MANILA - The Philippine Stock Exchange (PSE) board approved on Thursday the creation of a "prosecution fund" designed to assist individual stock market investors in filing and prosecuting a criminal case against a trading participant.

The move came weeks after the PSE released audit findings of its Market Regulation Division (MRD) which showed a number of offenses committed by brokers and dealers in the exchange. (Read: PSE lists erring brokers, dealers)

It is also one of the initiatives that the PSE has launched so far to ensure investor protection following the HK Securities scandal last year.

"The recent experience with failed brokers has taught the PSE a hard lesson," PSE president and chief executive officer Francis Lim said in a statement.

"The fund is part of our corporate governance initiatives to help ensure that stock market investors are protected. Definitely, it is one of the building blocks to increase investor confidence in our stock market," Lim added.

According to him, any public investor can avail of financial assistance from the prosecution fund on the following conditions:

• The criminal case to be filed is against a trading participant, its directors, officers and/or agents;
• The investor will jointly or collectively prosecute the case together with at least 4 other similarly situated investors;
• The actual civil claim of the investor against the trading participant shall not be less than P200,000; and
• It is based on, related to, a violation of the Securities Regulation Code (SRC) and its implementing rules and regulations.

Lim said investors may send their written requests for financial assistance to the MRD.

The PSE's Market Integrity Board, upon favorable recommendation from the MRD, will have the authority to decide whether to grant requests for assistance, which shall not exceed P100,000 per applicant.

Lim said the disbursement of the fund will be subject to the implementing guidelines of the exchange. All penalties collected by the PSE from trading participants will be automatically allocated for the prosecution fund.

Last month, the PSE published in its website a list of erring trading participants, their violations, and corresponding penalties.

The violations ranged from simple administrative errors, like failing to time-stamp order tickets and send monthly statement of accounts to customers, to serious ones such as submitting proxy forms for voting purposes with different signatures of clients.

Some trading participants also failed to abide by the new risk-based capital adequacy ratio set by the exchange following the expulsion of brokerage firm HK Securities last year due to trading irregularities, including short-selling of shares.

The PSE has taken over the trading-related assets of the brokerage and is now bidding out its trading right to settle liabilities to clients.