SECURITIES

REGULATION
CODE
CA51025 – REGULATORY
FRAMEWORK AND LEGAL ISSUES
IN BUSINESS
REPUBLIC ACT ¡ The State shall establish a socially conscious, free market that
regulates itself, encourage the widest participation of ownership in
NO. 8799: enterprises, enhance the democratization of wealth, promote the
THE SECURITIES development of the capital market, protect investors, ensure full and
fair disclosure about securities, minimize if not totally eliminate
REGULATION insider trading and other fraudulent or manipulative devices and
CODE practices which create distortions in the free market.
REPUBLIC ACT ¡ The law serves as a protection to the investing public.
NO. 8799: • Full disclosure of information regarding securities
THE SECURITIES • Close monitoring of securities that may affect stakeholders

REGULATION • Prohibition on fraudulent practices

CODE • Granting the Securities and Exchange Commission necessary powers

WHY IS THERE A
NEED TO ¡ Stock market transactions affect the general public and the general
economy. Thus, securities transactions are impressed with public
PROTECT THE interest.
PUBLIC?
 ¡ Securities are shares, participation or interest in a corporation or in
a commercial enterprise or profit-making venture and evidenced by
a certificate, contract, instrument, whether written or electronic in
character. It includes:
¡ Shares of stock, bonds, debentures, notes, evidence of
indebtedness, asset-backed securities;
¡ Investment contracts, certificates of interest or participation in a
WHAT ARE profit-sharing agreement, certificates of deposit for a future
subscription;
SECURITIES? ¡ Fractional undivided interests in oil, gas or other mineral rights;
¡ Derivatives like option and warrants;
¡ Certificates of assignments, certificates of participation, trust
certificates, voting trust certificates or similar instruments;
¡ Proprietary or non-proprietary membership certificates
incorporations; and
¡ Other instruments as may in the future be determined by the SEC.
WHAT ARE
SECURITIES?
WHAT ARE
¡ A contract, transaction or scheme whereby a person invests his
INVESTMENT money in a common enterprise and is led to expect profits primarily
CONTRACTS? from the efforts of others.
 ¡ A financial instrument, including options and warrants, the values of
WHAT ARE which depends on the interest in or performance of an underlying
DERIVATIVES? security, but which does not require any investment of principal in
the underlying security.
 ¡ “Issuer” is the originator, maker, obligor, or creator of the security.
¡ “Broker” is a person engaged in the business of buying and selling
securities for the account of others.
¡ “Dealer” means any person who buys and sells securities for his/her
own account in the ordinary course of business.

DEFINITION OF ¡ “Clearing Agency” is any person who acts as intermediary in making

deliveries upon payment to effect settlement in securities
TERMS transactions.
¡ “Exchange” is an organized marketplace or facility that brings
together buyers and sellers and executes trades of securities and/or
commodities.
¡ “Promoter” is a person who, acting alone or with others, takes
initiative in founding and organizing the business or enterprise of
the issuer and receives consideration therefor.
 ¡ “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 a registration statement filed with the SEC.
¡ “Registration statement” is the application for the registration of
DEFINITION OF securities required to be filed with the Commission.
TERMS ¡ “Uncertificated security” is a security evidenced by electronic or
similar records.
¡ “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.
REGISTRATION OF ¡ Securities shall not be sold or offered for sale or distribution without
SECURITIES being registered with the SEC.
 ¡ The SEC:

WHAT CAN THE • May conditionally approve the registration statement;

SEC DO UPON • Shall keep a record of registration of securities;

REGISTRATION? • May audit the financial statements, assets and other information of a
firm applying for registration.
SECURITIES REGISTRATION AND SALE
ARE ALL ¡ No. The requirement of registration shall not apply to the following:
SECURITIES • Exempt securities
REQUIRED TO BE • Securities sold in exempt transactions
REGISTERED?
 ¡ 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.
¡ 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
EXEMPT with the form and content of disclosures the Commission may
SECURITIES prescribe.
¡ Certificates issued by a receiver or by a trustee in bankruptcy duly
approved by the proper adjudicatory body.
¡ 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 Regulatory Board, or the
Bureau of Internal Revenue.
¡ Any security issued by a bank except its own shares of stock.
 ¡ At any judicial sale, or sale by an executor, administrator, guardian or
receiver or trustee in insolvency or bankruptcy.
¡ By or for the account of a pledge holder, or mortgagee or any other
similar lien holder selling or offering for sale or delivery in the
ordinary course of business and not for the purpose of avoiding the
provisions of the SRC, to liquidate a bona fide debt, a security
EXEMPT pledged in good faith as security for such debt.
TRANSACTIONS ¡ An isolated transaction in which any security is sold, offered for sale,
subscription or delivery by the owner thereof, or by his
representative for the owner’s account, such sale or offer for sale,
subscription or delivery not being made in the course of repeated
and successive transactions 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.
 ¡ 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.
¡ The sale of capital stock of a corporation to its own stockholders
EXEMPT exclusively, where no commission or other remuneration is paid or
TRANSACTIONS given directly or indirectly in connection with the sale of such capital
stock.
¡ The issuance of bonds or notes secured by mortgage upon real
estate or tangible personal property, where the entire mortgage
together with all the bonds or notes secured thereby are sold to a
single purchaser at a single sale.
 ¡ 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 the SRC or was, when sold, exempt from the
EXEMPT provisions of the SRC, and that the security issued and delivered in
exchange, if sold at the conversion price, would at the time of such
TRANSACTIONS conversion fall within the class of securities entitled to registration
under the SRC. 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.
¡ Broker’s transactions, executed upon customer’s orders, on any
registered Exchange or other trading market.
 ¡ Subscriptions for shares of the capital stock of a corporation prior to
the incorporation thereof or in pursuance of an increase in its
authorized capital stock 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 subscriptions is to comply with the
EXEMPT requirements of such law as to the percentage of the capital stock
TRANSACTIONS of a corporation which should be subscribed before it can be
registered and duly incorporated, or its authorized capital increased.
¡ The exchange of securities by the issuer with its existing security
holders exclusively, where no commission or other remuneration is
paid or given directly or indirectly for soliciting such exchange.
¡ The sale of securities by an issuer to fewer than twenty (20) persons
in the Philippines during any twelve-month period.
 ¡ The sale of securities to any number of the following qualified
buyers:
• Bank;
• Registered investment house;
• Insurance company;
EXEMPT • Pension fund or retirement plan maintained by the Government of
the Philippines or any political subdivision thereof or managed by a
TRANSACTIONS bank or other persons authorized by the BSP to engage in trust
functions;
• Investment company; or
• Such other person as the SEC may by rule 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.
 ¡ The Issuer:
• Has been judicially declared insolvent;
• Has violated any of the provisions of the SRC, the rules promulgated
GROUNDS FOR pursuant thereto, or any order of the SEC of which the issuer has
REVOCATION OR notice in connection with the offering for which a registration
statement has been filed;
REJECTION OF • Has been or is engaged or is about to engage in fraudulent
REGISTRATION OF transactions;

SECURITIES • 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 requirement that the Commission may
impose as a condition for registration of the security for which the
registration statement has been filed.
 § The registration statement is on its face incomplete or inaccurate in
any material respect or includes any untrue statement of a material
GROUNDS FOR fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
REVOCATION OR
§ The issuer, any officer, director or controlling person of the issuer, or
REJECTION OF person performing similar functions, or any underwriter has been
REGISTRATION OF convicted, by a competent judicial or administrative body, upon plea
of guilty, or otherwise, of an offense involving moral turpitude and/or
SECURITIES fraud or is enjoined or restrained by the SEC or other competent
judicial or administrative body for violations of securities,
commodities, and other related laws.
 Report Deadline/Period

Annual Report Within 105 calendar days from the end of

the fiscal year
Quarterly Report Within 45 calendar days after the end of
the quarter

ISSUER’S Current Report Within 10 minutes after the occurrence of

the event and prior to its release to the
REPORTORIAL public through the news media
REQUIREMENTS General Information Sheet Within 30 calendar days following the date
of stockholder’s meeting per by-laws
If no meeting was held on that calendar
year, on or before 30th of January of the
following year
Integrated Annual Corporate On or before May 30 th for every year that
Governance Report the company remains listed in the
Philippine Stock Exchange
 ¡ What is a Tender Offer?
• Tender offer means a publicly announced intention by a person,
acting alone or in concert with other persons, to acquire equity
securities of a public company.
§ What is a Public Company?

TENDER OFFER • A corporation having a class of equity securities listed on an

Exchange, or
• A corporation –
• with assets in excess of PhP50million, and
• having at least 200 shareholders each holding at least 100 shares of
a class of equity securities.
 ¡ How is a Tender Offer done?
• Make an announcement of the intended acquisition in a newspaper
of general circulation, prior to the commencement of the offer;
• At least 2 busines days prior to the date of the commencement of
the tender offer:

TENDER OFFER • File a tender offer form (SEC Form 19-1) with the SEC;

• Deliver a copy of the tender offer form to the target company and to
the Exchange where shares of the target company are listed for
trading.

• Report the results of the tender offer by filing with the SEC not later
than 10 calendar days after the termination of the tender offer.
 ¡ When is Tender Offer mandatory?
• Acquisition of at least 35% of equity shares in a public company
MANDATORY • Acquisition of at least 35% of equity shares in a public company
TENDER OFFER within a period of 12 months

RULE • Acquisition of less than 35% of equity shares in a public company

that would result in the acquirer owning over 50% of the total
outstanding equity securities of a public company
 ¡ Exempt from the Mandatory Tender Offer Rule:
• Any purchase of shares from the unissued capital stock, provided
that the acquisition will not result to a 50% or more ownership of
shares by the purchaser;
• Any purchase of shares from an increase in authorized capital stock;

MANDATORY • Purchase in connection with foreclosure proceedings involving a duly

constituted pledge or security arrangement where the acquisition is
TENDER OFFER made by the debtor or creditor;

RULE • Purchases in connection with privatization undertaken by the

government of the Philippines;
• Purchases in connection with corporate rehabilitation under court
supervision;
• Purchases through an open market at the prevailing market price;
and
• Merger or consolidation.
 ¡ Who is an Insider?
• Insider may refer to (i) the issuer, (ii) a director or officer of the issuer
or a person controlling the issuer, (iii) a person whose relationship or
former relationship to the issuer gives or gave him access to material
information about the issuer or the security that is not generally
INSIDER TRADING available to the public, (iv) a government employee, or director or
officer of an exchange, clearing agency and/or self-regulatory
organization who has access to material information about an issuer
or a security that is not generally available to the public, or (v) a
person who learns such information by a communication from any of
the foregoing insiders.
 ¡ 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.
¡ Exception:
INSIDER TRADING • The insider proves that the information was not gained from such
relationship; or
• 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.
 ¡ Employ any device, scheme, or artifice to defraud;

¡ Obtain money or property by means of any untrue statement of a

OTHER material fact of any omission to state a material fact necessary in
order to make the statements made, in the light of the
FRAUDULENT circumstances under which they were made, not misleading; or
ACTS ¡ Engage in any act, transaction, practice or course of business which
operates or would operate as a fraud or deceit upon any person.
END OF PRESENTATION