SEC issues rules on 20% ownership limit

- Zinnia B. Dela Peña () - January 3, 2004 - 12:00am
The Securities and Exchange Commission (SEC) has issued rules governing the trading of shares of the Philippine Stock Exchange to ensure full compliance of the 20-percent single industry share ownership limit rule under the Securities Regulation Code.

Under the SRC, no individual can own more than five percent of the exchange and no single business group can hold more than 20 percent.

Under the rules, a broker-dealer and its employees are prohibited from buying PSE shares for their own account or for the account of another broker-dealer until such time that the brokers and dealers, as a business industry, are in compliance with the ownership limit rule.

The SEC said even if the broker-dealer industry rule has already been complied with, the moratorium should automatically set in whenever the benchmark is breached.

The prohibition shall also apply in the purchase of PSE shares for the accounts of related persons of a broker-dealer, which shall include its subsidiaries and affiliates, its directors, officers, principal stockholders, and nominees to the PSE, and the spouses and relatives up to the fourth civil degree by affinity or consanguinity.

While there is no prohibition for employees of broker-dealers to acquire shares in the PSE where it is proven that the money used by such employees came from the broker-dealers themselves or that they retain control of voting rights and beneficial ownership of such shares, the SEC will consider such purchase as a circumvention.

To allow more effective monitoring of the percentage limit, a broker-dealer shall be required to fill in the field "Client Code" of the PSE Maktrade system with the customer’s tax identification number, if applicable, each time it places an order to buy or sell PSE shares.

For a customer who does not have a TIN, the broker-dealer shall be required to assign such person a unique code.

A broker-dealer who is currently using a different code system to identify its customers has to notify the SEC of such existing system and convey to the commission the preferred code that it will be using.

A broker-dealer is also prohibited from soliciting and/or receiving discretionary proxies from customers and a customer shall be prohibited from issuing discretionary proxies in favor of their brokers, relative to PSE shares. This is to prevent any broker-dealer from exercising effective control over voting rights in the PSE beyond the allowable limit.

The PSE is required to submit to the SEC on a daily basis, either by e-mail or by facsimile, a report, signed by the associated person, of all transactions of PSE shares that the broker-dealer has effected for the day not later than 3 p.m. of the same day.

The SEC may be forced to impose a deadline for the exchange to meet the 20-percent single industry shareholder ownership limit rule if the brokers refuse to sell their shares.

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