“MART is an association of practitioners. As practitioners we have many ideals that we carry. However, the reality of the markets we operate in are far from ideal. MART provides us a venue to bring to the market the ideals we carry and slowly turn it into reality,” says Paul Favila, president of MART. The Philippine market has been around for quite a while. The local debt markets in particular are probably as old as MART itself. But in terms of progress, we seem to be lagging in terms of sophistication and depth compared to our partners in the region.”
An example is the latest global financial crisis. We were relatively spared from this crisis. “Why weren’t we affected as the other countries? It’s because we weren’t even there to begin with, kasi wala pa yung sophistication ng market and investors natin.”
Favila says however that the Philippine professional financial markets have been maturing quite rapidly. “It’s enlightening, and it’s very heartening to see, that it’s actually happening at a much faster pace,” he says. “Our level of development and professionalism [in the country] is already catching up. MART has been a major partner in this endeavor. It has been the focus of all our efforts and initiatives.”
But MART is committed not only to its members who are the participants in the professional financial markets. It is also responsible to the public it serves. So that’s where we focus now.
“MART is a non-stock, non-profit organization organized to provide an institutional medium by and through which the membership can collectively assist and cooperate with one another, the National Government and its appropriate agencies and instrumentalities in the promotion, development, expansion and regulation of a free and open market for debt, debt-securities and debt-related instruments and products.”
“MART has always been the workhorse of market. If you need to put it anything through a magnifying glass then you send it to MART. We look at the details, see the interconnections, see what is lacking, what needs to be strengthened and all that. “Masisipag ang mga tao sa MART.” Favila is proud of this and their members and regulators benefit from it.
For years MART has brought about many key changes in the local fixed-income market, working hand-in-hand with its members and regulators to put our market at par with global standards and ensuring the efficient flow of capital to keep our economy growing. But other than its members and the regulators, MART has one other stakeholder in its mission statement, the investing public! MART’s mission statement pledges that “we will protect and educate the investing public by upholding ethical standards, transparency and use of best practices.” “We now want this to be the centerpiece of our plans and activities for the next several years.” Favila states.
Being in the forefront of the rapid development of the markets in recent years, and contributing to the avoidance of a financial crisis that has hit other countries, the association is now shifting its focus. “It is time for us to focus on the serving the public. This year, a new committee was created by the board with the sole purpose of ensuring that MART continues to deliver on its obligations to the investing public.” Thus the Financial Literacy Committee was created to be chaired by the incumbent president which in itself is a testament to the priority and commitment the association accords the investing public.
About Investor Protection
Investor protection is a key objective in this new focus. In the capital formation process, there are three main parties: the investing public, the users of funds (i.e. government & corporations) and financial intermediaries (i.e. banks). Although they would seem as co-equals, the investing public requires protection, due to lack of financial knowledge, information and experience. It is no surprise then that a lot of investors are misled by an unscrupulous few who take advantage of the asymmetry in knowledge, luring them with promises of high returns. This is exactly what MART wants to avoid, and hopefully totally eliminate. These instances lead into capital destruction instead of capital formation. And it is capital formation that our country needs to move forward.
This year MART in cooperation with other professional associations has finalized a Code of Ethics for the Philippine Financial Markets. The Code encompasses most activities of financial institutions, enumerating their duties to market integrity and to the interests of clients. MART recognizes the importance of market integrity because it increases the confidence of the investing public to invest and channel their savings into legitimate economy-building activities. Meanwhile the section on “Duties to Clients” recognizes the importance of investment suitability, transparency and professionalism when engaging the investing public.
In order to achieve its mission and objectives, MART has chosen the promotion of financial literacy as its most important tool. It’s obvious that the biggest obstacle is lack of knowledge. “It’s important,” says Favila. “People are not even aware of these things. It’s not part of their psyche. And maybe that’s part of what we have to do.” In other countries people actively prepare for retirement. “At a very young age, they are already preparing for retirement thus their need to understand investments” he says.
“There is a need for investors to ask questions, to see what’s available out there, and evaluate what is suitable for them. 90 percent of our depositors don’t even know what they’re getting into. They go to the branch, they ask for the available rates, and they choose the highest one. But the fact is the higher the rate, the more the risk. People need to recognize the risks involved in investing. Because if the risk is something the client cannot handle, the client shouldn’t even get into it, even if the return is good.”
Favila says that the investor needs to establish his investor profile. This is something that the banks already do. It is a practice that was taken globally and brought on shore. The standard requires that every customer who goes through the door, has to be asked certain questions. And the professional dealing with the customer should be able to say okay, “This is only the amount of risk that you can take.” This is the first step in this whole process in order to prevent people from losing money, when they’re not ready to lose money.
Another important thing that investors should know about are the numerous product options available in the markets. Most people, given a hundred thousand pesos to invest, will still bring to a bank for deposit. Reality is that there are a lot of products available that can properly meet the investor profile objectives and constraints of the investor.
After recognizing these gaps, MART feels it’s in the best position to educate the market. It can leverage on its wealth of knowledge and information and deliver various educational modules to the investing public. For years MART has developed numerous modules that have helped shape key bankers, and can therefore harness these experiences into the investing public.
In fact MART has been providing free seminars to several segments. They provide talks for media, regulators, students, and even NGOs. MART especially likes the college crowd, and is one of MART’s target markets for financial literacy. Favila says that this is a good thing because most students don’t really get to interact with professionals, especially those in the financial markets. But they are ripe for our programs, to get them started on the right path to prepare for a financially secure future.
MART has already started expanding its reach to the corporate customers as well. “Again, trying to bring the market and public up the curve,” says Favila. “Banks would most likely have the best practices when it comes to running Treasury groups and managing risks, and it’s always beneficial to share these practices with other industries.”
Need for Strategic Partnerships
But MART recognizes it needs partners to reach a wider audience and achieve its mission. MART is working with the Bangko Sentral ng Pilipinas (BSP) now. The partnership was started when the new board was sworn in. “When we told the governor of our theme, he was pretty excited about it. This is the first time that they are getting engagement from the private sector, in pushing this initiative,” says Favila. “Kasi pagdating sa Pilipinas, halos lahat inaasa sa gobyerno. Lahat problema ng gobyerno. The reality, we still have a stake. We all have our little obligation. So they were all very, very excited about the prospect of having a partner in the private sector in trying to push this agenda. To help educate, so they don’t get attracted to these kinds of things. When you talk about these dangerous instruments, a lot of them have very, very clear warning signals. For a professional, it’s almost like you show it to me, and I would see a big red dot in the middle of the page. But only I would see that; everyone else would be color blind. But it’s not difficult to spot if you know what to look for. That is what we would like to start out with. We want to show, and to try to bring the public consciousness the warning signs of a dangerous scheme.”
MART was equally excited when the BSP offered their facilities to them, since they have branches all over the place. “We can provide the lecturers and they were happy to help with the logistics.”
MART believes it has only begun to take a first step, a lot of work has to be done and a lot of linkages need to be established. But MART is confident, armed with key partnerships, a dedicated hard-working membership, and a noble mission, Paul firmly believes that MART will succeed in this challenging endeavor.