Professional Documents
Culture Documents
SRC PDF
SRC PDF
SRC PDF
PURPOSE: The Securities Regulations Code or RA No. 8799 aims to protect the investing public primarily through a
system of disclosure and provide punishment for fraudulent practices.
PROTECTION OF THE PUBLIC: The Securities Regulations Code protects the public as follows:
1. Requiring full disclosure of information to the public regarding the securities that are being offered and the
issuers, including the filing and approval of the registration statement and the approval of the prospectus;
2. The requirement of regularly submitting material information to the SEC;
3. Close monitoring of the securities and other circumstances that may affect the same as well as the persons
involved including brokers, issuers, the exchange itself, etc. in order to ensure compliance with pertinent
laws and regulations;
4. Prohibiting and penalizing different fraudulent practices and transactions; and
5. Providing the SEC the powers and functions.
SECURITIES
The main feature of a security is that a person purchases or acquires the same in the expectation of obtaining
passive income or asset appreciation, that is income or gain obtained through the effort of another person. This
feature makes them attractive and desirable and necessitates the protection of the investing public.
They include:
1. Shares of stocks, bonds, debentures, notes evidences of indebtedness, asset-backed securities;
2. Investment contracts, certificates of interest or participation in a profit sharing agreement, certifies of
deposit for a future subscription;
3. Fractional undivided interests in oil, gas or other mineral rights;
4. Derivatives like option and warrants;
5. Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or
similar instruments
6. Proprietary or nonproprietary membership certificates in corporations; and
7. Other instruments as may in the future be determined by the Commission.
Investment contract 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.
Requisites:
1. An investment of money;
2. In a common enterprise;
3. With expectation of profits;
4. Primarily from the efforts of others (this modifies the Howey Test which requires profits to be derived
“solely” from the efforts of others)
ILLUSTRATION: Power Homes Unlimited Corp. (PHUC) requires an investor to pay $234 to become a Business Center
Owner (BCO), which entitles him to recruit two person who should pay $234 each and out of which he shall receive
a commission of $92. In case the two referrals/enrollees would recruit a minimum of four (4) persons each
recruiting two (2) persons who become his/her own down lines, the BCO will receive a total amount of US$147.20,
and so on.
Here, the BCO is considered as an investment contract because the investor would be earning primarily from the
efforts of his recruits and their recruits, as the pyramid goes on.
REGISTRATION: The Securities Regulations Code (SRC) provides that securities shall not be sold or offered for sale
or distribution within the Philippines, without a registration statement duly filed with and approved by the SEC
(Commission). Prior to such sale, information on the securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each prospective purchaser.
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.
Procedure:
1. Filing of SWORN REGISTRATION STATEMENT containing the information as the SEC may by rule require.
a. Signatories to registration statement: Executive officer, principal operating officer, principal financial
officer, comptroller, principal accounting officer, corporate secretary.
b. Written consent of the expert named as having certified any part of the registration statement, whenever
necessary.
c. 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. PAYMENT of the filing fees which shall not exceed 1/10 of 1% of the aggregate price at which such securities
are proposed to be offered.
3. PUBLICATION of notice of the filing of the registration statement in two newspapers of general circulation
once for two consecutive weeks.
4. Within 45 days after the date of filing, or by such later date to which the issuer has consented, the SEC
shall give an ORDER declaring the registration statement effective or rejecting it.
5. PROSPECTUS under oath that all requirements satisfied and all statements in registration statement and in such
prospectus are correct.
8. Sale to SOPHISTICATED (Qualified) Buyers: The sale of securities to any number of the following qualified
buyers:
a. Bank;
b. Registered investment house;
c. Insurance company;
d. Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision
thereof or manage by a bank or other persons authorized by the Bangko Sentral to engage in trust functions;
e. Investment company or
f. Such other person as the SEC may rule by 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
9. MORTGAGE-BACKED SECURITIES: The issuance of bonds or notes secured by mortgage upon real estate or tangible
personal property, when the entire mortgage together with all the bonds or notes secured thereby are sold to
a single purchaser at a single sale.
10. At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in INSOLVENCY or
bankruptcy.
11. By or for the account of a pledge holder, or mortgagee or any of a pledge lien holder selling of offering for
sale or delivery in the ordinary course of business and not for the purpose of avoiding the provision of SRC,
to LIQUIDATE a bonafide debt, a security pledged in good faith as security for such debt.
12. The EXCHANGE of securities by the issuer with the existing security holders exclusively, where no commission
or other remuneration is paid or given directly or indirectly for soliciting such exchange.
The SEC may exempt other transactions where not necessary in public interest or for protection of investors such
as small amount or limited character of public offering. However, an exemption fee of 1/10 of 1% of the maximum
aggregate price or issued value of the securities should be paid.
REPORTORIAL REQUIREMENTS:
1. Annual report composed of a Balance Sheet, Profit and Loss Statement, and a Statement of Cash Flows certified
by a CPA and a management discussion and analysis of results of operation
2. Other periodical reports for interim fiscal periods and current reports on significant developments of the
issuer as the SEC may prescribe as necessary to keep current information on the operation of the business and
financial condition of the issuer.
The issuer shall likewise furnish to each holder of such equity security an annual report in such form and
containing such information as the SEC shall prescribe.
TENDER OFFER
A tender offer is an offer by a person or group of persons to the stockholders of a corporation to tender their
shares for purchase.
Purpose: The rule on mandatory tender offer seeks to protect minority shareholders and provide them with a fair
price for their share whenever a person or group of persons intends to buy a sizable number of shares in the
company.
Mandatory Tender Offer: applies to any person who intends to acquire at least 35% over a period of 12 months
(previously 30, increased by the SEC pursuant to Section 72.1 of the SRC) of any class of any equity security of
a:
1. Listed corporations; or
2. Corporations with:
a. Assets of at least P50M and
b. Having at least 200 shareholders who each have at least 100 shares
The rule shall likewise apply even if the acquisition is less than 35% but will result in ownership of over 50%
of the total outstanding equity securities of the public company.
The offeror would be required to accept any and all securities thus tendered.
Note that the percentage requirements likewise applies even in indirect acquisitions.
ILLUSTRATION: U Corporation, a corporation listed in the PSE, has two principal stockholder-corporations, X
Corporation which owns 60% and ABC Corporation which owns 17%.
In turn, the principal stockholders of X Corporation are: XA (21%); XB (30%) and ABC Corporation (9%).
In this case, the mandatory tender offer rule applies to ABC Corporation.
1. ABC Corporation will own 60% of X Corporation (21% + 30% + 9%);
2. X Corporation likewise owns 60% of U Corporation, resulting in 36% (60% * 60%) indirect ownership;
3. Accordingly, they will own a total of 53% of U Corporation (36% indirect ownership + 17% direct ownership).
As such, ABC Corporation is required to make a tender offer to the stockholders of U Corporation.
Process:
1. The offeror will make an announcement of his intention in a newspaper of general circulation, prior to the
commencement of the offer;
2. At least 2 business days prior to the date of the commencement of the tender offer:
a. File SEC Form 19-1 with the SEC including all exhibits thereto and pay the prescribed filing fees
b. Hand deliver a copy of such form including all exhibits to the target company at its principal executive
office and to each Exchange where such class of the target company’s securities are listed for trading.
3. Report the results of the tender offer by filing with the Commission, not later than ten (10) calendar days
after the termination of the tender offer, copies of the final amendments to the form.
Wash Sale and Matched Orders are not in themselves illegal. But they are considered fraudulent whenever they
are resorted to in order to create a false or misleading appearance of active trading.
3. Marking the close – placing of purchase or sale order, at or near the close of the trading period in order to
affect the closing price likewise affecting the opening price the following day.
4. Painting the tape – akin to marking the close but the activity is made during normal trading hours which
involves buying activity among nominee accounts at increasingly higher or lower prices or causing fictitious
reports to appear on the ticker tape.
5. Squeezing the float – part or portion of the issue/security which is outstanding but intentionally held by
dealers or other person with a view of reselling them later for profit. Thereby affecting supply of the
security or its availability while demand remains the same or increases, driving the prices up.
7. Boiler Room Operations – involves an intensive selling campaign through numerous salesmen by telephone or
through direct mail offerings for securities of either a certain type or from a specific issuer. Investors are
induced to purchase through hard-sell techniques based on unfounded predictions and mailing of misleading
market letters.
8. Circulating or Disseminating Information On Share Price Movement – involves people providing information that
the price of any security listed in the 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 and thus inducing the purchase or sale of such security.
9. Making False or Misleading Statements – with respect to any material fact, which he knew or had some reasonable
grounds to believe was so false or misleading for the purpose of inducing the purchase or sale of any security.
10. Pegging or Fixing or Stabilizing the price of security effected either alone or with others through any series
of transactions for the purchase or sale thereof, if done for such purpose.
11. Short Sale – selling the security which the vendor does not own and borrowed only from another. This is not
illegal per se but only regulated.
INSIDER TRADING
Material Non-Public Information: Information that will affect the price of the security or would influence a
person in deciding whether to buy, sell, or hold a security which is not available to the public.
Insider:
1. The issuer.
2. A director or officer of the issuer or a person controlling the issuer.
3. A person whose relationship or former relationship to the issuer gives or gave him access to material non-
public information.
4. A government employee, or director, or officer of an exchange, clearing agency, and/or self-regulatory
organization who has access to material non-public information.
5. A person who learns such information by a communication from any of the foregoing insiders.
Insider Trading: when an insider in possession of material non-public information buys or sells a security.
Exceptions: a person in possession of material non-public information can buy or sell securities:
1. When he can prove that the information was not gained from an insider;
2. If the other party is identified and that he:
a. Disclosed the information; or
b. Had reason to believe that the other party is also in possession of the information.
Presumption: a purchase or sale of a security of the issuer made by an insider or such insider’s spouse or
relatives by affinity or consanguinity within the 2nd degree, legitimate or common-law, shall be presumed to have
been effected while in possession of material non-public information if transacted:
1. After such information came into existence;
2. But prior to the dissemination of such information to the public and the lapse of a reasonable time for the
market to absorb such information.
ILLUSTRATION: Gas Gas Corporation, a publicly listed company, discovered a rich deposit of natural gas. This
information was not made public in order to acquire the lands in the surrounding area at cheap prices. Prior
to the disclosure of the information to the SEC, the directors and officers of the company bought shares of
the Corporation. The prices of such shares went up once the discovery was made public.
In this instance, the directors and officers, being such are considered insiders and are informed of the
discovery, which is a material information which would affect the share price of the corporation. Since they
traded (bought) the shares of the company prior to the disclosure of the information, they are liable for
insider trading.
ILLUSTRATION 2: Assuming, employees of a printing company who handles the printing work of Gas Gas Corporation
came into contact with the exploration reports which were sent to their department by mistake together with
the materials intended to be printed, and such employees bought shares of the company at low prices and later
sold them at huge profits.
In this instance, the employees cannot be considered insiders since they acquired the information not because
of any fiduciary relationship that they with Gas Gas Corporation. Likewise, they obtained the information not
by “a communication” but because of error.
Note: this rule will not apply if the information is relative to a tender offer, because it is unlawful for
any person (other than the tender offeror) who is in possession of material nonpublic 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 nonpublic 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.
Liability for disclosure: It shall be unlawful for any insider to communicate material nonpublic information about
the issuer or the security to any person who, by virtue of the communication, becomes an insider, where the insider
communicating the information knows or has reason to believe that such person will likely buy or sell a security
of the issuer whole in possession of such information.
This is regardless of whether the one to whom the communication was given actually traded on the securities.
INSIDER TRADING WHERE INFORMATION RELATES TO A TENDER OFFER: if the information is relative to a tender offer, it
is unlawful for any person (other than the tender offeror) who is in possession of material nonpublic 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 nonpublic 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.
All corporations shall file their GIS within 30 calendar days from:
1. Stock Corporations – date of annual stockholders’ meeting
2. Non-Stock Corporations – date of annual members’ meeting
3. Foreign Corporations – anniversary date of the issuance of SEC license
1. Corporations using the calendar year: depending on the last numerical digit of their SEC registration or
license number in accordance with the schedule set by the SEC.
However, any corporations may file their AFS regardless of the last numerical digit or license number on or
before the first day stated in the coding schedule.
2. Corporations using the fiscal year:
a. General Rule: 120 calendar days from the end of the fiscal year;
b. Exceptions:
i. Broker dealers – 110 calendar days from the end of the fiscal year;
ii. Listed companies and Public Companies – 105 days from the end of the fiscal year.
The AFS, other than the consolidated financial statements, shall have the stamped “received by the Bureau of
Internal Revenue (BIR)” or its authorized banks, unless the BIR allows an alternative proof of submission for its
authorized banks.