INVESTOR PROTECTION IN THE PHILIPPINES

By Pranjal Mehta

ABSTRACT

Investor protection entails the safeguarding of the investors from the unscrupulous elements
in the market. This entails investor education as well. The project first discusses the meaning
and scope of investor protection. Secondly, the investor protection mechanism in the
Philippines is discussed. In doing so the role played by the ‘Securities and Exchange
Commission’ along with the ‘Investor Protection and Surveillance Department of the
Philippines’ is highlighted. Further, a relative understanding of the Philippines system with
that of other Asian-Pacific nations is also delved into. Lastly this project lists out the benefits
and impact the investor protection framework has had overall.

I. INTRODUCTION TO INVESTOR PROTECTION

Investor protection may be broadly interpreted as safeguarding the interests of investors by

instituting a combination of measures in areas relating to corporate governance of listed
companies (e.g. shareholder rights, disclosure and accountability), market regulation, trading
and settlement system efficiency and reliability, as well as financial institutions’ dealings
with investors. For the purpose of the survey, we have limited its scope to three key areas:

(a) market misconduct;

(b) false and misleading statements or omissions in prospectuses; and

(c) recommendations without a reasonable basis.

When investors finance firms, they typically obtain certain rights or powers. Creditors get the
right to repossess collateral or to reorganize the firm that does not pay interest or that violates
debt covenants. Shareholders get the right to vote on key corporate matters, to select
directors, or to sue the directors and the firm. All outside investors, whether shareholders or
creditors, also have the right to receive certain corporate information. Indeed, many other
rights can only be exercised when they have such information. For example, without
accounting data, a creditor cannot know whether a debt covenant had been violated. Absent

Electronic copy available at: http://ssrn.com/abstract=2403523

these rights, the insiders do not have much of a reason to repay the creditors or to distribute
profits to shareholders. All non-controlling investors large or small, shareholders or creditors
need their rights protected. Minority shareholders require the right to be treated in the same
way as the more influential shareholders in dividend policies and in access to new security
issues by the firm. The significant but non-controlling shareholders need the right to have
their votes counted and respected. Even the large creditors investors typically viewed as so
powerful that they need relatively few formal rights must be able to seize and liquidate
collateral, or to reorganize the firm. Without an ability to enforce their rights, investors are
likely to end up with nothing even if they hold claims to a significant fraction of the firm’s
capital. Outside investors’ rights are generally protected through the enforcement of
regulations and laws. Some of the crucial regulations are disclosure and accounting rules,
which provide investors with the information they need to exercise other rights. Protected
shareholder rights include those to receive dividends on pro-rata terms, to vote for directors,
to participate in shareholders’ meetings, to subscribe to new issues of securities on the same
terms as the insiders, to sue directors for suspected expropriation, to call extraordinary
shareholders’ meetings, and so on. Laws protecting creditors largely deal with bankruptcy
procedures, and include measures that enable creditors to repossess collateral, to protect their
seniority, and to make it harder for firms to seek court protection in reorganization. In
different jurisdictions, rules protecting investors come from different sources, including
company, security, bankruptcy, takeover, and competition laws, but also stock exchange
regulations and accounting standards. Enforcement of laws is as crucial as their content. In
most countries, laws and regulations are enforced in part by market regulators, in part by
courts, and in part by market participants themselves. The emphasis on legal rules and
regulations protecting outside investors stands in sharp contrast to the traditional law and
economics perspective on financial contracting. According to this perspective, most
regulations of financial market share unnecessary, because financial contracts take place
between sophisticated issuers and sophisticated investors. On average, investors recognize a
risk of expropriation, and penalize firms that fail to contractually disclose information about
themselves and to contractually bind themselves to treat investors well. Because
entrepreneurs bear these costs when they issue securities, they have an incentive to bind
themselves through contracts with investors to limit expropriation Investor protection has
been defined by the Financial Times Lexicon as: “Actions to encourage honest advertising of
financial products, and to prevent fraud to make sure that investors do not lose money if their
investments default (are not repaid).
1

Electronic copy available at: http://ssrn.com/abstract=2403523

As long as these contracts are enforced, financial markets do not require regulation. Note that
even this perspective, which originates in the Coase (1961) theorem, relies on courts
enforcing elaborate contracts, which in most countries cannot be taken for granted. Indeed,
courts are often unable or unwilling to resolve complicated disputes, and are slow, subject to
political pressures, and even corrupt. When the enforcement of private contracts through the
court system is sufficiently costly, the Coase theorem itself admits at least a possibility that
other forms of protecting property rights, such as judicially-enforced laws or even
government en forced regulations, are more efficient (that is have lower transaction costs).
Given the ambiguity of the theory, the answer to whether contracts, court-enforced legal
rules, or government-enforced regulations are the most efficient form of protecting financial
contracts is largely empirical. As the next section of this paper shows, the empirical evidence
rejects the hypothesis that private contracting is sufficient. Even among countries with
reasonably well functioning judiciaries, those with laws and regulations more protective of
investors have better developed capital markets.

LLSV (1998) discuss a set of key legal rules protecting shareholders and creditors, and
document their prevalence in 49 countries around the world. They also create shareholder and
creditor rights indices for each country. Using these data, they find evidence of systematic
variation in laws, regulations, and enforcement quality across countries. Specifically,
commercial legal systems of most countries derive from relatively few legal ‘families’. Some
countries, such as England, Germany, and France, developed their own legal systems, the
latter two based on Roman Law. In the 19th century, these systems spread throughout the
world through conquest, colonization, and voluntary adoption. England and its former
colonies, including the U.S., Canada, Australia, and New Zealand, but also many countries in
Africa and South East Asia, have ended up with the common law system. France, Spain, the
former French and Spanish colonies (including all countries in Latin America), as well as
many countries Napoleon conquered, are part of the French or Napoleonic civil law tradition.
Germany, Germanic countries in Europe, and a number of countries in East Asia are part of
the German civil law tradition. The Scandinavian countries form their own legal tradition.
The socialist countries had a legal tradition based on Soviet law, but because these countries
are changing their laws during transition out of socialism, this tradition does not receive
much attention here. How well legal rules protect outside investors varies systematically
across legal origins. In particular, common law countries have the strongest protection of
outside investors, both shareholders and creditors, whereas French civil law countries have

2
the weakest protection (LLSV 1998). German civil law countries are in between, although
comparatively speaking they have stronger protection of creditors, especially secured
creditors. Scandinavian origin countries are similar to the German ones. In general,
differences between legal origins are best described by the proposition that some countries
protect all outside investors better than others, and not by the proposition that some countries
protect shareholders and the others protect creditors.

There are significant differences between countries in the quality of enforcement as well. The
quality of enforcement also has several elements, from the efficiency of the judiciary to the
quality of accounting standards. Unlike legal rules themselves, which do not appear to
depend on the level of economic development, the quality of enforcement is higher in richer
countries. But here as well, legal origin matters: holding the level of per capita income
constant, French legal origin countries have the worst quality of law enforcement of the four
legal traditions. Because legal origins are highly correlated with the content of the law, and
because legal families originated much before the financial markets have developed, it is
unlikely that laws were written primarily in response to market pressures. Rather, the legal
families appear to shape the legal rules, which in turn influence financial markets. But what is
special about legal families? Why, in particular, is common law more protective of investors
than civil law? These questions do not have an agreed upon answer. It may be useful to
distinguish between two broad kinds of answers: the judicial explanations that account for the
differences in the legal philosophies using the organization of the legal system, and the
political explanations that account for the differences using political history.

The judicial explanation of why common law protects investors better runs as follows. Legal
rules in the common law system are usually made by judges, based on precedents and
inspired by general principles, such as fiduciary duty. Judges are expected to rule on new
situations by applying these general principles even when specific conduct has not yet been
described or prohibited in the statutes. In the area of investor expropriation, the judges then
apply what Coffee calls a smell test, and try to sniff out whether even unprecedented conduct
by the insiders violates their fiduciary duty. The expansion of legal precedents to additional
violations of fiduciary duty, and the fear of such expansion, limits the expropriation by the
insiders in common law countries. In contrast, legal rules in civil law systems are made by
legislatures, and judges are not supposed to go beyond the exact letter of the law. No smell
tests are allowed. As a consequence, a corporate insider who finds a way to expropriate
outside investors which is not explicitly forbidden by the law, can proceed without fear of an
3
adverse judicial ruling. From this perspective, the vague fiduciary duty principles of the
common law are more protective of investors than the bright line rules of the civil law, which
can often be circumvented by sufficiently imaginative insiders. The judicial perspective on
the differences is fascinating and possibly correct, but it is incomplete. It requires a further
assumption that the judges have an inclination to protect the outside investors rather than the
insiders. In principle, it is easy to imagine that the judges would use their discretion in
common law countries to narrow the interpretation of fiduciary duty, and to sanction
expropriation rather than prohibit it. Common law judges could also in principle use their
discretion to serve political interests, especially when the outside investors obstruct the
government’s goals. To explain investor protection, it is not enough to focus on judicial
power; a political and historical analysis of judicial objectives is required. From this
perspective, important political and historical differences between mother countries shape
their laws. This is not to say that laws never change (in section 5 we focus specifically on
legal reform) but rather to suggest that history has persistent effects. How so?

LLSV (1999a) argue that an important historical factor shaping laws is the relatively greater
role of the state in regulating business in civil than in common law countries. One element of
this view, suggested by Finer (1997) and other historians, points to the differences in the
relative power of the king and the property owners across European states. In England from
the seventeenth century on (and arguably before), the crown partially lost control of the
courts, which came under the influence of the parliament and the property owners who
dominated it. As a consequence, common law evolved to protect private property against the
crown. Over time, courts extended such protection of property owners to investors. In France
and Germany, by contrast, the parliaments never dominated the kings, and the state
dominated the courts and the property owners. Commercial Codes were adopted only in the
nineteenth century by the two great state builders, Napoleon and Bismarck, to enable the state
to better regulate economic activity. As the law evolved, the dominance of the state translated
into the more political conception of the corporation, and the more limited rights of investors
in dealing with the politically connected families that control firms. After all, the state was
not about to surrender its power over business to the financiers. Relatedly, courts in civil law
countries, unlike those in England, were more dependent on the government, and less likely
to take the side of investors in disputes with the government or with the firms that were close
to it. As a consequence of these divergent political histories, common law developed to
become more protective of investors than did civil law.

4
Recent research supports the proposition that civil law is associated with greater government
interference in economic activity, and weaker protection of private property. LLSV (1999a)
examine the determinants of government performance in a large number of countries. To
measure government interventionism, they consider proxies for the quality of regulation, the
prevalence of corruption and of red tape, and bureaucratic delays. They find that, as a general
rule, civil law countries, and particularly French civil law countries, are more interventionist
than common law countries. The inferior protection of the rights of outside investors in civil
law countries may be one manifestation of this general phenomenon. This evidence thus
provides some support for interpreting the differences in legal families in light of political
history.

Berglof and von Thadden (1999) and Rajan and Zingales (1999), while agreeing with our
view that political history accounts for the differences in legal systems and corporate
governance regimes among countries, question our emphasis on the legal protection of
outside investors. Berglof and von Thadden (1999) suggest that countries may develop other
governance mechanisms for stopping expropriation, such as moral sanctions or worker
participation in management. Rajan and Zingales (1999) maintain that legal rules are not
sufficiently durable to protect investors from the state determined to change corporate
control, and that the judicial independence from the executive per se rather than the specific
legal rules explains investor protection in common law countries. These interpretations of
legal regimes as reflecting broader political sentiments in a society are consistent with our
own position (LLSV 1999a). At the same time, we maintain that investor protection is one of
the principal routes through which long-run political sentiment, as reflected by the legal
family, influences financial markets. In the next section, we describe some empirical research
consistent with this proposition.

In concise, investor protection is the legislation to protect small investors from unscrupulous
investment brokers and advisers. Investor protection is defined by the extent to which the
commercial law and its enforcement protect investors from expropriation by company
insiders.

Investor protection is usually measured by indicators that quantify explicit protections

awarded to shareholders and creditors by corporate, bankruptcy, and reorganisation laws, as
well as the quality of law enforcement.

5
Examples of such explicit protections are those that impact the shareholders’ ability to vote
down directors, including whether to allow shareholders to vote by proxy or vote by
mail. Allowing shareholders to vote by proxy or by mail decreases the costs for small
shareholders to manifest their dissent.

There are also provisions that impact the ability of secured creditors to take possession of
their collateral in bankruptcy. In many countries there is an automatic stay upon bankruptcy,
meaning that creditors cannot repossess their collaterals and reduces creditor protection.

Differences in investor protection across countries are substantial and are believed to be
responsible for differences in the development of financial markets and ultimately for
differences in economic development.

Example
In April 2002 investor protection in Italy worsened as a result of a decree issued by
Berlusconi’s government, which downgraded the crime of ”false communication by
corporate executives” from felony (serious crime) to misdemeanor (minor offence),
punishable at most with a pecuniary fine. This reform lowered corporate executives’
incentives to tell investors the truth about the state of their companies.

II. BASIC FRAMEWORK OF INVESTOR PROTECTION

The basic framework for investor protection is established through statutory instruments, as it
improves the level of compliance and the regulator’s ability to enforce rules. Accordingly, all
survey respondents have enacted securities and corporate legislation governing the conduct of
market intermediaries and protecting the rights of investors. To supplement these statutory
provisions, securities exchanges also stipulate listing and trading rules, which regulate the
trading in securities and ensure an appropriate degree of transparency and accountability on
the part of companies raising capital from the market. Exchanges are empowered to supervise
and inspect members’ conduct and, in accordance with rules, to impose disciplinary sanctions
on any member that violates these rules. Certain jurisdictions such as Vietnam and Japan also
cited reliance on criminal law and common law actions in tort, negligence, misrepresentation,
or fiduciary duties as legal sources of investor protection.

In certain jurisdictions, investor protection in the capital markets forms part of the broader
framework for consumer protection in general. Hence investors in these countries can also
seek redress under the more general consumer protection laws mandating fair dealings with

6
consumers, which may be applied to violations of securities law. For example, New Zealand
has enacted the Fair Trading Act 1986 and the Consumer Guarantees Act 1993. The
Consumer Guarantees Act deems certain guarantees to be given on the supply of goods and
services to consumers and confers rights of redress for any breach of these guarantees 2. India
also has a Consumer Protection Act. In Australia, provisions prohibiting unconscionable
conduct in relation to financial services are found in the Australian Securities and
Investments Commission Act 2001. Retail investors have recourse to the above-mentioned
consumer protection laws in addition to protection that is afforded under securities
legislation. Singapore has taken a different approach – the financial sector will be carved out
of the draft Consumer Protection (Fair Trading) Bill to be enacted by end 2003 3.

Holistic Approach to Investor Protection

The regulatory framework only provides a foundation – it is still necessary to consider how
the framework is implemented and how the process of investor protection actually takes
places. Most of the survey respondents generally use of a three-pronged approach to achieve
this:

i. Ongoing Supervision

The first level of investor protection is the licensing and continuous supervision of market
intermediaries, and approval of documents for offers to the public. The former ensures that
prudential, fit and proper and conduct standards are met, and the latter is necessary for
allowing only documents with accurate and adequate disclosure to be circulated to the public.
Certain jurisdictions conduct on-going supervision through inspection of entities and review
of periodic reports received.

ii. Enforcement and Remedial Action

The supervision of intermediaries should be complemented by rules that clearly set out
acceptable and non-acceptable conduct and are enforceable by the regulator. Enforcement
action could include civil penalties and injunctive powers, as we will further discuss in
subsequent sections of this paper. Certain jurisdictions such as Singapore and Taiwan
complement their supervisory/enforcement approach with civil claims by investors spelt out
in securities legislation, while others address this through general law (such as contract, tort
or consumer protection laws).

7
iii. Investor Education

Differing levels of investor awareness of securities laws and their rights, as well as that of
financial literacy influences both the nature and intensity of regulation needed for investor
protection. Investor education empowers investors to look after their own interests and
minimises their reliance on the regulator to examine each investment for its merit. Indeed,
consumer education is important in disclosure-based regimes, as consumers need to be
empowered to know how to deal with disclosed information. The majority of the jurisdictions
surveyed also have a system to receive and address public complaints, and in the process,
reinforce public confidence in their capital markets.

It is accepted that there is no “one size fits all” approach to regulation, as circumstances differ
in each jurisdiction. By and large, the appropriateness of any regime depends on the level of
market development and investor sophistication, state of legal and judicial system, and
resources availed to the regulator. This is recognised by the IOSCO in the “Objectives and
Principles of Securities Regulation”.

Investor Education

Though the survey circulated did not cover investor education, a couple of respondents,
including Australia, highlighted investor education as an important function of the regulator
and a keystone in investor protection efforts. Hence we will briefly discuss the role of
investor education here. 2.7 Securities regulators in jurisdictions such as Australia, China,
India and Singapore have actively taken steps to educate the investing public to complement
their other regulatory activities. For example, the Australian Securities and Investments
Commission (“ASIC”) hosts a website “fido” that is dedicated to consumer protection and
publishes discussion papers on consumer education related matters. Similarly, MAS recently
launched a consumer portal on its website which provides useful links to education resources
and offers practical tips to help investors understand their rights and responsibilities.

Investor education can be conducted through various channels – mass media, Internet and
community organisations – depending on the target audience. Investor education is typically
slanted towards pension and retirement planning issues, as these are particularly relevant and
provide a wider coverage for investor education initiatives. Special attention should be given
to the elderly and the less-educated segment of the population, as they are likely to be more
susceptible to being victims of opportunistic behaviour.

8
At the very least, investors need to be aware of the importance to deal only with licensed
entities, their rights, and the general rules that are in place. They should also have some
working understanding of the types of financial instruments and how the stock market works.
In particular, the public needs to be aware of the risks involved in common investment
instruments, and to be wary of unrealistic and fraudulent claims.

Another aspect of investor education is to equip members of the public with the knowledge
and ability to seek recourse in the event of misconduct. They must be aware of the existence
of complaints channels in order for them to be effective. The responsibility for the existence
of such channels is often shared between different agencies, such as the securities regulator,
industry associations, criminal law enforcement agencies, the securities exchange or even
consumer tribunals.

To promote investor education and awareness, we noted that India has established two types
of investor protection funds, namely the Investor Service Fund and the Investor Education
and Protection Fund. These funds cover programmes for all investors in the securities market.
In Singapore, one of the purposes of the Financial Sector Development Fund 5 is to provide
co-funding for financial education initiatives.

III. INTRODUCTION TO THE MARKET OF PHILIPPINES

The Economy of the Philippines is the 40th largest in the world, according to 2012
International Monetary Fund statistics, and is also one of the emerging markets in the world.
The Philippines is considered as a newly industrialized country, which has been transitioning
from being one based on agriculture to one based more on services and manufacturing.
According to the CIA Factbook, the estimated 2012 GDP (purchasing power parity) was
$424.355 billion. Goldman Sachs estimates that by the year 2050, the Philippines will be the
14th largest economy in the world, Goldman Sachs also included the Philippines in its list of
the Next Eleven economies. According to HSBC, the Philippine economy will become the
16th largest economy in the world, 5th largest economy in Asia and the largest economy in
the Southeast Asian region by 2050.

Primary exports include semiconductors and electronic products, transport equipment,

garments, copper products, petroleum products, coconut oil, and fruits. Major trading partners
include the United States, Japan, China, Singapore, South Korea, the Netherlands, Hong
Kong, Germany, Taiwan, and Thailand. The Philippines has been named as one of the Tiger

9
Cub Economies together with Indonesia, Malaysia and Thailand. It is currently one of Asia's
fastest growing economies. However, major problems remain, mainly having to do with
alleviating the wide income and growth disparities between the country's different regions
and socioeconomic classes, reducing corruption, and investing in the infrastructure necessary
to ensure future growth.

The Philippine economy has been growing steadily over decades and the International
Monetary Fund in 2011 reported it as the 45th largest economy in the world. However its
growth has been behind that of many of its Asian neighbours, the so-called Asian Tigers, and
it is not a part of the Group of 20 nations. Instead it is open grouped in a second tier of
emerging markets or of newly industrialized countries. Depending upon the analyst, this
second tier can go by the name the Next Eleven or the Tiger Cub Economies.

In the years 2012 and 2013, the Philippines posted high GDP growth rates, reaching 6.8% in
2012 and 7.7% in the first quarter and 7.5% in the second quarter of 2013, the highest GDP
growth rates in Asia for the first two quarters of 2013, followed by China and Indonesia.

A chart of selected statistics showing trends in the gross domestic product of the Philippines
using data taken from the International Monetary Fund is given below:

Year GDP growth in GDP GDP GDP per GDP GDP per Peso vs
percent in PHP in USD capita in USD capita Dollar
(constant prices, Billion Billion in USD Billion in USD Exchange
base year = (current (current (current (PPP) (PPP) Rate
2000) prices) prices) prices)

2003 4.97 4548.1 83.9 1025 222.7 2720 54.20

2004 6.70 5120.4 91.4 1093 242.7 2905 56.04
2005 4.78 5677.8 103.1 1209 261.0 3061 55.09
2006 5.24 6271.2 122.2 1405 283.5 3255 51.31
2007 6.62 6892.7 149.4 1684 309.9 3493 46.15
2008 4.15 7720.9 173.6 1919 329.0 3636 44.47
2009 1.15 8026.1 168.5 1851 335.4 3685 47.64
2010 7.63 9003.5 199.6 2155 365.3 3945 45.11
2011 3.64 9706.3 224.1 2379 386.1 4098 43.31
2012 6.82 10564.9 250.2 2611 419.6 4380 42.23

10
2013 7.16 11546.1 272.2 2792 454.3 4660 42.45

The Economic Growth Rate of the Country is as follows:

Economic growth

Year % GDP % GNI

1999 3.1 2.7

2000 4.4 7.7

2001 2.9 3.6

2002 3.6 4.1

2003 5.0 8.5

2004 6.7 7.1

2005 4.8 7.0

2006 5.2 5.0

2007 7.1 6.2

2008 4.2 5.0

2009 1.1 6.1

2010 7.6 8.2

2011 3.7 2.6

2012 6.8 5.8

2013 7.2

IV. INVESTOR PROTECTION IN THE PHILIPPINES

11
THE SECURITIES AND EXCHANGE COMMISSION AND ITS LEGAL FRAMEWORK IN THE

PHILIPPINES:

The SEC was established on 26 Oct 1936 by virtue of the Commonwealth Act No. 83 or the
Securities Act. Its establishment was prompted by the need to safeguard public interest in
view of local stock market boom at that time. Operations began on 11 Nov 1936 under the
leadership of Commissioner Ricardo Nepomuceno. Its major functions included registration
of securities, analysis of every registered security, evaluation of the financial condition and
operations of applicants for security issue, screening of applications for broker's or dealer's
license and supervision of stock and bond brokers as well as the stock exchanges. The agency
was abolished during the Japanese occupation and was replaced with the Philippine
Executive Commission. It was reactivated in 1947 With the restoration of the Commonwealth
Government. Due to the changes in the business environment under Pres. Ferdinand Marcos,
the agency was reorganized on 29 Sept 1975 as a collegial body with 3 commissioners and
was given quasi-judicial powers under PD902-A.

In 1981, the Commission was expanded to include two (2) additional commissioners and two
(2) departments, one for prosecution and enforcement and the other for supervision and
monitoring. Then on 01 December 2000, the SEC was reorganized as mandated by R. A.
8799 also known as the Securities Regulation Code.

The Mandate, Powers and Functions of the SEC is as follows:

The Commission shall have the powers and functions provided by the Securities Regulation
Code, Presidential Decree No. 902-A, as amended, the Corporation Code, the Investment
Houses Law, the Financing Company Act, and other existing laws.

Under Section 5 of the Securities Regulation Code, Rep. Act. 8799, the Commission shall
have, among others, the following powers and functions:

(a) Have jurisdiction and supervision over all corporations, partnerships or associations who
are the grantees of primary franchises and/or a license or permit issued by the Government;

(b) Formulate policies and recommendations on issues concerning the securities market,
advise Congress and other government agencies on all aspects of the securities market and
propose legislation and amendments thereto;

12
(c) Approve, reject, suspend, revoke or require amendments to registration statements, and
registration and licensing applications;

(d) Regulate, investigate or supervise the activities of persons to ensure compliance;

(e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies
and other SROs;

(f) Impose sanctions for the violation of laws and the rules, regulations and orders issued
pursuant thereto;

(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and
provide guidance on and supervise compliance with such rules, regulations and orders;

(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 under this Code;

(i) Issue cease and desist orders to prevent fraud or injury to the investing public;

(j) Punish for contempt of the Commission, both direct and indirect, in accordance with the
pertinent provisions of and penalties prescribed by the Rules of Court;

(k) Compel the officers of any registered corporation or association to call meetings of
stockholders or members thereof under its supervision;

(l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the
Commission 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) Suspend, or revoke, after proper notice and hearing the franchise or certificate of
registration of corporations, partnerships or associations, upon any of the grounds provided
by law; and

(n) Exercise such other powers as may be provided by law as well as those which may be
implied from, or which are necessary or incidental to the carrying out of, the express powers
granted the Commission to achieve the objectives and purposes of these laws.

13
Under Section 5.2 of the Securities Regulation Code, the Commission’s jurisdiction over all
cases enumerated under Section 5 of PD 902-A has been transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court. The Commission shall retain jurisdiction
over pending cases involving intra-corporate disputes submitted for final resolution which
should be resolved within one (1) year from the enactment of the Code. The Commission
shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of
30 June 2000 until finally disposed.

Considering that only Sections 2, 4, and 8 of PD 902-A, as amended, have been expressly
repealed by the Securities Regulation Code, the Commission retains the powers enumerated
in Section 6 of said Decree, unless these are inconsistent with any provision of the Code

INVESTOR PROTECTION AND SURVEILLANCE DEPARTMENT OF THE PHILIPPINES:

The Investor Protection and Surveillance Departments in a constituent of the SEC in the
Philippines and caters to the investor protection and education needs in the country. Its
objectives are as follows:

Functions and Responsibilities

 Monitors compliance by securities market participants with legal and regulatory

requirements, coordinates with other entities engaged in similar functions, and initiates
appropriate enforcement and prosecution actions;
 Monitors and supervises the compliance of financing companies, lending companies,
issuers of proprietary shares, and foundations with legal and regulatory requirements;
 Administers programs for the protection of shareholders and members;
 Maintains custody over documents it has acted on, or are directly filed with it, unless
otherwise directed by the En Banc;
 It performs such other functions as may be assigned by the En Banc or the Chairperson.

Further, the legal framework of the SEC is listed below:

The fundamental law governing securities offerings in The Philippines is Republic Act
Number 8799, the Securities Regulation Code of 2000, under the administration of the
Securities and Exchange Commission. Other significant laws and rules are the Implementing
Rules and Regulations of the Securities Regulation Code (the ‘Rules’), the

14
Corporation Code of The Philippines, the other issuances of the Securities and Exchange
Commission, and the rules of the Philippine Stock Exchange.

As the administrative agency entrusted with the duty of implementing the laws and
regulations
on securities offerings, the Securities and Exchange Commission is vested with
the following powers and functions:

• It has jurisdiction and supervision over all corporations, partnerships, and associations
which are the grantees of primary franchises and/or a license or permit issued by the
government;
• It formulates policies and recommendations on issues concerning the securities market,
advises Congress and other government agencies on all aspects of the securities
market, and proposes legislation and amendments thereto;

• It approves, rejects, suspends, revokes, and requires amendments to registration statements

and registration and licensing applications;

• It regulates, investigates, and supervises the activities of persons to ensure compliance;

• It supervises, monitors, suspends, and takes over the activities of exchanges, clearing
agencies, and other similar self-regulating organisations;

• It imposes sanctions for the violation of laws and the rules, regulations, and orders
issued pursuant thereto;

• It prepares, approves, amends, and repeals rules, regulations, and orders and issues
opinions and provides guidance on and supervises compliance with such rules, regulations,
and orders;

• It enlists the aid and support of and/or deputises enforcement agencies of the government,
civil or military, as well as private institutions, corporations, firms, associations,
and persons in the implementation of its powers and functions under the Code;

• It issues cease and desist orders to prevent fraud or injury to the investing public.

The following is a list of all the relevant law present in the Philippines:

15
 Corporation Code of the Philippines (Batas Pambansa Blg. 68) (PDF)

 Securities Regulation Code (RA 8799)

 Securitization Act of 2004 (RA 9267) (PDF)

 Real Estate Investment Trust Act of 2009 (R.A. 9856) (PDF)

 Lending Company Regulation Act of 2007 (RA 9474) (PDF)

 Credit Information System Act (R.A. 9510) (PDF)

 Investment Houses Law (PD 129 as amended) (PDF)

 Investment Company Act (RA 2629) (PDF)

Investor Education through Online Forums

The Securities and Exchange Commission provides a very informative online platform for the
investors to be updated and take informed decisions. The SEC website which has constituted
the Investor Protection and Surveillance Department hosts Advisory Pages, Pre-Meet
Documents and Investor Alerts against unscrupulous ventures. It also hosts a list of registered
corporations to aid the investor in making an informed choice.

V. MARKET MISCONDUCT AND ITS DETECTION IN THE PHILIPPINES VIS-A-VIS ASIA-

PACIFIC NATIONS

Market misconduct refers to opportunistic behaviour that interferes with the operation of fair,
efficient and transparent markets. The types of behaviour generally considered as market
misconduct include but are not limited to the following:

(a) market manipulation;

(b) false trading or market rigging;

(c) dissemination of information about illegal transactions;

(d) false or misleading information

(e) fraudulently inducing persons to deal;

16
(f) dishonest or deceptive conduct;

(g) insider trading;

(h) bucketing;

(i) failure to disclose, in a continuous manner, material information relating to the company;
and

(j) dealing on behalf of customers without permission.

All survey respondents consider market misconduct as serious offences and subject them to
criminal and/or pecuniary penalties, including imprisonment terms.

Detection of Market Misconduct

In most jurisdictions, the statutory regulator is given responsibility for detecting and
enforcing market misconduct. In other jurisdictions such as Philippines and Sri Lanka, this is
jointly carried out by the statutory regulator and securities exchange. The main approaches to
detecting market misconduct are surveillance and member-dealer supervision. In the case of
Japan, a separate regulatory body (Japan Securities and Exchange Surveillance Commission,
“SESC”) is formed to perform this role and other market surveillance bodies such as the
Tokyo Stock Exchange and Japan Securities Dealers Association report to the SESC where
there are suspicious trading activities.

Where self-regulatory organisations (“SROs”) (e.g surveillance units of exchanges) or

industry groups (such as dealer associations) uncover suspicious trading activity or receive
feedback from the public, they may raise this to the attention of the lead regulator. Certain
regulators such as the Thailand Securities and Exchange Commission and Indonesia’s
BAPEPAM also review documents submitted by intermediaries (e.g. beneficial ownership
reports and registration statements) to examine if a possible contravention of any securities
law has occurred. The lead regulator may then, either by itself or in co-operation with law
enforcement agencies (such as the police) investigate the alleged misconduct.

The survey also reveals other sources of detecting market misconduct – complaints from the
public, media reports and through conducting inspections of market intermediaries and other
investigations. In particular, feedback from the public (as a source of detecting market
misconduct) is commonly cited, and is typically received via telephone, written

17
communications as well as electronic media (E-mail or Internet). Several jurisdictions such as
Sri Lanka, China and Australia have set up specialised complaints units to deal with
complaints and assess if the matter should be raised to the appropriate authority for further
investigation.

Regulatory Actions

Apart from criminal sanctions, most regulators are empowered to impose civil penalties and
administrative sanctions. In Bangladesh, Malaysia, New Zealand and Singapore for example,
the securities regulator may commence civil proceedings for certain forms of market
misconduct (such as insider trading), and the penalty sought is typically subject to a cap.

Administrative sanctions serve as an effective deterrent, as the reputational risk to market

intermediaries can be severe. The more commonly used administrative sanctions include
revocation of licence, warning letters, public reprimands and fines. Other types of sanctions
include restraining persons from accessing the securities market (India), giving orders to
securities firm to dismiss a director or corporate auditor who conducted a fraudulent activity
(Japan) and appointing an independent auditor (Malaysia). The choice of administrative
sanction depends on the specific contravention that it is supposed to address and severity of
the breach. In Taiwan and Indonesia, administrative sanctions are not imposed for
contraventions amounting to criminal offences.

Regulators in Sri Lanka and Singapore also have the power to compound offences.
Composition refers to the process by which the regulator imposes a monetary fine for certain
offences in lieu of criminal prosecutions, and can usually be done only with the consent of
the public prosecutor (or its equivalent)7. Aside from these actions, regulators generally do
not impose monetary fines or other punitive measures on their own authority. Only the
Bangladesh SEC has specifically indicated that it has the power to impose financial penalties.

ASIC and the New Zealand Securities Commission are also empowered to accept enforceable
undertakings from entities alleged to have breached securities laws or regulations 9, whereas
MAS is currently conducting a study on whether enforceable undertakings could be included
as part of its enforcement toolkit. The purpose of such undertakings is to ensure compliance
with securities law by requiring that an entity refrains from (or performs, where appropriate)
a certain action. These undertakings are enforceable in courts if entities fail to comply.

18
Where the regulator or stock exchange either suspects that a breach of rules has occurred and
which warrants further investigation, it may take certain preventive measures to either
discontinue the trading in securities or avert further loss suffered by investors. Hence all
jurisdictions surveyed have empowered the regulator or stock exchange to implement trading
suspensions. Such suspensions may apply to only a particular security, but may also be used
to halt the en tire securities market in extreme cases. Generally, the use of such powers may
be curtailed by a list of conditions. As an example, the Kuala Lumpur Stock Exchange
(“KLSE”) may suspend the trading in securities where, in the opinion of the KLSE, it is
necessary or expedient in the interest of maintaining an orderly and fair market.

Other forms of preventive measures include temporarily prohibiting or restraining members’

trade in the securities (India and Thailand), and ordering the shares of such listed company to
be changed to full-delivery shares (Taiwan). In addition, Taiwan has put in place a trigger
alert system which cautions investors if any abnormal trading price or volume in the market is
detected by the Taiwan Stock Exchange, and such situation reaches certain preset criteria.

Powers to Seek Injunctions or Court Orders

Regulators and law enforcement agencies may often have to go to court to seek injunctions or
court orders. In certain jurisdictions such as Thailand and Malaysia, the purpose of such
orders may be to facilitate investigations through the seizure of property or records. Other
jurisdictions such as Vietnam and China provide for injunctions to be filed to freeze the
assets of the defendant to prevent the illegal gains from being moved to a third-party or even
offshore.

Provisions for the power to seek such injunctions may be found in securities legislation or in
common law. As such powers are an essential part of the regulatory toolkit, it may be prudent
to explicitly spell out such powers in securities law and to develop clear operating procedures
which can be followed when there is a need to apply injunctive relief

VI. THE BENEFITS AND IMPACT OF INVESTOR PROTECTION

Three broad areas in which investor protection has been shown to matter are the ownership
patterns of firms, the development of financial markets, and the allocation of real resources.

Ownership Patterns

19
The focus on expropriation of investors and its prevention has a number of implications for
the ownership structures of firms. Consider first the concentration of control rights in firms
(as opposed to the dividend or cash flow rights). At the most basic level, when investor rights
are poorly protected and expropriation is feasible on a substantial scale, control acquires
enormous value because it gives the insiders the opportunity to expropriate relatively
efficiently. If the insiders actually do expropriate, the so-called private benefits of control, or
perquisites as Jensen and Meckling (1976) call them, become a substantial share of the firm
value. This observation raises a question: will control in such an environment be concentrated
in the hands of an entrepreneur, or dispersed among many investors?

The research in this area originates in the work of Grossman and Hart (1988) and Harris and
Raviv (1988), who examine the optimal allocation of voting and cash flow rights in a firm.
The specific question of how control is likely to be allocated has not received an
unambiguous answer. On the one hand, entrepreneurs who start companies may not want to
give up control by diffusing control rights when investor protection is poor. Perhaps most
obviously, to the extent that significant expropriation of outside investors requires secrecy,
sharing control with other shareholders may interfere with expropriation (La Porta, Lopez-de-
Silanes, and Shleifer, LLS 1999). When investor protection is poor, the dominant shareholder
may find it more profitable to keep complete control. In addition, Zingales (1995), LLS
(1999) and Bebchuk (1999) argue that if entrepreneurs disperse control between many
investors, they give up the Òprivate benefitsÓ premium in the event of a takeover. In
BebchukÕs (1999) model, diffuse control structures are unstable when investors can
concentrate control without fully paying for it. For these reasons, firms in countries with poor
investor protection need concentrated control. Bennedsen and Wolfenzon (1999) make a
countervailing argument. When investor protection is poor, dissipating control among several
large investorsÑnone of whom can control the decisions of the firm without agreeing with the
othersÑmay serve as a commitment to limit expropriation. When there is no single
controlling shareholder, and the agreement of several large investors (the board) is needed for
major corporate actions, these investors might together hold enough cash flow rights to
choose to limit expropriation of the remaining shareholders and pay the profits out as
efficient dividends. When the dissipation of control reduces inefficient expropriation, it may
emerge as an optimal policy for a wealth maximizing entrepreneur.

If entrepreneurs choose to retain control over the firm, they have a number of ways of doing
so. They can sell shares with limited voting rights to the outsiders, and retain control by
20
holding on to the shares with superior voting rights. They can use a pyramidal structure, in
which a holding company controlled by the entrepreneurs issues shares in a subsidiary that it
itself controls. The entrepreneurs can then control the subsidiary without owning a substantial
fraction of its cash flow rights (Wolfenzon 1999). Entrepreneurs can also keep control by
using crossshareholdings between a group of firms, making it harder for outsiders to gain
control of any one firm without gaining control of all of them.

What about the distribution of cash flow rights, as opposed to control, between investors? If
entrepreneurs retain control of a firm, how can they raise any external funds from outside
investorsÑfor financing or for diversificationÑwhen they expect to be expropriated? The
reasoning of Jensen and Meckling would suggest that cash flow ownership by entrepreneurs
would reduce incentives for expropriation and would increase incentives to pay out
dividends. Such a need for higher cash flow ownership as a commitment to limit
expropriation may be higher in countries with inferior shareholder protection (LLSV 1999b).

The available evidence on corporate ownership patterns around the world supports the
importance of investor protection. This evidence was obtained for a number of individual
countries, including Germany (Edwards and Fischer 1994, Gorton and Schmid 1999), Italy
(Barca 1995), and seven (Organization for Co-operation and Development) countries
(European Corporate Governance Network 1997). LLSV (1998) describe ownership
concentration in their sample of 49 countries, while LLS (1999) examine patterns of control
in the largest firms from each of 27 wealthy economies. The data show clearly that countries
with poor investor protection typically include more concentrated control of firms than do
countries with good investor protection. In the former countries, even the largest firms are
usually controlled either by the families that founded or acquired these firms or by the state.
In the latter countries, the Berle and Means corporationÑwith dispersedshareholders and
professional managers in controlÑis more common3.

Claessens and others (1999a) examine a sample of nearly 3,000 firms from 9 East Asian
economies, all but Japan with relatively poor shareholder protection. Except in Japan, they
find a predominance of family control and family management of the corporations in their
sample, with some state control as well. They also present remarkable evidence of Acrony
capitalismÓ in Asia: outside Japan, the top 10 families in each of the remaining 8 countries
they study control between 18 and 58 percent of the aggregate value of listed equities.

21
In sum, the evidence has proved to be broadly consistent with the proposition that the legal
environment shapes the value of the private benefits of control, and therefore determines the
equilibrium ownership structures. Perhaps the main implication of this evidence for the study
of corporate governance is the relative irrelevance of the Berle and Means corporation in
most countries in the world, and the centrality of family control. Indeed, LLS (1999) and
Claessens and others (1999a) find that family-controlled firms are typically managed by
family members, so that the professional managers appear to be kept on a tighter leash than
what Berle and Means describe. In large corporations of most countries, the fundamental
agency problem is not the Berle and Means conflict between outside investors and managers,
but rather that between outside investors and controlling shareholders, who in particular have
nearly full control over the managers (Shleifer and Vishny 1997).

Financial Markets

The most basic prediction of the legal approach is that investor protection encourages the
development of financial markets. When investors are protected from expropriation, they pay
more for securities, making it more attractive for entrepreneurs to issue these securities. This
applies to both creditors and shareholders. Creditor rights encourage the development of
lending, and the exact structure of these rights may alternatively favor bank lending or market
lending. Shareholder rights encourage the development of equity markets, as measured by the
valuation of firms, the number of listed firms (market breadth), and the rate at which firms go
public. For both shareholders and creditors, protection includes not only the rights written
into the laws and regulations, but also the effectiveness of their enforcement. Consistent with
these predictions, LLSV (1997) show that countries that protect shareholders have more
valuable stock markets, larger numbers of listed securities per capita, and a higher rate of IPO
(initial public offering) activity than do the unprotective countries. Countries that protect
creditors better have larger credit markets.

Several recent studies have also established a link between investor protection, insider
ownership of cash flows, and corporate valuation. Gorton and Schmid (1999) show that
higher ownership by the large shareholders is associated with higher valuation of corporate
assets in Germany. Claessens and others (1999b), using a sample of East Asian firms, show
that greater insider cash flow ownership is associated with higher, and greater insider control
of voting rights with lower, valuation of corporate assets. LLSV (1999b) find that, other
things equal, firms in countries with better shareholder protection have higher TobinÕs Q

22
than do firms in countries with inferior protection. They also find that higher insider cash
flow ownership is (weakly) associated with higher corporate valuation, and that this effect is
greater in countries with inferior shareholder protection. These results are consistent with the
importance of investor protection and of cash flow ownership by the insiders in limiting
expropriation (Jensen-Meckling 1976).

Johnson and others (1999) draw an ingenious connection between investor protection and
financial crises. In countries with poor protection, the insiders might treat outside investors
well as long as future prospects are good and they are interested in continued external
financing. When future prospects deteriorate, however, the insiders step up expropriation, and
the outside investorsÑwhether shareholders or creditorsÑare unable to do anything about it
when investor protection is poor. This escalation of expropriation renders security price
declines in countries with poor investor protection especially deep. To test this hypothesis,
Johnson and others (1999) examine the depreciation of currencies and the decline of the
stock markets in 25 countries during the Asian crisis of 1997-1998. They find that
governance variables, such as investor protection indices and measures of the quality of law
enforcement, are powerful predictors of the extent of market declines during the crisis. These
variables explain the cross-section of declines much better than do the macroeconomic
variables that have been the focus of the policy debate. Again, the evidence bears out the
predictions of the theory.

Real Consequences

Through its effect on financial markets, investor protection influences the real economy.
Financial development can accelerate economic growth in three ways (Beck, Levine, and
Loayza 1999). First, it can enhance savings. Second, it can channel these savings into real
investment and thereby foster capital accumulation. Third, to the extent that the financiers
exercise some control over the investment decisions of the entrepreneurs, financial
development improves the efficiency of resource allocation, as capital flows toward the more
productive uses. All three channels can in principle have large effects on economic growth. A
large literature links financial development to economic growth. King and Levine (1993)
initiate the modern incarnation of this literature by showing that countries with larger initial
capital markets grow faster in the future. Subsequent work by Demirguc-Kunt and
Maksimovic (1998), Levine and Zervos (1998), Rajan and Zingales (1998), and Carlin and
Mayer (1999) extends these findings. Several of these papers show that an exogenous

23
component of financial market development, obtained by using legal origin as an instrument,
predicts economic growth.

More recent research distinguishes the three channels through which finance can contribute to
growth: saving, factor accumulation, and efficiency improvements. Beck, Levine, and Loayza
(1999) find that banking sector development exerts a large impact on total factor productivity
growth, and a less obvious impact on private savings and capital accumulation. Moreover,
this influence continues to hold when an exogenous component of banking sector
development, obtained using legal origin as an instrument, is taken as a predictor. Wurgler
(1999) finds that financially developed countries allocate investment across industries more
in line with growth opportunities in these industries than do the financially undeveloped
countries. Morck and others (1999) find that stock markets in more developed countries
incorporate firm-specific information better, consistent with the more effective role these
markets play in allocating investment. This research suggests that financial development
improves resource allocation, and that through this channel, investor protection benefits the
growth of productivity and output.

VII. INVESTOR RIGHTS AND INCENTIVES IN THE PHILIPPINES

All investors and enterprises are entitled to the basic rights and guarantees provided in the
Philippine Constitution. In addition, Philippine laws provide certain rights for foreign
investors, including the following:

 Right to repatriate the entire proceeds of the liquidation of the investment

 Right to remit earnings from the investment
 Right to remit sums as may be necessary to meet the payments of interest and
principal on foreign loans and obligations arising from technological assistance
contracts
 Freedom from expropriation except for public use or in the interest of national welfare
or defense and upon payment of just compensation

Attracting foreign investment has been a government policy since the 1980s, and Congress
has passed several laws to attract foreign capital. Republic Act No. 7042 (RA 7042),
otherwise known as the Foreign Investments Act of 1991 (FIA), as amended by RA 8179, is
the law that governs foreign investments in the Philippines, except in banking and other
financial institutions which are governed and regulated by the BSP. The FIA declares that it

24
is the policy of the State to attract, promote and welcome productive investments from
foreign individuals, partnerships, corporations and governments in activities which
significantly contribute to national industrialization and socio-economic development to the
extent that foreign investment is allowed by the Constitution and relevant laws.

The FIA liberalized the entry of foreign investments into the country. In general, foreigners
can invest up to 100% equity in corporations, partnerships and other entities in the
Philippines, except in areas included in the Foreign Investments Negative List (FINL). The
FINL lists investment areas and activities reserved to Filipino nationals where foreign
investments are prohibited or limited to a certain percentage.

The FINL is composed of two lists, as follows:

 List A consists of areas of activities reserved to Philippine nationals where foreign

ownership is limited by mandate of the Constitution and specific laws
 List B consists of areas of activities where foreign ownership is limited for reasons of
security, defense, risk to health and morals and protection of small- and medium-
scale enterprises

Amendments to List A may be made at any time to reflect changes in specific laws while
amendments to List B may not be made more often than once every two years.

To encourage investments particularly in preferred sectors of the economy, the Philippines

offers various incentive schemes to qualified enterprises depending on the location and the
registration of the proposed business activity. The more significant incentive programs are
those provided to enterprises registered with the BOI under the OIC, and PEZA and other
economic and freeport zones. Incentives are also provided to regional or area headquarters
(RHQ) and regional operating headquarters (ROHQ).

Enterprises registered with the BOI

The BOI, an agency attached to the Department of Trade and Industry (DTI), is the lead
government agency responsible for the promotion of investments in the Philippines. Under
the OIC, an investor may register with the BOI to enjoy certain incentives and other benefits
provided that the investment is in a preferred area of economic activity specified by the BOI
in the IPP.

To qualify to register with the BOI, the applicant must meet the following requirements:

25
1. A citizen of the Philippines, if the applicant is a natural person; or organized under
Philippine laws and at least 60% of its capital is owned and controlled by citizens of the
Philippines, if a partnership or any other association; or organized under Philippine laws and
at least 60% of the capital stock outstanding and entitled to vote is owned and held by
Philippine nationals and at least 60% of the members of the Board of Directors are citizens of
the Philippines, if a corporation or cooperative.

If the applicant does not possess the required degree of ownership by Philippine nationals, the
following must be established:

a. It proposes to engage in a pioneer project which, in the opinion of the BOI, cannot be
readily and adequately performed by Philippine nationals, or if the applicant is exporting at
least 70% of its total production.

b. It obligates itself to attain the status of a Philippine national within 30 years from date of
registration. A registered enterprise which exports 100% of its total production need not
comply with this requirement.

c. The pioneer area it will engage in is one that is not within the activities reserved by the
Constitution or other laws of the Philippines to Philippine citizens or corporations owned and
controlled by Philippine citizens.

2. The applicant is proposing to engage in a preferred project listed or authorized in the

current IPP within a reasonable time or, if not so listed, at least 50% of its total production is
for export or it is an existing producer which will export part of production; or that the
enterprise is engaged or is proposing to engage in the sale abroad of export products bought
by it from one or more export producers; or the enterprise is engaged or proposing to engage
in rendering technical, professional or other services or in exporting television and motion
pictures and musical recordings made or produced in the Philippines.

3. The applicant is capable of operating on a sound and efficient basis and of contributing to
the national development of the preferred area in particular and of the national economy in
general.

The Securities Regulation Code, 2000

The Securities Regulation Code of 2000 strengthened investor protection by requiring full
disclosure in the regulation of public offerings, and implementing stricter rules on insider

26
trading, mandatory tender offer requirements, and the segregation of broker-dealer functions.
The Code also significantly increased sanctions for securities violations, and mandated steps
to improve the internal management of the stock exchange and future securities exchanges.
Moreover, the Code expressly prohibits any one industry group (including brokers) from
controlling more than 20% of the stock exchange’s voting rights, though the PSE has yet to
fully comply.

The enforcement of these strengthened laws is mixed. While there has been some progress
from the creation of special commercial courts, the prosecution of stock market irregularities
can be subject to delays and uncertainties of the Philippine legal system.

BIBLIOGRAPHY

 Doing Business in the Philippines: Paving the way to success, Deloitte Report.
 http://business.blogs.cnn.com/2012/01/12/worlds-top-economies-in-2050-will-be/
 http://www.nscb.gov.ph/sna/2012/4th2012/tables/1Q4-Rev_Summary_93SNA.pdf
 http://www.sec.gov.ph/aboutsec/dept/ipsd.html
 https://www.cia.gov/library/publications/the-world-factbook/geos/rp.html#Econ
 Inquirer News, Philippines is fastest growing Asian country for first quarter of 2013,
(June 10, 2013).
 Rafael La Porta, et al., Investor Protection: Origins, Consequences, Reform, The World
Bank (Sept. 1999).
 Vicente D Gerochi IV, The Philippines - International Securities Law and Regulation,
(2nd Edition).
 YahooNews, Philippine economy grows a stunning 7.8% ,(2013).
 Investor Protection in the Asia-Pacific, OECD, (2003.)

27