While the recent reduction in the cost of trading stocks in the Philippines is expected to boost market activity at the Philippine Stock Exchange (PSE), more needs to be done to develop the local capital market, particularly in investor education.

During the bell-ringing ceremony at the PSE marking the reduction of the stock transaction tax (STT) with the implementation of the Capital Markets Efficiency Promotion Act (CMEPA), PSE President and CEO Ramon S. Monzon said that the STT reduction “is not the panacea that will solve our markets liquidity issue.”

“We must complement this STT reduction with continuing initiatives to grow the number of listed firms and expand our product and service offerings,” he stated.

Monzon also noted the need to “find more ways to get more people to invest in the stock market instead of spending for non-essentials or throwing their hard-earned money on online gambling.”

The PSE has already taken steps in this direction. It entered into a memorandum of understanding with the Department of Migrant Workers to conduct learning sessions for overseas Filipino workers and their families on personal finance and stock market investment, while also protecting them from investment scams.

Similarly, an MOU with the Commission on Filipinos Overseas will see the PSE showcase its PSE Academy website and its online and mobile app-based platforms for disclosures, market data, and initial public offering subscriptions. These will be featured in webinars and training sessions for Filipinos residing overseas permanently.

“Still, nothing beats providing financial education to students while they are still young, and it is still possible to influence them to shift to a savings mindset from a spending or gambling mindset,” Monzon said. “We will work with the CHED (Commission on Higher Education) and the Department of Education to include financial education in their curriculum and teach young students that the savers' mindset is a way of life.”

He added, “We will also continue to work with the Securities and Exchange Commission and our multiple stakeholders for vital stock market reforms that will help make the Philippine capital market more competitive, efficient, and investor-friendly.” These reforms include amending the board lot table to make investing more affordable and accessible, regulating global Philippine Depository Receipts, streamlining requirements for securities borrowing and lending, and introducing derivative products like index futures.

Prior to the passage of CMEPA, Monzon noted that overseas investors found the Philippine STT of 0.6 percent to be excessively high compared to other bourses in the region.

“We have many listed companies at the PSE that provide exceptional returns. Our country and local market risks have proven to be manageable,” he explained. “Unfortunately, with a stock transaction tax of 0.6 percent and a minimum brokers' commission of 0.25 percent each for a buy and sell trade, our market had the highest friction cost among the ASEAN’s six exchanges.”

For comparison, Singapore, Thailand, and Malaysia have no STT or minimum broker commissions. Indonesia and Vietnam have no minimum broker commissions, but their STT is only 0.1 percent.

On April 17, 2024, the Securities and Exchange Commission removed the minimum commission that stockbrokers charge their customers. Now, due to CMEPA, all trades on the PSE are subject to an STT of only 0.1 percent, down from 0.6 percent. This “finally mak[es] us competitive with our regional peers in terms of friction cost,” Monzon stated.

He cited Taiwan as an example: “Friction cost has an influence on an exchange's trading volume. When Taiwan reduced its STT for day trading in April 2017, from 0.3 percent to 0.15 percent, the average daily trading volume of the Taiwan Stock Exchange increased by 3.09 times from 2016 to 2020.” He further noted, “In fact, Taiwan Stock Exchange’s trading volume surged to 6.33 times between 2016, prior to the STT decrease, and its peak in 2021, five years later.”