SEC’s failures as securities regulator

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EMETERIO SD. PEREZ

EMETERIO SD. PEREZ

FOREIGNERS who invest in listed stocks cannot expect the government to protect them from perceived oppression from the hands of Filipino majority stockholders. They must be made to understand that they are entrusting their money in the families that remain in control of their businesses despite the listing of the common shares of these companies.

In short, family-owned companies remain almost 100-percent owned by the original owners despite the listing. There is no way the public would be allowed to own more than what the owners want them to own.

If only the public would be more inquisitive and resourceful, they would discover that the ownership postings do not reflect the true ownership of the companies. Are they to believe that they can own more than 50 percent of the outstanding common shares but do not control the board? That makes a mockery of public ownership!

The imposition by the Securities and Exchange Commission (SEC) that requires the sale of at least 10 percent of a listed company’s outstanding capital stocks to the public is a misnomer. It can easily be circumvented because some highly paid lawyers hired by the majority stockholders know how to interpret the rule in their clients’ favor.
 
Ownership disclosure
Does the rule on public ownership cover the entire capital stock or only the common shares that are sold usually in an initial public offering (IPO)?


Theoretically, if a board is composed of 10 members, 10 percent ownership of voting common shares would entitle the public to a seat. This does not happen because there is no way the owners would allow outsiders to check on them by allocating them the compulsory 10-percent ownership.

Has the SEC ever asked listed companies to fully disclose the ownership profiles of their minority corporate stockholders? No. As a regulatory agency, it simply adopts as filed the list of stockholders posted either under the heading “Top 100 Stockholders” or “Public Ownership Report (POR).”

Never mind if there is a rule on the identification of beneficial owners of shares lodged with PCD Nominee Corp. The commission’s policy remains on paper only because of lack or total absence of implementation. It seems the five-person regulatory body, led by Chairperson Teresita Herbosa, has lost its mandate to the businesses.

Aside from failing to question PORs that portray the public stockholders as majority stockholders of certain listed companies, the SEC also does not examine the composition of their boards to see if these reflect the huge percentage of public ownership. Instead of allowing the public the privilege of electing their nominees, the SEC tolerates the continued appointment of independent directors by the majority stockholders.

Non-independent directors
Because they are appointed and not elected, these independent directors who are pampered by the executive compensation will always be loyal to the majority. What happened to their independence? Ask Artemio Panganiban, who has successfully argued against an SEC policy banning him and other independent directors from buying shares under a listed company’s employees’ stock option plan.

Were Herbosa, the SEC chief, and her fellow commissioners afraid of Panganiban? If not, why did they have to change the rule that emphasizes delicadeza in the appointment of independent directors to accommodate a retired chief justice? (See Due Diligencer, April 22, 2014)

It seems the SEC and its officials have abandoned their responsibility as securities regulators by failing to review ALL filings pertaining to ownerships in listed companies. Has anyone among them, for instance, ever surfed the internet for the PSE website?

Poor public! You are good only for making companies listed but not necessarily public. You have been losing your seats on the boards to independent directors, who serve at the pleasure of the majority and who should be categorized as non-independent directors.

Even the stockbrokers, who hold the shares for you as lodged with PCD Nominee, are not allowed to use your shares in electing their nominees to the boards of listed companies. The SEC, which is known among stockbrokers as assertive and strict only with them but not with the owners of listed companies, cited delicadeza to justify its official decision.

Again, foreigners who intend to look forward to long-term investments are advised to review their options. Their choice or selection of stocks may not at all be what these companies portray them to be. They should look into the backgrounds and qualifications of insider executives before parting with their money.

Let us look back to the days when then SEC Chairman Perfecto R. Yasay Jr. defied then President Joseph Ejercito Estrada when asked about a certain listed stock. I know this because I was in his office when the president called him up. The rest of the story about him and me is part of history.

esdperez@gmail.com.

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1 Comment

  1. Foreigners would be foolish to invest in the philippines as its all so corrupt & if possible they will be taken advantage of & have all their money stolen. Let the filipinos control & run all their companies then maybe one day the country will come to its senses & stop being racist to foreigners.
    If you say you arnt well look at if we treated you this way if you invested your money in our stock market, you would call us racist but looking at yourselves you see it differently.