Philippine Stock Exchange (PSE) watchdog Capital Markets Integrity Corp. (CMIC) has kicked off a probe into R&L Investments Inc., the stock brokerage firm facing a shutdown following a P700-million theft allegedly acted out by an employee.
In a statement on Friday, CMIC said it has placed R&L under involuntary suspension in accordance to Article 10, section 7 of its rules as investigations are on-going.
“CMIC continues its investigation of the issues extant in this case, and has initiated the conduct of the special audits of the pertinent books and records of the involved parties and/or trading participants,” CMIC said in a statement.
CMIC serves as the independent audit, surveillance and compliance arm of the PSE and is a spin-off of its market regulation division.
It said the consequences of R&L’s suspension include: suspension of the trading participant’s trading right and deactivation of its access to the PSE’s trading system, denial of access to R&L’s account with the Philippine Depository and Trust Corp. and the suspension of clearing services by the Securities Clearing Corp. of the Philippines.
Further, the agency requested all trading participants to promptly inform CMIC of all their pending transactions and contracts with R&L.
The PSE on Thursday night confirmed events in the Philippine Daily Inquirer’s exclusive report narrating R&L settlement clerk Marlo Moron’s scheme, which has led to the 50-year-old stock brokerage firm’s shutdown.
Moron reportedly used his position to transfer shares under R&L to another account in another stockbroker in a span of eight years, a scam that was said to be driven by his gambling addiction.
Meanwhile, the Securities and Exchange Commission (SEC) said it will keep an eye on the issue as CMIC conducts its own probe. It said it expects CMIC to “conduct a thorough investigation to unearth the truth behind the transactions in question, identify all parties involved, and uncover the extent of the damage to the stock brokerage, its clients and the overall market.”
“The investigation should also provide clarity as to how such transactions could have slipped past multiple control measures. For one, the 2015 Securities Regulation Code Rules requires broker dealers to conduct monthly security examination, count and verification to account for discrepancies,” the corporate regulator said in its official statement.
To avoid further incidences of the same nature, the SEC said it also expects the full roll-out of the Name on Central Depository (NoCD) facility of the Philippine Depository & Trust Corp. (PDTC) by the first quarter, 2020.
The NoCD facility, SEC said, will increase transparency in securities trading, as it will allow the recording of securities at PDTC in the name of individual investors, compared to the present practice where most securities are recorded in “omnibus accounts” aggregating the holdings of all investors.
Under the NoCD, investors will also be able to monitor the movements in their accounts via SMS or email notifications. Aside from this, the SEC said it is also in discussion with PDTC for a mechanism that will allow the latter to provide monthly reports on a brokerage’s position directly to the board of directors.