Role of the SEC

The Securities and Exchange Commission(SEC)

was created in 1939 to safeguard the interest of
the investing public. The SEC has absolute
jurisdiction, supervision and control over all
corporations, partnerships, and associations. It is
also responsible for implementing laws related
to securities business such as: Securities
Regulation Code, the Investment Houses Law,
and the Investment Company Act.
Organization
a. Composed of Chairman and four(4)
Commissioners appointed by the President of
the Philippines to serve for a 7-year term with
no reappointment.
b. There is a General Accountant, General
Counsel, and eight(8) Directors heading the 8
departments.(see the SECTOO on the Excel)
Republic Act No. 2629, otherwise known as
the Investment Company Act(ICA) of 1960.
● governs investment companies
● a bill was filed in the 14th Congress called
the Collective Investment Schemes Bill on July
4, 2007 by Sen. Edgardo J. Angara whose
purpose was to address the deficiencies of
the present Act, remove regulatory arbitrage,
and level the playing field among the different
kinds of investment funds.
Definition of ICA.
Section 4 of the act defines an investment
company as “any issuer which is, or holds
itself our as being engaged primarily, or
proposes to engage primarily, in the business
of investing, re-investing, or trading in
securities”.
Classification of Investment Companies
1. Classification of Investment Companies under
the U.S. Investment Company Act of 1940:
a) “Face-amount certificate company” –
investment company engaged or proposes in
the business of issuing face-amount
certificates of the installment type, or which
has been engaged in such business and has
any such certificate outstanding;
Classification of Investment Companies
1. Classification of Investment Companies under
the U.S. Investment Company Act of 1940:
b) Unit investment trust” – an investment
company which: (i) is organized under a
trust indenture, contract of custodianship or
agency, or similar instrument ; (ii) does not
have a BOD, and (iii) issues only redeemable
securities, each of which represents
undivided interest in a unit of specified
Classification of Investment Companies
1. Classification of Investment Companies under
the U.S. Investment Company Act of 1940:
b) securities, but does not include voting
trust; and
c) “Management company”- any investment
company other than a “face-amount
certificate company” or “unit investment
trust”. Management companies are divided
into: (i) “open-end company”-a management
Classification of Investment Companies
1. Classification of Investment Companies
under the U.S. Investment Company Act of
1940:
2. company offering for sale or has outstanding
any redeemable security of which it is the
issuer; and (ii) “closed-end company”- any
management company other than an open-
end company
3.
Classification of Investment Companies
2. Classification of Investment Companies under
the Philippine Investment Company Act of
1960:
a. “Open-end company” - a management
company offering for sale or has
outstanding redeemable security of which it
is the issuer; and,
b. “Closed-end company” – an investment
company other than a “open-end company”
Collective Investment Schemes
The first two(2) types of investment
companies under the U.S. Investment
Company Act of 1940, were excluded in the
Philippine Investment Company Act of 1960.
This is the situation among others which the
Collective Investment Schemes was seeking
to remedy so that similar fund structures will
be covered by just one regulation.
Collective Investment Schemes
A collective investment schemes(CIS) is any
arrangement whereby funds are solicited
from the investing public for the purpose of
investing, re-investing, and/or trading in
securities. A CIS may have a corporate
structure like an investment company, or a
contractual structure like unit investment
trust or similar fund. Corporate structures
issue shares of stock to investors, while
Collective Investment Schemes
contractual structures issue units of
participation to investors.
Registration of Investment Companies
Section 7 of the Philippine Investment
Company Act provides that investment
companies must register with the SEC to
operate as such by filing a registration
statement in the form prescribed by the
SEC. Likewise, Section 24 of the same Act,
requires investment companies to register
securities issued by them under the Revised
Securities Act now known as the Securities
Regulation Code.
Affiliation of Directors, Officers, and Employees.
Section 9 of the Phiilippine Investment
Company Act provides that:
● No more than 50% of the members of the
BOD of an investment company must be
affiliated with the investment company
adviser.
● Investment companies are prohibited from
employing as regular broker or principal
underwriter, any of their directors, officers
or employees.
Affiliation of Directors, Officers, and Employees.
Section 9 of the Phiilippine Investment
Company Act provides that:
● Investment companies are prohibited from
having a director, officer, or employee any
investment banker or person affiliated with
an investment banker;
● Investment companies are prohibited from
having a majority of their BOD consisting of
persons who are directors or officers of any
one bank.
Investment Policy.
Section 12 of the Philippine Investment
Company Act provides that:
● Investment companies are prohibited from
borrowing money, issue senior securities,
underwrite securities issued by other
companies, purchase or sell real estate or
commodities, or make loans to other people
unless authorized by a vote of majority of its
outstanding voting securities and explicitly
stated in its fundamental policies.
Investment Policy.
Section 12 of the Philippine Investment
Company Act provides that:
● Investment companies cannot deviate from
any of its fundamental policies or investment
policy as recited in its registration statement
unless approved a vote of majority of its
outstanding voting securities.
Contracts of Investment Advisers and
Underwriters.
Section 14(a) of the Philippine Investment
Company Act provides that:
● The contract between Investment company
and its Investment Company Adviser:
(1) shall be in writing and approved by a vote
of majority of its outstanding voting
securities of the fund;
(2) precisely, describes all compensation to
be paid;
Contracts of Investment Advisers and
Underwriters.
Section 14(b) of the Philippine Investment
Company Act provides that:
● The contract between Investment company
and its Principal Underwriter or Distributor
or :
(1) shall be in writing and approved by a vote
of majority of its outstanding voting
securities of the fund;
Contracts of Investment Advisers and
Underwriters.
Section 14(b) of the Philippine Investment
Company Act provides that:
(2) can continue in effect for a period of more
than 2 years from the date of its execution,
provided that such continuance is approved
at least annually by the BOD or 2/3 vote of
the outstanding voting securities of the
fund; and,
Contracts of Investment Advisers and
Underwriters.
Section 14(b) of the Philippine Investment
Company Act provides that:
● (3) shall provide for automatic termination in
the event of its assignment by the principal
underwriter or distributor.
Prohibition Against Guaranteeing Obligations.
Section 21 of the Philippine Investment
Company Act provides that:
● it is unlawful for any investment company to
guarantee any obligation of whatever kind or
nature. It expressly prohibits any investment
company (and implicitly its investment
company adviser and distributor) from
guaranteeing any specific rate of return or
promising a fixed redemption price at a
future date.
Agent and Investment Solicitors.
Section 40 of the Philippine Investment
Company Act provides that:
● an agent or investment solicitor for an
investment company may not solicit
investment unless he has obtained a
certificate of authority(a license) to act as
such from the SEC. A requirement for
obtaining such certificate is to take and pass
the Investment Company Representative
Certification Program(ICRCP) Examination
Agent and Investment Solicitors.
Section 40 of the Philippine Investment
Company Act provides that:
● After passing the said exam, the agent has to
submit a written application to the SEC. Such
application shall be approved by the
investment company, its investment
company adviser, or its distributor. The form
presently used is SEC Form ICA-
CIS(Application for Registration a s a
Certified Investment Solicitor of an
Agent and Investment Solicitors.
Section 40 of the Philippine Investment
Company Act provides that:
● The certificate is valid only up to December
31 of the year it was issued. Every year, it has
to be renewed during the month of
November. The form used is SEC Form ICA-
RCIS(Application for Registration Renewal-
Certified Investment Solicitor)
 The implementing rules of the Investment
company Act were promulgated on October
31, 1989 and were known as the Rules and
Regulations Governing Investment
Companies Under Republic Act No. 2629.
The Rules were amended in April 1998 and
became effective on May 12, 1998 and called
the ICA Rule 35-1(The Investment Company
Rule)
Oional and Capitalization
Requirements
Section (b) provides:
1. that investment companies must be
organized as stock corporation;
2. must have a minimum paid-in capital of
at least P50.0 million. It is, however,
provided that the SEC may grant a lower
paid-in capital if the investment company to
be created is one of a group of investment
companies under the management by the
Section (b) provides:
3. All members of the BOD must be all
Filipino citizens.
4. All shares of capital stock must all be
common;
5. Articles of Incorporation of investment
companies must provide for the waiver of
pre-emptive rights.
Secton (c) provides:
1. Minimum investment by any single
investor in mutualfund shares is P5,000 &
must be sold on cash basis only.
2. All proceeds from sale of shares of an
investment company must be held by a
custodian bank.
3. The original proponents or incorporators
of investment company , may not sell,
transfer, or dispose of their shares within 12
Investment of the Fund
Secton (d) provides:
1. May not change its investment objective
without prior approval of the majority of its
shareholders. Such investment objective be
clearly stated in prospectus.
2. Maximum investment in any single
enterprise must not exceed 10% of its net
asset value(except obligations of the
Philippine government and its
instrumentalities).
Investment of the Fund
Secton (d) provides:
3. Total investment must not exceed 10% of
the outstanding securities of any one
investee company.
4. At least 10% of net assets should be
invested in liquid/semi-liquid assets such as:
a. Treasury Notes or Bills, Certificates of
Indebtedness issued by the BSP which are
short term, and other gov’t securities; b.
savings or time deposits with gov’t or
Investment of the Fund
Secton (d) provides:
commercial banks.
4. At least 10% of net assets should be
invested in liquid/semi-liquid assets such as:
a. Treasury Notes or Bills, Certificates of
Indebtedness issued by the BSP which are
short term, and other gov’t securities; b.
savings or time deposits with gov’t or
commercial bank, provided such deposits
shall not be “numbered” or bearer account
Investment of the Fund
Secton (d) provides:
5. Not allowed to sell securities short or
invest in any of the ff: a. margin purchases
of securities; b. commodity future contracts;
c. precious metals; d. unlimited liability
investments.
6. Total operating expenses must not
exceed 10% of its net worth;
7. Borrowings shall be covered at all times
300% asset coverage.
Investment of the Fund
Secton (d) provides:
8. Not allowed to participate in an
underwriting or selling group in connection
with the public distribution of securities,
except its own capital stock;
Investment of the Fund
Secton (d) provides:
9. Not allowed to purchase from or sell to
any of its directors or officers or to directors
or officers of the investment company
adviser, investment manager of distributor
or to firms of which any of them are
members, securities other than its own
capital stock.
Redemption of Securities
Secton (e) provides:
1. Provides for the redemption of securities
in open-end investment companies or
mutual funds. The Rule states that the
redemption price of shares surrendered for
redemption before the daily cut-off time of
12NN shall be the next computed
NAVPS(i.e. the NAVPS computed at the end
of the same business day)
Directors and Officers
Secton (f) provides:
No person shall be elected as director unless
he is a Filipino citizen and does not possess
any disqualification provided in the Act.
Investment Company Manager
Section (g) provides:
For the registration of the investment
company advisers or managers with the SEC
and to have a minimum unimpaired net
worth of P10.0 million.
Custodian
Secton (h) provides:
Only commercial banks of good repute
authorized by BSP to perform trust
functions can act as custodians and may act
also as transfer agent or dividend disbursing
agent..
Reportorial Requirements
Secton (i) provides:
Investment companies are subject to the
reporting provisions of Revised Securities
Act Rule 11(a) – 1, now the Securities
Regulation Code Rule 12-1 and Rule 17-
1(discussed in Section D hereof. They are
also required a monthly report showing the
amount and number of shares sold and
redeemed during the month and the
number of shares outstanding at the end of
Reportorial Requirements
Secton (i) provides:
They are also required a monthly report
showing the amount and number of shares
sold and redeemed during the month and
the number of shares outstanding at the end
of the month being reported.
Registration of Securities
RA No. 8799 known as the Securities
Regulation Code(SRC), was enacted on July
19, 2000. The main provision of the SRC are:
a. registration of securities;
b. registration and regulation of securities
brokers, dealers, and salesmen; and
c. trading of securities.
Registration of Securities
Because investment companies issues
shares to the general public, they are
required to register such securities under
Sec. 8 of the SRC and Rule 8.1 of its
Amended Implementing Rules and
Regulations dated Dec. 30, 2003 by filing a
registration statement on SEC Form 12-1.
Reportorial Requirements
SEC Form 17-A – annual reports must be
filed within 105 calendar days after the end
of the fiscal year covered by the report.
Some information to be disclosed:
a. Management discussion and analysis of
the operation of the fund;
b. Matters submitted to a vote of
shareholders if any;
c. Changes in and disagreements with
accountants on accounting and financial
Reportorial Requirements
disclosure if any;
d. Security ownership of certain beneficial
owners and management; and,
e. Certain relationships and related
transactions;
f. Audited Financial Statements must be
part of the report.
SEC. 17-Q – Quarterly reports must be filed
within 45 calendar days after the end of the
quarter covered by the report. Pro Forma FS
Reportorial Requirements
and management discussions and analysis
of the fund’s operation.
SEC. FORM 17-C – Current reports to be filed
within 5 or 15 calendar days depending on
the nature of the event, after the occurrence
of such event. The events to be reported:
a. Changes in control of the fund;
b. Changes in the fund’s independent
accountant;
Reportorial Requirements
c. Resignation, removal, or election of
directors and officers;
d. Losses of a significant part of the
company’s net worth; and
e. other events that materially affect the
financial condition of the company.
SEC. 17-L – If any required portion of SEC
Form-A and SEC. Form-Q is not filed within
the prescribed period for such report(s),
then this form must be filed no later than
Reportorial Requirements
the due date for such report(s) and which
shall contain a disclosure in reasonable
detail of the investment company’s inability
to the report(s) timely and the reasons,
therefore.
The SEC issued Memorandum Circular No. 2
Series of 2002(also known as the “Code of
Corporate Governance”) on April 4, 2002.

Corporate governance is defined as a

system whereby shareholders, creditors,
and other stakeholders of a corporation
ensure that management enhances the
value of the corporation as it competes in an
increasingly global market place.
The Code applies to:
a. corporations whose securities are
registered with the SEC or listed at the PSE.
b. corporations which are grantees of
permits/licenses and secondary franchise
c. public corporations, and
d. branches or subsidiaries of foreign
corporations whose securities are listed or
registered
Memorandum Circular No. 6 Series 2009 –
known as the Revised Code of Corporate
Governance, issued on June 29, 2009.

The Revised Code applies to: registered

corporations and to branches or subsidiaries
of foreign corporations that: a. sell equity
and/or debt securities to the public that are
required to be registered with the SEC; b.
have assets of more than P10.0 million and
 least 100 shares each of equity securities; or
c. whose equity securities are listed on an
Exchange; or, d. grantees of secondary
licenses from the SEC.
The Revised Code covers in detail the
following aspects of corporate governance:
• Composition of the Board
• Qualifications and Disqualifications of
Directors
• Responsibilities, Duties, and Functions of
• Specific Duties and Responsibilities of a
Director
•Board Meetings and Quorum Requirement
• Board Committees
• The Corporate Secretary
• The Compliance Officer
• Adequate and Timely Information
• Accountability and Audit
• Stockholders Rights and Protection of
Minority Stockholders’ Interests
R.A. No. 9160 – otherwise known as “Anti-
Money Laundering Act,” was enacted on
Sept. 29, 2001 and was amended on March
7, 2003 by R.A. No. 9194.

The law lays down the policies and

principles to prevent banks, insurance
companies, corporations & other entities
from being used by launderers to “wash”
their “dirty” money.
Money laundering is a crime done by
transfering money obtained from unlawful
act or activity from one institution to
another in order to make it appear that the
money originated from legitimate sources.
Money laundering is NOT a single but is a
complex process that is accomplished in
three(3) stages as ff: a. Placement; b.
Layering; and, c. Integration
 a. Placement – The physical disposal of cash
proceeds derived from illegitimate activity ,
the purpose of which is to remove the cash
from where it was acquired in order to
confuse the tracing of the source;
b. Layering – A series of transaction
intentionally done to cover up the source of
the money; and,
c. Integration – It is the final stage in which
the money now appears to have been
 to distinguish between legally acquired and
illegally acquired wealth.