We said it over two months ago: With the discovery by the Philippine Stock Exchange of potential price manipulation activities involving the shares of a particular listed company—and the turnover of such information and evidence to the corporate regulator—the ball is now in the court of the Securities and Exchange Commission.
Critics of the PSE have described it as an “old boys’club” where the well-connected merrily make money while the rest of the investors lose their shirts in the “hype and dump” schemes of “jinetes” (jockeys) who rig prices for their (and their friends’) advantage. Even corporate regulators and the current crop of economic managers have called out the PSE leadership to clean up the ranks by reforming the way the stock market is run.
Capital Markets Integrity Corp., an independent unit of the PSE, has been assigned to investigate certain participants’ suspicious activities within the bourse. Eager to prove its doubters wrong, CMIC has thrown itself into the task of looking into potential stock market abuses with gusto. Suspected cases of stock market manipulation and insider trading have been detected, thanks to the group’s state-of-the-art computer system. This system, which came at no small cost, can detect potentially illegal patterns that are difficult to spot through manual observation.
CMIC has actually gone “above and beyond the call of duty.” It has hired private investigators to follow the paper trail of one suspected stock manipulation case, which now looks increasingly like a case of money laundering.
But because CMIC is not empowered to prosecute suspected market abuses (a power reserved by the law for the corporate regulator), all the evidence it has gathered has been turned over to the SEC for the latter’s action. And there lies the problem. It has been more than four months since the government corporate watchdog was apprised of this situation, and we have yet to see any concrete result.
In today’s world of financial markets, where mere seconds can make or break investors, let alone unsuspecting small players in the “retail” sphere, four months of inaction is an eternity. In four months, stock market manipulators and those involved in insider trading can make scads more money. In four months, unsuspecting investors using their hard-earned stash can lose it all.
CMIC, despite having the approval of its operating license delayed for many months (by the SEC, no less), acted with dispatch when faced with a situation where it had to act against suspected violations by stock market stakeholders. And it continues to perform admirably, having provided the SEC the information to prosecute seven of the nine cases now being probed by the regulator, despite having to operate only on a provisional license.
We understand that, being a government agency, the SEC is understaffed and often has insufficient resources to go after every suspected violator in a timely manner. But given the ribbing that the PSE has suffered from reform-minded government officials, it is perhaps only appropriate that due attention be given by the government to rewarding exemplary behavior on the bourse’s part.
For the Philippine economy to grow at a pace needed to lift more people out of the morass of poverty, a well-oiled, transparent and dynamic stock market is critical. It is critical for helping investors allocate capital efficiently, whether to listed companies that will build more roads and bridges or to firms that will bring cheaper and faster Internet services to the countryside.
For this to happen, both the government and the private sector have to be on the same page, facing the same direction, acting with the same urgency toward reform.
Recently, we heard SEC Chair Teresita Herbosa announce that the regulator would complete its own investigation by the end of October. This is a welcome development, and the local and foreign investment communities are waiting to see whether the government side would actually put its money where its mouth is, especially since the PSE did the same four months ago.
And to be consistent with our earlier analogy, the ball is deep inside the SEC’s court, so deep that it is now approaching the baseline, at risk of being dropped and going out of bounds, like all previous investigations concerning financial market abuses.
Action is needed, and the sooner the better.