PSE developing derivatives market for FY26 launch

InsiderPH [link] reported that the PSE and the Taiwan Stock Exchange (TWSE) have signed a memorandum of understanding to develop a derivatives trading market. The agreement will allow the two parties to create a framework for how to proceed not only with the development of the actual infrastructure of the derivatives market but also with the regulations and best practices around its operation and governance. According to InsiderPH, the PSExTWSE deal is “part of [PSE President Ramon Monzon’s] initiative to launch derivatives on PSE by early 2026 if regulatory hurdles–primarily the issue of how to fairly tax derivatives–are satisfactorily addressed.”

> What are derivatives?  As the name suggests, they’re things that you can buy that derive their value from some other underlying asset.

Most investors who have experience trading crypto or US markets will be familiar with options trading, which is a type of derivative. An option contract gives the holder the right (but not the obligation) to buy a certain asset (usually a stock) at a certain price in a certain time frame. 

> What would that look like?  In the PSE context, an options market for Ayala Corp [AC] options might sell AC call options at a strike price of P700/share, expiring December 20, 2024, for a price of P0.15 per share. Options contracts are usually for 100 shares, so the total cost to buy this option would be P1,500 plus fees.

The person who buys this contract would have the right (but not the obligation) to buy 100 shares of AC for P700/share. If you bought this option contract today and AC went up to P750/share near the expiration, then you’d be able to sell the option for somewhere in the neighborhood of P5,000 (+233%). If AC was still trading below the strike price at the option’s expiration, the option would be worthless and you’d have lost the entirety of your P1,500 investment.