The Securities and Exchange Commission (SEC) expressed disappointment after two veteran stockbrokers mounted a court challenge against new rules capping the tenures of broker-directors on the Philippine Stock Exchange (PSE) board.

The dispute centers on SEC Memorandum Circular No. 17, which restricts broker-directors to a maximum cumulative term of 10 years at any exchange. Former PSE chairwoman Ma. Vivian Yuchengco, who has sat on the board for 28 years, and Eddie Gobing, a director for 25 years, petitioned the Court of Appeals to declare the rule unconstitutional.

They branded the circular as arbitrary, unreasonable, and discriminatory, claiming it infringes on constitutional guarantees of due process and equal protection while disenfranchising shareholders.

SEC Chairman Francis E. Lim pushed back against the legal challenge, pointing out that the regulator had already softened the impact by granting a two-year transition window for incumbent directors to complete their current terms.

“Despite the SEC providing a reasonable two-year transition period for the implementation of this reform—following extensive consultations—we now find ourselves having to defend it in court,” Lim said in a statement.

Lim rejected claims that the policy violates shareholder rights, noting that investors remain free to elect qualified candidates who satisfy regulatory standards.

He noted that the law does not recognize an unfettered right to elect specific individuals regardless of governance requirements.

“Serving as a director of an exchange is a privilege, not a vested right,” Lim said. “Good governance requires board renewal, fresh perspectives, and a commitment to advancing the long-term interests of our capital market above individual or institutional interests.”

Lim lamented that local equities have lagged behind regional peers for far too long, warning that meaningful market transformation cannot be abandoned simply because reforms face pushback.

The SEC said that MC 17 was issued under its mandate beneath the Securities Regulation Code and the Revised Corporation Code to enforce governance standards, protect market integrity, and build investor confidence.

Exchanges that violate the tenure cap face a basic penalty of ₱1 million per non-compliant director per year, along with a continuing monthly fine of ₱30,000 for as long as the director remains seated.

Third or subsequent offenses could result in the suspension or revocation of an exchange’s operating license.

While the SEC has yet to receive an official copy of the petition, the commission confirmed it is fully prepared to file an appropriate legal response once served.

Lim declared that the commission remains steadfast in strengthening transparency and building a trusted capital market.