Stricter PSE term limits rules
Unfazed by the threat of a court suit by a stockbroker-director, the Securities and Exchange Commission (SEC) pushed through with its plan to limit the term of the directors of the Philippine Stock Exchange (PSE).
Through Memo Circular No. 17, Series of 2026, the SEC laid down the rule that a broker may be elected to the PSE board for a term of one year, subject to a maximum cumulative period of 10 years, whether consecutive or intermittent.
After serving as director for a cumulative term of five years, he or she has to observe a one-year cooling-off period before being eligible for reelection as director.
The SEC said that to develop the capital market, “… there is need to ensure fair and effective representation in an Exchange and give qualified brokers opportunities to serve and provide new perspectives in the board of an Exchange.”
Failure to comply with this order could result in the imposition of a basic penalty of P1 million per director, per year and a continuing penalty of P30,000 for every month that the noncompliant director holds the seat, without prejudice to other sanctions under existing laws.
For the third or succeeding violations, the PSE’s secondary or primary license may be suspended or revoked.
The same penalties will be imposed for violation of SEC Memo Circular No. 7, which provides for term limits (nine years) on independent directors (ID) of publicly-listed companies.
But there is a glaring twist in those penalties.
Unlike in Memo No. 7, the PSE memo has the following provision: “Any scheme that circumvents the provisions of this Circular shall be penalized accordingly.”
The subliminal message of that provision is that any attempts by the PSE go around or evade the letter and spirit of the term limits will not pass. They will be similarly punished.
This unprecedented clause raises some questions. Did the SEC have an inkling or anticipate that the PSE might (subtly) do something to dilute the intended objectives of the term limits, so it had to give that warning?
Compared to Memo Circular No. 7, did the SEC assume that publicly-listed companies would accept the rationale behind the term limits for their IDs so it did not put that cautionary provision?
(Incidentally, according to the grapevine, some of those companies were happy about the term limits for their IDs because it spared them the unpleasant task of telling them that they have “outlived” their usefulness and that it was time for new blood to be infused into the board.)
What makes the memo addressed to the PSE interesting (and intriguing) is the fact that the chair of the SEC, Francis Lim, was president and CEO of the PSE from 2004 to 2010.
He is also widely believed, in the lawyers’ circles, to be the brains behind the SEC’s recent moves to make the entities until its regulatory umbrella conform to internationally-accepted best practices.
Going back to that unique provision in the PSE memo, in the rarefied community of law offices in the country that handles the corporate and securities laws requirements of well-heeled companies, finding loopholes or gray areas in regulations that their clients are “uncomfortable” with—because they could threaten their bottom line—is considered a badge of honor or source of pride.
If an unclear or apparent weak spot in the regulation can be cleverly exploited to mitigate its adverse effects on the client or, better still, exempt it from its coverage, a high professional fee for that effort (if it succeeds) would be forthcoming.
On its face, the PSE-related memo appears to be cut and dry as to leave no room for gray areas that may compel the SEC to invoke that cautionary provision. But whose knows, some imaginative lawyers may come up with something that may trigger its application.
There’s more than meets the eye in that provision. It brings to fore the saying “it takes a thief to catch a thief.” Go figure.
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