Securities Finals PDF

GROUP 1 that the money collected from plan holders is used solely for the intended purposes. What are pre-need plans? What is the d...

GROUP 1 that the money collected from plan holders is used solely for the intended purposes. What are pre-need plans? What is the disclosure rule? Pre-need plans are contracts which provide for the performance of future services or the payment of future A disclosure rule refers to a regulatory requirement that monetary considerations at the time of actual need, for obligates issuers of securities, such as companies which plan holders pay in cash or installment at stated offering pre-need plans, to provide accurate, timely, and prices, with or without interest or insurance coverage, complete information about their financial condition, and include life, pension, education, interment, and other operations, and other significant developments. plans which the Commission may from time to time approve. What must the annual report contain? BPCM How are pre-need plans regulated? RLDAURHSE Issuers to submit an annual report within 135 days after the end of their fiscal year or another deadline set by the Section 16 establishes that such plans cannot be sold Securities and Exchange Commission. This annual report unless they comply with the rules and regulations set by must contain the following: the Securities and Exchange Commission. 1. Balance sheet 1. Registration of the pre-need plan — Before a pre-need plan can be sold, it must be registered 2. Profit and loss and statement of cash flows with the Securities and Exchange Commission (SEC). 3. Certified by an independent certified public accountant 2. Licensing of the person selling the pre-need plan — Individuals or entities selling pre-need plans 4. Management discussion and analysis of results must obtain a license from the SEC. of operation 3. Disclosures or transparency to potential plan Applicability of Reportorial Requirements holders — Pre-need companies are required to 1. Issuers of Registered Securities — generally provide clear and complete information about required to comply with reportorial obligations. the plan including the terms and conditions, fees and charges, benefits, and risks involved. However, an exception applies if the company has fewer than 100 holders of that class of 4. Advertising guidelines by the Commission — The securities (or another threshold set by the SEC regulates the advertising of pre-need plans Securities and Exchange Commission) as of the to prevent misleading or deceptive claims. first day of the fiscal year, and the company 5. Uniform accounting system — Pre-need notifies the SEC about this reduced number of companies are required to adopt a uniform holders. accounting system prescribed by the SEC. 2. Issuers Listed on an Exchange — required to 6. Reports and recording keeping — Pre-need adhere to reportorial requirements without companies must regularly submit reports to the exception. SEC and maintain detailed records of their 3. Issuers Meeting the Minimum Assets and operations. Shareholders — The general rule mandates that 7. Having a certain amount of capital — The SEC companies with at least ₱50 million in assets (or requires pre-need companies to maintain a a different amount prescribed by the SEC) and minimum capital amount to ensure their financial 200 or more shareholders, each owning at least stability. 100 shares, must file reports. 8. Securing a bond — Pre-need companies may However, the reporting obligation ceases 90 need to secure a bond as an additional layer of days after the company informs the SEC that the financial security. This bond serves as protection number of shareholders holding at least 100 for plan holders in case the company fails to shares has dropped below 100. meet its commitments. Section 17.3. The issuer whose securities are listed on an 9. Establishing trust funds — Pre-need companies exchange must provide the exchange a copy of any are required to establish trust funds to ensure report filed with the SEC. Section 17.4. Reports and financial statements must (a) having 200 or more shareholders each holding at least follow the format and content requirements set by the 100 shares shall file with the Commission an annual Securities and Exchange Commission and (b) be filed report, other periodical reports, and current reports on within the deadlines prescribed by the SEC. significant developments within 135 days after the end Section 17.5. Issuers meeting the criteria in Subsection of their fiscal year. 17.2 must provide an annual report to all equity security Given that the bank has assets exceeding holders. ₱50,000,000 and has 395,998 shareholders. It is thus Section 17.6. Issuers must send the annual report to considered a public company that must comply with voting shareholders before the annual meeting. The SEC the reportorial requirements set forth in Section 17.1 of sets the specific timeframe for this requirement. the SRC. Requirements of Shareholders who Directly or What is a tender offer? Indirectly Acquire Beneficial Ownership of more than 5% of the Class of Securities A tender offer is a publicly announced intention by a person acting alone or with others to acquire equity 1. Sworn statement to the issuer securities of a public company such as one listed on an exchange. a. Personal background, identity, residence, citizenship, and nature of This is done to protect the interest of minority such beneficial ownership of the person stockholders of a target company against schemes intended to dilute the share value of their investments, b. Any plans or proposal that will create a providing them an opportunity to withdraw or exit from major change in the business or its the company under reasonable terms. corporate structure Who shall provide a tender offer? c. Number of shares which are beneficially owned 1. Any person who tends to acquire at least 15% of a security of a public company d. Details and information to contracts 2. Any person who intends to acquire at least 30% 2. The Exchange or place where the transaction of equity over 12 months occurred Cemco Holdings v. National Life Insurance Company Philippine Veterans Bank v. Justina Callangan of the Philippines FACTS: Callangan, the Director of the Corporation FACTS: Union Cement Corporation (UCC), a Finance Department of the SEC, informed the publicly-listed company, has two principal stockholders Philippine Veterans Bank that it qualifies as a “public — Union Cement Holdings Corporation (UCHC) and company” under the SRC and is thus required to Cemco. Majority of UCHC’s stocks were owned by comply with the reportorial requirements set forth in Bacnotan Consolidated Industries (BCI), Atlas Cement Section 17.1 of the SRC. Corporation (ACC), and Cemco. The bank explained that it should not be considered a The PSE was informed that BCI and ACC would sell “public company” because it is a private company Cemco their stocks in UCHC. As a result, Cemco’s whose shares of stock are available only to World War beneficial ownership in UCC, direct and indirect, has II veterans and not to the general public. increased by 36% and has totaled to at least 53% of Director Callangan rejected the bank’s explanation and the shares of UCC. assessed it a total penalty of ₱1,937,262.80 for failing The PSE inquired to the SEC as to whether the tender to comply with the SRC reportorial requirements from offer rule would apply to the purchase but Director 2001 to 2003. Callangan of the Corporate Finance Department of ISSUE: Whether or not the Philippine Veterans Bank is SEC confirmed that it was not covered. a public company subject to the reportorial National Life Insurance Company, a minority requirements under Section 17.1 of the SRC stockholder of UCC, demanded Cemco to comply with RULING: Yes. According to Section 17.1 and 17.2 of the the tender offer rule but Cemco refused. SRC, an issuer with assets of at least ₱50,000,000 and ISSUE: Whether or not the tender offer rule applies to  1. If it is established that good faith was exercised the indirect acquisition of shares in a listed company, in even if the delivery was not made in time. this case, the indirect acquisition of Cemco of UCC’s shares through its purchase of the shares of UCHC. 2. If the delivery, although made in a timely manner, would cause undue inconvenience or expense. RULING: Yes. The Supreme Court held that the coverage of the mandatory tender offer rule covers not only direct acquisition but also indirect acquisition or any type of acquisition. The legislative intent of the tender offer rule is to regulate the activities related to the acquisition of control of a listed company, for the purpose of protecting the minority stockholders. Control may be effected through direct or indirect acquisition; therefore, a tender offer must occur either way. Furthermore, under the existing SEC rules, the 15% and 30% threshold acquisition of shares was increased to 35%. It is provided that the tender offer rule is still applicable even if the acquisition is less than 35% when the purchase would result in ownership of over 51% of the total outstanding equity securities of the public company. In this case, the acquisition of Cemco to UCC’s shares increased by 36% and its total ownership amounted to 53% of the securities of the public company. Therefore, the mandatory tender offer rule must apply. What is a proxy? A proxy is a person authorized to act for another. What are the pieces of information required in filing a proxy solicitation? Proxies must be issued in writing, signed by the stockholder or their authorized representative, and filed with the corporate secretary before the scheduled meeting. The proxy must specify the meeting for which it is intended. A proxy is valid only for the specific meeting it is intended for, unless otherwise provided. In any case, no proxy shall be valid for a period longer than five (5) years. When is the sale of equity unlawful? 1. If the beneficial owner, director, or officer does not own the security being sold. 2. If the ownership of the security has not been delivered within 20 days after the sale or if the ownership is not delivered within five (5) days after a sale deposit in the mails or unusual channels of transportation. When will the defense of good faith prosper?  GROUP 2 The SRC prohibits making false or misleading statements about material facts of a security. It is designed to ensure How can creating a false appearance of active trading that investors have accurate information to make be done? informed decisions. 1. Buying and selling a security without a change of Price Pegging, Fixing, or Stabilizing beneficial ownership. The SRC prohibits price manipulation through techniques 2. Two or more parties coordinate to enter but and like pegging, fixing, or stabilizing prices. These practices sell orders simultaneously, creating an illusion of can artificially inflate or deflate a security’s price, a genuine market activity misleading investors. 3. Other similar acts which cover other manipulative What is option trading? tactics. Option trading involves buying and selling contracts that What are the three primary types of market give you the right—but not the obligation—to buy or sell manipulation? something (like a stock) at a specific price (called the strike price) before a specific date (the expiration date). 1. Intentionally inflating the price of a security through a series of transactions to induce others What are devices, schemes, or artifice to defraud? to buy (Price Pumping) 1. Ponzi Scheme — a fake investment plan where 2. Deliberately depressing the price of a security to the organizer promises high returns to investors. induce others to sell However, instead of generating real profits, the money from new investors is used to pay earlier 3. Other manipulative devices such as: MPSHB investors and fund the organizer's personal expenses. a. Marking the Close — influencing the closing price of a security by executing The money in a Ponzi scheme comes from other trades near the market’s closing time investors, not from actual profits. affecting the opening price the following day 2. Pyramid Scheme — relies on participants recruiting others to join. The more people you b. Painting the Tape — executing trades to recruit, the more money you earn, often as a create the illusion of active trading and small cut of their entry fees. price movement Earnings depend on recruiting others, not on c. Squeezing the Float — portion of the selling a product or service. outstanding security is held by dealers to resell them later for profit 3. Pump-and-Dump Scheme — involves inflating a stock's price by spreading false or misleading d. Hype and Dump — promoting the information to attract buyers. Once the price security through false or misleading rises, the schemers sell their shares for a profit. information and then selling it at an After they sell, the stock's price crashes, leaving inflated price others with worthless investments. e. Boiler Room Operations — high-pressure Profits are made by tricking people into sales tactics used to sell fraudulent or overvaluing a stock, then selling before the worthless securities crash. Misleading Information about Price Manipulation What are the exceptions to insider trading? The SRC prohibits the dissemination of false or 1. The insider can show that they did not get the misleading information about market manipulation. It information from their role. targets individuals who spread rumors or false information to influence the price of a security. The goal 2. They can prove the other party knew or was told is to prevent market disturbances caused by this information. misinformation. What is the presumption on insider trading? False or Misleading Statements Transactions made by insiders after obtaining material and 36 of the law. information but before it becomes public are presumed illegal unless the insider can demonstrate their RULING: Yes. The Supreme Court ruled that Sections awareness of the information at the time. 30 and 36 of the Revised Securities Act provided clear standards, making them enforceable even without What is material nonpublic information? additional implementing regulations. It emphasized A material nonpublic information is any significant, that the SEC has the authority to enforce laws against undisclosed information that could affect an investor’s insider trading and disclosure violations as long as the decisions and the market price of securities once it is provisions are clear and do not require further rules for made public. their implementation. When is information considered “material nonpublic?” The court further stated that statutory provisions are binding and effective upon their enactment unless 1. It has not been shared with the public and could explicitly requiring implementing rules or deemed impact the stock’s price once released. vague. The presumption of validity applies to laws, and the absence of implementing rules does not render 2. A reasonable person would find deciding them inoperative. Therefore, the SEC can enforce whether to buy, sell, or hold the stock important. securities laws, including insider trading and disclosure violations, without the need for additional When is it unlawful for an insider to share material implementing rules. nonpublic information? It is illegal for an insider to share material nonpublic What is a broker? information with someone else IF THE INSIDER KNOWS OR BELIEVES THAT PERSON WILL LIKELY USE THAT A broker is a person engaged in the business of buying INFORMATION TO BUY OR SELL THE COMPANY’S and selling securities for the account of others. STOCK. What is a dealer? SEC v. Interport Resources Corporation A dealer is a person who buys and sells securities for his/her own account in the ordinary course of business. FACTS: Interport Resources Corporation (IRC) entered into an agreement with Ganda Holdings Berhad (GHB) What is an associated person? to acquire Ganda Energy Holdings (GEHI). IRC claimed it informed the Securities and Exchange Commission An associated person refers to the employee of a broker (SEC) about the agreement on August 8, 1994, but the or dealer who exercises supervisory authority but does SEC argued that IRC failed to disclose the information not include clerical or ministerial workers. promptly. Reports also surfaced that IRC directors engaged in insider trading before the public What is a salesman? announcement. A salesman is a natural person, employed as such as an After a hearing, the SEC found IRC in violation of the agent, by a dealer, issuer, or broker to buy and sell disclosure rules under the Revised Securities Act. IRC securities. appealed the decision, and the Court of Appeals (CA) Why is it important that registration is required for ruled that the SEC lacked the authority to investigate these roles? and impose sanctions on IRC and its directors. The CA held that the SEC could not initiate legal action under This is a practice that would allow the SRC to achieve its Sections 8, 30, and 36 of the Revised Securities Act state policy to protect investors and eliminate insider because there were no implementing rules and trading and other manipulative devices and practices that regulations for these provisions, and proceeding distort the free market. without them would violate due process and equal protection rights. What are the qualifications for registration of brokers, dealers, salesmen, and associated persons? ISSUE: Whether the Securities and Exchange Commission (SEC) has the authority to investigate and 1. Passing the written examination as to the enforce actions against Interport Resources proficiency and knowledge in the area of activity Corporation (IRC) and its directors for alleged violations for the sought registration. of the Revised Securities Act, despite the absence of implementing rules and regulations for Sections 8, 30, 2. Applicants for brokers and dealers shall satisfy a minimum net capital as prescribed by the SEC,  and provide a bond or other security prescribed 6. If his registration, license, or permit has been by the SEC to secure compliance with the refused, revoked, or suspended by courts or provisions of this Code. administrative bodies. 3. If located outside the country, the applicant must 7. If the registrant/applicant is suspended or file a written consent to the service of process expelled from organizations. upon the Commission. 8. If the registrant/applicant has been found to have How long does the Commission have to review and act willfully violated any provisions of securities, on applications for registration? commodities, banking, real estate or insurance laws, or has willfully aided, abetted, counseled, The Commission is required to review and act on commanded, induced or procured such violation. applications for registration within 30 days. 9. If the registrant/applicant has been judicially What happens to the registration of a salesman or declared insolvent. associated person when they are no longer affiliated with their registered broker, dealer, or issuer? What can lead to the refusal, revocation, or suspension of a broker’s or dealer’s registration? The registration of a salesman or associated person automatically ends when their affiliation with their A broker’s or dealer’s registration can be refused, registered broker, dealer, or issuer ceases. revoked, or suspended if any associated person or any juridical entity controlled by such person has committed What must the registered broker, dealer, or issuer do any act, omission, or is subject to any disability listed after the separation of a salesman or associated under paragraphs (a) to (i) of Subsection 29.1. person? What principle does this section establish? The registered broker, dealer, or issuer must promptly notify the Commission by filing a notice of separation. This section establishes the principle of imputed liability, meaning the misconduct of an associated person can When can the registration of brokers, dealers, result in disciplinary action against the broker-dealer firm salesmen, and associated persons be revoked, refused, itself. or suspended, or limited after due notice and hearing? When are brokers or dealers not allowed to buy or sell 1. If the registrant/applicant has willfully violated the securities listed on an exchange? law which includes any provision of the SRC, any rule, regulation, order, or any law administered by Brokers or dealers cannot buy or sell securities listed on the SEC, or failed to supervise someone to an exchange for themselves or their customers if: commit such violations if he was capable of preventing it. 1. Someone connected to the broker or dealer (like a stockholder, director, associated person, or 2. If the registrant/applicant has willfully lied or have their close relatives) holds an important position made misleading statements in their application in the company that issued the securities (like a for registration, or has willfully omitted facts that director, president, or treasurer); are required to be stated. 2. The broker or dealer is in control of the company 3. If the registrant/applicant has failed to satisfy the that issued the securities. qualifications or requirements. 4. If the registrant/applicant has been convicted of crimes involving moral turpitude, fraud, embezzlement, counterfeiting, theft, estafa, misappropriation, forgery, bribery, false oath, or perjury, or of a violation of securities, commodities, banking, real estate or insurance laws. 5. If the registrant/applicant is banned or restrained by courts or administrative bodies from engaging in securities, commodities, banking, real estate or insurance activities or from willfully violating laws governing such activities.  GROUP 3 7. The board must include the president of the Exchange and ensure that no less than 51% of What is a stock exchange? the remaining members are composed of at least three independent directors and individuals A stock exchange is an organized market for the sale and representing the issuers, investors, and other purchase of securities such as shares, stocks, and bonds. market participants. What are over-the-counter markets? 8. The president and other management of the Exchange must not be members or affiliated with Over-the-counter markets are platforms where securities brokers, dealers, or listed companies for at least are bought and sold directly between parties, without the two years prior to their appointment. involvement of a central exchange. 9. Transactions on the Exchange must be What are the requirements for registering an exchange transparent. with the Commission? 10. Fees and charges must be fairly allocated among 1. An undertaking to comply with and enforce members, issuers, and other people who use the compliance by its members with the provisions of facilities or systems of the Exchange. this Code, its implementing rules and regulations, and the rules of the Exchange. 11. The Exchange must prevent fraudulent and manipulative acts and practices, promote fair 2. The organizational charts of the Exchange, its trade, and protect investors and public interest. rules of procedure, and a list of its officers and members 12. Transactions effected on the Exchange must be cleared and settled transparently, promptly, and 3. Copies of the rules of the Exchange accurately. 4. An undertaking that if a member firm becomes How long must the Commission decide on the insolvent or its financial condition cannot meet application? customer demands, the Exchange, upon the order of the Commission, will take over the The Commission must decide on the application within operations of the insolvent member firm and 90 days of filing, unless the applicant withdraws or settle its liabilities to its customers agrees to extend the review period. When shall the registration of an exchange be granted? When is it unlawful for a member-broker of an Exchange to effect a transaction for their own account 1. The applicant must be organized as a stock or the account of an associated person? corporation. It is unlawful for a member-broker to make a transaction 2. The applicant must operate only as an exchange. on the Exchange for their own account, the account of an 3. No individual can own or control more than 5% of associated person, or an account where they or an the voting rights of the Exchange. No industry or associated person have investment discretion, except for business group can own or control more than the following situations: 20% of the voting rights of the Exchange. 1. The broker is acting as a market maker. 4. The Exchange must have rules to expel, 2. The transaction is necessary for odd-lot suspend, or discipline its members and transactions (buying or selling small quantities of associates for unfair conduct or violations of securities). laws, rules, and regulations. 3. The transaction is made to offset an error in a 5. There must be fair procedures for disciplining previous transaction. members, denying membership, barring a person from associating with a member, and limiting 4. Any other transaction that the Commission access to the services of the Exchange. defines as similar. 6. Brokers on the board of the Exchange must What is an odd-lot transaction? make up no more than 49% of the board and proportionately represent members by trade An odd-lot is an order amount for a security that is less volume/value and paid-up capital. than the normal unit of trading for that particular asset. Odd lots are considered to be anything less than the 1. It has a class of equity securities listed for trading standard 100 shares for stocks. on an exchange. What are the powers of the Commission with respect to 2. It has assets exceeding P50 million. Exchanges and other trading markets? 3. It has at least 200 shareholders, with at least 100 1. Suspension of Trading — The Commission can shares held by 200 or more shareholders. suspend trading in a listed security on any Additionally, the corporation must have at least Exchange or trading market if necessary to two independent directors or independent protect investors and the public interest. directors should make up at least 20% of the board, whichever is fewer. The suspension can last up to 30 days. What are the requirements to be an independent With approval from the President of the director? Philippines, the suspension can be extended to up to 90 days. 1. Not a director or officer or substantial stockholder of the corporation or its related 2. Uniformity of Trading Regulations — The companies. Commission can enforce uniform trading regulations between or among multiple 2. Not a relative of any director, officer or Exchanges or trading markets. substantial stockholder of the corporation or related companies 3. Controlling the Number of Exchanges — The Commission can determine the number, size, and 3. Not acting as a nominee or representative of a location of stock exchanges, trading markets, substantial shareholder commodity exchanges, and similar organizations. 4. Not been employed in any executive capacity by 4. Rules for Clear and Fair Transactions — The that company within the last five years Commission is responsible for creating rules and regulations to ensure the prompt and accurate 5. Not retained as a professional adviser by the clearance and settlement of securities company within the last 5 years transactions. 6. Not engaged and does not engage in any 5. Trust Funds for Investor Protection — The transaction with the corporation or related Commission can establish trust funds, which may companies be contributed by Exchanges, brokers, dealers, underwriters, and other securities participants. When can an independent director be disqualified? These funds are meant to compensate investors 1. He becomes an officer of the corporation where for extraordinary losses or damages due to he is a member of the board. business failures, fraud, or mismanagement. 2. His beneficial security exceeds 10% of the What is an independent director? outstanding capital stock of the company where he is the director. An independent director is a member of a corporation's board of directors who does not have a significant 3. He fails to attend at least 50% of the total relationship with the corporation, its parent, subsidiaries, number of board meetings during his time as an or its officers or employees that could affect their ability officer. to make independent decisions. This person must not be 4. Such other disqualifications which the company’s an officer or employee of the corporation, nor have any manual on corporate governance provides. relationship that could interfere with their ability to exercise independent judgment while performing their What are the powers of the Commission over responsibilities as a director. associations of securities brokers and other self-regulated organizations? When is a corporation required to have independent directors? 1. Power to register as an SRO A corporation is required to have independent directors if 2. Grant licenses it meets the following criteria:  3. Regulate, supervise, examine, suspend, or violated any provision of the SRC for a period not otherwise discontinue, as a condition for the exceeding 12 months. operation of organizations 3. The Commission is authorized to remove from What are the requisites for registration of association of office or censure any officer or director of an brokers and dealers? SRO who is found to have willfully violated any provision of the SRC. 1. The association is so organized and has the capacity to be able to carry out the purposes of What are the powers of a self-regulatory organization the SRC. over its members? 2. The rules of the association provide: 1. An SRO can discipline, suspend, or expel a member, participant, or associated person for a. Any registered broker or dealer may violating fair trade principles or the Code. become a member of the association. 2. An SRO can suspend a member or participant b. A fair representation of its members to who has been expelled from another SRO or is in serve on the Board of Directors financial or operational difficulty, posing a risk to the safety of investors or others. c. The composition of the Board includes: i. President of the association ii. Person who represents the interests of the issuer and public investors (must not be associated with any broker or dealer or member) d. Equitable allocation of reasonable dues and fees e. Prevention of fraudulent and manipulative acts and practices f. Discipline for members and persons associated with the association g. Procedure for disciplining members and persons associated with the association What are the grounds for denial of membership in a registered securities association? 1. Any person who is not a registered broker or dealer 2. If such broker or dealer does not meet the standards of financial responsibility and has engaged in acts inconsistent with just and equitable principles of fair trade. What are the powers of the Commission over self-regulatory organizations? 1. The Commission is authorized to suspend the SRO for a period not exceeding 12 months, to revoke its registration, or impose limitations on its activities, functions, and operations. 2. The Commission is authorized to expel any member of the SRO who is found to have willfully  GROUP 4 3. Copies of the clearing agency’s rules What is a clearing agency? What provisions must be included in the rules of a clearing agency for it to be registered? A clearing agency is any person who acts as intermediary in making deliveries upon payment to effect settlement in 1. Procedures for expelling, suspending, or securities transactions. disciplining participants who violate laws or the agency's rules. What are the types of clearing agencies? 2. Fair procedures for disciplining participants, 1. Clearing Corporations — These are organizations denying participation rights, or restricting access that help settle trades by making sure both to its services. parties involved in the transaction (the buyer and the seller) follow through with their commitments. 3. Equitable allocation of fees and charges among They check and confirm the details of the trades, participants. then ensure the correct transfer of securities and money between the parties. 4. Prevention of fraudulent practices and promotion of fair trading practices to protect investors and 2. Depositories — These are facilities where the public interest. securities (like stocks or bonds) are stored electronically, rather than in physical certificates. 5. Transparent, prompt, and accurate clearance and They keep track of who owns what and make it settlement of transactions. easier to transfer ownership when securities are bought or sold. 6. Establishment of a fund to guarantee the clearance and settlement of transactions, What is an example of a clearing agency in the including contributions from members based on Philippines? their trading volume and risk exposure. Clearing agencies operating as securities depositories are In the Philippines, the clearing agency registered with the exempt from this requirement. SEC is the Securities Clearing Corporation of the Philippines, later herein referred to as “SCCP” or What are uncertificated securities? “Clearinghouse.” Uncertificated securities are shares that are recorded The SCCP is a wholly-owned subsidiary of the Philippine electronically without the need for a physical certificate. Stock Exchange, Inc. (“PSE”). The SCCP serves as a clearing and settlement agency for all Trades executed in Can a corporation issue or transfer shares through the Exchange. uncertificated securities? What is clearing? Yes. Under Section 43, a corporation may issue or transfer shares through uncertificated securities if this is Clearing is the process of determining who is responsible approved by the Board of Directors and provided it is for exchanging the security and/or cash involved in a allowed under the corporation's Articles of Incorporation transaction, and establishing the obligations of each party (AOI) and By-Laws (BLs). However, shareholders or to complete the exchange. investors still have the right to request a physical certificate if needed. What is settlement? What is a book-entry settlement system? Settlement is the final step of a trade on the Philippine Stock Exchange (PSE), where the securities and cash are Book-entry settlement system is a paperless and exchanged according to the quantities or amounts scripless system that eliminates the need for physical determined during the clearing process. certificates and market transfer forms. This was implemented to enable the settlement of securities What are the requirements for application for transactions without requiring the issuance, delivery, or registration of a clearing agency with the SEC? physical transfer of stock certificates. It was designed to resolve issues linked to paper-based systems, including 1. An undertaking to comply with the SRC, SEC’s delays, handling, inefficiencies, high costs, and risks of rules, the rules of the agency, and ensure their fraud. participants do the same What is a clearing agency record? 2. Organizational charts of the agency, their rules of procedure and a list of officers and participants They are official receipts that track all securities trader wants to buy ₱10,000 worth of stock, they can transactions handled by the Clearing Agency. They show provide a ₱5,000 down payment, and the broker will lend all the buying, selling, and transferring of securities the remaining ₱5,000. This allows the trader to purchase between the clearing agency and its participants. stocks worth twice the cash amount they initially provide. Section 44 basically states that the official records and What is the standard for determining the allowable book entries of a Clearing Agency are the best evidence credit for securities? of any transactions between the former and its participants or members. The records are used in The allowable credit is based on whichever is higher of establishing who owns the securities as well as proof of the following: rights or entitlements. 1. 65% of the security's current market price; or What is a pledge? What is pledging a security? 2. 100% of the lowest market price over the past 36 A pledge is a contract where the debtor delivers a months, capped at 75% of the current market movable or incorporeal right to the creditor as security for price an obligation. Pledging a security refers to the act of using a financial instrument—such as shares, bonds, or What types of credit are prohibited under SEC other securities—as collateral to secure the fulfillment of regulations? an obligation, typically a loan or debt. In essence, it is a 1. Securities not in accordance with the SEC’s rules contractual arrangement where the debtor grants the creditor a security interest in these financial instruments, 2. Credit not backed by collateral, or is backed by providing assurance that the debt will be repaid. non-security collateral When is a pledge of a security considered valid? Who is covered by the rules on credit extension for securities transactions? Are there exemptions? A pledge is considered valid if a securities intermediary records the security in a special pledge account in favor The rules apply to anyone extending credit for securities of the creditor. This is treated the same as physically transactions, not just brokers or dealers. However, it does delivering a security or endorsing it in blank. not apply to: What is the power of the Commission with respect to 1. Loans extended by non-business entities securities ownership? 2. Credit for securities distribution outside an 1. Validate the transfer of securities through exchange book-entries instead of physical delivery. 3. Specific cases exempted by the Commission 2. Establish when a person acquires a security or an interest in it and when delivery occurs. What are the restrictions on borrowings by members, brokers, and dealers? 3. Determine which records are the best evidence of ownership and address errors in electronic 1. Allow their total debt, including customers’ credit records. balances, to exceed a percentage of their net capital as set by the Commission, but not more 4. Define the rights of investors who hold securities than 2,000%. indirectly through intermediaries. 2. Pledging, mortgaging, or encumbering customer 5. Set the duties of securities intermediaries, securities if it results in mixing a customer’s including clearing agencies. securities with others without written consent, using them with non-customers, or pledging 6. Prioritize claims of a registered clearing agency them for an amount exceeding the customer’s against participants in case of failure to meet debt. obligations, especially during the participant's dissolution. 3. Lend or arrange to lend a customer’s securities without their written consent or in violation of What is margin trading? Commission rules. Margin trading is the practice of buying stocks using money borrowed from a broker. The trader provides a cash down payment, known as the margin, while the broker lends the remaining amount. For example, if a  sell the securities starting the next trading day but no Abacus Securities Corporation v. Ruben Ampil later than ten trading days after the payment deadline FACTS: Ampil opened a cash trading account with unless justifiable reasons prevent the sale. The broker Abacus Securities Corporation. Ampil had can still recover any deficiency from the customer. accumulated a debt of ₱6,617,036.22 due to his trading To comply with borrowing restrictions, the broker must activities. Despite reminders and extensions, he failed pay the net sales price of securities sold for the customer to settle his debt. Abacus Securities sold Ampil’s within the same period unless otherwise directed. securities to reduce the debt, but he still owed However, the customer must deliver the securities as a ₱3,364,313.56. A demand letter was sent, which Ampil condition for payment when demanded by the broker. acknowledged, requesting more time to pay, but he still failed to do so. Ampil defended himself by claiming that he was led to believe that he did not need to immediately pay for securities purchases, as the broker would wait for a sale to settle the difference, charging him only for any losses or deducting the purchase price from any profits. He argued that Abacus Securities did not follow standard trading rules, particularly the requirement to settle trades within four days. If those rules had been followed, his deficit would have been smaller. He also claimed that the petitioner induced him into risky trades, causing him emotional distress. ISSUE: W/N Abacus Securities, as a broker, has the legal right to recover the remaining debt owed by Ampil RULING: The Supreme Court held that brokers cannot extend credit unless compliant with SEC regulations under Section 23 of the RSA, which prohibits credit for non-margin transactions to prevent excessive speculation. Section 25 and Rule 25-1 require cash account trades to be paid within three business days (T+3). If unpaid, brokers must liquidate the transactions promptly, with a strict obligation to do so within ten trading days. In this case, the broker violated the RSA by failing to liquidate unpaid trades, effectively turning Ampil's cash account into an unlawful credit account. While the broker bears primary responsibility for enforcing margin rules, Ampil is equally at fault. As an experienced trader, he knowingly engaged in speculative trading, repeatedly requested payment extensions, and cannot claim to be an "innocent victim." The broker retains the right to recover payments for initial valid trades but loses the right for subsequent trades due to non-compliance with the RSA. What must a broker or dealer do to prevent indirect violations of margin and borrowing requirements under Sections 48 and 49? For non-margin transactions, the broker must ensure the customer pays for the securities within the period set by the Commission, which cannot exceed the prescribed settlement date. If payment is not made, the broker must  GROUP 5 1. Make, keep, and preserve records as prescribed by the Commission. What does "Controlling Person" mean? 2. Furnish copies of these records when requested. A controlling person refers to an individual or entity that has control over another person through stock 3. Make reports as required by the Commission’s ownership, agency, or other means. They may also have rules and regulations. an agreement or understanding with others to control someone else. 4. Allow examinations by the Commission regarding their records, which may be periodic, special, or What is the liability of a controlling person? otherwise, conducted at any time deemed necessary for the public interest or investor A controlling person is jointly and severally liable, protection. meaning they are equally responsible for the actions of the controlled person under the Securities Regulation What is the obligation of brokers, dealers, or any other Code or related rules and regulations. However, there are person extending credit under the rules of the exceptions: if the controlling person exercises due Commission according to Section 52.2 of the Securities diligence or has no knowledge of the facts that led to the Regulation Code? violation, they may not be liable. Brokers, dealers, or any other person extending credit What are prohibited acts for directors, officers, and are required to submit reports to the Commission. These owners? reports are necessary to enable the Commission to carry out its responsibilities and functions as specified in the Directors, officers, and owners are prohibited from Securities Regulation Code. hindering, delaying, or obstructing the making or filing of any required document, report, or information without What is the definition of "records" under Section 52.3 just cause. However, they are allowed to do so with just of the Securities Regulation Code? cause. "Records" are defined as written or electronic documents What actions are prohibited for any person under that include accounts, correspondence, memoranda, Section 51.4? tapes, discs, papers, books, and other documents or transcribed information of any type. Under Section 51.4, it is prohibited for any person to aid, abet, counsel, command, induce, or procure another What powers does the Commission have during person to violate the provisions of the Securities investigations under Section 53.2 of the Securities Regulation Code. Regulation Code? What is an aider or abettor? 1. Oaths: The Commission administers oaths to ensure truthful statements during investigations. An aider or abettor refers to any person who substantially assists someone who is primarily liable under Sections 2. Subpoenas: They can issue subpoenas, 57, 58, 59, or 60 of the Securities Regulation Code, with compelling witnesses to appear and produce key knowledge and in reckless disregard of the fact that the documents. act or omission is wrongful. 3. Evidence: The Commission gathers all necessary What is the liability of an aider or abettor? evidence to conduct thorough investigations. An aider or abettor is jointly and severally liable, meaning 4. Cease and Desist: They have the authority to they share responsibility for the violation with the primary issue orders that immediately stop illegal violator. The extent of their liability is determined by activities. either their contribution to the damages in comparison to the primary violator or the amount by which they were 5. Compliance/Contempt: The Commission unjustly enriched—whichever is greater will determine enforces compliance, and non-compliance can their share of liability. lead to penalties or contempt charges. What are the obligations of registered entities such as What are the grounds for sanctions under Section 54.1 exchanges, brokers, dealers, transfer agents, clearing of the Securities Regulation Code (SRC)? agencies, and securities associations under Section 52.1 of the Securities Regulation Code? 1. Violating the SRC, its rules, or orders.  2. Failing to adequately supervise operations, Yes, the Commission can agree to a settlement offer particularly by brokers or dealers. based on its findings that the settlement is in the public interest, and the settlement has no legal effect until 3. Making misstatements or omissions in publicly disclosed. This decision can be made without registration statements or reports. determining the guilt of the party making the offer. 4. Refusing to allow lawful examinations as required What are the Commission's responsibilities regarding by regulatory authorities. settlement offers? What are the types of sanctions under Section 54.1 of The Commission is responsible for establishing rules and the Securities Regulation Code (SRC)? procedures that regulate the settlement offer process. These include the filing, review, and evaluation of offers, 1. Suspension or Revocation: Registration for as well as the withdrawal of offers and the forms for offering securities may be suspended or rejecting or accepting them. revoked. Who can sue for damages under Section 56 of the 2. Fines: Fines can range from PHP 10,000 to PHP Securities Regulation Code? 1,000,000, with daily fines for ongoing violations. Any person acquiring a security whose registration 3. Disqualification: Individuals may be disqualified statement contains an untrue statement or omits a from serving as officers or directors if they violate material fact required to be stated, and who suffers certain sections of the SRC. damage, can sue for damages, unless it is proven that they knew about the untrue statement or omission at the 4. Profit-Based Fines: For specific violations, fines time of acquisition. can be up to three times the profit gained or loss avoided. Who can be held liable for false statements in a registration statement? 5. Other Penalties: Additional penalties may be imposed at the Commission's discretion. 1. The issuer and every person who signed the registration statement. Do administrative sanctions prevent criminal charges from being filed? 2. Any director or person performing similar functions, or a partner in the issuer at the time of No, administrative sanctions do not prevent criminal filing. charges from being filed against violators. Both administrative sanctions and criminal charges can be 3. Any person named in the registration statement pursued independently. as a director or partner, whose written consent was filed. Who can propose a settlement offer to the Commission? 4. The auditor or auditing firm that certified financial statements used in the registration statement. The parties under investigation or charged may initiate the settlement procedure and propose a settlement offer 5. Any person who prepared or certified any part of to the Commission. the registration statement, report, or valuation used in connection with it. How should settlement offers be submitted to the Commission? 6. Any selling shareholder who certified a portion of the registration statement. Settlement offers must be submitted in writing to the Commission. 7. Any underwriter with respect to the security. What factors does the Commission consider when What condition must be met for a person to recover evaluating settlement offers? damages if they acquired the security after the income statement was made available? The Commission may consider the timing, nature of the investigation or proceeding, and the public interest when If the person acquired the security after the issuer made evaluating settlement offers. a 12-month income statement available to its security holders, they can only recover damages if they prove that Can the Commission accept a settlement offer without they relied on the untrue statement in the registration determining guilt? statement or relied on the registration statement without knowing of the income statement. Proof of reading the registration statement is not required to establish this What does Section 60 of the Securities Regulation reliance. Code outline regarding civil liability for commodity futures contracts and pre-need plans? What is the role of the income statement in a claim for damages under Section 56? Section 60 establishes that any person who willfully violates rules or regulations issued by the Commission to The income statement covering a period of at least 12 prevent fraud in pre-need plans or fraudulent, months, which is made available to security holders after manipulative, or abusive practices related to commodity the registration statement, affects the right to recovery. A futures contracts is liable for the damages sustained by person can only recover damages if they prove they others affected by such violations. Additionally, the relied on the untrue statement in the registration Commission is responsible for prescribing the necessary statement or the registration statement itself, without proof for recovery and limitations on the amount of knowing about the income statement. damages that may be imposed for such violations. What is a prospectus? What are the civil liabilities for insider trading as outlined in Section 61 of the Securities Regulation A prospectus is a legal document provided by a company Code? to potential investors, containing details regarding a specific investment offering, including risks, financial Section 61 holds insiders or individuals involved in tender information, and other relevant details. offers liable if they engage in securities transactions while possessing material nonpublic information. They are What are the consequences of selling securities with responsible for any damages sustained by investors who false information under Section 57.1? bought or sold the same securities under the same conditions, unless the insider proves that the investor If a person sells securities with false information, they knew the information or would have made the same may be sued by the buyer, especially if the buyer was decision regardless. Additionally, if an insider or a tender unaware of the falsehood. The seller bears the burden of offer participant communicates material nonpublic proving that they were unaware of the falsehood and information, they are jointly and severally liable with the could not have known even with reasonable care. If the individual to whom the information was disclosed if that seller is found liable, they must refund the buyer for the person also engages in a prohibited transaction. security or pay damages if the buyer no longer owns the security. What is the limitation period for bringing an action to enforce liabilities under Sections 56 and 57 of the Under Section 57.2, when can a person avoid liability Securities Regulation Code? for filing false information? Actions to enforce liabilities under Section 56 (false A person can avoid liability under Section 57.2 if they registration statements) or Section 57 (selling securities acted in good faith and did not know about the falsehood with false information) must be brought within two years of the information when filing the report. after the discovery of the untrue statement or omission. If What does Section 58 of the Securities Regulation the action is based on a violation under Subsection Code establish regarding civil liability? 57.1(a), it must be filed within two years after the violation. However, no action can be filed more than five years after Section 58 establishes that any person who engages in the security was offered to the public (for Section 56 or fraudulent acts or transactions in violation of specific Subsection 57.1(a)) or more than five years after the sale sections or SEC rules is liable for the damages sustained (for Subsection 57.1(b)). by others who are affected by such acts, such as those who buy or sell securities based on false or misleading For other provisions under the Code, actions must be information. brought within two years after discovering the facts and within five years after the cause of action accrued. What does Section 59 of the Securities Regulation Code establish regarding civil liability for manipulation of security prices? Section 59 establishes that any person who willfully participates in manipulating security prices, in violation of Section 24, is liable for the damages sustained by others who purchase or sell securities at prices affected by such manipulation. The injured party can sue to recover the damages caused by the manipulated transaction.  GROUP 6 Yes, exemplary damages can be awarded if the violation of the Securities Regulation Code or its rules and What are the two aspects of jurisdiction defined in regulations is characterized by bad faith, fraud, Republic Act No. 8799, also known as the Securities malevolence, or wantonness. Regulation Code (SRC)? Are attorney’s fees awarded in suits under the SRC? If 1. Jurisdiction of the Securities and Exchange so, what is the maximum amount? Commission (SEC) – The SEC has jurisdiction and supervision over all corporations, partnerships, or Yes, the court may award attorney's fees in suits under associations granted primary franchises, licenses, the SRC, with the maximum amount not exceeding 30% or permits by the Philippine Government. It also of the damages awarded. has the power to regulate and impose sanctions for violations of laws, rules, regulations, and Who is liable for the payment of damages in cases orders. The SEC can issue cease-and-desist under Sections 56, 57, 58, 59, 60, and 61 of the SRC? orders to prevent fraud or harm to the investing public. The persons specified in these sections are jointly and severally liable for the payment of damages. This means 2. Jurisdiction of the Regional Trial Court – The SEC that each person can be held responsible for the full transfers its jurisdiction to the appropriate amount of damages, and the court may also allow any Regional Trial Court for cases enumerated in person who pays the full amount to seek contribution Section 5 of Presidential Decree No. 902-A, from others who would have been liable if sued although the SEC retains jurisdiction over separately, unless the person seeking contribution was pending intra-corporate disputes. guilty of fraudulent representation and the other party was not. Can the SEC initiate criminal or civil proceedings? How is the liability shared among those held Yes, the SEC may initiate criminal or civil proceedings for responsible under the SRC? violations of the Securities Regulation Code, provided such violations arise from the same act. Criminal All persons, including the issuer, who are held liable complaints for violations of the SRC and its implementing under the provisions of Sections 56, 57, 58, 59, 60, and rules and regulations are referred to the Department of 61, are required to contribute equally to the total liability Justice (DOJ) for preliminary investigation. If probable adjudged by the court. However, principal stockholders, cause is found, the case is prosecuted before the directors, officers, or persons in similar positions of the appropriate court. However, the SEC can independently issuer cannot recover their contribution from the issuer. initiate civil or criminal proceedings if allowed by law. Nevertheless, the issuer may still recover from the guilty parties the amount it contributed. What happens if the SEC finds a violation of the Securities Regulation Code? Under what circumstances can the Securities and Exchange Commission (SEC) issue a cease and desist If the SEC finds a violation of the Securities Regulation order? Code or related rules and regulations, it may conduct an investigation to determine whether the violation occurred The SEC can issue a cease and desist order after a or is about to occur. If a violation is established, the SEC proper investigation or verification—either on its own can impose sanctions, issue cease-and-desist orders, (motu proprio) or upon a verified complaint by an and, in the case of criminal violations, refer the matter to aggrieved party—if it determines that the act or practice the DOJ for further investigation and prosecution. being investigated, unless restrained, will operate as a fraud on investors or is likely to cause grave or What is the maximum amount of damages that can be irreparable injury to the investing public. awarded in suits to recover damages under Sections 56, 57, 58, 59, 60, and 61 of the Securities Regulation Is a hearing required before the SEC issues a cease and Code (SRC)? desist order? The Regional Trial Court has exclusive jurisdiction to hear No, a hearing is not required before the SEC issues a and decide suits to recover damages under these cease and desist order. The SEC can issue the order sections. The court is authorized to award damages up to without a prior hearing if it finds the situation urgent and three times the amount of the transaction, plus actual harmful to investors. damages. Is the investigation or complaint process confidential Can exemplary damages be awarded under the SRC? before the SEC issues a cease and desist order? Yes, the fact that an investigation has been initiated or any statements or reports filed with it to be true, accurate, that a complaint has been filed, including the contents of or not misleading. It is unlawful to claim that the the complaint, is confidential until the SEC issues a cease Commission's actions or lack of action imply such and desist order. Once the order is issued, it is made approval or findings. However, this does not exempt public. Commission employees or officers from liability for any misconduct, such as nonfeasance, misfeasance, or How can a person subject to a cease and desist order malfeasance, in their official duties. request its lifting? Can the Commission establish accounting rules and A person against whom a cease and desist order has regulations under Section 68 of the Securities been issued may file a formal request for the order to be Regulation Code? lifted within five (5) days of receiving the order. The SEC must set a hearing for this request within fifteen (15) days, Yes, the Commission has the authority under Section 68 and a resolution must be made within ten (10) days of the to establish, amend, and rescind accounting rules and hearing's termination. If the SEC fails to resolve the regulations necessary to implement the provisions of the request within the prescribed time, the order will be Code. Specifically, the Commission can: automatically lifted. 1. Define accounting, technical, and trade terms How is service of summons or other legal processes used in the Code. made upon an issuer or person not domiciled in the Philippines under Section 65 of the Securities 2. Prescribe forms for presenting required financial Regulation Code? information. If an issuer or person is not domiciled in the Philippines, 3. Specify details for financial statements, including service of summons or other legal processes is made balance sheets and income statements. upon the Commission. Upon receipt of the summons, the Commission must transmit a copy of the summons and 4. Set methods for preparing accounts, valuing the complaint or other legal process to the issuer or assets and liabilities, determining depreciation person at their last known address or principal office and depletion, and differentiating between within ten (10) days. The expenses for sending the recurring and non-recurring income. summons are advanced by the party requesting the 5. Distinguish between investment and operating service. Once the Commission sends the summons, income. service is considered complete. 6. Require consolidated financial statements for Under Section 66 of the Securities Regulation Code, entities under common control with the issuer. when can information filed with the Commission be disclosed to the public? Pua v. Citibank Information filed with the Commission can generally be made available to the public upon request during regular FACTS: Jose Pua and Benjamin Pua filed a complaint in office hours. However, it is not required to disclose trade the Regional Trial Court seeking to declare a contract secrets or processes. If an applicant objects to public null and claim damages against Citibank. They claimed disclosure, they may submit a written objection, and the to be depositors at Citibank's Binondo Branch since Commission will review it. Disclosure can occur only 1996. In 1999, the branch manager, Guada Ang, invited when it is necessary for the public interest or investor Jose to a dinner where he met Citibank Hong Kong protection. In such cases, information may be shared for employees. Later, Chingyee Yau, a vice president at a reasonable charge and under limitations set by the Citibank Hong Kong, required Jose to open an account Commission. Additionally, the Commission may provide to purchase securities. After opening the account, Yau assistance to foreign enforcement authorities if they sold several securities to the petitioners, all request it for investigations concerning securities or transactions occurring at Citibank Binondo. commodities violations. Later, the Puas discovered that the securities were not What does Section 67 of the Securities Regulation registered with the Securities and Exchange Code state about the Commission's action or failure to Commission (SEC), and the subscription terms were act? also unsubmitted for SEC approval. They argued that this violated the Securities Regulation Code (SRC), Section 67 clarifies that any action or failure to act by the rendering the agreements invalid. Commission does not mean it has approved or passed judgment on the merits of any security or transaction. In response, Citibank filed a motion to dismiss the Similarly, it does not imply that the Commission has found complaint, claiming that the case should be handled by the SEC first, as it involves potential violations of the Third Party Mutual Funds" (GTPMF) to local residents in SRC regarding unregistered securities. Citibank argued US dollars. These securities were not registered with that the SEC had the primary jurisdiction to investigate the Securities and Exchange Commission (SEC), and these issues. the funds were sent to SCB branches in Hong Kong and Singapore. ISSUE: W/N the action falls within the primary jurisdiction of the SEC. The SEC issued a Cease and Desist Order, stating that SCB's activities violated Sections 4(a)7 and 198 of the RULING: No. The Court pointed out that the Revised Securities Act. respondent mistakenly relied on the Baviera ruling to argue that all complaints involving the Securities The BSP instructed SCB not to include global mutual Regulation Code (SRC) should first go to the SEC. fund investments from abroad in its trust portfolio However, a closer examination of the Baviera case unless registered with the SEC. SCB responded and shows it involved a criminal prosecution for SRC confirmed it would withdraw these products. However, violations, not a civil suit like the current case. SCB continued selling the securities, leading Baviera to invest $8,000 based on SCB’s promise of a 40% return The relevant parts of the Baviera ruling clarify that and a guarantee that his money was safe. After six criminal charges for SRC violations are specialized months, his investment dropped to $7,000. Though he disputes that must be referred to the SEC, which has tried to withdraw, an SCB representative convinced the expertise to handle such matters. The ruling him to wait another six months, hoping for market emphasizes that the enforcement of the SRC is improvement. specifically within the SEC's jurisdiction, and any complaints of a criminal nature must first go through Baviera filed a complaint with the Department of the SEC before reaching the Department of Justice Justice (DOJ) against SCB officials for syndicated (DOJ). estafa, and another for violation of the Securities Regulation Code. The Court clarifies that the provisions of the SRC regarding criminal cases, which require complaints to The DOJ dismissed the case, stating that it should be filed with the SEC first, do not apply to civil cases have been filed with the SEC first. like the one brought by the petitioners. It emphasizes that jurisdiction is defined by law, and since the SRC ISSUE: Whether or not the SEC has jurisdiction over specifically grants regional trial courts exclusive the case. jurisdiction over civil suits arising from its provisions, petitioners were correct to file their complaint directly RULING: Yes. Section 53.1 of the Securities Regulation with the RTC. Code (SRC) allows the Securities and Exchange Commission (SEC) to investigate potential violations of The Court outlines that Sections 56 to 63 of the SRC the SRC and requires all criminal complaints related to delineate civil liabilities, while Section 53 pertains to such violations to first be filed with the SEC. If the SEC criminal liabilities, reinforcing that civil actions are not finds probable cause, it must then forward the case to subject to the same pre-filing requirements as criminal the Department of Justice (DOJ) for preliminary cases. The mandatory language of "shall" in the SRC investigation and prosecution. regarding civil suits indicates a clear legislative intent for such cases to be exclusively heard by regional trial The Court of Appeals ruled that because Baviera failed courts. to follow this process by directly filing his complaint with the DOJ, the DOJ acted properly in dismissing his In conclusion, the petitioners' civil suit against the complaint. The court emphasized that criminal charges respondent for SRC violations was properly filed with under the SRC are specialized disputes and must first the RTC, and the previous rulings suggesting otherwise go through the SEC, which has the expertise to handle were incorrect. complex matters under the law. This requirement aligns with the "doctrine of primary jurisdiction," where administrative bodies with specialized knowledge, such as the SEC, must first resolve issues under their Baviera v. Paglinawan purview. The Securities Regulation Code is a special law. Its enforcement is particularly vested in the SEC. FACTS: Manuel Baviera was the former head of the HR Hence, all complaints for any violation of the Code and Service Delivery and Industrial Relations of Standard its implementing rules and regulations should be filed Chartered Bank-Philippines (SCB). SCB did not follow with the SEC. the BSP's conditions. By 1996, it began acting as a stockbroker, selling foreign securities called "Global In short, the petitioner’s procedural error in bypassing  or liens unless the person involved had actual knowledge the SEC was the reason for the dismissal of his case, of the violation when acquiring them. Additionally, debts, and the DOJ did not abuse its discretion in doing so. obligations, or liens acquired in good faith and without actual knowledge of any violation remain enforceable. Can legal actions under Sections 56 and 57 of the Securities Regulation Code (SRC) be barred by What authority does the Commission have under prescription of action? Section 72 of the Securities Regulation Code? Yes. Actions must be brought within two (2) years after Under Section 72, the Commission has the authority to the discovery of the untrue statement or omission. issue, amend, and rescind rules and regulations necessary to effect the provisions and purposes of the For actions enforcing liability under Subsection 57.1(a), Securities Regulation Code (SRC). This includes defining they must also be filed within two (2) years after the accounting, technical, and trade terms, prescribing the violation occurred. form of required information in registration statements, app Can legal actions under other provisions of the Securities Regulation Code (SRC) be barred by Can the Commission exempt any person or transaction prescription of action? from the provisions of the SRC? Yes. Actions must be brought within two (2) years after Yes, the Commission can conditionally or unconditionally the discovery of the facts constituting the cause of action. exempt any person, security, transaction, or class of persons, securities, or transactions from any or all However, such actions are absolutely barred after five (5) provisions of the SRC through rules or orders, as stated in years from the time the cause of action occurred, Section 72. This exemption allows the Commission to regardless of discovery. address specific circumstances that may not require the full application of the Code. Can a person recover damages in excess of actual damages under the Securities Regulation Code (SRC)? What happens if the Commission fails to issue the necessary rules and regulations? No. A person permitted to maintain a suit for damages cannot recover more than their actual damages through The failure of the Commission to issue rules and one or more actions. regulations does not affect the self-executory nature of the SRC. This means that even without these rules, the Exemplary damages may, however, be awarded in cases provisions of the Code are still enforceable. of bad faith, fraud, malevolence, or wantonness in the violation of the Code or its implementing rules and What penalties are imposed for violating the provisions regulations. of the Securities Regulation Code or its rules and regulations? What can a person do if they disagree with an order issued by the SEC? Any person who violates the provisions of the Securities R