SEC seeks more independent directors in exchanges

The Securities and Exchange Commission (SEC) is looking to require exchanges and other organized markets in the Philippines to have more independent directors to align with international best practices, as prescribed under Republic Act No. 11232, or the Revised Corporation Code of the Philippines.
 
Under a draft memorandum circular released on June 23 for public comment, independent directors shall constitute at least a majority of the members of the board of directors of exchanges and other organized markets.
 
Section 179 (m) of the Revised Corporation Code authorizes the SEC to “prescribe the number of independent directors” and (d) to “promote corporate governance and the protection of minority investors, through among others, the issuance of rules and regulations consistent with international best practices.”
 
The draft memorandum circular providing for the SEC Rules on the Number of Independent Directors of Exchanges and Other Organized Markets aligns with the best practices of major and comparable markets in many economies, where independent directors comprise the majority of the board of securities exchanges.
 
In Bursa Malaysia, for instance, seven of its eight directors are non-executive directors. As disclosed, the seven directors have no family relationship with any other director or major shareholder, have no conflict of interest with the exchange, and have not been convicted of any offense within the past five years.
 
In the Singapore Exchange, eight of its 11 directors are independent and non-executive. Two seats are occupied by non-independent and non-executive directors, and the remaining seat by a non-independent and executive director.
 
The Australian Securities Exchange also adopts a policy that a majority of its directors must be independent. Its board of directors may have a minimum of seven and a maximum of 15 seats.
 
In the Stock Exchange of Thailand, meanwhile, its board of governors is composed of a maximum of 11 people. Six members are appointed by the country’s securities regulator and four are elected by members of the exchange. The president, who is elected by the board, sits as an ex-officio member.
 
Independent or outside directors also currently comprise the majority of the members of the board of the Hong Kong Stock Exchange; Japan Exchange Group, which owns the Tokyo Stock Exchange and Osaka Exchange; Intercontinental Exchange, Inc., which owns the New York Stock Exchange; and the London Stock Exchange.
 
To further promote good governance and investor protection, exchanges and other organized markets in many economies impose ownership restrictions or disclosure requirements for substantial shareholdings.
 
In Malaysia, a shareholder will have to secure approval from the finance minister before it could own 5% or more of an exchange. In India, persons acting in concert cannot hold more than 15% of a bourse.
 
Canada also bars a shareholder from owning or controlling 10% of any class or series of voting shares in an exchange without approval from the financial regulator AMF. Germany may likewise prohibit an acquisition of 10% of Deutsche Borse.
 
The draft SEC Rules on the Number of Independent Directors of Exchanges and Other Organized Markets are available on the Commission’s website.
 
All interested parties may email their comments to the SEC Markets and Securities Regulation Department, care of Atty. Marlon Facun and Ms. Gretchen Lagonoy, at msrd_covid19@sec.gov.phmrd@sec.gov.phmgfacun@sec.gov.ph and gclagonoy@sec.gov.ph not later than July 3, 2020.

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