Brokers reject rule limiting PSE ownership

BY RUBY ANNE M. RUBIO, BusinessWorld Reporter The Philippine Association of Securities Brokers & Dealers, Inc. is opposing a rule limiting brokers’ ownership in the Philippine Stock Exchange (PSE). Excluding inactive trading participants, brokers own 40% of the exchange. But inclusive of the inactive brokers, their stake is higher at 52%. But the Securities Regulation Code limits ownership by any one group to no more than 20% of the voting rights. "The stand of [the brokers’ group] is to do away with that rule," the group’s president, Nestor S. Aguila told BusinessWorld. "That rule may not be followed anymore. The bill of right says you cannot be forced to buy or sell. Why are we being limited? What if we feel it is a good investment because the market is robust, the dividend policy is attractive," he said. "The law has to be revised to redefine ownership restrictions of the PSE shares. Standards may be crafted to allow stockbrokers to own more PSE shares. The changing environment actually puts checks and balances for potential manipulative practices in the exchange. We already have independent directors," he said. He was referring to the rationale behind the ownership limit, which is to dispel perception of an "old boys’ club" mentality among the broker-owners. He warned: "If they push this, we are going to bring it up to another level. We will ask the courts. We are going to take it there if they insist. What we are just saying is we will question it from a judicial level to decide if [our argument] is right or wrong." The Securities and Exchange Commission (SEC) has reminded the PSE to complete its compliance with the provisions of the Securities Regulation Code, which requires an ownership limitation in an exchange of not more than 5% for any person and not more than 20% for any industry. In January, the PSE sought a six-month extension from the corporate watchdog before complying with the ownership limit. PSE President and chief executive Francis Ed. Lim said the exchange had submitted to the SEC various alternatives that may be considered to bring down the brokerage ownership to the required 20% maximum level. Among these are the issuance of either common shares or preferred shares. "The purpose is to comply with the maximum voting shares prescribed by law. Under the law, no one industry should own more than 20% of the voting shares. That is the purpose of the exercise. We want to comply on a lump-sum basis or staggered basis on this legal requirement. We requested the SEC for a period of six months to implement. By that time, we will have a definitive plan which we will discuss not only with SEC but also with brokers," Mr. Lim had said. But Mr. Aguila said perceptions the stock brokerage community is an "old-boys’ club," whose members protect each other at the expense of the investing public is a thing of the past. "There is no such thing as ’old boy’s club.’ The reality now is all of us will have to work together and tell the world local stocks are doing well. That is our job. How can you have an old boys’ club when your regulatory body is doing a good job. They check and balance all the transactions. The Securities Regulation Code has all the check and balance to see all of us fall in line." The brokers’ group is the national representative of the securities industry, including all licensed stockbrokers and investment houses, as well as independent securities brokers and dealers. It has more than 170 investment dealers. Separately, the brokers’ group had warned reverting the threshold for the mandatory tender offer to 15% from the existing 35% will "create a repressive structural market environment." In a letter to the SEC, Mr. Aguila, said the net effect of the 15% tender offer rule will knock the country off the Asia-Pacific growth map. "Capital has its own natural rules, if we tighten too much it flees, hence, it’s [the group’s] recommendation that the tender offer be maintained at 35% at par with our competition."