Court stops SEC from implementing new rules of 2015 SRC

The Mandaluyong Regional Trial Court has stopped the Securities and Exchange Commission (SEC) from enforcing the amended implementing rules and regulations of the Securities and Regulation Code requiring disclosures of “beneficial owners” of stocks, among others.

In a six-page order, Mandaluyong RTC Judge Rizalina T. Capco-Umali said the restraining order against the SEC would take effect for 20 days after petitioner Philippine Association of Brokers and Dealers Inc. (PASBDI) posted a P500,000 bond to answer for any damages that the SEC may sustain due to the TRO.

“It is but within the power of the court to issue a temporary restraining order if only to maintain the status quo of the parties prior to the controversy and preserve and protect the rights of the petitioner during the pendency of the main case,” the court said.

“It must be remembered that the controlling reason for the existence of the judicial power to issue injunctive relief is that the court may thereby prevent a threatened or continuous irremediable injury to some of the parties before their claims can be thoroughly investigated and advisedly adjudicated,” the court added.

In the petition, PASBDI sought to invalidate certain provisions of the 2015 SRC IRR, including amendments introduced to increase transparency in the dealings of brokers and dealers, comply with antimoney laundering laws, and promote investor protection.

PASBDI questioned, among others, the requirement that brokers and dealers provide the SEC with a comprehensive information technology plan, business continuity, disaster recovery plan, risk management manual and internal control procedures as a prerequisite for registration. These requirements ensure the competence of brokers and dealers to promote and protect the investments of their customers.

PASBDI also questioned the amendments requiring disclosure of beneficial owners of the stocks, a requirement necessary to further efforts against money laundering. The disclosure of beneficial ownership will integrate into the 2015 SRC IRR the ruling in Gamboa v Teves requiring the SEC to look into the beneficial ownership of corporations and ensure compliance with the limit on foreign ownership.

PASBDI said with such disclosure, the government was forcing them to violate the Data Privacy Act of 2012.

The court said in its Thursday ruling that PASBDI was able to substantiate its claim of irreparable damage contrary to the arguments by SEC that such claim is merely “speculative.”

“It must be noted that, and as shown by the affidavit of merit … of the members/clients of petitioner who executed the same compose only the 50 brokers and dealers who appear to lose thousands of clients worth at billions of investments. The allegations of irreparable damage are certainly real, not merely apparent, let alone, purely speculative,” the court said.

PASBDI is an association of stockbrokers and dealers, which are among the registered persons regulated by the SEC.