There were two news developments that may have quietly slipped through the attention of the general public but drew interesting speculations from industry players and watchers of the capital market. 

These were the recent decision of the board of directors and stockholders of DBP-Daiwa Capital Markets Philippines Inc. (DBP-Daiwa Capital) to shorten its corporate term and cease operation by the end of the 2023, and the news that followed days after about the move of Daiwa Securities Group Inc. (Daiwa Securities), of the Daiwa conglomerate and Japan’s 2^nd largest securities brokerage, to increase its stake in COL Financial Group Inc. (COL Financial).

COL Financial is the online securities firm synonymously alluded to stock market guru Edward K. Lee.  

As part of the measures that DBP-Daiwa Capital has to take, it will cancel its registration as a securities broker with the Securities and Exchange Commission (SEC) and cease its operations with the Philippine Stock Exchange (PSE). It will also suspend voluntarily its trading operations with the Capital Markets Integrity Corporation (CMIC).

The CMIC is the independent audit, surveillance and compliance arm of the PSE established “to preserve and augment the level of integrity within the Philippine capital market industry.”

Business alliance

To recall, DBP-Daiwa Capital is the stockbrokerage firm owned by the Development Bank of the Philippines (DBP) and Daiwa International Holdings Inc. (Daiwa International) established through a joint venture agreement in 1995.   

The business alliance was “to provide Philippine and Japanese companies with investment banking advisory services and support for their financing needs from the Philippine and overseas capital markets.” Stipulated in the agreement, too, was for DBP “to provide Japanese companies with professional advice for their entry into the Philippine market.”  

Ownership in the formed brokerage firm were split three ways with Daiwa International holding a 60% interest while DBP held 35%.  The balance of 5% was held by the Yuchengco-led Pan Malayan Management and Investment Corp.

DBP-Daiwa Capital reported a net income of P946 million before the COVID-19 pandemic in 2019.  The following year of 2020, it reported a net loss of P23.23 million.  It further reported a net loss of another P13.01 million in 2021.

Perplexing moves

DBP-Daiwa Capital certainly had a dismal performance in recent years.  But the decision to close down is apparently not because of these poor operating results, and not even of the bad economic outlook that continues to prevail.  It is even far from the speculations that the alliance of the parties may not have worked out, as it is usually the case in partnership breakouts.  

Come to think of it, since the opening of the economy in 2022, business has started to recover – including the stock market. And, while businesses across the economic spectrum have yet to improve further, operating results have turned better.  

DBP’s bank operating results, for instance, has surged to as much as 50% in 2022.  It reported an end-of-the-year income of P5.61 B.  

Even among stock market participants, either engaged in retail, institutional or online broking operation is somehow thriving under the market’s current YTD daily average turnover of P6 B only. While this is a low contrast to business volumes enjoyed by neighboring markets at the moment, it remains remunerative in varying degrees among the currently active 124 or so brokerage houses.   

Lastly, from what the Daiwa group has claimed in its many public statements, the Japanese conglomerate continues to believe in the long-term potential of the Philippines. But because of the expediency brought about by the looming merger situation of Land Bank Philippines (Landbank) and DBP, they are taking another route to carry on with their presence in the country. 

Daiwa Securities was to bolster its existing stake in local securities company COL Financial to leverage the anticipated growth opportunities within the Philippine economy.

COL Financial elevated as full-service securities firm

As luck would have it, Lee got the break he needed to have his pipe dream move closer to reality.  Lee has been gearing COL Financial to become a comprehensive securities group that provides a wide range of financial services. And the present administration’s plan to merge Landbank and DBP aptly provided the opportunity he needed.   

The current administration has been hell-bent in merging Landbank and DBP as part of its claim to strengthen the resilience of the financial sector at the same time to better serve the country’s development needs.  The program is set to be completed in the first half of 2024, with Landbank as the surviving entity.  

DBP-Daiwa Capital, as a consequence of the merger, will become redundant. Landbank has its own securities brokerage firm, Landbank Securities Inc., also a PSE member firm.    

COL Financial was formerly CitisecOnline.com, Inc. It was incorporated on August 16, 1999, and on February 21, 2012, SEC approved the company’s change in name to the present one. 

The Company owns 100% of COL Securities (HK) Limited, a foreign subsidiary domiciled and incorporated in Hong Kong, which primarily acts as a stockbroker and invests in securities.

COL Financial prides itself as the best online platform, delivering essential research and analysis, as well as direct access to market data and statistics to keep you ahead in your investments. 

In 2019, under the Lee’s initiative, COL established the institutional business group, which specializes in providing services to financial institutions. Likewise, Lee set up on the same year its own asset management firm, COL Investment Management Inc. The purpose of which, was to serve as the fund manager for COL Equity Index Unitized Mutual Fund, Inc. and COL Cash Management Unitized Mutual Fund, Inc.  

Indeed, the expanded partnership with Daiwa Securities and the latter’s plan for a broader Asian expansion program is a fortunate stroke of serendipity for Edward Lee. 

In golf parlance, as Lee is an avid golf player himself, this brings his firm just about 120 yards away from the green – a distance not too far nor too near, but close enough to solidify the position of COL Financial as a key player in the evolving landscape of the financial system of the country. 

Congratulations and the best of luck to Lee!   

PSE’s short selling program

To help boost the market, the PSE will finally launch its short selling program on November 6 after it was set back from the original launch date of October 23.  

Short selling is the practice of selling securities in the market that will be settled by delivery of borrowed securities, which enables the investor to benefit from an expected future decline in price.  

In other words, short selling involves borrowing a security whose price you think is going to fall, and your plan is to then buy it back later, hopefully for a lower price than you initially sold it for, and pocket the difference.

The eligible securities in the short selling program includes members of the PSEi, MidCap and PSE Dividend Yield indices.  Initially, only securities comprising the PSE index and exchange traded funds (ETFs) were considered eligible securities for short selling.  You may consult your stockbroker or read directly the details of short selling regulations in the PSE website.  

In the meantime, market sentiments continue to be weighed down by the conflict between Israel-Hamas.  It is forcing local investors, like in other markets, to cash-out from equities.  The hawkish monetary outlook of local authorities appears to feed the exodus, as well.  

In this connection, analysts are placing the market’s first line of support-resistance band between 6,050 and 6,285 of the PSEi, while its second line of support-resistance band are estimated at 5,890 and 6,560, respectively. 

As what they say in the market nowadays, “Trade cautiously.” – Rappler.com

The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise.  Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity.  You may reach the writer at densomera@yahoo.com.