A showdown looms at the Philippine Stock Exchange (PSE) today following conflicting orders from President Estrada and the chairman of the Securities and Exchange Commission.
SEC Chairman Perfecto Yasay ordered yesterday the indefinite suspension of trading in the PSE, starting today, after the exchange's entire Compliance and Surveillance Group resigned. The CSG is vital for the PSE's normal operations to protect investor interest.
Lawyer Ruben Almadro, vice president of the CSG, and his 21-member staff resigned to protest a decision clearing some of the brokers implicated in the Best World (BW) Resources trading scandal.
Yasay said the PSE cannot function without the CSG and ordered trading suspended indefinitely. The quasi-judicial SEC supervises the PSE and functions independently of Malacañang.
Later in the day, however, Finance Secretary Jose Pardo obtained an executive order from President Estrada, giving the Department of Finance "administrative supervision" over the beleaguered stock exchange.
Knowing that the move may be construed as interference in the SEC's independence, Pardo emphasized that the SEC remained "constitutionally independent and they are not bound to follow any order from the government."
Malacañang warned that those who resigned may just be "pushing the envelope too far" and may warrant charges of economic sabotage. President Estrada also announced that Yasay would be replaced by Trade Undersecretary Lilia Bautista when the SEC chief steps down on March 25.
Executive Secretary Ronaldo Zamora said that Pardo, as finance secretary, has "enough moral authority... to see what can be done to ensure that trading continues tomorrow. (Pardo) will issue the necessary orders when he sees the situation for himself tomorrow."
Bangko Sentral ng Pilipinas Governor Rafael Buenaventura also said Yasay "does not have the numbers" to enforce the suspension order.
Almadro said last night he and his group's members would show up at the exchange today only if ordered by PSE president Jose Luis Yulo Jr., without necessarily admitting that they were still part of the PSE.
Malacañang expressed concern that the mass resignation could further dampen investor confidence in the market.
"This is too much. We understand their feelings, but taking their protest too far is punishing the investing public and destroying public confidence in the market. They should not push the envelope too far because they might end up committing economic sabotage," Zamora said.
Yulo assured the SEC yesterday that they would be taking immediate steps to ensure that the CSG was adequately and completely manned by acquiring several employees from the Ayala office.
Yasay, however, said the arrangement was "totally unacceptable."
"It fails to address the competence and qualification requirements for those to be designated to carry out compliance, monitoring and surveillance responsibilities, let alone adequacy as to the number of employees to be transferred to the CSG," the SEC chairman stated in his order.
Yasay said the suspension of the trading could stretch up to 30 days.
Almadro's bombshell also pushed the SEC to immediately revoke the bourse's self-regulatory status, effectively bringing it back under thecorporate watchdog's control.
"The Commission views with grave concern the resignation of the head and staff of the Compliance and Surveillance Group of the Philippine Stock Exchange, thereby rendering this self-regulatory organization incapable of policing and discipliningits members and ensuring a fair and orderly market," Yasay said.
Without effective compliance, monitoring and surveillance that will enable the exchange to quickly address potential violations of securities laws and rules, the SEC cannot allow trading operations to continue, he said.
Yasay said he had alerted the Palace of the development as early as noon yesterday.
He said he is now studying two options: to have the SEC function temporarily as the compliance and surveillance body until a new one is formed or ask Almadro to reconsider his decision.
In his resignation letter, Almadro told the PSE president that he could no longer do his job.
"I leave the PSE disillusioned and disappointed," he said.
Their resignations, he pointed out, were prompted by the systematic and last-minute exoneration of the brokers by the Exchange's Business Conduct and Ethics Committee (BCEC), which he described as the "Old Boys' Club."
"We refer to a culture within the Exchange of brokers helping each other, bonding together at the expense of management, at the expense of the probe, at the expense of reforms," Almadro said.
The Old Boys' Club is known in market circles as an influential group of veteran stockbrokers allegedly behind the ouster of several PSE officials who have acted against its interests.
Almadro said the "last straw" came last Monday, when the new PSE Board of Governors "appointed a chief operating officer who is a known patron and godfather of the Old Boys' Club."
Jose Cervantes of Phil-Progress Securities Corp. and former general manager of the old Makati Stock Exchange took over the CEO post vacated by Rafael Llave, who has had his share of conflicts with Yulo.
Both Cervantes and Yulo were in a meeting with the PSE's Securities Clearing Corp. of the Philippines yesterday, and were unavailable for comment.
Almadro said nobody knew beforehand of his decision to resign and that he himself had no inkling that his entire staff would go with him.
The compliance department is responsible for monitoring unusual price movements and ensuring that listed companies comply with disclosure requirements.
The probe by Almadro's investigators had implicated businessman Dante Tan, a major BW shareholder, and 11 brokerage houses in insider trading and price manipulation. Almadro's report was reviewed last week by the ethics committee, which in turn will submit recommendations to the SEC.
Alamadro said it was when the report was made public that "pressure started coming in," allegedly from the Old Boys' Club.
He said committee sources told him that three brokerages implicated in the report would be cleared despite evidence of trading irregularities.
"After disregarding tons of evidence, we learned that the BCEC absolved the brokers of any wrongdoing behind closed doors," Almadro said, calling the panel review "sham deliberations."
He also decried the absence of any support from the Board and member-brokers in his crusade to defend the report before the Senate.
"This gave the impression the report was not sanctioned by the PSE which was exacerbated by the gag order issued against me by PSE chairman Trinidad Kalaw," the CSG chief said.
Almadro, who said he would be returning to private law practice, said he was thinking of seeking the congressional seat for the district of Biliran in Leyte next year. He ran but lost to Rep. Gerry Espina during the 1998 elections.
Rumors that a number of brokers implicated in the scandal involving shares of gambling operator BW Resources would be cleared by the ethics committee weighed on the main index yesterday, but the resignations took the market by surprise.
The resignations were announced a few minutes before the close of trading, with the 30-company PSE index down 51.58 points, or 3 percent, at 1,686.72.
Analysts said they expect stocks to plunge further today.
"The resignation of the CSG sends a bad signal to investors," said Astro del Castillo, research head at A and A Securities Inc. "The controversy just got bigger and the wounds got deeper."
Del Castillo said the resignations will "heighten the perception that unfair trading practices are going on."
"It will be a drag on the market," said ATR-Kim Eng Securities Inc. research head Luz Lorenzo, who praised the decision by Almadro and his colleagues to resign. "If the stock market's not fair, people aren't going to trade here."
The BW brouhaha has damaged the integrity of the bourse and raised fears that the PSE has no system to protect investors from unscrupulous brokers, said Jose Antonio Romulo, head of sales at SG Securities.
"We're already considered a Mickey Mouse market by most foreign fund managers," he said. "Sentiment is going to be bad. What little there is left among foreigners is probably going to be sold out."
Cillete Liboro of Orion--Squire Securities said the resignations were "a serious blow to the already tarnished image of the Exchange."
"Trading should be suspended," she said. "If trading continues without a surveillance group, then the market will plummet."
The release of the BW report sent shock waves through the Exchange, wiping some 18 percent off the main index in the last two weeks of February before it staged a choppy recovery largely on technical factors.
The BW scandal also contributed to a major loss of confidence in the Philippines among foreign and local investors on concerns that cronyism may have played a part.
Yasay earlier claimed he was pressured by Mr. Estrada to clear Tan in the SEC probe. The President, a close friend of Tan, vigorously denied this.
Investors put billions of pesos into BW shares on speculation that Macau casino tycoon Stanley Ho would take a stake in the company and transform it into a major gambling force.
BW's share price reached a high of P107 pesos on Oct. 11 -- more than 52 times its price at the start of 1999. The share price plunged to P68 on Oct. 12 and has continued to fall since then, closing yesterday at P6.50.
In a related development, administration congressmen urged the President yesterday to order the filing of "economic sabotage" charges against Almadro and several traders found to have manipulated share prices for instant profits.
At the same time they called for the issuance of hold orders on Almadro and erring brokers.
Rep. Salvio Fortuno (LAMP, Camarines Sur) said the charges and hold orders are necessary following the resignation of the CSG chief.
Earlier, a Senate panel claimed there was a cover-up in Almadro's report which failed to include in a list of erring brokers Wealth Securities. The brokerage firm was reportedly involved in the heavy transaction of BW shares.
Rep. Augusto Syjuco (LAMP, Iloilo) said economic sabotage raps are warranted because the Senate probe on the BW scandal found records of collusion between Almadro and Wealth Securities' Wilson Sy.
Almadro earlier claimed he was ordered to keep Sy and four other traders out of the CSG report by no less than Yulo.
Both Almadro and Yulo are known protégés of Sy, who formerly chaired the bourse.