A GENERAL information sheet (GIS) contains a corporation’s authorized capital stock, par value and total capitalization based on par value. In it, a company lists the number of Filipinos and foreigners who own its common shares.
Chances are, though, you might be taken for a ride by incomplete filings posted on the website of the Philippine Stock Exchange (PSE). Thus, public investors should decipher the contents of the GIS and any other filings that are required as part of the full transparency rule that governs the stock market.
As has been taken up in this space a few Due Diligencers ago, omissions may be rare, but they occur because public investors don’t ask questions. Perhaps, even small stockholders don’t bother to read financial postings and the accompanying footnotes.
Public investors must not rely alone on the SEC, which does not decide the fate of their investments. As a regulatory authority, the commission does not hire market experts to determine if a stock transaction is fair or not.
As the name suggests, the SEC is tasked to watch daily trading on the PSE. The only question is, how does the SEC’s market watchers find out anomalies that accompany a trade?
There will always be restrictions on the SEC’s regulatory functions. Public investors should remember that the PSE enjoys self-regulatory status. Does anyone know where self-regulation begins and where it ends?
Still on GIS
Let me go back to the GIS.
If the SEC and PSE tolerate the filing of a GIS that contains only the Top 100 stockholders, something must be wrong with the system. The public won’t learn anything new from these postings on the PSE website.
If PCD Nominee Corp. is listed on a GIS, the SEC and PSE should correct such entry. Something is wrong when the identities of certain significant stockholders are hidden. It is even worse when their holdings are kept for trading through their stockbrokers.
No one knows if the ownership reporting system in the filing of the GIS will change. By naming the majority and principal stockholders, a listed company is complying with the full transparency regime that should govern trading on the stock market.
To be fair to listed companies, Due Diligencer is not naming anyone violating the rule of transparency. This way, I won’t be accused of picking on any of them. Besides, it is only fair that any kind of regulation to force compliance with the full transparency rule should come from the SEC.
As far as Due Diligencer is concerned, listed companies see in the GIS the opportunity to boast that they are more public than others.
More public than others?
Let us show this in a theoretical example.
Aren’t the public investors very lucky to be among the holders of common shares in listed companies? If, say, more than 8,000 Filipinos are named in a GIS as stockholders, then such listed company may be more public than others.
Don’t be too quick to rush to conclusion. Something could be wrong with the number of stockholders of listed companies.
One, grouping the majority stockholder among 8,000 or so stockholders could be unfair to public investors. By dividing the number of Filipino-owned shares by the number of Filipino stockholders, you would arrive at a higher average.
What should be done is, first deduct the number of common shares owned by the majority stockholder along with the common shares held by their allies, and you will arrive at a smaller number of common shares held by Filipinos.
If there are 1,000 Filipinos who own 100,000 common shares in a listed company, each of them own 100 common shares each.
Question: What if the majority stockholder who is presumed to be a Filipino owns 50,000 shares or 50 percent of 100,000?
Answer: The average number of common shares owned by public investors will go down to 50 common shares.
Does this mean the computation used in determining the number of common shares owned by the public is wrong? Just asking.