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SECURITY REGULATION CODE

CLASS
REVISION
MODE

Completed

EXAM MODULE 1

RA8799The-Securities-Regulation-Code.pdf 7.SECURITIES
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REGULATIONSCODE.pdf

PURPOSE
What is the purpose of securities regulation code or RA8799?

The purpose of RA8799 is to protect the investors who are investing in

public, requiring them with full disclosure and punishment for fraudulent
activities

PROTECTION OF THE PUBLIC

How does the SEC Code protect the public? 5

Requires full disclosure of the information of the securities as well as the

information with regards to the registration statement and the prospectus

Requires regular material submission of information prescribed by the

SEC

Provides powers and functions of the SEC

Prohibits and penalize fraudulent practices and transactions

Close monitoring of the securities as well as the circumstances that may

affect it as wells as the people such as the issuer, broker, and the
exchange itself to ensure compliance with pertinent rules and regulations

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 SECURITIES & EXCHANGE COMMISSION
What is the composition?

Chairman

7 Commissions

How long is their term?

Fixed term of 7 years with security tenure to protect them under

political influence

What are the activities/issues that is formely under the jurisdiction of the SEC
that has now been transferred to Special Commercial Courts? 4

Fraudulent devices or schemes employed by the directors, business

associates, officers or partners againts the public and the stockholders,
partners or members of association or organization registered in the SEC

Petition of entities to be declared in a suspension of payment when it is

illiquid or insolvent but is manage by a management committee or
rehabilitation receiver

Controversies when it comes to election of directors, trustees, officers,

managers of an entity

Intra-corporate and Intra-partnership controversies; Corporation,

partnership or association vs the state when it comes to their franchise or
with regards to the legitimacy of their existence

SECURITIES
What is a securities?

Securities is a share, participation or interest in a corporation, commercial

enterprise or profit-making venture that is evidence by contracts,
certificates and instruments evidenced either written or electronic

What is the main feature of a security?

The main feature of a security is that it can be bought or purchase by an

investor with the expectation of a passive income or asset appreciation,
wherein he can gain profits for the effort of others

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 📌 This feature makes them attractive and desirable & necessitates the
protection of the investing public

Securities include: 7

Shares of stocks, bonds, debentures, notes of indebtedness, asset-

backed securities

Investment contract, certificate of interest or participation in a profit-

sharing agreement, certificate of deposit for a future subscription

Fraction of undivided interest in oil, gas or other mineral rights

Derivatives like options and warrants

Certificate of assignment, certificate of participation, trust certificates,

voting trust certificates or other similar instruments

Proprietory or non-proprietory certificates of members in a corporation

Other instruments that may be determined in the future by the

Commission

What is an investment contract?

Investment contract is a contract, transaction or scheme where a person

invest his money to a common enterprise that led him to expect that it
gain returns primarily with the effort of others

What are the requisites of an investment contract? 4

Investment of money

To a common enterprise

With expectations that it will gain returned or earned

Primarily with the effort of others

REGISTRATION & REPORTORIAL REQUIREMENTS

REGISTRATION

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 What if the securities are not registered?

If the securities are not registered it can be sold, offered to sale or be

distributed within the Philippines

Prior to sale of securities, what should be made available to each prospective

buyer?

Prior to sale of securities, information with regards to the securities in the

form and substance which is required by the Commission should be made
available to the prospective buyer

What should the Commission do once a firm applies for registration in order
to protect the interest of the investors and the public in general?

The Commission should audit the financial statements, assets and other
information when necessary in order to have full disclosure

PROCEDURE
What is the procedure when registering for securities in the SEC? 5

Filling of SWORN REGISTRATION STATEMENT containing information

required by the SEC 3

Signatories in the registration statement 6 Executive officer,

Corporate Secretary, Comptroller, Principal operational officer,
Principal finanical officer, Principal accounting office

Written consent of the expert who certified the registration statement

when necessary

When the registration statement contains shares to be sold by the

selling shareholder, it shall contain written certfication of the accuracy
of any part of the registration certificate contributed by the selling
shareholder

Payment of filling fees which should not exceed 1/10 of 1% of the

aggregate price for which the securities will be offered

Publication of the notice of filling wherein it should be published in two

newspapers for general circulation once in two consecutive weeks

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 After 45 days of filling or the date agreed upon or consented by the
Commission, the Commission should announce whether they accept or
reject the registration of a security

Prospectus under oath that all requirements are satisfied and that
information within the registration statement and the prospectus are
correct

SECURITIES EXEMPT FROM REGISTRATION

What are the securities exempt from registration? 5

Any securities issued or guaranteed by the GOVERNMENT OF THE

PHLIPPINES, or any political subdivision or agency thereof, or persons
who are controlled, supervised or served as instrumentality of such
government

Any securities issued or guaranteed by ANY GOVERNMENT where the

Philippines have diplomatic relationship or by a state, province or a
political subdivision on the basis of its reciprocity. Provided that the SEC
requires compliance for the form and content which the SEC prescribed

Certificates issued by the receiver or the trustee in bankcruptcy duly

approved by its adjudicatory board

Security issued by the bank but not its very own shares of stocks

Any security or derivates for sale or transfer must be under the

supervision and regulation by the Insurance Commission, Housing and
Land Use Rule Regulatory Board or the BIR 3

TRANSACTIONS EXEMPT FROM REGISTRATION

What are the transactions exempt from registration? 12 BISCEPS SMILE

BROKER'S TRANSACTION executed by customer's orders, in a registered

trading market

INSOLVENT TRANSACTION is where securities are sold, offered for sale or

delivered by the owner or the representatives of the owners on behalf of
the owner's accounts. However, this is not what happened, the securities
that are sold, offered for sale or delivered is not made by the owner or

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 the representative or the underwriter is not actually the representative nor
made it for the owner's account

The corporation who is actually engaged to this kind of business,

authorized by its articles of incorporation, distributed securities to its
stockholders or shareholders in the form of stock dividends or other
distribution outside of the surplus

The issued or delivered security is exchange for another security of the

same issuer with the right of conversion entitling the one who surrendered
in the exchange a conversion. Provided, the security issued or delivered in
the exchange is registered in the SEC, not exempted in the provision of
the SEC, the conversion price of the security made the security to fall in
the class of security entitling it for a registration in the SEC. Upon
conversion, the par value of security exchanged will be the price wherein
it will be sold

EXCLUSIVE SALE. The sale of capital stock of the company is sold

exclusive to its stockholders with no commission, fee, or remuneration
either directly or indirecly

PRIVATE PLACEMENT. The shares of securities is sold for fewer than 20

persons in the Philippines within a 12 month period

SUBSCRIPTIONS for share of capital stocks prior to the incorporation or

to increased authorized capital stock wherein their is no commission or
remuneration since it is only for the requirement of the law which is
having a required percentage of authorized capital in order for it to be
duly incorporated

Sale of securities to sophisticated (qualified users) 6

Bank

Registered House Investment

Insurance company

Pension or Retirement Fund manage by the government of the

Philippines or a bank or any persons who serves as intrument that is
authorized by the BSP

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 Investment company

Any other users that may be authorized or qualified by the SEC on the
basis of the ff. factors: net worth, knowledge, financial sophistication,
experience in financial and business matters, amount of assets in the
management

MORTGAGE - BACK SECURITIES. Issued bonds or notes that is mortgaged

by a real estate or tangible personal property that is sold together with
the mortgaged to a single buyer at a single date

A judicial sale, sale to the executor, administrator, guardian, receiver or

trustee who is insolvent or bankrupt

By or for the account of the pledge holder, mortgagee, pledge lien holder
wherein the sale is in the ordinary course of business. Provided, that it is
not to avoid a provision by the SEC, to liquidate a bonafide debt or a
security established in good faith to such security

Exhange a security by the issuer to its existing security holders exlusively

with no fee, expenses, commission or remuneration

What are the other transactions that may be exempt by SEC?

No public interest

To protect investors from small amount or limited offering

What is the deal with the exemption fee of 1/10 of 10% of the maximum
aggregated price or the issued value of the securities?

The exemption fee of 1/10 of 10% of the maximum aggregated price or

the issued value of the securities must still be paid

REPORTORIAL REQUIREMENTS
What are the reportorial requirements? 2

Annual reports of Balance Sheet, Profit or Loss Statement, Statement of

Cash Flows certified by the CPA and has management discussion and
analysis of the results of the operation

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 Other periodical reports for interim financial reports and current reports
so that the SEC will have the current information with regard to the
performance and financial condition of the issuer

When do this reportorial requirements apply to an issuer? 3

If shares are sold pursuant to registration

Shares are registered to an Exchange where they are being traded

The company has at least 50M assets and more than 200
shareholders holding at least 100 equity shares. Provided, his
obligation to report will be terminated after 90 days of notification to
the SEC when the shares of the shareholders decrease from 100 or
less than 100

What is the responsibility of the issuer to the holder of such security?

To issue annual report to the holders of equity securities in the

form and containing information as prescribed by the SEC

TENDER OFFER
What is a tender offer?

Tender offer is an offer by a person or group of persons to the

shareholders of a public company to tender there shares for purchase

What is the purpose of a tender offer?

To protect the minority shareholders and to give their shares a fair price
whenever there is a person or group of persons who wanted to by the
equity shares of a company

What is the deal with mandatory tender offer?

Applies to any person who wanted to acquire at least 35% of the shares
over a period of 12 months by a company who is:

Listed Company

Company who either has (a) 50M; (b) At least 200 shareholders who
has at least holding 100 shares

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 Shall the rule still apply even if the acquisition is less than 35%?

The rule shall still apply even if the acquisition is less than 35% but it
will result to ownership of more than 50% of the total outstanding
equity shares of the company

📌 The offeror would be required to accept any and all securities thus
tendered

📌 Percentage requirements likewise applies even in indirect acquisition

What are the transactions exempt from mandatory tender offer requirement?
PUCOMIF

Privatization by the government of the Philippines

Unissued Capital Stock

Corporate rehabilitation under corporate supervision

Open market at its prevailing market price

Merger or Consolidation

Increased in authorized capital stock

Foreclosure proceedings wherein their is duly accomplished pledge or

security arrangement when the purchase is made by a debtor or creditor

Explain the process in making tender offer: 3

The offeror should announce it in a newspaper prior to the

commencement of the offer

2 days prior to the commencement of the offer 1 File form SEC 191 to
the Commission including exhibits there to; 2 Hand deliver a copy of the
form to the target company as well as to the Exchange where the equity
securities of the company are being traded

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