After formalizing plans to enforce a mandatory term limit for independent directors of publicly listed companies, the Securities and Exchange Commission (SEC) is now looking at putting a term limit for broker directors of the Philippine Stock Exchange Inc. (PSE).
SEC chairperson Francis Lim told The STAR that the proposal aims to introduce term limits for broker directors of the PSE, similar to the existing limits for independent and non-broker directors.
Lim said the PSE’s independent directors as well as non-broker directors currently have term limits, while broker directors do not have any.
‘The intent is to level the playing field and provide other brokers the opportunity to serve on the PSE board,’ Lim said.
‘At this stage, it remains an idea under study – nothing final yet – but it’s certainly worth exploring,’ he said.
Broker directors are persons who proportionately represent the PSE membership in terms of volume/value of trade and paid-up capital, while non-broker directors are those who are not associated with any broker or dealer or member of the exchange.
The PSE’s board of directors should be composed of 15 members who are elected by shareholders.
At least 51 percent of the members must be non-brokers: at least five independent directors and four directors representing the interests of issuers, investors and other market participants, with each sector having at least one representative.
Broker directors, meanwhile, should not be more than 49 percent of the board and shall proportionately represent the exchange membership in terms of volume/value of trade and paid up capital.
A broker director must be a senior officer with a rank of at least vice president or its equivalent, or a director of a brokerage firm/trading participant that has been licensed to operate as a broker or broker-dealer and is a trading participant of the PSE and must be nominated by a PSE stockholder of record.
The SEC has recently issued a draft memorandum circular, which sets the rules on the duration of term and amends its rules on term limits of independent directors of all publicly listed companies.
The issuance is expected to strengthen independence of independent directors as well as to align with the international best practices under Republic Act No. 11232, otherwise known as the Revised Corporation Code of the Philippines.
A company’s independent director is currently allowed to serve for a maximum cumulative term of nine years, after which, the independent director shall be perpetually barred from re-election as such in the company, but may continue to qualify as a non-independent director.
However, in the instance that a company wants to retain an independent director who has served for nine years, the firm’s board should provide meritorious justifications and seek shareholders’ approval during the annual shareholders’ meeting.
Under the SEC’s draft memorandum circular, an independent director shall be elected for a three-year fixed term and subject to the term limit.
An independent director should serve for a maximum cumulative term of nine years, with an independent director, who has served the maximum term, shall be disqualified to be an independent director in the same company.
Publicly listed firms and registered issuers are given until Oct. 15, 2025 by the SEC to submit their comments and inputs on the draft memorandum circular on the duration of term and term limit of independent directors.