A proposal has been circulating within the Securities and Exchange Commission (SEC) to impose term limits on the directors of the Philippine Stock Exchange, Inc. (PSE), targeting in particular the seats held by members of the Philippine Association of Securities Brokers and Dealers, Inc. (PASBDI). The proposal is presented as a governance reform. But as we discuss below, we respectfully opine that the SEC has no legal authority to dictate term limits to the PSE or to any of its directors.
The Securities Regulation Code (SRC, or Republic Act No. 8799, as amended by Republic Act No. 11765) is the source of the SEC's authority over self-regulatory organizations and organized exchanges. Administrative agencies in the Philippines possess only the powers that their enabling statutes confer on them, together with such incidental powers as are reasonably necessary to carry those express powers into effect.
Section 39 of the SRC allows the SEC to suspend or revoke an exchange's registration if the exchange fails to enforce its own rules, or if those rules are not designed to prevent fraud or to promote just and equitable principles of trade. Section 40 requires the SEC to review and approve amendments to exchange rules before they take effect. These provisions give the SEC power over compliance and over rule changes that the exchange itself proposes and submits.
Nowhere in the SRC is the SEC given authority to originate governance rules for the PSE and impose them by administrative issuance. The power to review exchange rules is not the same as the power to create the governance rules for the exchange. The power to approve amendments of the by-laws is not the same as the power to draft and propose amendments of the said by-laws. SEC appears to be conflating these powers.
The Revised Corporation Code (Republic Act No. 11232) governs the elections and qualifications of directors of stock corporations, including the PSE. Congress enacted the RCC in 2019, comprehensively updating corporate law for the first time in decades, and it did not impose term limits on the directors of exchanges or any other private stock corporation. That omission is a legislative choice, and only Congress can revisit it.
Term limits are substantive restrictions on the right to seek and hold office. Imposing this kind of restriction is the exclusive business of the legislature. Congress has imposed director term limits in specific statutes when it has chosen to do so, such as in certain regulated industries. It has not done so for exchange directors. The SEC's power does not expand to occupy the space Congress deliberately left open.
Every corporation has the inherent power to adopt by-laws for its internal government and to regulate the conduct, rights, and duties of its members in reference to the management of its affairs. This power is one of the corporation's necessary and inseparable legal incidents. It exists independently of any specific enabling provision in the charter or in general law, because self-governance is essential to the corporation's ability to pursue its own purposes.
If the SEC genuinely believes that term limits for PSE directors would improve market governance, there is a proper path available. The Commission may transmit a legislative proposal to Congress through the appropriate channels, recommending an amendment to the SRC or the RCC that expressly authorizes or requires such limits. The Commission may also engage the PSE and its membership directly, making the case for voluntary adoption of term-limit provisions through the amendment process that the PSE's own By-Laws provide for.
