Changes in corporate disclosure rules sought

The Market Integrity Board, which serves as oversight to the bourse’s surveillance unit, is seeking changes in corporate disclosure rules to ensure that investors receive timely disclosure of material information.

In particular, the MIB is pushing for accelerated reporting by companies of any transaction that may significantly affect their operations. It believes that the 10-day period for filing disclosures need to be shortened to ensure the protection of the investing public.

"Assuming that the 10-day period is not a minimum requirement, we believe that the SEC can shorten the period pursuant to its powers under Section 72 of the Securities Regulation Code and it may be advisable for the SEC to exercise this power towards this end," the MIB said.

The MIB, a brainchild of PSE president Francis Lim, is chaired by retired Supreme Court Senior Associate Justice Jose Vitug with former SEC Associate Commissioner Monico Jacob sitting as vice-chairman.

The recommendation came in the wake of the investigation conducted by the MIB on the First Pacific Group in connection with the sale of its five percent stake in Metro Pacific Corp.

The investigation stemmed from a complaint by brokers that Metro Pacific failed to disclose First Pacific’s planned divestment. The transaction was announced only after it was completed.

However, the MIB ruled that this particular case of alleged insider trading cannot be divorced from the disclosure rules under the SRC.

Citing the SRC, the MIB ruled that "what the SRC requires to be disclosed is change in ownership, not a planned or intended change in ownership. The language of the provision would indicate that the obligation to disclose arises after the sale, not before the sale," the MIB resolution noted.

Therefore, "FPC (First Pacific Co. Ltd.) is not required by law to disclose its plan to sell MPC’s five percent outstanding capital stock before effecting the same."

"The fact that no such requirement is prescribed by the law inevitably means that such stockholder can dispose of its shares prior to disclosure without running afoul with our insider trading law," the MIB said.

However, the MIB said the law does not prohibit a controlling shareholder from making a disclosure well in advance of the mandatory 10-day period. The MIB said FPC "would have been well advised to make an early disclosure so that the matter would not have escalated to this level," the MIB resolution said.

The MIB also noted that there is nothing to prohibit a rule prescribing for a much shorter disclosure period if, in the judgment of both the SEC and the PSE, such shorter period will further protect the investing public.

The current PSE rules have a shorter period but it covers only directors and officers and not controlling shareholders like FPC.

Metro Pacific has been accused of insider trading through the "hype and dump scheme" by a group of brokers. Hype and dump is a manipulative scheme in which individuals or entities cause the price of a certain stock to go up, then they dump their holdings at the top of the market.

Metro Pacific shares were observed to have been going up in July and August on the back of news releases about the company’s planned projects, its profit projections and those of its subsidiaries and affiliates–all of which attempted to show the bright future of the listed property holding company.

The share price of Metro Pacific went up to as much as P0.63 per share from only P0.25 last January. A week before the disclosure of Hong Kong-based parent company First Pacific Co. Ltd. of the sale of its five stake in Metro Pacific, the share price of the latter was at P0.58 until it went down to P0.38 following the completion of divestment.

Brokers said the pronouncements made by Metro Pacific chairman Manuel V. Pangilinan about the company’s plans in recent months might have been done to prop up the share price of the property holding firm in view of First Pacific’s planned divestment of its shares.

A foreign brokerage company reportedly handled most of Metro Pacific’s transactions a few months ago following Pangilinan’s optimistic announcements on the holding company.