Professional Documents
Culture Documents
ATTY. ALEXANDER
C. DY
2 SEMESTER, SY 2011ND
2012
I. GENERAL PROVISIONS
1. Nature of SRC Blue Sky Law to protect public from unscrupulous promoters, who
state business or venture claims which have really no basis, and sell shares or
interests therein to investors, who are then left holding certificates representing
nothing more than a claim to a square of a blue sky.
(a)
(b)
2.
(a)
(b)
(c)
(d)
(e)
Protect investors;
(f)
(g)
(b)
(c)
(a)
(b)
(c)
(d)
(e)
(f)
The Nature and Composition of SEC Sec. 4.1: SEC shall administer
provisions of SRC
(a)
(b)
2.
(c)
Powers that Can Be Delegated Sec. 4.6: All except its review or
appellate authority and its power to adopt, alter and supplement any rule or
regulation.
(d)
Internal Review Powers Sec. 4.6: SEC may review upon its own
initiative or upon the petition of any interested party any action of any department
or office, individual Commissioner, or staff member.
(e)
(f)
Statutory Bases of the Powers and Functions of SEC - Sec. 5.1: SEC
shall act with transparency and shall have the powers and functions provided by:
(a)
(b)
(c)
(d)
(e)
(f)
3.
(b)
(c)
(d)
(e)
(f)
Impose sanctions for the violation of laws and the rules, regulations and
orders issued pursuant thereto;
(g)
(h)
Enlist the aid and support of and/or deputize any and all enforcement
agencies of the Government, civil or military as well as any private institution,
corporation, firm, association or person in the implementation of its powers and
functions;
(i)
Issue cease and desist orders to prevent fraud or injury to the investing
public;
(j)
Punish for contempt, both direct and indirect, in accordance with the
pertinent provisions of and penalties prescribed by the Rules of Court;
(k)
(l)
Issue subpoena duces tecum and summon witnesses to appear in any its
proceedings and in appropriate cases, order the examination, search and seizure
of all documents, papers, files and records, tax returns, and books of accounts of
any entity or person under investigation as may be necessary for the proper
disposition of the cases before it, subject to the provisions of existing laws;
(m)
(n)
4.
(b)
(c)
(d)
(e)
(f)
of
(1997)] Now, SEC has no power to look into merits of securities to be sold
to the public.
(b)
(b)
Sec. 8.3: Define the terms and conditions under which any written
communication, including any summary prospectus, shall not be deemed to
constitute an offer for sale;
(c)
(d)
Sec. 8.5: Audit the financial statements, assets and other information
of a firm applying for registration of its securities, when necessary to insure
full disclosure or to protect the interest of the investors and the public in
general;
(e)
3.
(b)
(c)
(d)
Those which by law are under the supervision and regulation of the
Office of the Insurance Commission, Housing and Land Use Regulatory
Board, or the Bureau of Internal Revenue;
(e) Bank Issues, except their own shares of stock: Those issued by a bank
except its own shares of stock. Note: If bank is listed in Exchange, not exempted
from complying with reportorial requirements as such [Union Bank v. SEC, 358
SCRA 479 (2001)].
Note: Sec. 9.2: SEC may, by rule or regulation after public hearing, add to the
class of exempt securities if it finds that the enforcement of the Code with respect
to such securities is not necessary in the public interest and for the protection of
investors.
4.
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Brokers
transactions: Brokers
transactions,
executed
customers orders, on any registered Exchange or other trading market.
upon
(i)
(j)
(k)
(l)
5.
(c)
(f)
(g)
7.
8.
Periodic and Other Reports of Issuers Sec. 17.2: Every issuer who:
(i) Has sold a class of its securities pursuant to a registration;
(ii) Has a class of securities listed for trading on an Exchange; and
(iii) With assets of at least P50.0 Million (or such other amount as SEC shall
prescribe), and having 200 or more holders each holding at least 100 shares
of a class of its equity securities (Public company);
(a) Sec. 17.1 Shall file with the SEC (a) Annual Report; and (b) Periodic Reports
(b)
Sec. 17.3 Shall also file with the Exchange where securities are listed
a copy of any report filed with SEC
(c) Sec.
17.5
Shall and
security the annual report.
furnish
each
holder
of
such
equity
3.
(a)
(b)
Sec. 20.3: Unless otherwise provided in the proxy, it shall be valid only
for the meeting for which it is intended; no proxy shall be valid and effective for a
period longer than five (5) years at one time;
(c)
(d)
Sec. 20.5: A broker or dealer who holds or acquires the proxy for at least
10% (or such percentage as SEC may prescribe) of the outstanding share of the
issuer, shall submit a report identifying the beneficial owner within ten (10) days
after such acquisition, for its own account or customer, to: (i) the issuer; (ii) the
Exchange where traded; and (iii) to SEC.
Sec. 22.1: Make and keep books, records, and accounts which, in
reasonable detail accurately and fairly reflect the transactions and dispositions of
assets of the issuer;
(b)
(ii)
(iii)
behalf of the issuer if the issuer shall fail or refuse to bring such suit within sixty
(60) days after request or shall fail diligently to prosecute the same thereafter, but
no such suit shall be brought more than two (2) years after the date such profit
was realized.
4.3
Unlawful Sale of Securities Sec. 23.3: It shall be unlawful for any such
beneficial owner, director, or officer, directly or indirectly, to sell any equity security of
such issuer if the person selling the security or his principal:
(i) Does not own the security sold; or
(ii) If owning the security, does not deliver it against such sale within twenty (20)
days thereafter, or does not within five (5) days after such sale deposit it in
the mails or other usual channels of transportation;
but no person shall be deemed to have violated this subsection if he proves that
notwithstanding the exercise of good faith he was unable to make such delivery
or deposit within such time, or that to do so would cause undue inconvenience or
expense.
Note: Sec. 23.4: The foregoing prohibition shall not apply to any purchase and
sale, or sale and purchase of an equity security not then or thereafter held by him
in an investment account, by a dealer in the ordinary course of his business and
incident to the establishment or maintenance by him of a primary or secondary
market, otherwise than on an Exchange, for such security.
SEC may, by such rules and regulations as it deems necessary or appropriate in
the public interest, define and prescribe terms and conditions with respect to
securities held in an investment account and transactions made in the ordinary
course of business and incident to the establishment or maintenance of a primary
or secondary market.
5.
(iii)
(b)
(i)
(ii)
(iii)
(c)
(d) To make false or misleading statement with respect to any material fact,
which he knew or had reasonable ground to believe was so false or
misleading, for the purpose of inducing the purchase or sale of any security
listed or traded in an Exchange.
(e) To effect, either alone or others, any series of transactions for the purchase
and/or sale of any security traded in an Exchange for the purpose of pegging,
fixing or stabilizing the price of such security, unless otherwise allowed by the
Code or by rules of SEC.
2.
3.
The terms put, call, straddle, option, or privilege shall not include any
registered warrant, right or convertible security.
4.
(b)
(c)
day
trading
5. Insider Trading
5.1 Definition of Insider Sec. 3.8: The term insider means:
(i)
The issuer;
(ii)
(iii)
(iv)
(v)
5.2 Insiders Duty to Disclose When Trading Sec. 27.1: It shall be unlawful for an
insider to sell or buy a security of the issuer, while in possession of material
information with respect to the issuer or the security that is not generally available to
the public, unless:
(a)
The insider proves that the information was not gained from such
relationship; or
(b)
If the other party selling to or buying from the insider (or his agent) is
identified, the insider proves:
(i)
(ii)
that he had reason to believe that the other party otherwise is also in
possession of the information.
(b)
Sec. 3.4: Dealer means any person who buys and sells securities for
his/her own account in the ordinary course of business.
(c)
(d)
2.
3.
(b)
(c)
4.
Requirements, Prohibitions
Professionals Sec. 28
4.1
and
Obligations
of
Securities
Market
4.2 Dealings in Compliance with SEC Rules Sec. 30.2: No broker or dealer shall
effect any transaction in securities or induce or attempt to induce the purchase or
sale of any security except in compliance with such rules and regulations as SEC
shall prescribe to ensure fair and honest dealings in securities and provide
financial safeguards and other standards for the operation of brokers and
dealers, including the establishment of minimum net capital requirements, the
acceptance of custody and use of securities of customers, and the carrying and
use of deposits and credit balances of customers.
5. Revocation, Refusal or Suspension of Registration of Securities Market
Professionals Sec. 29
5.1 Preventive Suspension Sec. 29.2
2.
3. Exchanges
3.1
3.2
3.3
4.1 Power over an Exchange Sec. 33.6: Upon appropriate application in accordance
with SEC rules and regulations and upon such terms as SEC may deem necessary
for the protection of investors, an Exchange may withdraw its registration or suspend
its operations or resume the same. But if management prerogative of PSE, i.e.,
denial of listing application, SEC has no power [PSE v. CA, 281 SCRA 232 (1997)].
4.2 Power to Suspend Trading Sec. 36.1: If in SECs opinion such action is
necessary or appropriate for the protection of investors and the public interest so
requires for 30 days, or if more than 30 days but not exceeding 90 days, with
approval of the President of the Philippines.
4.3 Uniform Trading Rules Sec. 36.2
4.4 To Determine Number, Size and Location Sec. 36.3
4.5 Rules for Prompt Clearance and Settlement Sec. 36.4
4.6 Establishment of Trust Fund Sec. 36.5
5. Registration of Innovative and Other Trading Markets Sec. 37
6. Independent Directors Sec. 38: Every Covered Issuer shall have at least two (2)
independent directors or such independent directors shall constitute at least 20% of
the members of such board, whichever is the lesser.
For this purpose, an independent director shall mean a person other
than an officer or employee of the corporation, its parent or subsidiaries, or any
other individual having a relationship with the corporation, which would interfere
with the exercise of independent judgment in carrying out the responsibilities of a
director.
(b)
(c)
(d)
4. Securities Association
4.1 Registration of Securities Association Sec. 39.2
4.2 Requirements of Securities Association Sec. 39.4
4.3 Membership Procedural Rules Sec. 39.5
5. Periods in Registration of SRO Sec. 40
6. SRO Powers and Obligations Sec. 40
7. Procedure on Adoption or Changes of Rules by SRO Sec. 40
8. SRO Disciplinary Proceedings
8.1 Regular Disciplinary Proceedings Sec. 40.6
8.2 Summary Disciplinary Proceedings Sec. 40.6
8.3 Notice and Appeal to SEC Sec. 40.7
9. SEC Control and Supervision over SRO Sec. 40.5
X.
Such pledge has the effect of the delivery of a security in bearer form or
duly indorsed in blank representing the quantity or amount of such security or
right pledged.
In case of a registered clearing agency, the procedures and the exact time
at which, such book-entries are created shall be governed by the registered
clearing agencys rules; however, the corporation shall not be bound by the
foregoing transactions unless the corporate secretary is duly notified in such
manner as SEC may provide.
3. SEC Power Over Securities Ownership Sec. 47
XII. MARGIN AND CREDIT
1. Margin
1.1 Purpose Sec. 48: The margin is required for the purpose of preventing the
excessive use of credit for the purchase or carrying of securities.
1.2 SEC Rules on Margin Sec. 48.1
1.3 Margin Allowance Standard Sec. 48.1: SRC mandates that the margin allowance
shall be based upon the following standard:
An amount not greater than whichever is the higher of (a) 65% of the current market price of the security, or
(b) 100% of the lowest market price of the security during the preceding thirtysix (36) calendar months, but not more than 75% of the current market
price.
Note: However, the Monetary Board may increase or decrease the above
percentages, in order to achieve the objectives of the Government with due
regard for promotion of the economy and prevention of the use of excessive
credit.
14. Prohibition on Extension of Margin Sec. 48.2 and 48.3
2. Borrowings by Members, Brokers, and Dealers
2.1 Restrictions on Borrowings Sec. 49
3. Enforcement of Margin Requirements and Borrowing Restrictions
3.1 Indirect Violations of Margin Requirements Sec. 50
3.2 Indirect Violations of Borrowing Restrictions Sec. 50
XIII. LIABILITIES AND PENALTIES
1. Liabilities of Controlling Persons, Aider and Abettor
1.1 Liability of Controlling Persons Sec. 51.1
Civil
Liability
Transactions - Sec. 58
for
Fraud
in
Connection
with
Securities
[1] This Outline is based primarily on Dean Cesar L. Villanuevas Commercial Law Review, 2007 and
2009 Editions, with references to Atty. Lucila M. Decasas Securities Regulation Code, 2004 Edition, as
indicated.
[2] Evidences of Indebtedness are written representations of debt securities or obligations of
corporations, such as long-term commercial paper (maturity more than 365 days) or short-term
commercial paper (maturity of 365 days or less). [DECASA, p. 7, citing SRC Rule 3-1.S, Amended SRC
IRR]
[3] Asset-backed securities are certificates issued by Special Purpose Entity (SPE), the repayment
of which shall be derived from a cash flow of assets in accordance with the plan. SPE is either Special
Purpose Corporation (SPC) or Special Purpose Trust (SPT). [DECASA, p. 5 citing R.A. No. 9267,
Securitization Act of 2004].
[4] Under the Howey Test, Investment Contracts are contracts, transactions, or schemes
whereby a person: (1) makes an investment of money; (2) in a common enterprise; (3) with expectation of
profits; and (4) primarily from the efforts of others [Power Homes Unlimited Corp. v. SEC, 546 SCRA
567 (2008)]
[5] Derivatives are financial instruments whose value changes in response to the change in a
specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a
credit rating or credit index, or similar variable or underlying factor. It requires no initial or little net
investment relative to other types of contracts that have similar responses to changes in market
conditions. It is settled at a future date. [DECASA, p. 6 citing SRC Rule 3-1.F, Amended SRC IRR]
[6] Options are contracts that give buyer the right, but not the obligation, to buy (call options) or sell
(put options) an underlying security at a predetermined price, called the exercise or stake price, on or
before a predetermined date, called the expiry date, which can only be extended by the SEC upon
stockholders approval. [DECASA, p. 6 citing SRC Rule 3-1.F.1, Amended SRC IRR]
[7] Warrants are rights to subscribe or purchase new shares or existing shares in a company on or
before a predetermined date, called the expiry date, which can only be extended in accordance with SEC
rules and regulations and/or Exchange rules. Warrants generally have a longer exercise period than
options and are evidenced by warrant certificates. [DECASA, p. 6 citing
[8] DECASA, p. 23.
[9]Sec. 3.15: 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.
[10]Sec. 10.2.
[11] Pre-Need Plans 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 planholders pay in cash
or installment at stated prices, with or without interest or insurance coverage and includes life, pension,
education, interment, and other plans which SEC may from time to time approve. [Sec. 3.9]
[12] Commodity futures contracts are contracts providing for the making or taking delivery at a
prescribed time in the future of a specific quantity and quality of a commodity or the cash value thereof,
which is customarily offset prior to the delivery date, and includes standardized contracts having the
indicia of commodities futures. [DECASA, p. 41 citing SRC Rule 11(1)(2), Amended SRC IRR]
[13] "Marking the close represents the practice of executing the last transaction or series of
transactions at or near the close of the trading day in order to affect its closing price."
[14] Painting the tape represents an illegal practice by traders who manipulate the market by
buying and selling a security to create the illusion of high trading activity and to attract other traders who
may push up the price.
[15] Squeezing the float refers to a wide range of practices from deadpan acceptance of
abnormally high price-to-sales ratios, to crystal ball gazing ten years out in order to find profits, to selfrighteous repetition of "this company is changing the world" mantra.
[16] Hype and dump, is a practice whereby a speculator buys a particular stock, and then goes
into marketing campaign to hype its price, and then sell his lot at huge profit, leaving the late investors
with shares of very deflated price.
[17] Boiler room operations, constitute fraudulent telemarketing operation involving high-pressure
sales of securities. In a typical boiler room, a rented space with desks, telephones, and experienced sales
people who talk to hundreds of people across the country every day skilled but dishonest salespeople,
often with years of experience selling dubious products and services over the phone, sit shoulder to
shoulder at phone banks all day to call potential investors using sophisticated sales scripts and highpressure sales techniques.
[18] Short sale occurs when a speculator sells stocks which he does not own, in anticipation that
the price will decline and that he will be able to cover the sale by purchasing them back at a later date at a
lower price. This is done by borrowing stocks from another party who still receives the dividends paid on
the stocks while the short sale remains in effect. {DECASA, p. 78]
[19] Stop loss order is an order placed to protect a recognized gain in the price of securities
against potential loss. The order reflects the lowest price that a seller is willing to sell at, even though this
is lower than the current market price. The opportunity for manipulation arises because the offer does not
reflect the current market price. The order is a hedge against market decline. [DECASA, pp. 77-78]
[20] Churning is a situation where a broker-dealer is the sole or dominant market-maker in a
particular security and creates a market in that security by repeated purchases from, and resells to, its
individual retain customers at steady increasing prices. Its course of conduct violates anti-fraud
provisions if the broker-dealer does not make a full disclosure to the customers of the nature of the
market with the intent to defraud or with the wilful and reckless disregard for the interest of the customers.
[DECASA, p. 81]
[21] Scalping is a situation in which a broker-dealer or investment adviser recommends the
purchase of securities without disclosing its practice of purchasing such securities before making the
recommendation and then selling them at a profit when the price rises after the recommendation is
disseminated. [DECASA, p. 81]
[22] Single day trading practice is a practice of buying and selling shares in a single trading
session, where the investors settle their accounts at the end of the day. While the transaction is not
prohibited, there is a risk meeting possible deficiencies in the customers account resulting from the
transaction, and may encourage free riding which is an improper extension of credit or purchase of
shares without the intent of paying at all or with the intent of paying only if the price goes up by the
settlement date. [DECASA, p. 81]
[23] Front running is a market malpractice whereby brokers, also acting as dealers, prioritize their
own dealer accounts by executing their own orders on a particular issue ahead of their clients. [DECASA,
p. 81]
[24]Sec. 3.14: Uncertificated security is a security evidenced by electronic or similar records.