PSE reviving plan to increase capital requirement on brokers

The Philippine Stock Exchange (PSE) is set to revive by next year a plan to jack up the minimum capital requirement on its trading participants—one of the reforms needed to strengthen the stock brokerage industry in the aftermath of the P700-million stock fraud that brought down R&L Investments in 2019.

PSE president Ramon Monzon’s proposal is to require the buildup of the minimum capital to P100 million from about P30 million average capitalization of trading participants at present.

“My opinion is there are too many brokers for such a small market, so the profitability is not very healthy for brokers,” Monzon said in a briefing after the PSE’s annual stockholders meeting on Friday.

The increase in the capital base will “ensure that they have sufficient resources to have a complete organization with strong internal controls,” he said.

Monzon’s earlier idea was to implement the capital increase on a staggered basis through end-2024. But the challenging conditions arising from the coronavirus pandemicforced the PSE to shelve this initiative.

Trading participants are already required to increase their unimpaired capital to P100 million but because there is no deadline set, many are not in a hurry to recapitalize.

“Hopefully by next year, if the market and economy improve, we will resurrect that initiative,” Monzon said, adding that this was an important reform to pursue.

He said Singapore and Thailand, which much larger equity markets, had less trading participants. Singapore has less than 20 participants while Thailand has no more than 30, but these are mostly big brokers, he said.

Based on the listing posted on its website, the PSE has 125 trading participants.

“You can see that in the trades: 20 percent of brokers generate 80 percent of trading volume. That is what’s happening in our market,” he said.

The intention to compel brokers to increase their capital to P100 million on a staggered basis within a specific time frame was first raised by Monzon in 2019 following the collapse of 50-year-old brokerage house R&L Investments.

In a decision dated June 11, a special hearing panel (SHP) of the Securities and Exchange Commission found R&L— along with its president Joseph Lee, nominee and salesman Lucy Linda Lee, and associated person Jonathan Lee—liable for the fraudulent transfer of client shares to an account in another brokerage, Venture Securities Inc. (VSI).

The SHP had ordered the revocation of VSI’s broker-dealer license and imposed higher penalty on its officers.INQ