SEC may ask PSE to spin off its surveillance unit

The Securities and Exchange Commission (SEC) may opt to ask the Philippine Stock Exchange to spin off its compliance and surveillance department into a new corporation in view of growing criticisms questioning the bourse’s ability to ensure fair market practices.

SEC Chairman Lilia R. Bautista said the commission might be forced to order the creation of an independent compliance and surveillance corporation if it continues to receive complaints from PSE’s compliance officers that several brokers have been wielding their influence on investigations being conducted by the CSD.

"We will see how the reporting will go. Between now and January 2004, we will monitor the complaints we have been receiving from the CSD. If we receive no complaints, then we will give PSE the chance to run the internal CSD," Bautista said.

The PSE, however, has objected to the creation of an independent compliance corporation because this would entail additional costs.

The CSG is a critical unit of the PSE that monitors market conditions and trading activities to detect violations of the securities law and exchange rules including sales practices and financial and operational requirements.

It also monitors compliance by listed companies with continuing listing obligations and duties of members of the managing body of issuers to minority shareholders.

The SEC believes that the CSD shall not be subordinated or otherwise controlled in its activity by the board or PSE management and shall be responsible for carrying out the PSE’s disciplinary role.

The SEC and PSE are now jointly auditing the books and records of brokers and dealers to determine their compliance with securities rules and regulations.The audit started started last Oct. 1 and will run until Nov. 30, 2003.

To ensure the success of this endeavor, SEC markets regulation department director Jose P. Aquino has urged broker-dealers to make their books and records readily available to inspectors.

Aquino said the move is in line with the corporate watchdog agency’s efforts to provide adequate protection to the public and ensure that broker firms comply with the securities law.

He said the commission may, on its own initiative, conduct periodic or parrallel examinations of PSE member-brokers to validate the exchange’s findings.

Aquino said the SEC will not hesitate to enforce sanctions against broker firms that will be found in violation of the securities law. – Zinnia dela Peña

It would be recalled that in 1999 the PSE Compliance Group tendered their resignation on fears that the board would whitewash the investigation conducted on stock transactions involving BW Resources Corp. There were reports that some PSE governors during that time used their authority to prevent the CSD from inspecting the books and records of certain brokerage houses.

This was the same reason why the SEC ordered last year the creation of a separate Compliance and Surveillance Department to look into possible violations of securities regulations by stockbrokers.

The investigation into BW was due to the phenomenal rise in the share prices of the company from only P1.98 per share to a peak of P107 per share in just a short period of time. The shares have since fallen to below their par value of P1.

During an audit conducted by the SEC on brokerage houses that have heavily traded shares of BW, 75 brokers were found to have violated securities rules and regulations. The SEC generated P12 million in revenues from the collection of administrative fines from these erring brokers.