After Short Selling, Will PSE Launch Derivatives Next?

Following the recent announcement of the upcoming launch of short selling, the PSE may be now planning to introduce derivatives trading by mid-2025, according to an online report in Inquirer.

Will PSE actually launch derivatives?

According to a report, the PSE is gearing up to introduce initiatives to improve the local capital markets, with a specific focus on equities trading, with the aim of positioning the Philippines at a competitive level comparable to other stock exchanges in the region.

The report from Inquirer indicated the following:

• The PSE is in the process of introducing derivatives trading in the local market. 
• The PSE leadership is currently in talks with foreign counterparts regarding an initial product, such as an index futures contract, to be traded locally.
• The PSE aims to launch derivatives trading as early as 2025, the report stated.

What are derivatives?

Derivatives are financial instruments whose value is derived from the value of an underlying asset. These assets can include commodities, stocks, bonds, currencies, interest rates, or market indexes. Derivatives are essentially contracts or agreements between two parties that specify conditions under which payments will be made based on the price movements of the underlying asset. 

Common derivatives include a range of financial instruments, such as:

• Futures contracts – obligate the buyer to purchase or the seller to sell an underlying asset at a predetermined price on a future date.
• Forward contracts – similar to futures contracts but are typically customized and traded over-the-counter.
• Options contracts – give the holder the right (but not the obligation) to buy (call) or sell (put) an asset at a specified price within a defined period.
• Swaps – involve the exchange of cash flows tied to various interest rates or currencies, such as interest rate and currency swaps.
• Warrants – typically long-term options issued by companies, granting the holder the ability to purchase the company’s stock at a fixed price.

Derivatives can be used to hedge against risk, speculate on future price movements, or generate income. When used correctly, it can be a valuable tool for investors. However, they can also be risky if they are not used properly.

In May, cryptocurrency firm Gemini launched its non-U.S. derivatives platform, Gemini Foundation, in the Philippines and 29 other countries and territories. 

However after more than two weeks, Gemini was warned by the Philippine Securities and Exchange Commission (SEC) for offering unregistered Gemini Derivatives, violating the country’s Securities Regulation Code (SRC) —on its website the firm has removed the Philippines as one of the countries where they offer derivatives, but a record of which can be accessed here.

Short Selling Upcoming Launch

With regulatory approvals in place, the PSE is set to launch short selling on October 23. The PSE has received regulatory approvals for the introduction of short selling, and has expanded the range of eligible securities for short selling. The SEC aims to align short selling in the PSE with best practices from major Asian markets, promoting liquidity, market stability, investor protection, and value realization for Philippine corporations’ shares.

Short selling is a way for investors to profit from declining stock prices by borrowing and selling securities with the expectation of repurchasing them at a lower price in the future. 

This article is published on BitPinas: After Short Selling, Will PSE Launch Derivatives Next?

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