PSE says VWAP transaction value should be no less than P500,000

THE Philippine Stock Exchange, Inc. (PSE) has announced that the value of a volume-weighted average price (VWAP) transaction should be no less than P500,000.

In a document dated Feb. 1 posted on its website, the local stock market operator said that its VWAP trading rules had already been approved by the Securities and Exchange Commission (SEC). However, the PSE has yet to provide the specific launch date for the new trading product.

“The exchange shall advise the public in due course of the official launch and implementation of the VWAP trading Rules,” the PSE said.

VWAP trading is among the products that will be launched by the PSE this year as part of improving market liquidity and expanding its portfolio. The PSE defines a VWAP transaction as “a pre-arranged transaction executed at the VWAP price of a security.”

VWAP refers to the average price at which a security has been traded during a trading day, allowing investors to observe the trend and value of the security.

In January, the PSE stated that VWAP trading improves market transparency, noting that institutional investors could utilize the tool to execute large orders and avoid artificially inflating the price of a security.

Aside from the value being no less than P500,000, the PSE’s approved rules state that VWAP transactions can only be executed within 15 minutes after the run-off/trading-at-last period.

VWAP transactions can only be executed by a single trading participant, provided that the PSE has the option to subsequently make the VWAP trading facility available for two-firm trading.

“Only authorized salesmen and traders of the trading participants shall be allowed to execute VWAP transactions,” the rules said.

The approved rules also provided that the execution price of VWAP transactions would be computed based on the VWAP for the security in a given trading day, while the VWAP should not exceed four decimal places.

“Except block sales, intentional cross and odd lot transactions, all other trades shall be included in the VWAP computation for the security,” the rules said.

China Bank Capital Corp. Managing Director Juan Paolo E. Colet said the introduction of VWAP trading would help the local bourse become more attractive to large institutional investors.

“This is aimed at making our market more attractive to large institutional investors who would like to buy or sell a sizable amount of stock at its full-day VWAP,” Mr. Colet said in a Viber message.

“The facility allows those market participants to potentially improve the quality of their trade execution as they can transact at a price that is at least not worse than the VWAP,” he added.

Mr. Colet added that the entry of VWAP trading will help boost the local stock market in comparison to other markets.

“VWAP trading is offered in other markets, such as the stock exchanges of Thailand and Malaysia, so this product is another step in improving the value proposition of the PSE,” he said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that VWAP trading would boost market price transparency.

“This would promote greater market price transparency for the investing public, as well as greater price discovery. This is part of further capital market development,” he said. — Revin Mikhael D. Ochave