Securities Regulations Code

8/9/2019 Securities Regulations Code

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Securities Regulations Code

Nicolas v. CA The futility of petitioner's action became more

pronounced by the fact that he traded securities

for the account of others without the necessary

license from the Securities and Exchange

Commission (SEC). Clearly, such omission was in

iolation of Section !" of the #eised Securities

$ct which proides that no bro%er shall sell any

securities unless he is registered with the SEC.

The purpose of the statute re&uiring the

registration of bro%ers selling securities and the

ling of data regarding securities which they

propose to sell, is to protect the public and

strengthen the securities mechanism. 19

$merican urisprudence emphasies the principle

that*

. . . , an unlicensed person may notrecoer compensation for serices as a

bro%er where a statute or ordinance

re&uiring a license is applicable and such

statute or ordinance is of a regulatory

nature, was enacted in the exercise of the

police power for the purpose of protecting

the public, re&uires a license as eidence

of &ualication and tness, and expressly

precludes an unlicensed person from

recoering compensation by suit, or at

least manifests an intent to prohibit and

render unlawful the transaction of

business by an unlicensed person. 20

+e see no reason not to apply the same rule in

our urisdiction. Stoc% mar%et trading, a technical

and highly specialied institution in the

hilippines, must been trusted to indiiduals with

proen integrity, competence and %nowledge,

who hae due regard to the re&uirements of the

law.

Abacus Securities Corp. v. AmpilStoc% mar%et transactions a-ect the general

public and the national economy. The rise and fall

of stoc% mar%et indices reect to a considerable

degree the state of the economy. Trends in stoc%

prices tend to herald changes in business

conditions. Conse&uently, securities transactions

are impressed with public interest, and are thus

subect to public regulation. /n particular, the laws

and regulations re&uiring payment of traded

shares within specied periods are meant to

protect the economy from excessie stoc% mar%et

speculations, and are thus mandatory.

/n the present case, respondent cannot escape

payment of stoc%s alidly traded by petitioner on

his behalf. These transactions too% place before

both parties iolated the trading law and rules

0ence, they fall outside the puriew of the par

delicto rule.

The following pertinent facts are undisputed*

(!) on $pril 1, !""2, respondent opened a cash

account with petitioner for his transactions in

securities3!4

(5) respondent6s purchases were consistently

unpaid from $pril !4 to 74, !""23!!

(7) respondent failed to pay in full, or een ust

his deciency,!5 for the transactions on $pril !4

and !!, !""23!7

(8) despite respondent6s failure to coer his initia

deciency, petitioner subse&uently purchased

and sold securities for respondent6s account on

$pril 59 and 5"3!8

(9) petitioner did not cancel or li&uidate a

substantial amount of respondent6s stoc%

transactions until :ay ;, !""2.

The proisions goerning the aboe transactions

are Sections 57 and 59 of the #S$!; and #ule 59

of the #S$ #ules, which state as follows*

=SEC. 57. :argin #e&uirements. >

x x x x x x x x x

(b) /t shall be unlawful for any member of an

exchange or any bro%er or dealer, directly o

indirectly, to extend or maintain credit or arrangefor the extension or maintenance of credit to or

for any customer >

=SEC. 59. Enforcement of margin re&uirementsand restrictions on borrowings. > To preenindirect iolations of the margin re&uirementsunder Section 57 hereof, the bro%er or dealeshall re&uire the customer in nonmargintransactions to pay the price of the securitypurchased for his account within such period asthe Commission may prescribe, which shall in no

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case exceed three trading days3 otherwise, thebro%er shall sell the security purchased startingon the next trading day but not beyond tentrading days following the last day for thecustomer to pay such purchase price, unless suchsale cannot be e-ected within said period for

ustiable reasons. The sale shall be withoutpreudice to the right of the bro%er or dealer torecoer any deciency from the customer.

Section 57(b) aboe

margin re&uirements primarily upon the bro%ers

and dealers.55Sections 57 and 59 and #ule 59

otherwise %nown as the =mandatory close


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=+hoeer pays for another may demand from the

debtor what he has paid, except that if he paid

without the %nowledge or against the will of the

debtor, he can recoer only insofar as the

payment has been benecial to the debtor.=

(Emphasis supplied)

Since a bro%erage relationship is essentially a

contract for the employment of an agent,principles of contract law also goern the bro%er<

principal relationship.75

The right to collect cannot be denied to petitioner

as the initial transactions were entered pursuant

to the instructions of respondent. The obligation

of respondent for stoc% transactions made and

entered into on $pril !4 and !!, !""2 remains

outstanding. These transactions were alid and

the obligations incurred by respondent

concerning his stoc% purchases on these dates

subsist. $t that time, there was no iolation of the

#S$ yet. etitioner6s fault arose only when it

failed to* !) li&uidate the transactions on the

fourth day following the stoc% purchases, or on

$pril !8 and !9, !""23 and 5) complete its

li&uidation no later than ten days thereafter,

applying the proceeds thereof as payment for

respondent6s outstanding obligation.77

Elucidating further, since the buyer was not able

to pay for the transactions that too% place on

$pril !4 and !!, that is at TG8, the bro%er wasduty


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indebtedness that respondent raised as a defense

the inalidity of the transactions due to alleged

iolations of the #S$. /t was respondent6s

priilege to gamble or speculate, as he

apparently did so by as%ing for extensions of time

and refraining from giing orders to his bro%er to

sell, in the hope that the prices would rise.

Sustaining his argument now would amount to

relieing him of the ris% and conse&uences of hisown speculation and saddling them on the

petitioner after the result was %nown to be

unfaorable.85 Such contention nds no legal or

een moral ustication and must necessarily be

oerruled. #espondent6s conduct is precisely the

behaior of an inestor deplored by the law.

/n the nal analysis, both parties acted in

iolation of the law and did not come to court

with clean hands with regard to transactions

subse&uent to the initial trades made on $pril !4

and !!, !""2. Thus, the peculiar facts of the

present case bar the application of the pari

delicto rule

fourth day following the transaction (TG8) and

completed its li&uidation not later than ten days

following the last day for the customer to pay

(e-ectiely TG!8). #espondent6s outstanding

obligation is therefore to be determined by using

the closing prices of the stoc%s purchased at

TG!8 as basis.

+e consider the foregoing formula to be ust and

fair under the circumstances. +hen petitioner

tolerated the subse&uent purchases o

respondent without performing its obligation to

li&uidate the rst failed transaction, and without

re&uiring respondent to deposit cash before

embar%ing on trading stoc%s any further

petitioner, as the bro%er, iolated the law at its

own peril. 0ence, it cannot now complain fofailing to obtain the full amount of its claim for

these latter transactions.

In the other hand, with respect to respondent6s

counterclaim for damages for haing been

allegedly induced by petitioner to generate

additional purchases despite his outstanding

obligations, we hold that he deseres no legal o

e&uitable relief consistent with our foregoing

nding that he was not an innocent inestor as

he presented himself to be.

Baviera v. Paglinawan

etitioner led with the KIJ a complaint foiolation of Section 1.! of the S#C against priaterespondentsSC held that the complaint for iolation of theSecurities #egulation Code, should hae beenled with the SEC, not the KIJ. $gain, there is noindication here that in dismissing petitioner6scomplaint, the KIJ acted capriciously oarbitrarily.Cemco oldings! "nc. Nat#l $i%e "nsuranceCo.

petitioner asserts that the mandatory tende

o-er rule applies only to direct ac&uisition o

shares in the public company.

This contention is not meritorious.

Tender o-er is a publicly announced intention by

a person acting alone or in concert with othe

persons to ac&uire e&uity securities of a public

company.!5

$ public company is dened as acorporation which is listed on an exchange, or a

corporation with assets

exceeding 94,444,444.44 and with 544 or more

stoc%holders, at least 544 of them holding no

less than !44 shares of such company.!7 Stated

di-erently, a tender o-er is an o-er by the

ac&uiring person to stoc%holders of a public

company for them to tender their shares therein

on the terms specied in the o-er.!8 Tender o-er

is in place to protect minority shareholders

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against any scheme that dilutes the share alue

of their inestments. /t gies the minority

shareholders the chance to exit the company

under reasonable terms, giing them the

opportunity to sell their shares at the same price

as those of the maority shareholders.

Lnder existing SEC #ules,!; the !9M and 74M

threshold ac&uisition of shares under theforegoing proision was increased to thirty


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$s found by the KIJ, there is ultimately a prima

facie case that can at the ery least sustain

prosecution of priate respondents under that

law. The KIJ #esolution is persuasie in citing

$merican authorities which countenance a

exible denition of securities. :oreoer, it bears

pointing out that the denition of =securities= set

forth in Section 5 of the #eised Securities $ct

includes =commercial papers eidencingindebtedness of any person, nancial or non<

nancial entity, irrespectie of maturity, issued,

endorsed, sold, transferred or in any manner

coneyed to another.=7! $ chec% is a commercial

paper eidencing indebtedness of any person,

nancial or non


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Lnder the law, what is re&uired to be disclosed is

a %act o% special signi,cance which may be

(a) a material fact which would be li%ely, on being

made generally aailable, to a-ect the mar%et

price of a security to a signicant extent, or (b)

one which a reasonable person would consider

especially important in determining his course of

action with regard to the shares of stoc%.

(a) aterial !act < The concept of a =material

fact= is not a new one. $s early as !"27, the #ules

#e&uiring Kisclosure of :aterial ?acts by

Corporations +hose Securities $re isted /n $ny

Stoc% Exchange or #egisteredBicensed Lnder the

Securities $ct, issued by the SEC on 5" January

!"27, explained that =aD fact is material if it

induces or tends to induce or otherwise a-ect the

sale or purchase of its securities.= Thus, Section

74 of the #eised Securities $ct proides that if a

fact a-ects the sale or purchase of securities, as

well as its price, then the insider would be

re&uired to disclose such information to the other

party to the transaction inoling the securities.

This is the rst denition gien to a =fact of

special signicance.=

(b.!) easonable #erson < The second denition

gien to a fact of special signicance inoles the

udgment of a =reasonable person.= Contrary to

the allegations of the respondents, a =reasonable

person= is not a problematic legal concept that

needs to be claried for the purpose of giinge-ect to a statute3 rather, it is the standard on

which most of our legal doctrines stand. The

doctrine on negligence uses the discretion of the

=reasonable man= as the standard.71 $ purchaser

in good faith must also ta%e into account facts

which put a =reasonable man= on his guard.7" /n

addition, it is the belief of the reasonable and

prudent man that an o-ense was committed that

sets the criteria for probable cause for a warrant

of arrest.84 This Court, in such cases,

di-erentiated the reasonable and prudent man

from =a person with training in the law such as a

prosecutor or a udge,= and identied him as =the

aerage man on the street,= who weighs facts

and circumstances without resorting to the

calibrations of our technical rules of eidence of

which his %nowledge is nil. #ather, he relies on

the calculus of common sense of which all

reasonable men hae in abundance.8! /n the

same ein, the L.S. Supreme Court similarly

determined its standards by the actual

signicance in the deliberations of a =reasonable

inestor,= when it ruled in TSC /ndustries, /nc.

Forthway, /nc.,85 that the determination o

materiality =re&uires delicate assessments of the

inferences a Nreasonable shareholder' would draw

from a gien set of facts and the signicance of

those inferences to him.=

(b.5) $ature and eliability < The factorsa-ecting the second denition of a =fact o

special signicance,= which is of such importance

that it is expected to a-ect the udgment of a

reasonable man, were substantially lifted from a

test of materiality pronounced in the case /n the

:atter of /nestors :anagement Co., /nc.87*

$mong the factors to be considered in

determining whether information is

material under this test are the degree of

its specicity, the extent to which it di-ers

from information preiously publicly

disseminated, and its reliability in light of

its nature and source and the

circumstances under which it was

receied.

/t can be deduced from the foregoing that the

=nature and reliability= of a signicant fact in

determining the course of action a reasonable

person ta%es regarding securities must be clearly

iewed in connection with the particular

circumstances of a case. To enumerate alcircumstances that would render the =nature and

reliability= of a fact to be of special signicance is

close to impossible. Feertheless, the prope

adudicatie body would undoubtedly be able to

determine if facts of a certain =nature and

reliability= can inuence a reasonable person's

decision to retain, sell or buy securities, and

thereafter explain and ustify its factual ndings

in its decision.

(c) ateriality Concept < $ discussion of the

=materiality concept= would be releant to both a

material fact which would a-ect the mar%et price

of a security to a signicant extent andBor a fact

which a reasonable person would consider in

determining his or her cause of action with regard

to the shares of stoc%. Signicantly, what is

referred to in our laws as a fact of special

signicance is referred to in the L.S. as the

=materiality concept= and the latter is similarly

not proided with a precise denition. /n Basic v.

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Levinson,88 the L.S. Supreme Court cautioned

against conning materiality to a rigid formula,

stating thus*

$ bright


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change in such ownership during such

month, shall le with the Commission, and

if such security is registered on a

securities exchange, shall also le with the

exchange, a statement indicating his

ownership at the close of the calendar

month and such changes in his ownership

as hae occurred during such calendar

month. (Emphasis proided.)

Section 7;(a) refers to the =benecial

owner.= Benecial owner has been dened in the

following manner*

F Dirst , to indicate the interest of a

beneciary in trust property (also called

=e&uitable ownership=)3 and second, to

refer to the power of a corporate

shareholder to buy or sell the shares,

though the shareholder is not registered in

the corporation's boo%s as the owner.

Lsually, benecial ownership is

distinguished from na%ed ownership,

which is the enoyment of all the benets

and priileges of ownership, as against

possession of the bare title to property.82

Een assuming that the term =benecial

ownership= was ague, it would not a-ect

respondents' case, where the respondents are

directors andBor o@cers of the corporation, who

are specically re&uired to comply with thereportorial re&uirements under Section 7;(a) of

the #eised Securities $ct. The alidity of a

statute may be contested only by one who will

sustain a direct inury as a result of its

enforcement.81

Sections 74 and 7; of the #eised Securities $ct

were enacted to promote full disclosure in the

securities mar%et and preent unscrupulous

indiiduals, who by their positions obtain non<

public information, from ta%ing adantage of an

uninformed public. Fo indiidual would inest in a

mar%et which can be manipulated by a limited

number of corporate insiders. Such reaction

would stie, if not stunt, the growth of the

securities mar%et. To aert the occurrence of such

an eent, Section 74 of the #eised Securities $ct

preented the unfair use of non


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e-ectiity of a statute which imposes reportorial

re&uirements cannot be suspended by the

issuance of specied forms, especially where

compliance therewith may be made een without

such forms. The forms merely made more

e@cient the processing of re&uirements already

identied by the statute.

?or the same reason, the Court of $ppeals madean eident mista%e when it ruled that no ciil,

criminal or administratie actions can possibly be

had against the respondents in connection with

Sections 1, 74 and 7; of the #eised Securities

$ct due to the absence of implementing rules.

These proisions are su@ciently clear and

complete by themseles. Their re&uirements are

specically set out, and the acts which are

enoined are determinable. /n particular, Section

199 of the #eised Securities $ct is a

straightforward enumeration of the procedure for

the registration of securities and the particular

matters which need to be reported in the

registration statement thereof. The Kecision,

dated 54 $ugust !""1, proides no alid reason

to exempt the respondent /#C from such

re&uirements. The lac% of implementing rules

cannot suspend the e-ectiity of these

proisions. Thus, this Court cannot nd any

cogent reason to preent the SEC from exercising

its authority to inestigate respondents for

iolation of Section 1 of the #eised Securities

$ct.

>ueensland &o=(o Commodities v. eorge

+e sustain the nding of the SEC 0earing I@cer

and the C$ that petitioners allowed unlicensed

indiiduals to engage in, solicit or accept orders

in futures contracts, and thus, transgressed the

#eised #ules and #egulations on Commodity

?utures Trading.!2

+e are not persuaded by petitioners6 assertion

that they had no hand in :endoa6s designation

as respondent6s attorney


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Section !2. eriodic and Ither #eports of /ssuers.

>

!2.!. Eery issuer satisfying the re&uirements in

Subsection !2.5 hereof shall le with the

Commission*

a) +ithin one hundred thirty


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internet access to what he has to o-er to them,

say, some s%in cream. The buyers of the website

do not inest money in C/ that it could use for

running some business that would generate

prots for the inestors. The price of LSP578.44

is what the buyer pays for the use of the website,

a tangible asset that C/ creates, using its

computer facilities and technical s%ills.

$ctually, C/ appears to be engaged in networ%

mar%eting, a scheme adopted by companies for

getting people to buy their products outside the

usual retail system where products are bought

from the store6s shelf. Lnder this scheme,

adopted by most health product distributors, the

buyer can become a down


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rescissible. 0ence, the conserator merely ta%es

the place of a ban%'s board of directors. +hat the

said board cannot do such as repudiating a

contract alidly entered into under the doctrine of

implied authority the conserator cannot do

either. /neluctably, his power is not unilateral and

he cannot simply repudiate alid obligations of

the Aan%. 0is authority would be only to bring

court actions to assail such contracts as he hasalready done so in the instant case. $ contrary

understanding of the law would simply not be

permitted by the Constitution. Feither by

common sense. To rule otherwise would be to

enable a failing ban% to become solent, at the

expense of third parties, by simply getting the

conserator to unilaterally reo%e all preious

dealings which had one way or another or come

to be considered unfaorable to the Aan%,

yielding nothing to perfected contractual rights

nor ested interests of the third parties who had

dealt with the Aan%.

Rural Ban= o% Bu'i v. CA

There is no re&uirement whether express or

implied, that a hearing be rst conducted before

a ban%ing institution may be placed under

receiership. In the contrary, the law is explicit

as to the conditions prere&uisite to the action of

the :onetary Aoard to forbid the institution to do

business in the hilippines and to appoint a

receier to immediately ta%e charge of the ban%'sassets and liabilities. They are* (a) an

examination made by the examining department

of the Central Aan%3 (b) report by said

department to the :onetary Aoard3 and (c) pri"a

facie showing that the ban% is in a condition of

insolency or so situated that its continuance in

business would inole probable loss to its

depositors or creditors.

Supportie of this theory is the ruling of this

Court, which established the authority of the

Central Aan% under the foregoing circumstances,

which reads*

$s will be noted, wheneer it shall appear prima

facie that a ban%ing institution is in =a condition

of insolency= or so situated =that its continuance

in business would inoled probable loss to its

depositors or creditors,= the :onetary Aoard has

authority*

?irst, to forbid the institution to do business and

appoint a receier therefor3 and

Second, to determine, within ;4 days, whether or

not*!) the institution may be reorganied and

rehabilitated to such an extent as to be permitted

to resume business with safety to depositors

creditors and the general public3 or

5) it is indeed insolent or cannot resume

business with safety to depositors, creditors and

the general public, and public interest re&uires

that it be li&uidated.

/n this latter case (i.e., the ban% can no longer

resume business with safety to depositors

creditors and the public, etc.) its li&uidation wil

be ordered and a li&uidator appointed by the

:onetary Aoard. The Central Aan% shal

thereafter le a petition in the #egional Trial Court

praying for the Court's assistance in the

li&uidation of the ban%.= ... (Salud s. Centra

Aan%, !87 SC#$ 9"4 !"1;D).

Rural Ban= o% San iguel v. onetar( Board

etitioners argue that #esolution Fo. !49 wasbereft of any basis considering that no completeexamination had been conducted before it wasissued. This case essentially boils down to onecore issue* whether Section 74 of #$ 2;97 (also%nown as the Few Central Aan% $ct) and

applicable urisprudence re&uire a current andcomplete e+amination of the ban% before it canbe closed and placed under receiership.etitioners6 contention has no merit. Banco

Filipino and other cases petitioners cited55 were

decided using Section 5" of the old law (#$ 5;9)*

Thus in Banco Filipino, we ruled that an

=examination conductedD by the head of the

appropriate superising or examining departmen

or his examiners or agents into the condition o

the ban%=57 is necessary before the :A can order

its closure.

0oweer, #$ 5;9, including Section 5" thereof

was expressly repealed by #$ 2;97 which too%

e-ect in !""7. #esolution Fo. !49 was issued on

January 5!, 5444. 0ence, petitioners6 reliance

on Banco Filipino which was decided under #$

5;9 was misplaced.

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/n #$ 2;97, only a =report of the head of the

superising or examining department= is

necessary.

oruga v. Arsenas

+hich body has urisdiction oer the Ooruga

Complaint, the #TC or the ASQ

+e hold that it is the AS that has urisdiction

oer the case.

$ reexamination of the Complaint is in order.

Ooruga6s Complaint charged defendants with

iolation of Sections 7! to 78 of the Corporation

Code, prohibiting self


16/21

Ooruga alleges that =the dispute in the trial court

inoles the manner with which the Kirectors6

(sic) hae handled the Aan%6s a-airs, specically

the fraudulent loans and dacion en pago

authoried by the Kirectors in faor of seeral

dummy corporations %nown to hae close ties

and are indirectly controlled by the

Kirectors.=5; 0er allegations, then, call for the

examination of the allegedly &uestionable loans.+hether these loans are coered by the

prohibition on self


17/21

Aoard. The Heneral Aan%ing aw of 5444

proides*

S*C&"DN 8. Conducting Business in an

)nsa%e or )nsound anner. /n determining

whether a particular act or omission, which is not

otherwise prohibited by any law, rule or

regulation a-ecting ban%s, &uasi


18/21

The :onetary Aoard may, wheneer warranted

by circumstances, preentiely suspend any

director or o@cer of a ban% or &uasi


19/21

Section 72. %ealings of $irectors tr&stees or

o1cers with the corporation. < $ contract of the

corporation with one or more of its directors or

trustees or o@cers is oidable, at the option of

such corporation, unless all the following

conditions are present*

!. That the presence of such director or

trustee in the board meeting in which thecontract was approed was not necessary

to constitute a &uorum for such meeting3

5. That the ote of such director or trustee

was not necessary for the approal of the

contract3

7. That the contract is fair and reasonable

under the circumstances3 and

8. That in case of an o@cer, the contract has

been preiously authoried by the board of

directors.

+here any of the rst two conditions set forth in

the preceding paragraph is absent, in the case of

a contract with a director or trustee, such

contract may be ratied by the ote of the

stoc%holders representing at least two


20/21

The :onetary Aoard shall terminate the

conseratorship when it is satised that the

institution can continue to operate on its own and

the conseratorship is no longer necessary. The

conseratorship shall li%ewise be terminated

should the :onetary Aoard, on the basis of the

report of the conserator or of its own ndings,

determine that the continuance in business of the

institution would inole probable loss to itsdepositors or creditors, in which case the

proisions of Section 74 shall apply.

Section 70. Procee$ings in *eceivership an$

Li2&i$ation. < +heneer, upon report of the head

of the superising or examining department, the

:onetary Aoard nds that a ban% or &uasi


21/21

dire straits. Lnless ade&uate and determined

e-orts are ta%en by the goernment against

distressed and mismanaged ban%s, public faith in

the ban%ing system is certain to deteriorate to

the preudice of the national economy itself, not

to mention the losses su-ered by the ban%

depositors, creditors, and stoc%holders, who all

desere the protection of the goernment.!7

The respondent ban%s hae failed to show their

entitlement to the writ of preliminary inunction. /t

must be emphasied that an application for

inunctie relief is construed strictly against the

pleader.!8 The respondent ban%s cannot rely on a

simple appeal to procedural due process to proe

entitlement. The re&uirements for the issuance of

the writ hae not been proed. Fo inasion of the

rights of respondent ban%s has been shown, nor

is their right to copies of the #IEs clear and

unmista%able. There is also no necessity for the

writ to preent serious damage. /ndeed the

issuance of the writ of preliminary inunction

tramples upon the powers of the :A and preents

it from fullling its functions. There is no right

that the writ of preliminary inunction would

protect in this particular case. /n the absence of a

clear legal right, the issuance of the inunctie

writ constitutes grae abuse of discretion.!9 /n the

absence of proof of a legal right and the inury

sustained by the plainti-, an order for theissuance of a writ of preliminary inunction will be

nullied.!;
http://www.lawphil.net/judjuris/juri2009/oct2009/gr_184778_2009.html#fnt13http://www.lawphil.net/judjuris/juri2009/oct2009/gr_184778_2009.html#fnt14http://www.lawphil.net/judjuris/juri2009/oct2009/gr_184778_2009.html#fnt15http://www.lawphil.net/judjuris/juri2009/oct2009/gr_184778_2009.html#fnt16http://www.lawphil.net/judjuris/juri2009/oct2009/gr_184778_2009.html#fnt13http://www.lawphil.net/judjuris/juri2009/oct2009/gr_184778_2009.html#fnt14http://www.lawphil.net/judjuris/juri2009/oct2009/gr_184778_2009.html#fnt15http://www.lawphil.net/judjuris/juri2009/oct2009/gr_184778_2009.html#fnt16

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Securities Regulations Code