Investments and the foreign ownership rule

THE SECURITIES and Exchange Commission (SEC) and Philippine Association of Securities Brokers and Dealers, Inc. (Pabsdi) are at odds over the new disclosure procedures prescribed for the compliance of the 40-percent foreign ownership rule on Philippine companies.

Under the country’s foreign investment law, 100 percent foreign equity may be allowed in all areas of investment except those reserved for Filipinos under the Philippine Constitution and existing laws.

Within the 1991 Foreign Investment Act (FIA). there are two negative lists, also known as the “Foreign Investment Negative List,” which define what foreign investments are limited or restricted by the Constitution and specific laws. These are the so-called Negative List A and B.

Under Negative List A are 28 business areas where foreign ownership is not allowed but exclusively reserved to Filipino citizens. These include mass media, retail trade enterprises with paid-up capital of not less than $2,500,000; cooperatives and small-scale mining.

Under Negative List B are business or investment areas where foreign ownership is allowed but only up to 40 percent.

These include the manufacture, repair, storage and/or distribution of products and/or ingredients requiring Philippine National Police (PNP) clearance.

Bottom line spin

The controversy stems from Pabsdi’s particular objection on the SEC’s recently crafted rules for stockbrokers and securities dealers in their report that reveals the real identities of so-called “beneficial owners” of stocks or securities registered under their names.

Specifically, these new rules are made part of the 2015 implementing rules and regulation (IRR) of the Securities Regulation Code (SRC).

As of last week, however, Pabsdi successfully obtained a favorable restraining order from the Mandaluyong Regional Trial Court that stopped the Securities and Exchange Commission (SEC) from enforcing its amended SCR IRR, that would take effect for 20 days, “after Pasbdi posted a P500,000 bond to answer for any damages that the SEC may sustain due to the TRO.”

The SEC claims the new rules are meant to prevent violations of the 40-percent rule ownership rule.

As such, they will “increase transparency in the dealings of brokers and dealers that will comply with anti-money laundering laws and the promotion of investors’ protection.”

With my years in stockbroking, the systems and tools already in place in the Philippine Stock Exchange (PSE) to track the level of foreign ownership have worked adequately to meet the Constitution’s intent to secure the foregoing protected investment areas from unwanted and/or unnecessary foreign control.

The PSE’s added mechanism to prevent trades that would cause a breach in the foreign ownership rule should be good enough for the purpose.

More invasive and cumbersome measures that will affect ease of doing business transactions for foreign investors and attending stockbrokers and dealers may slow down, if not utterly discourage, the flow of investments. Nationalism does not attract foreign investments.

Lastly, the SEC’s new rules are certainly not the tools that will totally prevent foreign investors from getting more in “economic benefits”.

(The writer is a licensed stockbroker of Eagle Equities, Inc. You may reach the Market Rider at [email protected] , [email protected] or at www.kapitaltek.com)