SEC eyes higher capital bar in major stockbroker industry shakeup

Insider Spotlight

• SEC is considering its biggest stockbroker capital overhaul in 25 years.
• Smaller brokers may need to raise fresh capital or consolidate.
• Some established brokers already voluntarily carry P300 million to P500 million.

The Philippine stockbroker industry could face a shakeout as the Securities and Exchange Commission weighs its biggest capital overhaul in 25 years, with plans to raise minimum capital requirements beyond P100 million.

This could force smaller brokers, or trading participants, to raise fresh capital or consolidate as regulators push for a stronger and better-capitalized industry.

“To be a broker is more than just buying and selling. You also have to contribute to the development of the stock market,” SEC chair Francis Ed. Lim told reporters during a media briefing on Monday where they discussed upcoming reforms.

Time to retire P30 million floor

The gap is significant for some long-established brokers, which can maintain capital as little as P30 million under existing rules.

Lim said these levels are no longer enough to keep pace with the demands of running and growing a modern brokerage.

“It requires capital to do investor education, to comply with regulatory requirements,” Lim said.

Many firms still carry less than P100 million in capital, although Lim said they make up less than half of the industry. 

As of March, there were 121 active trading participants of the Philippine Stock Exchange. 

Updating past benchmarks 

Lim said even P100 million may no longer be enough, noting that P100 million in 2001 would be equivalent to about P256 million today.

“I’m not saying we are going to adopt P256 million,” Lim said. 

Asked whether the new floor could exceed P100 million, he replied: “It can be.”

SEC commissioner McJill Bryant Fernandez said existing rules generally require P100 million in capital, but brokers not engaged in market making can operate with as little as P30 million.

SEC could go beyond PSE plan

Fernandez said the PSE has proposed requiring all brokers to meet the P100-million level by 2029, regardless of whether they engage in market making. 

This is why the SEC’s review is being closely watched, as it could ultimately set an even higher bar.

“If you have P30 million in capital, how can you really go out to the market the way other brokers are doing?” Lim said.

Some long-established brokers have voluntarily raised their capital well beyond what is required, with Lim pointing to firms carrying P300 million to P500 million.

Lim praised these firms for putting significantly more money behind their operations, saying they were “serious about the brokerage business.”

—Edited by Miguel R. Camus