Term limit and cooling-off period for broker directors
By: Atty. Mary Grace S. Tejada on June 18, 2026
THE Securities and Exchange Commission (SEC) has intensified its efforts to strengthen corporate governance standards and enhance regulatory oversight across publicly listed companies and market participants in the Philippines. Toward this end, it pushed for the adoption of term limits and a cooling-off period for independent directors of publicly-listed companies as well as broker directors of an exchange.
On Jan. 26, 2026, the SEC issued Memorandum Circular 7, series of 2026 that prescribes the term limit of independent directors of publicly-listed companies. An independent director can be elected for a term of one year and serve a maximum cumulative term of nine years in the same company. Any fraction of a year exceeding six months will be considered one full year.
Independent directors elected prior to the circular’s effectivity will also be subjected to the same nine-year maximum cumulative term reckoned from 2012. The circular makes it clear that regardless of whether the independent director’s service is continuous or intermittent, the maximum term of nine years must be observed.
The circular also contemplates a situation where an independent director is elected as a nonindependent director or officer of the same company within the nine-year limit. In such case, the individual may be reelected again as an independent director but only after a cooling-off period of two years reckoned from the date he/she ceases being a nonindependent director or officer, and still subject to the rule that the nine-year maximum cumulative term has not yet been reached.
Once the independent director has served the maximum term limit, he/she will be barred perpetually from reelection as an independent director of the same company. He/she may, however, still serve as a nonindependent director or officer of the same company without the need to observe any cooling-off period.
It is important to note that an independent director is defined as a person other than an officer or employee of the corporation, its parent or subsidiaries, or any other individual having a relationship with the corporation, which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
On May 21, 2026, the SEC also issued Memorandum Circular 17, series of 2026 setting forth the term limit of broker directors of an Exchange. A broker director is a person elected as a member of the Board of Directors or equivalent body of an Exchange, who represents the brokerage firms/trading participants that have been authorized to operate as brokers or broker-dealers and trading participants of the Exchange.
The circular mandates that a broker director may be elected for a term of one year, subject to a maximum cumulative period of 10 years, whether consecutive or intermittent, in the same exchange. Service for a fraction of a year exceeding six months will be considered as one full year for purposes of computing the maximum cumulative term limit.
Where a broker director has already served for a cumulative term of five years, whether on a consecutive or intermittent basis, he/she must observe a cooling-off period of one year prior to being eligible for reelection. Thereafter, and subject to the maximum cumulative service period of 10 years, the reelected broker director may be allowed to serve a fresh term of up to five cumulative years following the completion of the cooling-off period.
For incumbent directors who would have been otherwise disqualified or required to undergo cooling-off, a transitory period allows them to complete their current term and be eligible for nomination and election as a broker director in the two succeeding annual elections.
The SEC’s powers to regulate independent directors is well-enshrined in the Revised Corporation Code. Under said code, independent directors are subject to rules and regulations governing their qualifications, disqualifications, voting requirements, duration of term and term limit, maximum number of board memberships and other requirements that the SEC will prescribe to strengthen their independence and align with international best practices.
Independent directors are valuable because of their impartiality. Their participation in corporations is seen to improve overall strategy and governance. Term limits seek to promote or protect independence and impartiality since they guard against over-familiarity or attachments, which may be the consequence of long tenures and which may lessen vigorousness to challenge corporate decisions.
The SEC’s move to limit tenure of independent directors or broker directors of an exchange is laudable.
Mary Grace S. Tejada is an associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.
The article was published at the More to Follow Column at The Manila Times on June 18, 2026. Please see this link.