1 briefing on demutualization philippine stock exchange professor victor s. limlingan professor...
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Briefing on DemutualizationPhilippine Stock Exchange
Professor Victor S. Limlingan
Professor Romulo L. Neri
September 12, 2000
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Table of Contents
1. Grandfather Rule
2. Mechanics of Demutualization
3. Financial Structure of PSE
4. Issues on Brokerage Seats
5. Issues on PSE Shares
6. Issues on Support Services
7. Program of Demutualization
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Grandfather Rule
• Australian Stock Exchange (ASX)
Existing Member Organizations became “Participating Organizations” and were “grandfathered” market access by supporting legislation… Access to the trading and other facilities maintained by ASX were made available immediately after conversion to the same organizations.
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Grandfather Rule
• Hong Kong Exchange Corporation
HKEC confirms that one Stock Trading Right… will automatically be conferred on all persons who are Stock Exchange Shareholders prior to Effective Date… Accordingly, the position of Stock Exchange Shareholders will effectively be “grandfathered”.
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Grandfather Rule
• Singapore Exchange Limited (SGX)
The underlying principle guiding the trading access of members is the “grandfather” of rights, i.e. to continue existing member rights until further review.
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Grandfather Rule
• Toronto Stock Exchange (TSE)
Each member of the Exchange immediately prior to the continuance will become entitled to direct access to the trading facilities of TSE, Inc. upon execution of a Participating Organization Agreement.
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Mechanics of Demutualization
Broker
SEAT
CERTIFICATE
STOCKHOLDEROFPSE
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Mechanics of Demutualization
BROKER
SEATSTOCKHOLDER
PSE
BROKER
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Mechanics of Demutualization
BROKER
TransferableStock Trading
Right
PSE Common Shares
BROKER
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PSE Financial StructureBalance Sheet of PSE
as of 31 December 1999
Assets - 1,211,801,388
Debt - 329,921,147
Equity - 881,880,241
Based on Book Value (Before
Revaluation of Assets)
Convert 881,880,241 Equity
to 881,880,241 shares at par value of P1.00
Distribute to 184 Members Outstanding
881,880,241
---------------
184
Each Member 4,793,827
then receives
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Mechanics of Demutualization
BROKER
One TransferableStock Trading
Right
4.8 million PSE Common Shares
BROKER
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PSE Financial Structure
IMPLICATIONS
A. Broker can sell Seat now called Transferable Stock Trading Right while
Broker holds on to PSE common shares
B. Broker can sell PSE common shares while
Broker still operates a Seat, now called Stock Trading Right
C. Broker keeps Transferable Stock Trading Right and PSE common shares
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PSE Financial Structure
CONCLUSIONBEFORE: Broker has only one certificate which
makes him a stockholder of PSE and allows him to have a seat in the Exchange
NOW : Broker has the option of maintaining the status quo or concentrate
on being a broker or a stockholder of PSE
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Issues on Brokerage Seats
A. Legal structure of Stock Trading Rights
B. Tax implications
C. Classes of Stock Trading Rights
D. Moratorium on New Stock Trading Rights
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Issues on PSE Shares
A. Legal Issues on Demutualization
B. Valuation of Shares
C. Share Structure
D. Limits on Voting and Ownership
E. Listing Objectives
F. Choice of Strategic Partners
G. Initial Public Offering