PSE veterans take SEC term-limit fight to Court of Appeals

Two of the Philippine Stock Exchange’s (PSE) longest-serving broker-directors have asked the Court of Appeals to strike down the Securities and Exchange Commission’s (SEC) new term-limit rule, escalating what began as a corporate-governance reform into a potentially defining test of how far the regulator can go in reshaping the governance of the country’s only securities exchange. Veteran stockbrokers Ma. Vivian Yuchengco and Eddie T. Gobing filed a petition for certiorari and prohibition before the Court of Appeals on Wednesday, August 5, seeking to nullify Securities and Exchange Commission (SEC) Memorandum Circular No. 17, Series of 2026, which imposes a maximum cumulative tenure of 10 years on broker-directors. The petitioners argue that the SEC exceeded the powers delegated to it under the Securities Regulation Code and Revised Corporation Code. They contend that no statute expressly authorizes the regulator to impose term limits on broker-directors and that the circular violates constitutional guarantees of due process and equal protection by singling out broker representatives. They also argue that restricting the eligibility of longtime directors interferes with shareholders’ ability to elect their preferred representatives. That argument now puts squarely before the appellate court a question that goes well beyond Yuchengco and Gobing: Is membership on the board of a securities exchange principally a matter of private shareholder choice, or is it a regulated privilege subject to governance qualifications imposed in the public interest? This is important because the PSE is not simply another listed corporation. It is the country’s only securities exchange and operates as a self-regulatory organization, exercising functions that directly affect brokers, listed companies and investors. The SEC has maintained that this special character gives the regulator both the authority and responsibility to prescribe governance standards intended to prevent board entrenchment and broaden representation. The final rule was itself a compromise. Although the SEC retained the 10-year cumulative ceiling, incumbent broker-directors were given a two-year transition period, allowing them to finish their existing terms and remain eligible for election during the next two annual elections. In an exclusive interview, SEC Chair Francis Lim made it clear that the regulator has no intention of retreating. “We are disappointed that, despite the SEC providing a reasonable two-year transition period for the implementation of this reform—following extensive consultations—we now find ourselves having to defend it in court,” Lim said in a statement provided to Vantage Point. Lim rejected the contention that the regulation deprives PSE shareholders of their voting rights. Shareholders, he argued, remain free to choose their directors, but their choices must come from candidates who satisfy qualifications established by law and SEC regulations. “The law does not recognize an unfettered right to elect any specific individual regardless of applicable regulatory qualifications,” Lim said. “The SEC has both the authority and the duty to prescribe governance standards that protect the integrity of our markets and enhance investor confidence.” No blanket power The petitioners take the opposite legal view. Their filing argues that while the SEC has explicit authority to regulate qualifications and tenure in certain circumstances, Congress did not give it a blanket power to impose compulsory term limits on ordinary broker-directors. They also challenge the SEC’s reliance on international governance principles, contending that International Organization of Securities Commissions reports do not prescribe mandatory tenure limits for regular directors. The Court of Appeals will ultimately decide those legal questions. But the governance question is considerably harder for the petitioners to explain away. Yuchengco has reportedly served on the exchange board for about 28 years, while Gobing has served for about 25 years. There is also an intriguing historical echo. PSE disclosures show that Yuchengco and the Philippine Association of Securities Brokers and Dealers previously challenged restrictions involving broker voting rights after the SEC sought to enforce a 20% limitation. The litigation traveled through the courts for years, illustrating that the tension between broker shareholder rights and SEC oversight of the exchange is hardly new. This time, however, the stakes may be larger. The controversy arrives when the Philippines is trying to deepen a capital market that continues to trail several regional peers in liquidity, listings and investor participation. Lim is therefore framing the dispute not simply as a battle over two board seats but as part of a wider attempt to change how the Philippine capital market is governed. “The Philippine capital markets have lagged behind many of our regional peers for far too long,” Lim said. “If we are serious about transforming our capital markets, meaningful reforms cannot be put aside simply because they are difficult or face resistance.” That may ultimately be the more consequential argument. Courts will determine whether the SEC stayed within the authority Congress gave it. But investors are entitled to ask a different question: Should expertise in running the country’s only securities exchange require the same people to occupy broker seats for a quarter-century or longer? – Rappler.com Below are related Vantage Point columns on this issue: Must Read [Vantage Point] SEC’s term limits on broker directors: Why it matters [Vantage Point] The end of perpetual seats: Why the SEC is right on broker limits