Analysts see SEC broker director cap strengthening governance

By Alexandria Grace C. Magno, Reporter

THE Securities and Exchange Commission’s (SEC) new 10-year term limit for broker directors could strengthen governance standards at exchange boards by encouraging leadership renewal and broader market representation, analysts said.

The SEC is imposing a cumulative 10-year term limit on broker directors serving on exchange boards, a rule opposed by some market participants.

Analysts said the policy could help reduce over-reliance on long-serving directors while opening leadership opportunities to individuals with different backgrounds and expertise.

“The term limit and cooling-off rule may cause some initial disruption as experienced directors rotate out, but over time they reduce over-reliance on a few individuals and promote more balanced, credible board decision-making,” BDO Securities Corp. President John Tristan D. Reyes said in a Viber message on Friday last week.

He said the rules would encourage exchanges to regularly refresh their boards and strengthen succession planning, creating opportunities for new entrants and supporting a more dynamic and balanced board composition.

Under SEC Memorandum Circular No. 17, a broker director may serve a maximum cumulative period of 10 years in the same exchange, whether cumulative or intermittent.

A broker director that has served for five cumulative years will be required to undergo a one-year cooling-off period before becoming eligible for reelection.

The five-year term and 10-year maximum period will be reckoned up to the date of the next annual stockholders’ meeting following the fifth or 10^th cumulative annual election.

A broker director’s service of more than six months in a year will be counted as one full year for purposes of computing the five-year term and 10-year maximum cumulative service under the circular.

Following the cooling-off period, a reelected broker director may serve a fresh term of up to five cumulative years.

The new directive would affect several long-serving broker directors at the Philippine Stock Exchange (PSE), including Ma. Vivian Yuchengco, who has served for 28 years, Eddie T. Gobing, who has served for 25 years, and Wilson L. Sy, who has served for 12 years.

China Bank Capital Corp. Managing Director Juan Paolo E. Colet said the term limit strikes a balance between preserving continuity and allowing leadership renewal.

“The 10-year cumulative term limit enables seasoned directors to serve long enough to ensure an exchange benefits from their experience, while also opening the doors for competent candidates to bring new backgrounds and perspectives,” he said in a Viber message on Tuesday.

The SEC circular also provides for a two-year transition period for incumbent broker directors, allowing them to complete their current terms and remain eligible for the next two annual elections.

During the transition period, exchanges are expected to progressively restructure their boards by adding independent directors, foreign brokerage representatives, and members with capital markets or investment banking expertise to strengthen corporate governance and minority shareholder protection.

Mr. Colet said the phased reconstitution of exchange boards could diversify leadership and introduce new expertise into the sector.

He added that the inclusion of foreign independent directors may provide greater objectivity, while investment bankers and other industry practitioners could help exchanges become more responsive to developments in the capital markets.

“I’m optimistic that with faithful implementation and collaboration by regulators and stakeholders, the changes will improve our capital markets and protect the investing public,” he said.

The SEC’s proposal on term limits had earlier faced criticism from some individuals, including Ms. Yuchengco, who described the measure as “wrong,” noting that brokers are also shareholders of the PSE.

Meanwhile, some business groups have expressed support for the reforms. They also pledged to collaborate with regulators and stakeholders in refining policies to promote a fair and efficient capital market.

Covered exchanges that exceed the maximum cumulative term limit for broker directors will face penalties, including a P1-million fine per broker director per year and a P30,000 monthly penalty for continuing violations.

A third or subsequent offense may result in the suspension or revocation of an exchange’s secondary or primary license.

The SEC circular will take effect 15 days after its complete publication in the Official Gazette or in at least two newspapers of general circulation.