ATENEO LAW SCHOOL
COMMERCIAL LAW REVIEW
ATTY. ALEXANDER
C. D Y
SECURITIES REGULATION CODE[1]
2 SEMESTER, SY 2011ND
2012 I. GENERAL PROVISIONS
Law” to protect public public from unscrupulous unscrupulous promoters, promoters, who who 1. Natur !" SRC – “Blue Sky Law” state business or venture claims which have really no basis, and sell shares or interest interests s therein therein to investo investors, rs, who who are then left holding holding certific certificates ates represe representin nting g nothing more than a claim to a square of a blue sky !a" !b"
S#$ Being Self%&'ecutory – S#. $2.1 $ontractual $ontractual Stipulations Stipulations (gainst (gainst S#$ – S#. $1 ) *oid e'cept against those in good faith Stat P!%&#' U()r%'&(* SRC – S#. 2)
2.
!a"
&stablish a socially conscious, free market that regulates itself+
!b"
&ncourage the widest participation of ownership in enterprises+
!c"
&nhance the democratiation of wealth+
!d"
-romote the development of the capital market+
!e"
-rotect investors+
!f"
&nsure full and fair disclosure about securities+
!g"
.inimie, if not totally eliminate, eliminate, insider trading and other fraudulent fraudulent or manipulative devices and practices which distorts the free market 2.1. C!+ar) C!+ar) &t RSA !B- Blg /01" – 2o protect the public from unsound, fraudulent and worthless securities, ie, “truth in securities act” 3 PSE v. CA , 41/ S$#( 454 !/660"7 in three ways)
!a"
#equiring #equiring through the process of registration issuers of securities to furnish the public with full and accurate disclosure of all material facts concerning the issuer and the securities so that the public may know what it is buying+
!b"
Limiting Limiting margin margin and borrow borrowing ing require requirement ments s to prevent prevent undue undue speculations+ and
!c"
-unis unishi hin ng th those who who man manipula pulate te the ma market an and fr from misrepre misrepresent sentatio ations, ns, manipula manipulation tions s and fraudul fraudulent ent practice practices s coverin covering g securities
2.2. R*u%at!r' C!(tr!%/ C!r) )
!a"
#egistration #egistration process by which a corporation corporation or issue offers and sells its securities to the public
!b"
#eporting #eporting requirements requirements assuring continuous continuous flow of disclosures disclosures and informat information ion about about the securit securities ies and issuer issuer whose whose securiti securities es are traded
!c"
“(nti%fraud “(nti%fraud provisions” provisions” applicable applicable to price manipulations, manipulations, insider trading, misstatements or misrepresentations by corporate management and others
!d" !d"
#egul #egulat ation ions s on market market parti partici cipa pant nts s like like brok brokers ers,, deale dealers rs and and salesmen and securities e'changes
!e"
Sanctions against those who violate provisions of S#$, as well as civil civil liabi liabilit lity y and8o and8orr damag damages es to invest investors ors in9ur in9ured ed by such such viola violatio tions ns !:&$(S(, pp 4%5"
!f"
#emoval #emoval of quasi %9ud % 9udic icia iall func functi tion ons s of the the S&$ S&$ to allo allow w it to conc concen entr trat ate e on its its regu regula lato tory ry func functi tion ons s and and powe powers rs,, incl includ udin ing g the the promul promulga gatio tion n of rules rules and and regula regulatio tions ns and and to e'erc e'ercise ise invest investiga igato tory ry powers
II. SECURITIES AND EXCHANGE COMMISSION SEC 1.
T Natur Natur a() C!+!/ C!+!/&t& &t&!( !( !" SEC – S#. 3.1 ) S&$ shall administer provisions of S#$
!a" !b"
2.
;$olleg legial ial body body;; Composition Composition and qualificat qualifications ions – S#. S#. 3.1, 3.1, 3.2, 3.2, 3.4 3.4 ) ;$ol composed of $hairperson and four !<" $ommissioners Meetings – S#. 3.5
!c"
– S#. e'cept pt its its revi review ew or Powe Powers rs that that Can Can Be Dele Delega gate ted d – S#. 3.6) (ll e'ce appellate authority and its power to adopt, alter and supplement any rule or regulation
!d"
S&$ may may revi review ew upon upon its its own own Interna Internall Review Review Powers Powers – S#. S#. 3.6 3.6) S&$ initiative or upon the petition of any interested party any action of any department or office, individual $ommissioner, or staff member
!e"
=bligation to >ndemnify – S#. 6.1
!f"
?hen $ommissioners and =fficers -ersonally Liable – S#. 6.2
Statut! Statut!r' r' 7a// 7a// !" t P!r/ P!r/ a() 8u(#t& 8u(#t&!(/ !(/ !" SEC % S#. 5.1 ) S&$ shall act with transparency and shall have the powers and functions provided by)
!a"
2he Securities #egulation $ode+
!b"
-res :ecree @o 6A4%(+
!c"
2he $orporation $ode+
!d"
2he >nvestment ouses Law+
!e"
2he Cinancing $ompany (ct+ and
!f"
=ther e'isting laws
4.
P!r/ a() 8u(#t&!(/ !" SEC 9 S#. 5.1
!a"
Durisdiction and supervision over all corporations, partnerships or associations which are the grantees of primary franchises and8or a license or permit issued by the Eovernment+
!b"
Cormulate policies and recommendations on issues concerning the securities market, advise $ongress and other government agencies on all aspects of the securities market and propose legislation and amendments thereto+
!c"
(pprove, re9ect, suspend, revoke or require amendments to registration statements, and registration and licensing applications+
!d"
#egulate, investigate or supervise the activities of persons to ensure compliance+
!e"
Supervise, monitor, suspend or take over the activities of e'changes, clearing agencies and other S#=+
!f"
>mpose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto+
!g"
-repare, 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"
&nlist the aid and support of and8or deputie any and all enforcement agencies of the Eovernment, civil or military as well as any private institution, corporation, firm, association or person in the implementation of its powers and functions+
!i"
>ssue cease and desist orders to prevent fraud or in9ury to the investing public+
!9"
-unish for contempt, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the #ules of $ourt+
!k"
$ompel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision+
!l"
>ssue subpoena duces tecum and summon witnesses to appear in any its proceedings and in appropriate cases, order the e'amination, search and seiure of all documents, papers, files and records, ta' returns, and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, sub9ect to the provisions of e'isting laws+
!m" Suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law+ and
!n"
&'ercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the e'press powers granted S&$ to achieve the ob9ectives and purposes of these laws N!t: See) !i" S#. 55) Settlement =ffers+ and !ii" S#. 66) #evelation of >nformation Ciled with S&$+ !iii" S#. 12;, C!r!rat&!( C!) ) Substituted Service Fpon S&$
3.
R+!a% !" Quasi -
III. REGISTRATION O8 SECURITIES 1.
D"&(&t&!( !" =S#ur&t&/> – S#. 4.1) 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, and include)
!a"
Equity Instruments represent ownership rights in a corporation! i.e.! management! surplus profits! assets upon dissolution"" – s hares of stock+ certificates of interest or participation in a profit sharing agreement+ certificates of deposit for a future subscription+ proprietary or nonproprietary membership certificates in corporations+
!b"
Debt Instruments issuer required to repa# principal amount loaned b# fi$ed maturit# date! at stated rate of interest" – bonds, debentures, notes, evidences of indebtedness [2], asset%backed securities [3]+
!c"
Investment Instruments – investment contracts [4], fractional undivided interests in oil, gas or other mineral rights+ Derivatives[5] – option[6] and warrants [7]+
!d" !e"
Trust Instruments – $ertificates of assignments, certificates participation, trust certificates, voting trust certificates or similar instruments
!f"
of
Catch-all – =ther instruments as S&$ may determine in the future
N!t: “-ublic offering” for purposes of registration, means a random or indiscriminate offering of securities in general to anyone who will buy, whether solicited or unsolicited [8]
2. Sa%, O""r "!r Sa% D&/tr&?ut&!( !" S#ur&t&/ 2.1. G(ra% Ru% !( R*&/trat&!( !" S#ur&t&/ – S#. ;.1)
!a"
Ciling and (pproval of #egistration Statement by S&$ – N!t: “Cull :isclosure” !S#$" vs “.erit System” !#S(" 3 PSE v. CA , 41/ S$#( 454
!/660"7 – @ow, S&$ has no power to look into merits of securities to be sold to the public !b"
Eiving of >nformation -rior to Sale N!t: Sec 1/ covers only securities sold or distribution within the Philippines
offered for sale or
2.2. SEC P!r !( S#ur&t&/ Tra(/a#t&!(/ )
!a"
S#. ;.2) Erant ;conditional approval; of the registration statements+
!b"
S#. ;.4) :efine the terms and conditions under which any written communication, including any summary prospectus, shall not be deemed to constitute an offer for sale+
!c"
S#. ;.3) Heep and open to public inspection at reasonable hours on business days, the #egister of Securities and all documents or information with respect to the securities registered therein+
!d"
S#. ;.5) (udit the financial statements, assets and other information of a firm applying for registration of its securities, when necessary to insure full disclosure or to protect the interest of the investors and the public in general+
!e"
S#. 12.2) #equire the registration statement to contain such information or documents as it may, by rule, prescribe+ and may dispense with any such requirement, or may require additional information or documents, including written information from an e'pert, depending on the necessity thereof or their applicability to the class of securities sought to be registered N!t: S&$ has no power to reverse decision of -S& Board denying listing of securities 3 PSE v. CA , 41/ S$#( 454 !/660"7
4.
E@+t S#ur&t&/ – S#. .1) #egistration requirement shall not as a general rule apply to the following classes of securities)
!a"
G!r(+(t I//u/: 2hose issued8guaranteed by the -hilippine Eovernment, any political subdivision or agency thereof, or any person controlled or supervised by, and acting as an instrumentality of said Eovernment+
!b"
I//ua(#/ ?' 8!r&*( G!r(+(t/: 2hose issued8guaranteed by any foreign government with which the -hilippines maintains diplomatic relations, or any state, province or political subdivision thereof on the basis of reciprocity, !but S&$ may require compliance with the specified form and content of disclosures"+
!c"
Crt&"&#at/ &//u) ?' a ?a(Brut#' r#&rtru/t )u%' ar!) ?' t r!r a)u)&#at!r' ?!)' +
!d"
T!/ &# ?' %a ar u()r t /ur&/&!( a() r*u%at&!( !" t O""&# !" t I(/ura(# C!++&//&!(, H!u/&(* a() La() U/ R*u%at!r' 7!ar), !r t 7urau !" I(tr(a% R(u +
!e" 7a(B I//u/, @#t t&r !( /ar/ !" /t!#B: 2hose issued by a bank e'cept its own shares of stock @ote) >f bank is listed in &'change, not e'empted
from complying with reportorial requirements as such 3 U(&!( 7a(B . SEC , 5G1 S$#( <06 !4AA/"7 N!t: S#. .2) S&$ may, by rule or regulation after public hearing, add to the class of e'empt securities if it finds that the enforcement of the $ode with respect to such securities is not necessary in the public interest and for the protection of investors 3.
E@+t Tra(/a#t&!(/ – S#. 10.1) #egistration requirement shall not apply to securities sold or offered for sale in the following transactions)
!a"
!b"
Sa% !" "!r#%!/) /#ur&t&/: By or for the account of a pledge holder, or mortgagee or any other similar lienholder selling or offering for sale or delivery in the ordinary course of business, not for the purpose of avoiding the provisions of the $ode, to liquidate a bona fide debt, a security pledged in good faith as security for such debt+
!c"
I/!%at) tra(/a#t&!(: (n 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 transactions of a like character, and such owner or representative not being the underwriter [9] of such security+
!d"
St!#B )&&)()/: Stock dividend or other distribution out of surplus by a corporation, actively engaged in the business authoried by its articles of incorporation, to its stockholders or other security holders+
!e"
Sa% !" /ar/ t! /t!#B!%)r/ (!t u()rr&tt(: Sale of capital stock of a corporation to its own stockholders e'clusively, where no commission or other remuneration is paid or given directly or indirectly in connection therewith+
!f"
I//ua(# !" ?!()/ t! a /&(*% ur#a/r: >ssuance of bonds or notes secured by mortgage upon real estate or tangible personal property, where the entire mortgage together with all the bonds or notes secured thereby are sold to a single purchaser at a single sale+
!g"
Tra(/a#t&!( ur/ua(t t! r&*t !" #!(r/&!(: >ssue and delivery of any security in e'change for any other security of the same issuer pursuant to a right of conversion, provided that the security surrendered has been registered under the $ode or was, when sold, e'empt from the provisions of the $ode, and that the security issued and delivered in e'change, if sold at the conversion price, would at the time of such conversion fall within the class of securities entitled to registration under the $ode+ and that upon such conversion the par value of the security surrendered in such e'change shall be deemed the price at which the securities issued and delivered in such e'change are sold+
!h"
transactions, e'ecuted 7r!Br/ tra(/a#t&!(/: BrokerIs customerIs orders, on any registered &'change or other trading market
upon
!i"
Pr-&(#!r!rat&!( /u?/#r&t&!( !r /u?/#r&t&!( t! a #a&ta% &(#ra/: Subscriptions of the capital stock of a corporation prior to the incorporation thereof or in pursuance of an increase in its authoried capital stock, when no e'pense is incurred, or no commission, compensation or remuneration is paid or given in connection therewith, and only when the purpose for soliciting, giving or taking of such subscriptions is to comply with the requirements of such law as to the percentage of the capital stock of a corporation which should be subscribed before it can be registered and duly incorporated, or its authoried capital increased+
!9"
E@#a(* !" /#ur&t&/ &t @&/t&(* /#ur&t' !%)r/: 2he e'change of securities by the issuer with its e'isting security holders e'clusively, where no commission or other remuneration is paid or given directly or indirectly for soliciting such e'change+
!k"
Pr&at %a#+(t/: 2he sale of securities by an issuer to fewer than twenty !4A" persons in the -hilippines during any twelve%month period
!l"
Sa% t! Fua%&"&) ?u'r/: 2he sale of securities to any number of the following qualified buyers)
!i" Bank+ !ii" #egistered investment house+ !iii" >nsurance company+ !iv" -ension fund or retirement plan maintained by the -hilippine Eovernment or any political subdivision thereof, or managed by a bank or other persons authoried by the Bangko Sentral to engage in trust functions+ !v" >nvestment company+ or !vi" Such other person as S&$ may by rule determine as qualified buyers, on the basis of such factors as financial sophistication, net worth, knowledge, and e'perience in financial and business matters, or amount of assets under management N!t: S#. 10.2: P!r t! I(#%u) Otr E@+t Tra(/a#t&!(/ – S&$ may e'empt other transactions, if it finds that the requirements of registration under the $ode is not necessary in the public interest or for the protection of the investors such as by reason of the small amount involved or the limited character of the public offering [10] N!t: S#. 10.4: 8!r+a% A%&#at&!( "!r E@+t&!( – (ny person applying for an e'emption, shall file with S&$ a notice identifying the e'emption relied upon on such form and at such time as S&$ by rule may prescribe and with such notice shall pay to S&$ a fee equivalent to one%tenth !/8/A" of one percent !/J" of the ma'imum aggregate price or issued value of the securities &'ample) >ssuance from authoried but previously unissued capital stock may be granted e'emption 3 %estle Philippines v. C& , 4A5 S$#( GA< !/66/"7
5.
Pr!#)ur "!r R*&/trat&!( !" S#ur&t&/ % 2he following provisions apply to the procedure for registration of securities)
!a" (pplication – S#. 12.1 + !b"
-rospectus – S#. 12.1 +
!c"
=ther >nformation – S#. 12.2 a() 12.4 +
!d" Signatories to the #egistration Statement – S#. 12.3 + !e" ?ritten $onsent of &'pert – S#. 12.3+ !d" $ertification by Selling Stockholders – S#. 12.3 + !e"
Cees – S#. 12.5a+
!f"
@otice and -ublication – S#. 12.5? +
!g"
S&$ -ower for -roduction of Books – S#. 14.2 + and
!h" #uling – S#. 12.6 6.
E""#t&&t' !" R*&/trat&!( Stat+(t – S#. 12.$
$.
Gr!u()/ "!r R#t&!( a() R!#at&!( – S#. 14.1 $.1. Or)r Su/()&(* Sa% !" S#ur&t&/ – S#. 14.3 $.2. N!t&# t! Da%r/ a() 7r!Br/ – S#. 14.5 $.4. W&t)raa% !" R*&/trat&!( Stat+(t – S#. 14.6 $.3. A+()+(t/ t! t R*&/trat&!( Stat+(t – S#. 13.1 t! 13.4 $.5. A#t&!( W( Tr &/ 8a%/ Stat+(t – S#. 13.3 t! 13.5 $.6. Su/(/&!( !" R*&/trat&!( – S#. 15.1 t! 15.4
;.
SEC P!r !r Pr-() P%a(/ [11] a() C!++!)&t' 8utur/ C!(tra#t[12] – S#. $3 S#. 16 S#. 11) Fntil otherwise mandated by a subsequent law, S&$ shall continue to regulate and supervise commodity futures contracts and pre%need plans and the pre%need industry But See: Pre-Nee C!e , which transferred regulation and supervision of pre%need plans to the >nsurance $ommission
IV. REPORTORIAL REUIREMENTS 1.
Pr&!)&# a() Otr R!rt/ !" I//ur/ 9 S#. 1$.2) &very issuer who)
!i" as sold a class of its securities pursuant to a registration+ !ii" as a class of securities listed for trading on an &'change+ and !iii" ?ith assets of at least -GAA .illion !or such other amount as S&$ shall prescribe", and having 4AA or more holders each holding at least /AA shares of a class of its equity securities !“-ublic company”"+ !a" S#. 1$.1 – Shall file with the S&$ !a" (nnual #eport+ and !b" -eriodic #eports
!b"
S#. 1$.4 – Shall also file with the &'change where securities are listed a copy of any report filed with S&$
!c" S#. Shall and 1$.5 – security the annual report
furnish
each
holder
of
such
equity
7. R!rt/ ?' 5 H!%)r/ !" EFu&t' S#ur&t&/ – S#. 1;.1 ) (ny person who acquires directly or indirectly the beneficial ownership of more than GJ of such class of a $overed >ssuer, shall within ten !/A" days after such acquisition !or such reasonable time as fi'ed by S&$", submit a sworn statement containing the information in Sec /1/!a" to !d" to the)
!a" >ssuer of the security+ !b" &'change where the security is traded+ and !c" S&$ V. PROTECTION O8 SHAREHOLDER INTERESTS 1. T()r O""r/ 1.1. O?%&*at&!(/ "!r T()r O""r/ – S#. 1.1a) (ny person, or group of persons acting in concert, who intends to)
!a" !b"
(cquire at least fifteen percent !/GJ" of) or (cquire at least thirty percent !5AJ" over a period of twelve !/4" months of) !i" (ny class of equity security of a listed corporation+ or !ii" (ny class of equity security of a corporation with assets of at least -GAA .illion and having 4AA or more stockholders with at least /AA shares each+
are !bli"e t! ! the #!ll!$in":
!a" .ake a tender offer to stockholders by filing with S&$ a declaration to that effect+ and furnish the issuer a statement containing such of the information required of issuers as S&$ may prescribe+ !b" -ublish all requests or invitations for tender, or materials making a tender offer or requesting or inviting letters of such a security+ !c" Cile with S&$ and send to the issuer copies of any additional material soliciting or requesting such tender offers subsequent to the initial solicitation or request+ !d" -ay at the time of filing of the statement with S&$ a filing pay a fee of not more than one%tenth !/8/A" of one percent !/J" of the proposed aggregate purchase price
N!t: S#. 1.1?) (ny solicitation or recommendation to the holders of such a security to accept or re9ect a tender offer or request or invitation for tenders shall be made in accordance with such rules and regulations as S&$ may prescribe 1.2. W&t)raa% !" S#ur&t&/ D!/&t) Pur/ua(t t! a T()r O""r – S#. 1.1# 1.4. W( S#ur&t&/ O""r) E@#) t O""r Ma) – S#. 1.1) 1.3. W( Tr+ !" T()r O""r Var&) – S#. 1.1 1.5. U(%a"u% a() Pr!&?&t) A#t/ R%at&(* t! T()r O""r/ – S#. 1.2) >t shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation
S&$ shall, for the purposes of this subsection, define and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative 2. Pr!@' S!%&#&tat&!(/ 2.1. Ru%/ !( 8!r+, I//ua(# a() S!%&#&tat&!( !" Pr!@&/ – S#. 20.1) -ro'ies must be issued and pro'y solicitation must be made in accordance with rules and regulations to be issued by S&$, as follows)
4.
!a"
S#. 20.2 ) -ro'ies must be in writing, signed by the stockholder or his duly authoried representative and filed before the scheduled meeting with the corporate secretary+
!b"
S#. 20.4) Fnless otherwise provided in the pro'y, it shall be valid only for the meeting for which it is intended+ no pro'y shall be valid and effective for a period longer than five !G" years at one time+
!c"
S#. 20.3) @o broker or dealer shall give any pro'y, consent or authoriation, in respect of any security carried for the account of a customer, to a person other than the customer, without the e'press written authoriation of such customer+
!d"
S#. 20.5) ( broker or dealer who holds or acquires the pro'y for at least /AJ !or such percentage as S&$ may prescribe" of the outstanding share of the issuer, shall submit a report identifying the beneficial owner within ten !/A" days after such acquisition, for its own account or customer, to) !i" the issuer+ !ii" the &'change where traded+ and !iii" to S&$
I(tr(a% R#!r) J&(* a() A##!u(t&(* C!(tr!%/ – S#. 22) &very $overed >ssuer shall)
!a"
S#. 22.1) .ake and keep books, records, and accounts which, in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the issuer+
!b"
S#. 22.2) :evise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that)
!i"
2ransactions and access to assets are pursuant to management authoriation+
!ii"
Cinancial statements are prepared in conformity with generally accepted accounting principles that are adopted by the (ccounting Standards $ouncil and the rules promulgated by S&$ with regard to the preparation of financial statements+ and
!iii"
#ecorded assets are compared with e'isting assets at reasonable intervals and differences are reconciled
3. Tra(/a#t&!(/ !" D&r#t!r/, O""&#r/ a() Pr&(#&a% St!#B!%)r/ 3.1 R!rt!r&a% RFu&r+(t/ – S#. 24.1 ) &very person who is)
!i" :irectly or indirectly the beneficial owner of more than /AJ of any class of any equity security of a $overed >ssuer+ or !ii" ( director or an officer of the issuer of such security+ shall file) !a" (t the time either such requirement is first satisfied or within ten !/A" days after he becomes such a beneficial owner, director, or officer, a statement with S&$, and with the &'change where it may be listed, of the amount of all equity securities of such issuer of which he is the beneficial owner+ and !b" ?ithin ten !/A" days after the close of each calendar month thereafter, if there has been a change in such ownership during such month, shall file with S&$, and also in the &'change where listed, shall also file with the &'change, a statement indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month 3.2 U("a&r U/ !" I("!r+at&!( – S#. 24.2 ) Cor the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer, any profit realied by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer within any period of less than si' !K" months, unless such security was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the issuer, irrespective of any intention of holding the security purchased or of not repurchasing the security sold for a period e'ceeding si' !K" months
2his subsection shall not be construed to cover any transaction where such beneficial owner was not such both at the time of the purchase and sale, or the sale and purchase, of the security involved, or any transaction or transactions which S&$ by rules and regulations may e'empt as not comprehended within the purpose of this subsection Suits t! %ec!ver Suit to recover such profit may be instituted before the #2$ by the issuer, or by the owner of any security of the issuer in the name and in
behalf of the issuer if the issuer shall fail or refuse to bring such suit within si'ty !KA" days after request or shall fail diligently to prosecute the same thereafter, but no such suit shall be brought more than two !4" years after the date such profit was realied 3.4
U(%a"u% Sa% !" S#ur&t&/ – S#. 24.4) >t shall be unlawful for any such beneficial owner, director, or officer, directly or indirectly, to sell any equity security of such issuer if the person selling the security or his principal)
!i" :oes not own the security sold+ or !ii" >f owning the security, does not deliver it against such sale within twenty !4A" days thereafter, or does not within five !G" days after such sale deposit it in the mails or other usual channels of transportation+ but no person shall be deemed to have violated this subsection if he proves that notwithstanding the e'ercise of good faith he was unable to make such delivery or deposit within such time, or that to do so would cause undue inconvenience or e'pense N!t: S#. 24.3 ) 2he foregoing prohibition shall not apply to any purchase and sale, or sale and purchase of an equity security not then or thereafter held by him in an investment account, by a dealer in the ordinary course of his business and incident to the establishment or maintenance by him of a primary or secondary market, otherwise than on an &'change, for such security
S&$ may, by such rules and regulations as it deems necessary or appropriate in the public interest, define and prescribe terms and conditions with respect to securities held in an investment account and transactions made in the ordinary course of business and incident to the establishment or maintenance of a primary or secondary market I()()(t D&r#t!r/ 9 S#. 4; !See discussions under &'change"
5.
VI. SECURITIES 8RAUD, MANIPULATION, INSIDER TRADING 1.
Ma(&u%at&!( !" S#ur&t' Pr&#/ a() Pra#t&#/ – S#. 23.1) >t shall be unlawful for any person acting for himself or through a dealer or broker, directly or indirectly)
!a"
2o create a false or misleading appearance of active trading in any listed security traded in an &'change or any other trading market) !i" “&ash Sale' – By effecting any transaction in such security which involves no change in the beneficial ownership thereof+ !ii"
(Im)r!)er matche !rer' – By entering an order or orders for the purchase or sale of such security with the knowledge that a simultaneous order or orders of substantially the same sie, time and price, for the sale or purchase of any such security, has or will be entered by or for the same or different parties+ or
!iii" !b"
By performing similar act where there is no change in beneficial ownership 2o effect, alone or with others, a series of transactions in securities that)
!i"
#aises their price to induce the purchase of a security, whether of the same or a different class of the same issuer or of a controlling, controlled, or commonly controlled company by others+
!ii"
:epresses their price to induce the sale of a security, whether of the same or a different class, of the same issuer or of a controlling, controlled, or commonly controlled company by others+ or
!iii"
$reates active trading to induce such a purchase or sale through manipulative devices such as) (mar*in" the cl!se' +[13] ()aintin" the ta)e' +[14](squee+in" the #l!at' +[15] =hy)e an um)>+[16] (b!iler r!!m !)erati!ns' +[17] and such other similar devices
!c"
(Circulatin" unveri#ie rum!r-base mar*et in#!rmati!n' – 2o circulate or disseminate information that the price of any security listed in an &'change will or is likely to rise or fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purchase or sale of such security
!d" 2o make false or misleading statement with respect to any material fact, which he knew or had reasonable ground to believe was so false or misleading, for the purpose of inducing the purchase or sale of any security listed or traded in an &'change !e" 2o effect, either alone or others, any series of transactions for the purchase and8or sale of any security traded in an &'change for the purpose of pegging, fi'ing or stabiliing the price of such security, unless otherwise allowed by the $ode or by rules of S&$ 2.
Ma(&u%at& D&#/ – S#. 23.2) >t shall be unlawful for any person)
!a" 2o use or employ, in connection with the purchase or sale of any security any manipulative or deceptive device or contrivance+ or !b" 2o effect any sh!rt sale[18] or any st!)-l!ss !rer [19] be e'ecuted in connection with the purchase or sale of any security N!t: S#. 23.4) 2he foregoing provisions notwithstanding, S&$, having due regard to the public interest and the protection of investors, may, by rules and regulations, allow certain acts or transactions that may otherwise be prohibited under this section 4.
R*u%at&!( !" Ot&!( Tra)&(* – S#. 25) @o member of an &'change 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 e'change
2he terms “put”, “call”, “straddle”, “option”, or “privilege” shall not include any registered warrant, right or convertible security 3.
8rau)u%(t Tra(/a#t&!(/ – S#. 26) >t shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities to)
!a"
S#. 26.1) &mploy any device, scheme, or artifice to defraud+
!b"
S#. 26.2) =btain money or property by means of any untrue statement of a material fact of any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading+ or
!c"
S#. 26.4 ) &ngage in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person N!t: Craud or deceit required, not mere negligence, on the part of offender 3SEC v. CA , 4
ay
train"
5. I(/&)r Tra)&(* 5.1 D"&(&t&!( !" =I(/&)r> – S#. 4.;) 2he term “insider” means)
!i"
2he issuer+
!ii"
( director or officer !or person performing similar functions" of, or a person controlling the issuer+
!iii"
( person whose relationship or former relationship to the issuer gives or gave him access to material information about the issuer or the security that is not generally available to the public+
!iv"
( government employee, or director, or officer of an e'change, clearing agency and8or self%regulatory organiation who has access to material information about an issuer or a security that is not generally available to the public+ or
!v"
( person who learns such information by a communication from any of the foregoing insiders
5.2 I(/&)r/ Dut' t! D&/#%!/ W( Tra)&(* – S#. 2$.1) >t shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of material information with respect to the issuer or the security that is not generally available to the public, unless)
!a"
2he insider proves that the information was not gained from such relationship+ or
!b"
>f the other party selling to or buying from the insider !or his agent" is identified, the insider proves) !i"
that he disclosed the information to the other party+ or
!ii"
that he had reason to believe that the other party otherwise is also in possession of the information
eanin" !# (aterial n!n)ublic' – S#. 2$.2) Cor purposes of this Section, information is “material nonpublic” if) !a" >t has not been generally disclosed to the public and would likely affect the market price of the security after being disseminated to the public and the lapse of a reasonable time for the market to absorb the information+ or !b" would be considered by a reasonable person important under the circumstances in determining his course of action whether to buy, sell or hold a security 5.4 Pr/u+t&!( !( I(/&)r Tra)&(* – S#. 2$.1) ( purchase or sale of a security of the issuer made by an insider, or such insiderIs spouse or relatives by affinity or consanguinity within the second degree, legitimate or common%law, shall be presumed to have been effected while in possession of material nonpublic information if transacted after such information came into e'istence but prior to dissemination of such information to the public and the lapse of a reasonable time for the market to absorb such information N!t: S#. 2$.1 ) 2his presumption shall be rebutted upon a showing by the purchaser or seller that he was not aware of the material nonpublic information at the time of the purchase or sale 5.3 Pr!&?&t&!( t! D&/#%!/ – S#. 2$.4: >t shall be unlawful for any insider to communicate material nonpublic information about the issuer or the security to any person who, by virtue of the communication, becomes an insider, where the insider communicating the information knows or has reason to believe that such person will likely buy or sell a security of the issuer while in possession of such information 5.5 Pr!&?&t&!(/ !( T()r O""r S&tuat&!(/ – S#. 2$.3) >t shall be unlawful where a tender offer has commenced or is about to commence for)
!a" (ny person !other than the tender offeror" who is in possession of material nonpublic information relating to such tender offer, to buy or sell the securities of the issuer that are sought or to be sought by such tender offer if such person knows or has reason to believe that the information is nonpublic and has been acquired directly or indirectly from the tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such tender offer, or any insider of such issuer+ and !b" (ny tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such tender offer, and any insider of such issuer to communicate material nonpublic information relating to the tender offer to any other person where such communication is likely to result in a such violation N!t: S#. 2$.3? ) 2he term “securities of the issuer sought or to be sought by such tender offer” shall include any securities convertible or e'changeable into such securities or any options or rights in any of the foregoing securities 6.
SEC P!r t! I//u Ru%/ a() R*u%at&!( t! Pr(t 8rau)u%(t, D#t& !r Ma(&u%at& Pra#t&#/ – S#. $2.2 t! $2.3
VII. SECURITIES MARJET PRO8ESSIONALS 1.
S#ur&t&/ MarBt Pr!"//&!(a%/ – S#$ classifies brokers, dealers, salesmen and those associated with them as forming the “professionals” of the securities market
!a"
S#. 4.4) =7r!Br> is a person engaged in the business of buying and selling securities for the account of others
!b"
S#. 4.3) =Da%r> means any person who buys and sells securities for his8her own account in the ordinary course of business
!c"
S#. 4.5) =A//!#&at) r/!( !" a ?r!Br !r )a%r> is an employee thereof who, directly e'ercises control of supervisory authority, but does not include a salesman, or an agent or a person whose functions are solely clerical or ministerial
!d"
S#. 4.14) =Sa%/+a(> is a natural person, employed as such or as an agent, by a dealer, issuer or broker to buy and sell securities+ but N!t) S#. 2;.$) Corpurposes of registration, shall not include any employee of an issuer whose compensation is not determined directly or indirectly on sales of securities of the issuer
2.
Ma()at!r' R*&/trat&!( !" S#ur&t' MarBt Pr!"//&!(a%/ &t SEC – S#. 2;.1, 2;.2 , unless S#. 2;.4 ) e'empted from registration by S&$+ N!t) -urpose is to protect public and strengthen securities mechanism >f not registered, cannot collect fees 3 Nic!las v. CA , 411 S$#( 5A0 !/661"7
4.
ua%&"&#at&!(/ "!r R*&/trat&!( – S#. 2;.3 ) S&$ shall promulgate rules and regulations, requiring, among other things, as a condition for registration that)
!a"
>f natural person – pass written e'amination !proficiency8knowledge"+
!b"
>f broker or dealer – minimum net capital, provide bond8security+ and
!c" 3.
>f located outside the -hilippines – written consent to service of process upon S&$
RFu&r+(t/, Pr!&?&t&!(/ Pr!"//&!(a%/ – S#. 2; 3.1
a()
O?%&*at&!(/
!"
S#ur&t&/
MarBt
7r!Br-D&r#t!r Ru% – S#. 40.1 ) @o broker or dealer shall deal in or otherwise buy or sell, for its own account or for the account of customers, securities listed on an &'change issued by any corporation where any stockholder, director, associated person or salesman, or authoried clerk of said broker or dealer and all the relatives of the foregoing within the fourth civil degree of consanguinity or affinity, is at the time holding office in said issuer corporation as a director, president, vice%president, manager, treasurer, comptroller, secretary or any office of trust and responsibility, or is a controlling person of the issuer
3.2 Da%&(*/ &( C!+%&a(# &t SEC Ru%/ – S#. 40.2 ) @o broker or dealer shall effect any transaction in securities or induce or attempt to induce the purchase or
sale of any security e'cept in compliance with such rules and regulations as S&$ shall prescribe to ensure fair and honest dealings in securities and provide financial safeguards and other standards for the operation of brokers and dealers, including the establishment of minimum net capital requirements, the acceptance of custody and use of securities of customers, and the carrying and use of deposits and credit balances of customers 5. R!#at&!(, R"u/a% !r Su/(/&!( !" R*&/trat&!( !" S#ur&t&/ MarBt Pr!"//&!(a%/ – S#. 2 5.1 Pr(t& Su/(/&!( – S#. 2.2
VIII. EXCHANGES AND OTHER SECURITIES TRADING MARJETS 1.
Pr!&?&t&!( !( U/ !" U(r*&/tr) E@#a(* – S# 42.1
2.
R*u%at&!( !" Or-t-C!u(tr MarBt/ – Sec 544
4. E@#a(*/ 4.1
D"&(&t&!( !" E@#a(* – S#. 4.$) “&'change” is an organied marketplace or facility that brings together buyers and sellers and e'ecutes trades of securities and8or commodities
N!t) 2he rules and regulations of the stock e'change form part of the contract covering securities transacted within the facilities of the e'change 3 Car!lina Inustries Inc. vs. CS St!c* Br!*era"e Inc. , 60 S$#( 05< !/61A"7, because like any other association, an e'change has the power to adopt its own constitution, by%laws, rules and regulations so far as they are not contrary to law or public policy and which will secure to the members, e'clusive rights and privileges which the courts have fully recognied (nyone who becomes a member of the e'change voluntarily submits himself to the operation of those rules and is e'pected to be bound by and to respect them 3 /!)e+ /!csin /eesma 0 C!. Inc. v. CA , /K1 S$#( 40K !/611"7
4.2
R*&/trat&!( !" E@#a(*/ – S#. 44.1) Cile application for registration+ and S#. 30) $omply with registration requirements of S#=
4.4
C!+%&a(# RFu&r+(t/ "!r E@#a(*/ – S#. 44.2)
2.4 SEC A#t&!( !( A%&#at&!( – S#. 44.4 a() 44.3 2.3 A))&t&!(a% 8/ !" E@#a(*/ – S#. 45 4. 7r!Br-Da%r S*r*at&!( Ru% – S#. 43.1 ) >t shall be unlawful for any member% broker of an &'change to effect any transaction on such &'change for its own account, the account of an associated person, or an account with respect to which it or an associated person thereof e'ercises investment discretion+ EXCEPT as follows)
!a" (ny transaction by a member%broker acting in the capacity of a market maker+ !b" (ny transaction reasonably necessary to carry on an odd%lot transactions+ !c" (ny transaction to offset a transaction made in error+ and !d" =ther transactions of a similar nature as S&$ may define 4.1 O?%&*at&!( !" 7r!Br W( S%"-Da%&(* – S#. 43.2) n all instances where the member%broker effects an &'change transaction for its own account or the account of an associated person or an account with respect to which it e'ercises investment discretion, it shall disclose to such customer at or before the completion of the transaction it is acting for its own account, and this fact shall be reflected in the order ticket and the confirmation slip 4.2 A)+&(&/trat& Sa(#t&!(/ – S#. 43.4 3. SEC P!r/ &t R/#t t! E@#a(*/ a() Otr Tra)&(* MarBt
3.1 P!r !r a( E@#a(* – S#. 44.6 ) Fpon appropriate application in accordance with S&$ rules and regulations and upon such terms as S&$ may deem necessary for the protection of investors, an &'change may withdraw its registration or suspend its operations or resume the same But if management prerogative of -S&, i.e., denial of listing application, S&$ has no power 3 PSE v. CA , 41/ S$#( 454 !/660"7 3.2 P!r t! Su/() Tra)&(* – S#. 46.1) >f in S&$Is opinion such action is necessary or appropriate for the protection of investors and the public interest so requires for 5A days, or if more than 5A days but not e'ceeding 6A days, with approval of the -resident of the -hilippines 3.4 U(&"!r+ Tra)&(* Ru%/ – S#. 46.2 3.3 T! Dtr+&( Nu+?r, S&K a() L!#at&!( – S#. 46.4 3.5 Ru%/ "!r Pr!+t C%ara(# a() Stt%+(t – S#. 46.3 3.6 E/ta?%&/+(t !" Tru/t 8u() – S#. 46.5 5. R*&/trat&!( !" I((!at& a() Otr Tra)&(* MarBt/ – S#. 4$ 6. I()()(t D&r#t!r/ – S#. 4;) &very $overed >ssuer shall have at least two !4" independent directors or such independent directors shall constitute at least 4AJ of the members of such board, whichever is the lesser
Cor this purpose, an “independent director” shall mean a person other than an officer or employee of the corporation, its parent or subsidiaries, or any other individual having a relationship with the corporation, which would interfere with the e'ercise of independent 9udgment in carrying out the responsibilities of a director
IX. SEL8-REGULATORY ORGANIATIONS 1.
T Natur !" S%"-R*u%at!r' Or*a(&Kat&!(/ – Sec 56/) Self%regulatory organiations !;S#=;" may be granted much independence by S&$ when they are organied and operated in a manner that they become responsible for the administration and enforcement of the relevant provisions of the $ode, its rules and regulations, and their own rules and regulations, as necessary and appropriate for the protection of investors and the public interests, with full powers to deny membership, barring any person from becoming associated with their members, and to discipline their members and persons associated with their members under fair procedures Fnder S#$, S&$ can register as S#= only ;securities%related organiations
2. Wat Ar S#ur&t&/-R%at) Or*a(&Kat&!(/ – S#. 4.1) S#$ defines them as ;organiations whose operations are related to or connected with the securities market such as but not limited to associations of);
!a" Brokers and dealers+ !b" 2ransfer agents+ !c" $ustodians+ !d" Ciscal and paying agents+ !d" $omputer services+ !e" @ews disseminating services+ !f" -ro'y solicitors+ !g" Statistical agencies+ !h" Securities%rating agencies+ and !i" Securities information processors+ $hich are en"a"e in the business !#:
!a" $ollecting, processing, or preparing for distribution, or assisting, participating in, or coordinating the distribution or publication of, information with respect to transactions in or quotations for any security+ or !b" :istributing or publishing, whether by means of a ticker tape, a communications network, a terminal display device, or otherwise, on a current and continuing basis, information with respect to such transactions or quotations 4. P!r/ !" SEC &t R/#t t! S#ur&t&/-R%at) Or*a(&Kat&!(/ – S#. 4.1) 2he $ode grants S&$ the following powers with respect to securities%related organiations)
!a"
2o register them as S#=+
!b"
=therwise to grant them licenses to operate+
!c"
2o regulate, supervise, e'amine, suspend or otherwise discontinue, as a condition for their operations+ and
!d"
2o prescribe rules and regulations necessary or appropriate in the public interest or for the protection of investors to govern S#= and other organiations licensed or regulated, including requiring all participants in the securities market to cooperate within and among themselves and require electronic integration of their records, to ensure transparency and facilitate e'change of information
3. S#ur&t&/ A//!#&at&!( 3.1 R*&/trat&!( !" S#ur&t&/ A//!#&at&!( – S#. 4.2 3.2 RFu&r+(t/ !" S#ur&t&/ A//!#&at&!( – S#. 4.3 3.4 M+?r/& Pr!#)ura% Ru%/ – S#. 4.5 5. Pr&!)/ &( R*&/trat&!( !" SRO – S#. 30 6. SRO P!r/ a() O?%&*at&!(/ – S#. 30 $. Pr!#)ur !( A)!t&!( !r Ca(*/ !" Ru%/ ?' SRO – S#. 30 ;. SRO D&/#&%&(ar' Pr!#)&(*/ ;.1 R*u%ar D&/#&%&(ar' Pr!#)&(*/ – S#. 30.6 ;.2 Su++ar' D&/#&%&(ar' Pr!#)&(*/ – S#. 30.6 ;.4 N!t&# a() Aa% t! SEC – S#. 30.$ . SEC C!(tr!% a() Sur&/&!( !r SRO – Sec
ACUISITION AND TRANS8ER O8 SECURITIES AND SETTLEMENT O8 TRANSACTIONS IN SECURITIES 1. C%ar&(* A*(#&/ 1.1 D"&(&t&!( – S#. 4.6) “clearing agency” is any person who acts as intermediary in making deliveries upon payment to effect settlement in securities transactions 1.2 Pr!&?&t&!( !( U/ !" U(r*&/tr) C%ar&(* A*(#' – S#. 31 1.4 R*&/trat&!( !" C%ar&(* A*(#&/ – S#. 32 1.3 E&)(t&ar' Va%u !" C%ar&(* A*(#' R#!r) – Sec << 2. R*&/trat&!( a() Da%&(*/ &( S#ur&t&/ 2.1 R#!*(&t&!( !" U(#rt&"&#at) S#ur&t&/ “[24] – S#. 34) @otwithstanding Section K5 of the $orporation $ode, a corporation whose securities are registered or listed on a securities &'change may)
!a" >f so resolved by its Board of :irectors and agreed by a shareholder, investor or securities intermediary, issue shares to, or record the transfer of some or all of its shares into the name of said shareholders, investors or, securities
intermediary in the form of uncertificated securities+ without pre9udice to the rights of the securities intermediary subsequently to require the corporation to issue a certificate in respect of any shares recorded in its name+ and !b" >f so provided in its articles of incorporation and by%laws, issue all of the shares of a particular class in the form of uncertificated securities and sub9ect to a condition that investors may not require the corporation to issue a certificate in respect of any shares recorded in their name S&$ by rule may allow other corporations to provide in their articles of incorporation and by%laws for the use of uncertificated securities 2.2 Ru%/ !( Tra(/"r/ !" S#ur&t&/ – S#. 34) 2ransfers of securities, including an uncertificated securities, may be validly made and consummated by appropriate book%entries in)
!a" Securities accounts maintained by securities intermediaries+ !b" >n the stock and transfer book held by the corporation+ or !c" 2he stock transfer agent+ $ith the #!ll!$in" le"al e##ects:
!a" Such bookkeeping entries shall be binding on the parties to the transfer+ !b" Such transfer has the effect of the delivery of a security in bearer form or duly indorsed in blank representing the quantity or amount of security or right transferred, including the unrestricted negotiability of that security by reason of such delivery+ !c" owever, transfer of uncertificated shares shall only be valid, so far as the corporation is concerned, when a transfer is recorded in the books of the corporation so as to show the names of the parties to the transfer and the number of shares transferred+ !d" 2he registration of a transfer of a security into the name of and by a registered clearing agency or its nominee shall be final and conclusive unless the clearing agency had notice of an adverse claim before the registration was made+ but this is without pre9udice to any rights which the claimant may have against the issuer for wrongful registration+ and !e" @othing shall preclude compliance by banking institutions and their stockholders with the applicable ceilings on shareholdings prescribed by law 2.3 P%)*&(* a S#ur&t' !r I(tr/t Tr&( – S#. 35) >n addition to other methods recognied by law, a pledge of, or release of a pledge of, a security, including an uncertificated security, is properly constituted and the instrument proving the right pledged shall be considered delivered to the creditor under (rticles 4A65 and 4A6G of the $ivil $ode if a securities intermediary indicates by book%entry that such security has been credited to a specially designated pledge account in favor of the pledgee
Such pledge has the effect of the delivery of a security in bearer form or duly indorsed in blank representing the quantity or amount of such security or right pledged >n case of a registered clearing agency, the procedures and the e'act time at which, such book%entries are created shall be governed by the registered clearing agencyIs rules+ however, the corporation shall not be bound by the foregoing transactions unless the corporate secretary is duly notified in such manner as S&$ may provide 4. SEC P!r Or S#ur&t&/ O(r/& – S#. 3$ XII. MARGIN AND CREDIT 1. Mar*&( 1.1 Pur!/ – S#. 3;) 2he margin is required for the purpose of preventing the e'cessive use of credit for the purchase or carrying of securities 1.2 SEC Ru%/ !( Mar*&( – S#. 3;.1 1.4 Mar*&( A%%!a(# Sta()ar) – S#. 3;.1 ) S#$ mandates that the margin allowance shall be based upon the following standard) An am!unt n!t "reater than $hichever is the hi"her !# -
!a" KGJ of the current market price of the security, or !b" /AAJ of the lowest market price of the security during the preceding thirty% si' !5K" calendar months, but not more than 0GJ of the current market price N!t: owever, the .onetary Board may increase or decrease the above percentages, in order to achieve the ob9ectives of the Eovernment with due regard for promotion of the economy and prevention of the use of e'cessive credit 13. Pr!&?&t&!( !( E@t(/&!( !" Mar*&( – Sec <14 and <15 2. 7!rr!&(*/ ?' M+?r/, 7r!Br/, a() Da%r/ 2.1 R/tr&#t&!(/ !( 7!rr!&(*/ – S#. 3 4. E("!r#+(t !" Mar*&( RFu&r+(t/ a() 7!rr!&(* R/tr&#t&!(/ 4.1 I()&r#t V&!%at&!(/ !" Mar*&( RFu&r+(t/ – S#. 50 4.2 I()&r#t V&!%at&!(/ !" 7!rr!&(* R/tr&#t&!(/ – S#. 50 XIII. LIA7ILITIES AND PENALTIES 1. L&a?&%&t&/ !" C!(tr!%%&(* Pr/!(/, A&)r a() A?tt!r 1.1 L&a?&%&t' !" C!(tr!%%&(* Pr/!(/ – S#. 51.1
1.2 O?&!u/ Ru% L&a?&%&t' Ru% – S#. 51.2 1.4 H&()r&(* !r O?/tru#t&(* A#t – S#. 51.4 1.3 U(%a"u% A&)&(* a() A?tt&(* – S#. 51.3 1.5 Su?/ta(t&a% A//&/ta(# – S#. 51.5 2. A##!u(t/, R#!r)/, R!rt/, a() E@a+&(at&!( !" E@#a(*/ a() M+?r/ 2.1 J&(* !" R#!r)/ – Sec G4/ 2.2 R!rt !( E@t(/&!( !" Cr)&t – Sec G44 4. C&&% L&a?&%&t&/ !( A##!u(t !" 8a%/ R*&/trat &!( Stat+(t – S#. 56 3. C&&% L&a?&%&t&/ Ar&/&(* &( C!((#t&!( W&t Pr!/#tu/, C!++u(&#at-&!(/ a() R!rt/ – S#. 5$.1 3.1 Cau/&(* 8a%/ !r M&/%a)&(* Stat+(t/ t! ? 8&%) &t SEC – S#. 5$.2 5.
C&&% L&a?&%&t' Tra(/a#t&!(/ ' S#. 5;
"!r
8rau)
&(
C!((#t&!(
&t
S#ur&t&/
6. C&&% L&a?&%&t' "!r Ma(&u%at&!( !" S#ur&t' Pr&#/ – S#. 23 $. C&&% L&a?&%&t' &t R/#t t! C!++!)&t' 8utur/ C!(tra#t/ a() Pr-() P%a(/ – S#. 60 ;. C&&% L&a?&%&t' !( A##!u(t !" I(/&)r Tra)&(* – S#. 2$.1 a() 61.2 . L&+&tat&!( !" A#t&!(/ – S#. 62 10. Ru%/ !( R&*t/ a() Da+a*/ C%a&+ 10.1 8!r A#t&!(/ !( 8a%/ R*&/trat&!( a() Ma(&u%at& D&#/ – S#. 64 10.2 Otr R+)&/ Aa&%a?% – S#. 6 11. P(a%t&/ "!r V&!%at&!( !" t C!) – S#. $4
[1] 2his =utline is based primarily on :ean $esar L *illanuevaIs $ommercial Law #eview, 4AA0 and 4AA6 &ditions, with references to (tty Lucila . :ecasaIs Securities #egulation $ode, 4AA< &dition, as indicated
[2] “&vidences of >ndebtedness” are written representations of debt securities or obligations of corporations, such as long%term commercial paper !maturity more than 5KG days" or short%term commercial paper !maturity of 5KG days or less" 3:&$(S(, p 0, citing S#$ #ule 5%/S, (mended S#$ >##7 [3] “(sset%backed securities” are certificates issued by Special
-urpose &ntity !S-&", the repayment of which shall be derived from a cash flow of assets in accordance with the plan S-& is either Special -urpose $orporation !S-$" or Special -urpose 2rust !S-2" 3:&$(S(, p G citing #( @o 64K0, Securitiation (ct of 4AA<7
[4] Fnder
the =1!$ey Test' , “>nvestment $ontracts” are contracts, transactions, or schemes whereby a person) !/" makes an investment of money+ !4" in a common enterprise+ !5" with e'pectation of profits+ and !<" primarily from the efforts of others 3 P!$er 1!mes 2nlimite C!r). v. SEC , G
[5] “:erivatives” are financial instruments whose value changes in response to the change in a specified interest rate, security price, commodity price, foreign e'change rate, inde' of prices or rates, a
credit rating or credit inde', or similar variable or underlying factor >t requires no initial or little net investment relative to other types of contracts that have similar responses to changes in market conditions >t is settled at a future date 3:&$(S(, p K citing S#$ #ule 5%/C, (mended S#$ >##7
[6] “=ptions” are contracts that give buyer the right, but not the obligation, to buy !call options" or sell !put options" an underlying security at a predetermined price, called the e'ercise or stake price, on or before a predetermined date, called the e'piry date, which can only be e'tended by the S&$ upon stockholdersI approval 3:&$(S(, p K citing S#$ #ule 5%/C/, (mended S#$ >##7
[7] “?arrants” are rights to subscribe or purchase new shares or e'isting shares in a company on or before a predetermined date, called the e'piry date, which can only be e'tended in accordance with S&$ rules and regulations and8or &'change rules ?arrants generally have a longer e'ercise period than options and are evidenced by warrant certificates 3:&$(S(, p K citing
[8] :&$(S(, p 45 [9]Sec 5/G) “Fnderwriter” is a person who guarantees on a firm commitment and8or declared best effort basis the distribution and sale of securities of any kind by another company
[10]Sec /A4 [11] “-re%@eed -lans”
are contracts which provide for the performance of future services or the payment of future monetary considerations at the time of actual need, for which planholders pay in cash or installment at stated prices, with or without interest or insurance coverage and includes life, pension, education, interment, and other plans which S&$ may from time to time approve 3Sec 567
[12] “$ommodity futures contracts” are contracts providing for the making or taking delivery at a prescribed time in the future of a specific quantity and quality of a commodity or the cash value thereof, which is customarily offset prior to the delivery date, and includes standardied contracts having the indicia of commodities futures 3:&$(S(, p ##7
[13] ;.arking the close” represents the practice of e'ecuting the last transaction or series of transactions at or near the close of the trading day in order to affect its closing price; [14] “-ainting the tape” represents an illegal practice by traders who manipulate the market by buying and selling a security to create the illusion of high trading activity and to attract other traders who may push up the price
[15] “Squeeing the float” refers to a wide range of practices from deadpan acceptance of abnormally high price%to%sales ratios, to crystal ball gaing ten years out in order to find profits, to self% righteous repetition of ;this company is changing the world; mantra [16] “ype and dump,” is a practice whereby a speculator buys a particular stock, and then goes into marketing campaign to hype its price, and then sell his lot at huge profit, leaving the late investors with shares of very deflated price
[17] “Boiler room operations,” constitute fraudulent telemarketing operation involving high%pressure sales of securities >n a typical boiler room, a rented space with desks, telephones, and e'perienced sales people who talk to hundreds of people across the country every day skilled but dishonest salespeople, often with years of e'perience selling dubious products and services over the phone, sit shoulder to shoulder at phone banks all day to call potential investors using sophisticated sales scripts and high% pressure sales techniques
[18] “Short sale” occurs when a speculator sells stocks which he does not own, in anticipation that the price will decline and that he will be able to cover the sale by purchasing them back at a later date at a lower price 2his is done by borrowing stocks from another party who still receives the dividends paid on the stocks while the short sale remains in effect M:&$(S(, p 017 [19] “Stop
loss order” is an order placed to protect a recognied gain in the price of securities against potential loss 2he order reflects the lowest price that a seller is willing to sell at, even though this is lower than the current market price 2he opportunity for manipulation arises because the offer does not reflect the current market price 2he order is a hedge against market decline 3:&$(S(, pp 00%017
[20] “$hurning”
is a situation where a broker%dealer is the sole or dominant market%maker in a particular security and creates a market in that security by repeated purchases from, and resells to, its individual retain customers at steady increasing prices >ts course of conduct violates anti%fraud
provisions if the broker%dealer does not make a full disclosure to the customers of the nature of the market with the intent to defraud or with the wilful and reckless disregard for the interest of the customers 3:&$(S(, p 1/7
[21] “Scalping”
is a situation in which a broker%dealer or investment adviser recommends the purchase of securities without disclosing its practice of purchasing such securities before making the recommendation and then selling them at a profit when the price rises after the recommendation is disseminated 3:&$(S(, p 1/7
[22] “Single
day trading practice” is a practice of buying and selling shares in a single trading session, where the investors settle their accounts at the end of the day ?hile the transaction is not prohibited, there is a risk meeting possible deficiencies in the customerIs account resulting from the transaction, and may encourage “free riding” which is an improper e'tension of credit or purchase of shares without the intent of paying at all or with the intent of paying only if the price goes up by the settlement date 3:&$(S(, p 1/7
[23] “Cront running” is a market malpractice whereby brokers, also acting as dealers, prioritie their own dealer accounts by e'ecuting their own orders on a particular issue ahead of their clients 3:&$(S(, p 1/7
[24]Sec 5/<) “Fncertificated security” is a security evidenced by electronic or
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