MIDTERM REVIEWER

DEFINITION OF TERMS

Persons involved in the Issuance and Distribution

1. Issuer is the originator, maker, obligor or creator of the security.

2. Broker is a person engaged in the business of buying and selling securities for the account of others

3. Dealer means any person who buys and sells securities for his/her own account in the ordinary course of business.

4. Clearing agency is any person who acts as intermediary in making deliveries upon payment to effect settlement in securities transactions.

5. Exchange is the organized marketplace or facility that brings together buyers and sellers and executes trades of securities and/or commodities. covers
only listed shares.

6. Promoter is a person who, acting alone or with others, takes initiative in founding and organizing the business or enterprise of the issuer receives
consideration therefore.

7. 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.

8. Underwriting is the process of marketing new issues of securities.

A. EQUITY, DEBTS AND GOVERNMENT SECURITIES

Securities- are shares, participation or interests 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.

KINDS OF SECURITIES

(BROADLY)

Equity Securities(Shares of stocks, Investment Contracts) -

Debt Securities(Bonds, Debentures, notes) -

Government Securities(Treasury bill and treasury Bonds) -

(SPECIFIED)

a) Shares of stock, bonds, debentures, notes, evidences of indebtedness, asset-backed securities;

b) Investment contracts, certificates of interest or participation in a profit sharing agreement, certificates of deposit for a future subscription;

Investment contract

It is a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of
others.

c) Fractional undivided interests in oil, gas or other mineral rights;

d) Derivatives like option and warrants;

Derivative

It is a financial instrument whose value depends on the interest in or performance of an underlying security, but which does not require any investment of
principal in the underlying security.

Options

It is a contracts that give the buyer the right to buy or sell an underlying security at a predetermined price (exercise/ strike price) on or before the expiry
date which can only be extended in accordance with the Exchange rules.

Warrants

It is the rights to subscribe or purchase New or existing shares in a company before the Expiry date which can only be extended in Accordance with the
Exchange rules.

e) Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments;

f) Proprietary or non proprietary membership certificates in corporations; and

g) Other instruments as may in the future be determined by the Commission.

 B. INVESTORS PROTECTION

Investors protection means that the investors are safeguarded and protected by various laws and rules made by the regulatory agencies.

Regulatory agencies to protect investors

 Securities Regulations Code (SRC )

o Its intention is to protect the public and also to strengthen the capital markets through regulations.
 Manners by which SRC protects the public:
o By imposing a continuing duty of full disclosure of information to the public;
o By requiring registration of securities;
o By requiring close monitoring of securities;
o By requiring the registration of and monitoring the activities of persons involved to ensure compliance with the law;
o By prohibiting and penalizing different fraudulent practices and transactions; and
o By providing the SEC with and strengthening its powers and functions.
 Philippine Stock Exchange-
 Other Self-Regulatory Organization

Tender offer- a publicly announced intention to acquire 15% of ownership in each class of shares in a public listed company.

Mandatory Tender Offer- To protect minority shareholders

Tender offer is mandatory when:

1. Any person or groups of persons acting In concert, who

a. Intends to acquire 35% or more of equity shares of public Company
b. Intends to acquire 35% or more of equity shares in a public company in one or more Transactions within a period of 12 months.
2. If any acquisition of even less than 35% would result in ownership of over 51% of the total outstanding equity securities of a public company.

The mandatory tender offer requirement shall not apply to the following:

1. Any purchase of unissued capital stocks that will not result to a fifty percent (50%) more ownership of shares by the purchaser.
 2. Any purchase of shares from an increase in authorized capital stock.

3. Purchasing of foreclosure proceedings involving a duly constituted pledge or security arrangement where the acquisition is made by the debtor or
creditor;

4. Purchases in terms of privatization undertaken by the government of the Philippines;

5. Purchases in terms of corporate rehabilitation under Judicial supervision;

6. Purchases through an open market at the prevailing market price; and

7. Merger or consolidation.

C. REGISTRATION, EXEMPTION, PRIMARY, SECONDARY, PUBLIC AND PRIVATE OFFERING

Registration of Securities

Securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed and approved by the SEC.

Procedure for Registration of Securities

1. All securities required to be registered shall be Registered through the filing by the issuer in the Main office of the Commission, of a: Sworn
registration statement, a prospectus and information or documents as prescribed.

Registration Statement- it contains all Information about the issuer and the securities it will Issue. It shall contain among others the Name
of the corporation, Directors, Officers, Nature of business, Income for the past 5 years, Income projection for the next 5 years, Assets, Actual
or contingent liabilities. Signed by Issuer’s Executive officer, Principal operating officer, Principal financial officer, Comptroller, Principal
accounting officer, Corporate secretary and Persons performing similar functions accompanied by a duly verified resolution

Material, relevant and timely

Disclosure Regime- all public companies were required to provide extensive information filings which would be viewable by the public
containing details about the company including extensive financial information and information about known risks.

Prospectus- It is a document made by or on behalf of an issuer, Underwriter or dealer to sell or offer securities for the Sale to the public
through a registration statement Filed with the SEC.
 2. The issuer shall pay to the Commission a fee of not more than 1/10 of one percent of the Maximum aggregate price at which such Securities are
proposed to be offered.
3. Notice of filing of the registration statement shall be immediately published in two (2) newspapers of general circulation in the Philippines, once a
Week for two consecutive weeks or in such other Manner as the Commission by rule shall Prescribe.
4. Within 45 days after the filing or any later date to which the issuer consented, the commission shall declare it effective or rejected, unless the
applicant is allowed to amend the registration statement.
5. If approved, the commission shall enter an order declaring such effective.
6. Upon effectivity of registration, the issuer shall state under oath in every prospectus that all registration requirements have been met and all
information are true and correct.

Types of Securities

1. Exempt – can be sold even without the requisite registration.

2. Not exempt – cannot be sold within the Philippines unless registered
3. Sold on exempt transactions – transactions need not be Registered; must pay a fee equivalent to 1/10 of 1% of the minimum aggregate price or
issued value of the securities

EXEMPT SECURITIES

1. Issuances by Philippine Government

2. Issuances by Foreign Governments

3. Certificates issued by a receiver/trustee in bankruptcy duly approved by the proper adjudicatory Body

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

5. Bank Issues, except their own shares of stock

6. Others which the SEC may later decide to grant exemption.

EXEMPT TRANSACTIONS

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

 2. Sale of foreclosed securities

3. Isolated transaction

4. Stock dividends

5. Sale of shares to stockholders not underwritten

6. Issuance of bonds to a single purchaser

7. Transaction pursuant to right of conversion

8. Broker’s transactions.

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

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

11. Private placements

12. Sale to qualified buyers such as banks, investment houses, insurance companies, pension funds, investment

companies, and such other person as SEC may by rule determine as qualified buyers.

13. Others which the SEC may later decide to grant exemption.

Securities Market Offering

A. Primary offering- It involves the issuance of the unsubscribed portion of the authorized capital stock of the corporation.
B. Secondary offering- It involves the sale of previously issued and subscribed shares.
C. Public offering- It is the sale of equity shares or other financial instruments to the public
D. Over-the-counter offering- It refers to transactions done outside the stock exchange.
 D. CAPITAL MARKET PROFESSIONALS AND INSTITUTIONS

Capital Market Professionals (Salesman, Associated Person, Solicitor)

-Natural Persons

-Licensure Examination

Capital Market Institutions (Banks, Investment House, Investment Company, broker and dealer, SRO, PSE)

-Juridical Persons

-Secondary License

E. PRIVATE, PUBLIC AND LISTED COMPANIES

A. Private Companies- companies which shares are not traded in a stock market and only offered, owned and traded/exchanged
privately.
B. Public Companies- companies which owns more than 50 million assets and having 200 shareholders with 100 shareholdings per
each shareholder
C. Listed Companies- companies which shares are listed on a stock exchange for public trading.
D. Unlisted Companies- companies which shares are not listed and traded on a stock exchange.

F. FULL DISCLOSURE AND STRUCTURED REFORTING

Material non-public information- information that is not yet available to the public which may affect market price of securities

G. SELF-REGULATORY ORGANIZATIONS

SELF-REGULATORY ORGANIZATIONS (SRO) – an organization that has been delegated by the Government to have a power to implement its own rules and
regulations regarding to securities.

Example of SRO

Securities and Exchange Commission vs SRO

 H. GOOD CORPORATE GOVERNANCE STANDARDS; INDEPENDENT DIRECTORS

Manipulative Schemes, devices

1. Wash Sales- engaging in a transaction wherein there is no changes in beneficial ownership over the securities
2. Marking the close- buying and selling of securities at the close of the market in an effort to alter the closing price of the securities.
3. Insider Trading- Trading of securities after knowing the material information that are not readily available to the public.
4. Squeezing the float- Taking advantage of a shortage of a securities in the market by controlling the demand side and exploiting market congestion to
create artificial prices. Hoarding.
5. Window Dressing- sugar-coating the financial Statement of the company
6. Hype and Dump- Engaging in the buying activities at increasingly higher price and then selling securities in the market at the higher price
7. Improper matched order-
8. Painting the tape-

Investments Scam

1. Advance fee scam- An advance fee scheme occurs when the victim pays money to someone in anticipation of receiving something of greater value
—such as a loan, contract, investment, or gift—and then receives little or nothing in return.
2. Offshore investment Scam-
3. Pyramid Scheme- form of investment in which each paying participant recruits another participants, with returns being given to early participants
using money contributed by later ones.
4. Ponzi Scheme- fraudulent investing scam promising high rates of return with little risk to investors.
5. Boiler room scheme- is a scheme in which salespeople apply high-pressure sales tactics to persuade investors to purchase securities, including
speculative and fraudulent securities through telephone call .
6. Get quick rich Scheme- it is a plan to obtain high rates of return for a small investment.

Additional information