In a proposal to the SEC’s market regulation department, the PCD said the depository counter service is no longer necessary because brokers have stopped availing themselves of this service since the Philippine Stock Exchange (PSE) removed its guarantee on conversions.
According to the PCD, when the guarantee was available, brokers got automatic credit for their accounts after the PCD received the individual certificates which were then immobilized and deposited into the central depository.
But since the PSE phased out its guarantee, certificates were not longer lodged into the PCD system before being verified by the transfer agents, a process that takes at least 10 days because the PCD issues the so-called jumbo certificates by batch in order to save on the cost of issuing the certificates.
The 10-day period proved to be too long for some brokers, the PCD explained, so that it had to introduce the direct transfer route where brokers could deliver their certificates directly to the transfer agents instead of going through the PCD first.
Since most brokers go straight to the transfer agents anyway, the PCD said there is no longer any need to maintain its depository counter service and the attendant costs should be passed on to either the brokers or the investors that prefer getting in out of the book-entry-system (BES).
According to the SEC, however, this could raise the risks involved in lodging shares with the PCD since brokers themselves would be lodging shares by batches to the PCD.
The longer the shares are in the custody of the brokers, the higher the risks, said SEC-MRD assistant director Graciano Felizmenio Jr. To resolve this, he said brokers should not be allowed to hold the shares for more than 48 hours.
"Whenever the aggregate value of the certificates for lodgment exceeds P5 million, the broker should be required to make the partial if not total deliveries not later than 12 noon the next day," Felizmenio recommended.
Regardless of total market value of the certificates under the custody of the brokers for lodgement purposes, the SEC said they should be delivered to the transfer agents for verification not later than 48 hours.
The PCD said it is preparing to conduct a pilot program by utilizing three transfer agents that would be given the leeway to select the issues as well as the timing.
Effective on the cut-off dates, brokers would be advised to go directly to the transfer agents to deliver the certificates for verification and confirmation since the PCD would then cease to accommodate their lodgement.
According to the PCD, the brokers could either file a direct transfer request with a turnaround time of two days and where the requesting party would shoulder the cost of the lodgement transaction; or the broker could file a batched lodgement request with a turnaround time of 10 days.
In a batched lodgement request, the transfer agent will bunch together the different requests from various brokers during the 10-day period before issuing the jumbo certificate.