By James A. Loyola
The Securities and Exchange Commission (SEC) has ordered the Capital Markets Integrity Corporation (CMIC) – the independent audit, surveillance and compliance arm of the Philippine Stock Exchange (PSE) – to take over the operations of stockbroker R&L Investments, Inc. to protect affected customer accounts.
This followed the stock brokerage’s collapse allegedly due to unauthorized transfers of proprietary and client shares worth more than ₱700 million into an account with another brokerage.
The implementing rules of the Securities Regulation Code mandates the take over of a failed trading participant by the PSE which should immediately arrange for another trading participant to take over outstanding contracts relating to securities, notify affected customers of such action and subsequently provide them with the opportunity to transfer their accounts to another trading participant of their choice.
Also, the exchange shall settle the failed trading participant’s liabilities to customers through the sale of the latter’s trading rights and other trade-related assets, liquidation of its paid-up capital, and/or supervision of payment of claims against the surety bond.
The exchange or SRO shall inform the failed trading participant’s accredited trust fund of the takeover and inform the customers that they may also claim compensation for losses from the trading participant’s accredited trust fund, subject to the validation of their claims by the exchange or SRO and the trust fund.
At the PSE, the Securities Investors Protection Fund manages a fund contributed by trading participants for the protection of investors against losses in case of fraud, failure or insolvency of trading participants.
If the trade-related assets fall short, the exchange or SRO shall refer the outstanding liabilities to the trust fund and inform the customers of the further steps necessary for claiming compensation for unsatisfied losses.
The SEC also ordered CMIC to take other necessary actions to protect customer accounts including, but not limited to the preservation of the assets and books and records of R&L investments, and to execute acts or documents necessary or appropriate in carrying out its powers.
In addition, the Commission directed CMIC to determine the various violations of the provisions of the SRC and its implementing rules and regulations possibly committed by R&L Investments, its officers and employees.