PSE lifts trading restrictions on Gatchalian firms’ shares

The Philippine Stock Exchange on Friday lifted the stock trading restrictions on six companies affiliated with the group of Filipino-Chinese businessman William Gatchalian that were probed for alleged trading irregularities three years ago.

In a memorandum dated Jan. 19, the PSE said the trading restrictions on Acesite (Phils.) Hotel Corp. (ACE), Forum Pacific Inc. (FPI), Mabuhay Vinyl Corp. (MVC), Philippine Estates Corp. (PHES), Waterfront Phils. Inc. (WPI), and Wellex Industries Inc. (WIN) that were imposed in 2009 were lifted effective Friday.

But the PSE added that all trades involving these companies would still be subject to its “close watch.”

Mabuhay Vinyl is not officially part of the Wellex group but the Gatchalians’ sixth listed company, Metro Alliance Holdings and Equities Corp., was listed among its top 100 stockholders at the time the restrictions took effect.

“The listing of the trading restrictions is conditioned on the companies’ and its related entities’ continuing maintenance of only one account with Westlink Global Equities Inc. for the purpose of trading PSE-listed shares,” PSE president Hans Sicat said in the memorandum.

Westlink is the stock brokerage house affiliated with the group.

Sicat added that the lifting of the restrictions would be “without prejudice to any action that may hereafter be deemed necessary by the Exchange in accordance with existing laws and rules in case of any violation of the PSE rules and in order to maintain and preserve an efficient, fair and orderly market as mandated by the Securities Regulation Code.”

In February 2009, the PSE and its clearing and settlement subsidiary Securities Clearing Corporation of the Philippines (SCCP) tightened the trading rules only in these six companies.

They required an early delivery of securities or cash on trades of stocks of these six companies, saying they did not wish to “unnecessarily expose our stock market to clearing and settlement risks as that would compromise the integrity of our market.”

Citing the need to protect public interest, the PSE had required those who traded the shares of these companies to make sure that the trades were ready for electronic settlement from day one instead of the usual three-day settlement period in the local bourse.

Although the PSE did not officially explain why such restrictions were imposed in the first place, it was reported in 2009 that stock trades on these companies were probed for “kiting” and “wash sales.”

Kiting generally occurs when securities firms fail to deliver securities of buy and sell transactions on time or before the three-day settlement period.

The firm failing to receive the securities is required to make up for the shortage by buying from the open market.

The delinquent firm is practicing the fraudulent act of kiting if it fails to purchase the securities in the open market and maintains a short position, delays delivery or takes part in transactions contrary to regulations regarding the proper settlement of trades.

Wash sale, on the other hand, refers to the practice of repeatedly trading the same shares to keep stock prices at an artificial level.