SEC penalizes bourse for noncompliance

BY RUBY ANNE M. RUBIO, BusinessWorld Senior reporter The Securities and Exchange Commission (SEC) has penalized the Philippine Stock Exchange (PSE) for the latter’s failure to comply with ownership restrictions. In a letter dated Aug. 13, SEC officer-in-charge V. Graciano P. Felizmenio, Jr. ordered the local bourse to pay the fine of P101,100 five days upon receipt of the letter. PSE is required by the Securities Regulation Code (SRC), to limit ownership in the exchange of not more than 5% for any person and not more than 20% for any industry. The local bourse, which used to be 100% owned by brokers but is now only 42.2% held by them, was earlier given up to July 20 to meet the SRC requirements. The local bourse, however, has not been able to further dilute brokers’ hold. "PSE shall be periodically assessed the additional fine until PSE shall have fully complied with the industry ownership limit," the SEC letter said. It added that the PSE must impose a limit on the voting rights of brokers as a group to 20% of the total outstanding stock in the next stockholders’ meeting or election, "until such time that the industry ownership limit is complied with." On the July 20 deadline, PSE wrote the SEC to ask for a one-year extension to comply with the law. The SEC, however, junked the request, telling the bourse that "filing of the request on the very last day does not in any way automatically give PSE additional time to comply with the [provision], nor does it suspend compliance with the earlier directive to PSE to submit proof compliance with the ownership limit not later than July 25, 2007." Mr. Felizmenio said based on the report submitted by RCBC stock transfer department, the brokers as a group beneficially own or control approximately 6.46 million shares of the 15.28 million outstanding PSE shares as of the close of business day on July 20. This represents 42.27% of the total outstanding capital stock of the PSE. "Clearly, PSE failed to comply with the industry ownership limit despite previous reminders, warnings, and extension of time for compliance given by the commission," he added. In a separate interview on Tuesday, PSE President Francis Ed Lim told BusinessWorld that the bourse would tap a financial advisor to help it demutualize. Mr. Lim said the board of directors was considering UBS Investment Bank, CLSA Exchange Capital, Inc., JP Morgan Chase & Co. and Macquarie Securities (Asia) Pte. Ltd. for the deal. "We are engaging the services of a financial advisor. Given the legal problems, [the financial advisor would present] the best way for the exchange to comply [with the SRC provision]," Mr. Lim said. He said the PSE would seek reconsideration of the SEC’s decision to penalize the bourse. "We worked hard and continue to work hard to comply with the law. There is a legal issue. Can you force the brokers to sell out?... If they penalize us, we will ask for a reconsideration. It is no longer the fault of the exchange," he said. The PSE has been looking at several options to comply with the SRC mandate. These include the secondary sale of PSE common shares held by the brokers; the issuance of new common shares for a private placement; an initial public offering of PSE common shares; an issuance of voting, nonconvertible, cumulative, redeemable and nonparticipating preferred shares; and a PSE employees stock option plan. On Dec. 15, 2003, the PSE reduced broker ownership through listing by way of introduction, a scheme that allows a widely held company to be listed on the exchange without undergoing a public offer. The PSE also facilitated a private placement of a 39.78% stake in the bourse to institutional investors, and facilitating notice to the brokers of the interest of Hong Kong-based investment management firm Value Partners Ltd. UK-based GLG Emerging Markets Special Situation Fund also bought 1.4 million shares equivalent to a 9.13% stake in the PSE for P909.15 million last June.