The Supreme Court has dismissed a petition alleging that certain government regulations enabled the PDS Group to establish a monopoly and impose unfair competition in the market for fixed-income securities and the over-the-counter market for government securities.

In a Decision penned by Justice Ramon Paul L. Hernando, the Court dismissed the Petition for Certiorari and Prohibition with Prayer for Temporary Restraining Order and Preliminary Injunction filed by Luis R. Villafuerte, Caridad R. Valdehuesa, and Norma L. Lasala that sought to nullify various rules, orders, issuances, and acts of public respondents Securities and Exchange Commission (SEC), Bangko Sentral ng Pilipinas (BSP), Secretary of Finance, and the National Treasurer which purportedly allowed the PDS Group to establish a monopoly and impose unlawful restraint of trade in the securities market.

Named as private respondents were the Bankers Association of the Philippines (BAP), Vicente B. Castillo, and the corporations comprising the PDS Group: Philippine Dealing & Exchange Corporation (PDEx), Philippine Depository & Trust Corporation (PDTC), Philippine Securities Settlement Corporation (PSSC), and Philippine Dealing System Holdings Corp. (PDSHC).

Petitioners sought to nullify the subject rules, orders, issuances, and acts, as well as to prohibit public respondents from continuing with specific actions, in relation to the operations of the PDS Group.

Petitioners alleged that the creation of the monopoly began in the early 2000s when private respondent Castillo and his colleagues in BAP exploited the lack of market for privately issued security in the country. This led to the establishment of the Fixed-Income Exchange (FIE), a marketplace or facility for fixed-income securities.

To implement the FIE, the PDS Group was created with each member company tasked to provide a specific service: PDEx, to provide the trading platform for the FIE; PSSC, to operate as the central clearing and settlement institution for trading activities; PDTC, to act as the depository, registry and custodian of fixed-income securities; and PDSHC, to be the holding company for the three corporations.

Among the assailed issuances is BSP Circular No. 338 (2002), which amended the Manual of Regulations for Banks by adding the FIE as one of the non-financial allied undertakings in which equity banks may invest, allegedly ensuring that PDEx could legally source its funding from banks.

The Court held that the petitioners failed to establish the necessary legal standing to file the instant Petition before the High Tribunal. “To possess legal standing, parties must show ‘a personal and substantial interest in the case such that [they have] sustained or will sustain direct injury as a result of the governmental act that is being challenged,’” said the Court. However, petitioners, who were former legislators, former national treasurers, and a former budget secretary and economics professor, failed to show any sufficient and specific denial of their rights or any burden caused to them by the assailed acts and issuances, held the Court.

The Court also found that the petitioners failed to show a clear or obvious disregard of the relevant constitutional provision on monopoly which would have required an immediate action from the Court. It said: “[M]onopoly is not prohibited per se but is only regulated or disallowed when public interest so requires. Further, We have already recognized that securities markets may regulate their own operations by requiring membership in a Self-Regulatory Organization (SRO) under the principle of self-regulation, consistent with the State policy to ‘establish a socially conscious, free market that regulates itself.’” Thus, the membership requirement in an SRO does not necessarily violate the constitutional provision on monopoly, ruled the Court.

Likewise, the Court held that petitioners violated the constitutional filtering mechanism of hierarchy of courts, which ordains a sequence of recourse to courts vested with concurrent jurisdiction.

In the case at bar, petitioners filed the case directly before the Supreme Court despite the concurrent jurisdiction of the Court of Appeals and the Regional Trial Courts to issue the writs of certiorari and prohibition prayed for.

Citing Gios-Samar, Inc v. DOTC, the Court reiterated that it allows, on the ground of special and important reasons or transcendental importance, the invocation of the Court’s original jurisdiction to issue extraordinary writs “only when the issues are purely legal.” Here, however, some of the issues raised by petitioners are not purely legal.

As the petitioners assailed the supposed subsisting monopoly of the PDS Group, the Court held that it is necessary to determine first whether there actually is a monopoly ― which is clearly factual in nature; thus, it is imperative that it be threshed out before a court that is a trier of facts.

It added that even if It disregards the factual assertions of the parties on the existence of a monopoly and simply rule on the legal issues raised by petitioners, there is still a need to receive evidence to fully resolve the case since some of the issues are inextricably intertwined with underlying questions of fact.

The Court stressed that the need to bring this particular case before a trial court is amplified by the fact that the securities market is dynamic in nature, as shown by the many developments that arose after the filing of the petition in 2013. Incidentally, these developments, if true, may render moot and academic the resolution of some issues in this case.

The Court also cautioned litigants to present their court pleadings in an organized and systematic manner, noting that “Not only does this aid the court’s analysis, but it also reflects the litigants’ grasp and comprehension of the matters they discuss.”

Associate Justice Marvic M.V.F. Leonen wrote a separate concurring opinion.

FULL TEXT of G.R. No. 208379 dated March 29, 2022 at: https://sc.judiciary.gov.ph/29283/

FULL TEXT of the Separate Concurring Opinion by Justice Marvic M.V.F. Leonen at: https://sc.judiciary.gov.ph/29287/