CORPORATION LAW

Securities Regulation Code

1) What does the SRC Regulate?

In line with the State’s policy, as taken from Section 2 of the code, the SRC
seeks to regulate the exchange and flow of the securities to strengthen the
capital markets. It sets the mandate for the lawful offering, purchase, trade
and sale by issuer of such securities by providing safeguards such as the
disclosure of information as to the securities, the registration of securities,
the close monitoring of securities and the brokers, issuers and even the
exchange itself. Further, it also prohibits and penalizes fraudulent practices
and transactions, and provides the SEC with and strengthening its powers
and functions. It is a mode of protecting the public and the consumers, and
subsequently the market at large.

The application of the regulatory character of SRC can be seen in Securities

and Exchange Commission vs Prosperity.com Inc (G.R. No. 164197.
January 25, 2012), whereby it was essential to determine of whether or not
the contract is an investment contract and would thus require registration
pursuant to RA 8799.

2) What are securities?

Securities are shares participation, or interests in a corporation or in a
commercial enterprise or profit-making venture and evidenced by a
certificate contract or instrument, whether written or electronic in character.

Further, securities include those enumerated in section 3.1 of the SRC, such
as: a) Shares of stock, bonds, debentures, notes, evidences of indebtedness,
and asset-backed securities; b) Investment contracts, certificates of interest
or participation in a profit-sharing agreement, certificates if deposit for a
future subscription; c) Fractional undivided interests in oil, gas or other
mineral rights; d) Derivatives like option and warrants; e) Certificates of
assignments, certificates of participation, trust certificates, voting trust
certificates or similar instruments; f) Proprietary or non-proprietary
membership certificates in corporations; and g) Other instruments as may in
the future be determined in the SEC.

As to the inclusion of investment contracts, the case of Securities and Exchange

Commission vs Prosperity.com Inc (G.R. No. 164197. January 25, 2012), the
Supreme Court held that:

“The Securities Regulation Code treats investment contracts as "securities"

 CORPORATION LAW
Securities Regulation Code
that have to be registered with the SEC before they can be distributed and
sold. An investment contract is 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.”

3. Breakdown the SRC into the 5 elements of the scheme for Regulation of
Securities
a) The SEC (as a regulator)
-> Chapter II: The Securities and Exchange Commission
-> Section 4 - Administrative Agency
-> Section 5 - Powers and Functions of the Commission
-> Section 6 - Indemnification and Responsibilities of Commissioners
-> Section 7 – Reorganization

b) Registration
-> Chapter III: Registration of securities
-> chapter IV: Regulation of pre-need plans
-> chapter XII: General provisions

C) Disclosure Requirements
-> Chapter V: Reportorial requirements
-> Chapter VI: Protection of shareholders interests
-> Chapter XIII: General provisions

D) Prohibitions
-> Chapter VII: Prohibitions and Fraud, Manipulation and Insider Trading
-> Chapter XIII: General Provisions

E) Regulation of intermediaries (Securities Market Professionals)

-> Chapter VIII: Regulation of Securities Market Professionals
-> Chapter IX: Exchanges and other securities trading markets
-> Chapter X: Registration, Responsibility and Oversight of Self-Regulatory
Organizations
-> Chapter XI: Acquisition and transfer of securities and settlement of
transaction in securities
-> Chapter XII: Margin and Credit
-> Chapter XIII: General Provisions