THE Philippine Stock Exchange’s (PSE) surveillance unit was directed by the Securities and Exchange Commission (SEC) to take over the operations of the controversial R&L Investments Inc. for the sake of latter’s clients.
In a statement on Friday, the regulator said it had issued the order on November 14 to Capital Markets Integrity Corp. (CMIC), which is the PSE’s independent audit, surveillance and compliance arm.
This, after the brokerage was shut down for investigation due to alleged unauthorized transfers of proprietary and client shares amounting to P700 million by a rogue employee.
Citing the Securities Regulation Code, the regulator said that “when the Exchange shall have found that the financial condition of its member firm has so deteriorated that it cannot readily meet the demands of customers for the delivery of securities and/or payment of sales proceeds, the Exchange shall, upon order of the Commission, take over the operation of the insolvent firm and immediately proceed to settle the member firm’s liabilities to its customers.”
CMIC said earlier that it has begun the special audits of books and records of involved parties.
The PSE unit is tasked to submit its report and recommendation to SEC seven days from the conclusion of audit no later than December 20.
This is to allow the regulator to enforce “administrative or criminal action against responsible persons when warranted.”
There have been discrepancies in the reporting of R&L Investments according to the latest findings.
In R&L Investment’s 2018 audited financial statements, the firm noted it had P738.90-million worth of client securities. But the business partner report by the Philippine Depository & Trust Corp. (PDTC) showed only P132.26 million.
“A special audit by CMIC also revealed that R&L Investments inflated the number of client shares. It recorded client securities worth P747,819,698 as of October 31, 2019, while PDTC only accounted for P30,395,892 the day before,” it added.
The SEC, meanwhile, earlier called for a more transparent reporting of securities trading amid the forced closure of R&L Investments.
The regulator said that it was expecting for the full implementation of Name on Central Depository facility of the PDTC by first quarter next year to “reinforce the controls and deter similar incidents from occurring in the future.”
Such mechanism would allow the identification of individual investors.