Anticipating adverse reaction from the market, the Philippine Stock Exchange (PSE) suspended the trading of ISM and Philweb shares for an hour following the release of the SEC order.
In a letter to the PSE, the SEC ruled that the transaction was exempted from the PSE rule that would have allowed existing ISM shareholders to buy ISM shares at the same bargain price offered to Philweb.
Writing for the commission en banc, SEC commissioner Fe Eloisa Gloria directed ISM to formally file the application for listing without the need for pre-clearance. She also directed the PSE to "expeditiously process" the application within five days "to prevent any suspicion of occurrence of insider trading."
The SEC also chastised the PSE for attempting to amend its rules while ISM’s request for exemption was being processed. The exchange, according to the commission, not only amended the existing rule but also imposed more stringent requirements.
"We find it not proper on the part of the listing committee to have recommended and for the board of directors to have approved a set of guidelines on the pretext of accommodating ISM’s condition," Gloria said in the letter.
The conflict surfaced when ISM and Philweb announced that they had entered into a memorandum of agreement where Philweb was appointed to manage the transformation of ISM from a mining firm into a company that would engage in information technology.
As payment for its services, ISM agreed to let Philweb buy into the company through a private placement at a heavily discounted price of P0.01 per share for about 12 million unissued shares out of ISM’s authorized capital stock. – Des Ferriols