Who will police the police?

Emeterio Sd. Perez

Emeterio Sd. Perez

Public stockholders end up the biggest losers when share prices begin to fall. They suffer when the listed companies in which they placed their money report financials that worsen every quarter. They are financially hurt even more when, by the end of the year, the stocks’ financials suggest the worst, with the companies having either a huge deficit or a capital deficiency.

Capital deficiency as used in this piece refers to negative equity when the amount of a company’s paid-up capital plus additional paid-in capital, if it has any, is not enough to cover the accumulated deficit.

Ask any group of public investors how they speculate on their companies’ quarterly financials. Chances are, they would tell you they expect only the best return for their investments. Yet, positive results don’t easily happen. A successful market investor could only pity those who do not read the filings for a much better investment decision.

Investment choice

Who cares if a company’s financials go astray?

Both the public and the company owners equally feel the burden as they watch share prices drop and close lower than the previous day’s session.

Lucky were the public who were not caught owning listed shares in companies that report deficits every
quarter. It is even worse for others who happened to have invested in companies that are financially distressed, or are on the verge of declaring bankruptcy.

Can these pitfalls inflicted on the public be prevented?

Duediligencer is raising this question to which it also cannot provide the answer. However, for the sake of the public who are never privy to anything going on inside the boardrooms of the majority or controlling stockholders, it is suggesting that they turn to the Securities and Exchange Commission and the Philippine Stock Exchange for guidance if not help.

PSE as an SRO

Being listed, PSE must be in a quandary, sometimes if not often, whether or not it should act as a regulator and police listed companies or act as listed stocks are required to do. Like the SEC, however, it still oversees the market. In turn, the SEC regulates it.

Then here is another hitch: the PSE enjoys a self-regulatory organization status. Being an SRO, the exchange is supposed to regulate itself. Does it? Could it?

Again, the questions are not easy to answer. In the first place, the PSE is also a listed company. As such, how could it regulate itself and at the same time remain an SRO? This is a case of a regulator regulating itself sans intervention by the SEC.

How about the SEC? Has it lived up to its billing as a securities regulatory agency? What Duediligencer knows is that it has become an overpopulated commission with five members including the chairman.

A 3-person commission

While Congress has seen it fit to rid the SEC of most of its judicial functions, it forgot to cut the number of members of the commission to only three from five including the chairman.

Why should the government continue to maintain a five-person SEC regulatory body, which, anyway, had lost its adjudicatory powers to regular courts? This has been happening since June 2001 and continues to happen today with the effectivity of the new Securities Regulation Code.

Imagine, it took 24 senators and 300 district representatives almost five years to come up with a new set of laws regulating the securities industry but forgot to trim the number of commissioners to a more realistic number. How about a maximum of three?

As a matter of fact, from a regulatory body, the SEC has become primarily a keeper of company records. As such, it can function more effectively even with only a commissioner and an executive director.



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