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Briefing on DemutualizationPhilippine Stock Exchange

Professor Victor S. Limlingan

Professor Romulo L. Neri

September 12, 2000

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Table of Contents

1. Grandfather Rule

2. Mechanics of Demutualization

3. Financial Structure of PSE

4. Issues on Brokerage Seats

5. Issues on PSE Shares

6. Issues on Support Services

7. Program of Demutualization

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Grandfather Rule

• Australian Stock Exchange (ASX)

Existing Member Organizations became “Participating Organizations” and were “grandfathered” market access by supporting legislation… Access to the trading and other facilities maintained by ASX were made available immediately after conversion to the same organizations.

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Grandfather Rule

• Hong Kong Exchange Corporation

HKEC confirms that one Stock Trading Right… will automatically be conferred on all persons who are Stock Exchange Shareholders prior to Effective Date… Accordingly, the position of Stock Exchange Shareholders will effectively be “grandfathered”.

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Grandfather Rule

• Singapore Exchange Limited (SGX)

The underlying principle guiding the trading access of members is the “grandfather” of rights, i.e. to continue existing member rights until further review.

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Grandfather Rule

• Toronto Stock Exchange (TSE)

Each member of the Exchange immediately prior to the continuance will become entitled to direct access to the trading facilities of TSE, Inc. upon execution of a Participating Organization Agreement.

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Mechanics of Demutualization

Broker

SEAT

CERTIFICATE

STOCKHOLDEROFPSE

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Mechanics of Demutualization

BROKER

SEATSTOCKHOLDER

PSE

BROKER

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Mechanics of Demutualization

BROKER

TransferableStock Trading

Right

PSE Common Shares

BROKER

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PSE Financial StructureBalance Sheet of PSE

as of 31 December 1999

Assets - 1,211,801,388

Debt - 329,921,147

Equity - 881,880,241

Based on Book Value (Before

Revaluation of Assets)

Convert 881,880,241 Equity

to 881,880,241 shares at par value of P1.00

Distribute to 184 Members Outstanding

881,880,241

---------------

184

Each Member 4,793,827

then receives

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Mechanics of Demutualization

BROKER

One TransferableStock Trading

Right

4.8 million PSE Common Shares

BROKER

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PSE Financial Structure

IMPLICATIONS

A. Broker can sell Seat now called Transferable Stock Trading Right while

Broker holds on to PSE common shares

B. Broker can sell PSE common shares while

Broker still operates a Seat, now called Stock Trading Right

C. Broker keeps Transferable Stock Trading Right and PSE common shares

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PSE Financial Structure

CONCLUSIONBEFORE: Broker has only one certificate which

makes him a stockholder of PSE and allows him to have a seat in the Exchange

NOW : Broker has the option of maintaining the status quo or concentrate

on being a broker or a stockholder of PSE

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Issues on Brokerage Seats

A. Legal structure of Stock Trading Rights

B. Tax implications

C. Classes of Stock Trading Rights

D. Moratorium on New Stock Trading Rights

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Issues on PSE Shares

A. Legal Issues on Demutualization

B. Valuation of Shares

C. Share Structure

D. Limits on Voting and Ownership

E. Listing Objectives

F. Choice of Strategic Partners

G. Initial Public Offering