CALLEJO, Jasfher

R.CARTAGENA, Danica Aurea Y.

SECURITIES LAW
GABRIEL, Roselle A.

GAVIA, Shirley Anne R .

RUERAS, Gilbert Allan M.

REVIEWER LAT, Danneth Gian P.

TATLONGHARI, Angela C.

VILLARANDA, Mary Charise B.

FAR EASTERN UNIVERSITY – INSTITUTE OF LAW MAKATI CITY
ACADEMIC YEAR 2017-2018 (SECOND SEMESTER)

ATTY. M.T. HERRERA, M.B.A


I. INTRODUCTION
__________________________________________________
SRC R.A. NO. 8799 - TITLE
This shall be known as "The Securities Regulation Code"
(SRC, § 1)
ABACUS SECURITIES GROUP VS.AMPIL
483 SCRA 315 (2006)
 The paridelicto rule is expressed in the maxims "Ex
dolomalo non oritur action" and "In pari delicto potior est
conditio defendentis" The paridelecto rule refuses legal
remedy to either party to an illegal agreement and leaves
them where they were.
 By failing to ensure Ampil's payment of his first purchase
transaction within the period prescribed by law, Abacus
effectively converted Ampil’s cash account into a credit
account. However, extension or maintenance of credits on
nonmargin transactions, are specifically prohibited under
Section 23(b). Thus, Abacus was remiss in its duty and
cannot be said to have come to court with "clean hands"
insofar as it intended to collect on transactions subsequent
to the initial trades of April 10 and 11, 1997. On the other
hand, Ampil is equally guilty in entering into the
transactions in violation of the RSA and RSA Rules. As an
experienced trader, he knowingly speculated on the market
by taking advantage of the "no-cash-out" arrangement
extended to him by Abacus.
 In this case, the pari delicto rule does not apply to all the
transactions entered into by the parties but applies only to
transactions entered into after the initial trades made on
April 10 and 11, 1997.
DECLARATION OF STATE POLICY
The State shall establish a socially conscious, free market that
regulates itself, encourage the widest participation of ownership
in enterprises, enhance the democratization of wealth, promote
the development of the capital market, protect investors, ensure
full and fair disclosure about securities, minimize if not totally
eliminate insider trading and other fraudulent or manipulative
devices and practices which create distortions in the free
market. To achieve these ends, this Securities Regulation Code
is hereby enacted.(SRC, § 2)
PHILIPPINE STOCK EXCHANGE VS. COURT OF APPEALS
281 SCRA 232 (1997)
 Notwithstanding the regulatory power of the SEC over the
PSE, and the resultant authority to reverse the PSE’s
decision in matters of application for listing in the market,
the SEC may exercise such power only if the PSE’s
judgment is attended by bad faith.—Thus, notwithstanding
the regulatory power of the SEC over the PSE, and the
resultant authority to reverse the PSE’s decision in matters
of application for listing in the market, the SEC may
exercise such power only if the PSE’s judgment is attended
1
by bad faith. In Board of Liquidators vs. Kalaw, it was held
that bad faith does not simply connote bad judgment or
negligence. It imports a dishonest purpose or some moral
obliquity and conscious doing of wrong. It means a breach
of a known duty through some motive or interest of ill will,
partaking of the nature of fraud.
RULES AND REGULATIONS;EFFECTIVITY.
This Code shall be self-executory. To effect the provisions and
purposes of this Code, the Commission may issue, amend, and
rescind such rules and regulations and orders necessary or
appropriate, including rules and regulations defining
accounting, technical, and trade terms used in this Code, and
prescribing the form or forms in which information required in
registration statements, applications, and reports to the
Commission shall be set forth. For purposes ofits rules or
regulations, the 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.
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 (SRC, § 72)
SECURITIES AND EXCHANGE COMMISSION VS.INTERPORT
RESOURCES CORP
567 SCRA 354 (2008)
 The mere absence of implementing rules cannot effectively
invalidate provisions of law where a reasonable
construction that will support the law may be given. It is
well established that administrative authorities have the
power to promulgate rules and regulations to confirm to the
terms and standards prescribed by the statute as well as
purport to carry into effect its general policies.
 The insider's misuse of nonpublic and undisclosed
information is the gravamen of illegal conduct. The intent
of the law is the protection of investors against fraud,
committed when an insider, using secret information, takes
advantage of an uninformed investor. Insiders are obligated
to disclose material information to the other party or
abstain from trading the shares of his corporation. This
duty to disclose or abstain is based n 2 factors: 1) the
existence of a relationship giving access, directly or
indirectly to information intended to be available only for
a corporate purpose and not for the personal benefit of
anyone and 2) the inherent unfairness involved when a
party takes advantage of such information knowing it is
unavailable to those with whom he is dealing.

II. SECURITIES AND
EXCHANGE COMMISSION
__________________________________________________
ADMINISTRATIVE AGENCY
This Code shall be administered by the Security and Exchange
Commission (hereinafter referred to as the "Commission") as a
Collegial body, composed of a chairperson and (4)
Commissioners, appointed by the President for a term of (7)
seven years each and who shall serves as such until their
successor shall have been appointed and qualified. A
Commissioner appointed to fill a vacancy occurring prior to the
expiration of the term for which his/her predecessor was
appointed, shall serve only for the unexpired portion of their
terms under Presidential Decree No. 902-A. Unless the context
indicates otherwise, the term "Commissioner" includes the
Chairperson.(SRC, § 4)
COSMOS BOTTLING CORPORATION VS. SECURITIES AND
EXCHANGE COMMISSION
G.R. NO. 199028, 19 NOVEMBER 2014.
 The Commission may, for purposes of efficiency, delegate
any of its functions to any department or office of the
Commission, an individual Commissioner or staff member
of the Commission except its review or appellate authority
and its power to adopt, alter and supplement any rule or
regulation.
 The Commission 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 or the Commission.
POWERS AND FUNCTIONS OF THE COMMISSION
The commission shall act with transparency and shall have the
powers and functions provided by this code, Presidential
Decree No. 902-A, the Corporation Code, the Investment
Houses law, the Financing Company Act and other existing
laws.
Pursuant thereto the Commission shall have, among others, the
following powers and functions:
(a) Have jurisdiction and supervision over all
corporations, partnership or associations who are the
grantees of primary franchises and/or a license or a
permit issued by the Government;
(b) Formulate policies and recommendations on issues
concerning the securities market, advise Congress and
other government agencies on all aspect of the
securities market and propose legislation and
amendments thereto;
(c) Approve, reject, suspend, revoke or require
amendments to registration statements, and
registration and licensing applications;
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(d) Regulate, investigate or supervise the activities of
persons to ensure compliance;
(e) Supervise, monitor, suspend or take over the activities
of exchanges, clearing agencies and other SROs;
(f) Impose sanctions for the violation of laws and rules,
regulations and orders, and issued pursuant thereto;
(g) Prepare, approve, amend or repeal rules, regulations
and orders, and issue opinions and provide guidance
on and supervise compliance with such rules,
regulation and orders;
(h) Enlist the aid and support of and/or deputized any and
all enforcement agencies of the Government, civil or
military as well as any private institution, corporation,
firm, association or person in the implementation of its
powers and function under its Code;
(i) Issue cease and desist orders to prevent fraud or injury
to the investing public;
(j) Punish for the contempt of the Commission, both
direct and indirect, in accordance with the pertinent
provisions of and penalties prescribed by the Rules of
Court;
(k) Compel the officers of any registered corporation or
association to call meetings of stockholders or
members thereof under its supervision;
(l) Issue subpoena ducestecum 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;
(m) Suspend, or revoke, after proper notice and hearing the
franchise or certificate of registration of corporations,
partnership or associations, upon any of the grounds
provided by law; and
(n) 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.(SRC, § 5)
 SECURITIES AND EXCHANGE COMMISSION VS. GMA
NETWORK, INC.,
575 SCRA 113 (2009)
 Rate-fixing is a legislative function which concededly has
been delegated to the SEC by R.A. No. 3531 and other
pertinent laws. The due process clause, however, permits
the courts to determine whether the regulation issued by the
SEC is reasonable and within the bounds of its rate-fixing
authority and to strike it down when it arbitrarily infringes
on a person’s right to property.
CEMCO HOLDINGS, INC. VS. NATIONAL LIFE INSURANCE
CO.
529 SCRA 355 (2007)
 The legislative intent behind the tender offer rule makes
clear that the type of activity intended to be regulated is the
acquisition of control of the listed company through the
purchase of shares. Control may [be] effected through a
direct and indirect acquisition of stock, and when this takes
place, irrespective of the means, a tender offer must occur.
The bottom line of the law is to give the shareholder of the
listed company the opportunity to decide whether or not to
sell in connection with a transfer of control.
Commission... may obtain a review of such order
in the SC
 The above provisions are very clear. Whenever a party is
aggrieved by or disagrees with an order or ruling of the
SEC, his remedy is to come to the SC on petition for
review. He is not permitted to seek relief from courts of
general jurisdiction.
SECURITIES AND EXCHANGE COMMISSION VS.INTERPORT
RESOURCES CORP.
G.R. NO. 135808, 6 OCTOBER 2008
 No implementing rules were needed to render effective
Sections 8, 30, and 36 of the Revised Securities Act; nor
was the PED Rules of Practice and Procedure invalid, prior
to the enactment of the Securities Regulations Code, for
failure to provide parties with the right to cross-examine
the witnesses presented against them. Thus, the
respondents maybe investigated by the appropriate
authority under the proper rules of procedure of the
Securities Regulations Code for violations of Sections 8,
30, and 36 of the Revised Securities Act.

PHILIPPINE ASSOCIATION OF STOCK TRANSFER AND

REGISTRY AGENCIES, INC. VS. COURT OF APPEALS
G.R. NO. 137321, 15 OCTOBER 2007

 Notwithstanding the regulatory power of the SEC over the

PSE, and the resultant authority to reverse the PSE’s
decision in matters of application for listing in the market,
the SEC may exercise such power only if the PSE’s
judgment is attended by bad faith.—Thus, notwithstanding
the regulatory power of the SEC over the PSE, and the
resultant authority to reverse the PSE’s decision in matters
of application for listing in the market, the SEC may
exercise such power only if the PSE’s judgment is attended
by bad faith. In Board of Liquidators vs. Kalaw, it was held
that bad faith does not simply connote bad judgment or
negligence. It imports a dishonest purpose or some moral
obliquity and conscious doing of wrong. It means a breach
of a known duty through some motive or interest of ill will,
partaking of the nature of fraud.

PINEDA VS. LANTIN

6 SCRA 757 (1962)

 Under the ROC, the CFI has no jurisdiction to grant

injunctive reliefs against the SEC. That power is lodged
EXCLUSIVELY with the SC.

o Sec. 1, Rule 43 – within 30 days from notice of an

order or decision issued by the Public Service
Commission or the SEC, any party aggrieved may
file with the SC a petition for review

o Sec. 35, Commonwealth Act 83 (creating and

setting forth the powers of the SEC) – Any person
aggrieved by an order issued by the

3

III. SECURITIES
_____________________________________________
DEFINITION
“Securities” are shares, participation, or interests in a
corporation or in a commercial enterprise or profit-making
venture and evidenced by a certificate, contract, instruments,
whether written or electronic in character. It includes:
(a) Shares of stocks, bonds, debentures, notes of
evidences of indebtedness, asset-backed securities;
(b) Investment contracts, certificates of interest or
participation in a profit sharing agreement, certifies 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, certificate
participation, trust certificates, voting trust certificates
or similar instruments
(f) Proprietary or non-proprietary membership
certificates in corporations; and
(g) Other instruments as may in the future be determined
by the Commission (SRC, Section 3.1)
DERIVATIVE
Is a financial instrument whose value changes in response to
changes in a specified interest rate security price, commodity
price, foreign exchange rate, index of prices or rates, credit
rating or credit index, or similar variable or underlying factor.
It is settled at a future date. The term shall include, but not
limited, to the following:
1. Options or contracts that give the buyer the right, but
not the obligation, to buy or sell an underlying security
at a predetermined price called the exercise or strike
price, on or before a predetermined date, called the
expiry date; and
2. Warrants or rights to subscribe or purchase new or
existing shares in a company on or before a
predetermined date. (Rules and Regulations
Implementing the Securities Regulation Code of
2000, 3.1.9)
ASSET-BACKED SECURITIES (ABS)
Refer to the certificates issued by an SPE, the repayment of
which shall be derived from the cash flow of the assets in
accordance with the Plan. (An Act Providing the Regulatory
Framework for Securitization and Granting for the
Purpose Exemptions from the Operation of Certain laws
(RA 9267), Section 3(b))
POWER HOMES UNLIMITED CORP. V. SECURITIES AND
EXCHANGE COMMISSION
546 SCRA 567 (2008)
 Our definition of an investment contract is based on the
1946 US case of SEC vs. WJ Howey Co. In this case, the
US Supreme Court, established Howey Test which
requires a transaction, contract, or scheme whereby a
person (1) makes an investment of money, (2) in a common
enterprise, (3) with the expectation of profits, (4) to be
derived solely from the efforts of others. Although the
proponents must establish all four elements, the Howey
Test embodies a flexible rather than a static principle, one
that is capable of adaptation to meet the countless and
variable schemes devised by those who seek the use of the
money of others on the promise of profits. After Howey
came SEC v. Glenn W. Turner Enterprises, Inc., et al in
which US Court of Appeals ruled that the element that
profits must come “solely” from the efforts of others should
of not be given a strict interpretation and the literal reading of
the requirement “solely” would lead to unrealistic rules.
 RA 8799 appears to follow the flexible concept because it
defines an investment contract as a “contract, transaction
or scheme (collectively ‘contract’) whereby a person
invests his money in a common enterprise and is led to
expect profits primarily from the efforts of others. Thus, to
be a security subject to regulation by the SEC, an
investment contract in our jurisdiction must be proved to
be: (1) an investment of money, (2) in a common
enterprise, (3) with expectation of profits, (4) primarily
from efforts of others.
SECURITIES AND EXCHANGE COMMISSION V.
PROSPERITY.COM. INC
G.R. No. 164197, 25 January 2012
 The SRC treats investment contracts as “securities” that
have to be registered with SEC before they can be
distributed and sold. An investment contract is 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. Under Howey Test, for
an investment contract to exist, the following elements
must concur: (1) a contract, transaction, or scheme; (2) an
investment of money; (3) investment is made in a common
enterprise; (4) expectation of profits; (5) profits arising
primarily from the efforts of others.
 In this case, PCI’s clients buy a product of some value to
them: an internet website of a 15-MB capacity. The buyers
of the website do not invest money in PCI that it could use
for running some business that would generate profits for
the investors. The price of USD234 is what the buyer pays
for the use of the website, a tangible asset that PCI creates
using its computer facilities and technical skills. The last
requisite of Howey Test is lacking in the marketing scheme
of PCI. Evidently it is PCI that expects profit from the
network marketing of its products.
4
 PEOPLE V. TERALBA
439 SCRA 158 27 SEPTEMBER 2004
IV. REGISTRATION OF
SECURITIES
 When the investor is relatively uninformed and turns over
his money to others, essentially depending upon their _____________________________
representations and their honesty and skill in managing it,
the transaction generally is considered to be an investment A. GENERAL RULE
contract. The touchstone is the presence of an investment
in a common venture premised on a reasonable expectation REQUIREMENT OF REGISTRATION OF SECURITIES
of profits to be derived from the entrepreneurial or
managerial efforts of others.
(1) Securities shall not be sold or offered for sale or
distribution within the Philippines, without a
 The prosecution failed to prove by sufficient evidence that
registration statement duly filed with and approved by
indeed, the amount delivered by Bailey to Landsdale
the Commission. Prior to such sale, information on the
through Petralba, is an investment contemplated in the
securities, in such form and with such substance as the
Revised Securities Act and not a mere act of buying and
Commission may prescribe, shall be made available to
selling foreign exchange.
each prospective purchaser.
(2) The Commission may conditionally approve the
GABIONZA V. COURT OF APPEALS,
registration statement under such terms as it may deem
G.R. NO. 161057, 12 SEPTEMBER 2008
necessary.
(3) The Commission may specify the terms and conditions
 The definition of securities in Section 2 of the Revised
under which any written communication, including
Securities Act includes “commercial papers evidencing
any summary prospectus, shall be deemed not to
indebtedness of any person, financial or non-financial
constitute an offer for sale under this Section.
entity, irrespective of maturity, issued, endorsed, sold,
(4) A record of the registration of securities shall be kept
transferred or in any manner conveyed to another.” A check
in Register Securities in which shall be recorded orders
is a commercial paper evidencing indebtedness of any
entered by the Commission with respect such
person, financial or non-financial entity. Since the checks
securities. Such register and all documents or
in this case were generally rolled over to augment the
information with the respect to the securities registered
creditor’s existing investment with ASBHI, they most
therein shall be open to public inspection at reasonable
definitely take on the attributes of traditional stocks.
hours on business days.
(5) The Commission may audit the financial statements,
assets and other information of firm applying for
registration of its securities whenever it deems the
same necessary to insure full disclosure or to protect
the interest of the investors and the public in general.
(SRC, § 8)

PHILIPPINE STOCK EXCHANGE V. COURT OF

APPEALS
281 SCRA 232 (1997)

 No security, unless exempt by law, shall be issued,

endorsed, sold, transferred or in any other manner
conveyed to the public, unless registered in accordance
with the rules and regulations that shall be promulgated in
the public interest and for the protection of investors by the
Commission.

 “Full material disclosure” is a policy that requires all

companies, listed or applying for listing to divulge
truthfully and accurately, all material information about
themselves and securities they sell, for the protection of the
investing public, and under pain of administrative, criminal
and civil sanctions. A fact is deemed material if it tends to
induce or otherwise effect sale or purchase of its securities.

5
 GABIONZA V. COURT OF APPEALS
565 SCRA 38 (2008)
 Section 4 of Batas PambansaBlg. 176, or the Revised
Securities Act, generally requires the registration of
(2) The registration requirements shall not likewise apply to
securities and prohibits the sale or distribution of
unregistered securities.
 In its definition of securities, Sec.2 of RSA includes
commercial papers evidencing indebtedness of any person,
financial or non-financial entity, irrespective of maturity,
issued, endorsed, sold, transferred or in any manner
conveyed to another. A check is a commercial paper
evidencing indebtedness of any person, financial or non-
financial entity. Since the checks in this case were
generally rolled over to augment the creditor’s existing
investment with ABSHI, they most definitely take on the
attributes of traditional stocks.
B.EXCEPTIONS
B.1. EXEMPT SECURITIES
The requirement of registration under Subsection 8.1 shall not
as a general rule apply to any of the following classes of
securities:
(1) Any security issued or guaranteed by the Government
of the Philippines, or by any political subdivision or
agency thereof, or by any person controlled or
supervised by, and acting as an instrumentality of said
Government.
(2) Any security issued or guaranteed by the government
of any country with which the Philippines maintains
diplomatic relations, or by any state, province or
political subdivision thereof on the basis of
reciprocity: Provided, That the Commission may
require compliance with the form and content for
disclosures the Commission may prescribe.
(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 Rule Regulatory Board, or the Bureau
of Internal Revenue.
(5) Any security issued by a bank except its own shares of
stock.
The Commission may, by rule or regulation after public
hearing, add to the foregoing any class of securities if it finds
that the enforcement of this Code with respect to such securities
is not necessary in the public interest and for the protection of
investors. (SRC, § 9)
The Implementing Rules and Regulation of the Securities
Regulation Code provided further discussed the exemption of
financial institutions licensed by the BangkoSentral ng
Pilipinas. It provides that:
6
(1) Any evidence of indebtedness issued by a financial
institution that has been licensed by the BSP to engage in
banking or quasi-banking shall be exempt from
registration under Section 8.1 of the Code.
the following:
 Evidence of indebtedness issued to the BSP under its
open market and/or rediscounting operations;
 Bills of exchange arising from a bona fide sale of
goods and services that are distributed and/or traded
by banks or investment houses duly licensed by the
Commission and BSP through an organized market
that is operated under the rules approved by the
Commission;
 Any security issued or guaranteed by multilateral
financial entities established through a treaty or any
other binding agreement to which the Philippines is a
party or subsequently becomes a member (hereinafter
referred as Multilateral Financial Entities or MFE),
e.g., international financial institutions, multilateral
development banks, development finance institutions
or any other similar entities; or by facilities or funds
established, administered, and supported by MFEs;
Provided, that the issuer shall file an offering circular/
memorandum in a format prescribed by the
Commission and containing among others; (1)
information about the issuer and the security to be
issued, (2) information about the MFE, and (3)
information about the guarantee.
 The registration requirements shall not likewise apply
to evidence of indebtedness, e.g., commercial papers,
that meet the following conditions:
- Issued to not more than nineteen (19)
non-institutional lenders;
- Payable to a specific person;
- Neither negotiable nor assignable and
held on to maturity; and
- In an amount not exceeding One
Hundred Fifty Million Pesos (PhP
150,000,000.00) or such higher amount
as the Commission may prescribe.
(3) Notwithstanding that a particular class of securities is
exempt from registration, the conduct by any person in
the purchase, sale, distribution of such securities,
settlement and other post-trade activities shall comply
with the provisions of the Code and the rules issued
thereunder.
Moreover, the purchase and sale of such security shall
not be exempt from the coverage of the provisions of
the Code on civil and other related liabilities, and other
applicable provisions of the Code on fraud.
 (4) Consistent with public interest and for the protection
of investors, the Commission, may require an Issuer of
a class of securities exempted from registration, to
make available to investors and file with the
Commission periodic disclosures regarding the Issuer,
its business operations, its financial condition, its
governance principles and practices, its use of investor
funds, and other appropriate matters, and may also
provide for suspension and termination of such
requirement with respect to such Issuer. (SRC IRR,
Rule 9.1)
UNION BANK V. SECURITIES AND EXCHANGE
COMMISSION
358 SCRA 479 (2001)
 Section 5(a)(3) of the RSA exempts from registration
the securities issued by banking or financial institutions
mentioned in the law. Nowhere does it state or even imply
that Union Bank, as a listed corporation, is exempt from
complying with the reports required by the assailed RSA
Implementing Rules. Having confined the exemption
enjoyed by Union Bank merely to the initial requirement of
registration of securities for public offering, and not to the
subsequent filing of various periodic reports, SEC, as the
regulatory agency, is able to exercise its power of
supervision and control over corporations and over the
securities market as a whole.
B.2. EXEMPT TRANSACTIONS
Definition of Important terms
 Broker is a person engaged in the business of buying
and selling securities for the account of others. (SRC,
§3.3)
 Issuer is the originator, maker, obligor, or creator of
the security. (SRC, §3.2)
 Material fact or information – is any fact or
information that may result in a change in the market
price or value of any of the Issuer's securities, or may
potentially affect the investment decision of an
investor. (SRC IRR, Rule 3.1.12.)
 Underwriter is a person who guarantees on a firm
commitment and/or declared best effort basis the
distribution and sale of securities of any kind by
another company. (SRC, §3.15)
The requirement of registration under Subsection 8.1 shall not
apply to the sale of any security in any of the following
transactions:
(1) At 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 of a pledge lien holder selling of offering for
sale or delivery in the ordinary course of business and
not for the purpose of avoiding the provision of this
7
Code, to liquidate a bonafide debt, a security pledged
in good faith as security for such debt.
(3) An isolated transaction in which any security is sold,
offered for sale, subscription or delivery by the owner
therefore, or by his representative for the owner’s
account, such sale or offer for sale or offer for sale,
subscription or delivery not being made in the course
of repeated and successive transaction of a like
character by such owner, or on his account by such
representative and such owner or representative not
being the underwriter of such security.
(4) The distribution by a corporation actively engaged in
the business authorized by its articles of incorporation,
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, when
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: Provided, That the security so surrendered
has been registered under this Code or was, when sold,
exempt from the provision of this Code, and that the
security issued and delivered in exchange, if sold at the
conversion price, would at the time of such conversion
fall within the class of securities entitled to registration
under this Code. Upon such conversion the par value
of the security surrendered in such exchange shall be
deemed the price at which the securities issued and
delivered in such exchange are sold.
(8) Broker’s transaction, executed upon customer’s
orders, on any registered Exchange or other trading
market.
(9) Subscriptions for shares of the capitals stocks of a
corporation prior to the incorporation thereof or in
pursuance of an increase in its authorized capital
stocks under the Corporation Code, 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, and only when
the purpose for soliciting, giving or taking of such
subscription is to comply with the requirements of
such law as to the percentage of the capital stock of a
corporation which should be subscribed before it can
be registered and duly incorporated, or its authorized,
capital increase.
(10) The exchange of securities by the issuer with the
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:
- Bank;
- Registered investment house;
- Insurance company;
- Pension fund or retirement plan maintained by the
Government of the Philippines or any political
subdivision thereof or manage by a bank or other
persons authorized by the BangkoSentral to
engage in trust functions;
- Investment company or;
- Such other person as the Commission may rule by
determine as qualified buyers, on the basis of such
factors as financial sophistication, net worth,
knowledge, and experience in financial and
business matters, or amount of assets under
management. (SRC, §10.1)
The Commission may exempt other transactions, 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 the reason of the small amount involved or the limited
character of the public offering. (SRC, §10.2)
NESTLE PHILIPPINES VS. COURT OF APPEALS
203 Scra 504 (1991)
 The language of Sec.6(a)(4) of RSA exempting from
registration issuance of capital stock must be interpreted to
cover only issuance of shares of stock as part of and in the
course of increasing the authorized capital stock of a
corporation. It does not cover issuances of shares from
already authorized but still un-issued capital stock. This
construction permits greater opportunity for SEC to
implement the statutory objective of protecting the
investing public by requiring proposed issuers of capital
stock to inform such public of the true financial conditions
and prospects of the corporation. SEC is enabled to
examine issuances by a corporation of previously
authorized but theretofore unissued capital stock, on a case-
to-case basis, under Sec. 6(b); and thereunder, to grant or
withhold exemption from registration depending upon the
perceived level of need for protection by the investing
public in particular cases.
 Although issuances from unauthorized but previously
unissued capital stock is not per se an enumerated exempt
transaction, pursuant to the power vested under Sec.6(b),
SEC has granted it particular exemption in this case.
 Any person claiming exemption under Section 10.1 of the
Code shall provide to any party to whom it offers or sells
securities in reliance on such exemption a written
disclosure containing the specific provision of Section 10.1
of the Code on which the exemption from registration is
claimed and a statement in bold face saying that the
securities being offered or sold herein have not been
registered with the securities and exchange commission
8
under the securities regulation code. Any future offer or
sale of the securities is subject to the registration
requirements under the code unless such offer or sale
qualifies as an exempt transaction. (SRC IRR, Rule 10.1)
C. APPLICATION FOR EXEMPTION
Any person applying for an exemption under this Section, shall
file with the Commission a notice identifying the exemption
relied upon on such form and at such time as the Commission
by the rule may prescribe and with such notice shall pay to the
Commission fee equivalent to one-tenth (1/10) of one percent
(1%) of the maximum value aggregate price or issued value of
the securities. (SRC, 10.3)
If the Issuer wants a confirmation of exemption under Section
10.1 of theCode, it shall file SEC Form 10.1 with the
Commission. (SRC IRR, Rule 10.1.5.1.)
D. PROCEDURE FOR REGISTRATION OF
SECURITIES
(1) Application – All securities required to be registered shall
be registered through the filing by the issuer in the main
office of the Commission, of a sworn registration
statement; (SRC, §12.1)
(2) Prospectus – The registration statement shall include any
prospectus required or permitted to be delivered; (SRC,
§12.1)
 Prospectus is the document made by or on behalf
of an issuer, underwriter or dealer to sell or offer
securities for sale to the public through registration
statement filed with the Commission (SRC, §3.11)
 Civil Liabilities Arising in Connection With
Prospectus, Communications and Reports
- Any person who:
(a) Offers to sell or sells a security in violation of
Chapter III, or
(b) Offers to sell or sells a security, whether or not
exempted by the provisions of this Code, 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,
shall be liable to the person purchasing such security
from him, who 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.
 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 as at the time and
in the light of the circumstances under which it
was made false or misleading with respect to
any material fact, shall be 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, 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. (SRC, §57)
(3) Other Information – 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; (SRC, §12.2 – 12.3)
(4) Signatories to Registration Statement –The
registration statement shall be signed by the issuer’s
executive officer, its principal operating officer, its
principal financial officer, its comptroller, its principal
accounting officer, its corporate secretary, or persons
performing similar functions accompanied by a duly
verified resolution of the board of directors of the
issuer; (SRC, §12.4)
(5) Written Consent of Expert – The written consent of
the expert named as having certified any part of the
registration statement or any document used in
connection therewith shall also be filed; (SRC, §12.4)
(6) Certification by Selling Stockholders – Where the
registration statement shares to be sold by selling
shareholders, a written certification by such selling
shareholders as to the accuracy of any part of the
registration statement contributed to by such selling
shareholders shall be filed; (SRC, §12.4)
(7) Fees – the issuer shall pay a fee to SEC; SEC shall
prescribe by the rule diminishing fees in inverse
proportion the value of the aggregate price of the
offering; (SRC, §12.5(a))
(8) Notice and Publication – Notice of the filing of the
registration statement shall be immediately published
by the issuer in two (2) newspapers of general
circulation in the Philippines; once a week for two (2)
consecutive weeks, or in such other manner as the
Commission by the rule shall prescribe, reciting that a
registration statement for the sale of such securities has
been filed, and that aforesaid registration statement, as
well as the papers attached thereto are open to
inspection at the SEC during business hours, and
copies thereof, shall be furnished to interested parties
at such reasonable charge; (SRC, §12.5(b))
(9) SEC Power for Production of Books – SEC may
compel the production of all the books and papers of
such issuer, and may administer oaths to, and examine
the officers of such the issuer or any other person
9
connected therewith as to its business and affairs;
(SRC, §13.2)
(10) Ruling – 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, SEC shall declare
the registration statement effective or rejected, unless
the applicant is allowed to amend the registration.
(SRC, §12.6)
Upon affectivity of the registration statement:
(1) The issuer shall state under oath:
a. That all registration requirements have
been met; and
b. That all information are true and correct
as represented
(2) What constitutes fraud in the registration statement:
a. Any untrue statement of fact.
b. Omission to state a material fact required
to be stated therein or anything necessary
therein which would make the statement
misleading. (SRC, §12.7.)
D.1.Withdrawal of Registration Statement
Registration Statements may be withdrawn. It is, however,
necessary to first secure the consent of the SEC. (SRC, §13.6.)
D.2.Amendments to the Registration Statement
The SEC, by an order, may direct the registration statement to
be amended when in any material respect
(1) It is on its face incomplete; or
(2) Is inaccurate
 Upon compliance, the registration
statement shall become effective in
accordance with procedure mentioned in
Subsection 12.6. (SRC, §14.1.)
 Amendments filed prior to the effective
date of registration of the registration
statement shall recommence the 45-day
period given to the SEC to act on the
registration.
 If filed after the effective date, the SEC
shall determine the date it becomes
effective. (SRC, §14.2.)
D.3. False Statements
The SEC may conduct an examination, if it finds, at any time
that the registration statement contains any false statement or
omits to state any fact required to be stated therein or necessary
to make the statements therein not misleading.
It then may order the suspension of the effectivity of the
registration statement, only after due notice and hearing. (SRC,
§14.4.)
In making such examination, the SEC, or any officer/s
designated, has the power and may:
(1) Administer oaths and affirmations;
(2) Access and demand the production of any
books, records, or document relevant to the
examination.
A suspension order may be issued if the issuer, underwriter, or
any other person fails to:
(1) Cooperate in an examination;
(2) Obstructs an examination; or
(3) Undergo an examination. (SRC, §14.5.)
D.3.1. Civil liabilities for false Registration Statements
(1) Any person acquiring security and suffers damages
(2) The registration statement, or any part thereof,
contains on its effectivity an untrue statement of a
material fact or omits to state a material fact required
to be stated therein or necessary to make such
statements not misleading
(3) Unless it is proved that such person acquiring security
knew of such untrue statement or omission, may sue
and recover from:
- Every person signing the registration
statement
- Directors or partners of the issuer at the time
of the filing with respect to the liability
asserted.
- Directors or partners who has written consent
filed with the registration statement.
- Any person, natural or juridical, including
shareholders, who with their written consent
filed with the registration, certified a
registration or any report used in connection
with such registration, or on any part
contributed by him.
- Every underwriter. (SRC, §56.1.)
E. 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, the Commission may require from the
issuer such further information as may in its judgment be
necessary to enable the Commission to ascertain whether the
registration of such security should be revoked on any ground
specified in this Code.
The Commission may also suspend the right to sell and offer
for the sale such security pending further investigation, by:
(1) An order specifying the grounds for such action; and
10
(2) Notifying the person participating in such offering.
(SRC, §15.1.)
The refusal to furnish information required by the Commission
may be a ground for the issuance of an order of suspension.
Upon the issuance of any such order and notification to the
persons participating in such offering, no further offer or sale of
any such security shall be made until the same is lifted or set
aside by the Commission. Otherwise such sale shall be void.
(SRC, §15.2.)
 Upon issuance of an order of suspension, the
Commission shall conduct a hearing.
If the Commission determines that the sale of any security
should be revoked it shall issue an order prohibiting sale of
such security. (SRC, §15.3.)
 Until the issuance of a final order, the suspension of
the right to sell, though binding upon the persons
notified thereof, shall be deemed confidential, and
shall not be published, unless it shall appear that the
order of suspension has been violated after notice.
However, if the Commission finds that the sale of the security
will neither be fraudulent nor result in fraud, it shall forthwith
issue an order revoking the order of suspension, and such
security shall be restored to its status as a registered security as
of the date of such order of suspension. (SRC, §15.4.)
F. GROUNDS FOR REJECTION AND REVOCATION
The Commission may reject a registration statement and refuse
registration of the security there-under, or revoke the affectivity
of a registration statement and the registration of the security
there-under, by an order to such effect.Provided, there was due
notice and hearing.If the findings are:
(1) That the issuer:
- Has been judicially declared insolvent;
- Has violated any of the provision of this
Code, the rules promulgate pursuant
thereto, or any order of the Commission
of which the issuer has notice in
connection with the offering for which a
registration statement has been filed;
- Has been or is engaged or is about to
engage in fraudulent transactions;
- Has made any false or misleading
representation of material facts in any
prospectus concerning the issuer or its
securities;
- Has failed to comply with any
requirements that the Commission may
impose as a condition for registration of
the security for which the registration
statement has been filed; or
(2) The registration statement is on its face
incomplete or inaccurate in any material
respect or includes any untrue statements of a
 material fact required to be stated therein or
necessary to make the statement therein not
misleading; or
(3) The issuer, any officer, director or controlling
person performing similar functions, or any
under writer 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 or
administrative body for violations of
securities, commodities, and other related
laws.
For the purposes of this subsection, the term "competent
judicial or administrative body" shall include a foreign court
of competent jurisdiction as provided for under Rules of Court.
(SRC, Section 13.1.)
Refusal by the issuer of the SEC’s examination shall be a
ground to refuse or revoke the registration of its securities.
(SRC, §13.3.)
If necessary, an order suspending the offer and sale of the
securities pending any investigation may be issued.
(1) Shall state the grounds for taking such action.
(2) Such order of suspension although binding upon the
persons notified thereof, shall be deemed confidential,
and shall not be published. Upon the issuance of the
suspension order,
No further offer or sale of such security shall be made until the
same is lifted or set aside by the Commission. Otherwise, such
sale shall be void.(SRC, §13.4.)
 Any person who notifies the SEC the intention to sell
such security shall be notified of such order. (SRC,
§13.5.)
G. PRE-NEED PLANS AND COMMODITY FUTURES
CONTRACTS
 Pre-need plans – are contracts which provide for the
performance of future services of or the payment of
future monetary considerations at the time actual need,
for which plan holders pay in cash or installment at
stated prices, with or without interest or insurance
coverage and includes life, pension, education,
interment, and other plans which the Commission may
from time to time approve. (SRC, §3.9.)
11
ABRERA V BARZA,
559 SCRA 534 (2009)
 While the SEC’s New Pre-Need Rules requires a pre-
need firm to set up a trust fund for the benefit of the
beneficiaries, Pre-need plans are not trust funds where
the policyholder is the trustor, the pre-need firm as
trustee, and the beneficiary as the cestuique trust. It is
a proper cause of action as a “claim” in petitions for
Rehabilitations. It may be stayed upon order of the
court.
Commodity futures contract – means a contract providing for
the making or taking delivery at a prescribed 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. (SRC
IRR, Rule 11.1.1.)
No person shall offer, sell or enter into commodity futures
contracts except in accordance with the rules, regulations and
orders the Commission may prescribe in the public interest.
The Commission shall promulgate rules and regulations
involving commodity futures contracts to protect investors to
ensure the development of a fair and transparent commodities
market. (SRC, §11)
REGULATION OF PRE-NEED PLANS
No person shall sell or offer for sale to the public any pre-need
plan except in accordance with rules and regulations which the
Commission shall prescribe.
Such rules shall require:
(1) The registration of pre-need plans;
(2) Licensing persons involved in the sale of pre-
need plans;
(3) Requiring disclosures to prospective plan
holders; Prescribing advertising guidelines;
(4) Providing for uniform accounting system,
reports and recording keeping with respect to
such plans;
(5) Imposing capital, bonding and other financial
responsibility; and
(6) Establishing trust funds for the payment of
benefits under such plans. (SRC, §11)
The Commission, as organized under existing laws, shall
continue to exist and exercise its powers, functions and duties
under such laws and this Code: Provided, That until otherwise
mandated by a subsequent law, the Commission shall continue
to regulate and supervise commodity futures contracts and
preneed plans and the pre-need industry as provided in the
Securities Regulation Code. (SRC, §74)
 V. REPORTORIAL VI. PROTECTION OF
REQUIREMENTS SHAREHOLDERS’ INTEREST
__________________________________________________ _______________________________________________

Reports to be filed with the Commission: WHAT IS THE TENDER OFFER RULE?

What to file When to file Who shall file For perspective, a tender offer is a publicly announced intention
Annual Report Within 135 days 1) An issuer by a person acting alone or in concert with other persons to
which shall after the end of which has sold a acquire equity securities of a public company, i.e. one listed on
include, among fiscal year or as class of its an exchange, among others. The term is also defined as an offer
others, a balance prescribed by the securities under by the acquiring person to stockholders of a public company for
sheet, profit and Commission Sec. 12 of the them to tender their shares therein on the terms specified in the
loss statement and SRC offer. Tender offer is in place to protect the interests of minority
statement of cash Except: At the stockholders. (Osmena v. SSS)
flows, certified first day of any
public accountant, fiscal year has
and management less than 100 DOES THE TENDER OFFER RULE APPLY ONLY TO
discussion and holders or such DIRECT ACQUISITION OF SHARES IN THE PUBLIC
analysis of results other number as COMPANY?
of operation the Commission
Periodical reports As prescribed by shall prescribe Tender Offers. 19.1. (a) Any person or group of persons acting
for interim fiscal the Commission 2) An issuer with in concert who intends to acquire at least fifteen percent (15%)
periods and a class of of any class of any equity security of a listed corporation or of
current reports on securities listed any class of any equity security of a corporation with assets of
significant for trading on an at least Fifty million pesos (P50,000,000.00) and having two
developments exchange; and hundred (200) or more stockholders with at least one hundred
3) An issuer with (100) shares each or who intends to acquire at least thirty
assets of at least percent (30%) of such equity over a period of twelve (12)
50M or as months shall make a tender offer to stockholders by filing with
prescribed by the the Commission a declaration to that effect; and furnish the
Commission, and issuer, a statement containing such of the information required
200 or more in Section 17 of this Code as the Commission may
holders each prescribe. Such person or group of persons shall publish all
holding at least requests or invitations for tender, or materials making a tender
100 shares of offer or requesting or inviting letters of such a security. Copies
equity securities of any additional material soliciting or requesting such tender
4) Every issuer of offers subsequent to the initial solicitation or request shall
a security listed contain such information as the Commission may prescribe, and
for trading on an shall be filed with the Commission and sent to the issuer not
Exchange later than the time copies of such materials are first published
or sent or given to security holders. (Section 19, SRC)
Source: Section 17, SRC
The legislative intent of Section 19 of the Code is to regulate
activities relating to acquisition of control of the listed company
and for the purpose of protecting the minority stockholders of a
listed corporation. Whatever may be the method by which
control of a public company is obtained, either through the
direct purchase of its stocks or through indirect means,
mandatory tender offer applies. (Cemco Holdings, Inc. v.
National Life Insurance Company of the Philippines, Inc.)

FEES OF TENDER OFFERS

The Commission may require that the person making such

filing fee of not more than one-tenth of:

a) The proposed aggregate purchase price in the case of a

transaction under Secion 20 or 72.2 of the Code; or
b) The proposed payment in cash, and ion value of any
securities or property to be transferred in the acquisition,
merger or consolidating, or the cash and value of any

12
 securities proposed to be received upon the sale
disposition of such assets in the case of a solicitation
under Section 20. The Commission shall prescribe by rule
diminishing fees in inverse proportion to the value of the
aggregate price of the offering.
INTERNAL RECORD KEEPING AND ACCOUNTING
CONTROL
Every issuer which has a class of securities under Subsection
17.2 shall Device and maintain a system of internal accounting
controls sufficient to provide reasonable assurance that:
a) Transactions and access to assets are pursuant to
management authorization;
b) Financial statements are provided in conformity with
generally accepted accounting principles that are adopted
by the Accounting standards council and the rules
promulgated by the Commission with the regard to the
preparation of the financial statements
c) Recorded assets are compared with existing assets at
reasonable intervals and differences are reconciled.
13
VII. MANIPULATION, FRAUD,
AND INSIDER TRADING
__________________________________________________
MANIPULATION OF SECURITY PRICES; DEVICES
AND PRACTICES.
It shall be unlawful for any person acting for himself or through
a dealer or broker, directly or indirectly:
(a) To create a false or misleading appearance of active
trading in any listed security traded in an Exchange of
any other trading market (hereafter referred to
purposes of this Chapter as "Exchange"):
(i) By effecting any transaction in such
security which involves no change
in the beneficial ownership thereof;
(ii) 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; or
(iii) By performing similar act where
there is no change in beneficial
ownership.
(b) To affect, alone or with others, a securities or
transactions in securities that: (I) Raises their price to
induce the purchase of a security, whether of the same
or a different class of the same issuer or of controlling,
controlled, or commonly controlled company by
others; or (iii) Creates active trading to induce such a
purchase or sale through manipulative devices such as
marking the close, painting the tape, squeezing the
float, hype and dump, boiler room operations and such
other similar devices.
(c) 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 purpose of sale
of such security.
(d) 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.
(e) 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 (SRC § 24.1)
No person shall use or employ, in connection with the purchase
or sale of any security any manipulative or deceptive device or
contrivance. Neither shall any short sale be effected nor any
stop-loss order be executed in connection with the purchase or
sale of any security except in accordance with such rules and
regulations as the Commission may prescribe as necessary or
appropriate in the public interest for the protection of investors
(SRC § 24.2)
The foregoing provisions notwithstanding, the Commission,
having due regard to the public interest and the protection of
investors, may, by rules and regulations, allow certain acts or
transactions that may otherwise be prohibited under this Section
(SRC § 24.3).
MANIPULATIVE PRACTICES
1. It shall be unlawful for any person to make a bid or offer,
or deal in securities, with the intention, or if that bid, offer or
dealing, has the effect or is likely to have the effect, of creating
a false or misleading appearance of active trading in any
security or with respect to the market for, or the price of, any
security.
2. It shall be unlawful for any Broker Dealer, associated person
or salesman of a Broker Dealer (hereinafter collectively referred
to as “registered person”), to make a bid or offer for, or deal in
securities, on account of any other person where the registered
person intends to create, or the registered person is aware that
the other person intends to create, or taking into account the
circumstances of the order, the registered person reasonably
suspects that a person has placed the order with the intention of
creating, a false or misleading appearance of active trading in
any security or with respect to the market for, or the price of,
any security.
3. In considering whether an order violates Section 24 of the
Code, a Broker Dealer shall consider:
a. Whether the order, or execution of the order, would
materially alter the market for, and/or the price of, the
securities;
b. The time the order is entered or any instructions
concerning the time of entry of the order;
c. Whether the person on whose behalf the order is
placed, or another person who the Broker Dealer
knows to be a related party of that person, may have
an interest in creating a false or misleading appearance
of active trading in any security or with respect to the
market for, or the price of, any security;
d. Whether the order is accompanied by settlement,
delivery or security arrangements which are unusual;
e. Whether the order appears to be part of a series of
orders, whether when put together with orders which
appear to make up the series, the order or the series is
14
unusual having regard to the matters referred to in this
paragraph 3; and
f. Whether there appears to be a legitimate commercial
reason for that person placing the order, unrelated to
an intention to create a false or misleading appearance
of active trading in or with respect to the market for,
or price of, any security.Failure to consider these
factors shall raise a presumption that a transaction/s is
manipulative.
4. Obligations imposed on registered persons under this rule
apply in respect of all orders, irrespective of the trading system
used.
5. Set forth below are non-exclusive examples of types of
prohibited conduct:
a. Engaging in a series of transactions in securities that
are reported publicly to give the impression of activity
or price movement in a security (e.g. painting the
tape);
b. Buying and selling securities at the close of the market
in an effort to alter the closing price of the security
(marking the close);
c. Engaging in transactions where both the buy and sell
orders are entered at the same time with the same price
and quantity by different but colluding parties
(improper matched orders);
d. Engaging in buying activity at increasingly higher
prices and then selling securities in the market at the
higher prices (hype and dump);
e. Engaging in transactions in which there is no genuine
change in actual ownership of a security (wash sales);
f. Taking advantage of a shortage of securities in the
market by controlling the demand side and exploiting
market congestion during such shortages in a way as
to create artificial prices (squeezing the float); or
g. Disseminating false or misleading market information
through media, including the internet,or any other
means to move the price of a security in a direction that
is favorable to a position held or a transaction. (SRC
IRR Rule 24.1(b)-1)
DEFENITION OF TERMS
 Wash Sales – Selling securities for the purpose of
creating a false or misleading appearance of active
trading in any listed security in an Exchange or any
other trading market:
o No change in beneficial ownership thereof
o To enter order or orders knowing that a
simultaneous order or orders of the same size,
time, and price has or will be entered by
different parties;
o Similar acts
  Marking the Close – Buying and selling securities t
the close of the market in an effort to alter the closing
price of the security.
 Painting the Tape – engaging in a series of
transactions that are reported publicly to give the
impression of activity or price movement in a security.
 Squeezing the Float – Controlling the demand of a
particular securities to take advantage of its shortage
and exploiting market congestion during such
shortages in a way as to create artificial prices.
 Hype and Dump – buying securities at increasingly
higher prices and then selling it at a higher price.
 Improper Matched Orders – Both buy and sell
transactions are entered at the same time with the same
price and quantity by different colluding parties.
 Boiler Room Operations – An organized operation in
a room with well-trained salesmen operating several
phones and using high-pressure sales talk to get
investors to invest in a particular securities.
 Scalping – Where a person purchases securities for his
own account before recommending that security, and
then sells the share at a profit upon the rise in the
market price following the recommendation.
 Daisy Chain – A pattern of fictitious trading activity
by a group of persons who lures innocent people into
the scheme.
 Flippng – When a trading participant buys a particular
stock for customers, with another trading participant
simultaneously recommends that its customers sell the
stock, with the stock being shifted from one office to
another, and the make a profit.
 Short Sale – Selling stocks which he does not own and
purchasing them back at a much lower price with the
anticipation of earning profits.
SECURITIES AND EXCHANGE COMMISSION V.
COURT OF APPEALS
246 SCRA 738 (1995)
 The Revised Securities Act (Batas Pambansa Blg. 178) is
designed, in main, to protect public investors from
fraudulent schemes by regulating the sale and disposition
of securities, creating, for this purpose, a Securities and
Exchange Commission to ensure proper compliance with
the law.
 A justiciable controversy can occasion an exercise of SEC's
exclusive jurisdiction would require an assertion of a right
by a proper party against another who, in turn, contests it.
That controversy must be raised by the party entitled to
maintain the action. He is the person to whom the right to
seek judicial redress or relief belongs which can be
enforced against the party correspondingly charged with
having been responsible for, or to have given rise to, the
cause of action. A person or entity tasked with the power
to adjudicate stands neutral and impartial and acts on the
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basis of the admissible representations of the contending
parties.
ADVERTISEMENTS AND COMMUNICATIONS WITH
THE PUBLIC
1. All communications by Broker Dealers or associated
persons or salesmen of Broker Dealers (hereinafter
“registered persons”), with the public shall be based on
principles of fair dealing and good faith and should
provide a sound basis for evaluating the facts in regard
to any particular security or securities or type of
security, industry discussed, or service offered. No
material fact or qualification may be omitted if the
omission, in the light of the context of the material
presented, would cause the advertising or sales
literature to be misleading.
2. Exaggerated, unwarranted or misleading statements or
claims are prohibited in all public communications of
registered persons. In preparing such literature, it must
be borne in mind by registered persons that inherent in
investment are the risks of fluctuating prices and the
uncertainty of dividends, rates of return and yield, and
no registered person shall, directly or indirectly,
publish, circulate or distribute any public
communication that he knows, or had reason to know,
contains any untrue statement of a material fact or is
otherwise false or misleading.
3. Communications with the public shall not contain
promises of specific results, exaggerated or
unwarranted claims or unwarranted superlatives,
opinions for which there is no reasonable basis, or
forecasts of future events which are unwarranted, or
which are not clearly labeled as forecasts.
4. In judging whether a communication or a particular
element of a communication may be misleading,
several factors should be considered, including but not
limited to:
a. the overall context in which the statement or
statements are made. A statement made in one
context may be misleading even though such a
statement could be perfectly appropriate in
another context. An essential test in this regard is
the balance of treatment of risks and potential
benefits;
b. the audience to which the communication is
directed. Different levels of explanation or detail
may be necessary depending on the audience to
which a communication is directed and the ability
of the registered person given the nature of the
media used, to restrict the audience appropriately.
If the statements made in a communication would
be applicable only to a limited audience, or if
additional information might be necessary for
 other audiences, it should be kept in mind that it
is not always possible to restrict the readership of
a particular communication; and/or
c. the overall clarity of the communication. A
statement or disclosure made in an unclear
manner obviously can result in a lack of
understanding of the statement, or in a serious
misunderstanding. A complex or overly technical
explanation may be worse than too little
information. Likewise material disclosure
relegated to legends or footnotes realistically may
not enhance the reader's understanding of the
communication (SRC RULE 24.1(D)- 1.)
PUBLICATION OF TRANSACTIONS AND
QUOTATIONS
No Broker Dealer, or associated person or salesman of a Broker
Dealer, shall publish or circulate, or cause to be published or
circulated, any notice, circular, advertisement, newspaper
article, investment service, or communication of any kind
which purports to report any transaction as a purchase or sale of
any security unless such person believes that such transaction
was a bona fide purchase or sale of such security; or which
purports to quote the bid price or asked price for any security,
unless such person believes that such quotation represents a
bona fide bid for, or offer of, such security (SRC RULE
24.1(D)-2.)
PAYMENT TO INFLUENCE MARKET PRICES
No Broker Dealer shall, directly or indirectly, give, permit to be
given, or offer to give, anything of value to any person for the
purpose of influencing or rewarding the action of such person
in connection with the publication or circulation in any
newspaper, investment service, or similar publication, of any
matter which has, or is intended to have, an effect upon the
market price of any security, provided that this rule shall not be
construed to apply to matter which is clearly distinguishable as
paid advertising (SRC RULE 24.1(D)-3).
PROHIBITION ON GUARANTEES AGAINST LOSS
No Broker Dealer or salesman shall guarantee a customer
against loss in any securities account of such customer carried
by the Broker Dealer or in any securities transaction effected by
the Broker Dealer with or for the customer (SRC IRR RULE
24.2-3).
REGULATION OF OPTION TRADING
No member of an Exchange shall, directly or indirectly endorse
or guarantee the performance of any put, call, straddle, option
or privilege in relation to any security registered on a securities
exchange.
The terms “put”, “call”, “straddle”, “option”, or “privilege”
shall not include any registered warrant, right or convertible
security (SRC § 25)
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FRAUDULENT TRANSACTIONS
It shall be unlawful for any person, directly or indirectly, in
connection with the purchase or sale of any securities to:
a. Employ any device, scheme, or artifice to defraud
(SRC § 26.1);
b. 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 (SRC § 26.2); or
c. Engage in any act, transaction, practice or course of
business which operates or would operate as a fraud or
deceit upon any person (SRC § 26.3)
PROHIBITED REPRESENTATIONS, DEALINGS AND
SOLICITATIONS
It shall be unlawful for any:
 Person to represent that he has been registered as a
securities intermediary with the Commission unless
such person is registered under the Code. Provided,
registration under the Corporation Code shall not be
deemed to be registration under the Code (SRC IRR
Rule 26.3.1);
 Broker Dealer to represent that the registration of the
Broker Dealer under the Code, or the failure of the
Commission to deny, suspend, or revoke such
registration, indicates in any way that the Commission
has passed upon or approved the financial standing,
business, or conduct of such Broker Dealer, or the
merits of any security or any transaction/s conducted
thereby (SRC IRR Rule 26.3.2)
INSIDER’S DUTY TO DISCLOSE WHEN TRADING.
 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, unless: (a)
The insider proves that the information was not gained
from such relationship; or (b) If the other party selling
to or buying from the insider (or his agent) is
identified, the insider proves: (i) that he disclosed the
information to the other party, or (ii) that he had reason
to believe that the other party otherwise is also in
possession of the information. A purchase or sale of a
security of the issuer made by an insider defined in
Subsection 3.8, or such insider’s spouse or relatives by
affinity or consanguinity within the second degree,
legitimate or common-law, shall be presumed to have
been effected while in possession of material non-
public information if transacted after such information
came into existence but prior to dissemination of such
information to the public and the lapse of a reasonable
time for the market to absorb such information:
 Provided, however, That this presumption shall be other plans which the Commission may from time to time
rebutted upon a showing by the purchaser or seller that approve (SRC, § 3.9).
he was not aware of the material non-public
SECURITIES AND EXCHANGE COMMISSION V.
information at the time of the purchase or sale (SRC
INTERPORT RESOURCES CORP
§ 27.1) 567 SCRA 354 (2008)
For purposes of this Section, information is “material non-
 Insider's misuse of nonpublic and undisclosed information
public” if: (a) It has not been generally disclosed to the public
is the gravamen of illegal conduct. The intent of the law is
and would likely affect the market price of the security after
the protection of investors against fraud, committed when
being disseminated to the public and the lapse of a reasonable
an insider, using secret information, takes advantage of an
time for the market to absorb the information; or (b) would be
uninformed investor. Insiders are obligated to disclose
considered by a reasonable person important under the
material information to the other party or abstain from
circumstances in determining his course of action whether to
trading the shares of his corporation. This duty to disclose
buy, sell or hold a security(SRC § 27.2).
or abstain is based on two factors: first, the existence of a
relationship giving access, directly or indirectly, to
It shall be unlawful for any insider to communicate material
information intended to be available only for a corporate
non-public information about the issuer or the security to any
purpose and not for the personal benefit of anyone; and
person who, by virtue of the communication, becomes an
second, the inherent unfairness involved when a party takes
insider as defined in Subsection 3.8, where the insider
advantage of such information knowing it is unavailable to
communicating the information knows or has reason to believe
those with whom he is dealing.
that such person will likely buy or sell a security of the issuer
while in possession of such information (SRC § 27.3).

a. It shall be unlawful where a tender offer has commenced

or is about to commence for:

(i) Any person (other than the tender offeror) who is

in possession of material non-public information
relating to such tender offer, to buy or sell the
securities of the issuer that are sought or to be
sought by such tender offer if such person knows
or has reason to believe that the information is
non-public and has been acquired directly or
indirectly from the tender offeror, those acting on
its behalf, the issuer of the securities sought or to
be sought by such tender offer, or any insider of
such issuer; and
(ii) Any tender offeror, those acting on its behalf, the
issuer of the securities sought or to be sought by
such tender offer, and any insider of such issuer to
communicate material non-public information
relating to the tender offer to any other person
where such communication is likely to result in a
violation of Subsection 27.4 (a)(i).

b. For purposes of this subsection the term “securities of the

issuer sought or to be sought by such tender offer” shall
include any securities convertible or exchangeable into
such securities or any options or rights in any of the
foregoing securities (SRC § 27.4)

“PRE-NEED PLANS”

These are contracts which provide for the performance of future

services or the payment of future monetary considerations at the
time of actual need, for which plan holders pay in cash or
installment at stated prices, with or without interest or insurance
coverage and includes life, pension, education, interment, and

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