Trade in forward contracts will be rolled out by the Philippine Dealing and Exchange Corporation on Monday, Feb 3, PDEx president Antonino Nakpil said.
Speaking on the sidelines of the Financial Executives Institute of the Philippines’ inaugural meeting earlier this week, Nakpil said trade of the derivatives — financial contracts with value linked to an underlying asset — will be limited to institutional investors, as well as dealers, and will not be traded using leverage.
In the case of the PDEx forward contracts, it will be applied to government securities where the buyer and seller agree on a price of the security that will only be concluded several days or weeks down the road, allowing the trader to use the contract as a hedging mechanism for interest rate fluctuations.
Nakpil, however, said the PDEx’s futures will be settled in a “unique” way.
“We’re not creating a futures contract in the traditional sense. But it’s a forward expression of what has been established as a method of hedging in the futures markets. We’re using a forward, OTC (over the counter) expression of that. So, it’s uniquely Filipino,” he said
“We’ll see if it works. We think it will. It’s not a futures contract, so there’s no leverage. We’ll allow only dealers and qualified investors—basically, professionals only,” he added.
“This is not meant for retail investors. Some contracts are not suitable for them, especially those involving leverage. Futures contracts, for example, become complicated once leverage is involved,” Nakpil said.