De Guzman, Angelica R.

BSA Assignment #7

Question:

What are your learnings in today’s lesson?

Answer:

What I learn today is about Investment. So there is investment companies differ from that
of an investment house. Investment house serves as an agent and its compensation is in the form
of a commission. It brings the supplier and users for a long term funds. Capital market is place
for a long term instruments of finance that are bought or sold. There is a Capital Market wherein
it is a place where long term instruments of finance are bought and sold. It becomes the principal
source of funds and principal outlet of funds. Investment Company differs from that of an
investment house. The latter's principal function is underwriting. This means an investment
house serves as an agent and its compensation is in the form of a commission. It brings together
the suppliers and users of long term capital funds. Under Republic Act 2629 or known as the
Investment Company Act wherein in section 2 or Declaration of policy hereby declared that the
policy and purposes of this act in accordance with which the provisions of this act shall be
interpreted, are to mitigate and so far as is feasible. There is a following condition that will
eliminate to adversely affect the national public interest and the interest of investors.

1. When investors purchase, pay for, exchange, receive dividends upon, vote, refrain
from voting, sell, or surrender securities issued by investment companies without
adequate, accurate, and explicit information fairly presented, concerning the character
of such securities and the circumstances, policies, and financial responsibility of such
companies and their management;
2. When investment companies are organized, operated, managed, or their portfolio
securities are selected, in the interest of directors, officers, investment advisers,
depositors, or other affiliated persons thereof, in the interest of underwriters, brokers,
or dealers, in the interest of special classes of their security holders, or in the interest
of other investment companies or persons engaged in other lines of business, rather
than in the interest of all classes of such companies’ security holders;
3. When investment companies issue securities containing inequitable or discriminatory
provisions, or fail to protect the preferences and privileges of the holders of their
outstanding securities;
4. When the control of investment companies is unduly concentrated through
pyramiding or inequitable methods of control, or is inequitably distributed, or when
investment companies are managed by irresponsible persons;
5. When investment companies, in keeping their accounts, in maintaining reserves, and
in computing their earnings and the asset value of their outstanding securities, employ
unsound or misleading methods, or are not subjected to adequate independent
scrutiny;
De Guzman, Angelica R.

6. When investment companies are reorganized, become inactive, or change the

character of their business, or when the control or management thereof is transferred,
without the consent of their security holders;
7. When investment companies by excessive borrowing and the issuance of excessive
amounts of senior securities increase unduly the speculative character of their junior
securities;
8. When investment companies operate without adequate assets or reserves.

Under Section 3 there is Advisory board wherein a board, whether elected or appointed, which is
distinct from the board of directors or board of trustees or an investment company and which is
composed solely of persons who do not serve such company in any other capacity whether or not
the functions of such board are such as to render its members "directors" within the definition of
that term. There is also an affiliated company wherein one company is a minority shareholder of
another. In most cases, the parent company will own less than a 50% interest in its affiliated
company. Two companies may also be affiliated if they are controlled by a separate third party.
An Affiliated person is someone in a position to influence the actions of a corporation. This
includes directors, officers, and certain shareholders. Also under Republic Act No. 2629
Investment Company Act there is what we call Banks, Broker, Commission, Company, Control,
Convicted, Dealers, Exchange, Insurance Company and Investment adviser. The difference
between Investment Adviser and Financial Advisor is that the Investment Advisor is an
individual or company who is paid for providing advice about securities to their clients. While
the financial advisor helps people create long-term strategies for building wealth and managing
risk. They can help you track, manage and balance your investment portfolio. They can also
provide helpful advice on lots of other financial issues and decisions.

Investment Companies may be classified into two categories, namely: Open-end Company and
Closed-end Company. An open-end Company means an investment company which is offering
for sale or has outstanding any redeemable security of which it is the issuer. While the Closed-
end Company means any investment company other than an open-end company. There are
requirements for registration and licensing wherein any investment company that may be
organized under the laws of the Philippines, will have to contend with the provisions and
procedures laid down in Section 7 of RA No. 2629, otherwise known as Investment Company
Act.

There are Prohibited Activities of Investment Companies.

1. To purchase any security on margin, except such short-term credits as are necessary
for the clearance of transactions.
2. To participate on a joint and several basis in any trading account in securities, except
in connection with an underwriting in which such registered company is a participant.
3. To affect a short sale of any security, except in connection with an underwriting in
which such registered company is a participant.

With respect to a registered open-end company (other than a company complying with the
provisions of section ten of Republic Act No. 2629), it is considered unlawful to act as a
distributor of securities of which it is the issuer except through an underwriter and it is unlawful
for any investment company to:
De Guzman, Angelica R.

1. Generate funds for promoting the private business or industry of any employee, official,
director, organizer, incorporator or stockholder thereof.
2. Allow any of its employees, officials, directors, organizers, incorporators or stockholders
to buy real estate, personal property or any other kind of property and sell the same to the
company at a price higher than the procurement cost or sell any property of the company,
or a portion thereof, at a price below the market value thereof to any of the
aforementioned persons.

Another topic we tackled is Investment Houses Securities Brokers/Dealers.

Investment is the beginning of progress. It is an asset or item accrued with the goal of generating
income or recognition. Investment Houses is defined as any enterprise which engages in the
underwriting of securities of other corporations (sec. 2, P.D No. 129). There is example of
investment houses securities brokers/dealers like the Manila Stock Exchange.
Securities are written evidences of ownership, interest, or participation, in an enterprise. It
includes but not limited to the instruments enumerated in Section 2 of the Securities Act. The
term ‘’securities’’ means share of stock in a corporation and rights to subscribe for or to receive
such shares. There is also a difference between underwriter and underwriting. Underwriting is
the act or process of guaranteeing the distributions and sale of securities of any kind issued by
another corporation. And Underwriter means any person who has purchase from an issuer with a
view to, or offers or sell for an issuer in connection with, the distribution of any security, or
participation or has a direct or indirect participation in any such under writing of any such
undertaking; but such term shall not include a person whose interest is limited to a commission
from an underwriter or dealer not in excess of the usual and customary distributors or sellers
commission.

Investment houses are to be organized in a form of stock corporations. Consequently, before the
Securities and Exchange Commission acts favorably to register the articles of incorporation of an
investment house, or any amendment there, the commission must be satisfied from the evidence
submitted to it.
1. That all requirements of Presidential Decree No. 129, as amended, and of existing laws or
regulation to engage in the business have been complied with.
2. That the proposed enterprise will not be in conflict with public interest and economic
growth.
3. That the amount of capital, the proposed organization, direction and administration, as well
as the integrity, experience and expertise of the organizers and the proposed managerial
staff, provide reasonable assurance that the enterprise will be conducted with the financial
prudence. Capitalization is the minimum initial paid in capital of any investment house is P40,
000,000. However the majority of the voting stock of any investment house is required to be owned
by citizens of the Philippines. Also, the majority of the members of the board of directors must be
citizens of the Philippines.
There are Regulatory powers of the Bangko Sentral.
1. Minimum Size Of Fund acceptance or receipt
2. Methods of Marketing and distributions
3. Terms of placement and maturities
4. Use of funds
De Guzman, Angelica R.

On the other hand, if an investment house is also engaged in the performing of quasi banking
activities it may be subject to further regulations principally aimed but not limited to the
following:

1. Liquidity reserve requirements

2. Capital to risk asset ratios
3. Interest rate ceilings
Although it is a fact that investment houses function as intermediaries in the marketing process,
as brokers, as dealers, or as underwritten the treatment of the topic will be more or less as it is
intended to be that is, Securities Brokers/ Dealers as another Non Bank Financial Intermediaries
Thus, without much add the following terms must be clarified:

a. Brokers under the Revised Securities Act, Brokers is defined as any person engaged
in the business of effecting transaction in securities for the account of others but does
not include a bank.
b. The term dealer is likewise defined under the Revised Securities Act as any person
engaged in the business of buying and selling securities for his own account, through
a broker or otherwise, but does not include any person in so far as he buys or sells
securities for his own account either individually or in some fiduciary capacity, but
not as part of a regular business.
c. The term stockbroker as defined under the National Internal Revenue Code includes
all persons whose business it is, for themselves as such brokers or for other brokers,
to negotiate purchase or sales of stock, bonds, exchange, bullion, coined money, bank
notes, promissory notes or other securities;
d. The term salesmen are to be constructed as to include every natural person other than
a dealer employed or appointed or authorized by a dealer, issue or broker to sell
securities in any manner. The partners in a partnership and the executive officers of a
corporation or other association registered as a dealer shall not be salesmen within the
meaning of this definition (The Revised Securities Act).
e. The term exchange refers to any organization, association or group of person, whether
incorporation rated or unincorporated which constitutes, maintain, or provides a
market place or facilities for bringing together purchasers and sellers of securities or
for otherwise performing with respect to securities the function commonly performed
by a stock exchange as that term is generally understood, and includes the market
place and the market facilities maintained by such exchange.
f. The term facility is to be interrupt the relation to an exchange to include its premises,
or intangible property, whether on the premises or property or any services thereof for
the purpose of affecting or reporting a transaction on an exchange including, among
other things, any system of communication to or from the exchange to the use of any
property or services.

The term member is to be understood in relation to an exchange as:

1. Any natural person permitted to effect transaction on the floor of the exchange without
the services of another person acting as broker
2. Any registered broker or dealer with which such a natural person is associated.
De Guzman, Angelica R.

3. Any registered broker or dealer permitted to designated as a representative such a natural

person and
4. Any other registered broker or dealer which agrees to be regulated by such exchange and
with respect to which the exchange undertake to enforce compliances with the provisions
of the Revised Securities Act, the rules and regulations there under, and its own rules.