SEC to appeal TRO on disclosure rules

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THE Securities and Exchange Commission (SEC) will ask a court to reconsider a restraining order against new rules that require stockbrokers and securities dealers to reveal clients’ identities.

SEC Chairperson Teresita Herbosa said in an interview on Friday that the agency was acting within its regulatory powers when it issued amended implementing rules and regulations (IRR) of the Securities Regulation Code (SRC) requiring stockbrokers and securities dealers to disclose the beneficial owners of stocks of their respective clients.

“We stand by our position. The issuance of the 2015 IRR is well within the exercise of our regulatory function. Hence, there is no reason for them to seek relief claiming injustice when we are only performing what is mandated by law,” Herbosa said, citing Section 2 (Declaration of State Policy) of the SRC, which states among others that “….the State shall ensure full and fair disclosure about securities…”

Herbosa added that by express provision of Section 18 of the SRC, “…any person who acquires directly or indirectly the beneficial ownership of more than 5 percent of certain equity shall report the true identity and citizenship of said owners to the Commission….”
Last Thursday, the Philippine Association of Securities Brokers and Dealers Inc. (Pasbdi), the umbrella organization of brokers and dealers, secured a restraining order against certain provisions of the SRC’s 2015 IRR, particularly the requirement that imposes on them the duty to disclose the beneficial owners of stocks of their clients.


Herbosa said that inasmuch as the SEC respected the TRO issued by the Regional Trial Court, Branch 212 of Mandaluyong City, they would exhaust all the legal remedies available to them.

“We have to respect the court’s order [TRO], it is within the judicial power of the court to issue the same. But we will exhaust all the legal remedies available to us, such as a motion for reconsideration to lift the TRO as well as oppose the issuance of the writ of preliminary injunction,” Herbosa said.

The TRO, which intends to preserve the status quo of the contending parties, is only effective for a period of 20 days after service of such order upon the respondent SEC.
Herbosa, however, said that the agency would no longer wait for the TRO to expire.

Instead it would, through the Office of the Solicitor General, move for a reconsideration to lift the same and present evidence that will oppose another impending order, which is the issuance of a writ of preliminary injunction.

A writ of preliminary injunction, if issued, would prevent the SEC from enforcing the 2015 IRR until the final disposition of the petition for declaratory relief case filed by Pasbdi.

“The IRR, which requires brokers and dealers to disclose the beneficial owners of stocks, is in line with the state policy to promote transparency, which ensures the stability and integrity of the capital markets,” Herbosa said.

Further, she clarified that the ownership of stocks registered under the name of an attorney-in-fact or the representative of the indirect owner of shares is not illegal per se.

“It is perfectly legal to have the stocks registered under the name of a person other than the true owner. But these brokers and dealers should, by law, disclose the real identity of the investors to whom the stocks truly belong. That is the meaning of the disclosure requirement of beneficial ownership of stocks.”

“How can we protect them [stockholders]if their identity is unknown. How do we know if the foreign equity limitation is not violated if we do not know who the true owners are?” Herbosa said.

She was referring to the foreign equity limitation of 40 percent on partly-nationalized industries under the 1987 Constitution. The foreign ownership limits include the operation and management of public utilities, advertising, mining activities, and exploration, development and utilization of natural resources.

In its amended application for a TRO, the first having been denied outright, Pasbdi alleged that the said IRR violates their constitutionally protected right to due process and would unduly force them to violate the Data Privacy Act of 2012.

“The Data Privacy Act of 2012 admits of exceptions, one of which is State regulation. As to due process violation, we have given them four long years to raise their objections and afforded them the opportunity to oppose the same,” Herbosa said.

Despite an ongoing petition to nullify the SEC’s 2015 IRR, majority or 88 of the 133 registered broker dealers/ trading participants of the Philippine Stock Exchange have complied with the 2015 IRR, the SEC reported last week.

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