Proposed Amendments to 2015 SRC Rules and Memorandum Circular No. 16, series of 2004

July 21, 2023 SEC MSRD NOTICE The Commission hereby invites all interested parties to comment on the attached "Proposed Amendments to 1 2015 SRC Rules and 2 Memorandum Circular No. 16, series of 2004" relative to the transition to T+2 settlement cycle. The provisions subject of the proposed amendments are in bold font. HTcADC Kindly address your comments to Director Vicente Graciano P. Felizmenio, Jr. , SEC-Markets and Securities Regulation Department (MSRD), SEC Headquarters, 7907 Makati Avenue, Salcedo Village, Bel-Air, Makati City. You may email your comments to [emailprotected], [emailprotected], and [emailprotected] not later than 4 August 2023 . Issued on July 21, 2023. ANNEX A 2015SRC Rules (Amendments) 49.1.1.5.3. Computation of Net Liquid Capital (NLC) In computing NLC, the Equity Eligible for Net Liquid Capital of a Broker Dealer is adjusted by the following, provided, however, that in determining net worth, all long and all short securities position shall be marked to their market value: 49.1.1.5.3.1. x x x 49.1.1.5.3.2. Deducting fixed assets and assets which cannot be readily converted into cash [less any indebtedness excluded in accordance with SRC Rule 49.1.1.5.2.4 of the Definition of the term Aggregate Indebtedness] including, among other things: 49.1.1.5.3.2.1. x x x 49.1.1.5.3.2.2. All unsecured advances and loans; deficits in customers' and non-customers' unsecured and partly secured notes; deficits in special omnibus accounts or similar accounts carried on behalf of another Broker Dealer, after application of calls for margin, marks to the market or other required deposits that are outstanding three (3) two (2) business days or less; deficits in customers' and non-customers' unsecured and partly secured accounts after application of calls for margin, marks to the market or other required deposits that are outstanding three (3) two (2) business days or less, except deficits in cash accounts for which not more than one extension respecting a specified securities transaction has been requested and granted; the market value of stock loaned in excess of the value of any collateral received therefore; and any collateral deficiencies in secured demand notes in conformity with SRC Rule 49.1.2 above. CAIHTE Rule 50 Purchases and Sales in Cash Account 50.1. Purchases by a customer in a cash account shall be paid in full within three (3) two (2) business days after the trade date. Rule 52.1.11. Monthly Aging of Customers Receivables 52.1.11.2. The aging schedule shall indicate the monetary and securities collateral values of the customers' receivable as of end of month, broken down as follows: Classification T+0 to T+2 T+1 T+3 T+2 to T+13 T+12 T+14 T+13 to T+30 T+31 up 52.1.11.3. Every Broker Dealer shall appropriate Allowance for Doubtful Accounts (ADA) using and in accordance with the following schedule: Classification Provision Base T+0 to T+2 T+1 0 Total Receivables (TR) T+3 T+2 to T+13 T+12 2% TR T+14 T+13 to T+30 50% TR less collateral (net of haircut) T+31 up 100% TR less collateral (net of haircut) The ADA is computed by getting, for each doubtful account, an amount equivalent to the provision (see Table above) of the amount outstanding, net of collateral (net of haircut). Basis for the computation would be the individual accounts. ANNEX B SEC Memorandum Circular No.16, Series of 2004 Adoption of the Risk Based Capital Adequacy Requirement/Ratio (RBCA) for Brokers Dealers (Amendments) C. Computation of Net Liquid Capital (NLC) In computing NLC, the Equity Eligible for Net Liquid Capital of a Broker Dealer is adjusted by the following, provided, however, that in determining net worth, all long and all short securities position shall be marked to their market value: aScITE i. x x x ii. Deducting fixed assets and assets which cannot be readily converted into cash [less any indebtedness excluded in accordance with paragraph (iv) of the Definition of the term Aggregate Indebtedness] including, among other things: a. x x x b. All unsecured advances and loans; deficits in customers' and non-customers' unsecured and partly secured notes; deficits in special omnibus accounts or similar accounts carried on behalf of another Broker Dealer, after application of calls for margin, marks to the market or other required deposits that are outstanding three (3) two (2) business days or less; deficits in customers' and non-customers' unsecured and partly secured accounts after application of calls for margin, marks to the market or other required deposits that are outstanding three (3) two (2) business days or less, except deficits in cash accounts for, which not more than one extension respecting a specified securities transaction has been requested and granted; the market value of stock loaned in excess of the value of any collateral received therefore; and any collateral deficiencies in secured demand notes in conformity with SRC Rule 49.1 (G) above. xxx xxx xxx SCHEDULE FOR PART 4 SCHEDULE FOR SPECIFIC AND GENERAL PROVISIONING FOR OVERDUE ACCOUNTS A. Customer accounts qualifying as Non-performing Accounts Type of account Criteria for classification of account as non-performing Date for classification 1. Contra losses When the account remains unpaid starting from T + 4 or more from the date of contra transaction T + 4 T+3 2. Overdue purchase contracts When the account remains unpaid starting from T + 14 T+13 T + 14 T+13 or when the broker exercises its right of mandatory close out over the securities serving as collateral 3. Margin Accounts When, upon making a margin call, the period to put up equity to meet the margin deficiency has expired Upon expiration of period B. Specific Provision 1. Specific provisions for bad and doubtful accounts shall be made for contra losses, overdue purchase contracts and margin accounts. For purposes of this section, these types of accounts are classified as Doubtful or Loss depending on the default period each respectively has. They are as follows: DETACa Type of Accounts Period when account is overdue Classification 1. Contra losses a. T + 4 T+3 to 30 calendar days b. over 30 calendar days a. Doubtful b. Loss 2. Overdue purchase contracts a. T + 14 T+13 to 30 calendar days b. over 30 calendar days a. Doubtful b. Loss 3. Margin Accounts When the Equity has fallen below the required minimum margin maintenance and the margin deficiency is more than P10,000.00 Loss xxx xxx xxx SCHEDULE B.2 COUNTERPARTY RISK REQUIREMENT COUNTERPARTY RISK FACTORS FOR UNSETTLED AGENCY TRADES SRC Rule 49 (H) Subsection VI Agency Transaction Time period for application of Percentage Credit Risk Factor 1. Sell Contract covers possible risk of failing to receive the security on a sales contract T to T + 2 T+1 of clients 0% From T + 3 T+2 to T + 13 T+12 of clients 8% of the mark to market value of the sell contract multiplied by the CW, for negative counterparty exposure ( i.e. , if the current market value exceeds the transaction value of the stock) 0% if it is a positive counterparty exposure ( i.e. , if the current market value is less than the transaction value of the stock) Beyond T + 13 T+12 of clients The marked to market value of the contract multiplied by the CW for negative counterparty exposures ( i.e. , if the current market value exceeds the transaction value of the stock) 0% if it is a positive counterparty exposure ( i.e. , if the current market value is less than the transaction value of the stock) 2. Buy Contract covers possible risk of failing to give cash payment on a buy order T to T + 2 T+1 of clients 0% From T + 3 T+2 to T + 13 T+12 of clients 8% of the mark to market value of the buy contract multiplied by the CW, for negative counterparty exposure ( i.e. , if the transaction value exceeds the current market value of the stock) 0% if it is a positive counterparty exposure ( i.e. , if the transaction value is less than the current market value of the stock Beyond T + 13 T+12 of clients The marked to market value of the contract multiplied by the CW for negative counterparty exposures ( i.e. , if the transaction value exceeds the current market value of the stock) 0% if it is a positive counterparty exposure ( i.e. , if the transaction value is less than the current market value of the stock) SCHEDULE B.3 COUNTERPARTY RISK REQUIREMENT COUNTERPARTY RISK FACTORS FOR UNSETTLED PRINCIPAL TRADES SRC Rule 49 (H) Subsection VI Principal Transaction Time period for application of Percentage Credit Risk Factor 1. Sell Contract covers possible risk of counterparty failing to deliver securities on a sell order T to T + 2 T+1 of counterparties ( i.e. , Exchange/Clearing Agency or BD) 0% From T + 3 T+2 to T + 13 T+12 of clients 8% of the mark to market value of the sell contract multiplied by the CW, for negative counterparty exposure ( i.e. , if the transaction value exceeds the current market value of the stock) 0% if it is a positive counterparty exposure ( i.e. , if the transaction value is less than the current market value of the stock) Beyond T + 13 T+12 of counterparties The marked to market value of the contract multiplied by the CW for negative counterparty exposures ( i.e. , if the transaction value exceeds the current market value of the stock) 0% if it is a positive counterparty exposure ( i.e. , if the transaction value is less than the current market value of the stock) 2. Buy Contract covers possible risk of counterparty failing to deliver securities on a buy contract T to T + 2 T+1 of counterparties 0% From T + 3 T+2 to T + 13 T+12 of counterparties 8% of the mark to market value of the buy contract multiplied by the CW, for negative counterparty exposure ( i.e. , if the current market value exceeds the transaction value of the stock) 0% if it is a positive counterparty exposure ( i.e. , if the current market value is less than the transaction value of the stock) Beyond T + 13 T+12 of counterparties The marked to market value of the contract multiplied by the CW for negative counterparty exposures ( i.e. , if the current market value exceeds the transaction value of the stock) 0% if it is a positive counterparty exposure ( i.e. , if the current market value is less than the transaction value of the stock) SCHEDULE B.4 COUNTERPARTY RISK REQUIREMENT COUNTERPARTY RISK FACTORS FOR DEBTS/LOANS, CONTRA LOSS, AND OTHER DEBTS DUE SRC Rule 49 (H) Subsection VI Debt/Aging Period Credit Risk Factor (of Counterparty Exposure) Less than 2 days 1 day (or T+0 to T+2 T+1 ) Zero 3-13 2-12 days (or T+3 T+2 to T+13 T+12 ) 8% of amount due 14 13 -30 days 50% of amount due Over 30 days 100% of amount due Footnotes 1. Annex A. 2. Annex B.