Securities Regulations Code. notes sec 1-15

8/7/2019 Securities Regulations Code. notes sec 1-15

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Securities Regulations Code

Section 1 Title

Commonwealth Act 83 (Securities Act)

- approved on October 26, 1936

- first law governing the securities market;

- it is from the awareness of the problem on the growth of unscrupulous fly-by-

night corporations;

- patterned after the U.S. Securities Act of 1933 and U.S. Securities Exchange

Act of 1934

B.P. Blg. 178 Revised Securities Act of 1982

R.A. No. 8799 Revised Regulation Code

Section 2 Declaration of State Policy

The Code focuses on the following regulatory activities in the securities

field:

1. DISCLOSURE Statute. Registration processby which a corporation or

issuer offers and sells its securities to the public.

- The basic purpose of registration under the Code is to assure the availabilityof adequate reliable information about the issuer and securities which are

offered to the public.

- it can only insists that the issuer makes a full disclosure of all material facts.

2. REPORTING REQUIREMENTS. Assuring that there is a continuous flow of

disclosures and information about the securities and issuer whose securities

are traded.

3. ANTI-FRAUD PROVISIONS. Applicable not only to price manipulations,

but also to trading by insiders on the basis of non-public information, and tovarious kinds of misstatements or misrepresentations by corpor

management and others.

4. SELF-REGULATION. Regulations on market participants assuring that they

do not take advantage of their superior experience and access to overreach

their non-professional customers.

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see

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5. SANCTIONS. Sanctions against those who violate the provisions of the Code,

as well as civil liability and/or damages to investors injured by such violations.

Section 3 Definition of Terms

- Securities may be written or electronic.

- 2 general forms of traditional securities:

1. Equity Securities shares of stocks, represent ownership right in a

corporation, such as right to participate in the management, surplus

profits, and upon dissolution to share in those assets that remain after

all debts have been paid.

2. Debt Securities requires the issuer to repay the principal amount

loaned to it by fixed maturity date, and at a stated rate of interest.

- Securities includes the following:

1. Share of stock- interest or right which the owner, who is the shareholder

or stockholder, has in the management of the corporation, and its surplus

profits, and in the dissolution, in all of its assets remaining after the

payment of its debts.

2. Investment Contracts - a contract, transaction or scheme whereby a

person invests his money in a common enterprise and is led to expect

profits primarily from the efforts of others.

- A presumption that a contract is an investment contract

arises whenever a person seeks to use the money of others on the

promise of profits.

3. Certificates of interest or participation these are interest in a profit

sharing agreement providing for a participation in the profit of a business

venture by the participants of the agreement.

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

interests in mineral or mining rights are normally issued certificates of

participation or interest in the production thereof.

5. Asset-backed securities these are securities issued by a Special

Purpose Entity (SPE), the repayment of which shall be derived from the

cash flow of assets in accordance with the plan.

- An SPE means either a Special Purpose Corporation

(SPC) a juridical person created in accordance with the


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securitization and to which the seller makes a true and absolute

sale of assets, or a Special Purpose Trust which means a

trust administered by an entity duly licensed to perform trust

functions under the General Banking Law, and created solely for

the purpose of securitization and to which the seller makes a

true and absolute sale of assets.

6. Investments unit instruments (IUIs) these are participation

certificates, debt instruments or similar instruments issued by a special

purpose vehicle company incorporated pursuant to provisions of RA. No.

9182 (Special Purpose Vehicle), organized primarily invest in or acquire

non-performing assets (NPAs) of financial institutions.

7. Derivative is a financial instrument whose value changes in response

to the change in a specified interest rate, security price, commodity price,

foreign exchange rate, index of prices or rates, a credit rating or credit

index, or similar variable or underlying factor.

- It requires no initial or little net investment relative to

other types of contracts that have similar responses to changes

in market conditions.

- The term includes, but not limited to the following:

OPTIONS these are contracts that give the buyer the right,

but not the obligation, to buy or to sell an underlying security at

a predetermined price, called the exercise or strike price, on or

before a predetermined date, called the expiry date, which can

only be extended by the SEC upon stockholders approval.

WARRANTS are rights to subscribe or purchase new shares

or existing share in a company on or before a predetermined

date, called the expiry date, which can only be extended in

accordance with the SEC rules and regulations and/or the

Exchange rules.

8. Proprietary or non-proprietary share or certificate is an

evidence of interest or participation or privilege in a corporation which not

only entitles the holder to enjoy the use of a specific property, but also to

dividends or earnings of said company , and upon liquidation of the

company, a holder of a proprietary share shall have proportion

ownership right over its assets.

- Non-Proprietary share or certificate evidence of interest or

privilege over a certain property of a corporation in view of the

amount paid by the holder for the said share/certificate.


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9. Evidence of indebtedness are written representation of debt

securities or obligations of corporations such as, but not limited to the

following:

- Long-Term commercial paper means an evidence

indebtedness of any person with maturity of more than 365

days. It includes bonds and notes. A bond is a secu

supported by a mortgage on a corporate property. Debentures

are obligations or notes representing indebtedness, but not

ordinarily secured by any specific mortgage, lien or pledge of

security.

- Short-Term commercial paper means an evidence

indebtedness of any person with a maturity of 365 days or less.

10. Bill of Exchange is an unconditional order in writing addressed by

one person to another, signed by the person giving it, requiring the person

to whom it is addressed to pay on demand or at a fixed or determinable

future time a sum certain in money to order or to bearer.

11. Trust Certificates is a form of obligation issued as a security for

the repayment of the money or property held by the trustee.

12. Certificates of deposit for future subscriptions these are

evidences of money placed as security for the issuances of future

subscriptions.

Section 4 Administrative Agency

- The SEC holds regular meetings at least once a week on a day and time fixed

by it. Special meetings may also be called as often as maybe necessary by

the Chairperson or upon the request of 3 commissioners. In such cases,

notice of the meeting shall be given to all Commissioners and the presence of

3 Commissioners shall constitute a quorum.

- The SEC may, for purposes of efficiency, delegate any of its functions to any

of its departments, offices, individual Commissioner, or staff member, except

its review or appellate authority and its power to adopt, alter and supplementany rule or regulation.

- The SEC, motu propio or upon a petition filed by an interested party, may

review any order, resolution, decision or action of any of its departments,

offices, individual Commissioner, or staff member.


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- The petition for review shall be filed with the Office of the General Counsel

within 15 days from receipt of the order, resolution, decision or any document

evidencing the action taken which is the subject of the review.

Section 5 Powers and Functions of the Commission

- SEC has the incidental power to conduct administrative hearings, and make

decisions in the course of the performance of their regulatory and law

enforcement functions.

- The SEC may motu propio conduct hearings in the exercise of its regulatory

power. Thus, if the case requires decision or resolution of a violation or

conflict brought about in connection with the performance of a regulatory

function, then it is one for the SEC to decide for the best interest of the

public.

- The SEC may take cognizance of the complaint and the proceedings therein

partaking of the nature of an administrative determination, but it cannot

award damages, nor grant recovery of investments. At most SEC can impose

administrative sanctions, such as suspension or revocation of its license,

issuance of a cease and desist order, and implead its officers for criminal

violations of securities laws before the Department of Justice.

Section 6 Indemnification and Responsibilities of Commissioners

- The Commissioners, including the chairperson, officers and employees of the

SEC, in the execution of their duties owe their undivided loyalty to the SECand shall observe the highest standards of honesty, integrity and good faith

in the performance of their duties.

- The rules of conduct for commissioners, officers and employees are provided

under SRC Rule 6.2 of the Amended SRC Implementing Rules

Regulations.

Violation of the Code or who are guilty of negligence, abuse or acts of

malfeasance or fail to exercise extraordinary diligence in

performance of their duties shall be held liable for any loss or injury

suffered by the Commission or other institutions as a result of suchviolation, negligence, abuse, malfeasance, or failure to exerc

extraordinary diligence.

Similar responsibility shall apply for the disclosure of information,

discussion or resolution of the Commission of a confidential in nature;

use of such personal information for personal gain or to the detriment

of the government, the Commission or third parties.


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Section 7 Reorganization

- The SEC is now authorized to reorganize itself, streamline its structure and

operations, upgrade its human resource component and increase

compensation for the personnel and exempts the SEC from coverage of the

Salary Standardization Law.

- The institutional strengthening of the SEC includes the transfer of its quasi-

judicial function to the regular courts.

CHAPTER III

REGISTRATION OF SECURITIES

Section 8 Requirement of Registration of Securities

- No securities, except of a class exempt under section 9 of the Code or unless

sold in any transaction exempt under section 10 and the rules there under,

shall be sold or distributed by any person or entity in the Philippines, unless

such securities are duly registered pursuant to Sections 8 and 12 of the Code,

and the registration statement has been declared effective by the SEC.

- Public Offering of shares, for purposes of registration under the Code,

means a random or indiscriminate offering of securities in general to anyone

who will buy, whether solicited or unsolicited.

- Any solicitation or presentation of securities for sale through any of the

following modes shall be presumed to e a public offering:

Publication in any newspaper, magazine or printed reading material

which is distributed within the Philippines or any part thereof;

Presentation in any public or commercial place;

Advertisement or announcement in any radio or television or any

online or e-mail system; or

Distribution and/or making available flyers, brochures or any offering

material in a public or commercial place, or mailing the same to

prospective purchasers.

- A notice, circular, advertisement, letter, or other communication is not

deemed an offer sale in violation of Section 8 of the Code if it is published or

transmitted to any person after a registration statement has been filed and


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contains any or all of the information required in the SRC Implementing Rules

and Regulations.

- Offered for sale or distribution in the provision covers the act of accepting

future subscription deposits. Acceptance of subscription deposits is indicative

that the amount paid therefore was accepted as payment of an offer to sell

securities, unless it is shown that the intention is to treat the payment merely

as advances in anticipation of future increase of capital stock, but the same

should be booked as liability in the financial statement of the company.

- Public distribution refers to the sale of securities to a least 20 persons or

enterprises. However, under Section 10 (2) of the Code, sale to more than

such number of persons may be exempted by the SEC from registration if the

registration thereof is not necessary in the public interest and for the

protection of the investors by reason of the small amount involved or the

limited character of the public offering.

- As a GR, securities are prohibited from being offered and sold within the

Philippines, unless a registration statement and a prospectus covering the

securities executed ad established in accordance with the requirements and

procedures laid down under SRC rules 8 and 12 of the Amended SRC

Implementing Rules and Regulations, are both filed and in effect.

- The present law now enforces a full disclosure approach of regulating public

offerings. Registration under the new Code gives more emphasis to full

disclosure as the principal method of investors protection intended to provide

adequate and accurate disclosure of materials facts concerning the issuer

and the securities it proposes to offer and sell.

- Material information/fact means any fact/ information that could result in a

change in the market price or value in any of the issuers securities or would

potentially affect the investment decision of an investor.

- Under new regulatory framework, the SEC no longer passes upon judgment

on the investment merit of an issue but leaves it to the investor to make a

decision on whether or not to buy the shares on the basis of disclosure of

material facts concerning the company and the securities sold.

- The only standard which must be met when registering securities is adequate

and accurate disclosure of required material facts covering the company and

the securities it proposes to sell.

Section 9 Exempt Securities

1. Government Issues


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- These are issued and sold by the government over which a particular

government agency exercises regulatory or supervisory care, there

investors are deemed adequately protected.

2. Issuance by foreign governments

- The SEC may prescribe rules for disclosure with respect to offerings of

securities by foreign governments as investors need disclosures to these

offerings of securities.

3. Certificates issued by a receiver or by a trustee in bankruptcy duly approved

by the proper adjudicatory body

- The exemption for certificates issued to creditors by a receiver or trustee in a

rehabilitation/ insolvency proceedings does not affect the general public, but

only the creditors of the issuer who are seeking full or partial payment of their

claims.

4. Sale of securities which are under the regulation of the Office of the Insurance

Commission, Housing and Land Regulatory Board, or Bureau of Internal

Revenue.

- It is construed that, in the event the securities which are supposed to be

regulated by any of the above-mentioned government offices, are not

actually regulated by the concerned government agency, they should be

required t be registered under the Code, otherwise, it would be unregulated

leaving the investors without any protection.

5. Bank issues, except their own shares

- Except their own shares is added to clarify that only customary or

traditional banking activities are exempt from SEC registration.

- The philosophy behind the exemption is that the issuance of securities by

banking institutions is already supervised and regulated by the BSP, and

therefore are presumed to be already adequately regulated by that office.

- The new Code now puts the banks, as far as trading their shares are

concerned, under the SEC jurisdiction.

- Although bank securities are still exempt from registration, bank-ownedshares no longer enjoy the same privileges.

- Bank share are not exempted as they are significant segments of the trading

market in securities, and investors need protection with respect to the public

offering and trading of those shares no less than with respect to the shares of

other issuers.


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- The BSP would only regulate debt securities issued by bans, while banks own

shares of stock would be registered and regulated by the SEC.

- The discretionary power under subsection 9 (2) of the Code to grant

exemption gives the SEC the power to exempt other securities, if appropriate

under existing circumstances.

Section 10 Exempt Transactions

- What is exempt from the registration requirements are the transactions and

not the securities themselves.

- The following transactions are specifically exempted under this

section:

1. Judicial sale of securities made pursuant to judgment rendered by a court;

2. Sale of foreclosed securities in order to obtain satisfaction of a mortgage

out of the proceeds, whether authorized by a decree of the court or by a

power of sale contained in the mortgaged agreement.

3. Isolated transaction.

Exemptive relief is not available to an issuer or securities who is

not considered as an owner thereof.

For the transaction to be considred isolated, the following

conditions must be present:

a. The sale is made by the owner thereof;

b. The transaction is not made in the course of repeated and

successive transactions of a like character; and

c. The said owner is not the underwriter of the security.

4. Stock dividends declaration

Stock dividends are exempt from registration because they are

generally not given for value and thus do not constitute a sale.

SEC Resolution No. 5, Series of 2000: once a class of shares are

registered, the SEC shall no longer grant exemptions f

registration of the same class, but shall require an amended

registration statement so that all the issues of that class shall be

considered registered.


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5. Sales of shares to stockholders not underwritten.

Exemption of sales of capital stock of a corporation to its own

stockholders exclusively, where no commission or oth

remuneration is paid or given in connection with the sale of such

capital stock is a recognition that it is a common practice forcompanies in the Philippines to sell small amounts of shares to its

stockholders to raise capital.

6. Issuance f bands to a single purchaser

It is exempt because it s of limited character as it involves only one

investor

7. Transaction pursuant to a right of conversion. (conversion of preferred

shares or warrants to common shares upon maturity)

8. Brokers transactions.

Exemption is now available for brokers executing customer orders

even though solicited.

This is intended to allow ordinary after market trading to occur

among investors through brokers and to restrict he registration

requirements to primary offerings by issuers directly or through

underwriters.

9. Pre-incorporation subscription or subscription to a capital increase.

10.Exchange of securities by the issuer with its existing security holders

exclusively, where no commission or remuneration is paid or given in

connection with the transaction.

11.Private placements.

Means the sale of securities by an issuer to not more than 19

persons during any 12 month period and if the buyer(s) falling

under this exemption resell the securities to more than

investors, section 8 and 12 of the Code shall apply notwithstanding

the exemption of their issuance, unless such succeeding sale shallqualify as an exempt transaction.

12.Sale to qualified buyers.

They are called qualified buyers because they are institutional

investors who are presumed to know the risks of investing in the


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securities market, as one of their major business activities is to

invest in securities.

Under the SECs rule making power, it is contemplated that the SEC

would adopt exemptions for sales to accredited investors, small or

limited offerings, such as offerings to key employees of the issuer,offers to acquire the stocks of closely held companies certain types

of mergers and reorganizations where the number of shareholders

or other considerations do no warrant registration.

The applicability of the exemption should depend on whether the

class of persons to whom the securities are being offered needs

protection of the law, such as, whether they have access to the kind

of information which registration would disclose and whether they

do not intend to redistribute the securities.

Unless a confirmation that such exemption is available is appliedfro, any person claiming an exemption under this Section has the

burden, if challenged, of establishing that the exemption

available. A presumption that an exemption is not available may

arise from the failure to file a notice.

Section 11 Commodity Future Contracts

- Commodity futures contract a contract providing for the making or

taking delivery at a prescribed time in the future of a specific quantity and

quality of a commodity or the cash value thereof, which is customarily offset

prior to the delivery date, and includes standardized contracts having the

indicia of commodities futures, commodity options and commodity leverage

or margin contracts.

- commodity means any goods, articles, service, rights and interests,

including any group or index of any of the foregoing, in which commodity

interests contracts are presently or in the future dealt in.

Section 12 Procedure for Registration of Securities

1. All securities required to be registered under Subsection 8.1 shall beregistered through the filing by the issuer in the main office of theCommission, of a sworn registration statement with respect to suchsecurities, in such form and containing such information and documents asthe Commission shall prescribe.


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- The Commission may require the registration statement to containsuch information or documents as it may, by rule, prescribe.

- It may dispense with any such requirement, or may require additionalinformation or documents, including written information from an expert,depending on the necessity thereof or their applicability to the class of

securities sought to be registered.

-The information required for the registration of any kind, and allsecurities, shall include, among others, the effect of the securitiesissue on ownership, on the mix of ownership, especially foreign andlocal ownership.

-The registration statement shall be signed by the issuers executiveofficer, its principal operating officer, its principal financial officer, itscomptroller, principal accounting officer, its corporate secretary orpersons performing similar functions accompanied by a duly verifiedresolution of the board of directors of the issuer corporation.

- The written consent of the expert named as having certified any partof the registration statement or any document used in connectiontherewith shall also be filed.

-Where the registration statement includes shares to be sold by sellingshareholders, a written certification by such selling shareholders as tothe accuracy of any part of the registration statement contributed to bysuch selling shareholders shall also be filed.

2. Upon filing of the registration statement, the issuer shall pay to theCommission a fee 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 beoffered.

- The Commission shall prescribe by rule diminishing fees in inverseproportion to the value of the aggregate price of the offering.

3. Notice of the filing of the registration statement shall be immediatelypublished by the issuer, at its own expense, in two (2) newspapers of generalcirculation in the Philippines, once a week for two (2) consecutive weeks, or insuch other manner as the Commission by rule shall prescribe.

- Reciting that a registration statement for the sale of such security hasbeen filed, and that the aforesaid registration statement, as well as the

papers attached thereto are open to inspection at the Commissionduring business hours, and copies thereof, photostatic or otherwise,shall be furnished to interested parties at such reasonable charge asthe Commission may prescribe.

4. Within forty-five (45) days after the date of filing of the registration statement,or by such later date to which the issuer has consented, the Commission shalldeclare the registration statement effective or rejected, unless the applicant isallowed to amend the registration statement as provided in Section 14 hereof.


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5. The Commission shall enter an order declaring the registration statement tobe effective if it finds that the registration statement together with all the otherpapers and documents attached thereto, is on its face complete and that therequirements have been complied with. The Commission may impose suchterms and conditions as may be necessary or appropriate for the protection ofthe investors.

6. Upon effectivity of the registration statement, the issuer shall state under oathin every prospectus that all registration requirements have been met and that allinformation are true and correct as represented by the issuer or the one makingthe statement.

- Any untrue statement of fact or omission to state a material factrequired to be stated therein or necessary to make the statementtherein not misleading shall constitute fraud.

Section 13 Rejection and Revocation of Registration of Securities.

- The Code gives the SEC the authority to refuse to permit a registrationstatement to become effective or revoke the effectivity on any groundenumerated in the provision.

- A declaration of insolvency at any time should not serve as a bar toregistration. Only companies that have been declared insolvent by a courtmay be refused registration.

- An insolvent company should not be denied the opportunity to seekcapitol if it discloses fully its financial condition.

- Also, not every claim of violation of the law should be a ground forrejection or revocation of a registration statement.

- The only violations the SEC should undertake to determine ae thosecommitted in connection with the offering.

- If the violation of law is not material and therefore does not requiredisclosure, it should not be a basis for revocation.

Section 14 Amendments to the Registration Statement

- The SEC is empowered to review each situation to determine whetherinvestor are adequately protected by the amendment.

- The filing of amendments to a registration statement restarts the clockwith respect to the 45 day period between filing and the time when the SEC,under Sec. 12 of the Code, must act on the registration statement.

Section 15 Suspension of Registration

- The suspension should be reserve for significant problems or wherefraudulent sales are occurring.


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- While the SEC is empowered to summarily suspend the registration ofsecurities for the interest of the public, it shall conduct a hearing upon theissuance of an order of suspension.


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Securities Regulations Code. notes sec 1-15