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��! Int’l!Securities!Regulations! Page!1!of!21!

Securities and Exchange Commission

Composition of SEC:

• Chairperson and 4 Commissioners

• Appointed by the President for a term of 7 years each

Qualifications of a Commissioner/Chairperson

a. Natural-born citizens of the Philippines

b. At least 40 years of age for the Chairperson

c. At least 35 years of age for the Commissioners

d. Of good moral character, unquestionable integrity, known probity and patriotism

e. With recognized competence in social and economic disciplines

f. Majority of Commissioners, including the Chairperson, shall be members of the Philippine Bar

Powers of the Commission:

a. May review upon its own initiative or upon the petition of any interested party any action of any department or office, individual Commissioner, or staff member of the Commission

b. Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or permit issued by the Government

c. Formulate policies and recommendations on issues concerning the securities market

d. Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications

e. Regulate, investigate or supervise the activities of persons to ensure compliance

f. Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs;

g. Impose sanctions for the violations

h. Prepare, approve, amend or repeal rules, regulations and orders

i. Issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders

j. Issue cease and desist orders to prevent fraud or injury to the investing public

k. Punish for contempt of the Commission

l. Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision;

m. Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns, and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws;

n. Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law; and

o. Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws.

Grounds for Liability of the Commissioners, Officers and Employees

a. Willfully violating this Code

b. Guilty of negligence

c. Abuse or acts of malfeasance

d. Fail to exercise extraordinary diligence in the performance of their duties

e. Disclosing any information, discussion or resolution of the Commission of a confidential nature, or about the confidential operations of the Commission, unless the disclosure is in connection with the performance of official functions with the Commission or with prior authorization of the Commissioners

f. Use of such information for personal gain or to the detriment of the government, the Commission or third

Registration of Securities

What are Securities?

a. Shares of stock, bonds, debentures, notes, evidences of indebtedness, asset-backed securities

b. Investment contracts, certificates of interest or participation in a profit sharing agreement, certificates of deposit for a future subscription

c. Fractional undivided interests in oil, gas or other mineral rights

d. Derivatives like option and warrants

e. Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments

f. Proprietary or non-proprietary membership certificates in corporations

g. Other instruments as may in the future be determined by the Commission


Requirement of Registration of Securities

• Securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission

Securities EXEMPT from the Registration Requirement

1. Any security issued or guaranteed by the

a. Government of the Philippines

b. Any political subdivision or agency thereof

c. Any person controlled or supervised by and acting as an instrumentality of said Government

2. Any security issued or guaranteed by the

a. Government of any country with which the Philippines maintains diplomatic relations,

b. Any state, province or political subdivision thereof on the basis of reciprocity

3. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body

4. Any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation of the Office of the Insurance Commission, Housing and Land Use Regulatory Board, or the Bureau of Internal Revenue.

5. Any security issued by a bank except its own shares of stock

Transactions EXEMPT from the Registration Requirement

1. Any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in insolvency or bankruptcy

2. By or for the account of a pledge holder, or mortgagee or any other similar lien holder selling or offering for sale or delivery in the ordinary course of business to liquidate a bona fide debt, a security pledged in good faith as security for such debt

3. An isolated transaction not being made in the course of repeated and successive transactions of a like character by such owner

4. The distribution by a corporation of securities to its stockholders or other security holders as a stock dividend or other distribution out of surplus

5. The sale of capital stock of a corporation to its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock

6. The issuance of bonds or notes secured by mortgage upon real estate or tangible personal property, where the entire mortgage together with

all the bonds or notes secured thereby are sold to a single purchaser at a single sale

7. The issue and delivery of any security in exchange for any other security of the same issuer pursuant to a right of conversion entitling the holder of the security surrendered in exchange to make such conversion

8. Broker’s transactions, executed upon customer’s orders, on any registered Exchange or other trading market

9. Subscriptions for shares of the capital stock of a corporation

a. Prior to the incorporation thereof

b. In pursuance of an increase in its authorized capital stock

o When no expense is incurred, or no commission, compensation or remuneration is paid or given in connection with the sale or disposition of such securities

10. The exchange of securities by the issuer with its existing security holders exclusively, where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange

11. The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period

12. The sale of securities to any number of the following qualified buyers:

a. Bank

b. Registered investment house

c. Insurance company

d. Pension fund or retirement plan maintained by the Government or managed by a bank or other persons authorized by the Bangko Sentral to engage in trust functions

e. Investment company

f. Such other person as the Commission may by rule determine as qualified buyers

13. Other transactions that the Commission may exempt if it finds that the requirements of registration under this Code is not necessary in the public interest or for the protection of the investors such as by reason of the small amount involved or the limited character of the public offering

• For an exemption under this Section, application shall be filed with the Commission with a notice identifying the exemption relied upon on such form and at such time as the Commission by rule may prescribe and with such notice shall pay to the Commission a fee equivalent to one-tenth (1/10) of one percent (1%) of the maximum aggregate price or issued value of the securities

• No notice of exemption or fee shall be required for any transaction covered by Exempt Transactions except those under (11) and (12)


Procedure for Registration:

a. Filing by the issuer in the main office of the Commission of a sworn registration statement with respect to such securities in such form and containing such information and documents as the Commission shall prescribe

b. The registration statement shall include any prospectus required or permitted to be delivered

c. The information required for the registration of any kind, and all securities, shall include, among others, the effect of the securities issue on ownership, on the mix of ownership, especially foreign and local ownership

d. The registration statement shall be signed by the issuer’s executive officer by a duly verified resolution of the board of directors of the issuer corporation

e. Payment of a fee, upon filing, of not more than one-tenth (1/10) of one per centum (1%) of the maximum aggregate price at which such securities are proposed to be offered

f. Notice of the filing of the registration statement shall be immediately published by the issuer, at its own expense, in two (2) newspapers of general circulation in the Philippines, once a week for two (2) consecutive weeks

Grounds for Rejection and Revocation of Registration of Securities

1. Finding that the issuer

a. Has been judicially declared insolvent

b. Has violated any of the provisions of this Code

c. Has been or is engaged or is about to engage in fraudulent transactions

d. Has made any false or misleading representation of material facts in any prospectus concerning the issuer or its securities

e. Has failed to comply with any requirement that the Commission may impose as a condition for registration

2. The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading

3. The issuer, any officer, director or controlling person of the issuer, or person performing similar functions, or any underwriter has been convicted, by a competent judicial or administrative body, upon plea of guilty, or otherwise, of an offense involving moral turpitude and/or fraud or is enjoined or restrained by the Commission or other competent judicial or administrative body for violations of securities, commodities, and other related laws

4. A registration statement may be withdrawn by the issuer only with the consent of the Commission

Amendments to the Registration Statement

• Grounds: o If a registration statement is on its face incomplete or inaccurate in

any material respect • Procedure:

a. The Commission shall issue an order directing the amendment of the registration statement

b. An amendment filed prior to the effective date of the registration statement shall recommence the forty-five (45) day period within which the Commission shall act on a registration statement o An amendment filed after the effective date of the registration

statement shall become effective only upon such date as determined by the Commission.

Suspension of Registration

• If, at any time, the information contained in the registration statement filed is or has become misleading, incorrect, inadequate or incomplete in any material respect, or the sale or offering for sale of the security registered thereunder may work or tend to work a fraud

Disclosure Requirements

To whom Reportorial Requirements shall apply?

1. An issuer which has sold a class of its securities pursuant to a registration requirement

2. Any person who acquires directly or indirectly the beneficial ownership of more than five per centum (5%) of such class or in excess of such lesser per centum as the Commission by rule may prescribe

3. An issuer with a class of securities listed for trading on an Exchange

4. An issuer with assets of at least Fifty million pesos and having Two hundred (200) or more holders each holding at least One hundred (100) shares of a class of its equity securities

What shall be reported?

1. Annual Report within 135 days, after the end of the issuer’s fiscal year which shall include, among others, a balance sheet, profit and loss statement and statement of cash flows, for such last fiscal year, certified by an independent certified public accountant, and a management discussion and analysis of results of operations


2. Quarterly Report within 45 days after the end of each of the 1st three quarters of each fiscal year

3. Such other periodical reports for interim fiscal periods and current reports on significant developments of the issuer as the Commission may prescribe as necessary to keep current information on the operation of the business and financial condition of the issuer

Reports filed by 5% beneficial Owner:

• Within five (5) business days after such acquisition, submit to the Issuer, the Exchange where the security is traded, and to the Commission a sworn statement containing the information required by SEC Form 18-A

Proxy Solicitation

Characteristics of a Proxy Solicitation:

a. Proxies must be issued and proxy solicitation must be made in accordance with rules and regulations to be issued by the Commission

b. In writing, signed by the stockholder or his duly authorized representative and filed before the scheduled meeting with the corporate secretary

c. It shall be valid only for the meeting for which it is intended

d. No proxy shall be valid and effective for a period longer than five (5) years at one time

Requirements for Brokers:

a. No broker or dealer shall give any proxy, consent or authorization, in respect of any security carried for the account of a customer, to a person other than the customer, without the express written authorization of such customer

b. A broker or dealer who holds or acquires the proxy for at least 10% of the outstanding share of the issuer, shall submit a report identifying the beneficial owner within 10 days after such acquisition, for its own account or customer, to the issuer of the security, to the Exchange where the security is traded and to the Commission

Tender Offers

What is Tender Offer?

• Publicly announced offer by a person acting alone or in concert with others to buy the shares of a PUBLIC company at the terms specified in the offer

What are Tender Offer Materials?

a. Offeror’s formal offer, including all the material terms and conditions of the tender offer and all their amendments

b. Related transmittal letter and all their amendments

c. Press releases, advertisements, letters and other documents published by the offeror or sent or given by the offeror to security holders which, directly or indirectly, solicit, invite or request tenders of the equity securities being sought in the tender offer

To whom Tender Offers apply?

• Any person or group of persons acting in concert who intends to acquire

1. At least 35% of any class of any security of a

i. Listed corporation (Publicly Listed Corporation)

ii. Corporation with assets of at least Fifty Million Pesos and having 200 or more stockholders with at least 100 shares each (Public Corporation)

2. At 35% of such equity over a period of 12 months

3. An acquisition of less than 35% but that will result in ownership of more than 50% of the total outstanding equity securities such corporations

Exempt from the Mandatory Tender Offer Requirement

a. Any purchase of shares from the unissued capital stock provided the acquisition will not result to a fifty percent (50%) or more ownership of shares by the purchaser

b. Any purchase of shares from an increase in authorized capital stock

c. Purchase in connection with foreclosure proceedings involving a duly constituted pledge or security arrangement where the acquisition is made by the debtor or creditor

d. Purchases in connection with a privatization undertaken by the government of the Philippines

e. Purchases in connection with corporate rehabilitation under court supervision

f. Purchases at the open market at the prevailing market price; and

g. Merger or consolidation

Requirements for Exempt transactions from Mandatory Tender Offer?

1. Must not be intended to circumvent or defeat the objectives of the tender offer rules

2. Purchasers of shares in the foregoing transactions shall, however, comply with the disclosure and other obligations requirements


Disclosure Requirements in Tender Offers

• The offeror shall publish, send or give to security holders a report containing the following information:

a. The identity of the offeror including his or its present principal occupation

b. The identity of the target company

c. The amount of class of securities being sought and the type and amount of consideration being offered

d. The scheduled expiration date of the tender offer

e. The exact dates when security holders who deposit their securities shall have the right to withdraw their securities and the manner by which shares will be accepted for payment and which withdrawal may be effected

f. If the tender offer is for less than all of the securities of the class and the offeror is not obligated to purchase all securities tendered, the exact date of the period during which securities will be accepted on a pro rata basis under this Rule and the present intention or plan of the offeror with respect to the tender offer in the event of an oversubscription by security holders

g. The confirmation by the offeror’s financial adviser or another appropriate third party that the resources available to the offeror are sufficient to satisfy full acceptance of the offer

h. The information required in SECForm19-1

• If any material change occurs in the information previously disclosed to security holders, the offeror shall disclose promptly such change in the manner prescribed by this Rule

Period and Manner of Making Tender Offers

• Tender offer shall, unless withdrawn, remain open until the expiration of:

a. At least 20 business days from its commencement

b. An offer should be completed within 60 business days from the date the intention to make such offer is publicly announced

c. At least 10 business days from the date the notice of a change in the percentage of the class of securities being sought or in the consideration offered is first published, sent or given to security holders

Withdrawal of Securities Tendered

a. At any time during the period such tender offer remains open

b. If not yet accepted for payment, after the expiration of 60 business days from the commencement of tender offer

Transactions Based on Material, Non-Public Information

• If a person shall become aware of a potential tender offer before the tender offer has been publicly announced

o Such person shall not buy or sell, directly or indirectly, the securities of the target company until the tender offer shall have been publicly announced.

o Such buying or selling shall constitute insider trading

Unlawful Actions in relation to Tender Offers:

A. To employ any device, scheme or artifice to defraud any person

B. Making of any untrue statement of a material fact

C. Omitting to state any material fact necessary in order to make the statements made but is not misleading

D. Engage in any fraudulent, deceptive or manipulative acts or practices

Manipulative and Fraudulent Practices

Manipulation of Security Prices

1. To create a false or misleading appearance of active trading

a. By effecting any transaction in such security which involves no change in the beneficial ownership thereof (Wash Sale)

b. By entering an order or orders for the purchase or sale of such security with the knowledge that a simultaneous order or orders of substantially the same size, time and price, for the sale or purchase of any such security, has or will be entered by or for the same or different parties (Matched Orders)

c. By performing similar act where there is no change in beneficial ownership

2. To effect, alone or with others, a series of transactions in securities that:

a. Raises their price to induce the purchase of a security

b. Depresses their price to induce the sale of a security

c. Creates active trading to induce such a purchase or sale through manipulative devices such as

i. Marking the close – buying and selling of securities at the close of the market in an effort to alter the closing price

ii. Painting the tape – series of transactions reported publicly to give the impression of activity or price movement in a security

iii. Squeezing the float – taking advantage of a shortage of securities by controlling the demand side and exploiting market congestion


iv. Hype and dump – buying activity at increasingly higher prices and then selling it in the market at higher prices

v. Boiler room operations – activities out of low-rent offices involving misrepresentations concerning the securities being sold

3. To circulate or disseminate information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purchase or sale of such security

4. To make false or misleading statement with respect to any material fact, which he knew or had reasonable ground to believe was so false or misleading, for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange

5. To effect, either alone or others, any series of transactions for the purchase and/or sale of any security traded in an Exchange for the purpose of pegging, fixing or stabilizing the price of such security, unless otherwise allowed by this Code or by rules of the Commission

Other Prohibitive Acts:

1. Short Sale – contract for sale of shares of stock which the seller does not own, or certificates which are not within his control, so as to be available for delivery at the time when delivery must be made

2. Stop-Loss Order – instruction by a customer to his broker that if commodity reaches the price named, the broker shall close the trade at the best available price thus minimizing his losses

3. Option Trading – contracts giving holders the right to buy or sell a stated number of shares of a particular security issuer at a fixed price within a pre-determined time period

Fraudulent Transactions

1. Employ any device, scheme, or artifice to defraud

o Scienter is required (Sec. 17a of 1933 Act)

2. Obtain money or property by means of any untrue statement of a material fact of any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading

3. Engage in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person

• Applicable to all kinds of corporations

Insider Trading

Prohibited Act

• It shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of material information with respect to the issuer or the security that is not generally available to the public

Exceptions:

1. The insider proves that the information was not gained from such relationship

2. If the other party selling to or buying from the insider (or his agent) is identified, the insider proves:

a. That he disclosed the information to the other party

b. That he had reason to believe that the other party otherwise is also in possession of the information

Who are Insider Traders?

1. “Insider”

a. Issuer

b. A director or officer of, or a person controlling the issuer

c. A person whose relationship or former relationship to the issuer gives or gave him access to material information about the issuer or the security that is not generally available to the public

i. Spouse

ii. Relatives by affinity or consanguinity within the 2nd degree, legitimate or common-law

o This presumption shall be rebutted upon a showing by the purchaser or seller that he was not aware of the material non-public information at the time of the purchase or sale

d. A government employee, or director, or officer of an exchange, clearing agency and/or self-regulatory organization who has access to material information about an issuer or a security that is not generally available to the public

e. A person who learns such information by a communication from any of the foregoing insiders

What is “Material Non-Public” Information?

A. It has not been generally disclosed to the public and would likely affect the market price of the security after being disseminated to the public and the lapse of a reasonable time for the market to absorb the information


B. That which would have be considered by a reasonable person important under the circumstances in determining his course of action whether to buy, sell or hold a security

Short Swing

Persons obligated to File a Report:

1. Every person who is a beneficial owner of more than 10%, directly or indirectly, of any class of any equity security

2. Director or an officer of the issuer of such security

Procedure for Filing the Report:

a. File a report within 10 days after he becomes such (beneficial owner, director or officer) stating

i. Such status

ii. If such security is listed for trading on an Exchange

iii. The amount of all equity securities of such issuer

b. File a report within 10 days after the close of each calendar month if there has been a change in such ownership

Prohibition:

• For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer

o Any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer within any period of less than 6 months shall inure to and be recoverable by the issuer

• Use of information is presumed

o What is important is the concurrence of purchase and sale transactions within a period of 6 months

Exception:

• Such security is acquired in good faith in connection with a debt previously contracted

Suit to Recover such Profit:

a. Instituted before the RTC

b. Instituted by the

i. Issuer

ii. Owner of any security of the issuer in the name and in behalf of the issuer if the issuer shall fail or refuse to bring such suit within 60 days after request or shall fail diligently to prosecute the same thereafter

Special Requirement for Prohibition to Apply to a 10% Beneficial Owner

• This shall not cover any transaction where such beneficial owner was not such both at the time of the purchase and sale of the security involved

Non-applicability of this Rule:

• Any purchase and sale of an equity security not then or thereafter held by him in an

a. Investment account

b. By a dealer in the ordinary course of his business and incident to the establishment or maintenance by him of a primary or secondary market

PSE Disclosure Rules

Disclosure of Material Information

• Issuers are required to disclose once they become aware of any material information or corporate act or development or event

• When must it be disclosed?

o Within 10 minutes from receipt of such information or the happening or occurrence of such development or event

• To whom must it be disclosed?

o To the Exchange prior its release to the news media

• Procedure:

a. Original copy of the Disclosure must be delivered to the Exchange within 24 hours from the time of initial disclosure

b. Any Disclosure must be addressed to the attention of the Disclosure Department of the Exchange

• Trading halt when applicable:

o When the act, development or event occurs during trading hours

a. Issuer must request a halt in order to ensure that the investing public would have equal access to the information

b. Trading halt shall be lifted 1 hour after the information has been disseminated


c. If the information is disseminated 1 hour or less prior to the close of the market, the trading halt shall be lifted on the subsequent trading day

• Exceptions to the Material Information Disclosure Rule

1. When the activity or development is still considered as soft information

2. Disclosure would be in contravention to any existing laws of the land

Selective Disclosure of Material Information

• This is prohibited unless the issuer is ready to simultaneously disclose the material non-public information to the Exchange

• Non-application of this Rule:

a. Person who is bound by duty to maintain trust and confidence to the Issuer

b. Person who agrees in writing to maintain in strict confidence the disclosed material information and will not take advantage of it for his personal gain

Duty of the Issuer to Clarify Non-Public Material Information

• Upon the Exchange’s receipt of any material non-public information, it shall request the Issuer concerned to confirm or deny the veracity of said information

• Trading halt is imposed if the Issuer fails to confirm or deny the information

a. The halt shall be lifted at 10AM even in the absence of any reply

b. The Exchange must receive the Issuer’s reply not later than 11AM of the same trading day

o If no reply is still given, the Issuer shall be fined P30,000 and an additional amount of P10,000 for every 30 minutes of delay

Standard and Test in Determining Whether Disclosure is Necessary

1. The information is necessary to enable the Issuer and the public to appraise their position or standing

2. The information is necessary to avoid the creation of a false market for its securities

3. The information may reasonably be expected to materially affect market activity and the price of its securities

Events Mandating Prompt Disclosure

1. A change in control of the Issuer

2. The filing of any legal proceeding by or against the Issuer and/or its subsidiaries, involving a claim amounting to 10% or more of the Issuer’s total current assets or any legal proceeding against its President and/or any member of its Board of Directors in their capacity as such

3. Changes in the Issuer’s corporate purpose and any material alterations in the Issuer’s activities or operations or the initiation of new ones

4. Resignation or removal of directors, officers or senior management and their replacements and the reasons for such

5. Any decision taken to carry out extraordinary investments or the entering into financial or commercial transactions that might have a material impact on the Issuer’s situation

6. Losses or potential losses, the aggregate of which amounts to at least ten percent (10%) of the consolidated total assets of the Issuer

7. Occurrence of any event of dissolution with details in respect thereto

8. Acts and facts of any nature that might seriously obstruct the development of corporate activities, specifying its implications on the Issuer’s business

9. Any licensing or franchising agreement or its cancellation which may materially affect the Issuer’s operations

10. Any delay in the payment of debentures, negotiable obligations, bonds or any other publicly traded security

11. Creation of mortgages or pledges on assets exceeding ten percent (10%) or more of the Issuer’s total assets

12. Any purchase or sale of stock or convertible debt securities of other companies when the amount is ten percent (10%) or more of the Issuer’s total assets

13. Contracts of any nature that might limit the distribution of profits with copies thereof

14. Facts of any nature that materially affect or might materially affect the economic, financial or equity situation of those companies controlling, or controlled by the Issuer including the sale of or the constitution of sureties/pledges on a substantial part of its assets;

15. Authorization, suspension, retirement or cancellation of the listing of the Issuer’s securities on an exchange or electronic marketplace domestically or abroad

16. Fines of more than P50,000.00 and/or other penalties on the Issuer or on its subsidiaries by regulatory authorities and the reasons therefor

17. Merger, consolidation or spin-off of the Issuer

18. Any modification in the rights of the holders of any class of securities issued by the Issuer and the corresponding effect of such modification upon the rights of the holders

19. Any declaration of cash dividend, stock dividend and pre-emptive rights by the Board of Directors


20. Any change in the Issuer’s fiscal year and the reason(s)therefor

21. All resolutions, approving material acts or transactions, taken up in meetings of the Board of Directors and Stockholders of the Issuer

22. A joint venture, consolidation, acquisition, tender offer, take-over or reverse take-over and a merger

23. Capitalization issues, options, directors/officers/employee stock option plans, warrants, stock splits and reverse splits

24. All calls to be made on unpaid subscriptions to the capital stock of the Issuer

25. Any change of address and contact numbers of the registered office of the Issuer

26. Any change in the auditors of the Issuer and the corresponding reason for such change

27. Any proposed amendment to the Articles of Incorporation and By- Laws and its subsequent approval by the Commission

28. Any action filed in court, or any application filed with the Commission, to dissolve or wind-up the Issuer or any of its subsidiaries, or any amendment to the Articles of Incorporation shortening its corporate term

29. The appointment of a receiver or liquidator for the Issuer or any of its subsidiaries

30. Any acquisition of shares of another corporation or any transaction resulting in such corporation becoming a subsidiary of the Issuer

31. Any acquisition by the Issuer of shares resulting in its holding 10% or more of the issued and outstanding shares of another listed company or where the total value of its holdings exceed 5% of the net assets of an unlisted corporation

32. Any sale made by the Issuer of its shareholdings in another listed or unlisted corporation: (1) resulting in such corporation ceasing to be its subsidiary; (2) resulting in its shareholding falling below 10% of the issued capital stock

33. Firm evidence of significant improvement or deterioration in near- term earnings prospects

34. The purchase or sale of significant assets amounting to ten percent (10%) or more of the Issuer’s total assets otherwise than in the ordinary course of business

35. A new product or discovery

36. The public or private sale of additional securities

37. A call for redemption of securities

38. The borrowing of a significant amount of funds not in the ordinary course of business

39. Default of financing or sale agreements

40. Deviation from capital investment funds equivalent to twenty percent (20%) of the original amount appropriated

41. Disputes with subcontractors, customers or suppliers or with any other parties

42. An increase or decrease by 10% in the monthly, quarterly and annual revenues on a year-on-year basis

• So, it is safe to assume that all transactions need prompt disclosure !

Disclosure For Substantial Acquisitions & Reverse Takeovers

• When required: a. Issuer or its subsidiary has merged or consolidated with an unlisted

company b. Issuer or its subsidiary acquires a direct or indirect interest in an

unlisted company, person or group, and said interest is 10% or more of the total book value of the listed company

• Effects: o Trading of the securities of the listed company shall be suspended

until a. Terms and conditions of the transaction, and the details

pertaining to the business or project acquired are actually disclosed

b. Latest audited financial statements of the unlisted company, are submitted to the Exchange, if applicable

Unusual Trading Activity

• Whenever there is unusual trading activity in an Issuer’s securities, the Issuer must respond promptly to any inquiry made by the Exchange concerning the unusual trading activity. In this connection:

a. If the unusual trading activity results from the “leak” of material information, the information in question must be announced promptly

b. If the listed Issuer is unable to determine the cause of the unusual trading activity, it must make a disclosure to the Exchange to the effect that there are no undisclosed recent developments affecting the Issuer that would account for the unusual trading activity

Liabilities

Liabilities of Controlling Persons, Aider and Abettor and Other Secondary Liability

1. Every person who controls any person liable under this Code or the rules or regulations of the Commission shall also be liable jointly and severally


o Defense: Unless the controlling person proves that, despite exercise of due diligence on his part, he has no knowledge of the existence of the facts by reason of which the liability of the controlled person is alleged to exist

2. Unlawful for any person, directly or indirectly, to do any act or thing in violation of the provisions of this Code or any rule or regulation thereunder

3. Unlawful for any director or officer of, or any owner of any securities issued by, any issuer required to file any document, without just cause, to hinder, delay or obstruct the making or filing of any such document, report or information

4. Unlawful for any person to aid, abet, counsel, command, induce or procure any violation of this Code, or any rule, regulation or order of the Commission

5. Every person who substantially assists the act or omission of any person primarily liable under this Code, with knowledge or in reckless disregard that such act or omission is wrongful, shall be jointly and severally liable as an aider and abettor for damages resulting therefrom

5. An aider or abettor shall be liable only to the extent of his relative contribution or to the extent to which he was unjustly enriched, whichever is greater

Civil Liabilities Arising in Connection with Prospectus, Communications and Reports

1. Any person who offers to sell or sells a security in violation of the registration requirements

2. Any person who offers to sell or sells a security by use of any means or instruments which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements not misleading

3. Any person who shall make or cause to be made any statement in any report or document, which at the time was made false or misleading with respect to any material fact, liable to any person who, not knowing that such statement was false or misleading, and relying upon such statement shall have purchased or sold a security at a price which was affected by such statement

o Defense: Acting in good faith and without knowledge that such statement was misleading or false

Civil Liability of Fraud in Connection with Securities Transactions

• Any person who engages in any act or omission in violation of Tender Offer Rule, Requirements on Proxy Solicitations, or Insider Trading

Civil Liability for Manipulation of Security Prices

• Any person who willfully participates in any act or transaction in violation of the Prohibition on Fraud and Manipulation of Security Prices

Civil Liability on Account of Insider Trading

• Any person purchasing or selling a security while in possession of material information not generally available to the public

a. Liable to an investor who purchased or sold securities of the same class that is subject of the violation

b. Defense: The insider or such person in case of tender offer proves that such investor knew the information or would have purchased or sold at the same price regardless of disclosure of the information to him

Regulations of Securities Market Professionals

Definitions

a. Broker – a person who buys or sells securities for the account of others

b. Dealer – a person who buys or sells securities for their own account

c. Salesman – natural person hired to buy and sell securities on a salary or commission basis or any employee of an issuer company whose compensation is determined directly or indirectly on sales of the issuer’s securities

d. Associated Person – any person employed full time by the Broker Dealer whose responsibilities include internal control supervision

o He cannot perform other duties without SEC approval and subject to the condition that Broker Dealer will maintain the appropriate Chinese Wall

e. Member of an Exchange – any Broker Dealer who has the right to trade in that Exchange

f. Participant – a person who has been approved to use the self-regulatory organization’s services and facilities but is not a member therein

g. Trading Participant – a person that is registered to sell or buy securities within a registered Exchange

h. Self-Regulatory organization – an organized Exchange

i. Registered Clearing Agency – any person who acts as intermediary in making deliveries upon payment to effect settlement in securities transactions

o Clear trades and prepare instructions for automated settlement of those trades and often act as intermediaries in making those settlements


o It instructs depositories to make securities deliveries that result from settlement of securities transaction

Registration

• GR: Registration is mandatory

a. No person shall engage in the business of buying or selling securities in the Philippines as broker or dealer, or act as salesman, or an associated person of any broker or dealer unless registered as such with SEC

b. Salesman or any associated person can only be employed if they have been registered as such with SEC

• Exception:

o SEC may, by rule or order, conditionally or unconditionally exempt registration as it deems consistent with public interest and protection of investors

Conditions for Registration

a. Natural person

b. Applicant must satisfactorily pass a written exam

c. Applicant must satisfy a minimum net capital and provide a bond or other security " for Broker or Dealer

1. Unimpaired paid-up capital of P100M for

a. First time registrants who will be participating in a registered clearing agency

b. Those acquiring business of existing Broker Dealer companies

o SEC may authorize a lower capitalization for applicants not participating in a registered clearing agency

2. Unimpaired paid-up capital of P30M plus surety bond of P100M for

a. Existing Broker Dealer applicants not meeting the P100M capitalization, and

b. Not seeking authorization for market making transactions

3. Unimpaired paid-up capital of P2.5M for applicants dealing purely in proprietary shares and who are not holding securities for their clients

d. File an application form with the SEC

e. Pay the corresponding registration fee

f. A salesman shall not include any employee of an issuer whose compensation is not determined directly or indirectly on sales of securities of the issuer

g. Within 30 days after filing the application, SEC may either

1. Grant registration

o All names and addresses shall be recorded in a Register of Securities Market Professions kept in the office of SEC and is open to public inspection

2. Deny registration

Conditions imposed upon Registered persons

a. File current and accurate information

b. Pay annual fee

o Failure to do so shall be a cause for the suspension of registration

c. Registration of salesman or associated person shall automatically terminate upon cessation of affiliation with the registered broker, dealer or issuer who has employed him

Market making transactions

• Transactions in a particular security

a. By a Broker Dealer which complies with the Commission and Exchange rules regarding its duty as a market maker

b. To ensure two way quotes, provide liquidity, and maintain a fair and orderly trading market therein

Revocation, Refusal or Suspension of Registration

Grounds

a. Willfully violated any provision of the Code

b. Failed to prevent another person who commits such violation " for registered broker, dealer or associated person

c. Willfully made or caused to be made a false or misleading statement in the application

d. Willfully omitted to state any material fact required to be stated therein

e. Failed to satisfy qualifications or requirements for registration

f. Convicted of an offense involving moral turpitude or of a violation of securities, commodities, banking, real estate or insurance laws

g. Enjoined or restrained from engaging in securities activities

h. Judicially declared insolvent

Transactions and Responsibility of Brokers and Dealers

Prohibitions

• Deal or buy or sell for its own account or for the account of customers where any of the stockholder, director, associated person or salesman, or authorized clerk of said Broker or Dealer and all relatives of such


within the 4th civil degree of consanguinity or affinity is at the time holding office in the issuer corporation as director, president, vice-president, manager, treasurer, comptroller, secretary or any office of trust and responsibility, or is a controlling person of the issuer

Transactions and Responsibilities of Brokers and Dealers

Ethical Standards

1. Honesty and Fairness

o When registered person advises or acts on behalf of a client, he shall ensure at all times that any representations or other communications made and information provided to the client are accurate and not misleading

2. Diligence

o Ensure to promptly execute client orders in conformity with the instruction of the client and on the best available terms

3. Information about Clients

o Establish true and full identity of each of his clients, their financial situation, investment experience and investment objectives

4. Information for Clients

o Make adequate disclosure of material information in his dealings with his clients

5. Conflicts of Interest

o Avoid conflicts of interest and if it cannot be avoided, should ensure that his clients are fairly treated and properly informed of such conflict

a. Client Priority

# Orders of clients or transactions to be undertaken on behalf of clients, shall have in all cases priority over orders for the account of the registered person

# Registered person shall not deal in any securities for himself or for any account in which he has an interest based upon advance knowledge he possesses of pending transactions for or with clients or any other non public information, the disclosure of which would be expected to affect the price of such securities and violate insider trading prohibition

b. Conflicts of interest

# Registered person has a material interest in a transaction with or for a client, or a relationship which gives rise to an actual or potential conflict of interest in relation to such transaction, he shall neither advise nor deal in such transaction unless he has disclosed that material interest or conflict to the client and has taken all reasonable steps to ensure fair treatment of client

c. Client assets

# Client transactions and assets should be accounted for properly and promptly, and adequately safeguarded

6. Compliance

o Registered person shall have a policy on whether employees are permitted to deal for their own accounts in securities

7. Confirmation of Customer Orders

o Employee or salesman of a Broker Dealer shall not be authorized to accept a confirmation for or on behalf of a customer

8. Client Agreement

o Written agreement is entered into with a client before any service is provided for that client

9. Suitability Rule

o In recommending to a customer the purchase, sale or exchange of any security, that recommendation must be suitable for such customer upon the basis of the facts disclosed by such customer as to his other security holdings and as to his financial situation and needs

10. Commission and Charges for Services Performed by a Broker Dealer

o All Broker Dealers shall file a schedule of their minimum commission rates with SEC

o No discounts and/or rebates shall be permitted from the minimum rates

11. Block Sale

o A matched trade that does not go through the automated order matching system of an Exchange but has been pre-arranged by and among Broker Dealer’s clients and is then entered as a done deal into the trading system

o Requisites:

a. Transaction complies with Exchange rules

b. Exchange notifies the SEC in writing not later than 1 business day after the date such transaction has been executed of the price and volume or in such form and manner that the SEC may prescribe

Segregation of Broker and Dealer Transactions, Affiliations and Practices

• Exchange Trading Participant shall not effect any transaction on such Exchange for its own account, the account of an Associated Person, salesmen, or any other person associated with the Trading Participant, including its affiliates, or an account with respect to which an associated person exercises investment discretion, unless it complies with the “Customer First” Policy


• Trader or salesman shall use and maintain only 1 dealing account, and only with his employing broker, which shall be registered under his name or jointly with members of his family within the first degree of consanguinity and shall be treated as the Trading Participant’s proprietary account only for the purpose of complying with the Customer First Policy

“Customer First” Policy

1. Trader or salesman of an Exchange Trading Participant shall execute a customer order in the Exchange trading terminal immediately upon the receipt thereof

2. Time the customer order was received shall be recorded either manually or electronically

3. All orders whether customer or proprietary shall be executed in their assigned trading terminals and by the designated trader

4. Orders of stockholders, officers, directors, Associated Persons and salesmen, or any other person associated with the Exchange Trading Participant, including affiliated persons, traded within the Trading Participant shall be treated as the proprietary account of the Trading Participant’s account, in which case, the “Customer First” Policy shall apply

Segregation of Functions (Chinese Walls)

• To whom applicable?

a. Any Broker Dealer that assumes more than one function whether as a dealer, adviser

b. Any Broker Dealer who engages in market making transactions

• What shall be done?

a. Maintain proper segregation of those functions within the company to prevent the flow of information between the different units of the company that performs functions that may have potential conflict of interest

b. Broker Dealer shall at all times ensure that its trading functions and back-office settlement functions and physical setup are properly segregated and shall establish written procedures to ensure compliance with this rule

• For purposes of this rule, information means matter:

a. Of a specific nature which has not been made public;

b. Relating to one or more public companies or securities of a public company; and

c. Which, if it were made public, would likely affect the market price of the securities.

Trading Limited to Listed Securities and Exchanges Registered

Prohibition

• No Broker Dealer or any registered person shall effect any transaction unless such Exchange or any other trading market and the securities listed or allowed to be traded are registered or exempt from registration

Registration of Exchanges

Concept of an Exchange

• One that neither buys, sells nor sets prices but only acts as a market place for such transactions

Requirements for Registration

a. Applicant is organized as a stock corporation

o No person may beneficially own or control, directly or indirectly, more than 5% of the voting rights of the Exchange

o No industry or business group may beneficially own or control, directly or indirectly, more than 20% of the voting rights of the Exchange

o SEC may exempt an applicant from the above prohibitions if it finds that such ownership or control will not negatively impact on the exchange’s ability to effectively operate in the public interest

b. Applicant is engaged solely in the business of operating an exchange

c. Brokers in the board of the Exchange shall comprise of not more than 49% of such board and shall proportionately represent the Exchange membership in terms of volume/value of trade and paid-up capital

d. No officer or employee of a member of the Exchange, its subsidiaries or affiliates or related interests shall become an independent director

e. President and other management of the Exchange shall consist only of persons who are not members and are not associated in any capacity with any broker or dealer or member or listed company of the Exchange

f. Transparency of transactions on the Exchange

g. Within 90 days after filing the application, SEC my issue an order either

1. Granting registration

i. Pay a registration fee

ii. May withdraw its registration or suspend its operations or resume the same

2. Denying registration


Prohibitions on Member-Broker of an Exchange

• Effect any transaction on such Exchange for its own account, that of an associated person exercising investment discretion

• Transactions under this prohibition that are not unlawful:

1. Transaction by a member-broker acting in the capacity of a market maker

2. Transaction reasonably necessary to carry on an odd-lot transactions

3. Transaction to offset a transaction made in error

4. Other transaction of a similar nature as may be defined by SEC

• When member-broker effects a prohibited transaction, it shall disclose to such customer at or before the completion of the transaction that it is acting for its own account and this shall be reflected in the order ticket and confirmation slip

Suspension of any Listed Security on any Exchange

• Suspension for a period not exceeding 30 days or if with approval of the President of the Philippines, for a period of more than 30 days but not exceeding 90 days

• Grounds:

a. SEC is of the opinion that it is necessary or appropriate for the protection of investors

b. Public interest so requires

• Promptly following the issuance of order of suspension, SEC shall notify the affected issuer and provide such issuer with an opportunity for hearing to determine whether suspension should be lifted

Trust Funds

• Establishment of trust fund for the purpose of compensating investors for extraordinary losses or damage they may suffer due to business failure or fraud or mismanagement of the persons with whom they transact

Independent Directors

• A person who would interfere with the exercise of independent judgment in carrying out the responsibilities of a director

o The independent director shall not be

a. An officer or employee of the corporation, its parent or subsidiaries,

b. Any individual having a relationship with the corporation

c. Does not own more than 5% of the outstanding shares of the covered company and its subsidiaries

• For Public Corporations, it shall have at least 2 independent directors constituting at least 20% of the members of such board

o Service as such shall not exceed 5 continuous years

• Applicable to:

a. Public corporations

b. Listed corporations

c. Grantees of secondary licenses

Over-the-Counter Transactions

• One not made at the stock exchange but directly between the broker and customer

Over-the-Counter Market

• Market created other than a registered stock exchange for both the purchase and sale of any security

Restrictions on Use of Over-the-Counter-Markets

1. No broker, dealer, salesman, associated person of a broker or dealer, or Exchange, directly or indirectly make use of any facility unless such is registered under the requirements of the SRC

2. No broker, dealer, salesman, associated person of a broker or dealer, singly or in concert with any other person make, create or operate, or enable another to do such, for the buying and selling of any security on any trading market otherwise than on a registered Exchange

Registration of Self-Regulatory Organizations

Requirements for registration

c. Association is organized and has capacity to be able to carry out the purposes of this Code and to comply with and enforce compliance by its members with the provisions of this Code, RR and the rules of association

d. The rules of the Association provide that

1. Any registered broker or dealer may become a member of the Association

2. There exist fair representation of its members to serve on the BOD of the association

3. BOD is composed of


i. President of the Association who is not a member or associated with any broker, dealer or member of the association

ii. Persons who represent the interests of issuers and public investors and are not associated with any broker or dealer or member of the association

4. Equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility or system of the association

5. Prevention of fraudulent and manipulative acts and practices

6. Appropriately discipline for violation of this SRC, RR or the rules of the association its members and persons associated with its members including suspension or expulsion of such member or participant

7. Fair procedure for disciplining, denial of membership, barring of any person from becoming associated with a member, and prohibition or limitation by association of any person with respect to access to services offered by the association or member thereof

Margin and Credit

Purpose

• To allow a broker to advance for the customer part of the purchase price of a security and to keep it as collateral for such advance

Margin Requirements

• Amount of credit that may be extended on any security shall not be greater than

a. 50% of the current market value of the security at the time of transaction

b. In no case shall it be less than P50,000

Restriction on Borrowing

• Broker or dealer shall require the customer in non-margin transactions to pay the price of the security purchased for his account within such period as may be prescribed

o Failure will result in the obligation upon the broker to sell the security purchased starting within 10 trading days from the last day for the customer to pay such purchase price

• Sale will be without prejudice to recover deficiency amount

Philippine Stock Exchange

Composition of Board of Directors

1. Director-Chairman 3. 13 Directors

2. Director-President-CEO 4. Secretary

Committees

1. Nominations and Elections Committee 3. Audit Committee

2. Corporate Governance Committee 4. Market Integrity Board

Management Officers

1. Office of the President

2. Office of the Chief Operating Officer

3. Office of the General Counsel

4. Corporate Governance Office

5. Controllership and Treasury Division

6. Technology Division

7. Corporate Planning & Investors Relations Division

8. Human Resources & Administration Division

9. Issuer Regulation Division

10. Capital Markets Development Division

11. Market Operations Division

12. Internal Audit Group

PSE’s Organizational Structure

1. Listings & Disclosure Group

2. Compliance & Surveillance Group

3. Operations/Automated Trading Group

4. Finance and Investment Group

5. Business Development & Information Group

a. Office of the General Counsel

b. Membership Department

c. Human Resources Management Department

Management of PSE

• One of the non-broker members heads the Exchange, appointed by the Board as the President and CEO


• President, along with the professional management of the PSE, executes the policy determinations of the Board and ensures that the Exchange is operating efficiently

o Additionally, it sets the rules and regulations of the Exchange, monitors its implementation and ensures that the investing public is given protection in the transaction of their investments

Business Hours of PSE

• Trading hours in the Philippine Stock Exchange shall be in one continuous session with the following daily schedule:

Playing of the National Anthem 8:45 a.m.

Pre-open Period 9:00 a.m. ~ 9:30 a.m.

Calculation of Open Price/Market Open 9:30 a.m.

Regular Trading Period 9:30 a.m. ~ 12:00 noon

Closing Time 12:00 noon

• A ten (10) minute extension from closing time shall be allowed to execute orders at closing prices

• When there are no trading:

o Saturdays, Sundays, legal holidays and days when the BSP Clearing Office is closed

LIABILITIES AND REMEDIES

SEC. 51. Liabilities of Controlling Persons, Aider and Abettor and Other Secondary Liability

• Who are liable? o Every person who controls any person liable under this Code or the

IRR is also liable jointly and severally with, and to the same extent as, such controlled persons

o Such control shall be by or through a. Stock ownership, agency, or otherwise, or b. Connection with an agreement or understanding with one or

more other persons • Defense:

o The controlling person proves that, despite the exercise of due diligence on his part, he has no knowledge of the existence of the facts by reason of which the liability of the controlled person is alleged to exist

• Unlawful Acts: 1. Any person, directly or indirectly, do any act or thing which it

would be unlawful for such person to do under this Code or any rule or regulation

2. Any director or officer of, or any owner of any securities issued by of an issuer who hinders, delays or obstructs the making or filing of

any required document, report, or information 3. Any person who aids, abets, counsels, commands, induces or

procures any violation of this Code, or any rule, regulation or order of the Commission

• Aider or abettor: o Every person who substantially assists the act or omission of any

person primarily liable under Sections 57, 58, 59 and 60, with knowledge or in reckless disregard that such act or omission is wrongful

o Such person shall be jointly and severally liable for damages resulting from the conduct of the person primarily liable

• Extent of liability of an Aider or Abettor: o The aider or abettor is liable only, whichever is greater

a. Extent of his relative contribution in causing such damages in comparison to that of the person primarily liable

b. Extent to which the aider and abettor was unjustly enriched thereby, whichever is greater

SEC. 52. Accounts and Records, Reports, Examination of Exchanges, Members, and Others

• To whom duties are imposed? a. Registered Exchange b. Broker or dealer c. Transfer agent d. Clearing agency e. Securities association f. Other self-regulatory organization g. Every other person required to register under this Code

• What are the duties? a. Make, keep and preserve records for such periods that may be

prescribed b. Furnish copies of such records c. Make such reports

• What are subject to periodic examinations? a. Accounts b. Correspondence c. Memoranda d. Papers e. Books f. Other records

• Who and when examinations shall be conducted? o Conducted by representatives of the Commission o Conducted when the Commission deems it necessary or

appropriate for the public interest or for the protection of investors • “Records” means:

o Accounts, correspondence, memoranda, tapes, discs, papers,


books and other documents or transcribed information of any type, whether written or electronic in character

SEC. 53. Investigations, Injunctions and Prosecution of Offenses

• Discretionary and other powers of the Commission: 1. Make investigations as it deems necessary to determine whether

any person has violated or is about to violate any provision of this Code, IRR or order, or any rule of an Exchange, registered securities association, clearing agency, other self-regulatory organization

2. Require or permit any person to file with it a statement in writing, under oath or otherwise, as to all facts and circumstances concerning the matter to be investigated

3. Publish information concerning any such violations 4. Investigate any fact, condition, practice or matter which it may

deem necessary or proper to aid in the enforcement of the provisions of this Code, in the prescribing of IRR, or in securing information to serve as a basis for recommending further legislation concerning the matters to which this Code relates

5. Administer oaths and affirmations, subpoena witnesses, compel attendance, take evidence, require the production of any book, paper, correspondence, memorandum, or other record which the Commission deems relevant or material to the inquiry, and to perform such other acts necessary in the conduct of such investigation or proceedings

• Notification: o Any person requested or subpoenaed to produce documents or

testify in any investigation shall simultaneously be notified in writing of the purpose of such investigation

• Criminal complaints under this section: a. Referred to the DOJ for preliminary investigation and prosecution

before the proper court b. In instances where the law allows independent civil or criminal

proceedings of violations arising from the same act, the Commission shall take appropriate action to implement the same

c. Investigation, prosecution, and trial of such cases shall be given priority

• When can the Commission issue an order to desist from committing an act or practice? o Whenever it shall appear to the Commission that any person has

engaged or is about to engage in any act or practice constituting a violation of any provision of this Code, IRR or order, or any rule of an Exchange, registered securities association, clearing agency or other self-regulatory organization

• When can the Commission charge any person with the violation of the rules of an Exchange or other self regulatory organization?

o When it appears to the Commission that such Exchange or other self-regulatory organization is unable or unwilling to take action against such person

• Issuance of ex-parte cease and desist order o After finding that such person has engaged in any such act or

practice and that there is a reasonable likelihood of continuing, further or future violations by such person

o Period of the ex-parte cease and desist order # Maximum period of 10 days enjoining the violation and

compelling compliance with such provision • When is there Contempt?

o After due notice and hearing, any person who, within his power but without cause, fails or refuses to comply with any lawful order, decision or subpoena issued by the Commission

o Penalties: a. Fine in such reasonable amount as the Commission may

determine b. Detain under an arrest order issued by the Commission when

such failure or refusal is a clear and open defiance of the Commission’s order, decision or subpoena # Period of detainment is until such order, decision or

subpoena is complied with

SEC. 54. Administrative Sanctions

• What are the violations subject to an administrative sanction? a. There is a violation of this Code, its rules, or its orders b. Any registered broker or dealer, associated person thereof has

failed reasonably to supervise, with a view to preventing violations, another person subject to supervision who commits any such violation

c. Any registrant or other person has, in a registration statement or in other reports, applications, accounts, records or documents required by law or rules to be filed with the Commission 1. Made any untrue statement of a material fact, or 2. Omitted to state any material fact required to be stated therein

or necessary to make the statements therein not misleading 3. In the case of an underwriter, has failed to conduct an inquiry

with reasonable diligence to insure that a registration statement is accurate and complete in all material respects

4. Any person has refused to permit any lawful examinations into its affairs

• When can administrative sanctions be imposed? a. After due notice and hearing b. Commission finds any of the violations mentioned above

• What are the administrative sanctions? 1. Suspension, or revocation of any registration for the offering of


securities 2. A fine of no less than P10,000 nor more than P1,000,000 plus not

more than P2,000.00 for each day of continuing violation 3. Disqualification from being an officer, member of the Board of

Directors, or person performing similar functions, of an issuer required to file reports under this Code or any other act, rule or regulation administered by the Commission

4. In the case of a violation of Section 34, a fine of no more than thrice the profit gained or loss avoided as a result of the purchase, sale or communication proscribed by such Section

5. Other penalties within the power of the Commission to impose • Imposition of the foregoing administrative sanctions shall be without

prejudice to the filing of criminal charges against the individuals responsible for the violation

• Commission shall have the power to issue writs of execution to enforce the provisions of this Section and to enforce payment of the fees and other dues collectible under this Code

SEC. 55. Settlement Offers

• When a written proposal of an offer of settlement can be made? o At any time during an investigation or proceeding under this Code

• Grounds to grant the offer: o Upon receipt of such offer of settlement, the Commission may

consider the offer based on timing, the nature of the investigation or proceeding, and the public interest

• Effects of the settlement offer: o Any agreement to settle shall have no legal effect until publicly

disclosed o Such decision may be made without a determination of guilt on the

part of the person making the offer • Commission shall adopt rules and procedures governing the filing,

review, withdrawal, form of rejection and acceptance of such offers

SEC. 56. Civil Liabilities on Account of False Registration Statement

• Who can sue and recover damages? o Any person acquiring a security and who suffers damage thereto

by virtue that the registration statement of such security contains a. Untrue statement of a material fact b. Omits to state a material fact required to be stated therein or

necessary to make such statements not misleading • When such person is precluded from filing?

o It is proved that at the time of such acquisition, he knew of such untrue statement or omission

• Who are liable? a. Issuer and every person who signed the registration statement b. Every person who was a director of, or any other person performing

similar functions, or a partner in, the issuer at the time of the filing of the registration statement or any part, supplement or amendment thereof with respect to which his liability is asserted

c. Every person who is named in the registration statement as being or about to become a director of, or a person performing similar functions, or a partner in, the issuer and whose written consent thereto is filed with the registration statement

d. Every auditor or auditing firm named as having certified any financial statements used in connection with the registration statement or prospectus

e. Every person who, with his written consent, which shall be filed with the registration statement, has been named as having prepared or certified any part of the registration statement, or as having prepared or certified any report or valuation which is used in connection with the registration statement, with respect to the statement, report, or valuation, which purports to have been prepared or certified by him

f. Every selling shareholder who contributed to and certified as to the accuracy of a portion of the registration statement, with respect to that portion of the registration statement which purports to have been contributed by him

g. Every underwriter with respect to such security • Proof of reliance when relevant:

o If the person who acquired the security did so after the issuer has made generally available to its security holders an income statement covering a period of at least 12 months beginning from the effective date of the registration statement, the right of recovery shall be conditioned on proof that such person acquired the security relying upon such untrue statement in the registration statement or relying upon the registration statement and not knowing of such income statement # Such reliance may be established without proof of the reading

of the registration statement by such person

SEC. 57. Civil Liabilities Arising in Connection With Prospectus, Communications and Reports

1. Any person who: a. Offers to sell or sells a security in violation of Chapter III (Registration

of Securities) b. Offers to sell or sells a security by the use of any means or

instruments of transportation or communication, by means of a prospectus or other written or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall


fail in the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission o To whom liable?

# Any person purchasing such security from him, may sue to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security

2. Any person who shall make or cause to be made any statement in any report, or document filed pursuant to this Code or any rule or regulation thereunder, which statement was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact o To whom liable?

# Any person who, not knowing that such statement was false or misleading, and relying upon such statements shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading

SEC. 58. Civil Liability For Fraud in Connection With Securities Transactions

• Who is liable? o Any person who engages in any act or transaction in violation of

Sections 19.2 (Tender Offers), 20 (Proxy Solicitation) or 26 (Fraudulent Transactions), or any rule or regulation of the Commission

• To whom liable? • Any person who, as a result of such act or transaction

a. Purchases or sells any security b. Grants or refuses to grant any proxy, consent or authorization c. Accepts or declines an invitation for tender of a security

SEC. 59. Civil Liability For Manipulation of Security Prices

• Who is liable? o Any person who willfully participates in any act or transaction in

violation of Section 24 (Manipulation of Security Prices) • To whom liable?

o Any person who shall purchase or sell any security at a price which was affected by such act or transaction

SEC. 60. Civil Liability With Respect to Commodity Futures Contracts and Pre-need Plans

• Who is liable? o Any person who engages in any act or transaction in willful violation

of any rule or regulation promulgated by the Commission, which the Commission denominates at the time of issuance as intended to prohibit fraud in the offer and sale of pre-need plans or to prohibit fraud, manipulation, fictitious transactions, undue speculation, or other unfair or abusive practices with respect to commodity future contracts

• To whom liable? o Any person sustaining damage as a result of such act or transaction

• Commission shall prescribe the elements of proof required for recovery and any limitations on the amount of damages that may be imposed

SEC. 61. Civil Liability on Account of Insider Trading

• Who are liable? a. Any insider who purchases or sells a security while in possession of

material information not generally available to the public o To whom liable?

# Any investor who, contemporaneously with the purchase or sale of securities that is the subject of the violation, purchased or sold securities of the same class

o Defense: # Such insider, or such person in the case of a tender offer,

proves that such investor knew the information or would have purchased or sold at the same price regardless of disclosure of the information to him

b. An insider who communicates material non-public information

SEC. 62. Limitation of Actions

a. Any liability created under Section 56 or 57 " within 2 years after the discovery of the untrue statement or the omission but not more than 5 years after the security was bona fide offered to the public

b. Any liability created under Subsection 57.1(a) " within 2 years after the violation upon which it is based but not more than 5 years after the security was bona fide offered to the public

c. Any liability created under Subsection 57.1(b) " not more than 5 years after the sale

d. Any liability created under any other provision of this Code " brought within 2 years after the discovery of the facts constituting the cause of action and within 5 years after such cause of action accrued

SEC. 63. Amount of Damages to be Awarded

• Exclusive jurisdiction of the RTC a. All suits to recover damages pursuant to Sections 56, 57, 58, 59, 60

and 61 b. Award of damages shall be in an amount not exceeding triple the

Rowena Angela Salanga

triple damage suit

Rowena Angela Salanga


amount of the transaction plus actual damages c. Exemplary damages may also be awarded in cases of bad faith,

fraud, malevolence or wantonness in violation of this Code or IRR d. Award attorney’s fees not exceeding 30% of the award

• Solidary liability: o Persons specified in Sections 56, 57, 58, 59, 60 and 61 hereof shall be

jointly and severally liable for the payment of damages # Any person who becomes liable for the payment of such

damages may recover contribution from any other person who, if sued separately, would have been liable to make the same payment, unless the former was guilty of fraudulent representation and the latter was not

• Equal contribution to the total liability: o All persons, including the issuer, held liable under the provisions of

Sections 56, 57, 58, 59, 60 and 61 o In no case shall the principal stockholders, directors and other

officers of the issuer or persons occupying similar positions therein, recover their contribution to the liability from the issuer # However, right of issuer to recover from guilty parties the

amount it has contributed under this Section shall not be prejudiced

SEC. 64. Cease and Desist Order

• Procedure for issuing a cease and desist order: a. Upon motu propio or by a verified complaint of an aggrieved party b. After proper investigation

• When no prior hearing is required? o If in its judgment, the act or practice, unless restrained, will operate

as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public

• Confidentiality of the investigation or complaint: o Fact of an initiated investigation or a filed complaint shall be

confidential until the Commission issues a cease and desist order o Upon issuance thereof, Commission shall make public such order

and a copy thereof shall be immediately furnished to each person subject to the order

• Filing of a Formal Request to Lift said Order: o Filed by any person against whom a cease and desist order was

issued o Filed within 5 days from receipt of the order o Said request shall be set for hearing by the Commission not later

than 15 days from its filing o Resolution thereof shall be made not later than 10 days from the

termination of the hearing o If the Commission fails to resolve the request within the time

prescribed, the cease and desist order shall automatically be lifted

SEC. 70. Judicial Review of Commission Orders

• Any person aggrieved by an order of the Commission may appeal the order to the Court of Appeals by petition for review in accordance with the pertinent provisions of the Rules of Court

SEC. 71. Validity of Contracts

• Void contracts:

a. Any condition, stipulation, provision binding any person to waive compliance with any provision of this Code or of IRR, or of any rule of an Exchange required thereby, as well as the waiver itself

b. Every contract made in violation of any provision of this Code or of any rule or regulation thereunder, and every contract, including any contract for listing a security on an Exchange heretofore or hereafter made, the performance of which involves the violation of, or the continuance of any relationship or practice in violation of, any provision of this Code, or any rule or regulation thereunder, shall be void:

1. As regards the rights of any person who, in violation of any such provision, rule or regulation, shall have made or engaged in the performance of any such contract

2. As regards the rights of any person who, not being a party to such contract, shall have acquired any right thereunder with actual knowledge of the facts by reason of which the making or performance of such contract was in violation of any such provision, rule or regulation

• Nothing in this Code shall be construed to:

a. Affect the validity of any loan or extension of credit made or of any lien created prior or subsequent to the effectivity of this Code, unless at the time of the making of such, the person making such shall have actual knowledge of the facts by reason of which the making of such loan or extension of credit or the acquisition of such lien is a violation of the provisions of this Code or any rules or regulations thereunder

b. Afford a defense to the collection of any debt, obligation or the enforcement of any lien by any person who shall have acquired such in good faith, for value and without actual knowledge of the violation of any provision of this Code or any rule or regulation thereunder affecting the legality of such debt, obligation or lien

SEC. 72. Rules and Regulations; Effectivity

• This Code shall be self-executory

• Rules and Regulations:


o To effect the provisions and purposes of this Code, the Commission may issue, amend, and rescind such rules and regulations and orders

o Failure on the part of the Commission to issue rules and regulations shall not in any manner affect the self-executory nature of this Code

• Commission may classify persons, securities, and other matters within its jurisdiction, prescribe different requirements for different classes of persons, securities, or matters, and by rule or order, conditionally or unconditionally exempt any person, security, or transaction, or class or classes of persons, securities or transactions, from any or all provisions of this Code

• Commission shall promulgate rules and regulations providing for reporting, disclosure and the prevention of fraudulent, deceptive or manipulative practices in connection with the purchase by an issuer, by tender offer or otherwise, of and equity security of a class issued by it

• Deemed to be a purchase by the issuer:

o A purchase by or for the issuer or any person controlling, controlled by, or under common control with the issuer, or a purchase subject to the control of the issuer or any such person

• The rules and regulations promulgated by the Commission shall be published in 2 newspapers of general circulation in the Philippines, and unless otherwise prescribed by the Commission, the same shall be effective 15 days after the date of the last publication

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