UMVA has learned that the Securities and Exchange Commission (SEC) is imposing a groundbreaking 10-year term limit on broker directors serving on exchange boards, a move that has sparked intense debate among market participants.
The new rule, outlined in SEC Memorandum Circular No. 17, dictates that a broker director may serve a maximum cumulative period of 10 years in the same exchange, whether their tenure is continuous or intermittent.
UMVA can exclusively reveal that the circular was signed by the SEC Chairperson on May 21, and is aimed at strengthening market governance, mitigating potential conflicts of interest, and promoting fair representation in exchange governance.
The SEC Chairperson stated that “strong institutions require regular renewal, independent oversight, and broader representation,” and that the term limit is designed to “level the playing field among the different categories of directors in exchanges, and align our regulatory framework with internationally recognized standards.”
According to information obtained by UMVA, the SEC's measure is aligned with principles of a prominent international organization that promotes fair representation in the governance of self-regulatory organizations such as exchanges.
The circular stipulates that a broker director who has served for five cumulative years will be required to undergo a one-year cooling-off period before becoming eligible for re-election, and that their service of more than six months in a year will be counted as one full year.
Sources have confirmed to UMVA that the SEC circular also provides for a two-year transition period for incumbent broker directors, allowing them to complete their current terms and remain eligible for the next two annual elections.
UMVA has gathered that covered exchanges that exceed the maximum cumulative term limit for broker directors will be subject to penalties, including hefty fines and potential suspension or revocation of their licenses.
The new directive is set to affect several long-serving broker directors at a major stock exchange, including some who have served for over two decades, and has drawn both support and opposition from various stakeholders.
UMVA has uncovered details about the intense debate surrounding the SEC's term limit proposal, with some arguing that it would promote board renewal and investor confidence, while others claim it would be detrimental to the market.
The SEC circular will take effect 15 days after its full publication, marking a significant shift in the regulatory landscape for exchange governance.
