IHAP asks SEC to ease rules on underwriting disclosure

The Investment Houses Association of the Philippines (IHAP) has asked the Securities and Exchange Commission (SEC) to allow the submission of a firm commitment underwriting agreement only after the issuance of the registration order, not together with the application for registration as practised.

In its comments to the SEC’s proposed amendments to the Securities Regulation Code, IHAP said the underwriting commitments are firmed up only upon approval of the registration when the terms of the offering are definite.

Apart from this, IHAP has asked the SEC to justify the rationale for making a disclosure by a director/officer in a "personal capacity" a "joint responsibility" of the issuer. "What if the disclosure is made by a disgruntled director/officer?", IHAP said.

IHAP said the issuer’s denial should be reckoned not only from filing of disclosure with the Commission but from "receipt or knowledge of such filing."

The SEC proposal to require directors and officers of listed corporations to disclose any transactions they enter into even if these are done in their personal capacity forms part of the changes in the Commission’s disclosure rules.

Under the proposed amendments, any individual owning more than five percent of the voting rights of a listed company or any related party, who holds material information which may materially affect such company, is required to disclose such information.

The SEC said failure to provide the required information shall subject said stockholder to sanctions applicable to violations of this rule.

IHAP has also objected to a proposal allowing a broker-dealer to authorize the SEC to examine bank accounts of its subsidiaries, affiliates and persons under common control. The requirement may be violative of the bank secrecy law and corporate laws, IHAP said.

It suggested that sales proceeds of any share issue be released on a staggered basis upon submission of a progress report in accordance with the project milestones or work program.

Under the SEC’s proposal, proceeds from the sale of shares can be withdrawn upon presentation of the company’s work progress report. "The reason certain clubs are in trouble is because the proceeds were diverted by proponents," IHAP said.

Other proposed amendments include the imposition of a P10- million to P20-million minimum paid-up capital requirement for stockbrokerage houses to align with international standards.

The SEC noted that some markets in the Asian region require a minimum paid-in capital to ensure the financial soundness of companies.

At present, brokers are required to maintain a P5-million net capital, the liquid portion of a broker’s capital which addresses liquidity.

The SEC is also studying the possibility of implementing a uniform risk-based capital standard for all securities market intermediaries as securities broker-dealers and investment houses have inconsistent capital requirements.

The SEC’s net capital rule, applicable to brokers and dealers, is largely risk-based and is derived from the US SEC’s uniform net capital rule. On the other hand, the investment houses are subject to capital standard defined in the implementing guidelines of the Bangko Sentral ng Pilipinas.

The Asian Development Bank said these capital requirements are not sufficiently calibrated to the risk of assuming positions in securities or providing sufficient early warning in the event an intermediary encounters financial distress that might lead to insolvency.

The SEC said the risk-based capital standards should ensure that brokers and investment houses have adequate capital to cover risks and meet contractual obligations. With the system in place, stockbroker firms would have to assess their trading books more regularly in order to understand and monitor the risk profile of their respective businesses.