SEC wants more independent directors in exchanges

The Securities and Exchange Commission (SEC) plans to require local exchanges and other organized markets to reserve at least a majority of the corporate board seats for independent directors, citing the need to align with global best practices.

This is a sharp increase from the current requirement under the Securities Regulation Code (SRC)’S 2015 implementing rules and regulations to have at least three independent directors in the board of an operating exchange.

Based on a draft memorandum circular released on June 23 for public comment, the SEC wanted independent directors to constitute at least a majority of the members of the board of directors of exchanges and other organized markets.

Section 179 (m) of the Revised Corporation Code authorizes the SEC to “prescribe the number of independent directors” and (d) to “promote corporate governance and the protection of minority investors, through among others, the issuance of rules and regulations consistent with international best practices.”

In the Philippines, three of the 15-member board of the Philippine Stock Exchange (PSE) are independent directors, in compliance with the existing requirement. Eight or the majority of the PSE board members are not affiliated with trading participants.

In a statement on Wednesday, the SEC noted that Bursa Malaysia, for instance, had seven of its eight directors who were “non-executive” directors. These seven directors have no family relationship with any other director or major shareholder, have no conflict of interest with the exchange, and have not been convicted of any offense within the past five years.

In the Singapore Exchange, eight of 11 directors are independent and non-executive. Two seats are occupied by non-independent and non-executive directors, and the remaining seat by a non-independent and executive director.

The Australian Securities Exchange also follows a policy of having the majority of its maximum of 15 board members as independent.

In the Stock Exchange of Thailand, the board of governors is composed of a maximum of 11 people. Six members are appointed by the country’s securities regulator and four are elected by members of the exchange. The president, who is elected by the board, sits as an ex-officio member.

Independent directors also comprise the majority of the members of the board of the Hong Kong Stock Exchange; Japan Exchange Group, which owns the Tokyo Stock Exchange and Osaka Exchange; Intercontinental Exchange Inc., which owns the New York Stock Exchange, and the London Stock Exchange.