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Capital Market Development Council

Capital Market Development Council. The CMDC Its Purpose & Its Organization Role of Capital Markets in the Economy The Market Players & Enabling Environment. The Present Situation CMDC’s Share & Working Agenda Concerns/Issues & Pressing Needs. Legislative Wishlist & Recommendations

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Capital Market Development Council

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  1. Capital Market Development Council

  2. The CMDC Its Purpose & Its Organization Role of Capital Markets in the Economy The Market Players & Enabling Environment • The Present Situation • CMDC’s Share & Working Agenda • Concerns/Issues & Pressing Needs • Legislative Wishlist & Recommendations • The Road Ahead

  3. 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

  4. Financial market is the forward- looking bridge between today and the future Providing Savers & Borrowers options to meet their needs What Market Dev’t Means SHARED Responsibility Commitment Consumer Satisfaction Consumer Protection

  5. 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.

  6. Capital markets deal in promises Debt Promise Equity Promise Contingent Promise

  7. 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

  8. #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.

  9. #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

  10. #3 Balance of Incentives Taxation creates a friction cost but provides a social net Framework for Governance FINANCIAL MARKET PUBLIC

  11. 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.

  12. Situation Keeps RP Market Size Small Relative to Neighbors

  13. Need to Improve RP’s 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

  14. 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.

  15. 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

  16. 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.

  17. 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.

  18. 3-Tier Standard to Strengthen Financial System Tier 1 • 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 2 Tier 3

  19. Capital Market’s 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.

  20. 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

  21. 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.

  22. 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

  23. Thank you

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