GSIS’ right to tap single broker defended

Stockbrokers have defended the appointment by the Government Service Insurance System (GSIS) of a single broker to buy shares of Manila Electric Co. (Meralco) in the stock exchange.

The stockbrokers were reacting to the decision of the Securities and Exchange Commission (SEC) to investigate the First Resources Management and Securities Corp. after the regulatory body received text messages from unidentified texters alleging that the company was monopolizing the acquisition of Meralco shares on behalf of GSIS from November to December 2003.

"Any institution that wants to invest in the stock market can appoint one broker for the whole year. If that particular broker is giving the best possible service to the client, that is how he (broker) will be rewarded," Joseph Madrid, executive director of Philippine Equity Partners Inc., said.

Madrid, a former director of the Philippine Stock Exchange (PSE), said he sees no anomaly for an institution like GSIS to appoint one stockbroker to buy a particular stock it was learned that several stockbrokers have transacted Meralco shares during that period.

He said he understands GSIS position since there is risk in spreading out a particularly transaction to several stockbrokers.

He indicated that it is common practice in the stock market for a buyer not to reveal his identity. "It is important that the identity of a buyer be kept secret."

"Let’s say Coca-Cola wants to do an IPO (initial public offering), is it going to deal with all the investment banks in America? No, it won’t. The company will appoint one or two investment bankers that come up with the best service or deal," he said.

Madrid wondered by First Resources is being singled out considering that GSIS is trading through other brokers right now.

"I don’t agree that First Resources should be investigated because I don’t see anything wrong with what it has done," Madrid said, adding that "from my experience as an institutional broker for 16 years, a company can deal with only one broker for a particular stock."

He said foreign investors would not understand why some brokers are complaining if a couple of buy orders are being coursed through one particular broker.

According to Madrid, the SEC should step in only if there is suspicion of insider trading. "That’s a different thing (insider trading). That’s when the market gets hurt. But in the case of First Resources, it’s just buying (Meralco) stocks."

He said foreign investors would find it "quite stupid " for the SEC to investigate based on text messages sent by unidentified texters.

"Why would the SEC act on a text message when it does not know the source of that message. Why wouldn’t that person who sent the text message surface? Texting can create intrigue," he pointed out.

He said the SEC inquiry of First Resources based on anonymous text messages does not help the market. "I find it weird. There is no basis for it (probe)," he said.