescribed under our existing rules,” he said.