Delisting drive

In an effort to boost the stature of the Philippine Stock Exchange (PSE) as a fair and attractive market for listing and trading stocks, the board initiated Tuesday last week an “involuntary delisting proceedings” against Calata Corporation (CAL), the biggest distributor of agricultural products, feeds, fertilizers and veterinary medicines in the country.

The company’s shares were earlier the subject of a trading suspension by the bourse due to what it called “multiple violations” in the disclosure rules. The suspension took effect last June 30 and was intended to last for one month.

The PSE particularly pointed out the company totally failed to comply with its real-time requirements for the disclosure of “material information—may they be good or bad.”

As prescribed, listed companies are required “to disclose to the PSE within 10 minutes” from the time of receipt or knowledge of such information. This is in addition to the requirement that the information to be disclosed must reach the PSE first before it is released to the media. The purpose of the rules is obviously to prevent insiders from using this “material” information for their own personal gain at the expense of the general investing public. This act is called insider trading.

While insiders are usually described to include corporate directors, officers and or employees, this has been expanded to include “anyone” who trades a company’s shares based on obtained “material information” undisclosed yet to the investing public.

A P50,000 fine is normally imposed on the first offense; P75,000 for the second offense.

A trading suspension on the shares of the company for a period of one month is imposed for the third offense. Finally, delisting is next.

Based on rules, “repeated failure to make timely, adequate and accurate disclosures of information or failure to submit any reportorial requirement” are among the grounds for the initiation of involuntary delisting proceedings.

In this connection, a company that has been delisted cannot apply to be reinstated within a period of five years from the time it was delisted.

“Directors and executive officers of said company are disqualified from becoming directors or executive officers of any company applying for listing within the same period counted from the time the application for delisting was approved.”

The PSE alleged Calata has “committed 29 violations of section 13.1” of the disclosure rules “from Nov. 29, 2016 to June 20, 2017.” It further found the company to have “committed 26 violations of Section 13.2” of the same disclosure rules “from Oct. 6, 2016 to March 16, 2017 and April 26, 2017 to May 2, 2017.”

Calata was fined a total of P300,000. Last Tuesday, finally, the bourse decided to initiate involuntary delisting proceedings.

Calata will be given the opportunity to explain its side in a hearing specifically scheduled for the purpose. The bourse shall consider the explanation of the company. The initiation of delisting proceedings is without prejudice to any other regulatory action that may be undertaken by the bourse in connection with other matters that may be uncovered during the hearing.

To recall, Calata was also the subject of an investigation by the Securities and Exchange Commission (SEC) just after its listing in 2012. Charges were filed against some individuals for alleged market manipulation.

Bottom line spin

A recent study revealed five factors that affect a stock exchange’s competitiveness, strength and effectiveness in attracting stocks for listing and trading. Integrity and credibility was identified as the most important factor, followed by image or impression to foreign firms and global investors, latitude of investment selections, degree of trading activity, and adaptability to new developments and products.

Market integrity and credibility comes first because it is the duty of a fair and potent stock market to give all investors timely and reliable information. The absence of this important factor would greatly affect its capability to realize the other factors.

The PSE’s latest delisting drive is certainly a step in the right direction to instilling integrity and credibility in our stock market. It presents a good image of our local bourse as an attractive platform for foreign firms and global investors. It should, as well, serve as a serious lesson for other listed firms and as deterrent for future violations.