The Securities and Exchange Commission (SEC) and the Philippine Stock Exchange (PSE) are working together to encourage even small companies to go public, as large, family-owned conglomerates are no longer too keen to list their shares as part of estate-planning because inheritance tax has recently been slashed by 70 percent.

“The big companies have no need for capital. A lot of big companies were listing before for succession issues—so that it’s easy for them to transfer their shares to their heirs,” said PSE President and Chief Executive Officer (CEO) Ramon S. Monzon.

He noted that, “we recently passed a tax reform bill that reduced the estate tax from 20 percent to six percent. This totally wiped out the incentive of the big companies, family-owned companies, to list. Why go for the governance requirement or transparency requirement when it just costs six percent now to transfer our shares?”

Monzon also pointed out that a lot of small companies are hesitant to list even if they need capital because they find the requirements or responsibilities of being a listed company to be very intimidating.

He said these include disclosure requirements and penalties for late or non-disclosure, so “we are in the process of reviewing our disclosure rules” since some “disclosure violations really have no impact on investors such as disclosure of share transfers.”

“I think we should lighten up on that. And, perhaps for SMEs [small and medium enterprises], if they have some disclosure violations, [maybe we] don’t penalize them in the first or second [offense]—keep giving them chances and, hopefully with that, we are able to provide that assurance to small companies, that their fear of being listed might diminish,” said Monzon.

SEC Chairman Francis Lim said he agrees with the PSE and that this is a “good move,” but noted that rules will have to be adjusted in light of the context and complexity of the situation.

“It’s not easy. But, fortunately, we have some practices in other exchanges and other markets that we can study,” he said, adding that current disclosure rules are “one size fits all” and these serve as a disincentive for smaller companies to go public.

Noting that the Philippine capital market is being left behind by its regional peers, Lim said that “we have to streamline our [listing] processes, make it easy...We really have to go out of our way to tell the companies that there’s value in being listed in the stock exchange.”

“We have to tell the world that we are strengthening our integrity because if investors, both local and foreign, say there is integrity in that market, they will make that market vibrant and that itself is an incentive for private companies to go public,” explained Lim.