SEC says term caps align broker director service with ‘international best practices’

THE Securities and Exchange Commission (SEC) said the proposed 10-year cumulative term limits for broker directors align the governance of exchanges with international best practices, specifically those established by the International Organization of Securities Commissions (IOSCO).

According to a draft memorandum circular released on March 3, the Commission said it intends to restrict broker directors, or individuals representing trading participants on an exchange board, to a maximum cumulative service period of ten years.

The SEC said that the move is necessary to ensure “fair and effective representation,” allowing more qualified brokers the opportunity to provide “new perspectives” within the leadership of an exchange.

Under the proposed guidelines, a broker director may be elected for a one-year term. However, after serving a cumulative period of five years (whether consecutive or intermittent), the director must observe a mandatory two-year cooling-off period before becoming eligible for re-election.

Once this cooling-off period is completed, a director may serve a fresh term of up to five additional years, provided they do not exceed the overall 10-year maximum limit.

For the purposes of calculation, any service exceeding six months in a given year will be counted as one full year of service.

The SEC sets forth stringent financial and administrative sanctions to enforce compliance with term limits for broker directors.

The basic penalty imposes a fine of P1 million per broker director for each year the violation occurs. In addition, a continuing monthly fine of P30,000 applies for every month a director remains in office beyond the permitted term.

For repeated violations, the consequences escalate. A third or subsequent offense could lead to the suspension or revocation of the exchange’s primary or secondary operating license, reflecting the SEC’s commitment to maintaining strict governance standards and accountability within the industry.

The Commission further said that any schemes designed to circumvent these term limits will be penalized accordingly.

The SEC noted that term limits are already in place for independent directors and those representing other market participants. Aligning broker directors with these standards follows IOSCO principles, which suggest that the length of board terms is a critical factor in the ability of shareholders to actively participate in the nomination and election process.

The proposal is currently in a public exposure phase. The Commission is inviting stakeholders to submit comments, suggestions, and inputs on the draft through March 19, 2026.

Once finalized, the rules will take effect 15 days after complete publication in the Official Gazette or newspapers of national circulation.

A transitory provision will allow incumbent broker directors to complete their current terms before the new limits and cooling-off requirements are applied. — A.G.C. Magno