SEC champions good governance and capital market integrity

When the appointment of Francis Lim as the new SEC chairman was announced, capital market players were one in welcoming the news. Last 23 January, during the induction of the new set of Trustees of the Institute of Corporate Directors, chair Francis gave a speech that did not disappoint as he framed the state of the capital markets as the major focus of the SEC, and good governance and market integrity as the key pillars of his advocacy to revitalize the moribund state of our stock market — which is a laggard compared to our regional peers.

We can only sit back and watch with envy how our neighbors have far outpaced us by leaps and bounds in terms of market capitalization and number of listed issues. Leading the pack is the looming ASEAN giant, Indonesia, with $942 billion and 800 to 900 listings; Singapore, $824 billion and 600-620 issues; Thailand $559 billion and 700-800 securities; and Malaysia $476 billion and 900-1,000 listings.

And then, of course, there is Vietnam, the new darling of foreign investors and emerging stock market powerhouse which only a few years ago trailed us and has now outpaced us with $340 billion and 700-800 listed securities compared to our stock market’s capitalization of $331 billion and 280 listed companies.

Chair Francis has described the challenge of revving up the market as both structural and behavioral with these twin tasks underpinned by good governance policies and practices by the board of directors and officers, and the SEC’s strict implementation of regulations focusing on upholding market integrity; and where appropriate, an investor friendly interpretation of rules and policies, reduced listing and compliance costs, enhanced infrastructure and introduction of new products to provide a wider array of investment options for the market stakeholders.

These aspirations are posed as a multifaceted challenge. For boards, directors must proactively strengthen oversight of risk management, amplify disclosure policies to all stakeholders, promote tightened control measures particularly to safeguard against insider trading, and encourage, educate and support ethical practices and good moral values among its directors, officers and employees.

For issuers and intermediaries, stakeholders should be prepared for a more consistent enforcement of rules and higher expectations on transparency as the SEC will scale up mandatory compliance in line with international standards. A concrete example is the finality of SEC’s recent ruling of a no-exception policy on the nine-year maximum term limit for Independent Directors to strengthen board independence aligned with international best practices.

For investors, a clearer regulatory environment, improved market infrastructure, encouraging and enabling continuing investor education and a demonstration of a no-nonsense application and enforcement of rules on erring intermediaries and listed companies by the SEC will boost the confidence of investors in the stock market.

A prime example of how serious, courageous and resolved chair Francis is in pushing for greater market integrity is the recent filing of criminal charges by the SEC accusing Villar Land and related parties of alleged market manipulation, insider trading and deceptive disclosures in violation of the Securities Regulation Code. More particularly, the accusations center principally on alleged misleading financial statements which reflected dizzying revenue and net income results brought about by the alleged unjustifiable massive revaluation of the group’s property developments.

Considering the clout, financial stature and political muscle of the main principals of this group, these cases are definitely serving as a litmus test that could either boost or erode the confidence of investors and other stakeholders in our market. Given the potential ripple effects on the stock market, and ultimately on investor sentiment, no less than the future direction of the economy is at stake.

In a nutshell, with the cooperation of all market stakeholders, Chair Francis’ mantra for better rules, better enforcement and better boards will hopefully pave the way for an invigorated capital market. Undoubtedly, all the market stakeholders both here and abroad will definitely be keenly waiting and observing how these cases will play out.

Until next week… OBF!

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