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

 by bad faith. In Board of Liquidators vs. Kalaw, it was held
I. INTRODUCTION 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
SRC R.A. NO. 8799 - TITLE of a known duty through some motive or interest of ill will,
This shall be known as "The Securities Regulation Code" partaking of the nature of fraud.
(SRC, § 1)
RULES AND REGULATIONS;EFFECTIVITY.
ABACUS SECURITIES GROUP VS.AMPIL
483 SCRA 315 (2006) This Code shall be self-executory. To effect the provisions and
purposes of this Code, the Commission may issue, amend, and
 The paridelicto rule is expressed in the maxims "Ex rescind such rules and regulations and orders necessary or
dolomalo non oritur action" and "In pari delicto potior est appropriate, including rules and regulations defining
conditio defendentis" The paridelecto rule refuses legal accounting, technical, and trade terms used in this Code, and
remedy to either party to an illegal agreement and leaves prescribing the form or forms in which information required in
them where they were. registration statements, applications, and reports to the
Commission shall be set forth. For purposes ofits rules or
 By failing to ensure Ampil's payment of his first purchase regulations, the Commission may classify persons, securities,
transaction within the period prescribed by law, Abacus and other matters within its jurisdiction, prescribe different
effectively converted Ampil’s cash account into a credit requirements for different classes of persons, securities, or
account. However, extension or maintenance of credits on matters, and by rule or order, conditionally or unconditionally
nonmargin transactions, are specifically prohibited under exempt any person, security, or transaction, or class or classes
Section 23(b). Thus, Abacus was remiss in its duty and of persons, securities or transactions, from any or all provisions
cannot be said to have come to court with "clean hands" of this Code.
insofar as it intended to collect on transactions subsequent
to the initial trades of April 10 and 11, 1997. On the other Failure on the part of the Commission to issue rules and
hand, Ampil is equally guilty in entering into the regulations shall not in any manner affect the self-executory
transactions in violation of the RSA and RSA Rules. As an nature of this Code (SRC, § 72)
experienced trader, he knowingly speculated on the market
by taking advantage of the "no-cash-out" arrangement SECURITIES AND EXCHANGE COMMISSION VS.INTERPORT
extended to him by Abacus. RESOURCES CORP
567 SCRA 354 (2008)
 In this case, the pari delicto rule does not apply to all the
transactions entered into by the parties but applies only to  The mere absence of implementing rules cannot effectively
transactions entered into after the initial trades made on invalidate provisions of law where a reasonable
April 10 and 11, 1997. 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
DECLARATION OF STATE POLICY terms and standards prescribed by the statute as well as
purport to carry into effect its general policies.
The State shall establish a socially conscious, free market that
regulates itself, encourage the widest participation of ownership  The insider's misuse of nonpublic and undisclosed
in enterprises, enhance the democratization of wealth, promote information is the gravamen of illegal conduct. The intent
the development of the capital market, protect investors, ensure of the law is the protection of investors against fraud,
full and fair disclosure about securities, minimize if not totally committed when an insider, using secret information, takes
eliminate insider trading and other fraudulent or manipulative advantage of an uninformed investor. Insiders are obligated
devices and practices which create distortions in the free to disclose material information to the other party or
market. To achieve these ends, this Securities Regulation Code abstain from trading the shares of his corporation. This
is hereby enacted.(SRC, § 2) duty to disclose or abstain is based n 2 factors: 1) the
existence of a relationship giving access, directly or
PHILIPPINE STOCK EXCHANGE VS. COURT OF APPEALS indirectly to information intended to be available only for
281 SCRA 232 (1997) a corporate purpose and not for the personal benefit of
anyone and 2) the inherent unfairness involved when a
 Notwithstanding the regulatory power of the SEC over the party takes advantage of such information knowing it is
PSE, and the resultant authority to reverse the PSE’s unavailable to those with whom he is dealing.
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
 (d) Regulate, investigate or supervise the activities of
II. SECURITIES AND persons to ensure compliance;
EXCHANGE COMMISSION
__________________________________________________ (e) Supervise, monitor, suspend or take over the activities
of exchanges, clearing agencies and other SROs;
ADMINISTRATIVE AGENCY
(f) Impose sanctions for the violation of laws and rules,
This Code shall be administered by the Security and Exchange regulations and orders, and issued pursuant thereto;
Commission (hereinafter referred to as the "Commission") as a
Collegial body, composed of a chairperson and (4) (g) Prepare, approve, amend or repeal rules, regulations
Commissioners, appointed by the President for a term of (7) and orders, and issue opinions and provide guidance
seven years each and who shall serves as such until their on and supervise compliance with such rules,
successor shall have been appointed and qualified. A regulation and orders;
Commissioner appointed to fill a vacancy occurring prior to the
expiration of the term for which his/her predecessor was (h) Enlist the aid and support of and/or deputized any and
appointed, shall serve only for the unexpired portion of their all enforcement agencies of the Government, civil or
terms under Presidential Decree No. 902-A. Unless the context military as well as any private institution, corporation,
indicates otherwise, the term "Commissioner" includes the firm, association or person in the implementation of its
Chairperson.(SRC, § 4) powers and function under its Code;

COSMOS BOTTLING CORPORATION VS. SECURITIES AND (i) Issue cease and desist orders to prevent fraud or injury
EXCHANGE COMMISSION to the investing public;
G.R. NO. 199028, 19 NOVEMBER 2014.
(j) Punish for the contempt of the Commission, both
 The Commission may, for purposes of efficiency, delegate direct and indirect, in accordance with the pertinent
any of its functions to any department or office of the provisions of and penalties prescribed by the Rules of
Commission, an individual Commissioner or staff member Court;
of the Commission except its review or appellate authority
and its power to adopt, alter and supplement any rule or (k) Compel the officers of any registered corporation or
regulation. association to call meetings of stockholders or
members thereof under its supervision;
 The Commission may review upon its own initiative or
upon the petition of any interested party any action of any (l) Issue subpoena ducestecum and summon witnesses to
department or office, individual Commissioner, or staff appear in any proceedings of the Commission and in
member or the Commission. appropriate cases, order the examination, search and
seizure of all documents, papers, files and records, tax
POWERS AND FUNCTIONS OF THE COMMISSION returns and books of accounts of any entity or person
under investigation as may be necessary for the proper
The commission shall act with transparency and shall have the disposition of the cases before it, subject to the
powers and functions provided by this code, Presidential provisions of existing laws;
Decree No. 902-A, the Corporation Code, the Investment
Houses law, the Financing Company Act and other existing (m) Suspend, or revoke, after proper notice and hearing the
laws. franchise or certificate of registration of corporations,
partnership or associations, upon any of the grounds
Pursuant thereto the Commission shall have, among others, the provided by law; and
following powers and functions:
(n) Exercise such other powers as may be provided by law
(a) Have jurisdiction and supervision over all as well as those which may be implied from, or which
corporations, partnership or associations who are the are necessary or incidental to the carrying out of, the
grantees of primary franchises and/or a license or a express powers granted the Commission to achieve the
permit issued by the Government; objectives and purposes of these laws.(SRC, § 5)

(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;

2
 SECURITIES AND EXCHANGE COMMISSION VS. GMA Commission... may obtain a review of such order
NETWORK, INC., in the SC
575 SCRA 113 (2009)
 The above provisions are very clear. Whenever a party is
 Rate-fixing is a legislative function which concededly has aggrieved by or disagrees with an order or ruling of the
been delegated to the SEC by R.A. No. 3531 and other SEC, his remedy is to come to the SC on petition for
pertinent laws. The due process clause, however, permits review. He is not permitted to seek relief from courts of
the courts to determine whether the regulation issued by the general jurisdiction.
SEC is reasonable and within the bounds of its rate-fixing
authority and to strike it down when it arbitrarily infringes SECURITIES AND EXCHANGE COMMISSION VS.INTERPORT
on a person’s right to property. RESOURCES CORP.
G.R. NO. 135808, 6 OCTOBER 2008
CEMCO HOLDINGS, INC. VS. NATIONAL LIFE INSURANCE
CO.  No implementing rules were needed to render effective
529 SCRA 355 (2007) Sections 8, 30, and 36 of the Revised Securities Act; nor
was the PED Rules of Practice and Procedure invalid, prior
 The legislative intent behind the tender offer rule makes to the enactment of the Securities Regulations Code, for
clear that the type of activity intended to be regulated is the failure to provide parties with the right to cross-examine
acquisition of control of the listed company through the the witnesses presented against them. Thus, the
purchase of shares. Control may [be] effected through a respondents maybe investigated by the appropriate
direct and indirect acquisition of stock, and when this takes authority under the proper rules of procedure of the
place, irrespective of the means, a tender offer must occur. Securities Regulations Code for violations of Sections 8,
The bottom line of the law is to give the shareholder of the 30, and 36 of the Revised Securities Act.
listed company the opportunity to decide whether or not to
sell in connection with a transfer of control.

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
 POWER HOMES UNLIMITED CORP. V. SECURITIES AND
III. SECURITIES EXCHANGE COMMISSION
_____________________________________________ 546 SCRA 567 (2008)
DEFINITION
 Our definition of an investment contract is based on the
1946 US case of SEC vs. WJ Howey Co. In this case, the
“Securities” are shares, participation, or interests in a
US Supreme Court, established Howey Test which
corporation or in a commercial enterprise or profit-making
requires a transaction, contract, or scheme whereby a
venture and evidenced by a certificate, contract, instruments,
person (1) makes an investment of money, (2) in a common
whether written or electronic in character. It includes:
enterprise, (3) with the expectation of profits, (4) to be
(a) Shares of stocks, bonds, debentures, notes of
derived solely from the efforts of others. Although the
evidences of indebtedness, asset-backed securities; proponents must establish all four elements, the Howey
(b) Investment contracts, certificates of interest or Test embodies a flexible rather than a static principle, one
participation in a profit sharing agreement, certifies of that is capable of adaptation to meet the countless and
deposit for a future subscription; variable schemes devised by those who seek the use of the
(c) Fractional undivided interests in oil, gas or other money of others on the promise of profits. After Howey
came SEC v. Glenn W. Turner Enterprises, Inc., et al in
mineral rights;
which US Court of Appeals ruled that the element that
(d) Derivatives like option and warrants; profits must come “solely” from the efforts of others should
(e) Certificates of assignments, certificate of not be given a strict interpretation and the literal reading of
participation, trust certificates, voting trust certificates the requirement “solely” would lead to unrealistic rules.
or similar instruments
(f) Proprietary or non-proprietary membership  RA 8799 appears to follow the flexible concept because it
certificates in corporations; and defines an investment contract as a “contract, transaction
or scheme (collectively ‘contract’) whereby a person
(g) Other instruments as may in the future be determined
invests his money in a common enterprise and is led to
by the Commission (SRC, Section 3.1) expect profits primarily from the efforts of others. Thus, to
be a security subject to regulation by the SEC, an
DERIVATIVE investment contract in our jurisdiction must be proved to
be: (1) an investment of money, (2) in a common
Is a financial instrument whose value changes in response to enterprise, (3) with expectation of profits, (4) primarily
changes in a specified interest rate security price, commodity from efforts of others.
price, foreign exchange rate, index of prices or rates, credit
rating or credit index, or similar variable or underlying factor. SECURITIES AND EXCHANGE COMMISSION V.
It is settled at a future date. The term shall include, but not PROSPERITY.COM. INC
limited, to the following: G.R. No. 164197, 25 January 2012
1. Options or contracts that give the buyer the right, but
 The SRC treats investment contracts as “securities” that
not the obligation, to buy or sell an underlying security
have to be registered with SEC before they can be
at a predetermined price called the exercise or strike
distributed and sold. An investment contract is a contract,
price, on or before a predetermined date, called the
transaction, or scheme whereby a person invests his money
expiry date; and
in a common enterprise and is led to expect profits
primarily from the efforts of others. Under Howey Test, for
2. Warrants or rights to subscribe or purchase new or
an investment contract to exist, the following elements
existing shares in a company on or before a
must concur: (1) a contract, transaction, or scheme; (2) an
predetermined date. (Rules and Regulations
investment of money; (3) investment is made in a common
Implementing the Securities Regulation Code of
enterprise; (4) expectation of profits; (5) profits arising
2000, 3.1.9)
primarily from the efforts of others.
ASSET-BACKED SECURITIES (ABS)
 In this case, PCI’s clients buy a product of some value to
them: an internet website of a 15-MB capacity. The buyers
Refer to the certificates issued by an SPE, the repayment of
of the website do not invest money in PCI that it could use
which shall be derived from the cash flow of the assets in
for running some business that would generate profits for
accordance with the Plan. (An Act Providing the Regulatory
the investors. The price of USD234 is what the buyer pays
Framework for Securitization and Granting for the
for the use of the website, a tangible asset that PCI creates
Purpose Exemptions from the Operation of Certain laws
using its computer facilities and technical skills. The last
(RA 9267), Section 3(b))
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 (1) Any evidence of indebtedness issued by a financial
565 SCRA 38 (2008) 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.
 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
the following:
unregistered securities.
 In its definition of securities, Sec.2 of RSA includes
 Evidence of indebtedness issued to the BSP under its
commercial papers evidencing indebtedness of any person,
financial or non-financial entity, irrespective of maturity, open market and/or rediscounting operations;
issued, endorsed, sold, transferred or in any manner  Bills of exchange arising from a bona fide sale of
conveyed to another. A check is a commercial paper goods and services that are distributed and/or traded
evidencing indebtedness of any person, financial or non- by banks or investment houses duly licensed by the
financial entity. Since the checks in this case were Commission and BSP through an organized market
generally rolled over to augment the creditor’s existing
that is operated under the rules approved by the
investment with ABSHI, they most definitely take on the
attributes of traditional stocks. Commission;
 Any security issued or guaranteed by multilateral
B.EXCEPTIONS financial entities established through a treaty or any
other binding agreement to which the Philippines is a
B.1. EXEMPT SECURITIES party or subsequently becomes a member (hereinafter
referred as Multilateral Financial Entities or MFE),
The requirement of registration under Subsection 8.1 shall not e.g., international financial institutions, multilateral
as a general rule apply to any of the following classes of development banks, development finance institutions
securities: or any other similar entities; or by facilities or funds
established, administered, and supported by MFEs;
(1) Any security issued or guaranteed by the Government Provided, that the issuer shall file an offering circular/
of the Philippines, or by any political subdivision or
memorandum in a format prescribed by the
agency thereof, or by any person controlled or
supervised by, and acting as an instrumentality of said Commission and containing among others; (1)
Government. information about the issuer and the security to be
(2) Any security issued or guaranteed by the government issued, (2) information about the MFE, and (3)
of any country with which the Philippines maintains information about the guarantee.
diplomatic relations, or by any state, province or  The registration requirements shall not likewise apply
political subdivision thereof on the basis of to evidence of indebtedness, e.g., commercial papers,
reciprocity: Provided, That the Commission may
require compliance with the form and content for that meet the following conditions:
disclosures the Commission may prescribe. - Issued to not more than nineteen (19)
(3) Certificates issued by a receiver or by a trustee in non-institutional lenders;
bankruptcy duly approved by the proper adjudicatory - Payable to a specific person;
body. - Neither negotiable nor assignable and
(4) Any security or its derivatives the sale or transfer of
held on to maturity; and
which, by law, is under the supervision and regulation
of the Office of the Insurance Commission, Housing - In an amount not exceeding One
and Land Use Rule Regulatory Board, or the Bureau Hundred Fifty Million Pesos (PhP
of Internal Revenue. 150,000,000.00) or such higher amount
(5) Any security issued by a bank except its own shares of as the Commission may prescribe.
stock.
(3) Notwithstanding that a particular class of securities is
The Commission may, by rule or regulation after public exempt from registration, the conduct by any person in
hearing, add to the foregoing any class of securities if it finds the purchase, sale, distribution of such securities,
that the enforcement of this Code with respect to such securities settlement and other post-trade activities shall comply
is not necessary in the public interest and for the protection of with the provisions of the Code and the rules issued
investors. (SRC, § 9) thereunder.
Moreover, the purchase and sale of such security shall
The Implementing Rules and Regulation of the Securities not be exempt from the coverage of the provisions of
Regulation Code provided further discussed the exemption of the Code on civil and other related liabilities, and other
financial institutions licensed by the BangkoSentral ng applicable provisions of the Code on fraud.
Pilipinas. It provides that:

6
 (4) Consistent with public interest and for the protection Code, to liquidate a bonafide debt, a security pledged
of investors, the Commission, may require an Issuer of in good faith as security for such debt.
a class of securities exempted from registration, to (3) An isolated transaction in which any security is sold,
make available to investors and file with the offered for sale, subscription or delivery by the owner
Commission periodic disclosures regarding the Issuer, therefore, or by his representative for the owner’s
its business operations, its financial condition, its account, such sale or offer for sale or offer for sale,
governance principles and practices, its use of investor subscription or delivery not being made in the course
funds, and other appropriate matters, and may also of repeated and successive transaction of a like
provide for suspension and termination of such character by such owner, or on his account by such
requirement with respect to such Issuer. (SRC IRR, representative and such owner or representative not
Rule 9.1) being the underwriter of such security.
(4) The distribution by a corporation actively engaged in
UNION BANK V. SECURITIES AND EXCHANGE the business authorized by its articles of incorporation,
of securities to its stockholders or other security
COMMISSION holders as a stock dividend or other distribution out of
358 SCRA 479 (2001) surplus.
(5) The sale of capital stock of a corporation to its own
 Section 5(a)(3) of the RSA exempts from registration stockholders exclusively, where no commission or
the securities issued by banking or financial institutions other remuneration is paid or given directly or
mentioned in the law. Nowhere does it state or even imply indirectly in connection with the sale of such capital
that Union Bank, as a listed corporation, is exempt from stock.
complying with the reports required by the assailed RSA (6) The issuance of bonds or notes secured by mortgage
Implementing Rules. Having confined the exemption upon real estate or tangible personal property, when
enjoyed by Union Bank merely to the initial requirement of the entire mortgage together with all the bonds or notes
registration of securities for public offering, and not to the secured thereby are sold to a single purchaser at a
subsequent filing of various periodic reports, SEC, as the single sale.
regulatory agency, is able to exercise its power of (7) The issue and delivery of any security in exchange for
supervision and control over corporations and over the any other security of the same issuer pursuant to a right
securities market as a whole. of conversion entitling the holder of the security
surrendered in exchange to make such
B.2. EXEMPT TRANSACTIONS 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
Definition of Important terms
security issued and delivered in exchange, if sold at the
conversion price, would at the time of such conversion
 Broker is a person engaged in the business of buying fall within the class of securities entitled to registration
and selling securities for the account of others. (SRC, under this Code. Upon such conversion the par value
§3.3) of the security surrendered in such exchange shall be
 Issuer is the originator, maker, obligor, or creator of deemed the price at which the securities issued and
the security. (SRC, §3.2) delivered in such exchange are sold.
 Material fact or information – is any fact or (8) Broker’s transaction, executed upon customer’s
information that may result in a change in the market orders, on any registered Exchange or other trading
price or value of any of the Issuer's securities, or may market.
potentially affect the investment decision of an (9) Subscriptions for shares of the capitals stocks of a
investor. (SRC IRR, Rule 3.1.12.) corporation prior to the incorporation thereof or in
 Underwriter is a person who guarantees on a firm pursuance of an increase in its authorized capital
commitment and/or declared best effort basis the stocks under the Corporation Code, when no expense
distribution and sale of securities of any kind by is incurred, or no commission, compensation or
another company. (SRC, §3.15) remuneration is paid or given in connection with the
sale or disposition of such securities, and only when
The requirement of registration under Subsection 8.1 shall not the purpose for soliciting, giving or taking of such
apply to the sale of any security in any of the following subscription is to comply with the requirements of
transactions: such law as to the percentage of the capital stock of a
corporation which should be subscribed before it can
(1) At any judicial sale, or sale by an executor, be registered and duly incorporated, or its authorized,
capital increase.
administrator, guardian or receiver or trustee in
(10) The exchange of securities by the issuer with the
insolvency or bankruptcy.
existing security holders exclusively, where no
(2) By or for the account of a pledge holder, or mortgagee
commission or other remuneration is paid or given
or any of a pledge lien holder selling of offering for
sale or delivery in the ordinary course of business and directly or indirectly for soliciting such exchange.
not for the purpose of avoiding the provision of this

7
 (11) The sale of securities by an issuer to fewer than twenty under the securities regulation code. Any future offer or
(20) persons in the Philippines during any twelve- sale of the securities is subject to the registration
month period. requirements under the code unless such offer or sale
(12) The sale of securities to any number of the following qualifies as an exempt transaction. (SRC IRR, Rule 10.1)
qualified buyers:
C. APPLICATION FOR EXEMPTION
- Bank;
- Registered investment house; Any person applying for an exemption under this Section, shall
- Insurance company; file with the Commission a notice identifying the exemption
- Pension fund or retirement plan maintained by the relied upon on such form and at such time as the Commission
Government of the Philippines or any political by the rule may prescribe and with such notice shall pay to the
subdivision thereof or manage by a bank or other Commission fee equivalent to one-tenth (1/10) of one percent
persons authorized by the BangkoSentral to (1%) of the maximum value aggregate price or issued value of
engage in trust functions; the securities. (SRC, 10.3)
- Investment company or;
- Such other person as the Commission may rule by If the Issuer wants a confirmation of exemption under Section
determine as qualified buyers, on the basis of such 10.1 of theCode, it shall file SEC Form 10.1 with the
factors as financial sophistication, net worth, Commission. (SRC IRR, Rule 10.1.5.1.)
knowledge, and experience in financial and
business matters, or amount of assets under D. PROCEDURE FOR REGISTRATION OF
management. (SRC, §10.1) SECURITIES

The Commission may exempt other transactions, if it finds that (1) Application – All securities required to be registered shall
the requirements of registration under this Code is not necessary be registered through the filing by the issuer in the main
in the public interest or for the protection of the investors such office of the Commission, of a sworn registration
as by the reason of the small amount involved or the limited statement; (SRC, §12.1)
character of the public offering. (SRC, §10.2) (2) Prospectus – The registration statement shall include any
prospectus required or permitted to be delivered; (SRC,
NESTLE PHILIPPINES VS. COURT OF APPEALS §12.1)
203 Scra 504 (1991)
 Prospectus is the document made by or on behalf
 The language of Sec.6(a)(4) of RSA exempting from of an issuer, underwriter or dealer to sell or offer
registration issuance of capital stock must be interpreted to securities for sale to the public through registration
cover only issuance of shares of stock as part of and in the statement filed with the Commission (SRC, §3.11)
course of increasing the authorized capital stock of a
corporation. It does not cover issuances of shares from  Civil Liabilities Arising in Connection With
already authorized but still un-issued capital stock. This Prospectus, Communications and Reports
construction permits greater opportunity for SEC to
implement the statutory objective of protecting the - Any person who:
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 (a) Offers to sell or sells a security in violation of
examine issuances by a corporation of previously Chapter III, or
authorized but theretofore unissued capital stock, on a case-
to-case basis, under Sec. 6(b); and thereunder, to grant or (b) Offers to sell or sells a security, whether or not
withhold exemption from registration depending upon the exempted by the provisions of this Code, by the use
perceived level of need for protection by the investing of any means or instruments of transportation or
public in particular cases. communication, by means of a prospectus or other
 Although issuances from unauthorized but previously written or oral communication, which includes an
unissued capital stock is not per se an enumerated exempt untrue statement of a material fact or omits to state
transaction, pursuant to the power vested under Sec.6(b), a material fact necessary in order to make the
SEC has granted it particular exemption in this case. statements, in the light of the circumstances under
 Any person claiming exemption under Section 10.1 of the which they were made, not misleading (the
Code shall provide to any party to whom it offers or sells purchaser not knowing of such untruth or omission),
securities in reliance on such exemption a written and who shall fail in the burden of proof that he did
disclosure containing the specific provision of Section 10.1 not know, and in the exercise of reasonable care
of the Code on which the exemption from registration is could not have known, of such untruth or omission,
claimed and a statement in bold face saying that the shall be liable to the person purchasing such security
securities being offered or sold herein have not been from him, who may sue to recover the consideration
registered with the securities and exchange commission paid for such security with interest thereon, less the
amount of any income received thereon, upon the

8
 tender of such security, or for damages if he no connected therewith as to its business and affairs;
longer owns the security. (SRC, §13.2)
(10) Ruling – Within forty-five (45) days after the date of
 Any person who shall make or cause to be made filing of the registration statement, or by such later date
any statement in any report, or document filed to which the issuer has consented, SEC shall declare
pursuant to this Code or any rule or regulation the registration statement effective or rejected, unless
thereunder, which statement as at the time and the applicant is allowed to amend the registration.
in the light of the circumstances under which it (SRC, §12.6)
was made false or misleading with respect to
any material fact, shall be liable to any person Upon affectivity of the registration statement:
who, not knowing that such statement was false (1) The issuer shall state under oath:
or misleading, and relying upon such statement
shall have purchased or sold a security at a price a. That all registration requirements have
which was affected by such statement, for been met; and
damages caused by such reliance, unless the
person sued shall prove that he acted in good b. That all information are true and correct
faith and had no knowledge that such statement as represented
was false or misleading. (SRC, §57)
(2) What constitutes fraud in the registration statement:
(3) Other Information – The information required for the
a. Any untrue statement of fact.
registration of any kind, and all securities, shall
include, among others, the effect of the securities issue
b. Omission to state a material fact required
on ownership, on the mix of ownership, especially
foreign and local ownership; (SRC, §12.2 – 12.3) to be stated therein or anything necessary
(4) Signatories to Registration Statement –The therein which would make the statement
registration statement shall be signed by the issuer’s misleading. (SRC, §12.7.)
executive officer, its principal operating officer, its
principal financial officer, its comptroller, its principal D.1.Withdrawal of Registration Statement
accounting officer, its corporate secretary, or persons Registration Statements may be withdrawn. It is, however,
performing similar functions accompanied by a duly necessary to first secure the consent of the SEC. (SRC, §13.6.)
verified resolution of the board of directors of the
issuer; (SRC, §12.4) D.2.Amendments to the Registration Statement
(5) Written Consent of Expert – The written consent of The SEC, by an order, may direct the registration statement to
the expert named as having certified any part of the be amended when in any material respect
registration statement or any document used in (1) It is on its face incomplete; or
connection therewith shall also be filed; (SRC, §12.4) (2) Is inaccurate
(6) Certification by Selling Stockholders – Where the  Upon compliance, the registration
registration statement shares to be sold by selling
shareholders, a written certification by such selling statement shall become effective in
shareholders as to the accuracy of any part of the accordance with procedure mentioned in
registration statement contributed to by such selling Subsection 12.6. (SRC, §14.1.)
shareholders shall be filed; (SRC, §12.4)  Amendments filed prior to the effective
(7) Fees – the issuer shall pay a fee to SEC; SEC shall date of registration of the registration
prescribe by the rule diminishing fees in inverse statement shall recommence the 45-day
proportion the value of the aggregate price of the
period given to the SEC to act on the
offering; (SRC, §12.5(a))
(8) Notice and Publication – Notice of the filing of the registration.
registration statement shall be immediately published  If filed after the effective date, the SEC
by the issuer in two (2) newspapers of general shall determine the date it becomes
circulation in the Philippines; once a week for two (2) effective. (SRC, §14.2.)
consecutive weeks, or in such other manner as the
Commission by the rule shall prescribe, reciting that a D.3. False Statements
registration statement for the sale of such securities has
been filed, and that aforesaid registration statement, as The SEC may conduct an examination, if it finds, at any time
well as the papers attached thereto are open to that the registration statement contains any false statement or
inspection at the SEC during business hours, and omits to state any fact required to be stated therein or necessary
copies thereof, shall be furnished to interested parties to make the statements therein not misleading.
at such reasonable charge; (SRC, §12.5(b)) It then may order the suspension of the effectivity of the
(9) SEC Power for Production of Books – SEC may registration statement, only after due notice and hearing. (SRC,
compel the production of all the books and papers of §14.4.)
such issuer, and may administer oaths to, and examine
the officers of such the issuer or any other person

9
In making such examination, the SEC, or any officer/s (2) Notifying the person participating in such offering.
designated, has the power and may: (SRC, §15.1.)

(1) Administer oaths and affirmations; The refusal to furnish information required by the Commission
(2) Access and demand the production of any may be a ground for the issuance of an order of suspension.
books, records, or document relevant to the Upon the issuance of any such order and notification to the
examination. persons participating in such offering, no further offer or sale of
any such security shall be made until the same is lifted or set
A suspension order may be issued if the issuer, underwriter, or
aside by the Commission. Otherwise such sale shall be void.
any other person fails to:
(SRC, §15.2.)
(1) Cooperate in an examination;  Upon issuance of an order of suspension, the
(2) Obstructs an examination; or Commission shall conduct a hearing.
(3) Undergo an examination. (SRC, §14.5.) If the Commission determines that the sale of any security
should be revoked it shall issue an order prohibiting sale of
D.3.1. Civil liabilities for false Registration Statements such security. (SRC, §15.3.)
 Until the issuance of a final order, the suspension of
(1) Any person acquiring security and suffers damages
the right to sell, though binding upon the persons
(2) The registration statement, or any part thereof, notified thereof, shall be deemed confidential, and
contains on its effectivity an untrue statement of a shall not be published, unless it shall appear that the
material fact or omits to state a material fact required order of suspension has been violated after notice.
to be stated therein or necessary to make such
However, if the Commission finds that the sale of the security
statements not misleading will neither be fraudulent nor result in fraud, it shall forthwith
issue an order revoking the order of suspension, and such
(3) Unless it is proved that such person acquiring security security shall be restored to its status as a registered security as
knew of such untrue statement or omission, may sue of the date of such order of suspension. (SRC, §15.4.)
and recover from:
F. GROUNDS FOR REJECTION AND REVOCATION
- Every person signing the registration
statement The Commission may reject a registration statement and refuse
registration of the security there-under, or revoke the affectivity
- Directors or partners of the issuer at the time
of a registration statement and the registration of the security
of the filing with respect to the liability there-under, by an order to such effect.Provided, there was due
asserted. notice and hearing.If the findings are:
- Directors or partners who has written consent (1) That the issuer:
filed with the registration statement. - Has been judicially declared insolvent;
- Any person, natural or juridical, including - Has violated any of the provision of this
shareholders, who with their written consent Code, the rules promulgate pursuant
filed with the registration, certified a thereto, or any order of the Commission
registration or any report used in connection of which the issuer has notice in
with such registration, or on any part connection with the offering for which a
contributed by him. registration statement has been filed;
- Every underwriter. (SRC, §56.1.) - Has been or is engaged or is about to
engage in fraudulent transactions;
E. SUSPENSION OF REGISTRATION - Has made any false or misleading
If at any time, the information contained in the registration representation of material facts in any
statement filed is or has become misleading, incorrect, prospectus concerning the issuer or its
inadequate or incomplete in any material respect, or the sale or securities;
offering for sale of the security registered thereunder may work - Has failed to comply with any
or tend to work a fraud, the Commission may require from the requirements that the Commission may
issuer such further information as may in its judgment be impose as a condition for registration of
necessary to enable the Commission to ascertain whether the
the security for which the registration
registration of such security should be revoked on any ground
specified in this Code. statement has been filed; or
The Commission may also suspend the right to sell and offer
for the sale such security pending further investigation, by: (2) The registration statement is on its face
(1) An order specifying the grounds for such action; and incomplete or inaccurate in any material
respect or includes any untrue statements of a

10
 material fact required to be stated therein or ABRERA V BARZA,
necessary to make the statement therein not 559 SCRA 534 (2009)
misleading; or
 While the SEC’s New Pre-Need Rules requires a pre-
(3) The issuer, any officer, director or controlling need firm to set up a trust fund for the benefit of the
person performing similar functions, or any beneficiaries, Pre-need plans are not trust funds where
under writer has been convicted, by a the policyholder is the trustor, the pre-need firm as
competent judicial or administrative body, trustee, and the beneficiary as the cestuique trust. It is
upon plea of guilty, or otherwise, of an a proper cause of action as a “claim” in petitions for
offense involving moral turpitude and /or Rehabilitations. It may be stayed upon order of the
fraud or is enjoined or restrained by the court.
Commission or other competent or
administrative body for violations of Commodity futures contract – means a contract providing for
securities, commodities, and other related the making or taking delivery at a prescribed in the future of a
laws. specific quantity and quality of a commodity or the cash value
thereof, which is customarily offset prior to the delivery date,
For the purposes of this subsection, the term "competent and includes standardized contracts having the indicia. (SRC
judicial or administrative body" shall include a foreign court IRR, Rule 11.1.1.)
of competent jurisdiction as provided for under Rules of Court. No person shall offer, sell or enter into commodity futures
(SRC, Section 13.1.) contracts except in accordance with the rules, regulations and
Refusal by the issuer of the SEC’s examination shall be a orders the Commission may prescribe in the public interest.
ground to refuse or revoke the registration of its securities. The Commission shall promulgate rules and regulations
(SRC, §13.3.) involving commodity futures contracts to protect investors to
If necessary, an order suspending the offer and sale of the ensure the development of a fair and transparent commodities
securities pending any investigation may be issued. market. (SRC, §11)

(1) Shall state the grounds for taking such action. REGULATION OF PRE-NEED PLANS

(2) Such order of suspension although binding upon the No person shall sell or offer for sale to the public any pre-need
persons notified thereof, shall be deemed confidential, plan except in accordance with rules and regulations which the
Commission shall prescribe.
and shall not be published. Upon the issuance of the
Such rules shall require:
suspension order, (1) The registration of pre-need plans;
No further offer or sale of such security shall be made until the (2) Licensing persons involved in the sale of pre-
same is lifted or set aside by the Commission. Otherwise, such
sale shall be void.(SRC, §13.4.) need plans;
 Any person who notifies the SEC the intention to sell
(3) Requiring disclosures to prospective plan
such security shall be notified of such order. (SRC,
holders; Prescribing advertising guidelines;
§13.5.)
(4) Providing for uniform accounting system,
reports and recording keeping with respect to
G. PRE-NEED PLANS AND COMMODITY FUTURES
CONTRACTS such plans;

 Pre-need plans – are contracts which provide for the (5) Imposing capital, bonding and other financial
performance of future services of or the payment of responsibility; and
future monetary considerations at the time actual need,
(6) Establishing trust funds for the payment of
for which plan holders pay in cash or installment at
benefits under such plans. (SRC, §11)
stated prices, with or without interest or insurance
coverage and includes life, pension, education, The Commission, as organized under existing laws, shall
interment, and other plans which the Commission may continue to exist and exercise its powers, functions and duties
from time to time approve. (SRC, §3.9.) 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)

11
 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
VII. MANIPULATION, FRAUD,
under Section 20. The Commission shall prescribe by rule AND INSIDER TRADING
diminishing fees in inverse proportion to the value of the __________________________________________________
aggregate price of the offering.
MANIPULATION OF SECURITY PRICES; DEVICES
INTERNAL RECORD KEEPING AND ACCOUNTING AND PRACTICES.
CONTROL
It shall be unlawful for any person acting for himself or through
Every issuer which has a class of securities under Subsection a dealer or broker, directly or indirectly:
17.2 shall Device and maintain a system of internal accounting (a) To create a false or misleading appearance of active
controls sufficient to provide reasonable assurance that: trading in any listed security traded in an Exchange of
any other trading market (hereafter referred to
a) Transactions and access to assets are pursuant to
purposes of this Chapter as "Exchange"):
management authorization;
b) Financial statements are provided in conformity with (i) By effecting any transaction in such
generally accepted accounting principles that are adopted security which involves no change
by the Accounting standards council and the rules in the beneficial ownership thereof;
promulgated by the Commission with the regard to the (ii) By entering an order or orders for
preparation of the financial statements the purchase or sale of such security
c) Recorded assets are compared with existing assets at with the knowledge that a
reasonable intervals and differences are reconciled.
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

13
 security; unless otherwise allowed by this Code or by unusual having regard to the matters referred to in this
rules of the Commission (SRC § 24.1) paragraph 3; and

No person shall use or employ, in connection with the purchase f. Whether there appears to be a legitimate commercial
or sale of any security any manipulative or deceptive device or reason for that person placing the order, unrelated to
contrivance. Neither shall any short sale be effected nor any an intention to create a false or misleading appearance
stop-loss order be executed in connection with the purchase or of active trading in or with respect to the market for,
sale of any security except in accordance with such rules and or price of, any security.Failure to consider these
regulations as the Commission may prescribe as necessary or factors shall raise a presumption that a transaction/s is
appropriate in the public interest for the protection of investors manipulative.
(SRC § 24.2)
The foregoing provisions notwithstanding, the Commission, 4. Obligations imposed on registered persons under this rule
having due regard to the public interest and the protection of apply in respect of all orders, irrespective of the trading system
investors, may, by rules and regulations, allow certain acts or used.
transactions that may otherwise be prohibited under this Section
(SRC § 24.3). 5. Set forth below are non-exclusive examples of types of
prohibited conduct:

MANIPULATIVE PRACTICES 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
1. It shall be unlawful for any person to make a bid or offer,
tape);
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
b. Buying and selling securities at the close of the market
a false or misleading appearance of active trading in any
in an effort to alter the closing price of the security
security or with respect to the market for, or the price of, any
(marking the close);
security.
c. Engaging in transactions where both the buy and sell
2. It shall be unlawful for any Broker Dealer, associated person
orders are entered at the same time with the same price
or salesman of a Broker Dealer (hereinafter collectively referred
and quantity by different but colluding parties
to as “registered person”), to make a bid or offer for, or deal in
(improper matched orders);
securities, on account of any other person where the registered
person intends to create, or the registered person is aware that
d. Engaging in buying activity at increasingly higher
the other person intends to create, or taking into account the
prices and then selling securities in the market at the
circumstances of the order, the registered person reasonably
higher prices (hype and dump);
suspects that a person has placed the order with the intention of
creating, a false or misleading appearance of active trading in
e. Engaging in transactions in which there is no genuine
any security or with respect to the market for, or the price of,
change in actual ownership of a security (wash sales);
any security.
f. Taking advantage of a shortage of securities in the
3. In considering whether an order violates Section 24 of the
market by controlling the demand side and exploiting
Code, a Broker Dealer shall consider:
market congestion during such shortages in a way as
to create artificial prices (squeezing the float); or
a. Whether the order, or execution of the order, would
materially alter the market for, and/or the price of, the
securities; g. Disseminating false or misleading market information
through media, including the internet,or any other
b. The time the order is entered or any instructions means to move the price of a security in a direction that
concerning the time of entry of the order; is favorable to a position held or a transaction. (SRC
IRR Rule 24.1(b)-1)
c. Whether the person on whose behalf the order is
placed, or another person who the Broker Dealer DEFENITION OF TERMS
knows to be a related party of that person, may have
an interest in creating a false or misleading appearance  Wash Sales – Selling securities for the purpose of
of active trading in any security or with respect to the creating a false or misleading appearance of active
market for, or the price of, any security; trading in any listed security in an Exchange or any
other trading market:
d. Whether the order is accompanied by settlement, o No change in beneficial ownership thereof
delivery or security arrangements which are unusual; o To enter order or orders knowing that a
simultaneous order or orders of the same size,
e. Whether the order appears to be part of a series of time, and price has or will be entered by
orders, whether when put together with orders which different parties;
appear to make up the series, the order or the series is o Similar acts

14
  Marking the Close – Buying and selling securities t basis of the admissible representations of the contending
the close of the market in an effort to alter the closing parties.
price of the security.
 Painting the Tape – engaging in a series of ADVERTISEMENTS AND COMMUNICATIONS WITH
transactions that are reported publicly to give the THE PUBLIC
impression of activity or price movement in a security.
1. All communications by Broker Dealers or associated
 Squeezing the Float – Controlling the demand of a
persons or salesmen of Broker Dealers (hereinafter
particular securities to take advantage of its shortage
“registered persons”), with the public shall be based on
and exploiting market congestion during such
principles of fair dealing and good faith and should
shortages in a way as to create artificial prices.
provide a sound basis for evaluating the facts in regard
 Hype and Dump – buying securities at increasingly
to any particular security or securities or type of
higher prices and then selling it at a higher price.
security, industry discussed, or service offered. No
 Improper Matched Orders – Both buy and sell material fact or qualification may be omitted if the
transactions are entered at the same time with the same omission, in the light of the context of the material
price and quantity by different colluding parties. presented, would cause the advertising or sales
 Boiler Room Operations – An organized operation in literature to be misleading.
a room with well-trained salesmen operating several 2. Exaggerated, unwarranted or misleading statements or
phones and using high-pressure sales talk to get claims are prohibited in all public communications of
investors to invest in a particular securities. registered persons. In preparing such literature, it must
 Scalping – Where a person purchases securities for his be borne in mind by registered persons that inherent in
own account before recommending that security, and investment are the risks of fluctuating prices and the
then sells the share at a profit upon the rise in the uncertainty of dividends, rates of return and yield, and
market price following the recommendation. no registered person shall, directly or indirectly,
 Daisy Chain – A pattern of fictitious trading activity publish, circulate or distribute any public
by a group of persons who lures innocent people into communication that he knows, or had reason to know,
the scheme. contains any untrue statement of a material fact or is
 Flippng – When a trading participant buys a particular otherwise false or misleading.
stock for customers, with another trading participant 3. Communications with the public shall not contain
simultaneously recommends that its customers sell the promises of specific results, exaggerated or
stock, with the stock being shifted from one office to unwarranted claims or unwarranted superlatives,
another, and the make a profit. opinions for which there is no reasonable basis, or
 Short Sale – Selling stocks which he does not own and forecasts of future events which are unwarranted, or
purchasing them back at a much lower price with the which are not clearly labeled as forecasts.
anticipation of earning profits. 4. In judging whether a communication or a particular
element of a communication may be misleading,
SECURITIES AND EXCHANGE COMMISSION V. several factors should be considered, including but not
COURT OF APPEALS limited to:
246 SCRA 738 (1995)
a. the overall context in which the statement or
 The Revised Securities Act (Batas Pambansa Blg. 178) is
designed, in main, to protect public investors from statements are made. A statement made in one
fraudulent schemes by regulating the sale and disposition context may be misleading even though such a
of securities, creating, for this purpose, a Securities and statement could be perfectly appropriate in
Exchange Commission to ensure proper compliance with another context. An essential test in this regard is
the law. the balance of treatment of risks and potential
benefits;
 A justiciable controversy can occasion an exercise of SEC's
b. the audience to which the communication is
exclusive jurisdiction would require an assertion of a right
by a proper party against another who, in turn, contests it. directed. Different levels of explanation or detail
That controversy must be raised by the party entitled to may be necessary depending on the audience to
maintain the action. He is the person to whom the right to which a communication is directed and the ability
seek judicial redress or relief belongs which can be of the registered person given the nature of the
enforced against the party correspondingly charged with media used, to restrict the audience appropriately.
having been responsible for, or to have given rise to, the If the statements made in a communication would
cause of action. A person or entity tasked with the power
be applicable only to a limited audience, or if
to adjudicate stands neutral and impartial and acts on the
additional information might be necessary for

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 other audiences, it should be kept in mind that it FRAUDULENT TRANSACTIONS
is not always possible to restrict the readership of
a particular communication; and/or It shall be unlawful for any person, directly or indirectly, in
connection with the purchase or sale of any securities to:
c. the overall clarity of the communication. A
a. Employ any device, scheme, or artifice to defraud
statement or disclosure made in an unclear
(SRC § 26.1);
manner obviously can result in a lack of
b. Obtain money or property by means of any untrue
understanding of the statement, or in a serious
statement of a material fact of any omission to state a
misunderstanding. A complex or overly technical
material fact necessary in order to make the statements
explanation may be worse than too little
made, in the light of the circumstances under which
information. Likewise material disclosure
they were made, not misleading (SRC § 26.2); or
relegated to legends or footnotes realistically may
c. Engage in any act, transaction, practice or course of
not enhance the reader's understanding of the
business which operates or would operate as a fraud or
communication (SRC RULE 24.1(D)- 1.)
deceit upon any person (SRC § 26.3)
PUBLICATION OF TRANSACTIONS AND
PROHIBITED REPRESENTATIONS, DEALINGS AND
QUOTATIONS
SOLICITATIONS
No Broker Dealer, or associated person or salesman of a Broker
It shall be unlawful for any:
Dealer, shall publish or circulate, or cause to be published or
circulated, any notice, circular, advertisement, newspaper  Person to represent that he has been registered as a
article, investment service, or communication of any kind securities intermediary with the Commission unless
which purports to report any transaction as a purchase or sale of such person is registered under the Code. Provided,
any security unless such person believes that such transaction registration under the Corporation Code shall not be
was a bona fide purchase or sale of such security; or which deemed to be registration under the Code (SRC IRR
purports to quote the bid price or asked price for any security, Rule 26.3.1);
unless such person believes that such quotation represents a
bona fide bid for, or offer of, such security (SRC RULE  Broker Dealer to represent that the registration of the
24.1(D)-2.) Broker Dealer under the Code, or the failure of the
Commission to deny, suspend, or revoke such
PAYMENT TO INFLUENCE MARKET PRICES registration, indicates in any way that the Commission
has passed upon or approved the financial standing,
No Broker Dealer shall, directly or indirectly, give, permit to be business, or conduct of such Broker Dealer, or the
given, or offer to give, anything of value to any person for the
merits of any security or any transaction/s conducted
purpose of influencing or rewarding the action of such person
in connection with the publication or circulation in any thereby (SRC IRR Rule 26.3.2)
newspaper, investment service, or similar publication, of any
matter which has, or is intended to have, an effect upon the INSIDER’S DUTY TO DISCLOSE WHEN TRADING.
market price of any security, provided that this rule shall not be
construed to apply to matter which is clearly distinguishable as  It shall be unlawful for an insider to sell or buy a
paid advertising (SRC RULE 24.1(D)-3). security of the issuer, while in possession of material
information with respect to the issuer or the security
PROHIBITION ON GUARANTEES AGAINST LOSS that is not generally available to the public, unless: (a)
The insider proves that the information was not gained
No Broker Dealer or salesman shall guarantee a customer
from such relationship; or (b) If the other party selling
against loss in any securities account of such customer carried
by the Broker Dealer or in any securities transaction effected by to or buying from the insider (or his agent) is
the Broker Dealer with or for the customer (SRC IRR RULE identified, the insider proves: (i) that he disclosed the
24.2-3). information to the other party, or (ii) that he had reason
to believe that the other party otherwise is also in
REGULATION OF OPTION TRADING possession of the information. A purchase or sale of a
security of the issuer made by an insider defined in
No member of an Exchange shall, directly or indirectly endorse
Subsection 3.8, or such insider’s spouse or relatives by
or guarantee the performance of any put, call, straddle, option
or privilege in relation to any security registered on a securities affinity or consanguinity within the second degree,
exchange. legitimate or common-law, shall be presumed to have
The terms “put”, “call”, “straddle”, “option”, or “privilege” been effected while in possession of material non-
shall not include any registered warrant, right or convertible public information if transacted after such information
security (SRC § 25) 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:

16
 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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