SECURITIES REGULATION CODE • Other instruments as may in the future be
determined by the commission (Catch all)
STATE POLICY
A. Establish a socially conscious free market that
regulates itself
B. Encourage the widest participation of ownership in
the enterprises
C. Enhance the democratization of wealth
D. Promote the development of the capital market
E. Protect investors
F. Ensure full and fair disclosure about securities
G. Minimize, if not totally eliminate fraudulent or
manipulative devices
OBJECTIVE
• To protect the investing public primarily through a
system of disclosure and provide punishment for
fraudulent practices.
• Overriding objective is investor protection through
full and fair disclosure about securities to be offered
to the public and by minimizing fraudulent and
manipulative activities for public companies
• Note that the SRC does not apply to a non-public
company
• Public company: Defined as either publicly listed
company, or a company with total assets of at least
50M pesos with at least 200 shareholders each
holding 100 shares of the same class.
• Protects public from worthless ventures that have
no basis at all, and the sale of securities therein to
investor who are then holding certificates
representing nothing more than a claim to a square
of the blue sky.
• Note: Public offering for purposes of registration
means random or indiscriminate offering of
securities in general to more than 19 persons,
whether solicited or unsolicited.
DEFINITION OF SECURITIES (Per Se)
• Securities are SHARES, PARTICIPATION, OR
INTEREST in a corporation, commercial enterprise,
or profit making venture evidenced by a certificate,
contract, instrument, whether written or electronic in
character. The definition includes investment
contracts.
They include:
• Shares of stocks, bonds, debentures, notes
evidences of indebtedness, asset backed securities
• Investment contracts, certificates of interest or
participation in a profit sharing agreement,
certificates of deposit for future subscription
• Fractional undivided interests in oil, gas, or other
mineral rights
• Derivatives like options and warrants
• Derivatives like options and warrants
• Certificates of assignments, certificates of
participation, trust certificates, voting trust
certificates or similar instruments
• Proprietary or nonproprietary membership
certificates in corporations
INVESTMENT CONTRACTS
• 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.
• Turner Test: Used to determine whether a contract
is an investment contract within the definition of
securities
• Under this test, an investment contract may be a
transaction, contract, or scheme whereby a person:
• Makes an investment of money
• In a common enterprise
• With the expectation of profits
• To be derived primarily from the efforts of others
• Howey vs Turner test: Derived “primarily” vs Derived
“solely”
(Power Homes Unlimited Corporation v. SEC,
G.R. No. 164182, February 26, 2008,
The business scheme of Power Homes Unlimited
Corporation (Power Homes) is that an investor will enrol
lunder its program, and the latter would be entitled to
recruit other investors and receive commissions from the
investments of those directly recruited by him. Is Power
Homes engaged in the sale of securities which must
be registered?
• Yes. A corporation allowing a principal investor to
enroll in its program by paying a certain amount,
which in turn entitles him to be paid a certain amount
if the recruit was able to get a minimum recruitment
of four (4) investors, is engaged in the sale or
distribution of an investment contract. It must be
registered with the SEC before its sale or offer for
sale or distribution to the public, otherwise, the SEC
cannot protect the investing public from fraudulent
securities is founded on the premise that the capital
markets depend on the investing public’s level of
confidence in the system.
Securities and Exchange Commission vs Prosperity
Com, Inc. G.R. No. 164197,January 25, 2012,
Prosperity.com, Inc. (PCI) sold computer software and
hosted websites without providing internet service. It
devised a scheme in which a buyer could acquire from it
an internet website with 15-MB capacity. At the same
time, by referring to PCI his own down-line buyers, a first-
time buyer could earn commissions, interest in real estate
and insurance coverage. Is PCI’s scheme considered
an investment contract which requires registration?
• No. For an investment contract to exist, the following
elements, referred to as the Howey test must concur:
(1) a contract, transaction, or scheme; (2) an
investment of money; (3) investment is made in a
common enterprise; (4)expectation of profits; (5)
profits arising primarily from the efforts of others.
Network marketing, a scheme adopted by
 companies for getting people to buy their products
outside the usual retail system where products are
bought from the store's shelf and where the buyer
can become a down-line seller, earning
commissions from purchases made by new buyers
whom he refers to the person who sold the product
to him, is not an investment contract.
(Gabionza v. CA, 565 SCRA 38, 2008)
• Checks constitute mere substitutes for cash if so
issued in payment of obligations in the ordinary
course of business transactions. But when they are
issued in exchange for a big number of individual
non-personalized loans solicited from the public,
numbering about 700 in this case, the checks
ceased to be such. In such a circumstance, the
checks assume the character of evidence of
indebtedness.
SECURITIES MARKET PARTICIPANTS
• Issuer – originator, maker, obligor or creator of the
security
• Broker – person engaged in the business of buying
and selling securities for the account of others
• Dealer – person who buys and sells securities for his
own account in the ordinary course of business. A
dealer transacts using the dealer’s own resources
and not for third parties, unlike a broker
• Prospectus – document made by or on behalf on an
issuer, underwriter or dealer to sell or offer securities
for sale to the public through a registration statement
filed with the SEC. This is the offering circular
containing all material information about the issuer
and the securities sought to be offered to the public.
REGISTRATION
• General Rule: Securities are prohibited to be sold
or offered for sale or distribution within the
Philippines
– Without registration statement duly filed with and
approved by SEC
–
Prior to such sale, information on the securities
in such form and such substance as the SEC may
prescribe, must be made available to each
prospective purchaser.
• Exception:
– Exempt securities
– Exempt transactions
• Registration is required whenever securities are
sold or offered to be sold to the public. At the end of
the registration process, the registration statement
will be rendered effective by the SEC and a permit
to sell will be issued. Registration allows the SEC to
ensure that there is full and fair disclosure of all
material information in connection with the public
offering.
● In approving the registration of the securities, the
• Sale of foreclosed securities
SEC is not only concerned with the requirement that
full disclosure of information is given to the public
but the SEC is also concerned with the merit of the
securities themselves and the issuer,
EXEMPT SECURITIES
• Refers to those which the registration requirement
generally does not apply
– Any security issued or guaranteed by the
Government of the Philippines, or by any political
subdivision or agency thereof, or by any person
controlled or supervised by, and acting as an
instrumentality of said government
• The reason why Government should not be
required to furnish a bond is that the State is
undoubtedly always solvent
– Any security issued or guaranteed by the
government of any country with which the
Philippines maintains diplomatic relations, or by
any state, province or political subdivision thereof
on the basis of reprocity: Provided that the
commission may require compliance with the
form and content for disclosures the Commission
may prescribe.
– Certificates issued by a receiver or by a trustee
in bankruptcy duly approved by the proper
adjudicatory body.
– Any security issued by a bank except its own
shares of stock.
– Any security or its derivatives the sale or transfer
of which, by law, is under the supervision and
regulation of the
• Office of the insurance commission
• Housing and Land Use Regulatory Board
• Bureau of Internal Revenue.
• When a bank issues securities other than its own
shares of stock, common or preferred, it does not
need to register the said securities with the SEC as
long as the BSP consents thereto. If, however, the
security to be issued by a bank is a share of stock,
then those shares need to be registered with the
SEC prior to any public offering.
EXEMPT TRANSACTIONS
• Enumerations under Sec. 10 are exclusive and
specific
• Hence, the exemption is transaction specific unlike
exempt securities which will always be exempt from
registration regardless of the underlying transaction
or offering.
• Judicial sale of securities: Any judicial sale, or sale
by an executor, administrator, guardian or receiver
or trustee in insolvency or bankruptcy
– Note: As distinguished from exempt securities
specially issued by the receiver or trustee in a
bankruptcy proceeding mentioned above, the
shares covered under exempt transactions are
ordinary shares; however the owner of the shares
is bankrupt and so the shares are sold.
 – By or on account of a pledge holder or mortgagee
or any other similar lien holder, selling or offering
for sale or delivery in the ordinary course of
business, not for the purpose of avoiding the
provisions of the SRC, to liquidate a bona fide
debt, a security pledged in good faith as security
for such debt;
• Isolated transaction:
– An isolated transaction in which any security is
sold, offered for sale, subscription or delivery by
the owner thereof, or for his account, not being
made in the course of repeated and successive
transaction of a like character, and such owner or
representative not being the underwriter of such
security
• Stock dividends
– Distribution by a corporation of securities to its
stockholders or other security holders as stock
dividend or other distribution out of surplus
• Sale of shares to stockholders not underwritten
– Sale of capital stock of a corporation to its own
stockholders exclusively stock which has already
been issued
• Issuance of bonds to a single purchaser:
– Issuance of bonds or notes secured by mortgage
upon real estate or tangible personal property;
• Transaction pursuant to the right of conversion:
– Issuance and delivery of any security in exchange
for any other security of the same issuer pursuant
to a right of conversion, provided that the:
• Surrendered security has been registered under the
SRC or was, exempt, when sold
• Security issued and delivered in exchange would, at
the time of conversion, fall into the class entitled to
registration;
• Broker’s transactions:
– Broker’s transactions, executed upon customer’s
orders, on any registered Exchange or trading
market;
• Pre-incorporation subscription or subscription to a
capital increase:
– Subscriptions to shares of capital stock (1) prior
to incorporation or (2) pursuant to an increase in
authorized capital stock – both to comply with the
requirements of the law for minimum
subscription;
• Exchange of securities with existing security holders:
– Exchange of securities by the issuer exclusively
with its existing security holders exclusively,
where no commission or other remuneration is
paid or given directly or indirectly for soliciting
such exchange
– The difference between broker’s transaction an
exchange of securities with existing security
holders is that broker’s transaction is for any other
security of the issuer while exchange of security
with existing security holders is between the
issuer and its existing security holders wherein
the securities exchanged are not from the same
issuer;
• Private placements:
– Sale of securities by an issuer to fewer than 20
persons during any twelve-month period
– Note: This exempt transaction which requires as
a precondition the offering to fewer than 20
persons over a 12-month period is the very
essence of what constitutes an offering that is not
public. If, however, the offering is made to
qualified institutional buyers or qualified individual
buyers, the number of persons becomes
irrelevant as you can see in the subsequent
exemption for qualified buyers
• Sale to qualified buyers:
– Sale of securities to any of the following qualified
buyers:
o Bank
o Registered investment house
o Insurance company
• Pension fund or retirement plan maintained by the
government or managed by a bank or other persons
authorized by the BSP to engage in trust functions
• Investment company
• Such other person at the Commission may determine
as qualified.
• REMEMBER THIS: The parties to the offering may
seek a confirmation of exempt transaction status from
the SEC, but this step is optional. Note that the
burden of proving entitlement to an exemption rests
with the claimant. Only a notice of exempt transaction
is required under the 2015 IRR of the SRC.
• Notes
• The SEC may exempt other transactions, if it finds
that the requirements of registration under the SRC is
not necessary in the public interest or for the
protection of the investors such as by the reason of
the small amount involved or the limited character of
the public offering. (SRC, Sec. 10.2)An example of
this provision is a stock option plan or an employee
stock purchase plan which is commonly offered by
publicly-listed companies to their executives and
employees.
• Issuance from authorized but previously unissued
capital stock may be granted exemption
NON-EXEMPT TRANSACTIONS
• All transactions involving securities which are offered
to the public, unless it is an exempt security or an
exempt transaction subject to the provisions of the
SRC, needs to be registered as such with the
Securities and Exchange Commission, unless
otherwise provided by law or the Rules, and as such
are non-exempt transactions.
• 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 Securities and Exchange Commission. (SRC,
Sec. 8)
• The Securities and Exchange Commission may
conditionally approve registration statements of
securities, subject under terms it may deem
necessary, and may specify the terms and conditions
under which a written communication, including any
summary prospectus, shall be deemed not to
constitute an offer for sale.
POWERS AND FUNCTIONS OF THE SECURITIES
AND EXCHANGE COMMISSION
A. Have jurisdiction and supervision over all
corporations, partnership or associations who are the
grantees of primary franchises and/or a license or a
permit issued by the Government;
B. Formulate policies and recommendations on issues
concerning the securities market, advise Congress
and other government agencies on all aspect of the
securities market and propose legislation and
amendments thereto
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 rules,
regulations and orders, and 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,
regulation and orders;
H. Enlist the aid and support of and/or deputized 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 function under its Code;
I. Issue cease and desist orders to prevent fraud or
injury to the investing public;
J. Punish for the 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, partnership 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.
PROCEDURE FOR REGISTRATION OF
SECURITIES
FILING
• The issuer must file in the main office of the SEC:
– Sworn registration statement with respect to
such securities; and
– Registration statement must include any
prospectus required
• NOTE: A registration statement may be withdrawn
by the issuer only with SEC’s consent. This is called
a voluntary revocation.
SIGNATURE
• The registration statement shall be signed by the
issuer’s executive officer, its principal operating
officer, its principal financial officer, its comptroller, its
principal accounting officer, its corporate secretary or
persons performing similar functions accompanied by
a duly verified resolution of the board of directors of
the issuer corporation and accompanied by
– A duly verified resolution of the board of directors;
– The written consent of the expert, who certified
any part of the registration statement; and
– If the registration statement includes shares to be
sold by selling shareholders. A written
certification by the selling stockholders as to the
accuracy of the information of any part of the
registration statement.
PAYMENT OF FILING FEE
• Not more than one-tenth (1/10) of one per centum
(1%) of the maximum aggregate price of the
securities
PUBLICATION
• Notice of the filing of the registration statement shall
be immediately published by the issuer, at its own
expense, in two (2) newspapers of general circulation
in the Philippines, once a week for two (2)
consecutive weeks, reciting that:
– A registration statement for the sale of such
security has been filed,
– The registration statement, and its attachments,
are open to inspection; and
– Copies shall be furnished to interested parties at
such reasonable charge as the SEC may
prescribe.
• NOTE: As part of its registration statement, the Issuer
shall submit to the SEC an affidavit of publication with
a copy of the notice that was published or a copy of
the pro-forma notice to be published, with the
attestation that the publication has been or will be
immediately undertaken.(2015 IRR of R.A. 8799 Rule
12.5(b).2)
ORDER
• Within forty-five (45) days after the date of filing, the
SEC shall declare the registration statement effective
or rejected. (SRC. Sec. 12.6)
ENTRY OF ORDER
• The SEC will enter an order declaring the registration
statement to be effective. (SRC. Sec. 12.6)
OATH OF AN ISSUER
• Upon effectivity of the registration statement, the
issuer shall state under oath in every prospectus that
all registration requirements have been met and that
all information are true and correct as represented by
the issuer or the one making the statement
• NOTE: The order of the Commission rendering
effective the registration statement shall, at the
expense of the Issuer, be published in a national
newspaper of general circulation and uploaded in its
website within two (2) business days from its
issuance. (2015 IRR of R.A. 8799 Rule 12.5(b).3)
OFFER PERIOD OF SECURITIES
• The sale of the securities subject of the registration
statement shall commence within ten (10) business
days from the date of the effectivity of the registration
statement' and shall continue until the end of the
offering period or until the sale is terminated by the
Issuer. If the sale is not commenced within ten (10)
business days, the RS shall be cancelled and all fees
paid thereon forfeited. (2015 of R.A. 8799 Rule
8.1.1.5)
TERMINATION OR COMPLETION OF OFFERING
• A written notification of completion or termination of
the offering shall be filed by the Issuer with the
Commission within three (3) business days from such
completion or termination, and the notice shall state
the number of securities sold. (2015 IRR of R.A. 8799
Rule 8.1.1.6)
PROCEDURE FOR DELAYED AND CONTINOUS
OFFERING AND SALE OF SECURITIES
(Shelf Registration)
• Securities, which are intended to be issued in
tranches at more than one instance after the
registration statement has been rendered effective by
the Commission, may be registered for an offering to
be made on a continuous or delayed basis in the
future, for a period not exceeding three (3) years from
the effective date of the registration statement under
which they are being offered and sold. (2015 IRR of
R.A. 8799 Rule 8.1.2)
• Securities offered after the initial tranche shall comply
with the following requirements:
– At least five (5) business days prior to the offering
or sale of the securities, it shall disclose to the
Commission the required Information using SEC
Form 12-I-SR;
– Filing Fees
– Upon filing of an RS, the total filing fee shall be
computed based on Section 12.5 (a) of the SRC,
payable per tranche of issuance and proportional
to the issued value.
• The filing fees of the subsequent tranches shall be
payable within seven (7) business days prior to
commencement of the offer/sale of the said
securities.
• The registrant shall execute an Undertaking to pay
the remaining registration fees no later than thirty (30)
business days prior to the expiry of the
• Three (3) year period reckoned from the date of
effectivity of the RS.
REJECTION AND REVOCATION OF
REGISTRATION STATEMENT
• Grounds for Rejection and Revocation of Registration
Statement
• When the issuer:
– Has been judicially declared insolvent;
– Has violated any of the provision of the SRC, the
rules promulgate pursuant thereto, or any order
of the Commission of which the issuer has notice
in connection with the offering for which a
registration statement has been filed
– Has been or is engaged or is about to engage in
fraudulent transactions;
– Has made any false or misleading representation
of material facts in any prospectus concerning the
issuer or its securities;
– Has failed to comply with any requirements that
the Commission may impose as a condition for
registration of the security for which the
registration statement has been filed;
• The registration statement is on its face incomplete or
inaccurate in any material respect or includes any
untrue statements of a material fact required to be
stated therein or necessary to make the statement
therein not misleading; or
• The issuer, any officer, director or controlling person
performing similar functions, or any underwriter has
been convicted, by a competent judicial or
administrative body, upon plea of guilty, or otherwise,
of an offense involving moral turpitude and or fraud or
is enjoined or restrained by the Commission or other
competent or administrative body for violations of
securities, commodities, and other related laws
• Where the issuer refused to comply with the order of
SEC for the production of all books and papers,
administration of oath, or examination of its officers,
or any other person connected to its business affairs
• NOTE: the term “competent judicial or administrative
body” shall include a foreign court of competent
jurisdiction as provided for under the Rules of Court.
 REQUIREMENTS FOR VOLUNTARY REVOCATION
• An Application for Voluntary Revocation of
Registration of Securities shall include the following
documents: (2015 IRR of R.A.8799 Rule 13.2.1):
– Verified Petition for Revocation of Registration;
– Board Resolution approving therevocation,
certified under oath by thecorporate secretary
and attested toby the president or
anyoneperforming a similar function;
– List of stockholders indicating theirrespective
shareholdings as of the latest date;
– All relevant books and papers of the issuer, as
may be determined by the Commission;
– Proposed Notice of Filing of Petition for Voluntary
Revocation of Registration of Securities, reciting
the facts supporting the said petition which shall
be subject to the approval of the Commission;
and
– Copy of the official receipt representing payment
of the prescribed filing fees.
• NOTE: The Commission may impose such other
requirements or conditions it may deem necessary.
(2015 IRR of R.A. 8799 Rule 13.2.2)
PROCEDURE FOR VOLUNTARY REVOCATION OF
REGISTRATION OF SECURITIES
• If, after fifteen (15) business days from the
publication of the Notice of Filing of Petition for
Voluntary Revocation, the Commission finds that the
petition together with all other papers and documents
attached to it, is on its face complete and that no party
stands to suffer any damage from the revocation, it
shall prepare an order revoking the registration.
• The Order of Revocation shall exempt the Issuer from
its reporting obligations under Section 17.2 of the
SRC unless it still qualifies as a public company
CONSEQUENCES OF AN INCOMPLETE OR FALSE
AND INACCURATE STATEMENT IN A MATERIAL
RESPECT IN THE REGISTRATION STATEMENT
• If the registration statement is on its face incomplete
or inaccurate in any material respect:
– The Commission shall issue anorder directing the
amendment of a registration statement; upon
compliance with such order, the amended
registration statement shall become effective;
– But if such registration statement has already
become effective, the issuer needs to publish a
notice of the proposed amendments in 2
newspapers of general circulation in the
Philippines stating that the offering in its current
form has been cancelled.
• If the changes shall result to a derogation of rights of
existing security holders or purchasers of subject
securities who have paid a portion of the selling price:
– The issuer shall include in the above-mentioned
publication an offer to rescind all transactions that
have been completed for sale to date, without
making any deduction and wait for thirty (30) days
for purchasers to respond to the rescission offer
before initiation of the amended offering.
• Purchasers may, within thirty (30) days from the date
of such notification, renounce their purchase of
securities.
• The issuer, or any person acting on behalf of the
issuer in connection with the distribution of said
securities, shall, within ten (10) days from receipt of
notification of such election, return the contributions
paid by such purchasers without making any
deduction
• Purchasers who decide not to renounce their
purchase of securities shall be subject to the terms of
the amended offering. (SRC, Sec. 14)
GROUND FOR SUSPENSION OF THE
REGISTRATION OF A SECURITY
• If at any time, the information contained in the
registration statement filed is or has become
misleading, incorrect, inadequate or incomplete in
any material respect
– The sale or offering for sale of the security
registered thereunder may work or tend to work a
fraud
– Pending further investigation of the security
registered to ascertain whether the registration of
such security should be revoked on any ground
specified in the SRC; or
• Refusal to furnish information required by the
Commission.
PROCEDURE FOR SUSPENSION OF THE SALE OF
SECURITIES (SRC, Sec.15)
• SEC may order the suspension of the offer and sale
of securities pending any investigation, stating the
grounds for taking such action.
• Such order, although binding upon persons notified
thereof, shall be deemed confidential, and shall not
be published
• Notice of such order shall be given to the issuer and
every dealer and broker known as participating in
such offering.
• Upon issuance of suspension order, no further offer
or sale of such security shall be made until lifted or
set aside by the SEC; otherwise, such sale is void.
• Upon issuance of an order of suspension, the SEC
shall conduct a hearing.
• If it determines that the sale of any security should be
revoked, it shall issue an order prohibiting the sale of
such security. (SRC, Sec. 15)
PUBLICATION OF THE NOTICE OF THE ORDER OF
REVOCATION OR SUSPENSION
• If during a public offering, the Commission, after due
notice and hearing, revokes the effectivity of a
 registration statement under Section 13, or suspends
registration under Section 15
• Such order shall be published in:
– A newspaper of general circulation in the
Philippines; and/or
– Post(ed) on the Commission’s website along with
a statement that the–
▪ Offering in its current form has been
cancelled; and
▪ Issuer subject to such order, or any
person, acting on behalf of such issuer in
the distribution of the subject securities
and has in his possession any payment for
the purchase of securities, has the duty to
return any and all payments made by
purchasers of the subject securities within
10 days of such publication, and
simultaneously furnish the issuer a copy of
this notice.
• Upon receipt of a notice, the issuer and all persons
acting on its behalf in the distribution of the subject
securities shall immediately terminate the offering and
return any and all payments received from purchasers
within 10 days after the notice is first published.
• If the public offering is already terminated and the
Commission, after due notice and hearing, revokes
the effectivity of the registration statement under
Section 13, or suspends registration under Section
15, the Commission shall publish a notice of the order
of revocation or suspension in a newspaper of
general circulation int he Philippines and/or post in the
Commission’s website.
• NOTE: If the public offering has already terminated,
there is no more return of payments.
MATERIAL INFORMATION
• Generally, it is any fact or omission, which is material
to the investor in making his decision whether he
should invest in the security or not. However, the
Rules provide for an enumeration of matters
considered as material information. With regard to
those specifically included in the enumeration, the
issuer cannot argue otherwise to say that those are
immaterial:
– Any event or transaction which creates or
increases a risk on the investments or on the
securities covered by the registration;
– Increase/decrease in the volume of the securities
being offered at an issue price higher/lower than
the range set and disclosed in the registration
statement and which results to a derogation of the
rights of existing security holders, as may be
determined by the Commission;
– Major change in the primary business of the
registrant;
– Reorganization of the company;
– Change in the work program or use of proceeds;
– Loss, deterioration or substitution of the property
underlying the securities;
– Significant or ten percent (10%) or more change
in the financial condition or results of operation of
the registrant unless a report to that effect is filed
with the Commission and furnished the
prospective purchaser;
• Classification, de-classification or reclassification of
securities, which results to derogation of rights of
existing security holders, as may be determined by
the Commission.
• REMEMBER THIS: Material information pertains to
any and all information that are “marketmoving” in that
a reasonable investor will consider the information in
the investment decision. Hence, these are what we
call “pricesensitive” information which, for publicly
listed companies, need to be fully and promptly
disclosed for the benefit of the investing public.
PROHIBITIONS ON FRAUD, MANIPULATION, AND
INSIDER TRADING
MANIPULATION OF SECURITY PRICE
• It shall be unlawful for any person, for himself or
through a dealer or broker, directly and indirectly to
a. Create a false or misleading appearance of
active trading in any listed security traded in
an Exchange;
b. Effect along, or with others, a series of
transactions in securities that:
– Raises their price to induce purchase;
– Depresses their price to induce their sale
– Creates active trading to induce purchase
or sale through manipulative devices
• Circulation or dissemination of information to the
effect that the price of any such security will or is likely
to rise or fall because of market operations;
• Make, regarding any security registered on an
exchange, any statement which is false or misleading
with respect to any material fact, and which he knew
or had reasonable ground to believe is false or
misleading;
• Effect series of transactions for the purpose of
pegging, fixing or stabilizing the price of security trade
in an Exchange, unless otherwise allowed by the SRC
or the SEC rules. (SRC, Sec. 24)
• Examples of manipulative practices:
a. Painting the tape - engaging in a series of
transactions in securities that are reported
publicly to give the impression of activity or
price movement in a security;
b. Marking the close - buying and selling
securities at the close of the market in an effort
to alter the closing price of the security;
c. Improper Matched Orders – engaging in
transaction where both the buy and sell orders
are entered at the same time with the same
price and quantity by different but colluding
parties, who have knowledge that such orders
 would create an appearance of active trading
of the shares;
d. Hype And Dump – engaging in buying activity
at increasingly higher prices and then selling
securities in the market at the higher prices
after announcing a glossy picture of a particular
security as good investment and thus lure
investors to trade.
e. Wash Sales – engaging in stock trading where
there is no genuine change in actual beneficial
ownership of a security but makes it appear
that the stocks are actively traded.
f. Squeezing The Float – taking advantage of a
shortage of securities in the market by
controlling the demand side and exploiting
market congestion during such shortages in a
way as to create artificial prices
g. Disseminating false or misleading market
information through media, including the
internet.
SHORT SALES
• Short sales are any sale of a security which the seller
does not own or any sale which is consummated by
the delivery of a security borrowed by, or for the
account of the seller. (SRC, Sec. 24)
• No person shall, directly or indirectly, by the use of
any facility of a securities exchange, effect a short
sale in a security registered or listed on any securities
exchange, where the seller does not intend or is
unable to make delivery of the securities within the
prescribed settlement period. Failure on the part of
the seller to make delivery on such date will be
construed by the Commission as prima facie
evidence of the lack of intention on his part to make
such delivery. (2015 IRR of R.A. 8799, Rule 24.2.2.6
INSIDER TRADING
• It is unlawful for an insider to sell or buy a security of
the issuer, while in possession of material information
with respect to the issuer that is not generally
available to the public – does not require taking
advantage of information, mere possession is enough
(SRC, Sec. 27.4)
• Who is an insider?
a. Issuer
b. Director or Officer of issuer
c. Person whose Relationship or former
relationship with issuer gives him access to
material information not generally available to
the public;
d. Government employee or director or officer of
an exchange, clearing agency and/or self-
regulatory organization who has access to
material information; or
e. A person who learns such information by
communication from any of the foregoing
insiders. NOTE: In securities parlance, this is
called “tippee”. This tippee must know that the
tipper is an insider” (SRC Sec. 3.8)
PRESUMPTION OF INSIDER TRADING
• Purchase or sale By
– Insider
– Insider’s spouse or relatives by affinity or
consanguinity within the second (2nd) degree,
legitimate or common-law, under the following
conditions
• Transacted after the information came into existence;
but
• Prior to dissemination of the information to the public
and a lapse of a reasonable time for the market to
absorb such information. (2015 IRR of R.A. 8799,
Rule 27.1)
• NOTE: This is a rebuttable presumption of insider
trading.
INSIDER TRADING
• Defenses against insider trading
o Proof that information was not gained from
such relationship or
o If the other party buying or selling is
identified, insider proves that:
• They disclosed the information to the other party; or
• Had reason to believe that the other party already
knew of the information. (2015 IRR of R.A. 8799, Rule
27.1)
OPTION TRADING
• No member of an Exchange shall, directly or
indirectly, endorse or guarantee the performance of
any put, call, straddle, option or privilege in relation to
any security registered on a securities exchange.
(SRC, Sec. 25)
FRAUDULENT TRANSACTIONS
• It is unlawful, with respect to the purchase or sale of
securities:
a. To employ any device, scheme, or artifice to
defraud.
b. Obtain money or property by means of any
untrue statement of a material fact or any
omission to state a material fact, that is
necessary in order to make the statements
made, in the light of the circumstances under
which they were made, not misleading
c. Engage in any act, transaction, practice, or
course of business which would operate as a
fraud or deceit upon a person – actual intent to
deceive not necessary. (SRC, Sec. 26)
• Fraud or deceit is required, not mere negligence, on
the part of offender (SEC v. CA, 246 SCRA 738
[1995])
MATERIAL NONPUBLIC INFORMATION
• Information is “material nonpublic” if:
a. It has not been generally disclosed to the
public and would likely affect the market price
of the security after being disseminated to the
public and the lapse of a reasonable time for
the market to absorb the information; or
b. Would be considered by a reasonable
person important under the circumstances in
determining his course of action whether to
buy, sell or hold a security (SRS. Sec 27.2)
PROTECTION OF INVESTORS
• Tender Offer Rule
o Publicly announced intention by a person, acting
alone or in concert with other persons to acquire
equity securities of a public company (SRC, Sec.
19)
• It also means: a publicly announced intention by a
person acting alone or in concert with other persons
(hereinafter referred to as "person") to acquire
outstanding equity securities of a public company as
defined in SRC Rule 3, or outstanding equity
securities of an associate or related company of such
public company which controls the said public
company. (2015 IRR of R.A. 8799 Rule 19.1.8)
• NOTE: The 2015 IRR of the Securities Regulation
Code has expanded the tender offer rule to intended
acquisitions of not just the target public company but
also to associate company of the target company,
where the associate company controls said target
company to incorporate the doctrine in Cemco
Holdings, Inc. v. national Life Insurance.
• In the Cemco case, the coverage of the mandatory
tender offer rule was clarified by the SC to cover not
only direct acquisition but also indirect acquisition or
‘any type of acquisition. The legislative intent behind
the tender offer rule makes clear that the type of
activity intended to be regulated is the acquisition of
control of the listed company through the purchase of
shares. Control may [be] effected through a direct and
indirect acquisition of stock, and when this takes
place, irrespective of the means, a tender offer must
occur(Cemco Holdings, Inc. v. National Life Insurance
Co., G.R. No. 171815, 2007, as cited in Osmeña, 533
SCRA 313)
• Target company means any Issuer whose equity
securities are sought by an Offeror pursuant to a
tender offer. (2015 IRR of R.A. 8799 Rule 19.1.7)
• Cases
o A “tender offer” is a publicly announced intention
by a person acting alone or in concert with other
persons to acquire equity securities of a public
company, i.e., one listed on an exchange,
among others.
o The term is also defined as “an offer by the
acquiring person to stockholders of a public
company for the latter to tender their shares
therein on the terms specified in the offer.”
(Morales, The Philippine Securities Regulation
Code, 2005 ed., p. 153, as cited in Osmeña, 533
SCRA 313).
• Tender offer is in place to protect the interests of
minority stockholders of a target company against any
scheme that dilutes the share value of their
investments. It affords such minority shareholders the
opportunity to withdraw or exit from the company
under reasonable terms, a chance to sell their shares
at the same price as those of the majority
stockholders (Cemco Holdings, Inc. v. National Life
Insurance Co., G.R. No. 171815, 2007, as cited in
Osmeña, 533 SCRA 313).
• It is done by filing with the SEC a declaration to that
effect, furnishing the issuer with a statement with the
facts required by the SEC, and the publication of all
requests or invitations for tender.
Mandatory Tender Offer Rule
• Any person or group of person intends to acquire 35%
or more of equity shares in a public company, in one
or more transactions within a period of 12 months.
(2015 IRR of R.A. 8799 Rule 19.2.1)
• Acquisition of even less than 35% but would result in
ownership of more than 51% of the total outstanding
equity securities of a public company (2015 IRR of
R.A. 8799 Rule 19.2.5)
• NOTE: If any acquisition that would result in
ownership of over fifty percent (50%) of the total
outstanding equity securities of a public company, the
acquirer shall be required to make a tender offer
under this Rule for all the outstanding equity
securities to all remaining stockholders of the said
company at a price supported by a fairness opinion
provided by an independent financial advisor or
equivalent third party. The acquirer in such a tender
offer shall be required to accept all securities
tendered. (2015 IRR of R.A. 8799 Rule 19.2.5)
• Exemptions to the Mandatory Tender Offer Rule
under the 2015 IRR of the SRC:’
a. From unissued capital stock, provided that
the acquisition will not result in a 50% or more
ownership;
b. Increase in authorized capital stock;
c. Foreclosure proceedings;
d. Privatization by the government;
e. Rehabilitation under court supervision;
f. Through an open market at the prevailing
market price;
g. Merger or consolidation; and
 h. By any person or group of persons who
intends to acquire 35% through an exchange
trading system.
• NOTE: Any person or group of persons acting in
concert, who intends to acquire thirty five percent
(35%) of the outstanding voting shares or such
outstanding voting shares that are sufficient to gain
control of the board in a public company through the
Exchange trading system shall not be required to
make a tender offer even if such person or group of
persons acting in concert acquire the remainder
through a block sale if, after acquisition through the
Exchange trading system, they fail to acquire their
target of thirty five percent (35%) or such outstanding
voting shares that is sufficient to gain control of the
board. (2015 IRR of R.A. 8799 Rule 19.2.3)
• Transactions exempt from the mandatory tender offer
requirement:
o Any purchase of shares from the unissued
capital stock provided that the acquisition will
not result to a 50% or more ownership of
shares by the purchaser
o Any purchase of shares from an increase in
authorized capital stock
o Purchase in connection with foreclosure
proceedings involving a duly constituted
pledge or security arrangement where the
acquisition is made by the debtor or creditor\
o Purchases in connection with privatization
undertaken by the government of the
Philippines
o Purchases in connection with corporate
rehabilitation under court supervision
o Purchases through an open market at the
prevailing market price
o Merger or consolidation
• Process
o Offeror will make an announcement in a
newspaper of general circulation prior to the
commencement of the offer
o At least 2 business days prior to the date of
the commencement of the tender offer
• File sec form 19-1 with the SEC including all exhibits
thereto and pay the prescribed filing fees
• 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
• Report the results of the tender offer by filing with the
commission, not later than 10 calendar days after the
termination of the tender offer, copies of the final
amendments to the form.
• Insider trading where information relates to a
tender offer
o 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.
• RULES ON PROXY SOLICITATION
o This only refers to solicited proxies. (SRC,
Sec. 20)
• Requirements
a. In writing; signed by the stockholder or duly
authorized representative; and
b. b. Filed before the scheduled meeting with
the corporate secretary
c. c. Valid only for the meeting for which it is
intended.
• Cannot be valid for a period longer than five years at
one time (Maximum effectivity period: 5 years)
• Broker or dealer who holds or acquires the proxy for
at least 10% of the outstanding shares of the issuer
shall submit a report identifying the beneficial owner
within 10 days after such acquisition to the:
o Issuer of the security;
o The Exchange where the security is traded;
and the
o SEC.
• DISCLOSURE RULE
o This rule only applies to issuer corporations
that satisfy the any of the following conditions
(SRC Sec. 17):
– Has sold a class of its securities
pursuant to a registration;
– Has a class of securities listed for
trading on an Exchange; or
– With assets of at least ₱50 Million (or
such other amount as SEC shall
prescribe), and having 200 or more
holders each holding at least 100
shares of a class of its equity
securities (“Public company”)
• Reportorial Requirements
A. Annual Report – for fiscal year in which
registration statement became effective and
 every fiscal year thereafter, within 135 days after
the end of the fiscal year
• Contains 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 operation.
B. Quarterly Report – within 45 days after the end of
each of the first three quarters of the fiscal year
C. Current Report – whenever necessary to make a
full, fair and accurate disclosure to the public of
every material fact or event that occurs, which
would reasonable be expected to affect investors’
decisions in relation to those securities
D. Monthly Report (for issuers of registered
commercial papers) –regarding commercial
paper total issuances outstanding at the end of
each month, within 10 business days following
the end of the month
• REMEMBER THIS: The reportorial obligations of
public companies under the SRC pertain to Sections
17 (Annual and quarterly reports), 18 (5% beneficial
owners), 20 (Information Statement), and 23 (change
in beneficial ownership), among others.
• Note: Reports Filed By 5% Beneficial Owners -any
person who directly or indirectly acquires the
beneficial ownership of more than five percent (5%)
or such lesser per centum as the Commission may
prescribe, of any class of equity securities of an
Issuer, covered by the Disclosure Rule, shall file a
report within five (5) business days after such
acquisition submit to the Issuer, the Exchange where
the security is traded, and to the Commission a sworn
statement prescribed by the SEC (SRC, Sec. 18)
▪ 2. Non-stock – date of annual members
meeting
▪ Foreign corporations – anniversary date
of the SEC license.
• Filing of annual financial statement
o 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
o However, any corporation may file their AFS
regardless of the last numerical digit or license
number on or before the last day stated in the
coding schedule
• For corporations using the fiscal year
o General rule: 120 calendar days from the end
of the fiscal year
o Exceptions
▪ Brokers dealers -110 calendar days
from the end of the fiscal year
▪ Listed companies and public
companies – 105 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” or its authorized banks,
unless the BIR allows an alternative proof of
submission for its authorized banks

• Reportorial requirements shall apply to an issuer:

o Which has sold a class of its securities
pursuant to a registration
o With a class of securities listed for trading in
an exchange
o With assets of at least 50,000,000 pesos or
such other amounts as the SEC shall
prescribe and having 200 or more share
holders each holding at least 100 share of a
class of its equity securities provided
however that the obligation of such issuer to
file report shall be terminated nintey days
after notification to the SEC by the issuer that
the number of its holders holding at least one
hundred share reduced to less than 100.

• Filing of General Information Sheet

o All corporations shall file their GIS within 30
calendar days from
▪ 1. Stock corporations – date of annual
stockholders meetinG