Lifting of Suspension of PSE's Status as a Self-Regulatory Organization

September 8, 2000 SEC-BED * ORDER NO. 110-00 TO : The Philippine Stock Exchange, Inc. SUBJECT : Lifting of Suspension of PSE's Status as a Self-Regulatory Organization Before the Commission is the request of the Philippine Stock Exchange (hereafter, the "Exchange") to lift the suspension order of this Commission dated March 7, 2000, suspending the SRO status of the Exchange. Finding the Exchange to have substantially complied with the directives of this Commission dated 29 June 1998 and has manifested its readiness and its ability to effectively operate as a self-regulatory organization, the Commission hereby resolves to restore its SRO status subject to the following Mandatory conditions, in addition to the conditions set forth in the Securities Regulation Code ( hereafter, the Code ), and its implementing Rules and Regulations: 1. The Exchange shall, within one (1) year from the effectivity of the Code, reorganize as a stock corporation, pursuant to a demutualization plan duly approved by this Commission, in accordance with section 33.2 (a) of the said Code. 2. The brokers in the Board of the Exchange shall comprise not more than forty-nine percent (49%) of such Board and shall proportionately represent the Exchange membership in terms of volume/value of trade and paid-up capital, and that any natural person associated with a juridical entity that is a member shall himself be deemed to be a member for this purpose. Henceforth, the By-laws and the Rules of the Exchange shall be deemed to have been amended in accordance herewith, although the Exchange is given until its next annual meeting to cause the formal amendments to its By-laws and its Rules to give effect to this condition. Otherwise, this Order shall be sufficient to cause the said amendments. 3. The Board of the Exchange shall include in its composition (i) the president of the Exchange, and (ii) unless otherwise allowed by the Commission, no less than fifty-one percent (51%) of the remaining members of the Board to be comprised of three (3) independent directors and persons who represent the interests of issuers, investors, and other market participants, who are not associated with any broker or dealer or member of the Exchange for a period of two (2) years prior to his/her appointment. No officer or employee of a member, its subsidiaries or affiliates or related interests shall become an independent director. 4. The President and other officers of the Exchange shall be persons who are not members and are not associated in any capacity, directly or indirectly with any broker or dealer or member or listed company of the Exchange: Provided, That the Exchange may only appoint, and a person may only serve, as an officer of the Exchange, if such person has not been a member or officer of the Exchange, has not been a member or affiliated with any broker, dealer, or member of the Exchange for a period of at least two (2) years prior to such appointment. Henceforth, the By-laws and the Rules of the Exchange shall be deemed to have been amended in accordance herewith, although the Exchange is given until its next annual meeting to cause the formal amendments thereto to give effect to this condition. Otherwise, this Order shall be sufficient to cause the said amendments. Provided, further, that the incumbent officers of the Exchange shall be exempted from the above restrictions to enable them to complete their term of office. 5. The Members in the Business Conduct and Ethics Committee (BCEC) shall include at least one non-broker Board member. The chairman shall be a governor. 6. The Exchange shall continuously augment its Compliance and Surveillance Group's management complement to enchance its audit capability. It shall likewise strengthen its market watch by upgrading the features of its surveillance system. Said separate audit, compliance and surveillance department shall be overseen by a non-broker member of the Board. Such department shall not be subordinated or otherwise controlled in its activity by the Exchange Board and shall be responsible for carrying out the Exchange's enforcement role pursuant to the Code and the disciplining of participants, with findings to be provided simultaneously to this Commission and the Exchange Board which shall notify this Commission within fifteen (15) days as to the Board's decision. ATCaDE Should this mandate require the Exchange to amend its Rules, it shall do so in accordance with the rules set forth below for amendment of the Exchange's Rules, and other rules that may be issued by the Commission relative and pertinent hereto. 7. The Exchange shall submit to the Commission for prior approval any proposed rule of the Exchange or amendment thereto. Considering that this Order issued prior to the issuance by this Commission of the Implementing Rules and Regulations for the Code, the following procedure shall be followed by the Exchange for the approval of its proposed rules and/or amendments undertaken under the conditions set forth in this Order: 7.1. The Exchange shall submit to this Commission for prior approval any proposed rule or amendment thereto (hereafter, the proposal), together with a concise statement of the reason and effect of the proposed amendment. If this Commission believes that such proposal is of "major significance", at least thirty (30) days before approving such proposal, this Commission shall direct the Exchange to publish the text of the proposal and a statement of the reasons and effect in a newspaper of general circulation or by some other means to guarantee the public circulation thereof, and shall afford interested persons an opportunity to submit written data, views and arguments, provided that the comment period shall not exceed a period of twenty (20) days. The Exchange shall file with this Commission a written summary of the comments received, along with responses thereto, no later than thirty (30) days after the end of the comment period. Where the comments cause the Exchange proposal to be changed in a material manner, a new period shall be triggered. 7.2. Except as provided in 10.3 hereof, within a period of sixty (60) days after submission of the proposal or summary of comment required to be filed with this Commission pursuant to 10.1 hereof, this Commission shall, by order, approve the proposal, or institute proceedings to determine whether the proposal should be disapproved. If this Commission does not institute proceedings to disapprove the proposal within such period, the same may be declared as in effect by the Exchange. If a proceeding is instituted, this Commission shall provide notice to the Exchange of the grounds for disapproval, and an opportunity for hearing, at the conclusion of which this Commission shall grant or deny approval of the proposal. This Commission shall approve a proposal where it finds that it is consistent with the requirements of the Code and/or is not duplicative of any rules or regulations of this Commission, and shall disapprove it if it does not make such findings. If the proceeding is not concluded within ninety (90) days following its commencement, the proposal shall be declared as in effect by the Exchange. 7.3. Notwithstanding 10.2 hereof, a proposal may take effect within ten (10) business days after its submission to this Commission if designated by the Exchange as constituting a policy, practice or interpretation of an existing rule, establishing or concerning solely matters of administration of the Exchange (e.g. setting of dues, fees and charges) or such other matters as this Commission by rule or order, may prescribe, unless this Commission, within the ten-day period, provides written notice to the Exchange of its determination to review such proposal for prior approval pursuant to paragraphs 10.1 and 10.2 hereof. 7.4. Notwithstanding any other provision of this subsection, in an emergency requiring action for the protection of investors, the maintenance of fair and orderly markets, or the safeguarding of securities and funds, the Exchange may summarily put into effect a proposal: Provided, however, that the proposal made effective shall be promptly submitted to this Commission pursuant to 10.1 hereof. 8. This Commission may request in writing that the Exchange effect on its own behalf specified changes in its rules and practices which are necessary or appropriate for the protection of investors, to insure fair dealing in securities traded on the Exchange, insure fair administration of the Exchange, conform Exchange rules to the requirements set forth in the Code, or to otherwise further the purpose of the Code on such matters as: (a) safeguards in respect of the financial responsibility of members and adequate provision against the evasion of financial responsibility through the use of corporate forms or special partnerships, (b) supervision of trading practices, (c) listing or delisting any security, (d) hours of trading, (e) manner, method and place of soliciting business, (f) fictitious accounts, (g) time and method of making settlements, payments and deliveries and of closing accounts, (h) transparency of securities transactions and prices. (i) fixing of reasonable rates of fees, interest, listing and other charges but not rates of commission, (j) minimum units of trading, (k) odd-lot purchases and trades, (l) minimum deposits on margin accounts, and (m) supervision, auditing, and disciplining of members or participants. If, after making such request in writing to the Exchange, and after due notice of the reasons and effects of the proposed changes and opportunity for a hearing, this Commission determines that the Exchange has not made the changes so required, this Commission may alter, abrogate, or supplement the Exchange's rules, with such changes to be made effective immediately upon adoption by this Commission. 9. The Exchange shall comply with the provisions of the Code, the rules and regulations thereunder, all orders and issuances of this Commission relative to the Exchange's operation and compliance with the Code and its implementing Rules and Regulations, and its own rules, and enforce compliance therewith. 10. The Exchange shall conduct periodic examinations of its members to determine whether they are in compliance with the Code and the Exchange's rules, and shall submit to this Commission its examination calendar for the year on or before the 15th of January of every year, which calendar may be amended, and shall be treated as confidential. The periodic examination of members of the Exchange shall be conducted without prior notice to the member firm. The Exchange's findings from said examinations shall be filed with this Commission on a monthly basis, and shall be cause for the Exchange to order members found to be deficient, to correct the deficiencies, or cause the initiation of an investigation if warranted under the findings from said examination. However, this Commission is not precluded from conducting its own examination to validate the Exchange's finding and conduct on-spot audit inspections of the relevant department/s of the Exchange for compliance with the Code and/or the Exchange's rules. 11. The Exchange shall investigate suspected violations of the Code based on complaints, examination/audit findings or unusual trading activities and take disciplinary action, where appropriate, pursuant to its rules and shall be primarily responsible to supervision, surveillance, and monitoring compliance of its members. Furthermore, the Exchange shall promptly notify this Commission of any investigation which involves suspected violations of the Code involving (a) persons who are not members of the Exchange nor subject to the Exchange's jurisdiction nor disciplinary authority; (b) disclosure obligations of listed companies under the Code, over which this Commission has primary investigative authority, which shall be exercised with the cooperation of the Exchange. 12. The Exchange shall have disciplinary power over its participants in accordance with Section 40.6 of the Code. 13. The Exchange shall submit the following reports to this Commission: (a) Monthly reports on dockets of examinations and investigations being conducted, containing relevant docket information; (b) Monthly reports on capital adequacy requirements by members; (c) Quarterly reports on the result of monitoring of trading of listed companies and investigations conducted with respect thereto; (d) Semi-annual report on the number of newly-listed issues, delisted/suspended issues and reasons therefore, and the number, type and issuer of current listed issues; (e) Semi-annual report containing information on the number of investor complaints received, investigated, nature of claim, status and manner of disposition; and (f) such other information as may, from time to time, be required by this Commission from the Exchange. 14. The Exchange shall continue to be subject to this Commission's disciplinary power. This Commission may, if in its opinion such action is necessary or appropriate in the public interest or for the protection of investors, or otherwise in furtherance of the purposes of the Code, after due notice and an opportunity for hearing: 14.1 suspend for a period not to exceed 12 months or revoke the registration of the Exchange, or censure or impose limitations on the activities, functions and operations of the Exchange as such, if this Commission finds that the Exchange has willfully violated or is unable to comply with any provision of the Code or the Exchange's rules, or without reasonable justification or excuse has failed to enforce compliance therewith by a participant; 14.2 take over the activities of the Exchange and/or suspend for a period not exceeding 12 months or to expel from the Exchange any member thereof or participant therein who is subject to an order of the Commission under Section 29 of the Code (where registration has been suspended or revoked by this Commission) or is found to have willfully violated any provision of the Code, effected, or directly or indirectly, any transaction for any person who such participant had reason to believe was violating in respect of such transaction any of such provisions; 14.3. remove from office or censure any officer or director of the Exchange if it finds that such officer or director violated any provision of the Code or the rules of the Exchange, abused his authority or without reasonable jurisdiction or excuse, has failed to enforce compliance with any of such provisions, and; 14.4. take other actions as provided in the Code. 15. In addition to the registration fee prescribed, the Exchange shall pay to the Commission, on a semestral basis on or before the tenth day of the end of every semester of the calendar year, a fee in such amount as the Commission shall prescribe, but not more than one-hundredth of one per centum of the aggregate amount of the sales of securities transacted on such Exchange during the preceding calendar year, for the privilege of doing business, during the preceding calendar year or any part thereof. 16. To enhance investor protection and more effectively utilize existing resources, this Commission and the Exchange shall work towards a more harmonious and cooperative relationship among their officers and personnel. This Commission's staff shall meet with their Exchange counterparts at least once a month to discuss issues relating to the operation of the Exchange as such. This Commission and the Exchange shall likewise work closely to coordinate their media campaigns on the securities industry to generate positive public opinion and increase investor confidence. 17. The Commission shall have the power to issue orders to the Exchange from time to time, redefining the conditions set forth herein, which, in the exercise of its discretion, it believes to be necessary and appropriate for the protection of the investing public. AcHCED WHEREFORE, premises considered, the Commission's Order dated March 7, 2000 suspending the Exchange's SRO status, is hereby LIFTED. SO ORDERED. September 8, 2000. Mandaluyong City, Philippines. For the Commission En Banc: (SGD.) LILIA R. BAUTISTA Chairperson