Securities Regulations Code

Section 1 Title

Commonwealth Act 83 (Securities Act)

- approved on October 26, 1936

- first law governing the securities market;

- it is from the awareness of the problem on the growth of unscrupulous fly-by-

night corporations;

- patterned after the U.S. Securities Act of 1933 and U.S. Securities Exchange
Act of 1934

B.P. Blg. 178 – Revised Securities Act of 1982

R.A. No. 8799 – Revised Regulation Code

Section 2 Declaration of State Policy

The Code focuses on the following regulatory activities in the securities

field:

1. “DISCLOSURE” Statute. Registration process by which a corporation or

issuer offers and sells its securities to the public.

- The basic purpose of registration under the Code is to assure the availability
of adequate reliable information about the issuer and securities which are
offered to the public.

- it can only insists that the issuer makes a full disclosure of all material facts.

2. REPORTING REQUIREMENTS. Assuring that there is a continuous flow of

disclosures and information about the securities and issuer whose securities
are traded.

3. “ANTI-FRAUD” PROVISIONS. Applicable not only to price manipulations,

but also to trading by insiders on the basis of non-public information, and to
various kinds of misstatements or misrepresentations by corporate
management and others.

4. SELF-REGULATION”. Regulations on market participants assuring that they

do not take advantage of their superior experience and access to overreach
their non-professional customers.

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see –
Hebrews 11
 5. SANCTIONS. Sanctions against those who violate the provisions of the Code,
as well as civil liability and/or damages to investors injured by such violations.

Section 3 Definition of Terms

- Securities may be written or electronic.

- 2 general forms of traditional securities:

1. Equity Securities – shares of stocks, represent ownership right in a

corporation, such as right to participate in the management, surplus
profits, and upon dissolution to share in those assets that remain after
all debts have been paid.

2. Debt Securities – requires the issuer to repay the principal amount

loaned to it by fixed maturity date, and at a stated rate of interest.

- Securities includes the following:

1. Share of stock- interest or right which the owner, who is the shareholder
or stockholder, has in the management of the corporation, and its surplus
profits, and in the dissolution, in all of its assets remaining after the
payment of its debts.

2. Investment Contracts - a contract, transaction or scheme whereby a

person invests his money in a common enterprise and is led to expect
profits primarily from the efforts of others.

- A presumption that a contract is an investment contract

arises whenever a person seeks to use the money of others on the
promise of profits.

3. Certificates of interest or participation – these are interest in a profit

sharing agreement providing for a participation in the profit of a business
venture by the participants of the agreement.

4. Fractional undivided interests in oil, gas, or other mineral rights –

interests in mineral or mining rights are normally issued certificates of
participation or interest in the production thereof.

5. Asset-backed securities – these are securities issued by a Special

Purpose Entity (SPE), the repayment of which shall be derived from the
cash flow of assets in accordance with the plan.

- An SPE means either a “Special Purpose Corporation”

(SPC) – a juridical person created in accordance with the

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see –
Hebrews 11
 securitization and to which the seller makes a true and absolute
sale of assets, or a “Special Purpose Trust” – which means a
trust administered by an entity duly licensed to perform trust
functions under the General Banking Law, and created solely for
the purpose of securitization and to which the seller makes a
true and absolute sale of assets.

6. Investments unit instruments (IUIs) – these are participation

certificates, debt instruments or similar instruments issued by a special
purpose vehicle company incorporated pursuant to provisions of RA. No.
9182 (Special Purpose Vehicle), organized primarily invest in or acquire
non-performing assets (NPAs) of financial institutions.

7. Derivative – is a financial instrument 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.

- The term includes, but not limited to the following:

OPTIONS – these are contracts that give the buyer the right,
but not the obligation, to buy or to sell an underlying security at
a predetermined price, called the exercise or strike price, on or
before a predetermined date, called the expiry date, which can
only be extended by the SEC upon stockholder’s approval.

WARRANTS – are rights to subscribe or purchase new shares

or existing share in a company on or before a predetermined
date, called the expiry date, which can only be extended in
accordance with the SEC rules and regulations and/or the
Exchange rules.

8. Proprietary or non-proprietary share or certificate – is an

evidence of interest or participation or privilege in a corporation which not
only entitles the holder to enjoy the use of a specific property, but also to
dividends or earnings of said company , and upon liquidation of the
company, a holder of a proprietary share shall have proportionate
ownership right over its assets.

- Non-Proprietary share or certificate – evidence of interest or

privilege over a certain property of a corporation in view of the
amount paid by the holder for the said share/certificate.

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see –
Hebrews 11
 9. Evidence of indebtedness – are written representation of debt
securities or obligations of corporations such as, but not limited to the
following:

- Long-Term commercial paper – means an evidence of

indebtedness of any person with maturity of more than 365
days. It includes bonds and notes. A bond is a security
supported by a mortgage on a corporate property. Debentures
are obligations or notes representing indebtedness, but not
ordinarily secured by any specific mortgage, lien or pledge of
security.

- Short-Term commercial paper – means an evidence of

indebtedness of any person with a maturity of 365 days or less.

10. Bill of Exchange – is an unconditional order in writing addressed by

one person to another, signed by the person giving it, requiring the person
to whom it is addressed to pay on demand or at a fixed or determinable
future time a sum certain in money to order or to bearer.

11. Trust Certificates – is a form of obligation issued as a security for

the repayment of the money or property held by the trustee.

12. Certificates of deposit for future subscriptions – these are

evidences of money placed as security for the issuances of future
subscriptions.

Section 4 Administrative Agency

- The SEC holds regular meetings at least once a week on a day and time fixed
by it. Special meetings may also be called as often as maybe necessary by
the Chairperson or upon the request of 3 commissioners. In such cases,
notice of the meeting shall be given to all Commissioners and the presence of
3 Commissioners shall constitute a quorum.

- The SEC may, for purposes of efficiency, delegate any of its functions to any
of its departments, offices, individual Commissioner, or staff member, except
its review or appellate authority and its power to adopt, alter and supplement
any rule or regulation.

- The SEC, motu propio or upon a petition filed by an interested party, may
review any order, resolution, decision or action of any of its departments,
offices, individual Commissioner, or staff member.

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see –
Hebrews 11
 - The petition for review shall be filed with the Office of the General Counsel
within 15 days from receipt of the order, resolution, decision or any document
evidencing the action taken which is the subject of the review.

Section 5 Powers and Functions of the Commission

- SEC has the incidental power to conduct administrative hearings, and make
decisions in the course of the performance of their regulatory and law
enforcement functions.

- The SEC may motu propio conduct hearings in the exercise of its regulatory
power. Thus, if the case requires decision or resolution of a violation or
conflict brought about in connection with the performance of a regulatory
function, then it is one for the SEC to decide for the best interest of the
public.

- The SEC may take cognizance of the complaint and the proceedings therein
partaking of the nature of an administrative determination, but it cannot
award damages, nor grant recovery of investments. At most SEC can impose
administrative sanctions, such as suspension or revocation of its license,
issuance of a cease and desist order, and implead its officers for criminal
violations of securities laws before the Department of Justice.

Section 6 Indemnification and Responsibilities of Commissioners

- The Commissioners, including the chairperson, officers and employees of the

SEC, in the execution of their duties owe their undivided loyalty to the SEC
and shall observe the highest standards of honesty, integrity and good faith
in the performance of their duties.

- The rules of conduct for commissioners, officers and employees are provided
under SRC Rule 6.2 of the Amended SRC Implementing Rules and
Regulations.

♥ Violation of the Code or who are guilty of negligence, abuse or acts of

malfeasance or fail to exercise extraordinary diligence in the
performance of their duties shall be held liable for any loss or injury
suffered by the Commission or other institutions as a result of such
violation, negligence, abuse, malfeasance, or failure to exercise
extraordinary diligence.

♥ Similar responsibility shall apply for the disclosure of information,

discussion or resolution of the Commission of a confidential in nature;
use of such personal information for personal gain or to the detriment
of the government, the Commission or third parties.

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see –
Hebrews 11
Section 7 Reorganization

- The SEC is now authorized to reorganize itself, streamline its structure and
operations, upgrade its human resource component and increase the
compensation for the personnel and exempts the SEC from coverage of the
Salary Standardization Law.

- The institutional strengthening of the SEC includes the transfer of its quasi-
judicial function to the regular courts.

CHAPTER III
REGISTRATION OF SECURITIES

Section 8 Requirement of Registration of Securities

- No securities, except of a class exempt under section 9 of the Code or unless

sold in any transaction exempt under section 10 and the rules there under,
shall be sold or distributed by any person or entity in the Philippines, unless
such securities are duly registered pursuant to Sections 8 and 12 of the Code,
and the registration statement has been declared effective by the SEC.

- “Public Offering” of shares, for purposes of registration under the Code,

means a random or indiscriminate offering of securities in general to anyone
who will buy, whether solicited or unsolicited.

- Any solicitation or presentation of securities for sale through any of the

following modes shall be presumed to e a public offering:

♥ Publication in any newspaper, magazine or printed reading material

which is distributed within the Philippines or any part thereof;

♥ Presentation in any public or commercial place;

♥ Advertisement or announcement in any radio or television or any

online or e-mail system; or

♥ Distribution and/or making available flyers, brochures or any offering

material in a public or commercial place, or mailing the same to
prospective purchasers.

- A notice, circular, advertisement, letter, or other communication is not

deemed an offer sale in violation of Section 8 of the Code if it is published or
transmitted to any person after a registration statement has been filed and

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see –
Hebrews 11
 contains any or all of the information required in the SRC Implementing Rules
and Regulations.

- “Offered for sale or distribution” in the provision covers the act of accepting
future subscription deposits. Acceptance of subscription deposits is indicative
that the amount paid therefore was accepted as payment of an offer to sell
securities, unless it is shown that the intention is to treat the payment merely
as advances in anticipation of future increase of capital stock, but the same
should be booked as “liability” in the financial statement of the company.

- “Public distribution” refers to the sale of securities to a least 20 persons or

enterprises. However, under Section 10 (2) of the Code, sale to more than
such number of persons may be exempted by the SEC from registration if the
registration thereof is not necessary in the public interest and for the
protection of the investors by reason of the small amount involved or the
limited character of the public offering.

- As a GR, securities are prohibited from being offered and sold within the
Philippines, unless a registration statement and a prospectus covering the
securities executed ad established in accordance with the requirements and
procedures laid down under SRC rules 8 and 12 of the Amended SRC
Implementing Rules and Regulations, are both filed and in effect.

- The present law now enforces a “full disclosure” approach of regulating public
offerings. Registration under the new Code gives more emphasis to full
disclosure as the principal method of investors protection intended to provide
adequate and accurate disclosure of materials facts concerning the issuer
and the securities it proposes to offer and sell.

- Material information/fact means any fact/ information that could result in a

change in the market price or value in any of the issuer’s securities or would
potentially affect the investment decision of an investor.

- Under new regulatory framework, the SEC no longer passes upon judgment
on the investment merit of an issue but leaves it to the investor to make a
decision on whether or not to buy the shares on the basis of disclosure of
material facts concerning the company and the securities sold.

- The only standard which must be met when registering securities is adequate
and accurate disclosure of required material facts covering the company and
the securities it proposes to sell.

Section 9 Exempt Securities

1. Government Issues

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see –
Hebrews 11
- These are issued and sold by the government over which a particular
government agency exercises regulatory or supervisory care, thereby,
investors are deemed adequately protected.

2. Issuance by foreign governments

- The SEC may prescribe rules for disclosure with respect to offerings of
securities by foreign governments as investors need disclosures to these
offerings of securities.

3. Certificates issued by a receiver or by a trustee in bankruptcy duly approved

by the proper adjudicatory body

- The exemption for certificates issued to creditors by a receiver or trustee in a

rehabilitation/ insolvency proceedings does not affect the general public, but
only the creditors of the issuer who are seeking full or partial payment of their
claims.

4. Sale of securities which are under the regulation of the Office of the Insurance
Commission, Housing and Land Regulatory Board, or Bureau of Internal
Revenue.

- It is construed that, in the event the securities which are supposed to be

regulated by any of the above-mentioned government offices, are not
actually regulated by the concerned government agency, they should be
required t be registered under the Code, otherwise, it would be unregulated
leaving the investors without any protection.

5. Bank issues, except their own shares

- “Except their own shares” is added to clarify that only customary or

traditional banking activities are exempt from SEC registration.

- The philosophy behind the exemption is that the issuance of securities by

banking institutions is already supervised and regulated by the BSP, and
therefore are presumed to be already adequately regulated by that office.

- The new Code now puts the banks, as far as trading their shares are
concerned, under the SEC jurisdiction.

- Although bank securities are still exempt from registration, bank-owned

shares no longer enjoy the same privileges.

- Bank share are not exempted as they are significant segments of the trading
market in securities, and investors need protection with respect to the public
offering and trading of those shares no less than with respect to the shares of
other issuers.

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see –
Hebrews 11
 - The BSP would only regulate debt securities issued by bans, while bank’s own
shares of stock would be registered and regulated by the SEC.

- The discretionary power under subsection 9 (2) of the Code to grant

exemption gives the SEC the power to exempt other securities, if appropriate
under existing circumstances.

Section 10 Exempt Transactions

- What is exempt from the registration requirements are the “transactions” and
not the “securities” themselves.

- The following transactions are specifically exempted under this

section:

1. Judicial sale of securities made pursuant to judgment rendered by a court;

2. Sale of foreclosed securities in order to obtain satisfaction of a mortgage

out of the proceeds, whether authorized by a decree of the court or by a
power of sale contained in the mortgaged agreement.

3. Isolated transaction.

♥ Exemptive relief is not available to an issuer or securities who is

not considered as an owner thereof.

♥ For the transaction to be considred isolated, the following

conditions must be present:

a. The sale is made by the owner thereof;

b. The transaction is not made in the course of repeated and

successive transactions of a like character; and

c. The said owner is not the underwriter of the security.

4. Stock dividends declaration

♥ Stock dividends are exempt from registration because they are

generally not given for value and thus do not constitute a sale.

♥ SEC Resolution No. 5, Series of 2000: once a class of shares are

registered, the SEC shall no longer grant exemptions from
registration of the same class, but shall require an amended
registration statement so that all the issues of that class shall be
considered registered.

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see –
Hebrews 11
 5. Sales of shares to stockholders not underwritten.

♥ Exemption of sales of capital stock of a corporation to its own

stockholders exclusively, where no commission or other
remuneration is paid or given in connection with the sale of such
capital stock is a recognition that it is a common practice for
companies in the Philippines to sell small amounts of shares to its
stockholders to raise capital.

6. Issuance f bands to a single purchaser

♥ It is exempt because it s of limited character as it involves only one

investor

7. Transaction pursuant to a right of conversion. (conversion of preferred

shares or warrants to common shares upon maturity)

8. Broker’s transactions.

♥ Exemption is now available for brokers executing customer orders

even though solicited.

♥ This is intended to allow ordinary after market trading to occur

among investors through brokers and to restrict he registration
requirements to primary offerings by issuers directly or through
underwriters.

9. Pre-incorporation subscription or subscription to a capital increase.

10.Exchange of securities by the issuer with its existing security holders

exclusively, where no commission or remuneration is paid or given in
connection with the transaction.

11.Private placements.

♥ Means the sale of securities by an issuer to not more than 19

persons during any 12 month period and if the buyer(s) falling
under this exemption resell the securities to more than 19
investors, section 8 and 12 of the Code shall apply notwithstanding
the exemption of their issuance, unless such succeeding sale shall
qualify as an exempt transaction.

12.Sale to qualified buyers.

♥ They are called qualified buyers because they are institutional

investors who are presumed to know the risks of investing in the

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see –
Hebrews 11
 securities market, as one of their major business activities is to
invest in securities.

♥ Under the SEC’s rule making power, it is contemplated that the SEC
would adopt exemptions for sales to accredited investors, small or
limited offerings, such as offerings to key employees of the issuer,
offers to acquire the stocks of closely held companies certain types
of mergers and reorganizations where the number of shareholders
or other considerations do no warrant registration.

♥ The applicability of the exemption should depend on whether the

class of persons to whom the securities are being offered needs
protection of the law, such as, whether they have access to the kind
of information which registration would disclose and whether they
do not intend to redistribute the securities.

♥ Unless a confirmation that such exemption is available is applied

fro, any person claiming an exemption under this Section has the
burden, if challenged, of establishing that the exemption is
available. A presumption that an exemption is not available may
arise from the failure to file a notice.

Section 11 Commodity Future Contracts

- “Commodity futures contract” – a contract 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, commodity options and commodity leverage
or margin contracts.

- “commodity” – means any goods, articles, service, rights and interests,

including any group or index of any of the foregoing, in which commodity
interests contracts are presently or in the future dealt in.

Section 12 Procedure for Registration of Securities

1. All securities required to be registered under Subsection 8.1 shall be

registered through the filing by the issuer in the main office of the
Commission, of a sworn registration statement with respect to such
securities, in such form and containing such information and documents as
the Commission shall prescribe.

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see –
Hebrews 11
 - The Commission may require the registration statement to contain
such information or documents as it may, by rule, prescribe.

- It may dispense with any such requirement, or may require additional

information or documents, including written information from an expert,
depending on the necessity thereof or their applicability to the class of
securities sought to be registered.

- The information required for the registration of any kind, and all
securities, shall include, among others, the effect of the securities
issue on ownership, on the mix of ownership, especially foreign and
local ownership.
-The registration statement shall be signed by the issuer’s executive
officer, its principal operating officer, its principal financial officer, its
comptroller, principal accounting officer, its corporate secretary or
persons performing similar functions accompanied by a duly verified
resolution of the board of directors of the issuer corporation.
- The written consent of the expert named as having certified any part
of the registration statement or any document used in connection
therewith shall also be filed.
-Where the registration statement includes shares to be sold by selling
shareholders, a written certification by such selling shareholders as to
the accuracy of any part of the registration statement contributed to by
such selling shareholders shall also be filed.

2. Upon filing of the registration statement, the issuer shall pay to the
Commission a fee of not more than one-tenth (1/10) of one per centum (1%)
of the maximum aggregate price at which such securities are proposed to be
offered.

- The Commission shall prescribe by rule diminishing fees in inverse

proportion to the value of the aggregate price of the offering.

3. Notice of the filing of the registration statement shall be immediately

published by the issuer, at its own expense, in two (2) newspapers of general
circulation in the Philippines, once a week for two (2) consecutive weeks, or in
such other manner as the Commission by rule shall prescribe.

- Reciting that a registration statement for the sale of such security has
been filed, and that the aforesaid registration statement, as well as the
papers attached thereto are open to inspection at the Commission
during business hours, and copies thereof, photostatic or otherwise,
shall be furnished to interested parties at such reasonable charge as
the Commission may prescribe.

4. Within forty-five (45) days after the date of filing of the registration statement,
or by such later date to which the issuer has consented, the Commission shall
declare the registration statement effective or rejected, unless the applicant is
allowed to amend the registration statement as provided in Section 14 hereof.

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see –
Hebrews 11
 5. The Commission shall enter an order declaring the registration statement to
be effective if it finds that the registration statement together with all the other
papers and documents attached thereto, is on its face complete and that the
requirements have been complied with. The Commission may impose such
terms and conditions as may be necessary or appropriate for the protection of
the investors.

6. Upon effectivity of the registration statement, the issuer shall state under oath
in every prospectus that all registration requirements have been met and that all
information are true and correct as represented by the issuer or the one making
the statement.

- Any untrue statement of fact or omission to state a material fact

required to be stated therein or necessary to make the statement
therein not misleading shall constitute fraud.

Section 13 Rejection and Revocation of Registration of Securities.

- The Code gives the SEC the authority to refuse to permit a registration
statement to become effective or revoke the effectivity on any ground
enumerated in the provision.
- A declaration of insolvency at any time should not serve as a bar to
registration. Only companies that have been declared insolvent by a court
may be refused registration.
- An insolvent company should not be denied the opportunity to seek
capitol if it discloses fully its financial condition.
- Also, not every claim of violation of the law should be a ground for
rejection or revocation of a registration statement.
- The only violations the SEC should undertake to determine ae those
committed in connection with the offering.
- If the violation of law is not material and therefore does not require
disclosure, it should not be a basis for revocation.

Section 14 Amendments to the Registration Statement

- The SEC is empowered to review each situation to determine whether

investor are adequately protected by the amendment.
- The filing of amendments to a registration statement restarts the clock
with respect to the 45 day period between filing and the time when the SEC,
under Sec. 12 of the Code, must act on the registration statement.

Section 15 Suspension of Registration

- The suspension should be reserve for significant problems or where

fraudulent sales are occurring.

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see –
Hebrews 11
 - While the SEC is empowered to summarily suspend the registration of
securities for the interest of the public, it shall conduct a hearing upon the
issuance of an order of suspension.

To have faith is to be sure of the things we hope for, to be certain of the things we cannot see –
Hebrews 11