The Philippine Stock Exchange, Inc.

Audit Committee Charter

I. ORGANIZATIONAL PRINCIPLES

A. Purpose and Mandate

The Audit Committee (the “Committee”) will assist the Board of Directors (the “Board”) of
The Philippine Stock Exchange, Inc. (the “Company”) in fulfilling its oversight
responsibilities. The purpose of the Audit Committee is to provide a structured,
systematic oversight of the Company’s governance and internal control practices. The
Committee assists the Board and Management by providing advice and guidance on the
adequacy of the Company’s initiatives for:
a. Values and Ethics;
b. Governance structure;
c. Internal control framework;
d. Oversight of internal audit activity, external auditors, and other providers of
assurance; and
e. Financial statements and public accountability reporting.

In broad terms, the Audit Committee reviews the items noted above and provides the
Board with independent advice and guidance regarding the adequacy and effectiveness
of Management’s practices and potential improvements to those practices.

B. Authority

The Audit Committee will have unrestricted access to members of Management,

employees and relevant information it considers necessary to discharge its duties. The
Committee will also have unrestricted access to records, data and reports. If access to
requested documents is denied due to legal or confidentiality reasons, the Audit
Committee and/or Chief Audit Executive (CAE) will follow a prescribed, Board approved
mechanism for resolution of the matter.

The Audit Committee is entitled to receive any explanatory information that it deems
necessary to discharge its responsibilities. The Company’s Management and staff
should cooperate with audit committee requests.

The Audit Committee may engage independent counsel and/or other advisors it deems
necessary to carry out its duties.

The Audit Committee is empowered to:

a. Appoint, compensate, and oversee all and non-audit services performed by auditors,
including the work of any registered accounting firm employed by the Company;

1
 b. Resolve any disagreements between Management and the auditor regarding
financial reporting, internal controls, and other matters;
c. Pre-approve all audit and non-audit services performed by auditors;
d. Conduct investigations into any matters and obtain advice and assistance from
outside legal, accounting or other advisers, when necessary;
e. Require the attendance of Company officers in Audit Committee meetings as
appropriate;
f. Approve the appointment and removal of the internal auditor;
g. Recommend the approval and removal of the external auditor;
h. Assess the integrity and independence of the external auditor;
i. Exercise effective oversight to review and monitor the external auditor’s
independence and objectivity;
j. Review and monitor external auditor’s suitability and effectiveness on an annual
basis;
k. Ensure that the external auditor is credible, competent and has the ability to
understand complex related party transactions, its counterparties and valuations of
such transactions; and
l. Ensure that the external auditor has adequate quality control procedures.

C. Composition of the Audit Committee

The Committee will consist of at least three (3) members of the Board, the majority of
whom will be independent. The members should be capable of making valuable
contribution to the Committee and collectively possess sufficient knowledge of audit,
finance, specific industry knowledge, information technology, law, governance, risk and
control. Because the responsibilities of the Audit Committee evolve in response to
regulatory, economic and reporting developments, it is important to periodically re-
evaluate members’ competencies and the overall balance of skills on the Committee in
response to emerging needs.

D. The Chair of the Audit Committee

The Board will designate the Chairman and the members of the Audit Committee will be
appointed during its annual organizational meeting.

The Chairman of the Audit Committee will be an independent director and is not the
Chairman of the Board or of any other committee and will ensure an effective
coordination and communication among members of the committee and with the
Management, the internal auditors and external auditors.

E. Terms of Office

The term of office of all members of the Committee shall coincide with their term as
director of the Exchange.

If a member resigns, dies, or for any other reason ceases to become a member, the
Board will, within two (2) months from that event, appoint a new member to fill the
vacancy.

F. Quorum

The quorum for the Audit Committee will be a majority of the members.

2
II. OPERATIONAL PRINCIPLES

A. Audit Committee Values

The Audit Committee will conduct itself in accordance with the Code of Values and Ethics
of the Company. The Audit Committee expects that Management and staff of the
Company will adhere to these requirements.

B. Communications

The Audit Committee expects that all communication with Management and staff of the
Company as well as with any external assurance providers will be direct, open and
complete.

C. Work Plan

The Chair of the Audit Committee will collaborate with Senior Management and the CAE
to establish a work plan to ensure that the responsibilities of the Audit Committee are
scheduled and will be carried out.

D. Meeting Agenda

Meeting agendas will be prepared and provided in advance to Committee members, along
with appropriate presentation materials. The Chair will approve agendas for Audit
Committee meetings in consultation with Audit Committee members, Senior Management
and the CAE.

E. Information Requirements

The Audit Committee will establish and communicate its requirements for information,
which will include the nature, extent, and timing of information. Information will be provided
to the Audit Committee at least two (2) days prior to each Audit Committee meeting.

F. Executive Sessions

The Audit Committee will schedule and hold, if necessary, a private session with the Chief
Executive Officer (CEO), the Chief Financial Officer (CFO), the CAE, the external
assurance providers, and with any other officials that the Audit Committee may deem
appropriate at each of its meetings.

G. Preparation and Attendance

Audit Committee members are obliged to prepare for and participate in Committee
meetings.

H. Conflict of Interest

Audit Committee members should adhere to the Company’s Code of Conduct and any
values and ethics policies established by the Company. It is the responsibility of Audit
Committee members to disclose any conflict of interest or appearance of a conflict of
interest to the Committee. If there is any question as to whether an Audit Committee
member should recuse himself or herself from a vote, the Committee should vote to

3
 determine whether the member should recuse himself or herself.

I. Orientation and Training

Audit Committee members will receive formal orientation training on the purpose and
mandate and on the organization’s objectives. A process of continuing education will be
established.

III. OPERATIONAL PROCEDURES

A. Meetings

The Audit Committee will meet at least four (4) times a year or more frequently as the
Committee deems necessary. The time frame between Audit Committee meetings
should not exceed four months.

B. Minutes

Minutes will be prepared in accordance with applicable law, regulation, bylaw, policy,
procedure, and/or other applicable requirements. Meeting minutes will be provided in
draft format at least two weeks after the Audit Committee meeting.

C. Required Attendance

The CAE and the Finance Head are required to attend all Audit Committee meetings.

D. Secretariat Services

The Corporate Secretary will facilitate and coordinate meetings as well as provide
ancillary support to the Committee, as time and resources permit.

E. Responsibilities

It is the responsibility of the Audit Committee to provide the Board with independent,
objective advice on the adequacy of management’s arrangements with respect to the
following aspects of the management of the Company:

1. Values and Ethics

To obtain reasonable assurance with respect to the Company’s values and ethics
practices, the Audit Committee will:

 Review and assess the policies, procedures, and practices established by the
governing body to monitor conformance with its code of conduct and ethical
policies by all managers and staff of the Company.
 Provide oversight of the mechanisms established by management to establish and
maintain high ethical standards for all of the managers and staff of the Company.
 Review and provide advice on the systems and practices established by
management to monitor compliance with laws, regulations, policies, and standards
of ethical conduct and identify and deal with any legal or ethical violations.

4
2. Company Governance

To obtain reasonable assurance with respect to the Company’s governance process,

the Audit Committee will review and provide advice on the governance process
established and maintained within the Company and the procedures in place to ensure
that they are operating as intended.

3. Fraud

To obtain reasonable assurance with respect to the Company’s procedures for the
prevention and detection of fraud, the Audit Committee will:
a. Oversee Management’s arrangements for the prevention and deterrence of fraud.
b. Ensure that appropriate action is taken against known perpetrators for fraud.
c. Challenge Management and internal and external auditors to ensure that the entity
has appropriate anti-fraud programmes and controls in place to identify potential
fraud and ensure that investigations are undertaken if fraud is detected.

4. Control

To obtain reasonable assurance with respect to the adequacy and effectiveness of the
Company’s controls in responding to risks within the Company’s governance,
operations and information systems, the Audit Committee will:
a. Consider the effectiveness of the Company’s control framework, including
information technology security and control.
b. Review and provide advice on the control of the Company as a whole and its
individual units.
c. Receive reports on all matters of significance arising from work performed by other
providers of financial and internal control assurance to Senior Management and
the Board.

5. Compliance

The Audit Committee will be responsible for the oversight of the Exchange’s
compliance program and should request a report or inquire from the Compliance
Officer of any identified issue.

a. Compliance with Laws and Regulations

 Review the effectiveness of the system for monitoring compliance with laws
and regulations and the results of Management's investigation and follow-up
(including disciplinary action) of any instances of non-compliance.
 Review the observations and conclusions of internal and external auditors and
the findings of any regulatory agencies.
 Obtain regular updates from Compliance Officer and Company's legal counsel
regarding compliance matters.
 Assess whether all regulatory compliance matters have been considered in the
preparation of the financial statements.

b. Compliance with the Company's Code of Ethics and Business Conduct

 Review the process for communicating the Code of Conduct to the Company’s
personnel and for monitoring compliance.
 Oversee, review and ensure periodic update of the Company’s Code of Ethics
and Business Conduct and the Company’s system and method for monitoring

5
 compliance with the Code.
 Evaluate Management’s compliance with the Code of Ethics and Business
Conduct.
 Obtain regular updates from the Compliance Officer regarding compliance
with the Code.

IV. OVERSIGHT OF THE INTERNAL AUDIT ACTIVITY AND OTHER ASSURANCE

PROVIDERS

A. Internal Audit Activity

To obtain reasonable assurance with respect to work of the internal audit activity, the Audit
Committee will provide oversight related to:

1. Internal Audit Charter and Resources

a. Review and approve the Internal Audit Charter at least annually. The Charter
should be reviewed to ensure that it accurately reflects the internal audit activity’s
purpose, authority, and responsibility, consistent with the mandatory guidance of
The Institute of Internal Auditor (IIA)’s International Professional Practice
Framework and the scope and nature of assurance and consulting services, as
well as changes in the financial and governance processes of the Company and
reflects developments in the professional practice of internal auditing.
b. Advise the Board about increases and decreases to the requested resources to
achieve the internal audit plan. Evaluate whether any additional resources are
needed permanently or should be provided through outsourcing.
c. Establish and identify the reporting line of the Internal Audit Group (IAG) to ensure
proper fulfilment of its duties and responsibilities. The IAG functionally reports to
the Audit Committee.
d. Ensure that auditors are given unrestricted access to all records, properties and
personnel to enable them to perform their respective audit functions.

2. CAE Performance

a. Advise the Board regarding the qualifications and recruitment, appointment, and
removal of the CAE.
b. Provide input to Management related to evaluating the performance of the CAE.
c. Recommend to Management or the governing body the appropriate compensation
of the CAE.

3. Internal Audit Strategy and Plan

a. Review and provide input on the internal audit activity’s strategic plan, objectives,
performance measures and outcomes.
b. Review and approve the proposed risk-based internal audit plan and make
recommendations concerning internal audit projects.
c. Review and approve the internal audit plan and engagements work program,
including reviewing internal audit resources necessary to achieve the plan.
d. Review the internal audit activity’s performance relative to its audit plan.

6
4. Internal Audit Engagement and Follow Up

a. Review internal audit reports and other communications to Management.

b. Review and track Management’s action plans to address the results of internal audit
engagements.
c. Review and advise Management on the results of any special investigations.
d. Require report from the CAE on whether any internal engagements or non-audit
engagements have been completed but not reported to the Committee; if so, inquire
whether any matters of significance arose from such work.
e. Require report from the CAE whether any evidence of fraud has been identified during
internal audit engagements and evaluate what additional actions, if any, should be
taken.
f. Through the Internal Audit Group, monitor and evaluate the adequacy and
effectiveness of the Company's control system, integrity of financial reporting, and
security of physical and information assets. Ensure that well-designed internal control
procedures and processes are in place that will provide a system of checks and
balances, in order to, a) safeguard the Company's resources and ensure their effective
utilization, b) prevent occurrence of fraud and other irregularities, c) protect the
accuracy and reliability of the Company's financial data, and d) ensure compliance
with applicable laws and regulations.

5. Standard Conformance

a. Require report from the CAE about steps taken to ensure that the internal audit activity
conforms to The IIA’s International Standards for the Professional Practice of Internal
Auditing (Standards).
b. Ensure that the internal audit activity has a quality assurance and improvement
program and that the results of these periodic assessments are presented to the Audit
Committee.
c. Ensure that the internal audit activity has an external quality assurance review every
five years.
d. Review the results of the independent and external quality assurance review and
monitor the implementation of the internal audit activity’s action plans to address any
recommendations.
e. Advise the Board about any recommendations for the continuous improvement of the
internal audit activity.

B. External Auditors

To obtain reasonable assurance with respect to work of the external assurance providers,
the Audit Committee will meet with the external assurance providers during the planning
phase of the engagement, the presentation of the audited financial statements, and the
discussion of the results of engagements and recommendations for management.

The Audit Committee will:

 Review the external auditors’ proposed audit scope and approach, including
coordination of audit effort with the internal audit activity.
 Review the performance of the external auditors, and exercise final approval on
the appointment or discharge of auditors.
 Obtain statements from the external auditors about their relationships with
organization, including non-audit services performed in the past, and discuss the
information with the external auditors to review and confirm their independence.

7
  Have regularly scheduled exclusive meetings with external auditors to discuss any
sensitive matters.
 Monitor management’s progress on action plans.

To obtain reasonable assurance that Management has acted on the results and
recommendations of internal and external audit engagements, the Audit Committee will
regularly review reports on the progress of implementing approved Management action
plans and audit recommendations resulting from completed audit engagements.

C. Financial Statements and Public Accountability Reporting

The Audit Committee is responsible for oversight of the independent audit of the entity’s
financial statements, including but not limited to overseeing the resolution of audit findings
in areas such as internal control, legal, and regulatory compliance.

The Audit Committee will:

a. Review with Management and the external auditors the results of audit engagements,
including any difficulties encountered.
b. Review significant accounting and reporting issues, including complex or unusual
transactions and highly judgmental areas, and recent professional and regulatory
pronouncements, and understand their impact on the financial statements.
c. Review the annual financial statements, and consider whether they are complete,
consistent with the information known to Committee members, and reflect appropriate
accounting principles.
d. Review other sections of the annual report and related regulatory filings and consider
the accuracy and completeness of the information before it is released.
e. Review with Management and the external auditors all matters required to be
communicated to the Audit Committee under generally accepted external auditing
standards.
f. Understand strategies, assumptions and estimates that Management has made in
preparing financial statements, budgets, and investment plans.
g. Understand how Management develops interim financial information and the nature
and extent of internal and external auditor involvement in the process.
h. Review interim financial reports with Management and the external auditors before
filing with regulators, and consider whether they are complete and consistent with the
information known to Committee members.

D. Related Party Transactions

a. Ensure that there is an Enterprise-wide policy and system governing related party
transactions (RPTs) and other unusual or infrequently occurring transactions.

b. Review and approve transactions between the Company and its related party(ies)
based on an established criteria.

c. Evaluate on an ongoing basis existing relations between and among businesses and
counterparties to ensure that all related parties are continuously identified, RPTs are
monitored, and subsequent changes in relationships with counterparties (from non-
related to related and vice versa) are captured. Related parties, RPTs and changes in
relationships should be reflected in the relevant reports to the Board and
regulators/supervisors.

8
 d. Evaluate all material RPTs to ensure that these are not undertaken on more favorable
economic terms (e.g. price, commissions, interest rates, fees, tenor, collateral
requirement) to such related parties than similar transactions with non-related parties
under similar circumstances and that no corporate or business resources of the
Company are misappropriated or misapplied, and to determine any potential
reputational risk issues that may arise as a result of or in connection with the
transactions.

e. Ensure that appropriate disclosure is made, and/or information is provided to

regulating and supervising authorities relating to the Company’s RPT exposures, and
policies on conflicts of interest or potential conflicts of interest.

f. Report to the Board of Directors on a regular basis, the status and aggregate
exposures to each related party, as well as the total amount of exposure to all related
parties.

g. Ensure that transactions with related parties, including write-off of exposures are
subject to a periodic independent review or audit process.

h. Oversee the implementation of the system for identifying, monitoring, measuring,

controlling, and reporting RPTs, including a periodic review of RPT policies and
procedures.

i. In evaluating RPTs, the Audit Committee shall take into account, among others, the
following:
 Complete name of the Related Parties;
 Relationship of the parties;
 Financial or non-financial interest of the Related Parties;
 Type and nature of transaction as well as a description of the assets involved;
 PSE’s total consolidated assets;
 Amount or contract price;
 Percentage of the contract price to PSE’s total consolidated assets;
 Carrying amount of collateral, if any;
 Terms and conditions;
 Rationale for entering into the transaction;
 The availability of other sources of comparable products or services;
 An assessment of whether the proposed RPT is on terms and conditions that are
comparable to the terms generally available to an unrelated party under similar
circumstances; and
 Whether the proposed RPT includes any potential regulatory or reputational risk.

E. Other Responsibilities

In addition, the Audit Committee will:

a. Perform other activities related to this Charter as requested by the Board.
b. Institute and oversee special investigations as needed.
c. Regularly evaluate its performance and that of its individual members.
d. Review and update the charter as necessary at least annually, and submit for
approval the changes to the Board.

9
F. Reporting on Audit Committee Performance

The Audit Committee will report to the Board annually, summarizing the Committee’s
activities and recommendations. The report may be delivered during an Audit Committee
meeting attended by the Board or during a regularly scheduled meeting of the Board.

The report should also include:

a. A summary of the work the Audit Committee performed to fully discharge its
responsibilities during the preceding year.
b. A summary of Management’s progress in addressing the results of internal and
external audit engagement reports.
c. An overall assessment of Management’s control and compliance processes,
including details of any legislative changes impacting the governing Company.
d. Details of meetings including the number of meetings held during the relevant period
and the number of meetings each member attended.
e. Provide information required, if any, by new or emerging corporate governance
developments.
f. The Committee may report to the Board at any time regarding any other matter it
deems of sufficient importance.

10