PART I

1. What does the SRC regulate?

In the case of SEC v. Prosperity.Com, Inc., the Court held that the Securities Regulation
Code treats investment contracts as “securities” that have to be registered with SEC
before they can be distributed and sold.  An investment contract is defined as a
contract, transactuon, or scheme where a person invests his money in a common
enterprise and is led to expect profits primarily from the efforts of others. Moreover, the
Court held that an example of an investment contract would be long-term  commercial
papers  that large  companies,  like  San  Miguel  Corporation  (SMC),  offer  to  the
public  for  raising funds  that  it  needs  for  expansion.  When  an  investor  buys  these
papers  or  securities,  he invests  his  money,  together  with  others,  in  SMC  with  an
expectation  of  prots  arising from  the  efforts  of  those  who  manage  and  operate
that  company.  SMC  has  to  register these  commercial  papers  with  the  SEC
before  offering  them  to  investors.

2. What are Securities?

Under Section 3.1 of the Securities Regulation Code, 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. It includes:
(a) Shares of stocks, bonds, debentures, notes evidences of indebtedness, asset-
backed securities;
(b) Investment contracts, certificates of interest or participation in a profit sharing
agreement, certifies of deposit for a future subscription;
(c) Fractional undivided interests in oil, gas or other mineral rights; (d) Derivatives like
option and warrants;
(e) Certificates of assignments, certificates of participation, trust certificates, voting trust
certificates or similar instruments
(f) Proprietary or nonproprietary membership certificates in corporations; and
(g) Other instruments as may in the future be determined by the Commission.

PART II

Securities Regulations Code (SRC)

Elements of the Scheme for the Regulation of Securities

A. Elements
1. Powers and Functions of SEC - Providing SEC with and strengthening its powers and
functions.
2. Registration - Requirements on registration of securities.
3. Disclosure Requirements - A continuing duty of full disclosure of information to the
public regarding the securities that are being offered by the issuers.
4. Prohibitions - Prohibiting and penalizing different fraudulent practices and
transactions.
5. Regulation and Monitoring - Requiring close monitoring securities and other
circumstances that may affect the same; Requiring the registration of and monitoring
the activities of persons involved including brokers, issuers, the exchange itself, etc., in
order to ensure compliance with pertinent laws and regulations.

B. Breakdown of the SRC into the Five (5) Elements:

1. Powers and Functions of SEC

a. Chapter II (Securities and Exchange Commission) - Sections 4 to 7
b. Chapter IX (Exchanges and Other Securities Trading Markets) - Section 36
c. Chapter X (Registration, Responsibilities, and Oversight of Self-Regulatory
Organizations) - Section 40
d. Chapter XI (Acquisition and Transfer of Securities and Settlement of Transactions in
Securities) - Section 47
e. Chapter XIII (General Provisions) - Section 53, 64, 65, 68

2. Registration
a. Chapter III (Registration of Securities) - Sections 8 to 15
b. Chapter IV (Regulation of Pre-Need Plans) - Section 16

3. Disclosure Requirements  
a. Chapter V (Reportorial Requirements) - Sections 17 to 18
b. Chapter VI (Protection of Shareholder Interests) - Sections 19 to 23
c. Chapter XIII (General Provisions) - Section 66

4. Prohibitions   
a. Chapter VII (Prohibitions on Fraud, Manipulation, and Insider Trading) - Sections 24
to 27
b. Chapter IX (Exchanges and Other Securities Trading Markets) - Sections 32, 34
c. Chapter XI (Acquisition and Transfer of Securities and Settlement of Transactions in
Securities) - Section 41
d. Chapter XII (Margin and Credit) - Section 49
e. Chapter XIII (General Provisions) - Sections 51, 56 to 61

5. Regulation and Monitoring  

a. Chapter IV (Regulation of Pre-Need Plans) - Section 16
b. Chapter VIII (Regulation of Securities Market Professionals) - Sections 28 to 31
c. Chapter IX (Exchanges and Other Securities Trading Markets) - Sections 32, 33, 35,
37, 38
d. Chapter X (Registration, Responsibilities, and Oversight of Self-Regulatory
Organizations) - Section 39
e. Chapter XI (Acquisition and Transfer of Securities and Settlement of Transactions in
Securities) - Sections 42 to 46
f. Chapter XII (Margin and Credit) - Sections 48 & 50
g. Chapter XIII (General Provisions) - Sections 52, 53, 54, 55, 62, 63, 67, 68 to 78
Reina G. Fabregas
(3C) L - 160086