1 Briefing on Demutualization Philippine Stock Exchange Professor Victor S. Limlingan Professor Romulo L. Neri September 12, 2000.

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Presentation transcript:

1 Briefing on Demutualization Philippine Stock Exchange Professor Victor S. Limlingan Professor Romulo L. Neri September 12, 2000

2 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

3 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.

4 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”.

5 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.

6 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.

7 Mechanics of Demutualization Broker SEAT CERTIFICATE STOCKHOLDER OF PSE

8 Mechanics of Demutualization BROKER SEAT STOCKHOLDER PSE BROKER

9 Mechanics of Demutualization BROKER Transferable Stock Trading Right PSE Common Shares BROKER

10 PSE Financial Structure Balance 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) Convert881,880,241 Equity to881,880,241 shares at par value of P1.00 Distribute to 184 Members Outstanding 881,880, Each Member4,793,827 then receives

11 Mechanics of Demutualization BROKER One Transferable Stock Trading Right 4.8 million PSE Common Shares BROKER

12 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

13 PSE Financial Structure CONCLUSION BEFORE: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

14 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

15 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