Question & AnswerQ&A (SEC MEMORANDUM CIRCULAR NO. 13, S. 2004)
The amendments pertain to Rule 34.1 and Rule 38 of the Implementing Rules and Regulations of the Securities Regulation Code (SRC), specifically dealing with the segregation and limitation of broker and dealer functions and requirements on the nomination and election of independent directors.
When a Member-Broker holds an unexecuted customer's order with priority (pre-existing order), any Broker's Order that takes precedence over this pre-existing order must better the pre-existing highest bid or lowest offer by at least one fluctuation or such number of fluctuations set by the Commission.
Fluctuation refers to the minimum increment or decrement allowed in the price of a security that can better the existing highest bid or lowest offer in the market.
The amendments to SRC Rule 38 were introduced through SEC-EXS Resolution No. 88, Series of 2004 (dated 10 August 2004) and Resolution No. 537, Series of 2004 (dated 7 October 2004).
Paragraphs 2(E) and 2(F) define qualifications for independent directors, specifically that they must not have been employed in any executive capacity by the company or related entities within the last two years and must not be retained as professional advisers by the company or related entities within the last two years.
The required period is two (2) years prior to nomination or election as an independent director, during which the individual must not have been employed in an executive capacity or retained as a professional adviser by the company, its related companies, or substantial shareholders.
The amendments take effect fifteen (15) days from their publication in a newspaper of general circulation in the Philippines.
The memorandum circular was adopted by the Securities and Exchange Commission, signed by Chairman Fe B. Barin.
This amendment aims to ensure fair trading practices by requiring that any new Broker's Order with priority must improve upon existing orders to maintain market integrity and protect customer interests.
An independent director is one who has not been employed in any executive capacity by the covered company, its related companies, or substantial shareholders within the last two years and is not retained as a professional adviser by them within the same period, ensuring impartiality and independence in board governance.