By Victor V. Saulon, Sub-Editor
THE CAPITAL MARKETS Integrity Corp. (CMIC) has placed R&L Investments, Inc. under involuntary suspension as it continues its probe on the stock brokerage that was reportedly forced to stop operating after an employee allegedly stole stocks from the firm worth more than P700 million.
“CMIC continues its investigation of the issues extant in this case, and has initiated the conduct of special audits of the pertinent books and records of the involved parties and/or trading participants,” CIMC President Daisy P. Arce said in a memorandum addressed to investors and trading participants on Friday.
The suspension order, which is in accordance with Article X, Section 7 of the CIMC Rules, means a ban on the party under probe from exercising its trading right as well as deactivation of its access to the trading system of the Philippine Stock Exchange (PSE).
R&L is also denied access to its account with the Philippine Depository and Trust Corp. and cannot avail of clearing services from the Securities Clearing Corporation of the Philippines.
“Further, all trading participants are requested to promptly inform CMIC of all pending transactions and contracts with R&L, if any. All relevant information and/or inquiries may be sent to email@example.com,” said the compliance arm of the PSE.
Separately, the Securities and Exchange Commission (SEC) said it would “closely monitor” the issue as CMIC continues its investigation.
In a statement, the SEC said it was aware of the issue while leaving CMIC to investigate the alleged theft that nearly wiped out the position of R&L.
“The SEC expects CMIC to conduct a thorough investigation to unearth the truth behind the transactions in question, identify all parties involved, and uncover the extent of the damage to the stock brokerage, its clients and the overall market,” the corporate watchdog said in a statement.
It said CMIC acts as the independent audit, surveillance and compliance arm of the stock exchange in line with its mandate to reinforce the confidence of the investing public in capital market institutions.
“The investigation should also provide clarity as to how such transactions could have slipped past multiple control measures. For one, the 2015 SRC Rules requires broker dealers to conduct monthly security examination, count and verification to account for discrepancies,” the SEC said.
As a self-regulatory organization, CMIC enforces Republic Act No. 8799, or the Securities Regulation Code (SRC), and the pertinent rules and regulations. Its powers and functions include the investigation and resolution of violations by trading participants of the securities law as well as trading-related irregularities and unusual trading activities involving issuers.
The SEC said it expects the full rollout of the Name on Central Depository (NoCD) facility of the Philippine Depository & Trust Corp. (PDTC) by the first quarter of 2020 to reinforce the controls and deter similar incidents from occurring in the future.
The NoCD facility allows for the recording of securities at PDTC in the name of individual investors. Most securities at present are recorded in “omnibus accounts” that aggregate the holdings of all investors.
“The creation of sub-accounts under the NoCD arrangement will increase transparency in the trading of securities. It will also give investors a means to monitor movements in their accounts through SMS or email notifications,” the SEC said.
The commission said it was also in talks with PDTC for the creation of a mechanism that will allow the latter to provide monthly reports on a stock brokerage’s position directly to the board of directors.
Ma. Vivian Yuchengco, a director of the bourse and chairman of the Philippine Association of Securities Brokers and Dealers, Inc., said current investigations are trying to determine the extent of the problem.
“The volume is now about P2 billion-plus selling and this is only P750 million that we’re looking at, so there must be some other people involved,” Ms. Yuchengco said in an interview with ABS-CBN News Channel.
“In R&L, there’s only one employee that’s rogue, but there can be other houses where the same thing is also happening. So we’re checking because they used another broker to sell the shares. So we’re checking all the transactions of that broker to see if it’s only R&L or if there are other brokers involved. That’s why we’re asking all the other brokers to check their books,” she explained.
“The reason for this problem of R&L is they entrusted everything to one person,” she noted.
“You cannot do that in a brokerage.”
Sought for comment, Summit Securities, Inc. President Harry G. Liu said it is the responsibility of those with a stock brokerage to have “organization and control” of their business.
“You need audit — internal, external — you need two signatories. Hindi naman pwedeng isang tao lang (You cannot have just one person) who has all the power,” Mr. Liu said. “Everybody has to follow certain standards.”
He said all aspects of the business should be controlled, while check and balance should be in place, including accounting, internal audit, information technology, backroom operations.
“Then we report to the PSE every month. That should be counter-checked,” he said, adding the report should not be “one and the same — that is standard.”
“Trust is important, but if you start to become lenient, pinapabayaan mo ‘yung kompanya mo, of course, may mangyayari n’yan (you become lax in your company, of course, something will happen). Parang bahay — alam mo naman may magnanakaw, pinapabayaan mong bukas ang pintuan (It’s like your home — when you know there are thieves yet you leave the door open). Of course you are open to mistakes,” he added.
“Something like that is a mistake on the part of the organization of that corporation. That is how I look at it.”
PNB Securities, Inc. President Manuel Antonio G. Lisbona said his firm has “robust safeguards in terms of policies and procedures in place to ensure that our clients are protected.”
“The R&L case is unfortunate, but is not reflective of the PSE nor its trading participants,” Mr. Lisbona said.
“At the very least, in our back office system, we have a ‘maker/checker’ control in place to ensure that no individual can encode, check and approve a transaction. Therefore, there will be several pairs of eyes that will process a transaction. This goes for our parent bank as well.” — with Vincent Mariel P. Galang
A $645 Billion Manager Says Calling the Market Bottom Is ‘A Mug’s Game’
(Bloomberg) — The coronavirus market sell-off is probably past its worst, strategists at Morgan Stanley have said. Jeffrey Gundlach sees bigger losses ahead, while Howard Marks went from bearish to more optimistic in a week.For another veteran investor, calls on whether equities have reached a bottom are nothing short of futile.“I think it’s a mug’s game,” said Hugh Young, head of Asia Pacific at the $644.5 billion manager Aberdeen Standard Investments. “Nobody has the answer.”Shares across the world have recovered some of their losses from the rout spurred by the virus. An index of global equities has risen more than 20% from its low in March, technically entering a bull market, though it’s still down more than 18% this year.For Young, it’s possible markets have reached a bottom, but it’s far too early to say with certainty.“It feels as though this is going to go on for a fair old time,” he said. “And to an extent that must be in prices. But then we’re seeing some quite sharp government action, whether it’s bank dividends or changing rules on loans, foreclosures and all sorts of things. So it’s very hard to be precise.”Young argues that global lenders’ moves to halt dividend payments after pressure from regulators came “slightly out of the blue.” More knock-on effects of the coronavirus crisis are likely, he says, and it’s impossible for them to be fully incorporated in prices.Aberdeen’s flagship Asia Pacific Equity Fund has fallen about 18% this year, according to data compiled by Bloomberg. Over a three-year period, it’s beaten 66% of peers.Young said his cynicism about confident market calls is born out of more than 30 years’ investment experience. Even if someone correctly times the market once, they’re unlikely to repeat the feat, he said. And bottoms, he said, are only easy to identify after the fact.Hindsight Benefit“I’m sure the market bottom, as it always is, will be obvious with hindsight,” he said. “People identify it with one particular thing that it happened to coincide with. Again, in my experience, that’s often not quite right. But it’s an easy explanation for people with hindsight. I’m afraid you never know.”What, then, can an investor such as Young say with confidence? For one, the crisis will last for at least several more months, and many businesses worldwide will come under severe stress. There’s still a lot of pain to come through, Young said.“Our best guess is that this year’s a write-off and then things will normalize at the beginning of next year,” Young said.At current depressed price levels, people should be investing, he said. But there’s a big caveat: only if they have “secure cash flows,” which are much more elusive in the current crisis.Nobody KnowsAnother veteran money manager echoed Young’s view about attempting to call the low, while saying statistically there could be more pain ahead.“No one can know if we are at the bottom in index terms,” said Mark Mobius, who set up Mobius Capital Partners last year after three decades at Franklin Templeton Investments. “We do know that historically for all markets the average bear market decline has been about 50% with a range of 23% to 70%. So if history is our guide, then we could have more to go.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
3 strategies small business owners are using to get their SBA stimulus loans faster
Subscribe to Outbreak, a daily roundup of stories on the coronavirus pandemic and its impact on global business, delivered free to your inbox.
Small business owner Leah Sherrill is desperate for an SBA loan.
Her preschool and childcare center in Midland, Texas plunged from over 100 kids to around 45 as a result of the coronavirus slowdown. That’s forced her to make difficult decisions like cutting staff hours and laying off two employees. She says her business needs a lifeline, in the form of the forgivable small business loans that is part of the $2.2 trillion coronavirus stimulus bill. But the program’s rollout has been messy and confusing, and businesses are losing precious days as they try to navigate the process. Fortune spoke to Sherrill and other small business owners currently going through the loan application process to learn about what they’re doing to increase their odds of getting paid sooner rather than later.
Make multiple loan applications
For Sherrill, her biggest a-ha was not to put all her eggs in one basket. She has applications in at five different banks for the loans. She’s not the only one. Several small business owners told Fortune they’ve applied for the loans at multiple banks in hopes of speeding up approval and getting the funds sooner. Once approved, Sherrill says she’d cancel the other applications. “We’re losing money. We don’t know how much longer we can hold on … This PPP loan could be game changer for us,” she says.
When applications for the Paycheck Protection Program loans opened on Friday, many banks were still figuring out the nuances of the loans and weren’t ready for the rush of applications. That delay caused business owners like Sherrill to turn to banks they’ve never patronized before in an attempt to speed up getting their chunk of the $349 billion set aside for the loans, which can forgiven if used for things like payroll and rent.
One banking industry source told Fortune they don’t have a problem with business owners applying at multiple banks for PPP loans, and it isn’t any different than a customer shopping around for a loan in normal times. But not everyone was as supportive.
“It is really unfair for the banks. I would discourage people from doing that,” said Frank Sorrentino, CEO of ConnectOne Bank based in New Jersey. It could end up bogging down the whole application process, he says. “They could impact other people. Just like with the toilet paper [run], don’t take more than you need.”
But some desperate small business owners, who have businesses like hotels and restaurants that have been hit hardest by the coronavirus slowdown, are willing to go to great lengths to speed up getting the funds. Including dumping their long-time trusted banks for credit unions or banks that can get them the money fastest.
“Last week was one of the most turbulent and chaotic weeks in my career. There were so many rumors on how the program was going to be set and what paperwork was needed” said Matthew Roger, a certified public accountant who owns his firm in New Orleans. He has more than 50 small business clients who were scrambling to figure out what documents and information they needed to apply.
Roger, who also applied for the Paycheck Protection Program loan for his own firm, advises that when submitting applications that small business owners make sure they are correctly calculating their average monthly payroll cost. That average payroll cost includes things like salaries and bonuses, but also retirement benefits, parental leave and health care benefits. This average monthly payroll cost is multiplied by 2.5 to determine how much the business can borrow (topping out at $10 million).
But it’s easy for employers to incorrectly calculate their average monthly cost—given the calculation’s nuances. For example, the portion of employee salary in excess of $100,000 is excluded from the payroll calculation. If small businesses incorrectly calculates average payroll, banks could ask them to resubmit their paperwork, thus delaying the funds, says Charlie Epstein, a financial advisor and author of Paychecks for Life. And if businesses leave out costs from their average payroll figures, it means they’d get a smaller loan than would otherwise be possible.
Get your lender’s credit department on the phone
Small business owners and bankers told Fortune it’s helpful to speak with someone from the bank before applying.
If at all possible, “make sure you speak with the credit officer of your bank—that is the person who must approve the PPP loan. Get on the phone with them and walk through your calculations,” Epstein said. He recommends borrowers be kind to the credit officer. This person will help small business owners make sure they didn’t make an application mistake—which would slow down funds—and is the person who submits the loan through the bank portal and gets an approval code.
And after that? Small business owners like Sherrill then just have to cross their fingers and wait—hopefully not too much longer.
More must-read finance coverage from Fortune:
—What small businesses applying to the SBA’s Paycheck Protection Program need to know
—The banks and lenders accepting SBA Paycheck Protection Program loan applications
—JP Morgan’s Jamie Dimon lays out a future worse than 2008 in his annual letter
—Are we headed for a depression? Economists weigh in
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—VIDEO: 401(k) withdrawal penalties waived for anyone hurt by COVID-19
Subscribe to Fortune’s Bull Sheet for no-nonsense finance news and analysis daily.
Meralco rate rises in April
By Adam J. Ang
Households in Metro Manila will likely see an increase in their electricity bills in April with a typical households set to see a P21 hike, Manila Electric Co. (Meralco) said on Thursday.
The rate hike comes amid falling demand in Luzon where most economic activities have been halted due to the enhanced community quarantine.
In a statement, Meralco said that the overall electricity rate rose by P0.1050 per kilowatt-hour (kWh) to P8.9951/kWh from March’s P8.8901/kWh.
Households consuming 300 kWh, 400 kWh, and 500 kWh could expect their monthly bills to rise by P31.50, P42.00, and P52.50, respectively.
The rate increase was due to the normalization of the universal charge, after a one-time refund in the universal charge-NPC stranded contract costs (UC-SCC).
Last March, the Energy Regulatory Commission (ERC) ordered Meralco to implement a P0.1453/kWh rate reversal in the UC-SCC, representing collections in excess of the amount due to Power Sector Assets and Liabilities Management Corporation (PSALM).
Universal charges are remitted to the government for the electrification in off-grid areas, the National Power Corporation’s financial obligations in excess of privatization proceeds, and watershed rehabilitation and management.
However, Meralco noted that the April rate is still “significantly” lower compared to the rate in the same month in 2019.
It said the rate hike is tempered by the P0.0495/kWh decrease in the feed-in tariff allowance (FiT-All) for April, following the suspension of its collection as ordered by the ERC.
Recently, Meralco claimed a force majeure event during the Luzon-wide enhanced community quarantine, bringing down generation charges for its customers.
The distribution utility invoked a force majeure provision in its Power Supply Agreements (PSA), lowering fixed charges for generation capacity that was not consumed, as power demand dropped.
The National Grid Corp. of the Philippines earlier noted that electricity demand in the Luzon grid declined around 20-30% amid the Luzon-wide lockdown due to the coronavirus disease 2019 (COVID-19) pandemic.
Generation charges for this month dropped by P0.0247/kWh to P4.6385/kWh, significantly lower compared to the April 2019 generation rate of P5.6322/kWh.
A force majeure event is an uncontrollable event that makes it impossible for power plant operators to fulfill their obligations. Without this, Meralco said that generation rate would have increased by P0.0259/kWh from last month’s rate.
Cost of power from its PSAs, which accounts to 51% of Meralco’s total electricity supply, was lowered to P0.1696/kWh, while charges from Independent Power Producers, which supplies 38% of the utility’s power needs, also decreased by P0.0965 due to higher average plant dispatch and Peso appreciation.
Moreover, charges from the Wholesale Electricity Spot Market, which has an 11% share in its supply needs, fell by P0.9429/kWh driven by improved supply conditions in the Luzon grid.
Earlier, Meralco announced a one-month extension of payments of bills falling from March 1 to April 14 in part of its measures to help households affected by the ECQ. Bills for the period will be computed based on customers’ average electricity consumption from January to March.
The ECQ has been extended until end-April.
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