By Arra B. Francia

THE Philippine Stock Exchange, Inc. (PSE) has given 52 inactive trading participants until the end of September to signify their intention to continue operations or else be declassified. This is part of the PSE’s bid to bring down broker ownership of the bourse in order to pass regulatory hurdles to its proposed merger with the Philippine Dealing System Holdings Corporation (PDS).

PSE President and Chief Executive Officer Ramon S. Monzon said one of the key features in securing the Securities and Exchange Commission’s approval for the merger is the reduction of broker ownership to 20%. Brokers currently own a 27.9% stake in the PSE.

A total of 52 out of 184 trading participants under the PSE are inactive, 14 of which hold shares in the company.

“Basically, what we’ve done is we’ve written to all these inactive brokers… telling them that we are giving them three months from June 30 to signify their intention, if they are still interested to operate as a broker… Under the PSE rules then we can declassify them as a trading participant or as a broker because they have no more plans to operate,” Mr. Monzon told reporters in a press briefing in Makati City, late Wednesday.

The PSE president said they talked to the SEC about declassifying inactive trading participants, given that some have not operated for around 15 to 20 years.

“The SEC by itself can close the company if it has not operated for more than five years under the corporation code. While we have been talking to the SEC about this possibility, the SEC wants to give these companies what they call due process,” he said.

Should the inactive brokers signify their intention to continue operations, the PSE will then give them another three months to raise a market capitalization of P100 million, which is required under the Securities Regulation Code (SRC). If they can raise the amount, the brokers will be given six months to prepare operations, which would include hiring employees and finding an office, among others.

“If they are not interested to operate as a broker under the PSE rules then we can declassify them as a trading participant… Then your trading rights under the PSE by-laws becomes vacant and goes back to the PSE. They will not be considered brokers anymore. Should they have shares, then they will not be included in the computation,” Mr. Monzon said.

The declassification of inactive trading participants will bring down broker ownership to 23-24%, he added, closer to the 20% required by the SEC to comply with the single industry share ownership limit rule.

Item C of Section 33.2 of the SRC states that “no person may beneficially own or control, directly or indirectly, more than five percent (5%) of the voting rights of the Exchange and no industry or business group may beneficially own or control, directly or indirectly, more than twenty percent (20%) of the voting rights of the Exchange.”

Prior to the issuance of letters to inactive brokers, the PSE had also disclosed its intention to sell up to 11.5 million common shares out of the unissued portion of the company’s authorized capital stock through a follow-on offering. This forms part of its efforts to further bring down broker ownership to the required amount.

With a closing price of P241 on Wednesday, this would allow the PSE to raise up to P2.77 billion.

To recall, talks for the PSE-PDS merger began in 2013, when the former proposing to secure majority ownership of the fixed-income bourse to merge operations of the two capital markets.

Difficulties in the purchase of shares from other stakeholders alongside regulatory approvals from the SEC and the Philippine Competition Commission have since delayed the merger. Last July, the PSE managed to secure majority ownership of the PDS after buying Whistler Technologies Services, Inc.’s 500,000 common shares in the PDS priced at P320 each for a total of P160 million.

The Company has now a total of 52.78% majority ownership interest in the PDS, according to an earlier disclosure by the PSE.

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