Brokers seek exemption from voting rights limit in demutualized PSE

Member-brokers of the Philippine Stock Exchange (PSE) are appealing for exemption from a provision in the Securities Regulation Code (SRC) limiting to 20 percent the voting rights of any industry or business group in a demutualized bourse.

The brokers said they are not categorically classified as an industry and that such constraint runs counter to their representation in the 15-man board of governors.

PSE general counsel Dennis Eala said based on 26 sub-industry groups identified, stockbrokerage operations do not fall under a general industry or business group. "Our proposal to the SEC (Securities and Exchange Commission) is that stock brokering should not be made applicable."

Under the SRC, voting rights – whether directly or indirectly – are limited to five percent for an individual and 20 percent for an industry or business group. The SEC, however, may exempt an applicant from this prohibition "where it finds that such an ownership or control will not negatively impact on the exchange’s ability to effectively operate in the public interest."

PSE president Ramon T. Garcia said another argument that the SEC should consider is the brokers’ representation in the board. The SRC requires that brokers shall consist of not more than 49 percent of the BOG and that majority of this board should be made up of non-brokers who represent the issuers, investors and other market participants.

"How can the PSE exercise its 49 percent board representation if it is only required a 20 percent limit on voting rights?" he said.

During its elections last March, the PSE took the first step toward demutualization as it installed for the first time a majority, or eight out of the 15 seats, of non-brokers.

Garcia added that upon the PSE’s demutualization, which means breaking up the bourse’s exclusive membership status into a publicly-owned entity, it would still be 100 percent owned by the brokers and "it would take some time before this can be brought down to 20 percent.

Based on the PSE’s timetable, Garcia said it would still take at least one year from the Aug. 8, 2001 demutualization deadline before the exchange can list its shares for public offering. The additional period, he said, is needed to enhance the value of the PSE, particularly as it plans to spin-off certain profitable units such as the information technology group and the clearing and settlement unit.