Philippine Exchange Veterans Challenge Regulator's Decade Cap on Board Service

Legal Challenge Escalates

Ma. Vivian Yuchengco and Eddie T. Gobing filed a petition for certiorari and prohibition before the Court of Appeals on August 5, seeking to invalidate SEC Memorandum Circular No. 17, Series of 2026. The two broker-directors, who have held board positions for approximately 28 and 25 years respectively, claim the regulator overstepped its statutory mandate by imposing a ten-year cumulative cap on broker-director service at the Philippine Stock Exchange.

The petition argues that neither the Securities Regulation Code nor the Revised Corporation Code grants the SEC explicit power to impose mandatory tenure restrictions on broker-directors. The challenge also invokes constitutional protections, asserting that the rule violates due process and equal protection guarantees by targeting one category of board members while leaving others unaffected.

At the heart of the legal dispute lies a question about shareholder autonomy. Yuchengco and Gobing contend that the circular interferes with the fundamental right of exchange shareholders to elect directors of their choosing, effectively disqualifying candidates based on criteria Congress never authorized.

Regulator Stands Firm

SEC Chair Francis Lim told Vantage Point the commission will defend the rule vigorously. He noted that the final version already includes a two-year transition window, permitting current broker-directors to complete their existing terms and remain eligible for two additional annual elections before the cap takes effect.

Lim rejected the claim that the rule infringes on voting rights. According to the SEC, shareholders retain full freedom to choose among candidates who meet regulatory qualifications, just as they must accept other eligibility criteria prescribed by statute and regulation. The chair framed the dispute as a necessary step to modernize governance structures that have remained static while peer markets in the region advanced.

The commission's position rests on the unique status of the Philippine Stock Exchange. Unlike ordinary listed companies, the PSE functions as a self-regulatory organization with statutory responsibilities that extend to broker supervision, listing standards and investor protection. That hybrid role, the SEC argues, justifies a higher level of regulatory scrutiny over board composition and tenure.

Legal and Governance Questions Converge

The appellate court will now determine whether the SEC acted within the boundaries Congress drew when it delegated rulemaking authority. The petitioners argue that international governance standards cited by the regulator do not mandate tenure limits for ordinary directors, and that the commission relied on guidance documents rather than binding legislative text.

Yet the governance dimension may prove harder to dismiss. Yuchengco previously joined litigation over broker voting rights after the SEC sought to enforce a 20 percent limitation on broker shareholdings, a dispute that moved through the courts for years. The current case echoes that earlier conflict, illustrating a recurring tension between broker prerogatives and regulatory efforts to reshape exchange governance.

The timing carries additional weight. The Philippine capital market has struggled to match the liquidity, listing activity and investor participation seen in Singapore, Bangkok and Kuala Lumpur. Lim positioned the term-limit rule as part of a broader reform agenda aimed at reversing years of underperformance.

Market Reform in the Balance

Whether the Court of Appeals upholds or strikes down the circular, the case will set a precedent for how far regulators across Asia can go in prescribing governance standards for entities that straddle the line between private corporations and public infrastructure. If the court sides with the petitioners, the SEC may need to seek explicit legislative authority before imposing structural reforms. A ruling in favor of the regulator would signal that self-regulatory organizations operate under stricter governance norms than typical listed companies.

Investors watching the dispute have reason to focus on more than legal doctrine. The question of whether decades-long board tenure serves the public interest in a securities exchange remains unanswered, regardless of how the court rules on statutory interpretation. The Philippine market's persistent lag behind regional peers suggests that governance continuity has not translated into competitive advantage.

Lim made clear that the SEC views the litigation as part of a larger struggle over the pace and scope of capital-market modernization. He argued that meaningful change inevitably meets resistance, particularly when it disrupts entrenched arrangements. For broker-directors accustomed to multi-decade tenures, the circular represents an unwelcome break with precedent. For the regulator, it is a long-overdue step toward aligning Philippine exchange governance with evolving international norms.

The Court of Appeals is expected to schedule oral arguments in the coming months. Until then, the two-year transition period remains in effect, allowing incumbent broker-directors to serve while the legal challenge proceeds.