The Securities and Exchange Commission’s (SEC) move to relax the rule on the single business group (SBG) investment limit will benefit conglomerates with multiple listed subsidiaries, such as the SM and Ayala groups, as well as the planned initial public offering (IPO) of GCash.
Under the prevailing SBG limit, an investment company is prohibited from investing more than 20 percent of its net assets, in aggregate, in transferable securities, money market instruments, deposits, and over-the-counter (OTC) financial derivatives issued by any SBG.
The new SEC Memorandum Circular (MC) No. 2, Series of 2025, provides that funds which have no actual investment in financial derivatives shall not be subject to the SBG limit. This includes equity funds, balanced funds, and multi-asset funds that have actual exposure to equity securities.
“This development should help smooth Mynt’s IPO path. Without the memorandum, many funds may have had to reduce exposure to other Ayala companies and/or minimize any planned subscription to the listing,” said leading stock brokerage house Abacus Securities Corp., referring to the owner of top e-wallet GCash.
It added that, “The revised rule might also help listed stocks of the SM Group. Many funds may already be at the SBG limit with regard to Sy family entities since SM Investments Corp., SM Prime Holdings Inc. and BDO Unibank Inc. account for nearly 30 percent of the index.”
Chinabank Capital Corp. Managing Director Juan Paolo Colet also noted that, “The relaxation of the SBG limit is expected to facilitate mutual fund flows into equity securities and listed conglomerates and their listed subsidiaries.
“Among those who will benefit are the San Miguel, Ayala, SM, Gokongwei, and Alliance Global business groups.”
The SEC relaxed its SBG investment limit following several requests from various fund managers on behalf of their respective managed funds to be exempted from the application of the rule.
Instead of the SGB limit, these exempted classes of investment companies will now be subject to the single-entity or issuer-investment limitation under Rule 6.8(b) of the implementing rules and regulations (IRR) of Republic Act (RA) No. 2629, or the Investment Company Act (ICA), until further notice by the Commission.
All investment companies, including the covered funds, shall continue to be subject to all other investment limits and restrictions under existing Commission rules and regulations, as may be applicable. This applies to investment companies with or without actual investments in financial derivatives.
The SEC will not be imposing fines and penalties for any breach of the SBG limit committed by the covered funds, whether or not they have actual investments in financial derivatives, from May 15, 2020, or the effectivity date of SEC MC 15, Series of 2020, until March 27, 2025, or the day before the effectivity date of MC 2.
Any breach of the single entity/issuer limit in Rule 6.8(b) by the covered funds will result in the imposition of corresponding fines and penalties under the ICA’s IRR and other applicable laws, rules, and regulations.
Meanwhile, investment companies—including equity, balanced funds, and multi-asset funds with actual exposure to equity securities, whether or not such funds have actual investments in financial derivatives—seeking to engage in the cross-border offering of their funds to other Association of Southeast Asian Nations (ASEAN) member jurisdictions as qualifying collective investment schemes are required to comply with the 20-percent SBG limit in the ASEAN standards of qualifying collective investment schemes.