RA 8799

THE SECURITIES REGULATION CODE

 Section 1. Title
This shall be known as “The Securities Regulation Code”
 Section 3. Defintion of Terms
3.1. “Securities”- are shares, participation or interest in a
corporation or in a commercial enterprise or profit-making
venture. Simply, a security is a tradable financial asset.

-securities are evidenced by a:

1. certificate,
2. contract
3. intruments (whether written or electronic)
-Securities include:
1. Shares of stocks, bonds, debentures
2. investment contracts, certificates of interest in a profit
sharing agreement, certificates of deposit for a future
subscription
3. fractional undivided interests in oil, gas or other mineral
rights
4. derivatives like option and warrants
5. certificates of assignments, trust certificates, voting trust
certificates
6. proprietary or nonproprietary membership certificates in
corporation and
7. other instruments as may in the future be determined by the
commission
3.2 “Issuer” is the originator, maker, obligor, or creator of the
security

3.3 “Broker”- a person engaged in the business of buying and

selling securities for the account of others.

3.4 “Dealer”- means many person who buys/sells securites for

his/her own account in the ordinary course of business
3.5 “Associated person of a broker or dealer” - is an employee
therefor whom directly exercises control of supervisory
authority, but does not include a saleman

3.6. “Clearing Agency”- is any person who acts as intermediary

in making deliveries upon payment in connection with
transactions in securities. (A person/company that is used for
getting goods officially from one country to another).
3.7 “Exchange” - is an organized market place or facility that
brings together buyers and sellers and executes trade of
securites and/or commodities. it is also known as a bourse.

Example: The New York Stock Exchange is perhaps the most

well-known of exchanges in the U.S. located on Wall Street in
Manhattan, New York. It saw its first trade in 1972.
The term bourse is related to the 13th-century inn named "Huis
ter Beurze" owned by Van der Beurze family in Bruges,
Belgium, where traders and foreign merchants from across
Europe, especially the Italian Republics of Genoa, Florence
and Venice, conducted business in the late medieval period.

The building, which was established by Robert van der Buerze as

a hostelry, had operated from 1285.Its managers became
famous for offering judicious financial advice to the traders
and merchants who frequented the building.

This service became known as the "Beurze Purse" which is the

basis of bourse, meaning an organized place of exchange.
Eventually, the building became solely a place for trading in
commodities.
The “Huis ter Beurze” (center) in Bruges, Belgium
3.8 “Insider” means:
(a) Issuer;
(b) a director or officer of, or a person controlling the issuer;
gives him access to material information about the issuer or
the security that is not generally available to the public
(d) A government employee, director, or officer of an
exchange, clearing agency and/or self-regulatory organization
who has access to material information about an issuer or a
security that is not generally available to the public; or
(e) a person who learns such information by a communication
from any forgoing insiders.
3.9. "Pre-need plans" are contracts which provide for the
performance of future services of or the payment of future
monetary considerations at the time actual need, for which
plan holders 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 the
Commission may from time to time approve.

3.10. "Promoter" is a person who, acting alone or with others,

takes initiative in founding and organizing the business or
enterprise of the issuer and receives consideration therefor.
3.11. "Prospectus" is the document made by or an behalf of an
issuer, underwriter or dealer to sell or offer securities for sale
to the public through registration statement filed with the
Commission.

3.12. "Registration statement" is the application for the

registration of securities required to be filed with the
Commission.

3.13. "Salesman" is a natural person, employed as such as an

agent, by a dealer, issuer or broker to buy and sell securities.
3.14 Uncertificated security- is a security evidenced by electronic
or similar records

3.16 Underwriter- is a person who guarantees on a firm

commitment and/or best declared effort basis the distribution
and sale of securites of any kind by another company.
 What is the purpose of the SRC?
1. To encourage the widest participation of ownership in
enterprise.
2. To protect the development of the capital market
3. To protect investors
4. To ensure full and fair disclosure about securities
5. To minimize if not totally eliminate insider traiding and other
fraudulent or manipulative devise and practices which create
distortions in the free market (Sec. 2)
 Features intended to
protect the investing public
1. all securities are required to be registered before they can be
sold to the public (Section 8).

2. Rejection and revocation of the registration of securities

(Section 13)

3. Regulation of pre-need plans (Sec 16)

4. Protection of shareholder interests (Sec 19)

5. Prohibition on fraud, manipulation and insider trading
(Sections 24, 25, 26 and 27)

6. Regulations of Securities Market Professionals (Sec 28)

7. Revocation, refusal or suspension of registration of brokers,

dealers and salesmen and associated persons (Sec 29)

8. Restrictions on “over-the counter” markets (Sec 32)

9. Sefl-regulation of associations of securities brokers, dealers
and other securities related organizations (Sec 29)

10. Registration of clearing agencies (Sec 42)

11. Limitations on margin trading or the amount of credit that

may be extended on any security (Sec 49)

12. Civil liabilities arising from false statement in the registration

statement (Sec 56)
 -
13. Civil liabilities arising from false statement or omissions in
the prospectus, communications, and reports (Section 57)

14. Protection against manipulations of security prices,

manipulative and deceptive decises (Section 59), fraud in pre-
need plans and commodities future contracts (Sec 60),
fraudulent transactions (Sec 58), and insider trading (Sec 61)

15. Establishment of trust funds to compensate investors for

extraordinary losses or damage they may suffer due to
business failure or fraud, or mismanagment of the persons with
whom they transact (Sec 36)
 Powers and Functions of the SEC
1. Supervision over corporations, partnerships and grantees of
primary franchise;

2. approve, reject registration statements/licensing applications;

3. suspend, revoke, after notice and hearing primary franchise.

4. regulate/supervise activities of persons to ensure compliance

5. supervise monitor, suspend or take over, exchanges clearing

agencies and SRO's
6. Recommend policies, advise, propose legislation to Congress
on securities market;

7. Prepare approve, amend or repeal rules, regulations, issue

opinions

8. Enlist the aid and support of and/or deputize any and all
enforcement agencies of the government as well as any private
institution, corporation, firm, association or persons in the
implementation of its power.
9. issue cease and desist orders to prevent fraud or injury

10. punish for contempt of the commision

11. compel the officers of any registered corporation or

association to call meetings of stockholders or members

12. issue subpoena duces tecum and summons witnesses to

appear in any proceedings of the Commission; and
13. Exercise such other powers as may be provided by law which
are necessary or incidental to the carrying out its express
powers.
 what are securities again?
Securities are shares, participation or interest in a corporation or
in a commercial enterprise or profit-making ventures and
evidenced by a certificate, contract, instrument, whether
written or electronic.

examples are shares of stocks, investments contracts, bonds,

derivatives, etc.
 what is a derivative?
a derivative is a financial instrument, including options and
warrants, whose value depends on the interest in or
performance of an underlying security.
it may be an option or a warrant
 what is an option?
An option is a contract that gives the buyer the right, but not the
obligation to buy or sell an underlying security at a
predetermined price, called the exercise or strike price, on or
before a predetermined date, called the expiry date, which can
only be extended in accordance with Exchange rules.
 what is a warrant?
A warrant is a right to subscribe or purchase new shares or
existing shares in a company, on or before a predetermined
date, called the expiry date, chich can only be extended in
accordance with Exchange rules.

Warrants generally have a longer exercise period than options.

 Registration of Securites
General Rule: A registration statement duly filed and approved by
the SEC is necessary before securities may be sold and
offered for sale or distribution with in the Philippines.

Exceptions:
1. Exempt Securites (Sec 9)
2. Exempt Transactions (sec 10)
 What are Exempt Securities? (Sec 9)
1. Any security issued or guaranteed by the Philippine
Government
2. Any security issued or guaranteed by the government of any
country which the Philippines maintains diplomatic relations
3. Certificates issued by a receiver or by a trustee in bankruptcy
4. Any security which is under the supervision of the Office of
the Insurance Commission, HLURB or the BIR.
5. any security issued by a bank
6. any security added by the SEC by rule or regulation after a
public hearing
 What are exempt transactions? (Sec 10)
1. Judicial sale by executor/administrator in insolvency or
bankruptcy.
2. sale of pledged/morgaged security to liquidate a debt
3. sale on isolated transactions by owner.
4. distribution of stock dividends
5. sale of capital stock exclusively to stockholders where no
commission is paid
6. the insurance of bonds or notes secured by mortgage upon real
estate or tangible personal property, where the entire mortgage
are sold to a single purchaser at a single sale.
7. Issuance of security in exchange of any security from same
issuer pursuant to right of conversion.

8. broker's transaction

9. pre-incorporation subscription

10 exchange of securities by issuer with existing security holders

exclusively
11. sale to less than 20 persons during any 12-month period

12. sale of securities to banks, registered investment house,

insurance companies, pension fund or retirement plan
maintained by the government or other persons authorized by
the BSP to engage in trust functions.
 What is a tender offer?
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.
 what is a public company?
1. any corporation with a class of equity securities listed on an
Exchange; or

2. any corporation with assets in excess of P50m and having 200

or more holders, at least 200 of which are holding at least 100
share of a class of its equity securities.
 What are unlawful acts
1. For any beneficial owner, director or officer to sell any security
if the seller/or his principal: (a) does not own or (b) does not
deliver it within 20 days from sale. (Sec 23.3)

2. Manipulation of Security prices (Sec. 24.1)

3. Employment of manipulative or deceptive device or

contrivance in connection with purchas and sale of authorites.
Execution of “Short sale”, “stop-loss” order not in accordance
with SEC rules (Sec. 24.2)
4. For any member of the Exchange to endorse or guarantee the
performance of any “put”, “call”, “straddle”, “option” or
“privilege” in relation to any registered security.

5. Fraudulent transactions in the sale of securities (Sec 26)

6. Insider trading (Sec 27)

7. For an insider to communicate material non-public information

about the issuer or security
8. Unlawful Tender Offer

9. Use of Extensive Credit

 What is a short sale?
A short sale is a contract for sale of shares of stock which the
seller does not own, or certificates which are not within his
control, so as to be available for delivery at the time when
delivery must be made.

A short sale is the sale of an asset or stock the seller does not
own. It is generally a transaction in which an investor sells
borrowed securities in anticipation of a price decline; the seller
is then required to return an equal number of shares at some
point in the future.
 What is a Short? (or Short Position)
A short, or a short position, is created when a trader sells a
security first with the intention of repurchasing it or covering it
later at a lower price.
Example:
A trader thinks that Amazon’s stock is poised to fall after it reports
quarterly results.

To take advantage of this possibility, the trader borrows 1,000 shares of

the stock from his stock loan department with the intent to short the
stock.

The trader than goes out and sells short the 1,000 shares for $1,500each
share.

In the following weeks, the company reports weaker than expected

revenue and guides for a weaker than expected forward quarter. As a
result, the stock plunges to $1,300, the trader then buys to cover the
short position.

The trade results in a gain of $200 per share or $200,000.

 What is a Stop-Loss Order
A stop-loss order is the direction by a customer to his broker that
if the commodity touches a price named, the broker shall close
the trade at the bst available price

Stop-loss orders are designed to limit an investor’s loss on a

position in a security. Although most investors associate a
stop-loss order with a long position, it can also protect a short
position, in which case the security gets bought if it trades
above a defined price.
 What is a Long (or Long position?)
A long (or long position) is the buying of a security such as a
stock, commodity or currency with the expectation that the
asset will rise in value

A long position is the opposite of a short (or short position).

For example, let's say Jim expects Microsoft Corporation

(MSFT) to increase in price and purchases 100 shares of
MSFT for his portfolio. Jim is therefore said to be long 100
shares of MSFT. Going long on a stock or bond is the more
conventional investing practice in the capital markets.
 What is a PUT?
A Put is an option that, in consideration of a premium paid, gives
the buyer the right to sell a given number of shares of a
named stock between a given time at a stipulated price which
is usually below the prevailing market price of the stock at the
time the “put” is purchased.

Example: A stock put option with a strike price of $10 means the
put option buyer san use the option to sell that stock at $10
before the option expires
 What is a Call?
-A call is an option that, in consideration of a premium paid,
entitles the buyer the right to compelt the seller to deliver to
him (simply right to buy) a certain number of shares within a
given time at a stipulated price which is usally higher than the
prevailing marker price at teh time the call is bought.

Call is the reverse of put.

The strike price is the price at which an option buyer can buy the
underlying asset. For example, a stock call option with a strike
price of 10 means the option buyer can use the option to buy
that stock at $10 before the option expires.
 What is a Straddle?
A Straddle is a double privilege of a PUT and a CALL.
 What is a Wash Sale?
A Wash sale is the operation of simultaneously buying and selling
the same stock. it is any transaction in any security which
involves no change in the beneficial ownership thereof.

It is the reverse of Matched Orders wherein there is a change in

the ownership of securities
 What is a Short Swing Transaction?
One where a person buys securities and sell the same within a
period of six months.
 What is a Floor Trader?
A professional trader in securities who acts for himself and not
for the account of others. Hence, he recceives no commision at
all.
 Hype and Dump
Engaging in buying activity at increasingly higher prices and then
selling securities in the market at higher securities

Also referred to as pump and dump.

In this. scheme, the manipulator artificially inflates the asset price

through promotion in order to sell at. the inflated price, or
deflates the asset price through false hype in order to buy at
the deflated. price.
 What is a boiler room sales
The use of high pressure sales tactics to promote purchases and
sales of securities.

A boiler room is place or operation where high-pressure

salespeople use banks of telephones to call lists of potential
investors (known as a "sucker lists") in order to peddle
speculative, even fraudulent, securities. A "boiler room" is so
called due to high-pressure selling.
 What is an over the counter transaction?
Transactions which are not made at the stock exchange, but directly
between the broker and customer

Over-the-counter (OTC) refers to the process of how securities are

traded for companies that are not listed on a formal exchange such
as the New York Stock Exchange (NYSE). Securities that are traded
over-the-counter are traded via a broker-dealer network as opposed
to on a centralized exchange.

The primary risks involved in trading over-the-counter (OTC) stocks

stem from lack of reliable information and the fact that OTC stocks
are commonly very thinly traded markets. OTC stocks, also known
as "penny stocks" due to the fact that many of them trade for less
than $1, are a tempting opportunity for investors.
 What is an over the counter market?
A market created other than a registred stock exchange for both
the purchase and sale of any security.

A trade can be executed between two participants in an OTC

market without others being aware of the price at which the
transaction was completed. In general, OTC markets are
typically less transparent than exchanges and are also subject
to fewer regulations.
 What is Insider Trading?
The selling or buying of asecurity by an insider while in
possesion of material non-public information with respect to
the issuer or the security.

It is generally considered unlawful.

 When is insider trading lawful?
1. the insider proves that the information was not gained from
such relationship. or
2. if the other party selling to or buying from the insider is
identified, the insider proves:
1. that he disclosed the information to the other party, OR
2. that he had reason to believe that the other party
otherwise is also in possession of the information
 Who is an insider?
An insider is a person who, with respect to a particular security,
may be any of the following:

1. issuer

2. director, or officer of, or a person controlling the issuer

3. a person whose relationship to the issuer gives him access to

material information about the issuer or a security that is not
genearally available ot the public.
4. a government employee, director or officer of an exchange,
clearing agency and/or self-regulatory organization who has
access to material information about an issuer or a security that
is not genearally available ot the public.

5. A person who learns such information by communication from

any of the foregoing insiders.
What is a Material non-public information?
1. information about the issuer or the security which 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

2. information about the issuer or the security which would be

considered by a reasonable person important under the
circumstances in determining his course of action to buy, sell
or hold security.
 What is margin trading?
a kind of trading that allows a broker to advance for the
customer/investor part of the purchase price of a security and
to keept it as a collateral for such advance