SEC to bourse: Operationalize compliance, surveillance unit

The Securities and Exchange Commission has asked the Philippine Stock Exchange to immediately make operational its new subsidiary that will handle its compliance and surveillance functions.

The spun-off unit was formed last year but has yet to start operations.

The SEC has been pressing the exchange to create an independent compliance and surveillance outfit due to growing criticisms questioning the bourse’s ability to ensure fair market practices.

The SEC has received complaints from PSE’s compliance and surveillance corporation that several brokers have been using their influence on investigations being conducted by the CSD.

The PSE had earlier objected to the creation of an independent compliance and surveillance corporation because this would entail additional costs.

The CSD is a critical unit of the PSE that monitors market conditions and trading activities to detect violations of the securities law and exchange rules, including sales practices and financial and operational requirements.

It also monitors compliance by listed companies with continuing listing obligations and duties of members of the managing body of issuers to minority shareholders.

The SEC believes that the CSD should not be subordinated or controlled in its activity by the PSE board or management and shall be responsible for carrying out the PSE’s disciplinary role.

The securities watchdog underscored the need to create an independent compliance and surveillance corporation to ensure the integrity of the exchange. This also followed a PSE audit which exposed fraud and other violations by a number of brokerage houses.

It will be recalled that in 1999 members of the PSE Compliance Group tendered their resignation on fears that the board would whitewash the investigation being conducted their on stock transactions involving BW Resources Corp. There were reports that some PSE governors during that time used their authority to prevent the CSD from inspecting the books and records of certain brokerage houses.

The investigation into BW was due to the phenomenal rise in the share prices of the company from only P1.98 per share to a peak of P107 per share in just a short period of time. The shares have since fallen to below their par value of P1.

During an audit conducted by the SEC on brokerage houses that have heavily traded shares of BW, 75 brokers were found to have violated securities rules and regulations. The SEC generated P12 million in revenues from the collection of administrative fines from these erring brokers.