Monday, May 11, 2009 /BWorld| MANILA, PHILIPPINES
STOCKBROKERS will ask the Supreme Court (SC) to declare as unconstitutional a law forcing them to dilute their collective ownership of the Philippine Stock Exchange (PSE) to just a fifth.
"The Philippine Association of Securities Brokers and Dealers, Inc. (PASBDI) Board has approved that we move the case to the Supreme Court. In the next few months, I think that will be possible," PASBDI Governor Ismael G. Cruz said over the weekend.
The group last month has sought the recommendations of the Quasha Ancheta Pena & Nolasco law firm whether the brokers have valid grounds to file a petition to nullify the law that limits to 20% the ownership of the exchange by any group.
The firm advised PASBDI to file a petition before the High Court to have the provision declared unconstitutional or compel the Securities and Exchange Commission (SEC) to permanently relieve the bourse of the ownership caps as an alternative in case the Supreme Court upholds the limitations.
Mr. Cruz said they have waited long enough for SEC to relieve them but the corporate regulator continues to thumb down their request.
"We will comply with whatever the Court [decides] whether as an interim measure or as permanent measure. It is [up for the] court to say whether or not in the meanwhile [PSE] should comply," PSE President Francis Ed. Lim said.
Mr. Lim said there is also a pending request with the SEC to remove the P500 per day penalty which, he said is inconsistent with the corporate regulator’s decision to defer the implementation of the law this year.
The SEC last month allowed the exchange to breach the ownership caps, deferring the scheduled implementation of the limits this year, but increased the fine to P500 a day from P100. At present, the brokers collectively hold 31% of the exchange.
Prior to the merger of the Manila Stock Exchange and the Makati Stock Exchange in 1992, both exchanges were member-governed organizations and were not open to the public.
The 20% limitation came in the aftermath of the stock price manipulation scandal involving BW Resources Corp. that rocked the bourse in 1999.
This became a requirement when the exchange was "demutualized" or converted from a member-owned company into a shareholder-owned firm in August 2001 to remove the perception that the PSE is an "old boys club."
The new Securities Regulation Code (SRC) also allowed non-brokers to own majority of the bourse by occupying eight board seats, compared to seven held by brokers. As a result of demutualization, the ownership of brokers decreased from 100% in 2003 to 38.11% in November last year.
Under its rules, the SEC has the power to exempt the exchange if it proves that its ownership structure does take away from the exchange’s ability to operate in the interest of the public.
"The brokers can argue that the SEC has failed to properly evaluate the impact of the brokers’ ownership or recognize that the exchange is operating effectively and that the public interest is served when the brokers’ ownership has been broken down," Quasha Ancheta Pena & Nolasco said in a 27-page position paper submitted to PASBDI last month.
The paper added that the demutualization of the exchange was being supervised by the PSE, noting actions such as a pending request for the SEC to reclassify 19 inactive brokers as non-brokers to further lower brokers’ collective ownership to 31.9%.
The law firm also pointed out that the PSE had implemented an extensive reorganization to prevent brokers from controlling the exchange, including the formation of various committees for governance and the election of independent officers as president and chairman of the exchange.
This was on top of other measures such as public listing by way of introduction of PSE shares in 2003 and the private placement of 39.78% of PSE shares to institutional investors a year later, to dilute brokers’ stakes.
The firm also said the brokers are being compelled to sell their shares at rock-bottom prices considering the unfavorable market conditions, making it even more unreasonable because the brokers are compelled to sell even if there are no buyers to take their shares.
Aside from the ownership cap, PSE Director Vivian Yuchengco said the exchange is also considering going to the Congress to amend the SRC.
Mr. Lim said although there is still no specific plan yet how SRC will be implemented, he said they plan to make it more "market-friendly."
"There are a lot of things there that needs improvement but presently what we want to do first is to get all the tax incentive to improve market liquidity and to improve the number of listed companies... But the SRC amendment is part of the agenda," Mr. Lim said.
Among the provisions which he said could be amended include the provision which states that if one is a broker of a listed company, his brokerage house cannot trade the shares of the listed company.
"[Certain provisions] are anti-market and it really affects [our] liquidity which is [currently] a big issue in our stock market," Mr. Lim said.
He said the exchange has already talked to the SEC and is already in the process of identifying what needs to be amended for the SRC to be more market-friendly.
"[The exchange] already has a lot of system, such as the surveillance system, which can prevent insider trading. [Certain] provisions in the SRC are already unnecessary," Mr. Lim said.
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