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SECURITIES REGULATION CODE There is a change in SEC jurisdiction.

See Yujuico
vs. Quiambao case, GR No. 168639, 29 January
Objectives of SRC 2007
1. Protect investors from unsound and See GSIS vs. CA case, GR No. 183905, 16 April
unworthy securities (WHY? Because its 2009
so easy to create a corporation)
2. Prevent fly-by-night corporations (quick
operators)
3. Insider information that can affect the Sec. 5.2, SRC
decision-making of the market
(corporate knowledge or sensitive
information that is not available to the Sec. 5 (a), (b), (c), Presidential Decree 902-A
market) (SEC Reorganization Act of 1976)
4. To have only one securities market
(Philippine Stock Exchange) If a corporate officer / director (of
whose position and name are reflected
in or stated by the Articles of
Sec. 2 of SRC Incorporation and corporate By-Laws) is
dismissed, the dismissal case is
cognizable by the RTC (and not the
NLRC).
Disclosure Approach The relationship of the trustee or officer
with the corporation AND the kind of
If you want to sell securities, it must go
dispute are taken in consideration, in
through the Registration Process,
order to determine which among the
whereby one should disclose
NLRC or regular courts of justice has the
information pertaining to the securities
jurisdiction over the case.
that are going to be offered to the
See Yujuico vs. Quiambao case, GR No.
market, in order to make such
168639, 29 January 2007 In
information available to the market.
appropriate cases, the RTC can go to
SEC has the authority to compel the
such extent of giving adequate reliefs
detailed disclosure of the business
in order to fully address the issue of the
(information that cannot be seen in the
case and to completely accord the
Articles of Incorporation).
The SEC sees to it that the reports are reliefs prayed for. The RTC has
updated, that the provisions against jurisdiction over the Yuijuico case. The
fraud are in place, and that brokers or cause of action is whether or not to call
dealers of securities are accredited by a meeting, which is within the
the SEC. jurisdiction of the SEC. But it can be
cognizable by the RTC if such cause of
action is an offshoot or incidental to the
main case which is cognizable by the
RTC (making the RTC, the competent 1. Equity shares, ownership right in the
court). corporation
2. Debt securities require the issuer to
repay the principal amount loaned to it
at maturity date and a stated rate of
Sec. 5.1 (k), SRC The Powers & Functions of
interest
the Commission

1. Compel the officers to call meetings


(authority to call a meeting) In Equity, there is an element of risk(when the
2. Strengthen the regulatory authority of company incurs losses)
SEC (administrative power)
3. To give adequate reliefs in appropriate In Debt secuirites,
cases
1. It is secured with return
2. It earns interest
3. It repays the amount invested
GSIS vs. CA case, GR No. 183905, 16 April 2009
HOWEY Investment Contract
GSIS filed a complaint before the SEC
enjoining the inclusion of proxies (either
in the determination of a quorum, and
Debt Securities Evidence of indebtedness
in voting).
See Sec. 6, PD 902-A (SEC powers) 1. Bonds secured debt instrument
The power of the SEC to pass upon the (longer 365 days)
validity of proxies in relation to election 2. Bills of exchange
controversy, has been effectively 3. Promissory notes negotiate at
withdrawn. If the issue with regard to discounted rates
the validity of proxies (solicitation of 4. Trust certificate
proxies) is not in relation to election of 5. Subscription
directors, the SEC can take cognizance 6. Securities enrolling concept General
of the case. rule, registration of securities to be
If the solicitation of proxies has nothing offered to the public. (Registration
to do with election of directors, the SEC statement as may be required by the
has jurisdiction. SEC)
See Sections 5.1, 53.3, and 64 of the
SRC
SEC. 8, SRC Required only if offered to the
public / Indicators of Public Offering
Securities cover written and electronic
1. Publication (newspaper or magazine
circulated and distributed within a
locality)
2 Kinds of Securities 2. Presentation in public places
3. Advertisement
4. Distribution of fliers Confidence of investors in the Registration
Statement Executive officer of the corporation
signs the verified Registration Statement
Sec. 10 (k) SRC
Investors are assured
Reliance on the information stated in
Exempted transaction
Registration is imperative Registration Statement
No choice but to disclose information Undertaking thorough review of the
that is material to investors accuracy of the information
Force to disclose things not usually seen
in the By-Laws and/or Articles of
Incorporation. The nitty-gritty is Sec. 8.1, SRC
addressed by the Registration
Statement.
General Rule: Registration of Securities

Prospectus Exceptions: Sec. 9, SRC (You do not need to


register) Issuances by
Satisfies SEC Rules in substance and in
form. It clearly conveys the information 1. Government
2. Foreign government
in a language for the benefit of the
3. Trustee or receiver
investors. This is for the protection of 4. Registered entities
investors (disclosure) 5. Banks (except its own shares)
Only warrants that there is readily
available material information of The law sees these enumerated sources as
offerors of securities trustworthy sources of securities. It is unlikely
SEC does not warrant that the for the abovementioned issuer to commit fraud
investment (of investors) will be upon investors. Evil that registration seeks to
profitable. SEC is not responsible for the suppress does not appear here.
actions of offerors
However, when the reason / purposes ceases
(behind Sec. 9, SRC), the law ceases.

Matters that SEC normally ask

Info that are material to the concerned Sec. 10, SRC Exempt Transactions
investors
Personal background of organizers of 1. Judicial sale
the corporation 2. Sale of foreclosed securities
Developments, resignations, 3. Isolated transactions
4. Stock dividends (See Sec. 43, of the
appointments of new investments
Corporation Code)
5. Sale to own stockholders
6. Issuance to a single purchaser
7. Conversion of shares Reports include:
8. Brokers (who is accredited by SEC)
transaction the offer or initiative to 1. Annual report (Sec. 17, SRC)
2. Beneficial ownership report (Sec. 18,
buy comes from the investor himself
9. Pre-incorporation or capital increase SRC)
3. Other disclosures (as provided by the
subscription
10. Exchange of securities Philippine Stock Exchange Rules)
11. Private placements (19 persons or less
Material Information
during the 12-month period) there is a
presumption that these private 1. Material developments
placements are not public. The SEC has 2. Change in the control of issuer
discretion to look into the transaction 3. Case filed against an issuer (10% or
concerning private placements. more of the present shares)
12. Sale to qualified buyers (banks, 4. Officers and directors
retirement plan or funds, investment 5. Resignation and removal of officers and
companies) These qualified buyers are directors
experts in securities transactions. They 6. Change of purpose of the corporation
7. Investment
are wiser than the issuer of these
8. Losses or potential losses amounting to
transactions. They know the intricacies
10%
or complexities of securities 9. Dissolution
transactions 10. Licensing Requirements
13. Catch all provision 11. Delay in payment
12. Purchase of stocks
13. Sale of assets
14. Listing of SEC
Sec. 13, SRC 15. Imposition of fines
16. Merger or consolidation
Rejections involves pending
17. Qualifications of stockholders
application 18. Change in fiscal year
Revocation involves approved 19. Change of address of corporation
application which is revocable in the 20. Change of auditors
future 21. Joint venture
22. Receivership
23. Insolvency
24. Suspension of payment
Reportial Requirements apply to 25. Discovery of new products
26. Briefing of directors
1. Companies whose shares have been 27. Transactions of directors
subject to public offering (Close
corporations are not included)
2. Companies whose shares are listed on
exchange Sec. 19, SRC
3. Companies whose assets of PHP 50-
Mandatory tender offer
million, and whose stockholders are 200
Applies to public companies
or more
Tender offer it is publicly announced Solution public tender offer, where
intention by a person acting alone or in everyone has the opportunity to tender
concert with other persons to acquire offer
equity securities (shares) of a public
company
To protect minority stockholders when
CEMCO case ruling SEC has the full authority
there is a buyout resulting in dilution of
to nullify tender offer, instruct or direct the
investment there is no guaranty of
tender offer
preemptive right

3 tests of a Public company


SEE Implementing Rules and Regulation (IRR) of
1. Not limited to public
SRC Rule #19 [3]
2. PHP 50-million, 200 shares
3. ??? Tender offer does not apply

1. Foreclosure sale in connection with


Beneficial Ownership Report (Sec. 18, SRC) privatization rehabilitation
2. Merger or consolidation
Somebody is secretly acquiring 3. Purchase from / increase in capital stock
4. Foreclosure sale
ownership of the company through
5. Open market at prevailing market price
another vehicle from the stockholders 6. Purchase from unissued capital stock (?)
concerned. It involves acquisition of
shares that are more than 5% of the
_____.
Easy to circumvent Sec. 27, SRC Insider Trading
Clean hands doctrine No relief will be
Definition of insider (external auditors),
accorded to by the court
issuer, officer
Being a mere insider is not penalized

Acts penalized - Unlawful for any insider


(insiders spouse or relative by affinity or
See Cemco Holdings, Inc. vs. National Life consanguinity within the 2nd degree, legitimate
Insurance Company case, GR No. 171815, 7 or common wife)
August 2007
1. To purchase or sell security while in
possession of a material non-public
information
35% - 40% acquisition (basic threshold) which 2. To communicate material non-public
can be a one-time acquisition information (until information is
At the expense of the minority disclosed to and absorbed by the public
stockholders against buyout of big
stockholders
1. Sec. 28, SRC
2. Sec. 30, SRC Broker (middleman)
Director Rule Sec. 35, Corporation Code
Broker vs. Dealer
Interlocking persons
Purpose : to minimize inside
Sec. 41, Corporation Code
trading
3. Sec. 20, SRC Proxy solicitation

Implementing Rules and Sec. 32, Corporation Code Self-dealing


Regulation of SRC Prohibitions director

Postdated proxies
(undated) when
stockholders change
their mind with regard
to proxy solicitation

4. Sec. 38, SRC Independent


Directors
Applies to public companies
Requirements at least 2 or
at least 20% of the
members of the Board,
whichever is lesser
Independent director is a
person other than an officer
or employee of the
corporation
Not minority or majority
He has objectivity or is the
best person to neutralize
differences in judgment or
opinion
He decides independently

Sec. 32, SRC Use of Exchanges and other


securities market

Sec. 3.7, SRC Exchange

Sec. 3.3, SRC