Securities Regulation Code of 2000

Republic Act No. 8799

Approved on July 19, 2000

LANGUAGE AND STATE POLICY

How do you start the study of the SRC? (sec. 3)

Unlike most laws, one cannot immediately jump into the body of the
Securities Regulation Code without familiarizing oneself early with the terms
used in the law. Here are some of them:

(a) Securities (Sec. 3.1)- these are shares, participation or interests in a

corporation or in a commercial enterprise or profit making venture and
evidenced by a certificate, contract, instrument, whether written or electronic
in character. It includes:

(i) shares of stock, bonds, debentures, notes, evidences, of indebtedness,

asset-backed securities;
(ii) investments contracts, certificates of interest or participation in a profit
sharing agreement, certificates of deposit for a future subscription;
(iii) fractional undivided interests in oil, gas or other mineral rights;
(iv) derivatives like options or warrants;
(v) certificates of assignments, certificates of participation, trust certificates,
voting trust certificates or similar instruments;
(vi) proprietary or nonproprietary membership certificates in corporation; and
(vii) Other instruments as may in be future be determined by the
Commission.

The Revised Securities Act (Batas Pambansa Blg. 178, as amended) did not
attempt to define the term “securities” but contented itself with an enumeration of
the various securities included in the term.

(a) Issuer (Sec. 3.2) - it is the originator, maker, obligor, or creator of the
security. Securities statutes have been enacted principally to protect the
investing public from unscrupulous issuers.
(b) Broker (Sec. 3.3) - any person engaged in the business of buying and selling
securities for the account of others. Compare with dealer.
(c) Dealer (Sec. 3.4) - any person who buys and sells securities for his own
account in the ordinary course of business. Compare with a broker.
(d) Clearing Agency (Sec. 3.6) - any person whom acts as intermediary in
making deliveries upon payment to effect settlement in securities
transactions. Just like an exchange, it is the desire of the SEC that a clearing
agency could develop into a self-regulatory organization.
(e) Exchange (Sec. 3.7) - an organized market place or facility that brings
together buyers and sellers and executes trades of securities and/ or
commodities. Unlike the usual over-the-counter market, an exchange has a
physical facility.
(f) Insider (Sec. 3.8)- a very important term, an insider may be:
(i) The issuer;
(ii) A director or office (or a person performing similar functions) of, or a
person controlling the issuer;
(iii) a person whose relationship or former relationship to the issuer gives
or gave him access to material information about the issuer or the
security that is not generally available to the public;
(iv) a government employee, or director, or office of an exchange, clearing
agency and/ or self-regulatory organization who has access to a
material information about an issuer or a security that is not generally
available to the public; or
(v) A person who learn such information by a communication from any of
the foregoing insiders.

One is not prohibited from being an insider. It is not a crime. It is a status.

An insider starts to get into trouble when he acts upon the material nonpublic
information he has and busy or sells shares or, under Section 27.3,
communicates such information to another knowing or having reason to believe
that such person will likely buy or sell a security.

THE FINANCIAL MARKETS

The Securities Regulation Code (SRC) may be better understood if the

environment in which it exits could be described briefly. The SRC deals with
securities and these securities are, in general, issued in financial markets. These
markets are described below (see a Guide to the Financial Markets by Charles
R. Geist, The Macmillan Press Ltd., 1982):

Capital markets are the places to go if you want to raise new money.

(a) Equity capital (for the investor, the stock market provides a variable
return)
(i) Stock market (Security= shares of stock)

(b) Debt capital (for the lender, the money or the bond market provides a
fixed return)
(i) Money market (for short term depts., i.e., those normally maturing
within one year from date of issuance; security= commercial papers)
(ii) Bond market (for long-term depts., i.e., those normally maturing
after a year from date of issuance; security= junk bonds)

Non capital markets are the places to go if you want to hedge or mitigate
the risks attached to holding capital assets.

(a) Commodity market- the instruments traded in this market are not
present assets like shares of stock, commercial papers or bonds but
future contracts calling for delivery of an asset such as agricultural
products, metals and financial instruments. For this reason, a
commodity market is usually referred to as a futures market. (security=
futures contracts)

(b) Foreign exchange market- this market is an over the counter market
conducted by international banks and does not have a central location.
(security= forward exchange contracts)
 (c) Options market- it enables an investor to purchase an option giving
him the right to buy or sell a specific number of shares at a future date,
at a specific price. For the right, the investor either pays or receives
money but (just like in a commodity market) the money involved is only
a fraction of the market value of the shares concerned. (Security= call
or puts options)

The Securities Regulation Code (R.A. No. 8799)

(Questions and Answers)

Q. What is the state policy that impelled the enactment of the Securities
Regulation Code ?

A. The State policy that impelled the enactment of the Securities Regulation
Code
a. To establish a socially conscious, free market that regulates itself,
b. Encourage the widest participation of ownership in enterprises,
c. Enhance the democratization of wealth,
d. Promote the development of the capital market,
e. Protect investors,
f. Ensure full and fair disclosure about securities,
g. Minimize if not totally eliminate insider trading and other fraudulent or
manipulative devices and practices which create distortions in the free market.
(Sec. 2, SRC)

The above also answers the questions:

What is the principal purpose of laws and regulations governing securities

in the Philippines?

What are the main purposes of the Securities Regulation Code?

Q. What are the powers and functions of the Securities and Exchange
Commission ?

A. The Commission shall have the powers and functions provided by the
Securities Regulation 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:
a) Have jurisdiction and supervision over all corporations, partnerships or
associations who are the grantees of primary franchises and/or a license or
permit issued by the Government.
b) Formulate policies and recommendations on issues concerning the
Securities market, advise Congress and other government agencies on all
aspects of the securities market and propose legislation and amendments
thereto;
c) Approve, reject, suspend, revoke or require amendments to registration
statements, and registration and licensing applications;
d) Regulate, investigate or supervise the activities of persons to ensure
compliance;
e) Supervise, monitor, suspend or take over the activities of exchanges,
clearing agencies and other SROs;
f) Impose sanctions for the violation of laws and the rules, regulations
and orders issued pursuant thereto;
 g) Prepare, approve, amend or repeal rules, regulations and orders, and
issue opinions and provide guidance on and supervise compliance with such
rules, regulations and orders;
h) Enlist the aid and support of and/or deputize any and all enforcement
agencies of the Government, civil or military as well as any private institution,
corporation, firm, association or person in the implementation of its powers and
functions under this Code;
i) Issue cease and desist orders to prevent fraud or injury to the investing
public;
j) Punish for contempt of the Commission, both direct and indirect, in
accordance with the pertinent provisions of and penalties prescribed by the Rules
of Court;
k) Compel the officers of any registered corporation or association to call
meetings of stockholders or members thereof under its supervision;
l) Issue subpoena duces tecum and summon witnesses to appear in any
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 may be
necessary for the proper disposition of the cases before it, subject to the
provisions of existing laws;
m) Suspend, or revoke, after proper notice and hearing the franchise or
certificate of registration of corporations, partnerships or associations, upon any
of the grounds provided by law; and
n) Exercise such other powers as may be provided by law as well as
those which may be implied from, or which are necessary or incidental to the
carrying out of, the express powers granted the Commission to achieve the
objectives and purposes of these laws. (Sec. 5.1, SRC)

Q. What is a public company ?

A. Any corporation
a) with a class of equity securities listed on an Exchange or
b) with assets in excess of Fifty Million Pesos (P50,000,000.00) and
having two hundred (200) or more holders, at least two hundred (200) of
which are holding at least one hundred (100) shares of a class of its equity
securities. (SRC Rule 3.1.i)

Q. What is a Self Regulatory Organization or SRO ?

A. An organized Exchange, registered clearing agency and any organization or

association registered as an SRO under the provisions of the Securities
Regulation Code to enforce compliance with relevant provisions of the Code and
rules and regulations adopted thereunder, and mandated to make and enforce its
own rules, which have been approved by the Securities and Exchange
Commission, by their members and/or participants. (SRC Rule 3.1.j)

Q. What is an Exchange ?

A. “Exchange” is an organized market-place or facility that brings together buyers

and sellers and executes trades of securities and/or commodities. (Sec.3.7 SRC)
Q. What is a fraudulent transaction ?

A. The purchase of sale of any securities to engage in any act, transaction,

practice, or course of business which operates or would operate as a fraud or
deceit upon any person.

Fraud here is akin to bad faith which implies a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral obliquity; it is unlike
that of the negative idea of negligence in that fraud or bad faith contemplates a
state of mind affirmative operating with furtive objectives. (Securities and
Exchange Commission vs. Court of Appeals, et al., G.R. Nos. 106425 & 106431-
32, July 21, 1995, Third Division)

Q. What are considered as manipulative practices relative to securities

trading ?

A. It shall be unlawful for any person acting for himself or through a dealer or
broker, directly or indirectly:

a) To create a false or misleading appearance of active trading in any

listed security traded in an Exchange or any other trading market:
(i) By effecting any transaction in such security which involves no
change in the beneficial ownership thereof;
(ii) By entering an order or orders for the purchase or sale of such
security with the knowledge that a simultaneous order or orders of
substantially the same size, time or price, for the sale or purchase of any
such security, has or will be entered by or for the same or different parties;
or
(iii) By performing similar acts where there is no change in
beneficial ownership.

b) To effect, alone or with others, a series of transactions in securities

that:
(i) Raises their price to induce the purchase of a security, whether
of the same or a different class of the same issuer or of a controlling,
controlled, or commonly controlled company by others;
(ii) Depresses their price to induce the sale of a security, whether
of the same or a different class, of the same issuer or of a controlling,
controlled, or commonly controlled company by others; or
(iii) Creates active trading to induce such a purchase or sale
through manipulative devices such as marking the close, painting the
tape, squeezing the float, hype and dump, boiler room operations
and such other similar devices.

c) To circulate or disseminate information that the price of any security

listed in an Exchange will or is likely to rise or fall because of manipulative market
operations of any one or more persons conducted for the purpose of raising or
depressing the price of the security for the purpose of inducing the purchase or
sale of such security.

d) To make false or misleading statement with respect to any material

fact, which he knew or had reasonable ground to believe was so false or
misleading, for the purpose of inducing the purchase or sale of any security listed
or traded in an Exchange.
 e) To effect, either alone or others, any series of transactions for the
purchase and/or sale of any security traded in an Exchange for the purpose of
pegging, fixing or stabilizing the price of such security; unless otherwise allowed
by the Securities Regulation Code or by rules of the SEC. (SRC Rule 24.1,
arrangement and rewording supplied)

Q. What are some of the non-exclusive examples of types of prohibited

conduct considered as manipulation of stock market prices?

A.
a. 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. [SRC Rule 24.1 (b) 1.5 (a)]

b. Marking the close. Buying and selling securities at the close of the
market in an effort to alter the closing price of the security. [SRC Rule 24.1 (b)
1.5 (b)]

c. Improper matched orders. Engaging in transactions where both the

buy and sell orders are entered at the same time with the same price and
quantity by different but colluding parties. [SRC Rule 24.1 (b) 1.5 (c)]

d. Hype and dump. Engaging in buying activity at increasingly higher

prices and then selling securities in the market at the higher prices. [SRC Rule
24.1 (b) 1.5 (d)]

e. Wash sales. Engaging in transactions in which there is no genuine

change in actual ownership of a security. [SRC Rule 24.1 (b) 1.5 (e)]

f. Squeezing the float. Taking advantage of a shortage of securities in

the market by controlling the demand side and exploiting market congestion
during such shortages in a way as to create artificial prices. [SRC Rule 24.1 (b)
1.5 (f)]

g. Disseminating false or misleading market information through media,

including the internet, or any other means to move the price of a security in a
direction that is favorable to a position held or a transaction. [SRC Rule 24.1 (b)
1.5 (g)]

Q. Who is an insider ?
A.
a. The issuer;
b. A director or officer of, or a person controlling, controlled by, or under
common control with, the issuer,
c. A person whose relationship or former relationship to the issuer gives
or gave him access to a fact of special significance about the issuer or the
security that is not generally available, or
d. A person who learns such a fact from any of the foregoing insiders with
knowledge that the person from whom he learns the fact is such an insider. (Sec.
3.8, SRC)
Q. Who is a promoter?

A. “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 therefor. ( Sec 3.10 SRC)

Q. Who is an underwriter ?

A. “Underwriter” is a person who guarantees on a firm commitment and /or

declared best effort basis the distribution and sale of securities of any kind by
another company. ( Sec. 3.15, SRC)

Q. What is a prospectus?

A. “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. (Sec. 3.11 SRC)

Q. Who is a broker?

A. “Broker” is a person engaged in the business of buying and selling securities

for the account of others. (Sec. 3.3 SRC)

Q. Who is a dealer?

A.“Dealer” means any person who buys and sells securities for his/her own
account in the ordinary course of business. (Sec. 3.4 SRC)

Q. What is a "fact of special significance" ?

A.
a. One which in addition to being material, would be likely to affect the
market price of a security to a significant extent on being made generally
available
b. One which a reasonable person would consider especially important
under the circumstances in determining his course of action in the light of such
factors as the degree of its specificity, the extent of its difference from information
generally available previously and is nature and reliability.

Q. What are securities ?

A. These are shares, participation or interests in a corporation or in a commercial

enterprise or profit-making venture and evidenced by a certificate, contract,
instrument, whether written or electronic in character. (1st par., Sec. 3.1, SRC)

Q. Examples of securities ?

A.
a) Shares of stock, 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 nonproprietary membership certificates in corporations;
and
g) Other instruments as may in the future be determined by the
Commission. (Sec. 3.1 SRC)

Q. What are over-the-counter securities ?

A. These are securities sold without passing through the stock exchange.

Over-the-counter markets. Markets made or created for the purchase and sale
of securities other than on a stock exchange.

Q. What is meant by the registration requirement for securities ?

A. The requirement that securities shall not be sold or offered for sale or
distribution within the Philippines, without a registration statement duly filed with
and approved by the SEC. Prior to such sale, information on the securities, in
such form and with such substance as the SEC may prescribe, shall be made
available to each prospective purchaser. (Sec. 8.1, SRC)

Q. What are exempt securities ?

A. Those that do not require registration either because the law itself exempts
them therefrom or the Securities and Exchange Commission finds that the
enforcement of the registration requirement is not necessary in the public interest
and for the protection of the investors by reason of the amount involved or the
limited character of the public offering.

Q. Examples of exempt securities.

A.
a) Any security issued or guaranteed by the Government of the
Philippines, or by any political subdivision or agency thereof, or by any person
controlled or supervised by, and acting as an instrumentality of said Government.
b) Any security issued or guaranteed by the government or any country
with which the Philippines maintains diplomatic relations, or by any state,
province or political subdivision thereof on the basis of reciprocity: Provided, That
the Commission may require compliance with the form and content of disclosures
the Commission may prescribe.
c) Certificates issued by a receiver or by a trustee in bankruptcy duly
approved by the proper adjudicatory body.
d) Any security 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 Regulatory Board, or the Bureau of Internal Revenue.
e) Any security issued by a bank except its own shares of stock. (Sec.
9.1 SRC)
The Commission may, by rule or regulation after public hearing, add to
the foregoing any class of securities if it finds that the enforcement of this Code
with respect to such securities is not necessary in the public interest and for the
protection of investors. (Sec. 9.2 SRC)
Q. What transactions are exempt ?

A. Sale of any security in any of the following transactions:

a) At any judicial sale, or sale by an executor, administrator, guardian or
receiver or trustee in insolvency or bankruptcy.
b) By or for the account of a pledge holder, or mortgagee or any other
similar lien holder selling or offering for sale or delivery in the ordinary course of
business and not for the purpose of avoiding the provisions of this Code, to
liquidate a bona fide debt, a security pledged in good faith as security for such
debt.
c) An isolated transaction in which any security is sold, offered for sale,
subscription or delivery by the owner thereof, or by his representative for the
owner’s account, such sale or offer for sale subscription or delivery not being
made in the course of repeated and successive transactions of a like character
by such owner, or on his account by such representative and such owner or
representative not being the underwriter of such security.
d) The distribution by a corporation, actively engaged in the business
authorized by its articles of incorporation, of securities to its stockholders or other
security holders as a stock dividend or other distribution out of surplus.
e) The sale of capital stock of a corporation to its own stockholders
exclusively, where no commission or other remuneration is paid or given directly
or indirectly in connection with the sale of such capital stock.
f) The issuance of bonds or notes secured by mortgage upon real estate
or tangible personal property, where the entire mortgage together with all the
bonds or notes secured thereby are sold to a single purchaser at a single sale.
g) The issue and delivery of any security in exchange for any other
security of the same issuer pursuant to a right of conversion entitling the holder
of the security surrendered in exchange to make such conversion: Provided, That
the security so surrendered has been registered under this Code or was, when
sold, exempt from the provision of this Code, and that the security issued and
delivered in exchange, if sold at the conversion price, would at the time of such
conversion fall within the class of securities entitled to registration under this
Code. Upon such conversion the par value change shall be deemed the price at
which the securities issued and delivered in such exchange are sold.
h) Broker’s transactions, executed upon customer’s orders, or any
registered Exchange or other trading market.
i) Subscriptions for shares of the capital stock of a corporation prior to the
incorporation thereof or in pursuance of an increase in its authorized capital stock
under the Corporation Code, when no expense is incurred, or no commission,
compensation or remuneration is paid or given in connection with the sale or
disposition of such securities, and only when the purpose for soliciting, giving or
taking of such subscription is to comply with the requirements of such law as to
the percentage of the capital stock of a corporation which should be subscribed
before it can be registered and duly incorporated, or its authorized capital
increased.
j) The exchange of securities by the issuer with its existing security
holders exclusively, where no commission or other remuneration is paid or
given directly or indirectly for soliciting such exchange.
k) The sale of securities by an issuer to fewer than twenty (20) persons in
the Philippines during the twelve-month period.
l) The sale of securities to any number of the following qualified buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
 (iv) Pension fund or retirement plan maintained by the Government
of the Philippines or any political subdivision thereof or managed by a bank or
other persons authorized by the Bangko Sentral to engage in trust functions.
(v) Investment company; or
(vi) Such other person as the Commission may by rule determine
as qualified buyers, on the basis of such factors as financial sophistication, net
worth, knowledge, and experience in financial and business matters, or amount
of assets under management. (Sec. 10.1 SRC)

Q. What are the grounds for SEC to reject and revoke registration of
securities ?

A. If SEC finds that:

(a) The issuer:

(i) Has been judicially declared insolvent;
(ii) Has violated any of the provisions of the Securities Regulation
Code, the rules promulgated pursuant thereto, or any order of the SEC of
which the issuer has notice in connection with the offering for which a
registration statement has been filed;
(iii) Has been or is engaged or is about to engage in fraudulent
transactions;
(iv) Has made any false or misleading representation of material
facts in any prospectus concerning the issuer or its securities;
(v) Has failed to comply with any requirement that the SEC may
impose as a condition for registration of the security for which the
registration statement has been filed; or

(b) The registration statement is on its face incomplete or inaccurate in

any material respect or includes any untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; or

(c) The issuer, any officer, director or controlling person of the issuer, or
person performing similar functions, or any underwriter 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
SEC or other competent judicial or administrative body for violations of securities,
commodities, and other related laws. (Sec. 13, SRC arrangement and rewording
supplied)

Q. What are the grounds for suspension of the registration of securities ?

A.
a. The SEC may also suspend the right to sell and offer for sale such
security pending further investigation, by entering an order specifying the
grounds for such action, and by notifying the issuer, underwriter, dealer or broker
known as participating in such offering.

b. The SEC may also suspend upon a refusal of the issuer upon order of
the SEC to furnish such further information as may in its judgment be necessary
to enable the SEC to ascertain whether the registration of such security should
be revoked:
 1) If at any time, the information contained in the registration
statement filed is or has become
a) misleading,
b) incorrect,
c) inadequate or incomplete in any material respect, or
2) the sale or offering for sale of the security registered thereunder
may work or tend to work a fraud,

Upon the issuance of any such order and notification to the issuer,
underwriter, dealer or broker known as participating in such offering, no further
offer or sale of any such security shall be made until the same is lifted or set
aside by the Commission. Otherwise, such sale shall be void. (Sec. 15 SRC
numbering and arrangement supplied)

Q. What is a commodity futures contract ?

A. Commodity futures contract means a contract providing for the making or

taking delivery at a prescribed time in the future of a specific quantity and quality
of a commodity or the cash value thereof, which is customarily offset prior to the
delivery date, and includes standardized contracts having the indicia of
commodities futures, commodity options and commodity leverage, or margin
contracts. ( SRC Rule 11.1.1)

Q. What is a commodity ?

A. Commodity means any goods, articles, services, rights and interests, including
any group or index of any of the foregoing, in which commodity interests
contracts are presently or in the future dealt in. ( SRC Rule 11.1.2)

Q. What is a forward contract in commodity transactions ?

A. This is a contract between a buyer and a seller whereby the buyer is obligated
to take delivery and the seller is obliged to make delivery of a fixed amount of an
underlying commodity at a pre-determined price and date. Payment in full is due
at the time of delivery. ( SRC Rule 11.1.3)

Q. What is a derivative ?

A. With respect to equity securities a financial instrument, including options and

warrants, whose value depends on the interest in or performance of an
underlying security, but does not require any investment of principal in the
underlying security. (SRC Rule 3.1.1.2)

Q. What are options ?

A. These are contracts that give the buyer the right, but not the obligation, to buy
or sell an underlying security at a predetermined price, called the exercise or
strike price, on or before a predetermined date, called the expiry date, which can
only be extended in accordance with Exchange rules. (SRC Rule 3.1.1.2.a)

Q. What is a strike price ?

A. The predetermined buying or selling price of an underlying security under an

option. (SRC Rule 3.1.1.2a)
Q. What is an expiry date ?

A. The predetermined date for buying or selling an underlying security under an

option. (SRC Rule 3.1.1.2a)

Q. What are the different kinds of options ?

A. A call option and a put option.

Q. What are call options ?

A. A contract that gives the buyer the right, but not the obligation to buy an
underlying security at a predetermined price on or before a predetermined date.
(SRC Rule 3.1.1.2.a.b.)

Q. What are put options ?

A. A contract that gives the seller the right, but not the obligation to sell an
underlying security at a predetermined price on or before a predetermined date.
(SRC Rule 3.1.1.2.a.b.)

Q. What is meant by a straddle ?

A. Straddle involves the purchase of an equal number of put options and call
options on the same underlying security at the same strike price and maturity
date. Each option may be exercised separately, although the combination of
options is usually bought and sold as a unit. ( SRC Rule 25.1.2)

Q. What is a block sale ?

A. A block sale shall mean a matched trade that does not go through the
automated order matching system of an Exchange trading system but instead
has been pre-arranged by and among the Broker Dealer’s clients and is then
entered as a done deal directly into the trading system. ( SRC Rule 30.2-8.2)

Q. What are Chinese Walls ?

A. The proper segregation of functions within a firm by any Broker Dealer which
assumes more than one function whether as a dealer, adviser, or underwriter, or
which engages in market making transactions to prevent:

a. the flow of information between the different parts of its organization

which perform each function; and

b. any conflict of interest which may result.

A Broker Dealer shall at all times ensure that its trading functions and
back-office settlement functions are properly segregated and shall establish
written procedures to ensure compliance with this Rule. ( SRC Rule 34.1-3,
arrangement supplied)
Information defined.

A. Information:
1) of a specific nature which has not been made public; and
2) relating to one or more public companies or any securities of a
public company; and
3) which, if it were made public, would likely affect the market price
of the securities. ( SRC Rule 34.1-3)

The IRR shall be interpreted in accordance with the purposes of the Securities
Regulation Code, as follows:

 Beneficial owner or beneficial ownership means any person who, directly or

indirectly, through any contract, arrangement, understanding, relationship or
otherwise has or shares: voting power of such security; and/or investment returns or
power, which includes the power to dispose of such security.

 Public company means any corporation with a class of equity securities listed on an
Exchange or with assets in excess of P50,000,000.00 and having 200 or more
holders, at least 200 of which are holding at least 100 shares of a class of its equity
securities.

 Self-Regulatory Organization or SRO means an organized Exchange, registered

clearing agency and any organization or association registered as an SRO.

 An investment contract means a contract, transaction or scheme where a person

invests his money in a common enterprise and is led to expect profits primarily from
the efforts of others.

a. A presumption that a contract is an investment contract arises whenever a

person seeks to use the money of others on the promise of profits.

b. When two or more investors “pool” their resources, there is a common enterprise,
even if the promoter does not do more than receive a broker’s commission.

 Derivative with respect to equity securities, means a financial instrument, including

options and warrants, whose value depends on the interest in or performance of an
underlying security, but which does not require any investment of principal in the
underlying security.

 Options are contracts that give the buyer the right, but not the obligation, to buy or
sell an underlying security at a predetermined price, called the “exercise or strike
price,” on or before a predetermined date, called the expiry date, which can only be
extended in accordance with Exchange rules.

 Call options are rights to buy and put options are rights to sell.

 Warrants are rights to subscribe or purchase new shares or existing shares in a

company, on or before a predetermined date, called the expiry date, which can only
be extended in accordance with Exchange rules.

Warrants generally have a longer exercise period than options.

 Facility of an Exchange includes systems, processes or services, tangible or

intangible property, whether or not in a specific physical location or in an Exchange,
for the purpose of effecting transactions between buyers and sellers in a securities
trading market, and conveying any information required by the participants to effect
such transactions.