SEC presses PSE on independence of surveillance unit

The Securities and Exchange Commission has directed the Philippine Stock Exchange (PSE) to submit by Wednesday (June 9) the interim measures to ensure the independence of its Compliance and Surveillance unit.

The directive came after the PSE board of directors decided to retain the Compliance and Surveillance Group within the PSE organization despite calls for the establishment of a separate company that will handle the bourse’s examination and investigation of trading participants.

SEC Markets and Exchanges Department head Jose P. Aquino said the interim measures would be discarded once the permanent measures are decided upon based on the PSE review of the current structure and operations of the CSG.

Rule 39.1 of the Securities Regulation Code underscores the need to establish an independent audit, compliance and surveillance office within a registered exchange or as an entity separate and distinct from the exchange.

SEC said there was a need ensure the independence of the CSG in the performance of its functions due criticisms that that some PSE officials and directors have been wielding their authority over the CSG.

It would be recalled that in 1999 the entire CSG under the management of lawyer Ruben Almadro resigned on fears that the PSE would whitewash the investigation conducted on stock transactions involving BW Resources Corp. of Chinese-Filipino businessman Dante Tan.

The CSG is tasked with monitoring market conditions and trading activity to detect violations of the securities law and exchange rules. It also monitors compliance by listed companies with continuing listing obligations.

According to the SEC, the CSG should not be subordinated or otherwise controlled in its activity by the board or PSE management and shall be responsible for carrying out the exchange’s disciplinary role.

Apart from the establishment of an independent compliance and surveillance office, the PSE shall put in place a risk management framework and a system for compliance with risk-based capital adequacy requirements.

The PSE has also committed to ensure that it continues to conduct its regular audit of brokerage houses on time to determine their compliance with the SRC, its implementing rules and regulations and PSE rules on trading operations, business conduct, financial responsibility and sales practices.

The exchange has also vowed to strictly monitor compliance by listed issuers with their disclosure obligations to ensure transparency and curtail possible insider trading and other market fraud. It shall impose the necessary penalties for any violations spotted.

To further safeguard the interest of the investing public, the PSE is drafting new rules governing the suspension and take-over of erring broker firms.

The revised rules seek to update the old Compliance and Surveillance rules in light of past experiences and present requirements of the exchange and to make them conform to the provisions of the SRC.

The rules set out the procedures for the inspection, examination and investigation of trading participants and the disposition of cases by the CSG.

In order to arrest the further commission of violations of the securities law and prevent financial instability among brokers to avoid damage to the capital market, the CSG may summarily suspend or impose limitations upon the erring trading participants without need of approval from the governance committee, provided, however, that the latter shall within five trading days from implementation of such order, convene to review, confirm, modify or reverse the CSG’s action.

Before summarily suspending or imposing limitation upon the erring trading participant‚s operations, the CSG may grant a period within which the erring broker shall rectify or remedy the violations of the securities law or exchange rules.

Failure by the Governance Committee to resolve the summary order shall be deemed an automatic confirmation of the action taken by the CSG.– Zinnia dela Peña