THE Philippine Stock Exchange (PSE) said Sunday there was nothing "political or sinister" in the decision of its board of directors to suspend indefinitely the trading of the shares of distribution giant Manila Electric Company (Meralco).

"We fully recognize that the issue surrounding the Meralco shares and the consequent suspension of its trading therewith have inconvenienced Meralco shareholders. But we would like to assure everyone that there was nothing political or sinister behind the Board decision. Our Board, acting as a collegial body, adopted in utmost good faith this painful decision solely to protect the investing public and maintain the integrity of our stock market," said PSE president and CEO Francis Lim.

"The PSE decision to impose trading suspension required prudent deliberation and action consistent with our mandate to maintain an efficient and orderly market. The PSE board, as a collegial body, and the PSE management had to be extra careful and decided on issues purely on their merits to prevent the PSE from being used as unwitting tool to take control of a listed company," Lim further noted.

Lim was reacting in the light of the issue involving Meralco's cancellation of stock certificates of Land Bank of the Philippines (LandBank) aggregating 42,002,750 Meralco, which were then issued to Josefina Lubrica based on an order from the Department of Agrarian Reform-Office of the Regional Adjudicator Region IV.

The Land Bank of the Philippines, however, alleged that the cancellation of the shares of LandBank and issuance of new stock certificates in favor of Lubrica are null and void, citing a Supreme Court decision.

The PSE official asserted that their actions were "neither was it driven by a desire to "take sides" in a legal conflict, much less by a desire to be above our courts of law. It was done solely to protect the integrity of stock market transactions."

According to Lim, the trading suspension it imposed on Meralco last December 17 came as a result of a forewarning made by the Philippine Depository and Trust Corp. (PDTC), a corporation separate and distinct from the PSE that serves as the depositary for shares traded through the PSE, on December 16, 2008, on its inability to download information such as broker balances involving Meralco to the Securities Clearing Corporation of the Philippines (SCCP).

"As we understand it, PDTC suspended the downloading of broker balances on Meralco shares in order to preserve the purity of shares traded in the stock market," he said.

"The practical effect of PDTC's action is to prevent the SCCP from settling any trades of MER shares, whether Lubrica or non-Lubrica shares. It would have been reckless and suicidal for the PSE not to suspend trading of Meralco shares, knowing fully well in advance that no shares will be downloaded on settlement date," Lim added.

"A settlement fail is a no-no in the stock market world. It shatters investor confidence. Meralco shares are one of the highly traded issues in the stock market. Investors all over the world buy them. You can just imagine how investors located in different countries buying Meralco shares would react if, on settlement date, they don't get delivery of the shares they bought," he further explained.

During the trading suspension, the PSE, together with PDTC and its brokers, has undertaken measures to isolate and segregate the shares of Lubrica to ensure that they are not traded in the PSE.

All shares traded in the stock market are lodged with PDTC in fungible form, which means that the shares are in electronic form and not specifically registered in the name of the ultimate beneficial owner (like Lubrica) in the PDTC, PSE or SCCP records.

"There is, therefore, a need to identify and physically separate the Meralco shares beneficially owned by Lubrica from the rest of Meralco shares before trading on Meralco shares could be resumed," Lim noted.

"This entailed a lot of work with all the 133 operating brokers, transfer agent of Meralco and PDTC, a process that have been recently completed in cooperation with PDTC, Meralco's transfer agent and the brokers," Lim explained.

The PSE immediately informed PDTC last December 22, 2008 that it is ready to resume trading of non-Lubrica shares.

The PSE was, however, informed that a PDTC Board meeting was called to discuss the LandBank-Lubrica case and some issues have yet to be resolved before PDTC could confirm to the PSE that they would download Lubrica shares for clearing and settlement.

"We are eagerly awaiting confirmation from PDTC that they would download Meralco shares to us so we can resume trading soon," Lim said.

"The men and women of the PSE Board are particularly cognizant of their role as guardians of the stock market in the situation at hand because one of the PSE directors has been perceived - rightly or wrongly - to have prominently figured in the battle for control of Meralco," he added.

"We will continue to implement measures that will protect investors and promote the viability of the Exchange as an investment medium entrenched in the values of integrity, transparency and accountability," Lim concluded.

The PSE has suspended the trading of the shares of Meralco indefinitely as a result of the ongoing legal dispute with LandBank involving 42 million stock certificates worth P2.4 billion. (MSN/Sunnex)

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(December 29, 2008 issue)
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