The Securities and Exchange Commission (SEC) is giving the Philippine Stock Exchange until May 15 to reduce its interest in the Securities Clearing Corp. of the Philippines (SCCP), the clearing and settlement house for listed stocks.
At the same time, however, the commission en banc told PSE chairman Felipe Yap in a letter that upon consultation with the Bangko Sentral ng Pilipinas (BSP), BSP Gov. Rafael Buenaventura made it clear the BSP is not yet allowing individual banks to take on clearing functions of the SCCP. Moreover, the Bankers Association of the Philippines is also not willing to have the Philippine Central Depository Unit take on the clearing functions of the SCCP.
The commission en banc said the PSE should be able to trim its interest in the SCCP from 51 percent to 20 percent, adding the stock exchange should also submit a proposal for an alternative entity to the SCCP.
The commission en banc added that while it will still be the SCCP that will handle clearing operations, there are certain commercial banks that have expressed interest in increasing their stakes in SCCP or to buy into the corporation.
While settling the issue, the commission en banc also ordered the PSE to immediately implement the following directives: collect SCCP fees from PSE brokers immediately and retroactive to Jan. 7, 2000; impose sanctions and collect fines and penalties for settlement violations starting April 13, 2000; begin a mark to market collateralization negative indication starting April 13, 2000; and immediately implement risk monitoring of brokers' financial data.
The commission en banc warned that failure to comply could mean suspension of brokers' licenses.
The SEC had earlier noted the ownership structure of the SCCP which makes it difficult to become a clearing and settlement house at the same time. It is open to the idea, however, of allowing new investors to come into SCCP.
Appointing banks is also out of the question since the commission en banc feels this will expose the banks too much if they have to absorb failed market transaction. He added this also goes against the regulatory objective of the SEC.
Under the existing rules, when brokers breach the trading cap which is 20 times more than a stock's net capital, the broker is required to put up collateral to ensure that there is money before the settlement date. If they do not comply, they are not allowed to continue trading.
Carlos L. Velayo Jr., chief operating officer of the SCCP, has been pushing for the approval of its permanent license so that it can carry out all its three primary functions.