Securities Regulation Code of the Philippines (R.A. 8799) PDF

SECURITIES REGULATION CODE OF THE PHILIPPINES (R.A. 8799) SECURITIES AND EXCHANGE COMMISSION These rules shall be implemented by the Commission as a collegial body composed of a Chairperson and 4 Commissioners. It has 5 principal departments, each headed by a director. Its core functio...

SECURITIES REGULATION CODE OF THE PHILIPPINES (R.A. 8799) SECURITIES AND EXCHANGE COMMISSION These rules shall be implemented by the Commission as a collegial body composed of a Chairperson and 4 Commissioners. It has 5 principal departments, each headed by a director. Its core function of capital market regulation shall be performed by the Market Regulation Department. Corporate Finance Department, and Non-Traditional Securities and Instruments Department. Its company registration and enforcement functions shall be performed by the Company Registration and Monitoring Department and Compliance and Enforcement Department, respectively. 1. Market Regulation Department- develops the criteria for all market participants and supervises to ensure compliance with registration requirements and endorses infractions of the Code and rules and regulations to the Compliance and Enforcement Department. 2. Corporation Finance Department- registers securities before they are offered for sale or sold to the public and ensures that the information needed about the securities are adequate. 3. Non-Traditional Securities and Instruments Department- registers and licenses non-traditional securities and instrument including, but not limited to, pre-need plans, commodity future contracts, proprietary or non-proprietary membership certificates and other similar instruments. 4. Company Registration and Monitoring Department- registers domestic corporations, partnerships and associations, including representative offices and foreign corporations intending to do business in the Philippines (PH). 5. Compliance and Enforcement Department- ensures compliance by all market participants, issuers and individuals and takes appropriate enforcement action against them for legal infraction of the Code and other relevant laws, rules and regulations implemented by the Commission. Section 4: Administrative Agency - Shall be administered by the Securities and Exchange Commission (SEC) - Composed of Chairperson and 4 Commissioners- appointed by the President of the Philippines for a term of 7 years Chairperson: - at least 40 years of age - natural born resident citizen - Chief Executive Officer of the Commission - Powers: o Execute and administer the policies, decisions, orders and resolutions approved by the Commission and o shall have the General Executive direction and supervision of the work and operation by the commission and its members, bodies, boards, offices, personnel and all its administrative business. Commissioners (4): - Natural born citizen of the Philippines - At least 35 years of age - With recognized competence in social and economic disciplines 1  - If appointed to fill a vacancy occurring prior to the expiration of the term for which his/her predecessor was appointed, shall serve only for the unexpired portion of their terms (P.D. 902-A) Majority of the Commissioners, including the Chairperson shall be members of the Philippine Bar. Meetings: - at least once a week for the conduct of business or - as often as may be necessary upon the call of the Chairperson or upon the request of (3) commissioners. - Notice of meeting shall be given to all commissioners and the presence of 3 commissioners shall constitute a quorum. - May delegate any of its functions to any department for purposes of efficiency except: o its review or appellate authority and its power to adopt, alter and supplement any rule or regulation A. Powers and Functions of the Securities and Exchange Commission: Section 5 of RA 8799 states that: “The commission shall act with transparency and shall have the powers and functions provided by this code, Presidential Decree No. 902-A, the Corporation Code, the Investment Houses law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall have, among others, the following powers and functions: 1. Have jurisdiction and supervision over all corporations, partnership or associations who are the grantees of primary franchises and/or a license or a permit issued by the Government; 2. Formulate policies and recommendations on issues concerning the securities market, advise Congress and other government agencies on all aspect of the securities market and propose legislation and amendments thereto; 3. Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications; 4. Regulate, investigate or supervise the activities of persons to ensure compliance; 5. Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs; 6. Impose sanctions for the violation of laws and rules, regulations and orders, and issued pursuant thereto; 7. Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulation and orders; 8. Enlist the aid and support of and/or deputized 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 function under its Code; 9. Issue cease and desist orders to prevent fraud or injury to the investing public; 10. Punish for the contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court; 11. Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision; 12. Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission 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 investigation as 2  may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws; 13. Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnership or associations, upon any of the grounds provided by law; and 14. 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 the Commission to achieve the objectives and purposes of these laws. B. Institutions supervised or regulated by the SEC: 1. Exchanges a. Philippine Stock Exchange (PSE) – market operator for stocks listed in the local exchange b. Philippine Dealing and Exchange (PDEX) – market operator for fixed income securities in the local exchange 2. Clearing Agencies/ Depositories a. Securities Clearing Corporation of the Philippines (SCCP) – for the PSE b. Philippine Depository Trust Corporation (PDTC) – for PDEX 3. Self Regulatory Organizations (SRO) a. Capital Markets Integrity Corporation (CMIC) b. PSE c. PDEX d. SCCP 4. Securities Companies/ Intermediaries a. Broker Dealers b. Government Securities Eligible Dealers (GSED) c. Government Securities Brokers (GSB) d. Underwriters e. Mutual Fund Distributors (MFD) f. Investment Company Advisers (ICA) 5. Investment Houses 6. Alternative Trading Systems 7. Over the Counter Markets 8. Supporting institutions a. Transfer Agents b. Securities Custodian c. Trustee d. Registrar of Qualified Investment Buyers C. How the law protects the public: 1. The law requires full disclosure of information to the public regarding the securities that are being offered and the issuers, including the filing of and approval of the registration statement and the approval of the prospectus. 2. A continuing duty to regularly submit material information to the SEC. 3. Close monitoring of the securities and other circumstances that may affect the same as well as the persons involved including brokers, issuers, the exchange itself, etc. in order to ensure compliance with pertinent laws and regulations. 4. Prohibiting and penalizing different fraudulent practices and transactions. 3  5. Providing the SEC with powers and functions. D. Definition of terms: 1. Securities – are share, 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. It includes: a. shares of stocks, bonds, debentures, notes, evidences of indebtedness, asset- backed securities; b. investment contracts, certificates of interest or participation in a profit sharing agreement, certificates of deposit for a future subscription; c. fractional undivided interests in oil, gas or other mineral rights; d. derivatives like option and warrants; e. certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments; f. proprietary or non- proprietary membership certificates in corporations; and other instruments as may in the future be determined by the Commission. 2. Issuer – is the originator, maker, obligor, or creator of the security. 3. Broker – is a person engaged in the business of buying and selling securities for the account of others. 4. Dealer – means any person who buys and sells securities for his/her own account in the ordinary course of business. 5. Associated Person – is an employee therefor whom, directly exercises control of supervisory authority, but does not include a salesman, or an agent or a person whose functions are solely clerical or ministerial. 6. Clearing Agency – is any person who acts as intermediary in making deliveries upon payment to effect settlement in securities transactions. 7. Exchange – is an organized marketplace or facility that brings together buyers and sellers and executes trades of securities and/or commodities. 8. Transfer Agent - any person who engages on behalf of an issuer of securities, or itself as an issuer of securities, by: a. countersigning such securities upon issuance; b. monitoring the issuance of such securities with a view toward preventing unauthorized issuance, a function commonly performed by a person called a registrar; c. registering the transfer of such securities; d. exchange or converting such securities; and/o e. transferring record ownership of securities by bookkeeping entry without physical issuance of securities certificates. 9. Salesman – natural person, employed as such or as an agent, by a dealer, issuer or broker to buy and sell securities 10. Promoter – is a person who, acting alone or with others, takes initiative in founding and organizing the business or enterprise of the issuer and receives consideration therefore. 11. Prospectus – is the document made by or on behalf of an issuer, underwriter or dealer to sell or offer securities for sale to the public through a registration statement filed with the Commission. 12. Registration statement – is the application for the registration of securities required to be filed with the Commission. 13. Investment House – any enterprise which primarily engages, whether regularly or on an isolated basis, in the underwriting of securities of another person or enterprise, including securities of the Government or its instrumentalities. 14. 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 4  company. Where a commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock. 15. Alternative trading systems (ATS) – refers to any organization, association, person or group of persons, or system that constitutes, operates, maintains, or provides an electronic market place or facility that brings together: a. Primary market issuers of securities of SEC registered enterprises and the investors that wish to purchase those securities, b. Secondary market buyers and sellers of SEC registered securities 16. Over the counter (OTC) markets – refer to the market created by the buying and selling of a security on a bilateral basis between parties that takes place outside of an Exchange or Alternative trading system 17. Investment contracts – a contract, transaction or scheme (collectively “contract”) whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. 18. Insider – means (a) the issuer; (b) a director or officer (or person performing similar functions) of, or a person controlling the issuer; (c) 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; (d) 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 (e) a person who learns such information by a communication from any of the foregoing insiders. 19. Material non-public information – An information is “material non-public” 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. E. Registration of securities General Rule: A duly filed and approved Registration Statement (RS) is required before any securities can be sold or be offered for sale in the PH. Securities shall not be sold or offered for sale or for distribution within the PH without a registration statement duly filed with and approved by the Commission. Information regarding the securities must be available to public or prospective purchaser. – Sec. 8.1 A record of the Registration of Securities shall be kept in Register Securities and it must be available to the public for inspection. SEC may audit the financial statements, assets and other information of firm for registration of its securities to attract investors. F. Securities Exempt from Registration Statement Requirement: 1. Government issued securities 2. Issuances by foreign governments with which the PH maintains diplomatic relations. 3. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body. 4. Any securities or its derivatives the sale or transfer of which, by law, is under the supervision and regulation of the office of the Insurance commission, Housing and Land Use Rule Regulatory Board, or the BIR. 5. Securities issued by bank except its own shares of stock. G. Transactions Exempt from Filing a Registration Statement: 5  1. Judicial Sale of Securities or sale by an executor, administrator, guardian or receiver or trustee in insolvency or bankruptcy 2. Sale of foreclosed securities 3. Isolated transactions not being made in the course of repeated and successive transaction of a like character 4. Issuances out of surplus including Stock Dividend 5. Sales of shares to stockholders not underwritten 6. Issuance of bonds to a single purchaser 7. Transaction pursuant to right of conversion 8. Broker’s Transactions 9. Pre-incorporation subscriptions or subscription to a capital increase where no commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock. 10. Exchange of securities with existing security holders 11. Private placements 12. Sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period. 13. The sale of securities to any number of the following qualified buyers: a. Bank; b. Registered investment house; c. Insurance company; d. Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof or manage by a bank or other persons authorized by the Bangko Sentral to engage in trust functions; e. Investment company or; f. Such other person as the Commission may rule by determine as qualified buyers, on the basis of such factors as financial sophistication, net worth, knowledge, and experience in financial and business matters, or number of assets under management.” H. Procedure of Registration of Securities 1. Issuer must file a Registration Statement in the main office of the SEC, containing the necessary information and supporting documents as well as prospectus required or permitted to be delivered. 2. Written information from an expert, depending on the necessity thereof or their applicability to the class of securities sought to be registered. 3. Information must include the effect of the securities issue on ownership, on the mix of ownership, especially foreign and local ownership. 4. Shall be signed by issuer’s executive officer, its principal operating officer, its principal financial officer, its comptroller, its principal accounting officer, its corporate secretary, or persons performing similar functions accompanied by a duly verified resolution of the board of directors of the issuer of the corporation, the written consent of the expert named as having certified any part of the RS or any document used, and a written certification by such selling shareholders as to the accuracy of any part of the RS contributed to by such selling shareholders shall be filed. 5. Fees- shall pay to the SEC a fee of not more than one-tenth (1/10) of 1% of the maximum aggregate price at which such securities are proposed to be offered. 6. Notice and Publication of the RS by the issuer, at his own expense, in 2 newspapers of general circulation in the PH, once a week for 2 consecutive weeks, reciting that a RS for the sale of such securities has been filed and the info about the RS are open for public inspection at reasonable hours of business, and a copy, photostatic or otherwise shall be furnished to interested parties. 7. The SEC may compel the production of all the books and papers of such issuer, and may administer oaths to and examine the officers of such the issuer or any other person connected. Within 45 days after filing the RS, the SEC shall declare the RS effective or rejected unless applicant is allowed to amend the objectionable portions of the RS. Shall declare effective if it finds that the RS with all the docs necessary are complete and requirements have been complied with. SEC may impose such terms and conditions as may be necessary or appropriate for the protection of the investors. 6  Upon effectivity, issuer shall state in every prospectus that all Registration Requirements have been met and that all info are true and correct. Any untrue statement or omission of material fact shall constitute a fraud. Upon the issuance of the suspension order, no further offer or sale of such security shall be made until the same is lifted or set aside by the Commission. Otherwise, such sale shall be void. I. Grounds for Rejection and Revocation (After due notice and hearing) 1. The issuer: Has been judicially declared insolvent; Has violated any of the provision of this Code Has been or is engaged or is about to engage in fraudulent transactions; Has made any false or misleading representation of material facts in any prospectus concerning the issuer or its securities; Has failed to comply with any requirements that the Commission may impose as a condition for registration of the security for which the registration statement has been filed; or 2. Registration statement is incomplete or inaccurate on its face in any material respect or includes any untrue statements of a material fact required to be stated therein or necessary to make the statement therein not misleading; or 3. The issuer, any officer, director or controlling person performing similar functions, or any under writer has been convicted, by a competent judicial or administrative body, upon plea of guilty, or otherwise, of an offense involving moral turpitude and /or fraud or is enjoined or restrained by the Commission or other competent or administrative body for violations of securities, commodities, and other related laws.” In the event a trading participant’s license to trade is suspended or revoked: 1. Exchange member – arrange for a member to take over the outstanding contracts 2. Non exchange member – Commission will require transfer of account to another broker dealer J. Reportorial Requirements 1. Who are required to file: Has sold any class of its securities pursuant to a registration Has a class of securities listed for trading on an exchange With assets of at least PHP 50M and having 200 or more holders each holding at least 100 share each of a class of equity securities 2. What documents to file: Annual financial statements and periodic reports to the SEC Shall also file with the Exchange where securities are listed a copy of reports filed with SEC 3. For holders of 5% of Equity Securities*: Within 10 days after such acquisition shall submit a sworn statement containing the following information: o Personal background, identity, residence, citizenship and nature of such beneficial ownership by such person as well as business of the beneficial owner. o If the purpose of the purchases is to acquire control of the business, the plans and proposals that will affect a major change in its business or corporate structure. o Number of shares acquired o Info as to contracts, arrangements or understanding with any person with respect to any securities of the issuer including but not limited to: ▪ Transfer ▪ Joint ventures, ▪ loan or option arrangements, ▪ puts or call guarantees or division of losses or profits, or 7  ▪ proxies naming the persons with whom such contracts, arrangements, or understanding have been entered into, and giving the details thereof K. Tender Offers 1. What constitutes a tender offer: Any person, or group of persons acting in concert, who intends to: a. Acquire at least 15% or; b. Acquire at least 30% over a period of 12 months of; i. Any class of equity securities of a listed corporation ii. Any class of equity securities of a corporation with assets of at least Php 50M and having 200 or more stockholders with at least 100 shares each. 2. What must an offeror do: a. Make tender offer to stockholders by filing with the SEC a declaration to that effect and furnish issuer a statement containing such of the info required of issues as SEC may prescribe b. Publish all requests or invitations for tender 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 one-tenth of 1% of the propose aggregate purchase price. 3. Are there exemptions to this rule: - Only for the following proposed purchases of equity shares of a public company: a. The purchase of newly issued shares from unissued capital stock b. Foreclosure proceeding involving a pledge or security arrangement where the acquisition is made by the debtor or creditor c. Purchases in connection with privatization undertaken by the government of the Philippines d. Purchases in connection with corporate rehabilitation under court supervision. L. Transactions of Directors, Officers and Principal Shareholders I. Reportorial Requirements 1. Who is required to report: a. Directly or indirectly the beneficial owner of more than 10% of any class of equity securities b. A director or an officer of the issuer of such security 2. When should it be filed: a. Within 10 days after he becomes a beneficial owner, a statement containing the amount of all equity securities of such issuer of which he is the beneficial owner to the SEC and the exchange where it may be listed. b. Within 10 days after the close of each calendar month thereafter, a statement indicating his ownership at the close of the calendar month as have occurred during such calendar month. 3. When is a transaction fair: a. any profit realized by him from any purchase or sale, or any sale or purchase, of any equity security of such issuer within any period of less than (6) months unless such security was acquired in good faith rule of thumb: good faith must be proven not assumed irrespective of any intention of holding the security II. Prohibitions and Fraud, Manipulation and Insider Trading 1. Manipulation of security prices and practices 8  a. Creation of false or misleading appearance of active trading in any listed security traded in an exchange of any other trading market. i. Wash Sale - transaction in such security which involves no change in the beneficial ownership thereof. ii. Improper Matched Order - buy and sell orders are entered at the same time at the same price and quantity by two colluding parties. iii. Any similar things or act b. i. Painting the tape - engaging in a series of transactions in securities that are reported publicly to give the impression of activity or price movement in a security. ii. Squeezing the float - taking advantage of a shortage of securities in the market by controlling the demand side and exploring market congestion during such shortages in a way as to create artificial prices. iii. Hype and Dump - buying of increasingly higher prices and selling in the market at the higher prices and vice versa. c. Circulating unverified rumor-based market information d. To make a misleading statement to induce the purchase or sell. e. 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 the security. III. Acts considered unlawful with respect to the purchase and sale of securities: 1. Employing any device, scheme, or artifice to defraud; 2. Obtaining 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 3. Engaging in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person.” IV. Insider Trading 1. Who is an insider: a. The issuer b. Director/officer/person controlling the issuer c. A person whose relationship or former relationship to the issuer gives or gave him access to nonpublic info about the issuer and he security. d. Gov’t employee/director/officer of an exchange, clearing agency and/or self- regulating organization who has access to material nonpublic info about the issuer an the security. e. A person who learns such info by a communication from any of the foregoing insiders. 2. What are the duties of an insider when it comes to trading: Trading a security while in possession of material nonpublic information with respect to the issuer or the security, unless: a. The insider proves that the information was not gained from such relationship. b. The insider proves that; i. 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. Provided, however, That this presumption shall be rebutted upon a showing by the purchaser or seller that he was aware of the material non-public information at the time of the purchase or sale.” What is considered material information: Information is considered material when the holder of such information to buy or sell a security in possession of such information 9 SECURITIES MARKET PROFESSIONALS (SMP) i. Broker ii. Dealer iii. Associated person of a broker or dealer iv. Salesman A. Mandatory registration of SMP with SEC - No person shall engage in buying or selling of securities in the PH if not registered. - Salesman, associated person cannot be employed if not registered. B. Qualifications for registration 1. For natural person - pass written examination (proficiency/knowledge) 2. For broker or dealer - minimum net capital, provide bond/security 3. For located outside the PH - written consent to service of process upon SEC C. Requirements, prohibitions and obligations of SMP - Salesman shall not include employees of an issuer whose compensation cannot be directly or indirectly be determined on sale of securities of the issuer. - Fees- in such reasonable amount prescribed by the SEC. - Within 30 days, SEC shall grant/deny the application. - Names and address of all persons shall be recorded in a Register of Securities Market Professionals, kept in the office of the SEC, and shall be open for public inspection. - Every person registered shall file or submit regularly info necessary to keep the application for registration current and accurate - Registration of salesman/associated person will automatically terminate upon the cessation of his affiliation with said registered broker or dealer or with an issuer in case of a salesman employed, appointed or authorized by such issuer. D. Grounds for revocation, refusal or suspension of registration of brokers, dealers, salesmen and associated person - After due notice and hearing, the SEC determines the applicant or registrant. a. Has willfully violated any provision of this code or has failed to supervise another person who commits such a violation b. Has willfully made or caused to be made a materiality false or misleading statement. c. Has failed to satisfy the qualifications or requirements for registration. d. Has been convicted, by a competent judicial or administrative body of an offense involving moral turpitude, fraud, embezzlement, counterfeiting, theft, estafa, misappropriation, forgery, bribery, false oath, or perjury, or of a violation of securities, commodities, banking, real state or insurance laws e. Is enjoined or restrained by a competent judicial or administrative body from engaging in securities, commodities etc. or from willfully violating laws governing such activities. f. Subject to an order of a competent judicial or administrative body refusing, revoking or suspending any registration etc. g. Subject to an order of suspension of a self-regulatory organization expelling him from membership. h. Willfully violated any provision of securities commodities etc. i. Judicially declared insolvent. Pending the results of an investigation and the entry of a final order, suspensions are deemed confidential and shall not be published All transactions should be effected in compliance with such rules and regulations as the Commission shall prescribe to ensure fair and honest dealings It is not allowed to deal in or otherwise buy or sell securities listed on an Exchange where any: o Stockholders o Director o Associated person o Salesman o Authorized clerk of said broker or dealer o All relatives of above within 4th level of consanguinity which are: 10  ▪ Director ▪ President ▪ Vice president ▪ Manager ▪ Treasurer ▪ Comptroller ▪ Secretary ▪ Or any office of trust and responsibility of the same issuer E. Exchanges and Clearing Agencies I. Exchanges an organized market place or facility that brings together buyers and sellers and executes trade of securities and/or commodities. II. Registration of Exchanges a. Who are required to register: - All exchanges that operate in the PH - Brokers or dealers, associated persons or salesmen that create or operate any trading market b. How an exchange register with the SEC: - By filing an application for registration containing information and supporting documents as the commission by rule requires, which include: o Undertaking to comply and enforce by its members the provisions of this Code, its implementing rules and regulations (IRR), and the rules of an Exchange o Organizational chart of the Exchange, rules and procedure and a list of its officers and members o Copies of the rules of the Exchange o Undertaking that in the event of a member firm becomes insolvent or that it cannot readily meet the demands of its customers for the delivery of securities and/or payment of sales proceeds, commission, take over the operation of the insolvent member firm and immediately proceed to settle the member firms liabilities to its customers. - Within 90 days, the SEC may issue an order either granting or denying registration unless Exchange shall withdraw its registration. c. Prohibitions for members of an Exchange: - it shall be prohibited for any member of an exchange to effect a transaction for: (1) its own account, (2) the account of an associated person, (3) or a discretionary account in which it or an associated person has control over except for: o Any transaction by a member-broker acting in the capacity of a market maker; o Any transaction reasonably necessary to carry on an odd-lot transactions; o Any transaction to offset a transaction made in error; o Any other transaction of a similar nature as may be defined by the Commission. - *for discretionary accounts, the fact that it is a discretionary account should be reflected in both the order ticket and transaction slip III. Independent directors for Exchange members a. What is an independent director: - 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 judgement in carrying out the responsibilities of a director 11  b. Who are required: - Any corporation with a class of equity securities trading on an exchange or - With assets of more than PHP50,000,000.00 and having at least 200 shareholders holding at least 100 shares of a class of its equity secuirties or - Has sold a class of equity securities to the public pursuant to a registration statement c. How many independent directors are required: - At least 2 or - Such number that represents at least 20% of the members of such board whichever is lesser IV. Clearing Agency - a person or company that facilitates the clearing and settlement of trades, - to make deliveries of securities, - reduce the number of settlements of securities transactions - allocate securities settlement responsibilities if not registered. V. Registration of a clearing agency a. How can a clearing agency register: - filing an application of registration, containing such info and supporting docs as the Commission by rule shall prescribe: o An undertaking to comply and enforce compliance by its participants with the provisions of this code. o Organizational chart of the Exchange, its IRR of procedure and list of its officers and participants. o Copies of rules of the Clearing Agency b. Registration shall be granted if the rules of the Clearing Agency include provision for: - Expulsion, suspension and disciplining of a participant for violations of this Code any other Act administered by the Commission, the rules, regulations, and orders thereunder, or the clearing agency’s rules; - Fair procedure of the disciplining of participants - Equitable allocation reasonable dues, fees and other charges - Prevention of fraudulent ang manipulative acts - Transparent, prompt and accurate clearance and settlement of trades, - The establishment and oversight of a fund to guarantee the prompt and accurate clearance and settlement of transaction executed on an exchange however, a clearing agency engaged in the business of securities depository shall be exempt from this requirement c. How are settlements done: - Book entries in the: o Books of the securities intermediaries or o Stock and transfer book held by the corporation o Stock transfer agent - Above have the effect of delivery of a security in bearer form (endorsed in blank representing unrestricted negotiability) - Best evidence of such transactions are the official records and book entries of the clearing agency. However, such is only binding upon due notice to the concerned corporate secretaries. - In cases of pledges, book entry indicating transfer of securities to the designated account constitutes delivery. However, such is only binding upon due notice to the concerned corporate secretaries. VI. Power of the SEC with respect securities ownership: 12  a. Validate the transfer of securities by book-entries rather than the delivery of physical certificates b. Establish when a person acquires a security or an interest therein and when delivery of a security to a purchaser occurs c. Establish which records constitute the best evidence of a person’s interests in a security and the effect of any errors in electronic records of ownership d. Codify the rights of investors who choose to hold their securities indirectly through a registered clearing agency and/ or other securities intermediaries e. Codify the duties of securities intermediaries (including clearing agencies) who hold securities on behalf of investors f. Give first priority to any claims of a registered clearing agency against a participant arising from a failure by the participant to meet its obligations F. Administrative sanctions – levied by the SEC a. What warrants an administrative sanction: 1. violation of this Code, its rule, or its orders 2. Any registered broker or dealer, associated person thereof has failed reasonably to supervise, with a view to preventing violations, another person subject to supervision who commits any such violation 3. Omissions or commissions of any untrue statement of a material fact in a registration statement or in the case of an underwriter, failure to conduct due diligence to ensure that a registration statement is accurate and complete in all aspects 4. Refusal to permit any lawful examination of its affairs b. Sanctions: 1. Suspension and revocation of any registration for the offering of securities 2. Fine of not less than 10,000 pesos nor more than 1,000,000 pesos plus not more than 2,000 pesos for each day of continuing violation. 3. Violations of Sec. 19.2 (Tender offers), 20 (proxy solicitations), 24 (manipulative acts), 26 (Fraudulent transactions), 27 (Insider’s duty to disclose when trading), disqualification from being an officer, member of Board of Directors or others with similar functions, failed to submit reportorial requirements etc. 4. Violation of Sec. 34 (trading for own account) , fine of not more than three times the profit gained or loss avoided as result of the purchase, sale or communication prescribed by such section. 5. Other penalties that the SEC may prescribe. G. Penalties – levied by the courts a. What warrants a penalty: 1. Violation of this Code, its rule, or its orders 2. Omissions or commissions of any untrue statement of a material fact in a registration statement b. Penalties: 1. Fine of not less than 50,000 pesos nor more than 5,000,000 pesos or imprisonment of not less than 7 years nor more than 21 years or both in the discretion of the court. 2. If the offender is a corporation, partnership or association or other judicial entity, the penalty may in the discretion of the court be imposed upon such juridical entity and upon the officer or officers of the corporation, partnership, association or entity responsible for the violation, and if such officer is an alien, he shall in addition to the penalties prescribed, be deported without further proceedings after service of sentence. 13