PSE, SCCP upgrade risk management, corporate governance

The Philippine Stock Exchange (PSE) and the Securities Clearing Corp. of the Philippines (SCCP) have stepped up efforts to improve risk management practices to restore investor confidence in the midst of the current financial turmoil worldwide.

Francis Lim, PSE and SCCP president and chief executive officer, reported that the continued volatility in the markets today has prompted the board of directors of the SCCP, a PSE wholly-owned subsidiary, to introduce stricter controls for clearing and settlement to further minimize settlement risks.  

 “The SCCP board recently approved the imposition of the 20-percent haircut on securities submitted as collateral that will effectively increase the collateral requirement for trade transactions that are still pending settlement,” Lim said.

Securities that are acceptable as collateral remain to be the securities comprising the PSEi and PSE shares. A haircut shall be applied as a buffer of value against any price change on the securities collateral delivered by the clearing members. In effect, the imposition of a haircut would result in additional shares being delivered in order to achieve full collateralization.

The SCCP board has also authorized the management to monitor clearing members’ trading levels and to require further details of the trades from clearing members whose exposures are unusually higher than their average levels of settlement obligation for the past six months.

 “There is no better time to do this but now. With the implementation of a stricter rule on collateral requirements, the clearing and settlement system is being strengthened which should further enhance investor welfare,” Lim added.

Meanwhile, the PSE has continued to intensify corporate governance practices and included it as a crucial component of its reform agenda. It has developed its framework of corporate governance to further enhance the company’s reputation and credibility by building long term shareholder value, providing stability and consistency and promoting transparency and truth in reporting.

 “PSE puts value in corporate governance. Corporate governance in the Exchange has evolved from a mere structural change in board composition to a more responsive and responsible organization that can weather future crises,” said Jose Luis Javier, PSE director, and head of governance committee, during a working session hosted by the Institute of Corporate Directors at Dos Palmas, Palawan.

Last year, the PSE created the Corporate Governance office to support the fundamental functions of corporate governance, enterprise risk management, strategy management, and corporate social responsibility. It also embarked on a Corporate Governance Improvement Program (CGIP), which involves the development and conduct of various corporate governance-related initiatives in the PSE, as well as with other market participants.

 “After a year of its existence, I am happy to note that there had been modest gains as a result of creating the CG office. The PSE is now in full swing, implementing its CGIP intended to ensure investor protection. An enterprise risk management framework is the basis for the revision of some of our policies and procedures. We have in the process increased PSE’s presence and profile in the regional corporate governance community.  Though there are these gains, a lot of ground still needs to be covered and we are working even harder at them,” Javier added.