Purge the stock exchange

President Estrada is finally moving to distance himself from his friend and campaign supporter Dante Tan. But even as the President tries to convince the public that there is no cronyism or high-level corruption in his administration, another sector badly needs cleaning up. Apart from Tan, who chairs Best World Resources Corp., several stock brokerage firms have been implicated in the alleged insider trading and price manipu-lation of BW stock that has brought down the Philippine stock market.

For most Filipinos, the stock exchange is an arcane world where brokers can do as they please with minimal regulation. This is a different numbers game, where the stakes are often high and the rules known only to a select group. Once in the recent past, ordinary Philippine investors put their money in the stock market, watching out for initial public offerings, believing tips from friends who have turned a modest profit playing the market. Never mind if there were persistent rumors of insider trading; few people knew how this was done. The only thing certain was that insider trading could not be possible without the involvement of stock brokers, but few people cared as long as the profits were spread around.

The financial crisis brought down bourses across the region, and there were hopes that the disaster would end the operations of unscrupulous brokers. The BW scandal, however, indicates that even the economic crisis could not clean up the Philippine stock market. BW Resources was the one that apparently got caught, although Tan insists he has committed no impropriety. No one knows the extent of insider trading in the Philippine bourse. Few people know what penalties are in store for unscrupulous brokers and others involved in insider trading. Is the punishment enough to deter the crime? Is it even a felony?

The BW scandal and the market's reaction to it have exposed the weaknesses of the Philippine stock market. Surely not all brokers are dishonest, and surely most of them want to stay in a profitable business for the long term. The only way they can do this is to purge their ranks, to work for new rules that will guard against insider trading and stock price manipulation, and to move for penalties stiff enough to discourage potential crooks. If brokers continue protecting their own, a few of them will make a killing but the consequences will eventually kill the stock market.