Term limits in the PSE board
A long-standing sense of entitlement to seats in the board of directors of the Philippine Stock Exchange (PSE) is expected to end soon.
The Securities and Exchange Commission (SEC) recently released for public comments a draft memorandum circular that proposes term limits for broker-directors of an exchange, or an organized marketplace or facility that allows buyers and sellers of securities or commodities to execute trades with each other.
The use of the word “exchange” in the draft is significant. It means it would apply not only to the PSE (although it is obviously the target), but also to the Philippine Dealing Exchange, which handles transactions in bank instruments, and stocks or commodities futures exchanges that may later be established.
In a nutshell, the draft states that brokers who represent brokerage firms and other trading participants in the PSE may be elected to its board for a maximum period of 10 years, whether consecutive or intermittent.
If a broker-director has served for a cumulative period of five years, whether consecutive or intermittent, he or she shall observe a two-year cooling-off period prior to becoming eligible for reelection for another five years.
The SEC said the term limits aim to level the playing field in the election of broker-directors and to give other brokers the opportunity to serve in the PSE board.
Note that the brokers that those directors would represent in the board may be described as the lifeblood of the PSE because it is through them, whether digitally or in person, that stocks are traded.
Several business organizations in the country, led by the Management Association of the Philippines, had endorsed the proposed term limits. They said, among others, that it “…would represent a constructive step toward … enhancing the credibility of the securities exchange system.”
The rationale behind term limits in the PSE board is the same as that the SEC cited earlier when it adopted a similar rule on the number of years that independent directors can serve in that capacity in publicly listed companies.
What makes the proposed terms limits thought-provoking (if not intriguing) is the fact that SEC chair Francis Lim had served as president and CEO of the PSE from 2004 to 2010. That gave him a vantage view of the ins and outs of the PSE, including its dark secrets, e.g., subtle forms of insider trading.
But he was an outlier when he took over the helm of the PSE. He was not a stockbroker or businessman at that time, but was a senior partner of ACCRA law offices who specialized in corporate law.
In other words, he was not a member of the “old boys” group that had dominated the PSE for decades and decided on who would represent the different levels of stock brokerages (depending on their capital and volume of transactions) in the board.
Since Lim had only one vote in the board, any reforms or changes that he may have wanted to implement in the operation of the bourse were dependent on the agreement of the rest of the directors, which, according to some insiders, did not come easy.
Note that although the PSE is registered as a self-regulatory organization, meaning it is autonomous or given by law a lot of leeway in the conduct of its operations, the SEC continues to have supervisory authority over it, which includes the qualifications of its directors.
In line with that authority, once the proposed term limits in the PSE board are firmed up, the door would soon open for new blood to be part of the formulation and implementation of policies and procedures that can contribute to a more vibrant stock trading in the country.
With the rapid advancement of digital technology and the emergence of innovative patterns of investment, the inputs of brokers who are millennials or members of Generation Z would be significant.
Their generations would be key to maintaining the stock market as a viable and reliable component of the capital market.
