SEC drafts rules regulating day trading

The Securities and Exchange Commission (SEC) is drafting rules that will regulate day trading, or the manner by which investors buy and sell the same shares on the same day.

SEC Markets and Regulation Department director Jose P. Aquino said day trading should only be allowed if the necessary safety measures are put in place.

"We are coming out with rules on day trading to ensure the protection of the investing public," Aquino said.

He cited that in the United States, one can engage in day trading only when he or she has made the required deposit with a broker-firm.

The current practice here is that any investor can buy shares and sell the same within the same day. "Even without any cash outlay, one can just engage in day trading and take profits. In other countries, there are rules governing this type of activity so there’s reason for us to regulate this activity," Aquino said.

Aquino said the plan may not be well received by the brokerage industry as these trades represent a significant share on brokerage houses’ revenues.

He pointed out that while day trading provides liquidity to the capital market, the rules that will be included in the proposed amendments to the Securities Regulation Code will ensure that the interests of investors are adequately protected from illegal trading activities.

In a related development, the SEC has installed a surveillance system aimed at easily detecting fraud, manipulation and other illegal practices in the exchange.

The system, according to the SEC, is expected to prevent the repeat of the BW Resources stockmarket scandal, which nearly caused the collapse of the market in 1999.

The acquisition of the software, dubbed as the Advanced Warning and Control System (AWCS), was funded by the Asian Development Bank as part of the multilateral agency’s technical assistance program to strengthen the SEC’s capability for market regulation and governance.

The system is necessary for the SEC to effectively perform its oversight functions on the Philippine Stock Exchange, allowing it to gain quick access to historical information and reports, as well as signal a warning against unusual market activities.

It will also scrutinize orders at the time they are placed until they are canceled or traded. It enables storage of information in the folders for cases needing further investigation.

SDG Software Technologies of India, which designed the system, has made the software suitable for multiple market segments across stock markets.

The company has provided similar services to a number of European countries. It was selected as a result of an extensive evaluation of available surveillance systems in regional and world markets conducted by the ADB consultants in coordination with the SEC and market participants.