PSE asks Congress to allow dual functions for brokers, dealers

As the Senate and the House prepare to convene a conference committee to reconcile conflicting provisions of the proposed new Securities Act, the Philippine Stock Exchange made a pitch anew to allow brokers to also act as dealers in stock market transactions.

PSE officials said segregating the broker-dealer functions would dampen market enthusiasm and might scare away foreign investors.

The House version of the proposed act authored by Rep. Macario Laurel maintains the status quo and allows brokers to act as dealers but the Senate version authored by Sen. Raul Roco segregates the broker-dealer functions of PSE members.

PSE president Jose Luis U. Yulo Jr. said dealership of brokers is practiced in almost all major stock exchanges around the world.

"The House version is more acceptable to the PSE in the sense that it allows more flexibility," Yulo said.

He pointed out that the House version empowers the Securities and Exchange Commission to determine whether or not to disallow broker-dealer functions.

Section 41(a) of the House version states that "the Commission shall prescribe such rules and regulations as it deems necessary or appropriate in the public interest or for the protection of investors xxx (3) to restrict a broker from directly or indirectly dealing in securities or otherwise segregate and limit the function of a broker and a dealer."

Yulo said passage of this provision could cripple the market since about 45 percent of daily trades are consummated through dealership or under the principal account of brokerage firms.

One provision the PSE has conceded to is the broker-director rule, which is contained in both the Senate and the House versions of the new Securities Act.

The provision states that "no broker or dealer shall deal in or otherwise buy or sell, for its own account or for the account of customers, securities listed on an exchange issued by any corporation where any stockholder, director, associated person or salesman, or authorized clerk of said broker or dealer and all the relatives of the forgoing within the fourth civil degree of consanguinity or affinity, is at the time holding office in said issuer corporation as a director, president, vice-president, manager, treasurer, comptroller, secretary or any office of trust and responsibility, or is a controlling person of the issuer."

Yulo said this provision reinforces the rule on insider trading and eliminates any undue advantage on material information made available to brokers.

However, Yulo expressed concern that this provision could also affect the volume of transactions in the market citing as example most major listed banking institutions, which also have securities arms under their wings.