How Does the Philippine Stock Exchange Protect Your Rights as an Investor?

Many people shy away from investing their investable funds in the stock mark. They’re afraid of losing their hard-earned money in this high-risk investment instruments.

Jay G. Peñaflor, our speaker in the BusinessCoach’s How to Invest in the Stock Market seminar on April 16, 2011, attested that you can lose money in the stock market if you’re not vigilant enough. But if you can gather all available information about your investments, gain sound knowledge on the stock market trends and not greedy, you can attend success in your stock market investing.

The Philippine Stock Exchange (PSE) Sr. Market Education Specialist said that Filipinos should not afraid to invest in the stock market, for stock market investors’ money are well protected. And as long as it is diversified and not placed in one basket, the risk of losing money is minimal.

In the Building Wealth with Stocks, A Basic Guide to Investing in the Philippine Stock Market, I learned that PSE and Securities and Exchange Commission (SEC) have put in place several safeguards that promote transparent, fair, and organized buying and selling of stocks where every investor, big or small alike, are protected from fraud, manipulative trading practices and erring stockbrokers.

Here are several safeguards that promote transparent, fair, and organized buying and selling of stocks.

Self Regulatory Organization Status
The PSE is a Self Regulatory Organization (SRO) as granted by the SEC. As such the PSE acts as the “police” of the stock market and it is the SRO status that empowers it to formulate marketplace rules, and impose penalties or sanctions to market participants who will not comply with these rules.

Customer First Policy
Further, PSE regularly monitors and audits the operations of stock broker. It ensures that business and trading practices of stockbrokers conform with the laws stipulated in the Securities Regulation Code of the Philippines including the Customer First Policy, whereby stockbrokers’ orders must always surrender priority to their client.

Risk Based Capital Adequacy
The Risk Based Capital Adequacy is a PSE regulation that ensures that stockbrokers have enought capital to cover its exposure to risks. It also ensures that stockbrokers are financially sound or liquid enough to promptly settle claims and other obligations to client.

Disclosure Rule (10-minute Rule, Online Disclosure System, and Selective Disclosure Rule)
Since timely and reliable company disclosures are essential components of a fair and efficient market, the PSE also sees to it that listed companies promptly disclose only factual and truthful information.
In fact, the PSE requires that material information that may affect a listed company’s share price positively or negatively, are disclosed within 10 minutes after its occurence. This rule embodied in the 10-minute Rule.

Disclosures must also be done first to the PSE so that it will cascade information to every investor and general public through its communication channels and not to a selected group of individuals only. This is also known as the Selective Disclosure Rule.

Also disclosures are transmitted through a sophisticated computer system known as the PSE Online Disclosure System or OdiSy. Non-compliance or violations of listed companies to PSE Disclosure Rules are heavily penalized with fines, suspension, or even delisting from the PSE.

Advanced Warning and Control System
The PSE regulates the stock market through its Market Regulatory Division (MRD). It monitors the market through a word-class and sophisticated surveillance system called Advance Warning and Control System or AWACS.

AWACS is equipped with the critical elements of the surveillance process and provides a robust monitoring and warning mechanism. It is designed to protect the integrity of the equities market from fraud, manipulation, and breaches of marketplace rules, It monitors and detects unusual stock price or volume movement possibly brought about by insider trading and other manipulative trading practices. From the information provided by AWACS, MRD conducts investigation or unusual price and volume movements to identify and prosecute stockbrokers or investors who might have committed price manipulation practices.

Market Integrity Board
The Market Integrity Board is independent body created by the PSE to oversee stockbrokers’ compliance with the rules governing market transactions.

Securities Investors Protection Fund
Another tool created for the protection of investors is the Securities Investors Protection Fund, Inc. or SIPF. The SIRF, which is comparable to the Philippine Deposit Insurance Corporations providing insurance for bank deposits, seeks to build and enhance investor’s confidence in the market and is envisioned to protect the investing public from extraordinary losses, other than the ordinary market fluctuation, arising as a result of fraud, failure of business, or judicial insolvency of PSE-accredited stockbrokers. Protection to investors is automatic upon the opining of an account with a PSE-accredited stockbroker and given by way of compensation for trade-related obligations of stockbrokers to its customers.

These safeguards, along with other investor protection initiatives of the Philippine Stock Exchange, serve to protect the health of the equities market and the integrity of capital formation process, making investing in the Philippine stock market secure.

 

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