SEC no longer allows voluntary suspension of operations of brokers

The Securities and Exchange Commission (SEC) will make it even harder for brokerage companies to voluntarily suspend their operations at the Philippine Stock Exchange (PSE).

In a draft resolution, the SEC said it would no longer allow brokers to go on voluntary suspension, which means either they continue to operate – even at a loss – or cease their operations entirely and apply for re-registration if the need arises later.

The SEC’s decision was prompted by inquiries from brokers who have previously suspended their operations voluntarily but continue to seek the renewal of their licenses or register anew as brokers and/or dealers.

"If they (brokerage firms) cannot operate, then they might just as well close shop and re-apply if they want to. This would show how committed are they in doing business at the exchange," an SEC official said.

But the catch is, for brokers who have ceased operations and would re-apply for registration, they would be subject to the revised capitalization rules which impose a minimum paid-up capital of P100 million for new registrants.

At present, active brokers need only to post a minimum net capital of P10 million, inclusive of a P5-million surety bond for brokers. In addition, a P1-million surety bond for dealers is required, as the SEC has permitted the dual roles of broker-dealer.

On the other hand, brokers who have suspended their operations are required a P2-million minimum net capital base.

Out of the 184 member-brokers that made it to the stockholders list of the demutualized PSE, only 136 are still actively trading despite the poor market conditions.

Since early this year, a record number of stockbrokerage firms – most of whom are foreign units – have temporarily halted their operations through voluntary suspensions. Among them, DBS Securities and HSBC Securities have opted to cease their Philippine operations completely.

Apart from those suspending operations, some of the PSE member firms have resorted to streamlining or downsizing their exposure, which means laying off personnel and shutting down their provincial branches, as in the cases of PNB Securities, Angping and Associates Securities and even the global financial giant ABN-Amro.

Based on exit interviews conducted by the SEC, most of the foreign stock brokerage companies attributed the weak market as the primary consideration in their decision to temporarily pack up, a "purely business decision on their part."

The foreign firms said the present poor market condition has not enabled them to generate the critical volume level that is necessary to raise the revenue to cover the fixed and overhead costs that they have to shell out to sustain full operations.

Some companies said it would be more economical and practical to downsize their presence in the Philippines by cutting down their trading-related operations (e.g. sale and backroom services) and instead just maintain their research operation.

In this manner, the decision to buy or sell Philippine stocks by their clients would not be affected as the research group would continue servicing the information needs of these foreign clients, whose orders would just be coursed through other Philippine-based brokers.

The list of brokerage firms which sought voluntary suspension this year includes All AsiaSecurities Management Corp. BNP Paribas Peregrine Securities, Citicorp Securities International, E*Trade Securities, FEB Stock Brokers, Keppel Securities, Nomura Securities, Orion-Squire Capital, PJB Pacific Securities, Topwin Securities, UOB Securities, UPCC Securities, WorldSec Securities, Merrill Lynch, OCBC Securities, G.K. Goh Securities, Guoco Securities, Magnum Securities and Rashid Hussain Securities.