Regulator orders CMIC to take over brokerage

4 weeks ago
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By Denise A. Valdez, Reporter

THE Capital Markets Integrity Corp. (CMIC) is set to take over the operations of embattled brokerage R&L Investments, Inc. upon the order of the Securities and Exchange Commission (SEC).

In a statement Friday, the country’s corporate regulator said it ordered CMIC to handle outstanding contracts of R&L Investments to protect the brokerage’s existing clients.

CMIC is the independent market regulation division of the Philippine Stock Exchange, Inc. (PSE), operator of the local bourse.

“The Commission issued the order on Nov. 14, following the stock brokerage’s collapse allegedly due to unauthorized transfers of proprietary and client shares worth more than P700 million into an account with another brokerage,” the SEC said.

The SEC said that a week since it started investigation on the case, it has established that R&L Investments’ current financial condition “has so deteriorated that it cannot readily meet the demands of its clients for the delivery of securities and/or payment of sales proceeds.”

The SEC noted the PSE or CMIC must “settle the failed trading participant’s liabilities to customers through the sale of the latter’s trading rights and other trade-related assets, liquidation of its paid-up capital, and/or supervision of payment of claims against the surety bond.”

The regulator said clients may be given the option to claim compensation from the trading participant’s accredited trust fund. It said the PSE has a Securities Investors Protection Fund that handles a pool of contributions from trading participants, which is meant to protect investors from losses in the event of fraud, failure or insolvency of trading participants.

“If the trade-related assets fall short, the (PSE or CMIC) shall refer the outstanding liabilities to the trust fund and inform the customers of the further steps necessary for claiming compensation for unsatisfied losses,” the SEC added.

In a Nov. 14 memorandum of CMIC posted on its website, it requested clients of R&L Investments to “send all relevant information, inquiries and/or claims involving the trading participant to info@cmic.com.ph.”

CMIC also said it is currently “determining the various violations of the pertinent securities laws committed by the parties involved,” and that it will be submitting a report and recommendation to the SEC. But its investigation is independent from the SEC’s own probe.

The Philippine Daily Inquirer broke the news last week about a rogue employee of R&L Investments that wiped out the brokerage’s inventory of stocks by allegedly stealing piece by piece for the past eight years.

R&L Investments had since shut down its operations, and CMIC put it under involuntary suspension to start a probe on the case. This means the brokerage is denied access to its account with the Philippine Depository and Trust Corp. (PDTC) and may not avail of clearing services from the Securities Clearing Corporation of the Philippines.

The inconsistencies in R&L Investments’ records were broken down by the SEC on Friday. It said the brokerage had securities from clients worth P738.9 million based on its 2018 audited financial statements. But a Business Partner (BP) report from the PDTC showed the company’s client securities only stood at P132.26 million.

The audited financial statements of the brokerage also showed it only had total net assets of P46.82 million. This means if it absorbs its missing securities, it would result to a negative equity of P559.83 million.

The BP Report submitted by R&L Investments to CMIC as of end-August showed its client shares were worth P734.41 million, which differs from what PDTC reported to the SEC for the same period saying client shares stood at P31.54 million.

A different audit by the CMIC also showed different figures, where client securities of R&L Investments were worth P747.82 million as of Oct. 31, against PDTC’s records showing it stood at P30.4 million.

“Sensing the gravity of the inconsistencies, the SEC ordered R&L Investments to preserve its books, records and assets as well as the PSE, CMIC and PDTC to take all the necessary actions through a letter dated Nov. 12,” it said.

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