PSE bucks capital provision in Securities Act

The Philippine Stock Exchange (PSE) is opposing the inclusion of a capital requirement for brokerage houses under the proposed Securities Act of 200 since it would put small brokers out of business, PSE governor and concurrent CEO of First Resources Management and Securities Corp., Vivian Yuchengco said yesterday.

"Small brokers with small volumes may also be unintentionally put out of business by a capital requirement in the law that is too large for their needs. It is common knowledge that it is the small Filipino brokers that service the middle-class with small savings," Yuchengco said.

The proposed law, still pending in Congress, requires a paid-up capital of P50 million and a net capital of P10 million. She said stipulating this amount in the law would create more problems. For instance, the capital requirement varies with time and depending on the size of the brokerage house.

Some 60 to 70 percent of the 160-plus member-brokers of the PSE would be hurt by this provision.

"Capital requirement changes with time. Putting the requirement into a law prevents the Securities and Exchange Commission (SEC) and the PSE from changing the required capital without a new law. This might not be obvious now, but it will become a serious obstacle in nurturing the capital market in the future," she said.

Congress wants a higher minimum capital requirement for brokerage houses because it wants to encourage a consolidation in the industry. It also wants to weed-out small houses that may not have the financial muscle to pay clients in case there is a massive selloff of a particular stock.

The PSE, on the other hand, said brokers should be regulated like banks, that is, the higher the bank the bigger the capital requirement.

Yuchengco said the amount of capital required for all businesses depends on the company's volume of business.

"Naturally, this is what determines how much working capital you need. And working capital is the amount of liquidity or net capital requirement that we brokers have to comply with. The amount really depends on the broker's trading volume," she said.