ATENEO LAW SCHOOL

COMMERCIAL LAW REVIEW ATTY. ALEXANDER C.

DY
SECURITIES REGULATION CODE1 2ND SEMESTER, SY 2011-
2012

I. GENERAL PROVISIONS
1. Nature of SRC – “Blue Sky Law” to protect public from unscrupulous
promoters, who state business or venture claims which have really no
basis, and sell shares or interests therein to investors, who are then left
holding certificates representing nothing more than a claim to a square of
a blue sky.
(a) SRC Being Self-Executory – Sec. 72.1
(b) Contractual Stipulations Against SRC – Sec. 71: Void except against
those in good faith
2. State Policy Underlying SRC – Sec. 2:
(a) Establish a socially conscious, free market that regulates itself;
(b) Encourage the widest participation of ownership in 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, insider trading and other fraudulent or
manipulative devices and practices which distorts the free market.
2.1. Compared with RSA (B.P. Blg. 178) – To protect the public from
unsound, fraudulent and worthless securities, i.e., “truth in
securities act” [PSE v. CA, 281 SCRA 232 (1997)] in three ways:
(a) Requiring 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 margin and borrowing requirements to prevent undue
speculations; and

1
This Outline is based primarily on Dean Cesar L. Villanueva’s Commercial Law Review,
2007 and 2009 Editions, with references to Atty. Lucila M. Decasa’s Securities Regulation Code,
2004 Edition, as indicated.
 2

(c) Punishing those who manipulate the market and from

misrepresentations, manipulations and fraudulent practices
covering securities.
2.2. Regulatory Controls Covered:
(a) Registration process by which a corporation or issue offers and
sells its securities to the public.
(b) Reporting requirements assuring continuous flow of disclosures
and information about the securities and issuer whose securities
are traded.
(c) “Anti-fraud provisions” applicable to price manipulations, insider
trading, misstatements or misrepresentations by corporate
management and others.
(d) Regulations on market participants like brokers, dealers and
salesmen and securities exchanges.
(e) Sanctions against those who violate provisions of SRC, as well
as civil liability and/or damages to investors injured by such
violations. (DECASA, pp. 2-3)
(f) Removal of quasi-judicial functions of the SEC to allow it to
concentrate on its regulatory functions and powers, including
the promulgation of rules and regulations and to exercise
investigatory powers.

II. SECURITIES AND EXCHANGE COMMISSION (SEC)

1. The Nature and Composition of SEC – Sec. 4.1: SEC shall administer
provisions of SRC
(a) Composition and qualifications – Sec. 4.1, 4.2, 4.3: "Collegial body"
composed of Chairperson and four (4) Commissioners
(b) Meetings – Sec. 4.5
(c) Powers that Can Be Delegated – Sec. 4.6: All except its review or
appellate authority and its power to adopt, alter and supplement any
rule or regulation.
(d) Internal Review Powers – Sec. 4.6: SEC may review upon its own
initiative or upon the petition of any interested party any action of any
department or office, individual Commissioner, or staff member.
(e) Obligation to Indemnify – Sec. 6.1
(f) When Commissioners and Officers Personally Liable – Sec. 6.2
2. Statutory Bases of the Powers and Functions of SEC - Sec. 5.1: SEC
shall act with transparency and shall have the powers and functions
provided by:
 3

(a) The Securities Regulation Code;

(b) Pres. Decree No. 902-A;
(c) The Corporation Code;
(d) The Investment Houses Law;
(e) The Financing Company Act; and
(f) Other existing laws.
3. Powers and Functions of SEC – Sec. 5.1
(a) Jurisdiction and supervision over all corporations, partnerships or
associations which are the grantees of primary franchises and/or a
license or permit issued by the Government;
(b) Formulate policies and recommendations on issues concerning the
securities market, advise Congress and other government agencies on
all aspects 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 SRO;
(f) Impose sanctions for the violation of laws and the rules, regulations
and orders 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, regulations and orders;
(h) Enlist the aid and support of and/or deputize 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 functions;
(i) Issue cease and desist orders to prevent fraud or injury to the investing
public;
(j) Punish for contempt, 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
its proceedings 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
 4

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, partnerships 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 SEC to achieve the
objectives and purposes of these laws.
Note: See: (i) Sec. 55: Settlement Offers; and (ii) Sec. 66: Revelation
of Information Filed with SEC; (iii) Sec. 128, Corporation Code:
Substituted Service Upon SEC.
4. Removal of Quasi-Judicial Functions of SEC – Sec. 5.2: SEC
jurisdiction over all cases enumerated under Section 5 of Pres. Decree
902-A (i.e., fraud schemes; intra-corporate disputes; election and
termination cases of directors, trustees and officers; and petitions for
suspension of payments and/or rehabilitation) have been transferred to
the appropriate Regional Trial Courts.

III. REGISTRATION OF SECURITIES

1. Definition of “Securities” – Sec. 3.1: 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)) – shares 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 repay principal amount loaned
by fixed maturity date, at stated rate of interest) – bonds, debentures,
notes, evidences of indebtedness2, asset-backed securities3;

2
“Evidences of Indebtedness” are written representations of debt securities or obligations of
corporations, such as long-term commercial paper (maturity more than 365 days) or short-term
commercial paper (maturity of 365 days or less). [DECASA, p. 7, citing SRC Rule 3-1.S,
Amended SRC IRR]
3
“Asset-backed securities” are certificates issued by Special Purpose Entity (SPE), the
repayment of which shall be derived from a cash flow of assets in accordance with the plan. SPE
is either Special Purpose Corporation (SPC) or Special Purpose Trust (SPT). [DECASA, p. 5
citing R.A. No. 9267, Securitization Act of 2004].
 5

(c) Investment Instruments – investment contracts4, fractional undivided

interests in oil, gas or other mineral rights;
(d) Derivatives5 – option6 and warrants7;
(e) Trust Instruments – Certificates of assignments, certificates of
participation, trust certificates, voting trust certificates or similar
instruments
(f) Catch-all – Other instruments as SEC may determine in the future.
Note: “Public 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. Sale, Offer for Sale Distribution of Securities
2.1. General Rule on Registration of Securities – Sec. 8.1:
(a) Filing and Approval of Registration Statement by SEC – Note: “Full
Disclosure” (SRC) vs. “Merit System” (RSA) [PSE v. CA, 281 SCRA
232 (1997)] – Now, SEC has no power to look into merits of
securities to be sold to the public.
(b) Giving of Information Prior to Sale
Note: Sec. 8.1 covers only securities sold or offered for sale or
distribution within the Philippines.
2.2. SEC Power on Securities Transactions:
(a) Sec. 8.2: Grant "conditional approval" of the registration
statements;

4
Under the “Howey Test”, “Investment Contracts” are contracts, transactions, or schemes
whereby a person: (1) makes an investment of money; (2) in a common enterprise; (3) with
expectation of profits; and (4) primarily from the efforts of others [Power Homes Unlimited Corp.
v. SEC, 546 SCRA 567 (2008)]
5
“Derivatives” are financial instruments whose value changes in response to the change in a
specified interest rate, security price, commodity price, foreign exchange rate, index of prices or
rates, a credit rating or credit index, or similar variable or underlying factor. It requires no initial or
little net investment relative to other types of contracts that have similar responses to changes in
market conditions. It is settled at a future date. [DECASA, p. 6 citing SRC Rule 3-1.F, Amended
SRC IRR]
6
“Options” 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 exercise or stake
price, on or before a predetermined date, called the expiry date, which can only be extended by
the SEC upon stockholders’ approval. [DECASA, p. 6 citing SRC Rule 3-1.F.1, Amended SRC
IRR]
7
“Warrants” are rights to subscribe or purchase new shares or existing shares in a company
on or before a predetermined date, called the expiry date, which can only be extended in
accordance with SEC rules and regulations and/or Exchange rules. Warrants generally have a
longer exercise period than options and are evidenced by warrant certificates. [DECASA, p. 6
citing
8
DECASA, p. 23.
 6

(b) Sec. 8.3: Define the terms and conditions under which any written
communication, including any summary prospectus, shall not be
deemed to constitute an offer for sale;
(c) Sec. 8.4: Keep and open to public inspection at reasonable hours
on business days, the Register of Securities and all documents or
information with respect to the securities registered therein;
(d) Sec. 8.5: Audit 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) Sec. 12.2: Require 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
expert, depending on the necessity thereof or their applicability to
the class of securities sought to be registered.
Note: SEC has no power to reverse decision of PSE Board denying
listing of securities [PSE v. CA, 281 SCRA 232 (1997)].
3. Exempt Securities – Sec. 9.1: Registration requirement shall not as a
general rule apply to the following classes of securities:
(a) Government Issues: Those issued/guaranteed by the Philippine
Government, any political subdivision or agency thereof, or any person
controlled or supervised by, and acting as an instrumentality of said
Government;
(b) Issuances by Foreign Governments: Those issued/guaranteed by
any foreign government with which the Philippines maintains
diplomatic relations, or any state, province or political subdivision
thereof on the basis of reciprocity, (but SEC may require compliance
with the specified form and content of disclosures);
(c) Certificates issued by a bankruptcy receiver/trustee duly
approved by the proper adjudicatory body;
(d) Those which by law are under the supervision and regulation of
the Office of the Insurance Commission, Housing and Land Use
Regulatory Board, or the Bureau of Internal Revenue;
(e) Bank Issues, except their own shares of stock: Those issued by a
bank except its own shares of stock. Note: If bank is listed in
Exchange, not exempted from complying with reportorial requirements
as such [Union Bank v. SEC, 358 SCRA 479 (2001)].
Note: Sec. 9.2: SEC may, by rule or regulation after public hearing, add
to the class of exempt securities if it finds that the enforcement of the
Code with respect to such securities is not necessary in the public interest
and for the protection of investors.
 7

4. Exempt Transactions – Sec. 10.1: Registration requirement shall not

apply to securities sold or offered for sale in the following transactions:
(a) Judicial sale of securities: At any judicial sale, or sale by an
executor, administrator, guardian, receiver, or trustee in insolvency or
bankruptcy;
(b) Sale of foreclosed securities: 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 Code, to liquidate a bona fide
debt, a security pledged in good faith as security for such debt;
(c) 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 transactions of a like character, and such owner or
representative not being the underwriter 9 of such security;
(d) Stock dividends: Stock dividend or other distribution out of surplus by
a corporation, actively engaged in the business authorized by its
articles of incorporation, to its stockholders or other security holders;
(e) Sale of shares to stockholders not underwritten: Sale of capital
stock of a corporation to its own stockholders exclusively, where no
commission or other remuneration is paid or given directly or indirectly
in connection therewith;
(f) Issuance of bonds to a single purchaser: Issuance 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) Transaction pursuant to right of conversion: Issue and delivery of
any security in exchange for any other security of the same issuer
pursuant to a right of conversion, provided that the security
surrendered has been registered under the Code or was, when sold,
exempt from the provisions of the Code, and that the security issued
and delivered in exchange, if sold at the conversion price, would at the
time of such conversion fall within the class of securities entitled to
registration under the Code; and that upon such conversion the par
value of the security surrendered in such exchange shall be deemed
the price at which the securities issued and delivered in such exchange
are sold;
(h) Broker’s transactions: Broker’s transactions, executed upon
customer’s orders, on any registered Exchange or other trading
market.

9
Sec. 3.15: “Underwriter” is a person who guarantees on a firm commitment and/or
declared best effort basis the distribution and sale of securities of any kind by another company.
 8

(i) Pre-incorporation subscription or subscription to a capital

increase: Subscriptions of the capital stock of a corporation prior to
the incorporation thereof or in pursuance of an increase in its
authorized capital stock, when no expense 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 authorized capital increased;
(j) Exchange of securities with existing security holders: The
exchange of securities by the issuer with its existing security holders
exclusively, where no commission or other remuneration is paid or
given directly or indirectly for soliciting such exchange;
(k) Private placements: The sale of securities by an issuer to fewer than
twenty (20) persons in the Philippines during any twelve-month period.
(l) Sale to qualified buyers: The sale of securities to any number of the
following qualified buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement plan maintained by the Philippine
Government or any political subdivision thereof, or managed by a
bank or other persons authorized by the Bangko Sentral to engage
in trust functions;
(v) Investment company; or
(vi) Such other person as SEC may by rule determine as qualified
buyers, on the basis of such factors as financial sophistication, net
worth, knowledge, and experience in financial and business
matters, or amount of assets under management.
Note: Sec. 10.2: Power to Include Other Exempt Transactions – SEC
may exempt other transactions, if it finds that the requirements of
registration under the Code 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
Note: Sec. 10.3: Formal Application for Exemption – Any person
applying for an exemption, shall file with SEC a notice identifying the
exemption relied upon on such form and at such time as SEC by rule may
prescribe and with such notice shall pay to SEC a fee equivalent to one-
tenth (1/10) of one percent (1%) of the maximum aggregate price or

10
Sec. 10.2.
 9

issued value of the securities. Example: Issuance from authorized but

previously unissued capital stock may be granted exemption [Nestle
Philippines v. CA, 203 SCRA 504 (1991)]
5. Procedure for Registration of Securities - The following provisions
apply to the procedure for registration of securities:
(a) Application – Sec. 12.1;
(b) Prospectus – Sec. 12.1;
(c) Other Information – Sec. 12.2 and 12.3;
(d) Signatories to the Registration Statement – Sec. 12.4;
(e) Written Consent of Expert – Sec. 12.4;
(d) Certification by Selling Stockholders – Sec. 12.4;
(e) Fees – Sec. 12.5(a);
(f) Notice and Publication – Sec. 12.5(b);
(g) SEC Power for Production of Books – Sec. 13.2; and
(h) Ruling – Sec. 12.6.
6. Effectivity of Registration Statement – Sec. 12.7.
7. Grounds for Rejection and Revocation – Sec. 13.1
7.1. Order Suspending Sale of Securities – Sec. 13.4
7.2. Notice to Dealers and Brokers – Sec. 13.5
7.3. Withdrawal of Registration Statement – Sec. 13.6
7.4. Amendments to the Registration Statement – Sec. 14.1 to 14.3
7.5. Action When There is False Statement – Sec. 14.4 to 14.5
7.6. Suspension of Registration – Sec. 15.1 to 15.3
8. SEC Power over Pre-need Plans 11 and Commodity Futures Contract12
– Sec. 74; Sec. 16; Sec. 11: Until otherwise mandated by a subsequent
law, SEC shall continue to regulate and supervise commodity futures
contracts and pre-need plans and the pre-need industry. But See: Pre-
Need Code, which transferred regulation and supervision of pre-need
plans to the Insurance Commission.
11
“Pre-Need Plans” 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 SEC may from time to time approve.
[Sec. 3.9]
12
“Commodity 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 standardized contracts
having the indicia of commodities futures. [DECASA, p. 41 citing SRC Rule 11(1)(2), Amended
SRC IRR]
 10

IV. REPORTORIAL REQUIREMENTS

1. Periodic and Other Reports of Issuers – Sec. 17.2: Every issuer who:
(i) Has sold a class of its securities pursuant to a registration;
(ii) Has a class of securities listed for trading on an Exchange; and
(iii) With assets of at least P50.0 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”);
(a) Sec. 17.1 – Shall file with the SEC (a) Annual Report; and (b) Periodic
Reports
(b) Sec. 17.3 – Shall also file with the Exchange where securities are
listed a copy of any report filed with SEC
(c) Sec. 17.5 – Shall and furnish each holder of such equity security the
annual report.
B. Reports by 5% Holders of Equity Securities – Sec. 18.1: Any person
who acquires directly or indirectly the beneficial ownership of more than
5% of such class of a Covered Issuer, shall within ten (10) days after such
acquisition (or such reasonable time as fixed by SEC), submit a sworn
statement containing the information in Sec. 18.1(a) to (d) to the:
(a) Issuer of the security;
(b) Exchange where the security is traded; and
(c) SEC.

V. PROTECTION OF SHAREHOLDER INTERESTS

1. Tender Offers
1.1. Obligations for Tender Offers – Sec. 19.1(a): Any person, or group of
persons acting in concert, who intends to:
(a) Acquire at least fifteen percent (15%) of: or
(b) Acquire at least thirty percent (30%) over a period of twelve (12)
months of:
(i) Any class of equity security of a listed corporation; or
(ii) Any class of equity security of a corporation with assets of at
least P50.0 Million and having 200 or more stockholders with
at least 100 shares each;
are obliged to do the following:
 11

(a) Make a tender offer to stockholders by filing with SEC a declaration

to that effect; and furnish the issuer a statement containing such of
the information required of issuers as SEC may prescribe;
(b) Publish all requests or invitations for tender, or materials making a
tender offer or requesting or inviting letters of such a security;
(c) File with SEC and send to the issuer copies of any additional
material soliciting or requesting such tender offers subsequent to
the initial solicitation or request;
(d) Pay at the time of filing of the statement with SEC a filing pay a fee
of not more than one-tenth (1/10) of one percent (1%) of the
proposed aggregate purchase price.
Note: Sec. 19.1(b): Any solicitation or recommendation to the holders of
such a security to accept or reject a tender offer or request or invitation for
tenders shall be made in accordance with such rules and regulations as
SEC may prescribe.
1.2. Withdrawal of Securities Deposited Pursuant to a Tender Offer –
Sec. 19.1(c)
1.3. When Securities Offered Exceed the Offer Made – Sec. 19.1(d)
1.4. When Term of Tender Offer Varied – Sec. 19.1(e)
1.5. Unlawful and Prohibited Acts Relating to Tender Offers – Sec. 19.2:
It 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.
SEC 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. Proxy Solicitations
2.1. Rules on Form, Issuance and Solicitation of Proxies – Sec. 20.1:
Proxies must be issued and proxy solicitation must be made in
accordance with rules and regulations to be issued by SEC, as follows:
(a) Sec. 20.2: Proxies must be in writing, signed by the stockholder or his
duly authorized representative and filed before the scheduled meeting
with the corporate secretary;
(b) Sec. 20.3: Unless otherwise provided in the proxy, it shall be valid only
for the meeting for which it is intended; no proxy shall be valid and
effective for a period longer than five (5) years at one time;
 12

(c) Sec. 20.4: No broker or dealer shall give any proxy, consent or
authorization, in respect of any security carried for the account of a
customer, to a person other than the customer, without the express
written authorization of such customer;
(d) Sec. 20.5: A broker or dealer who holds or acquires the proxy for at
least 10% (or such percentage as SEC may prescribe) of the
outstanding share of the issuer, shall submit a report identifying the
beneficial owner within ten (10) days after such acquisition, for its own
account or customer, to: (i) the issuer; (ii) the Exchange where traded;
and (iii) to SEC.
3. Internal Record Keeping and Accounting Controls – Sec. 22: Every
Covered Issuer shall:
(a) Sec. 22.1: Make and keep books, records, and accounts which, in
reasonable detail accurately and fairly reflect the transactions and
dispositions of assets of the issuer;
(b) Sec. 22.2: Devise and maintain a system of internal accounting
controls sufficient to provide reasonable assurances that:
(i) Transactions and access to assets are pursuant to management
authorization;
(ii) Financial statements are prepared in conformity with generally
accepted accounting principles that are adopted by the Accounting
Standards Council and the rules promulgated by SEC with regard
to the preparation of financial statements; and
(iii) Recorded assets are compared with existing assets at reasonable
intervals and differences are reconciled.
4. Transactions of Directors, Officers and Principal Stockholders
4.1 Reportorial Requirements – Sec. 23.1: Every person who is:
(i) Directly or indirectly the beneficial owner of more than 10% of any
class of any equity security of a Covered Issuer; or
(ii) A director or an officer of the issuer of such security;
shall file:
(a) At the time either such requirement is first satisfied or within ten (10)
days after he becomes such a beneficial owner, director, or officer, a
statement with SEC, and with the Exchange where it may be listed, of
the amount of all equity securities of such issuer of which he is the
beneficial owner; and
(b) Within ten (10) days after the close of each calendar month thereafter,
if there has been a change in such ownership during such month, shall
file with SEC, and also in the Exchange where listed, shall also file with
the Exchange, a statement indicating his ownership at the close of the
 13

calendar month and such changes in his ownership as have occurred

during such calendar month.
4.2 Unfair Use of Information – Sec. 23.2: For 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 realized 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 six (6) 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
exceeding six (6) months.
This 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 SEC by rules and regulations may exempt as not
comprehended within the purpose of this subsection.
Suits to Recover — Suit to recover such profit may be instituted before
the RTC 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 sixty (60) days after request or shall fail diligently to
prosecute the same thereafter, but no such suit shall be brought more
than two (2) years after the date such profit was realized.
4.3 Unlawful Sale of Securities – Sec. 23.3: It 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) Does not own the security sold; or
(ii) If owning the security, does not deliver it against such sale within
twenty (20) days thereafter, or does not within five (5) 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 exercise 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 expense.
Note: Sec. 23.4: The 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 Exchange, for such
security.
SEC may, by such rules and regulations as it deems necessary or
appropriate in the public interest, define and prescribe terms and
 14

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.
5. Independent Directors – Sec. 38 (See discussions under Exchange)

VI. SECURITIES FRAUD, MANIPULATION, INSIDER TRADING

1. Manipulation of Security Prices and Practices – Sec. 24.1: It shall be
unlawful for any person acting for himself or through a dealer or broker,
directly or indirectly:
(a) To create a false or misleading appearance of active trading in any
listed security traded in an Exchange or any other trading market:
(i) “Wash Sale” – By effecting any transaction in such security which
involves no change in the beneficial ownership thereof;
(ii) “Improper matched order” – 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 size, 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) By performing similar act where there is no change in beneficial
ownership.
(b) To effect, alone or with others, a series of transactions in securities
that:
(i) Raises 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) Depresses 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) Creates active trading to induce such a purchase or sale through
manipulative devices such as: “marking the close”;13 “painting

13
"Marking the close” represents the practice of executing the last transaction or series of
transactions at or near the close of the trading day in order to affect its closing price."
 15

the tape”;14 “squeezing the float”;15 “hype and dump”;16 “boiler

room operations”;17 and such other similar devices.
(c) “Circulating unverified rumor-based market information” – To
circulate or disseminate information that the price of any security
listed in an Exchange 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) To 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 Exchange.
(e) To effect, either alone or others, any series of transactions for the
purchase and/or sale of any security traded in an Exchange for the
purpose of pegging, fixing or stabilizing the price of such security,
unless otherwise allowed by the Code or by rules of SEC.
2. Manipulative Devices – Sec. 24.2: It shall be unlawful for any person:
(a) To use or employ, in connection with the purchase or sale of any
security any manipulative or deceptive device or contrivance; or
(b) To effect any short sale18 or any stop-loss order19 be executed in
connection with the purchase or sale of any security.

14
“Painting 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
“Squeezing the float” refers to a wide range of practices from deadpan acceptance of
abnormally high price-to-sales ratios, to crystal ball gazing ten years out in order to find profits, to
self-righteous repetition of "this company is changing the world" mantra.
16
“Hype 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. In a typical boiler room, a rented space with desks, telephones, and
experienced sales people who talk to hundreds of people across the country every day skilled but
dishonest salespeople, often with years of experience 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. This is done by borrowing stocks from another party who still receives
the dividends paid on the stocks while the short sale remains in effect. {DECASA, p. 78]
19
“Stop loss order” is an order placed to protect a recognized gain in the price of securities
against potential loss. The order reflects the lowest price that a seller is willing to sell at, even
though this is lower than the current market price. The opportunity for manipulation arises
because the offer does not reflect the current market price. The order is a hedge against market
decline. [DECASA, pp. 77-78]
 16

Note: Sec. 24.3: The foregoing provisions notwithstanding, SEC, 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.
3. Regulation of Option Trading – Sec. 25: 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.
The terms “put”, “call”, “straddle”, “option”, or “privilege” shall not include
any registered warrant, right or convertible security.
4. Fraudulent Transactions – Sec. 26: It shall be unlawful for any person,
directly or indirectly, in connection with the purchase or sale of any
securities to:
(a) Sec. 26.1: Employ any device, scheme, or artifice to defraud;
(b) Sec. 26.2: Obtain 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) Sec. 26.3: Engage in any act, transaction, practice or course of
business which operates or would operate as a fraud or deceit upon
any person.
Note: Fraud or deceit required, not mere negligence, on the part of
offender [SEC v. CA, 246 SCRA 738 (1995)].
Examples: “Churning”20; “Scalping”21; “Single day trading
practice”22; “Front Running”23
5. Insider Trading

20
“Churning” 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. Its 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. [DECASA, p. 81]
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. [DECASA, p. 81]
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. While the transaction is
not prohibited, there is a risk meeting possible deficiencies in the customer’s account resulting
from the transaction, and may encourage “free riding” which is an improper extension 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. [DECASA, p. 81]
23
“Front running” is a market malpractice whereby brokers, also acting as dealers, prioritize
their own dealer accounts by executing their own orders on a particular issue ahead of their
clients. [DECASA, p. 81]
 17

5.1 Definition of “Insider” – Sec. 3.8: The term “insider” means:

(i) The issuer;
(ii) A director or officer (or person performing similar functions) of, or a
person controlling the issuer;
(iii) A 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) A government employee, or 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
(v) A person who learns such information by a communication from
any of the foregoing insiders.
5.2 Insider’s Duty to Disclose When Trading – Sec. 27.1: It 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) The insider proves that the information was not gained from such
relationship; or
(b) If 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.
Meaning of “Material nonpublic” – Sec. 27.2: For purposes of this
Section, 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.
5.3 Presumption on Insider Trading – Sec. 27.1: A purchase or sale of a
security of the issuer made by an insider, or such insider’s 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 existence but prior to dissemination of such
information to the public and the lapse of a reasonable time for the market
to absorb such information.
 18

Note: Sec. 27.1: This 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.
5.4 Prohibition to Disclose – Sec. 27.3: It 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 Prohibitions on Tender Offer Situations – Sec. 27.4: It shall be unlawful
where a tender offer has commenced or is about to commence for:
(a) 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; and
(b) Any 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.
Note: Sec. 27.4(b): The term “securities of the issuer sought or to be
sought by such tender offer” shall include any securities convertible or
exchangeable into such securities or any options or rights in any of the
foregoing securities.
6. SEC Power to Issue Rules and Regulation to Prevent Fraudulent,
Deceptive or Manipulative Practices – Sec. 72.2 to 72.4

VII. SECURITIES MARKET PROFESSIONALS

1. Securities Market Professionals – SRC classifies brokers, dealers,
salesmen and those associated with them as forming the “professionals”
of the securities market.
(a) Sec. 3.3: “Broker” is a person engaged in the business of buying and
selling securities for the account of others.
(b) Sec. 3.4: “Dealer” means any person who buys and sells securities
for his/her own account in the ordinary course of business.
(c) Sec. 3.5: “Associated person of a broker or dealer” is an employee
thereof who, directly exercises control of supervisory authority, but
 19

does not include a salesman, or an agent or a person whose functions

are solely clerical or ministerial.
(d) Sec. 3.13: “Salesman” is a natural person, employed as such or as
an agent, by a dealer, issuer or broker to buy and sell securities; but
Note: Sec. 28.7: For purposes 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. Mandatory Registration of Security Market Professionals with SEC –
Sec. 28.1, 28.2, unless Sec. 28.3: exempted from registration by SEC;
Note: Purpose is to protect public and strengthen securities mechanism. If
not registered, cannot collect fees [Nicolas v. CA, 288 SCRA 307 (1998)]
3. Qualifications for Registration – Sec. 28.4: SEC shall promulgate rules
and regulations, requiring, among other things, as a condition for
registration that:
(a) If natural person – pass written examination (proficiency/knowledge);
(b) If broker or dealer – minimum net capital, provide bond/security; and
(c) If located outside the Philippines – written consent to service of
process upon SEC.
4. Requirements, Prohibitions and Obligations of Securities Market
Professionals – Sec. 28
4.1 Broker-Director Rule – Sec. 30.1: No 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 Exchange issued by any corporation
where any stockholder, director, associated person or salesman, or
authorized 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.
4.2 Dealings in Compliance with SEC Rules – Sec. 30.2: No broker or
dealer shall effect any transaction in securities or induce or attempt to
induce the purchase or sale of any security except in compliance with
such rules and regulations as SEC 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. Revocation, Refusal or Suspension of Registration of Securities
Market Professionals – Sec. 29
5.1 Preventive Suspension – Sec. 29.2
20
 21

VIII. EXCHANGES AND OTHER SECURITIES TRADING MARKETS

1. Prohibition on Use of Unregistered Exchange – Sec 32.1
2. Regulation of Over-the-Counter Markets – Sec. 32.2
3. Exchanges
3.1 Definition of Exchange – Sec. 3.7: “Exchange” is an organized
marketplace or facility that brings together buyers and sellers and
executes trades of securities and/or commodities.
Note: The rules and regulations of the stock exchange form part of the
contract covering securities transacted within the facilities of the exchange
[Carolina Industries, Inc. vs. CMS Stock Brokerage, Inc., 97 SCRA 734
(1980)], because like any other association, an exchange 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, exclusive rights and privileges which the courts have fully
recognized. Anyone who becomes a member of the exchange voluntarily
submits himself to the operation of those rules and is expected to be
bound by and to respect them [Lopez, Locsin, Ledesma & Co., Inc. v.
CA, 168 SCRA 276 (1988)].
3.2 Registration of Exchanges – Sec. 33.1: File application for registration;
and Sec. 40: Comply with registration requirements of SRO.
3.3 Compliance Requirements for Exchanges – Sec. 33.2:
2.3 SEC Action on Application – Sec. 33.3 and 33.4
2.4 Additional Fees of Exchanges – Sec. 35
3. Broker-Dealer Segregation Rule – Sec. 34.1: It shall be unlawful for any
member-broker of an Exchange to effect any transaction on such
Exchange for its own account, the account of an associated person, or an
account with respect to which it or an associated person thereof exercises
investment discretion;
EXCEPT as follows:
(a) Any transaction by a member-broker acting in the capacity of a
market maker;
(b) Any transaction reasonably necessary to carry on an odd-lot
transactions;
(c) Any transaction to offset a transaction made in error; and
(d) Other transactions of a similar nature as SEC may define.
3.1 Obligation of Broker When Self-Dealing – Sec. 34.2: n all instances
where the member-broker effects an Exchange transaction for its own
account or the account of an associated person or an account with respect
to which it exercises investment discretion, it shall disclose to such
customer at or before the completion of the transaction it is acting for its
 22

own account, and this fact shall be reflected in the order ticket and the
confirmation slip.
3.2 Administrative Sanctions – Sec. 34.3
4. SEC Powers with Respect to Exchanges and Other Trading Market
4.1 Power over an Exchange – Sec. 33.6: Upon appropriate application in
accordance with SEC rules and regulations and upon such terms as SEC
may deem necessary for the protection of investors, an Exchange may
withdraw its registration or suspend its operations or resume the same.
But if management prerogative of PSE, i.e., denial of listing application,
SEC has no power [PSE v. CA, 281 SCRA 232 (1997)].
4.2 Power to Suspend Trading – Sec. 36.1: If in SEC’s opinion such action
is necessary or appropriate for the protection of investors and the public
interest so requires for 30 days, or if more than 30 days but not exceeding
90 days, with approval of the President of the Philippines.
4.3 Uniform Trading Rules – Sec. 36.2
4.4 To Determine Number, Size and Location – Sec. 36.3
4.5 Rules for Prompt Clearance and Settlement – Sec. 36.4
4.6 Establishment of Trust Fund – Sec. 36.5
5. Registration of Innovative and Other Trading Markets – Sec. 37
6. Independent Directors – Sec. 38: Every Covered Issuer shall have at
least two (2) independent directors or such independent directors shall
constitute at least 20% of the members of such board, whichever is the
lesser.
For 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 exercise of independent
judgment in carrying out the responsibilities of a director.
 23

IX. SELF-REGULATORY ORGANIZATIONS

1. The Nature of Self-Regulatory Organizations – Sec. 39.1: Self-
regulatory organizations ("SRO") may be granted much independence by
SEC when they are organized and operated in a manner that they become
responsible for the administration and enforcement of the relevant
provisions of the Code, 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. Under SRC, SEC can register as SRO only "securities-
related organizations.
2. What Are "Securities-Related Organizations"? – Sec. 39.1: SRC
defines them as "organizations whose operations are related to or
connected with the securities market such as but not limited to
associations of:"
(a) Brokers and dealers;
(b) Transfer agents;
(c) Custodians;
(d) Fiscal and paying agents;
(d) Computer services;
(e) News disseminating services;
(f) Proxy solicitors;
(g) Statistical agencies;
(h) Securities-rating agencies; and
(i) Securities information processors;
which are engaged in the business of:
(a) Collecting, 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) Distributing 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.
3. Powers of SEC with Respect to Securities-Related Organizations –
Sec. 39.1: The Code grants SEC the following powers with respect to
securities-related organizations:
(a) To register them as SRO;
 24

(b) Otherwise to grant them licenses to operate;

(c) To regulate, supervise, examine, suspend or otherwise discontinue,
as a condition for their operations; and
(d) To prescribe rules and regulations necessary or appropriate in the
public interest or for the protection of investors to govern SRO and
other organizations 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 exchange of information.
4. Securities Association
4.1 Registration of Securities Association – Sec. 39.2
4.2 Requirements of Securities Association – Sec. 39.4
4.3 Membership Procedural Rules – Sec. 39.5
5. Periods in Registration of SRO – Sec. 40
6. SRO Powers and Obligations – Sec. 40
7. Procedure on Adoption or Changes of Rules by SRO – Sec. 40
8. SRO Disciplinary Proceedings
8.1 Regular Disciplinary Proceedings – Sec. 40.6
8.2 Summary Disciplinary Proceedings – Sec. 40.6
8.3 Notice and Appeal to SEC – Sec. 40.7
9. SEC Control and Supervision over SRO – Sec. 40.5

X. ACQUISITION AND TRANSFER OF SECURITIES AND SETTLEMENT OF

TRANSACTIONS IN SECURITIES
1. Clearing Agencies
1.1 Definition – Sec. 3.6: “clearing agency” is any person who acts as
intermediary in making deliveries upon payment to effect settlement in
securities transactions.
1.2 Prohibition on Use of Unregistered Clearing Agency – Sec. 41
1.3 Registration of Clearing Agencies – Sec. 42
1.4 Evidentiary Value of Clearing Agency Record – Sec. 44
2. Registration and Dealings in Securities
2.1 Recognition of Uncertificated Securities“24 – Sec. 43: Notwithstanding
Section 63 of the Corporation Code, a corporation whose securities are
registered or listed on a securities Exchange may:
24
Sec. 3.14: “Uncertificated security” is a security evidenced by electronic or similar records.
 25

(a) If so resolved by its Board of Directors 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 prejudice 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) If 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 subject to a condition that investors may not require
the corporation to issue a certificate in respect of any shares
recorded in their name.
SEC by rule may allow other corporations to provide in their articles of
incorporation and by-laws for the use of uncertificated securities.
2.2 Rules on Transfers of Securities – Sec. 43: Transfers 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) In the stock and transfer book held by the corporation; or
(c) The stock transfer agent;
with the following legal effects:
(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) However, 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) The 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 prejudice
to any rights which the claimant may have against the issuer for
wrongful registration; and
(e) Nothing shall preclude compliance by banking institutions and their
stockholders with the applicable ceilings on shareholdings
prescribed by law.
 26

2.4 Pledging a Security or Interest Therein – Sec. 45: In addition to other

methods recognized 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 Articles 2093 and 2095 of the Civil Code 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.
In case of a registered clearing agency, the procedures and the
exact time at which, such book-entries are created shall be governed by
the registered clearing agency’s rules; however, the corporation shall not
be bound by the foregoing transactions unless the corporate secretary is
duly notified in such manner as SEC may provide.
3. SEC Power Over Securities Ownership – Sec. 47

XII. MARGIN AND CREDIT

1. Margin
1.1 Purpose – Sec. 48: The margin is required for the purpose of preventing
the excessive use of credit for the purchase or carrying of securities.
1.2 SEC Rules on Margin – Sec. 48.1
1.3 Margin Allowance Standard – Sec. 48.1: SRC mandates that the margin
allowance shall be based upon the following standard:
An amount not greater than whichever is the higher of -
(a) 65% of the current market price of the security, or
(b) 100% of the lowest market price of the security during the
preceding thirty-six (36) calendar months, but not more than
75% of the current market price.
Note: However, the Monetary Board may increase or decrease the above
percentages, in order to achieve the objectives of the Government with
due regard for promotion of the economy and prevention of the use of
excessive credit.
14. Prohibition on Extension of Margin – Sec. 48.2 and 48.3
2. Borrowings by Members, Brokers, and Dealers
2.1 Restrictions on Borrowings – Sec. 49
3. Enforcement of Margin Requirements and Borrowing Restrictions
3.1 Indirect Violations of Margin Requirements – Sec. 50
 27

3.2 Indirect Violations of Borrowing Restrictions – Sec. 50

XIII. LIABILITIES AND PENALTIES

1. Liabilities of Controlling Persons, Aider and Abettor
1.1 Liability of Controlling Persons – Sec. 51.1
1.2 Obvious Rule Liability Rule – Sec. 51.2
1.3 Hindering or Obstructing Act – Sec. 51.3
1.4 Unlawful Aiding and Abetting – Sec. 51.4
1.5 Substantial Assistance – Sec. 51.5
2. Accounts, Records, Reports, and Examination of Exchanges and
Members
2.1 Keeping of Records – Sec. 52.1
2.2 Report on Extension of Credit – Sec. 52.2
3. Civil Liabilities on Account of False Registration Statement – Sec. 56
4. Civil Liabilities Arising in Connection With Prospectus, Communicat-
ions and Reports – Sec. 57.1
4.1 Causing False or Misleading Statements to be Filed with SEC – Sec.
57.2
5. Civil Liability for Fraud in Connection with Securities Transactions -
Sec. 58
6. Civil Liability for Manipulation of Security Prices – Sec. 24
7. Civil Liability with Respect to Commodity Futures Contracts and Pre-
need Plans – Sec. 60
8. Civil Liability on Account of Insider Trading – Sec. 27.1 and 61.2
9. Limitation of Actions – Sec. 62
10. Rules on Rights and Damages Claim
10.1 For Actions on False Registration and Manipulative Devices – Sec.
63
10.2 Other Remedies Available – Sec. 69
11. Penalties for Violation of the Code – Sec. 73