SEC seeks higher capital requirement for brokers

MANILA, Philippines — The Securities and Exchange Commission (SEC) is looking to raise the minimum capital requirement for stockbrokers to P120 million from P100 million as part of its next wave of capital market reforms.

The commission issued on Sept. 30 its proposed amendments to the rules relating to the minimum unimpaired paid-up capital and surety bond requirements for broker-dealers.

Under the proposed amendments, an unimpaired paid-up capital of P120 million will be required for all broker-dealers, whether exchange trading participants or non-exchange broker-dealers, including first-time broker-dealer registrants and those acquiring the business of existing broker dealer companies.

An unimpaired paid-up capital of P2.5 million, or such other amount as the SEC may prescribe, will be mandated for broker-dealers dealing purely in proprietary shares who are not holding securities for their clients.

“The commission finds it reasonable and appropriate to increase the unimpaired paid-up capital requirement taking into account the inflation-adjusted value of the existing requirement, IOSCO (International Organization of Securities Commissions) principles and the interest of the investing public,” the SEC said.

The commission said Principle 30 of the IOSCO objectives and principles of securities regulation, together with its implementation guidance, recognizes that capital requirements for market intermediaries should reflect the risks they undertake, having regard to the nature and amount of the business expected to be undertaken.

Under the amended implementing rules and regulations of the Securities Regulation Code (SRC), which took effect in 2004, the SEC prescribed an unimpaired paid-up capital requirement of P100 million for broker-dealers that are first-time registrants or are acquiring the business of existing broker dealer firms, in either case participating in a registered clearing agency.

Other existing broker-dealers not seeking authorization to engage in market making transactions, meanwhile, could maintain P10 million plus the required surety bond.

The commission maintained the P100 million unimpaired paid-up capital requirement under the 2015 SRC Rules, and increased the alternative capitalization requirement to P30 million, together with the required surety bond.

“Based on the Philippine Consumer Price Index (2018=100), inflation over the years has resulted in the decline in the real value of the existing P100 million capital requirement, such that P100 million in 2004 is equivalent to approximately P230.54 million in 2026 prices,” the SEC said.

The proposed amendments include a transitory provision, wherein broker-dealers registered with the commission as of the effectivity of the circular, except those dealing purely in proprietary shares and not holding securities for clients, will be granted a phased transition period to comply with the revised minimum unimpaired paid-up capital requirement.

These broker-dealers should attain and maintain at least P100 million in unimpaired paid-up capital by Dec. 31, 2029 and thereafter attain and maintain P120 million unimpaired paid-up capital by Dec. 31, 2030.

The SEC said failure to attain the said amounts would subject the broker-dealer to applicable sanctions for noncompliance with the conditions for continuing registration under the 2015 SRC Rules and other applicable issuances of the commission.