NATURE OF SRC KINDS OF SECURITIES

The SRC is the law that regulates securities 1. Debt instruments – bonds, debentures,
and the person who deals with such notes, evidence of indebtedness, asset-
securities.
backed securities.


It is enacted to protect the public from Asset-backed securities (ABS) - These are
unscrupulous promoters, who stake financial securities the value of which
business or venture claims which have really depends on the assets underlying it. For
no basis, and sell shares or interests therein investors, ABS are alternative to investing in
to investors.
corporate debt. An ABS is essentially the
It also serves to protect investors, promote same thing as a mortgage-backed security,
investor confidence, and stabilize the except that the securities backing it are
financial markets.
assets such as loans, leases, credit card
debt, a company’s receivables, royalty and
The law does not guarantee that a person so on, and not mortgaged-based securities,
who invests in securities will make money. hence, the risk involved in ABS is greater.

The law only ensures that there will be a fair

and full disclosure of information regarding 2. Other instruments as may in the future be
securities so that the investor could make an determined by the SEC.

informed judgment

3. Derivatives – options and warrants

STATE POLICY OPTIONS

1. Establish a socially-conscious free market
Contracts that give the buyer the right, but
that regulates itself.

not the obligation, to buy or sell an

2. Encourage widest participation of
underlying security at a predetermined price
ownership in enterprises.

called the exercise or strike price, on or

3. Enhance democratization of wealth.

before a predetermined date, called the

4. Promote development of the capital
expiry date, which can only be extended in
market.

accordance with Exchange rules

5. Protect investors.



6. Ensure full and fair disclosure about
securities.
KINDS OF OPTIONS
7. Minimze, if not totally eliminate, insider a. Call option – option to buy

trading and other fraudulent or manipulative b. Put option – option to sell

devices and practices which creates c. Straddle – combination of both call and
distortion in the free market.
put option. 


The Securities Regulation Code is called a “ WARRANTS

truth in securities law “ because it requires right to subscribe or purchase new shares or
the issuer to make full and fair disclosure of existing shares in a company, on or before a
information about securities being sold or predetermined date called the expiry date,
offered to be sold within the Philippines and which can only be extended in accordance
penalizes manipulative and fraudulent acts, with Exchange rules. Warrants generally
devices and schemes
have a longer exercise period than options.

INVESTMENT INSTRUMENTS
SECURITIES

Investment contracts, fractional undivided
Securities are shares, participation or
interests in oil, gas, or other mineral rights. 

interests in a corporation or in a commercial
enterprise, evidenced by a certificate,
contract, instrument, whether written or
electronic in character.

INVESTMENT CONTRACT Prior to the sale, the information on the

is a contract or scheme whereby a person securities shall be made available to each
invests his money in a common enterprise prospective purchaser

and is led to expect profits from the efforts of

others
GR: Securities must be registered with and
approved by SEC.

HOWEY TEST
For an investment contract to exist, the REASON: To protect the public from fraud.

following elements must concur:

a. A contract, transaction or scheme;

XPNs: The following need not be registered:

b. An investment of money;
1. Exempt securities; and

c. Investment is made in a common 2. Securities sold in exempt

enterprise;
transactions. 

d. Expectation of profits; and

e. Profits arising primarily from the effort of XPN TO XPN: SRC provides that the resale
others. 
 of securities previously sold in an exempt
transaction must be registered.

NETWORK MARKETING
a scheme adopted by companies to get EFFECT OF NON REGISTRATION
people to buy their products outside the The issuer would be penalized. Issuers of
usual retail system where products are securities not registered shall be subjected
brought from the store’s shelf and where the to criminal, civil and administrative charges.

buyer can become a down-line seller,

earning commissions from purchases made It carries also civil liabilities in that the
by new buyers whom he refers to the person purchaser can recover from the seller

who sold the product to him

(i) the consideration paid with interest
thereon, less the amount of any income
The commissions are incentives to down-line received on the purchased securities, upon
sellers to bring in other customers. These the tender of such securities, or

can hardly be regarded as profits from (ii) damages if the purchaser no longer owns
investment of money under the Howey Test
such securities.

Furthermore, the SEC may issue a cease and

EQUITY INSTRUMENTS desist order.

Shares of stock, certificates of interest or

participation in a profit sharing agreement, VALIDITY OF THE SALE OF SHARES
certificates of deposit for a future ACQUIRED 12 MONTHS AFTER
subscription, proprietary or non-proprietary APPROVAL OF REGISTRATION
membership certificates in corporations. 
 STATEMENT
If the person who acquired the security sued
TRUST INSTRUMENTS for recovery of damages after the issuer has
Certificates of assignments, certificates of made generally available to its security
participation, trust certificates, voting trust holders an income statement covering a
certificates or similar instruments 
 period of at least 12 months beginning from
the effective date of the registration
REQUIREMENT BEFORE SECURITIES statement, then the right of recovery shall be
ARE SOLD OR OFFERED FOR SALE OR conditioned on proof that such person who
DISTRIBUTION WITHIN THE PHILIPPINES acquired the security relying upon such
They are required to be registered with and untrue statement in the registration
approved by the SEC.
statement or relying upon the registration
statement and not knowing of such income
Registration also includes the disclosure to statement, but such reliance may be
SEC of all material and relevant information established without proof of the reading of
about the issuer of the security.
the registration statement by such person

SECURITIES MARKET PROFESSIONALS 2. Any security issued or guaranteed by the

(persons who deal with securities)
government of any Country with which the
1. Broker – A person engaged in the Philippines maintains diplomatic relations on
business of buying and selling securities for the basis of reciprocity.

the account of others

2. Dealer– Any person who buys and sells 3. Certificates issued by a Receiver or by a
securities for his/her own account in the trustee in bankruptcy

ordinary course of business

3. Associated person of a broker or dealer – 4. Any security or its derivatives the sale or
He is an employee of a broker or dealer who transfer of which is under the supervision
directly exercises control of supervisory and regulation of the Office of Insurance
authority, but does not include a salesman, Commission, Housing and Land Use
or an agent, or a person, whose functions Regulatory Board, or the Bureau of Internal
are solely clerical or ministerial
Revenue. (OIC, HLURB or BIR)

4. Salesman – He is a natural person,
employed as such, or as an agent, by a 5. Any security issued by a Bank except its
dealer, issuer or broker to buy and sell own shares of stock

securities; but for the purpose of registration,
shall not include any employee of an issuer 6. Other securities as determined by the SEC

whose compensation is not determined
directly or indirectly on sales of securities of Being an issuer of an exempt security does
the issuer
NOT exempt such issuer from the
requirement of submission of reports under
OBLIGATION OF THE BROKER TO HIS the regime of full and fair disclosure.

CLIENT
The primary obligation of the broker is to RATIONALE: The listed securities are
ensure his account’s compliance with the law
exempted because they are either
guaranteed by the government or they are
Since a brokerage relationship is essentially already regulated by another government
a contract for the employment of an agent, agency or body other than the SEC.

the law on contracts governs the broker-

principal relationship.
EXEMPT TRANSACTIONS

1. Any Judicial sale, or sale by an executor,

REGISTRATION OF SECURITY administrator, guardian, receiver or trustee in
insolvency or bankruptcy.

MARKET PROFESSIONALS 

Security market professionals are required to
2. Those sold by a pledge holder, mortgagee,
be registered. No broker shall sell any
or any other similar lien holder

securities unless he is registered with the



SEC

3. Those sold or offered for sale in an

Isolated transaction for the owner’s account
An unlicensed person may not recover and the owner not being an underwriter. 

compensation for services as a broker where
a statute or ordinance is applicable and such 4. Distribution by the corporation of
is of a regulatory nature
Securities to its stock holders


EXEMPT SECURITIES 5. Sale of Capital stock of a corporation to

1.Security issued or guaranteed by the its own stockholders exclusively wherein no
Government or by any political subdivision or commission is paid directly or indirectly

agency thereof, or by any person controlled
or supervised by, and acting as an 6. Bonds or notes secured by a mortgage
instrumentality of said government.
upon Real estate or tangible personal
property, where the entire mortgage together
with all the bonds or notes secured thereby 12. Sale of securities to any number of
are sold to a single purchaser at a single Qualified Buyers:

sale.
a. banks;


 b. registered investment houses;

7. Issue and delivery of any security in c. insurance companies;

exchange for any other security of the same d. pension funds or retirement plans
Issuer pursuant to the right of conversion
 maintained by the Government or managed
by a bank or other persons authorized by the
8. Broker’s transactions executed upon Bangko Sentral to engage in trust functions,
customer’s Orders, on any registered investment companies;

Exchange or Trading market. 
 e. investment companies; and

f. other persons or entities ruled qualified by

9. Share Subscriptions in capital stock prior the SEC on the basis of such factors such as
to incorporation or in pursuance of an financial sophistication, net worth,
increase in its authorized capital stock under knowledge, and experience in financial and
the Corporation Code when no expense is business matters, or amount of assets under
incurred, or no commission, compensation management 

or remuneration is paid or given in
connection with the sale or disposition of RATIONALE: Although the securities
such securities, and only when the purpose themselves must still be registered, the sale
for soliciting, giving or taking of such or issue need not be registered because the
subscriptions is to comply with the investors involved herein are considered as
requirements of such law as to the highly sophisticated investors or specialized
percentage of the capital stock of a investors and as such, have a greater risk
corporation which should be subscribed tolerance or do not need strict protection
before it can be registered and duly from the Commission.

incorporated, or its authorized capital

increased.
LIST OF EXEMPT TRANSACTIONS
UNDER SRC IS NOT EXCLUSIVE
10. Exchange of securities by the issuer with The list is not exclusive. The Commission
its existing security holders exclusively, when may exempt other transactions, if it finds that
no commission or other remuneration is paid the requirements of registration under the
or given directly or indirectly for soliciting Code is not necessary in the public interest
such exchange.
or for the protection of the investors such as
by reason of the small amount involved or
11. Sale by issuer to fewer than 20 persons the limited character of the public offering

in the Philippines during any 12 month

period, otherwise known as private NON EXEMPT

placement transactions (19 Lender Rule). 
 All securities shall not be sold or offered for
sale or distribution within the Philippines,
Requisites: 
 without a registration statement duly filed
1. Sale to not more than 19 non- institutional and approved by the Commission unless
retail investors;
specifically exempted by law

2. The security is made payable to a specific 


person;

3. Security is non-negotiable and non-

assignable; and

4. It is in an amount not exceeding fifty (50)

million pesos.

PURPOSE FOR REGISTRATION OF 7. Fees – Upon filing of the registration

SECURITIES statement, the issuer shall pay to the SEC a
Registration of securities allows the fee of not more than 1/10 of 1% of the
subsequent release of these securities to the maximum aggregate price at which such
investing public and serves to protect securities are proposed to be offered; the
investors.
SEC shall prescribe by rule, diminishing the
fees in inverse proportion, the value of the
PROCEDURE FOR REGISTRATION aggregate price of the offering. 

1. Application – All securities required to be
registered shall be registered through the NOTE: This fee paid to the SEC is called a
filing by issuer with SEC, of a sworn diminishing fee.

registration statement

8. Notice and Publication – Notice of the
2. Prospectus – The registration statement filing of the registration statement shall be
shall include any prospectus required or immediately published by the issuer in two
permitted to be delivered.
newspapers of general circulation in the

Philippines; once a week for two consecutive
3. Other information– The information weeks, or in such other manner as the
required for the registration of any kind and Commission by rule shall prescribe, reciting
all securities shall include, among others, the that:

effect of the securities’ issue on ownership, a. A registration statement for the

on the mix of ownership, especially foreign sale of such security has been filed;

and local ownership.

b. The aforesaid registration

statement as well as the papers attached
4. Signatories to registration statement– The thereto is open to inspection at the
registration statement shall be signed by the Commission during business hours; and

issuer’s:
c. Copies thereof, photo static or
a. Executive officer
otherwise, shall be furnished to interested
b. Principal operating officer
parties at such reasonable charges as the
c. Principal financial officer
Commission may prescribe.

d. Comptroller

e. Principal accounting officer

9. Ruling – Within 45 days after the date of
f. Corporate secretary
the filing of the registration statement, the
SEC shall declare the registration statement
NOTE: It shall be accompanied by a duly effective or rejected, unless the applicant is
verified resolution of the Board of Directors allowed to amend the registration statement.

of the issuer corporation. 


10. Effectivity – Upon effectivity of the
5. Written consent of Expert – The written registration statement, the issuer shall state
consent of the expert named as having under oath in every prospectus that all
certified any part of the registration registration requirements have been met and
statement or any document
that all information are true and correct

used shall also be filed.



NOTE: Any untrue statement or fact of
6. Certification by Selling stockholders– omission to state a material fact required to
Where the registration statement includes be stated therein or necessary to make the
shares to be sold by the selling shareholders, statement therein not misleading shall
a written certification by such selling constitute fraud.

shareholders as to the accuracy of any part

of the registration statement contributed by
such selling shareholders shall also be filed.

GROUNDS FOR REJECTION OF A GROUNDS FOR SUSPENSION OF

REGISTRATION STATEMENT AND REGISTRATION
REVOCATION OF EFFECTIVITY OF 1. If the Information contained in the
registration statement is or has become
REGISTRATION STATEMENT AND THE misleading, incorrect, inadequate or
REGISTRARTION OF A SECURITY incomplete

After due notice and hearing by issuing an 2. The sale or offering for sale of the security
order to such effect, the Commission may registered thereunder may work a Fraud.

reject the registration statement or revoke 3. Pending Investigation of the security

the registration of a security based on the registered to ascertain whether the
following grounds:
registration of such security should be
1. The Issuer:
revoked on any ground specified the SRC.

a. Has been judicially declared Insolvent;

4. Refusal to furnish information required by
b. Has violated any of the provisions of the the Commission

Code, or any order of the SEC of which the

issuer has notice
GROUNDS FOR SUSPENSION OR
c. Has been or is Engaged or is about to CANCELLATION OF CERTIGICATE OF
engage in fraudulent transactions;

REGISTRATION
d. Has made any False or misleading
1. Fraud in procuring Registration.

representation of material facts

2. Serious misrepresentation as to objectives

e. Has failed to comply with any requirement
of corporation.

that the Commission may impose as a

3. Refusal to comply with lawful order of
condition for registration of the security

SEC.

4. Continuous non-operation for at least 5

2. The registration statement is on its face
years.

Incomplete or inaccurate in any material

6. Failure to file Reports.

respect or includes any untrue statement of

7. Other similar grounds 

a material fact or omits to state a material
fact required to be stated therein 

ORDER OF SUSPENSION BY THE SEC
3. The issuer, any officer, director or REQUIRES SUBSEQUENT HEARING
Controlling person of the issuer, or any An order of suspension must be followed by
person performing similar functions, or any a hearing to be conducted by the
underwriter has been convicted by a Commission.

competent judicial or administrative body,

upon plea of guilty, or otherwise, of an If the Commission determines that the sale
offense involving moral turpitude and/or of any security should be revoked, it shall
fraud or is enjoined or restrained by the SEC issue an order prohibiting the sale of such
or other competent judicial or administrative security.

body for violations of securities,

commodities and other related laws; and 
 Until the issuance of a final order, the
suspension of the right to sell shall be
4. Any issuer who refuses to permit the deemed confidential, and shall not be
Examination to be made by the Commission
published, unless the order of suspension
has been violated after notice.

NOTE: The Commission may compel the

production of all the books and papers of the However, if the Commission finds that the
issuer, and may administer oaths to, and sale of the security will neither be fraudulent
examine the officers of such issuer or any nor result in fraud, it shall forthwith issue an
other person connected therewith as to its order revoking the order of suspension, and
business and affairs.
such security shall be restored to its status
as a registered security as of the date of
such order of suspension.

ACT CONSIDERED AS e. Boiler room operations – refers to

activities that involve the use of high
MANIPULATION OF SECURITY pressure sale tactics such as direct mail
PRICES
 offers or telephone follow-ups to investors to
The price of securities should be dictated by promote purchase and sale of securities
market forces. It cannot be pegged or wherein there is misrepresentation in these
stabilized.
securities.;

f. Daisy chain – refers to a series of

The following acts are considered as purchase and sales of the same issue at
manipulation of security prices and are successively higher prices by the same
therefore prohibited:
group of people with the purpose of
1. Transactions intended to create a false or manipulating prices;

misleading appearance of active trading

g. Front-Running – the prohibited
a. Wash Sale – is a transaction in practice of a broker-dealer executing its
which there is no genuine change in the proprietary order before the customer’s order
beneficial or actual ownership of a security;
for the same security. This violates the
b. Matched Sale – is a change of fiduciary responsibility by the broker-dealer

ownership in the securities by entering an h. Churning – involves the excessive

order for the purchase or sale of a security trading of securities by a broker-dealer in a
with the knowledge that a simultaneous customer’s discretionary account in order to
order of substantially the same size, time, generate commissions

and price, for the sale or purchase of any

such security, has or will be entered by or for 3. Circulating or disseminating information
the same or different parties; or 
 that the price of any security listed in an
c. Similar transactions where there is Exchange will or is likely to rise or fall for the
no change of beneficial ownership.
purpose of inducing the purchase or sale of
such security. 

2. Effecting a series of transactions that will
raise or depress the price of securities to 4. To make false or misleading statement
induce the purchase or sale of securities with respect to any material fact, which he
respectively, or creating active trading to knew or had reasonable ground to believe
induce transactions through manipulative was so false or misleading, for the purpose
devices:
of inducing the purchase or sale of any
a. Marking the close – buying and security listed or traded in an Exchange. 

selling of securities at the close of the market
in an effort to alter the closing price of these 5. To effect, either alone or with others, any
securities;
series of transactions for the purchase and/
b. Painting the tape – engaging in a or sale of any security traded in an exchange
series of transactions effected by brokers in for the purpose of pegging, fixing or
securities that are reported publicly which stabilizing the price of such security,

may trick investors into trading in these
securities because of the alleged trading
volume or indications of interest;

c. Squeezing the float – taking

advantage of a shortage of securities by
controlling the demand side and exploiting
market congestion during such shortages in
a way to create artificial prices. This prevents
the actual market from determining the price
of these securities;

d. Hype and dump – engaging in

buying activity at increasingly higher prices
and then selling securities in the market at
the higher prices;

SHORT SALES 4. A government employee, or director ,

The selling of shares which the seller does or officer of an exchange, clearing
not actually own or possess and therefore he agency or self- regulatory organization
cannot, himself, supply the delivery. Short
selling leads to speculation of price of who has access to material information
securities.
about an issuer or a security that is not

 available to the public; or 

SHORT SWING TRANSACTIONS 5. Constructive Insider – A person who
It is a transaction by the director, issuer or learns such information by a
any person controlling the issuer communication from any of the foregoing
(stockholder owning 10% of the stocks),
insiders 

whereby such person buys and sells
securities within 6 months.

OTHER PROHIBITED ACTS IN AN

FRAUDULENT TRANSACTIONS INSIDER TRADING
The following are considered as fraudulent 1. For an insider to communicate material
transactions:
non- public information about the issuer or
1. Employment of any device, scheme or the security to any person who by virtue of
artifice to defraud investors; 
 the communication thereby becomes an
2. Obtaining money or property by means of insider, where the original insider
any untrue statement of a material fact or communicating the information knows or has
any omission to state a material fact reason to believe that such person will likely
necessary in order to make the statement buy or sell a security of the issuer while in
made not misleading; and 
 possession of such information

3. Engaging in any act, transaction, practice

or course of business, which operates as a 2. When a tender offer has commenced or is
fraud or deceit upon any person.
about to commence, it is unlawful for any
person, other than the tender offeror, who is
INSIDER TRADING in possession of material non-public
A purchase or sale made by an insider, or information relating to such tender offer to
such insider’s spouse or relative by affinity or buy or sell the securities of the issuer that
consanguinity within the second degree, are sought or to be sought by such tender
legitimate or common-law, effected while in offer, if such person knows or has reason to
possession of material non-public believe that the information is non-public and
information.
has been acquired directly or indirectly from
the tender offer, or those acting on its behalf,
the issuer of the securities sought or to be
INSIDER sought by such tender offer, or any insider of
A person who is in possession of corporate such issuer

material information not generally available

to the public.
3. When a tender offer has commenced or is
about to commence, it is also unlawful for
WHO MAY BE AN INSIDER any tender offeror, or those acting on its
1. The issuer;
behalf, the issuer of securities covered by
such tender offer, and any insider, to
2. A director or officer, or a person communicate material non- public
controlling the issuer;
information to any person relating to the
3. A person whose relationship or former tender offer which would likely result in
relationship to the issuer gives him violation of prohibition of the insider from
access to material information about the trading

issuer or the security that is not available

to the public;

MATERIAL NON-PUBLIC sell their shares in the same price and

conditions as the previously acquired shares.

INFORMATION
1. Information about the issuer or the It is given to all stockholders by:

security not disclosed to the public and 1. Filing with the SEC a declaration to that
would likely affect the market price of the effect, and paying the filing fee;

security after being disseminated to the 2. Furnishing the issuer a statement
public and the lapse of a reasonable time containing the information required of the
for the market to absorb the information;
issuers including subsequent or additional
materials; or

2. Would be considered by a reasonable 3. Publishing all requests or invitations for

person important under the tender, or materials making a tender offer or
circumstances in determining his course requesting or inviting letters of such security.

of action whether to buy, sell or hold a

security 
 PURPOSE OF TENDER OFFER
To protect the interest of minority
POSSIBLE DEFENSES AGAINST stockholders of a target company against
any scheme that dilutes the share value of
INSIDER TRADING their investments.

1. That the information was acquired not

on account of his relationship with the It affords such minority shareholders the
issuer.
opportunity to withdraw or exit from the
2. That he disclosed the information to company under reasonable terms or a
the other party who knew or had the chance to sell their shares at the same price
as those of the majority stockholders.

reason to believe he knew the material

information.

PUBLIC COMPANY
3. That the purchaser or seller was not 1. Those listed on an exchange;

aware of the material, non-public 2. Those with assets of at least PHP 50M
information at the time of the purchase or and having 200 shareholders owning at least
the sale. 
 100 shares each; or

3. Those companies that have an effective

PROVISIONS IN THE SRC INTENDED registration statement under Section 12 of
the SRC. 

TO PROTECT INVESTORS
1. Tender Offer Rule
MANDATORY TENDER OFFER
2. Rules on Proxy Solicitation
1. Any person or group of persons acting in
3. Disclosure Rule 
 concert, who intends to acquire fifteen
percent (15%) of equity securities in a public
company in one or more transactions within
TENDER OFFER RULE a period of twelve (12) months. 

Means a publicly announced intention by a
person to acquire equity securities of a 2. Any person or group of persons acting in
public company.
concert, who intends to acquire thirty five
percent (35%) of the outstanding voting
It is also an offer by the acquiring person to shares or such outstanding voting shares
stockholders of a public company for them that are sufficient to gain control of the board
to tender their shares therein on the terms in a public company in one or more
specified in the offer
transactions within a period of twelve (12)
months. 

It is an invitation by the acquirer of shares of
a company for other stockholders to tender If the tender offer is oversubscribed, the
their shares to the acquirer so that they may aggregate amount of securities to be
acquired at the close of such tender offer either through the direct purchase of its
shall be proportionately distributed across stocks or through an indirect means,
selling shareholders with whom the acquirer mandatory tender offer applies.

may have been in private negotiations and

other shareholders. For purposes of SRC What is decisive is the determination of the
Rule 19.2.2, the last sale that meets the power of control. The legislative intent makes
threshold shall not be consummated until the clear that the type of activity intended to be
closing and completion of the tender offer 
 regulated is the acquisition of control of the
listed company through the purchase of
NOTE: If the acquisition is made through the shares. Control may be effected through a
Exchange trading system tender offer is not direct and indirect acquisition of stock, and
required provided after acquisition through when this takes place, irrespective of the
the Exchange trading system, they fail to means, a tender offer must occur

acquire their target of thirty five percent

(35%) or such outstanding voting shares that ILLUSTRATION IN DIRECT
is sufficient to gain control of the board. 

ACQUISITION
3. Any person or group of persons acting in The shares of stock of X company are owned
concert, who intends to acquire thirty five by A (19%), B (16%), C (20%), D (14%), E
percent (35%) of the outstanding voting (31%). If Aljon buys the shares of A (19%),
shares or such outstanding voting shares the transaction is not subject to mandatory
that are sufficient to gain control of the board tender offer. However, if Aljon buys the
in a public company directly from one or shares of A (19%) and the shares of B (16%),
more stockholders. The sale of shares then tender offer must be made because the
pursuant to the private transaction or block total shares bought by Aljon is 35%.

sale shall not be completed prior to the

closing and completion of the tender offer.
ILLUSTRATION IN INDIRECT
ACQUISITION
4. Any acquisition that would result in The shares of stock of X company are owned
ownership of over fifty percent (50%) of the by A (16%), B (19%), C (15%), D (18%), and
total outstanding equity securities of a public Corporation E (32%) respectively. The shares
company.
of Corporation E are owned by Kenneth
(50%), King (25%) and Jacq (25%). If Aljon
NOTE: Tender offer shall be made at a price acquires the shares of B (19%), the
supported by a fairness opinion provided by transaction is not subject to mandatory
an independent financial advisor or tender offer because it did not reach the
equivalent third party. The acquirer in such a 35% threshold limit required by law.
tender offer shall be required to accept all However, if Aljon acquires the shares of B
securities tendered
(19%) and the shares of Kenneth in
Corporation E (50% of 32 is 16%), then,
COVERAGE OF TENDER OFFER tender offer must be made because the total
The mandatory tender offer rule covers not shares bought by Aljon directly and indirectly
only direct acquisition but also indirect is 35%.

acquisition or “any type of acquisition.”

The legislative intent of the SRC is to

regulate activities relating to acquisition of
control of the listed company and for the
protection of the minority stockholders of a
listed corporation.

Whatever may be the method by which

control of a public company is obtained,
OBLIGATIONS OF PERSON MAKING A economy and prevention of the use of
excessive credit.

TENDER OFFER
1. Make an announcement of his intention in
a newspaper of general circulation, prior to PURPOSE OF MARGIN
the commencement of the offer. 
 REQUIREMENT
They are primarily intended to achieve a
2. At least 2 business days prior to the date macroeconomic purpose – the protection of
of the commencement of the tender offer:
the overall economy from excessive
a. File with the SEC a required form for speculation in securities. Their recognized
tender offer with the prescribed filing fees;
secondary purpose is to protect small
b. Hand deliver a copy of such form to the investors.

target company and its principal executive

office and to each Exchange where such
class of target company’s securities are BURDEN OF COMPLIANCE WITH
listed for trading. 
 REQUIREMENT
The brokers and dealers have the burden of
3. Report the results of the tender offer by compliance with margin requirements.

filing with the SEC, not later than 10 calendar

days after the termination of the tender offer, In securities trading, the brokers are
copies of the final amendments to the form.
essentially the counterparties to the stock
transactions at the Exchange. Since the
UNLAWFUL AND PROHIBITED ACTS principals of the broker are generally
RELATING TO TENDER OFFERS undisclosed, the broker is personally liable
1. Make any untrue statement of a material for the contracts thus made. Brokers have a
fact or omit to state any material fact right to be reimbursed for sums advanced by
necessary in order to make statements made 
 them with the express or implied
2. Engage in any fraudulent, deceptive, or authorization of the principal

manipulative acts or practices, in connection

with any tender offer or request or invitation REQUISITES FOR VALID PROXY
for tenders,
SOLICITATION
1. It must be in writing.

MARGIN TRADING 2. It must be signed by the stockholder or his

A kind of trading that allows a broker to duly authorized representative.

advance for the investor part of the purchase 3. It must be filed before the scheduled
price of the security and to keep the same meeting with the corporate secretary 

security as collateral for such advance.

RULES ON PROXY SOLICITATION WITH

MARGIN ALLOWANCE STANDARD REGARD TO BROKER OR DEALER
GR: The credit extended must be for an 1. No broker or dealer shall give any proxy,
amount not greater than, whichever is consent or authorization, in respect of any
higher of:
security carried for the account of a
1. 65% of the current market price of the customer, to a person other than the
security; or
customer, without the express written
2. 100% of the lowest market price during authorization of such customer.

the preceding 36 calendar months, but not

more than 75% of the current market price. 
 2. A broker or dealer who holds or acquires
the proxy for at least 10% or such
XPN: The Monetary Board may increase or percentage as the Commission may
decrease the above percentages, in order to prescribe of the outstanding share of the
achieve the objectives of the Government issuer, shall submit a report identifying the
with due regard for promotion of the beneficial owner within 10 days after such
acquisition, for its own account or customer,
to the issuer of the security, to the Exchange REPORTORIAL REQUIREMENTS 

where the security is traded and to the 1. Issuers:

Commission 
 a. Shall file with the Commission within 135

days, after the end of the issuer’s fiscal year,
JURISDICTION OVER VIOLATIONS OF or such other time as the Commission may
THE SEC RULES ON PROXY prescribe, an annual report which shall
SOLICITATION include among others, a balance sheet, profit
The power of the SEC to investigate and loss statement and statement of cash
violations of its rules on proxy solicitation is flows, for such last fiscal year, certified by an
unquestioned when proxies are obtained to independent certified public accountant, and
vote on matters unrelated to the cases a management discussion and analysis of
enumerated under Section 5 of PD 902-A.
results of operations; and 


However, when proxies are solicited in b. Such other periodical reports for interim
relation to the election of corporate directors, fiscal periods and current reports on
the resulting controversy, even if it ostensibly significant developments of the issuer as the
raised the violation of the SEC rules on proxy Commission may prescribe as necessary to
solicitation, should be properly seen as an keep current information on the operation of
election controversy within the jurisdiction of the business and financial condition of the
the RTC special commercial court
issuer 


BEGINNING OF DISCLOSURE RULE
 2. Types of issuers required to file reports:

It begins at registration and continues a. An issuer which has sold a class of its
periodically through the regular filing of securities pursuant to a registration
periodic report.
statement under Section 12 of the SRC;

b. An issuer with a class of securities listed

SUSPENSION OF DISCLOSURE
 for trading in an Exchange;

It may be suspended for any fiscal year after c. An issuer with assets of at least PHP 50M
the year such registration became effective if and having 200 or more holders each
such issuer as of the first day of any such holding at least 100 shares 

fiscal year, has less than 100 shareholders of
such class of securities and it notifies the 3. Persons acquiring securities - If the issuer
Commission of such
is one that has to make a report, any person
who acquires directly or indirectly the
END OF DISCLOSURE REQUIREMENT 
 beneficial ownership of more than 5% of
GR: Disclosure does not end because once such class, or in excess of such lesser per
an issuer becomes a reporting company, it centum as the Commission by rule may
remains as such even when the registration prescribe, shall, within 10 days after such
of securities has been revoked
acquisition or such reasonable time as fixed
by the Commission, submit to the issuer of
XPN: If the primary license is revoked.
the security, to the Exchange where the
security is traded, and to the Commission a
XPN to the XPN: In the case of hospitals and sworn statement containing:

educational institutions if the primary license a. His personal circumstances

is revoked, the disclosure requirement still b. The nature of such beneficial ownership

continues because of public interest.

c. If the purpose was to acquire control of
the business, any plans the recipient may
have affecting a major change in the
business

d. The number of shares beneficially owned, 


and the number of shares for which there is a
right to acquire

e. granted to such person or his associates

f. Information as to any agreement with a used in connection with the registration

third person regarding the securities
 statement,

6. Every selling shareholder who contributed
4. Persons that has beneficial ownership of to and certified as to the accuracy of a
10% or more - Every person who is directly portion of the registration statement

or indirectly the beneficial owner of more 7. Every underwriter with respect to such
than 10% of any class of any equity security, security 

or who is director or an officer of the issuer
of such security, shall file:
PERSONS LIABLE FOR FRAUD IN
a. Statement with the SEC and, if such CONNECTION WITH PROSPECTUS,
security is listed for trading on an Exchange, COMMUNICATIONS AND REPORTS
also with the Exchange, of the amount of all Any person who offers to sells or sells:

equity securities of such issuer of which he is 1. In violation any provisions on registration

the beneficial owner;
of securities; or

b. Within 10 days after the close of each 2. By the use of any means or instruments of
calendar month, if there is a change in transportation or communication, by means
ownership during such month, a statement of a prospectus or other written or oral
indicating his ownership at the close of the communication 

calendar month and such changes in his
ownership as have occurred during such PERSONS LIABLE FOR FRAUD IN
calendar month 
 CONNECTION WITH SECURITY
TRANSACTIONS
GROUNDS FOR CIVIL LIABILITY Any person who engages in any act or
1. False Registration Statement
transaction in violation of Sections 19.2, 20
2. Fraud in connection with prospectus, or 26 of SRC.

communications and reports

3. Fraud in connection with security

PERSONS LIABLE FOR MANIPULATING
transactions

4. Manipulation of security prices

SECURITY PRICES
5. Insider trading 
 Any person who willfully participates in any
act or transaction in violation of Section 24
of SRC shall be liable to any person who
PERSONS THAT MAY BE LIABLE
shall purchase or sell any security at a price
1. The issuer and every person who signed
which was affected by such act or
the registration statement.

transaction.

2. Every person who was a director of, or any

person performing similar functions of the
issuer at the time of the filing of the PERSONS LIABLE WITH REGARD TO
registration statement
INSIDER TRADING
3. Every person who named in the Any person in case of legal tender who:

registration statement as being or about to 1. Purchases or sells a security while in

become a director or a person performing possession of material information not
similar functions of the issuer and whose generally available to the public;

written consent thereto is filed with the 2. Communicates material non-public

registration statement.
information. 

4. Every auditor or auditing firm named as
having certified any financial statements n NOTE: The liability of the persons
connection with the registration statement or enumerated shall be jointly and severally.

prospectus.

5. Every person who, with his written PRESCRIPTIVE PERIOD FOR FILING OF
consent, has been named as having ACTION

prepared or certified any part of the 2 years after the discovery of the facts
registration statement, or as having prepared constituting the cause of action and within 5
or certified any report or valuation which is years after such cause of action accrued.

JURISDICTION OVER CIVIL LIABILITIES 


The court which has jurisdiction over cases
involving civil liabilities is the Regional Trial
Court.

IN CIVIL LIABILITIES, IS IT REQUIRED

THAT THE ACTION BE FILED FIRST WITH
THE SEC? NO
As ruled by the Court that “all complaints for
any violation of the [SRC] x x x should be
filed with the SEC,” it should be construed
as to apply only to criminal and not to civil
suits such as petitioners’ complaint.

It is apparent that the SRC provisions

governing criminal suits are separate and
distinct from those which pertain to civil suits

LIMITATIONS FOR AWARDING DAMAGES

1. The court can award not exceeding triple
the amount of the transaction plus actual
damage.

2. The court is also authorized to award

attorney’s fees not exceeding 30% of the
award. 


AWARD OF EXEMPLARY DAMAGES

The court may award exemplary damages in
cases of:

1. Bad Faith;

2. Fraud;

3. Malevolence; or

4. Wantonness in the violation of SRC or the

Rules and Regulations promulgated by the
Commission.