MODULE 3: SECURITIES REGULATION CODE

REPUBLIC ACT NO.8799

GROUP 3
JAMANDRON, BILL MICHAEL B.
L E C C I O N E S , J AY- A R O .
L I WA N A G , G I O VA N I E T.
M A G TAB O G, E RI CK M A RT I N J O HN C .
MAROHOM, HANIA S.

CBEA-22-602A
 Generally, securities should not be sold or offered for sale or distribution within
the Philippines, without a registration statement duly filed with and approved by
the Securities and Exchange Commission (except however for the classes of
securities enumerated in Section 9.1 of the code and the exempt transactions
enumerated in Section 10.1 of the code, as amended).

As a regulation, the code sets out reportorial requirements (including financial

statements) for issuers of securities listed in Section 17.2 of the code, as
amended.
The Securities Regulation Code of the Philippines or Republic Act No. 8799 is a landmark
legislation that aims to regulate the issuance and trading of equity securities and debt
securities in the Philippines.

These are measures to:

•protect investors,
•
•prohibit fraud,
•
•regulate securities professionals,
•
•and to ensure that the Philippine securities market system is effective and in order.
 There are several actors that engage in the issuance and trading of
securities.
For instance, issuers create the securities. They are composed of
corporations, domestic governments, foreign governments, and
investment trusts.
Brokers are agents who buy and sell securities for others, while
dealers buy and sell securities for themselves.
For securities to be legitimate, they must indicate that they are
securities with a written or electronic certificate or contract. Without
proper registration, securities are not allowed to be sold or
distributed in the Philippines.
 What is the nature of the Securities Regulation Code (SRC)?

The SRC is enacted to protect the public from unscrupulous promoters, who stake (risk)
business or venture claims which have really no basis, and sell shares or interests therein
to investors

What is a security? (NO NEED TO DISCUSS, just present)

Securities are shares, participation or interests in a corporation orin a commercial

enterprise or profit-making venture and evidence by a certificate, contract, instruments,
whether written or electronic character.
 These securities typically come in the form of the following:

•shares of stocks, bonds, debentures

•investment contracts
•options and warrants
•certificates (assignment, participation, trust, etc.)
•proprietary and non-proprietary membership certificates
 What are the kinds of securities?
(NO NEED TO DISCUSS, just present)

1.Shares of stocks, bonds, debentures, notes, evidence ofindebtedness, asset-backed

securities
2.investment contracts, certificates of interest orparticipation in a profit-sharing
agreement, certificates ofdeposit for a future subscription
3. fractional undivided interests in oil gas, or other mineral rights
4.Derivatives, options and warrants
5.Certificates of assignments and participation, trustcertificates, voting trust
certificates , similar instruments
6.Proprietary or non-proprietary membership certificatesin corporation
7.Other instruments as may be in the future determinedby the SEC.
 Definition of Terms
Securities are shares, participation or interests in a corporation or in a commercial
01 enterprise or profit-making venture and evidenced by a certificate, contract,
instruments, whether written or electronic in character

02 Issuer is the originator, maker, obligor, or creator of the security.

Broker is a person engaged in the business of buying and selling securities for the
03 account of others.

04 Dealer means any person who buys, sells securities for his/her own account in the
ordinary course of business.
 Definition of Terms
Associated person of a broker or dealer is an employee therefor whom, directly
05 exercises control of supervisory authority, but does not include a salesman, or an
agent or a person whose functions are solely clerical or ministerial.

Clearing Agency is any person who acts as intermediary in making deliveries upon
06 payment effect settlement in securities transactions.

Exchange is an organized market place or facility that brings together buyers and
07 sellers and executes trade of securities and/or commodities.
 Definition of Terms
Insider means

08
(a)the issuer;
(b) a director or officer (or any person performing similar functions) of, or a
person controlling the issuer; gives or gave him access to material information
about the issuer or the security that is not generally available to the public;
(c) A government employee, director, or officer of an exchange, clearing agency
and/or self-regulatory organization who has access to material information about
an issuer or a security that is not generally available to the public; or
(d) a person who learns such information by a communication from any
foregoing insiders.
 Definition of Terms
Pre-need plans are contracts which provide for the performance of future services of
09 or the payment of future monetary considerations at the time actual need, for which
plan holders pay in cash or installment at stated prices, with or without interest or
insurance coverage and includes life, pension, education, interment, and other plans
which the Commission may from time to time approve.

10 Promoter is a person who, acting alone or with others, takes initiative in founding
and organizing the business or enterprise of the issuer and receives consideration
therefor.
 Definition of Terms
Prospectus is the document made by or on behalf of an issuer, underwriter or dealer
11
to sell or offer securities for sale to the public through registration statement filed
with the Commission
12 Registration statement is the application for the registration of securities required
to be filed with the Commission.

Salesman is a natural person, employed as such as an agent, by a dealer, issuer or

13 broker to buy and sell securities.

Uncertificated security is a security evidenced by electronic or similar records.

14
Underwriter is a person who guarantees on a firm commitment and/or declared
15 best effort basis the distribution and sale of securities of any kind by another
company.
 Definition of Terms
Material Information
16
Material information may include, but not limited to:
• Financial results
• Projections of future earnings or losses
•News of pending or proposed merger
•Change in the corporate structure (e.g. reorganization)
•Acquisition / Divestiture / Joint Venture
•Dividend declaration and changes in dividend policy
•Stock splits
•New significant equity investment or debt offering
•Significant litigation exposure
•Major change in key senior management position
 How are securities traded?
Securities are traded in the primary and secondary markets.
Primary Market
When a company issues stock or bonds for the first time and sells
those securities directly to investors
Examples are IPOs, or Initial Public Offerings which occurs between
the purchasing investor and the investment bank underwriting the
IPO. Any proceeds from the sale of shares of stock on the primary
market go to the company that issued the stock
 Secondary Market

If these initial investors later decide to sell their stake in the company, they can do so
on the secondary market.

Any transactions on the secondary market occur between investors, and the proceeds
of each sale go to the selling investor, not to the company that issued the stock nor to
the underwriting bank.
 What is the state policy or purpose of Securities Regulation Code
(SRC)?

1.socially-conscious, free market that regulates itself.

2.encourages widest participation.
3.democratization of wealth
4.development of the capital market
5.protect investors
6.ensure full and fair disclosure about securities
7.minimize if not totally eliminate insider trading andother
fraudulent manipulative devices.
 Socially conscious, free market that regulates itself

•Socially conscious investing positively impact the environment by reducing

emissions or investing in sustainable or clean energy sources, contributing to causes
such as women's rights, civil rights, and the anti-war movement (why does gov’t
focus on socially conscious investing?)

•A self-regulatory market has the power to create and enforce stand-alone industry
and professional regulations and standards on its own. In the case of financial SRO*s,
such as a stock exchange, the priority is to protect investors by establishing rules,
regulations, and set standards of procedures which promote ethics, equality, and
professionalism.

*SRO- Self-Regulatory Organization

 Encourage the widest participation.

Encourage investments and more active public participation in the

affairs of private corporations and enterprises
(why?)
 Democratization of wealth

One of the major limitations on our ability to do for ourselves is the concentration of
wealth in the hands of a few.

The democratization of wealth is intended to address that limitation by making wealth

democratically available, so that it can be used in the interest of the people
 Development of the capital market
Development of local capital markets can improve the availability of
long-term financing, allowing households and firms to better manage
interest rate and maturity risk associated with long-term investments
(such as investments in equipment, machinery, land and buildings)
by allowing for a better match
 Protect investors

The PSE and Securities and Exchange Commission (SEC) have put in place several
safeguards that promote transparent, fair, and organized buying and selling of stocks
where every investor, big or small alike, are protected from fraud, manipulative trading
practices, and erring stockbrokers

For instance, a whistleblower is rewarded for reporting financial fraud.

 Ensure full and fair disclosure about securities

To prevent selective disclosure by public companies to market professionals and certain

shareholders.

A publicly-traded company or issuer of stock discloses any material nonpublic

information regarding that issuer or its securities to a limited group of individuals, the
issuer must also make public disclosure of that information. Such disclosures (factual
and truthful information only) must be made simultaneously if it is an intentional release
of information. Non-intentional sharing of such information must be promptly followed
with public disclosures.
Minimize if not totally eliminate insider trading and other fraudulent
manipulative devices

The provisions of the Securities Regulations Code are focused on preventing

unfairness as a result of fraudulent devices and insider trading. In an insider
trading, the main perpetrator called the “insider” profits from the material
information that are not available to the public. These pieces of information
are called “Material Non-Public Information”
Minimize if not totally eliminate insider trading and other fraudulent manipulative
devices …cont’d.

“Insider Trading” - purchasing or selling a security while in possession of material

information not generally available to the public,
 Is the list of securities stated in Section 3 exclusive?

“Securities” flexible rather than static (fixed) principle, one that is capable of adaptation
to meet the countless andvariable schemes.
(Exclusive? yes? or no?)

What is an investment contract?

Contract, transaction or scheme person invests his money in a common enterprise led to
expect profits primarily from the efforts of others
 Must securities be registered with the SEC?
Yes! Shall not be sold or offered for sale or distributionwithin the Philippines, without
a registration statement duly filed with and approved by the Commission. Prior to
such sale, information on security made available toeach prospective purchaser.

Why is it required to register securities before they can be sold or traded with the
public?
A primary means of protecting the investing public isthe disclosure of the important
financial information (timely, factual and accurate) through the registration of
securities enables investors to make informed judgments.
Registration of Securities
 What are the exempt securities?
The requirement of registration under Subsection 8.1 shall not as a general rule apply
to any of the following classes of securities:

1.Security issued or guaranteed by the Government of the Philippines or by any

political subdivision or agency thereof, any person controlled by and acting as an
instrumentality ofsaid government. (what are some examples?)
2.Any security issued or guaranteed by the government of any country within which
the Philippines maintains diplomatic relations, reciprocity.
3.A receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory
body.
4. 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 (OIC), Housing
and Land Use Regulatory Board (HLURB) , Bureau of Internal Revenue (BIR).

5. Issued by a bank except own shares of stock.

6. Added by the SEC by rule or regulation after publichearing

 What are exempt transactions?
The requirement of registration under Subsection 8.1 shall not apply to the sale of any
security in any of the following transactions:

1.Judicialsale byexecutor, administrator,guardian/receiver in insolvency or

bankruptcy.
2.Pledged or mortgaged security liquidated a bonafidedebt.
Mortgage is a term that is used for fixed assets like land, buildings, apartments etc.
However, when you mortgage your apartment, the documents would remain with the
lender
Pledge is used for movable assets (shares, certificate of deposit). When you pledge
your shares, they would still remain with you and you would be entitled to dividends
etc.
3. Isolated transactions by owner
(any security sold, offered for sale, subscription or delivery by the owner thereof, or by
his representative for the owner’s account)

4. Distribution of stock dividends.

5. Sale of capital stock exclusively to stockholders, nocommission.

6. Issuance of bonds or notes secured by mortgage upon real estate, tangible personal
property, entire mortgage are sold to a single purchaser at a singlesale.
7.security in exchange of any security, right of conversion
8. Broker’s transactions
9. Pre-incorporation subscription, subscription to an increase of the ACS.
10. Exchange of securities with existing security holders
less than 20 persons during any 12-month period
11. banks registered investment house, insurance companies, pension fund or
retirement plan maintained by the government.
 What are the manipulative practices that are prohibited?

1. A false or misleading appearance of active trading in any listed security

a. by effecting any transaction in such security which involves no change in the
beneficial ownership thereof;
●
b. by entering an order or orders for the purchase or sale of suchsecurity, the knowledge,
a simultaneous order or orders of substantially the same size, time and price, for the sale
or purchase of any such security.
2.A series of transactions
a. Raises their price to induce the purchase of a security
b.Depresses their price to induce the sale of a security
c.Creates active trading to induce such a purchase orsale marking the close,
painting the tape, squeezingthe float, hype and dump, boiler room operations.
3.Circulate or disseminate information price of any security listed in an
Exchange will or is likely to rise or fall.
4.False or misleading statement with respect to anymaterial fact, knew or had
reasonable ground to believewas so false or misleading.

5.any series of transactions for the purpose of pegging,fixing or stabilizing the price.

6.Any manipulative or deceptive device or contrivance.

Prohibited conduct and/or acts.
- “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.
-“marking the close.” : buying or selling securities at the close of the market in
an effort to alter the closing price of the security.
-“improper matched orders.”: both the buy and sell orders are entered at the
same time with the same price and quantity by different colluding parties.
Prohibited conduct and/or acts.

- “hype and dump.” : buying at increasingly higher prices and selling in the market
at the higher prices and vice versa such as selling at lower prices and then buying at
such lower prices.

- “wash sales.” : transactions in which there is no genuine change in actual

ownership

-“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
 What are short sales?
A short sale is the sale of an asset or stock the seller does not own.
It is generally a transaction in which:
•an investor sells borrowed securities in anticipation of a price decline;
•
•the seller is then required to return an equal number of shares at some point in the
future.
In contrast, a seller owns the security or stock in a long position..
Is Short Sale Prohibited?

General Rule: There is no absolute prohibition on short sale.

Exception:

1. Short sales in securities of the corporation made by directors, officers of principal

shareholder of such corporation;

2. Whenever the SEC, motu proprio* or upon recommendation of the Exchange,

prohibits short selling.

*Latin for: "on his own impulse“; describes an official act taken without a formal
request from another party
 What is the limitation on short sales with respect to directors, officers or principal
stockholders?
No director, officer or principal stockholder of a corporation shall make a short sale in
securities of the corporation in which he is a director, officer or principal stockholder.
Example: Short Selling for a Profit

Imagine a trader who believes that XYZ stock—currently trading at $50—will

decline in price in the next three months. They borrow 100 shares and sell them to
another investor. The trader is now “short” 100 shares since they sold something that
they did not own but had borrowed. The short sale was only made possible by
borrowing the shares, which may not always be available if the stock is already
heavily shorted by other traders.
Example: Short- Selling for a Profit …cont’d

A week later, the company whose shares were shorted reports dismal financial
results for the quarter, and the stock falls to $40. The trader decides to close the short
position and buys 100 shares for $40 on the open market to replace the borrowed
shares. The trader’s profit on the short sale, excluding commissions and interest on
the margin account, is $1,000: ($50 - $40 = $10 x 100 shares = $1,000).
 Example: Short-Selling for a Loss
Using the scenario above, let's now suppose the trader did not close out the short
position at $40 but decided to leave it open to capitalize on a further price decline.
However, a competitor swoops in to acquire the company with a takeover offer of $65
per share, and the stock soars. If the trader decides to close the short position at $65,
the loss on the short sale would be $1,500: ($50 - $65 = negative $15 x 100 shares =
$1,500 loss). Here, the trader had to buy back the shares at a significantly higher price
to cover his position.
Manipulation of Security Prices; Devices and Practices

Insider’s Duty to Disclose When Trading

-it shall be unlawful for an insider to sell or buy a security of the issuer while in
possession of material information with respect to the issuer or the security that is
not generally available to the public.

-it shall be unlawful for an insider to disclose “insider information” to other parties.
 Manipulation of Security Prices; Devices and Practices
Can Insider Trading be legal?

YES ! Insider trading can be legal if the trading occurs on the basis of information
which is available to the public.
What is the disclosure rule?

All companies, listed or applying for listing, are required to divulge truthfully and
accurately, all material information about themselves and the securities they sell for
protection of the investing public in pain of administrative, criminal and civil
sanctions.
 Under the SRC, when do civil liabilities arise?
1.False registration statement
●
2.In violation of registration requirements
●
3.by meansof prospectus or communication with untrue statement
●
4.Fraud in connection with securities transaction
●
5.Manipulation of security prices
●
6.Commodity futures contracts and pre-need plans
●
7.Insider trading
Under the SRC, is mere presence of negligence sufficient to hold a person
accountable for civil liabilities?

Fraud or deceit, not negligence, on the part oftheoffender must be established.

Thank You
So Much!