SEC stands pat on broker-dealer segregation rule

The Securities and Exchange Commission (SEC) is standing pat on its decision to implement the segregation of the broker-dealer function despite the Philippine Stock Exchange’s (PSE) request to relax this rule in view of the slumping market volume that has sent several foreign brokers packing home.

SEC chairperson Lilia Bautista said the spate of closures of a number of brokerage firms resulted from a host of factors, not solely on the lethargic turnover at the trading floor which brokers attribute to the separation of their dealing activities.

Since late last year, daily trading at the exchange has been averaging at just around P300 million – reportedly the seventh lowest volume worldwide. Aside from political concerns, weak macroeconomic prospects and poor corporate results, brokers also pointed out that the implementation of the new law disallowing brokers to deal for their own accounts, except in very specific instances, has significantly weighed down on the brokers’ business.

It has been estimated that the dealing aspect contributes about 40 percent to a broker’s revenues.

But under the new Securities Regulation Code, brokers who used to trade for their own accounts were stripped of this dealing function except for a few instances such as in the case of market-making transactions, to carry odd-lot deals or to correct transactions made in error.

The broker-dealer rule, they argued, was a hasty reaction to the stock trading scandal involving BW Resources Corp. in early 2000 where certain individuals and brokers heavily profited from traders of the hot stock.

Two more foreign brokers – Singapore’s UOB Securities and Japan-based Nomura Securities – have filed for voluntary suspension of their operations while another top foreign broker, the Dutch giant ABN-AMRO has been downsizing its local operations.

Earlier, three foreign brokerage houses have closed their Philippine offices: Orion-Squire Capital, OCBC Securities and Sun Hung Kai Securities. Three more local brokerage houses also opted to close shop: FEB Stock Brokers Inc., UPCC Securities Corp. and Topwin Securities Inc.