Govt asks SC to lift TRO on BIR, SEC rules on stock trading disclosures

The government, through the Office of the Solicitor General, has asked the Supreme Court to lift a restraining order that stopped the government from requiring stock brokers, bankers and fund managers from disclosing stock payments, dividends and other "sensitive personal information" about investors and their trading accounts.

 

In a 35-page comment, acting Solicitor General Florin Hilbay defended the new regulations issued by the Bureau of Internal Revenue and the Securities and Exchange Commission, namely:

 

- BIR Revenue Regulations (RR) 01-14
- Revenue Memorandum Circular (RMC) 05-14

- SEC Memorandum Circular (SEC MC) 10-14.

 

RR 01-14, issued December 17, 2013, was supposed to ensure that information on all income payments made by employers and or other entities making payments are monitored and captured in the taxpayer database of the BIR, "with the end in view of establishing simulation model, formulating analytical framework for policy analysis and institutionalizing appropriate enforcement activities."

 

On the other hand, RMC 05-14, issued on January 29, 2014, required the tax identification number or TIN—as well as their complete names and the corresponding amount of income and withholding tax—to appear on an alphabetical list.

 

SEC MC 10-14, issued on May 22, 2014, required the Philippine Depository and Trust to provide the listed company or its transfer agent an alpha list of all depository account holders and the total shareholdings in each of the accounts and sub-accounts.

 

The SEC memo also required broker-dealers to provide the listed company and transfer agent an alpha list with the names of their clients, their total shareholdings, TIN, address, status, and birthdates or registration number.

 

In the OSG comment, Hilbay claimed that the government, and not the petitioners, stood to sustain irreparable damage due to the non-implementation of the new disclosure policies.

 

"The repercussions of the issuance of the TRO are far-reaching and are of such magnitude as to affect not only the domestic economic condition but far more importantly, the economic viability and competitiveness of the country in the global market, or at the very least in the forthcoming Association of Southeast Asian Nations (ASEAN) Integration," he said.

 

In defending the contested regulations, Hilbay said the government was "clothed with authority" to exact the required information through the questioned regulations.

 

He added that the information being required from the petitioners have long been required by the National Internal Revenue Code since the time of manual alphabetical listing. Only the mode of submission was changed, Hilbay added.

 

Furthermore, the existing relevant provisions of the NIRC, the SRC, the Civil Code of the Philippines and even the Constitution, afford ample protective mechanism in the handling of the information, all of which are tax-relevant and are normally divulged in the transactions in the securities market.  

 

Hilbay also said other countries have also already started implementing stricter rules on disclosure to ensure transparency on the heels of the financial crisis half a decade ago.

 

"Many corporate governance advocates espouse disclosure of shareholdings as key to preventing future financial crises," said Hilbay.

 

"Thus, the disclosure requirements under the Questioned Regulations are but part of a global trend towards transparency and good corporate governance," he added

 

Hilbay also said the TRO - issued by the SC last September 9 - should not have been issued because the three requisites for issuing such a restraining order were not present in the case.

 

Enumerating these requisites, Hilbay said: "Petitioners failed to allege any single right that needs protection, much less an invasion of any such rights."

 

"Petitioners failed to advance any serious damage that will justify an urgency and paramount necessity for an injunctive relief," he continued.

 

Hilbay said that contrary to the petitioners' allegation of negative impact in the securities market, the contested regulations bolstered it.

 

In its plea, the petitioners argued that the new regulations go against scripless trading, in which shares of stock of listed companies are kept by the Philippine Depository and Trust Corp and registered under the name of PCD Nominee Corp.

 

PCD Nominee is considered by listed companies as the registered shareholder of the shares of stock lodged by broker-dealers before the Philippine Depository and Trust on behalf of investors. In effect, PCD Nominee is the shareholder on record of the shares in the books of listed firms and their respective agents – but without any certificate.

 

As such, PCD Nominee is the designated recipient of cash and stock dividends declared by listed companies whose shares are traded on the PSE.

 

A scripless trading is an arrangement recognized under Section 43.1 of Republic Act No. 8799 otherwise known as the Securities Regulations Code (SRC).

 

The petitioners are the Philippine Stock Exchange Inc., Bankers Association of the Philippines, Philippine Association of Securities and Brokers and Dealers Inc., Fund Managers Association of the Philippines, Trust Officers Association of the Philippines, and Marmon Holdings Inc. —NB, GMA News