Trading houses strong amid volatile market

THE RECENT stock market turbulence has not eroded the capital adequacy of stock brokerage houses trading at the Philippines Stock Exchange (PSE), the Securities and Exchange Commission (SEC) said.

After reviewing the latest report of the Capital Markets Integrity Corp. (CMIC)—the PSE’s market regulation arm—the SEC said on Friday that trading participants (TPs) remained compliant with the risk-based capital adequacy requirements (RBCA) mandated by SEC regulations.

“This demonstrates the strong financial resiliency of the TPs amid the recent sharp volatility in the prices of PSE-listed stocks,” the SEC said.

The RBCA requirements pertain to the minimum required liquid reserves to protect the firms, their investors, customers and the economy as a whole. The RBCA requirements ensure broker dealers have enough capital to sustain operating losses while maintaining a safe and efficient market.

Of the 132 trading houses that filed their RBCA reports, a total of 98 houses suffered a decrease in net liquid capital due to a drop of stock prices as of Aug. 24, the SEC said, citing the CMIC report.

Meanwhile, the recent shakeout has resulted in 67 brokerage houses experiencing a deterioration in their RBCA ratio; and 22 trading firms seeing their unimpaired paid-up capital go down due to paper losses in their proprietary investments, the SEC said.

The market decline also weakened 88 trading houses due to indebtedness relative to their net liquid capital, it reported.

“These findings notwithstanding, none of the TPs breached any of these various RBCA thresholds as of Aug. 24, 2015,” the corporate regulator said.

The trading participants are required to comply with several RBCA requirements such as: a minimum RBCA ratio of 110 percent; a minimum net liquid capital of P5 million or 5 percent of total indebtedness, whichever is higher; a maximum debt to net liquid capital ratio of 2,000 percent; and, a minimum unimpaired paid-up capital of either P100 million for trading participants who registered after the effectivity of the Securities Regulation Code, or P30 million for trading participants already existing before the effectivity of the same law.