RA 8799

The Securities Regulation Code

 RA 8799 or the Securities Regulation Code
The law that governs the use of financial securities in the
Philippines. Under the code, the Securities and Exchange
Commission (SEC) is the body that will enforce the law
and shall have the powers and functions provided by it.
The powers of the SEC are as follows: to formulate
policies and recommendations on issues concerning the
securities market, advice Congress and other
government agencies on the securities market, and
propose legislation; prepare, approve, amend or repeal
rules, regulations and orders, and issue opinions and
provide guidance and supervision on the compliance of
such rules, regulations and orders; and impose sanctions
for the violation of the same.
State Policy and Purpose:

The rise and fall of stock market indices reflect to a

considerable degree the state of the economy.
Securities transactions are impressed with public
interest, and are thus subject to public regulation; in
particular, the laws and regulations requiring
payment of traded shares within specified periods
are meant to protect the economy from excessive
stock market speculations, and are thus mandatory.
(Abacus Securities Corporation vs. Ruben Ampil, G.R. No. 160016, February 27,
2006)
Definition
of
Terms
 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.
 A “Public Company,”
As contemplated by the SRC is not limited to a company
whose shares of stock are publicly listed; even companies
whose shares are offered only to a specific group of people,
are considered a public company, provided they fall under
Subsec. 17.2 of the SRC, which provides: “any corporation with
a class of equity securities listed on an Exchange or with assets
of atleast 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.” Philippine Veterans Bank meets the
requirements and as such, is subject to the reportorial
requirements for the benefit of its shareholders. (Philippine
Veterans Bank v. Callangan, in her capacity Director of the Corporation Finance
Department of the Securities and Exchange Commission and/or the Securities and
Ex-change Commission, G.R. No. 191995, August 3, 2011)
 Self-Regulatory Organization or SRO

means an organized Exchange, registered clearing

agency and any organization or association
registered as an SRO.
 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 presumption that a contract is an investment contract

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

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.
 PHILIPPINES AND THE DERIVATIVES MARKET
History of the Philippine Derivatives Market

Philippine universal and commercial banks had been engaged in

derivatives transactions like foreign currency forwards and foreign
currency swaps since the early 1980s. The Manila International Futures
Exchange (MIFE) was established in 1985 and functioned as the
Philippine’s main commodity and derivatives market.

The MIFE initially offered sugar and soybean futures contracts and then
expanded to coffee and copra. All products were domestically produced.
The first financial futures contract to be traded in 1990 was on Philippine
treasury bills. Futures trading volume soared from 100,000 contracts
annually to more than 1 million contracts. Foreign currencies were also
traded. The MIFE was regulated and controlled by SEC.

It was closed down in 1997 due to governance issues including fraud and
irregularities done by brokers and officials of the exchange.
The Implementing Rules and Regulations of the Securities Regulation
Code make specific mention of derivatives with regard to the
registration of securities for public offerings and for brokers engaging
in derivatives trading.

However, the Philippines currently has no trading platform for

derivatives and most derivative transactions involve OTC derivatives
offered by banks and embedded derivatives. Since banks are most
often the counterparties of derivatives, regulation has mostly been
done by the Bangko Sentral ng Pilipinas (BSP).

The BSP regulates the financial derivatives activities of banks operating

in the Philippines. It has posted several guidelines for banks and other
market participants to participate in the financial derivatives market.
BSP Circular 594 states which derivatives activities banks can engage
in.
 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.
 Commodity Futures Contract

is 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.
 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.
 Forward

means 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.
 Tender Offer Rule

A tender offer is an offer by the acquiring person to

stockholders of a public company for them to tender their
shares; it gives the minority shareholders the chance to
exit the company under reasonable terms, giving them the
opportunity to sell their shares at the same price as those
of the majority shareholders. The mandatory tender offer
is still applicable even if the acquisition, direct or indirect, is
less than 35% when the purchase would result in
ownership of over 51% of the total outstanding equity
securities of the public company. (Cemco Holdings, Inc. vs. National
Life Insurance Company of the Philippines, G.R. No. 171815, August 7, 2007)
 Definition of Terms:
Tender offer means a publicly announced intention by a person
acting alone or in concert with other persons to acquire equity
securities of a public company.

Bidder means any person who makes a tender offer or on

whose behalf a tender offer is made.

Commencement means the date a tender offer is first

published, sent or given to security holders.

Security holders means holders of record and beneficial owners

of securities that are the subject of a tender offer.

Target company means any issuer of securities that are sought

by a bidder pursuant to tender offer.
 Mandatory Tender Offers
A person is required to make a tender offer for equity shares of a
public company in an amount equal to the number of shares that
the person intends to acquire:

A person shall be presumed to have the intent that would

mandate the making of a tender offer when the person,
respectively:
1. acquires 15% or more of the equity shares of a public
company pursuant to an agreement made between or among
the person and the seller or sellers;
2. acquires 30% or more of the shares of a public
company within a period of 12 months; or
3. acquires shares that result in ownership of more than
fifty percent (50%) of the equity shares of a public company.
 Relief from Mandatory Tender Offer Requirement
The following purchases of equity shares of a public
company are exempt:
1. the purchase of newly issued shares from unissued capital
stock;
2. in connection with foreclosure proceeding involving a duly
constituted pledge or security arrangement where the acquisition
is made by the debtor or creditor;
3. purchases in connection with privatization undertaken by the
government of the Philippines; or
4. purchases in connection with corporate rehabilitation under
court supervision.
5. Equity shares of a public company acquired through open
market purchases at the prevailing market price shall be
automatically exempted from mandatory tender offer
requirements provided that such purchaser complies with
disclosure requirements.
 Voluntary Tender Offers

A person will be presumed to be making a voluntary tender

offer where some or all of the following factors are present:

1. Active and widespread solicitation of public

shareholders for the shares of a public company;
2. Solicitation made for a substantial percentage of the
issuer’s stock;
3. Offer to purchase is made at a premium over the
prevailing market price, at firm rather than negotiable terms;
4. An offer is contingent on the tender of a fixed
number of shares; and/or
5. Offer is only open for a limited period of time.
 Insider Trading. Who are insiders as defined by the
SRC?
a) The Issuer
b) A director or officer of, or a person controlling, the issuer
c) 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
d) A government employee, or 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
e) A person who learns such information from any of the
foregoing insiders.
The term “insiders” now includes persons whose
relationship or former relationship to the issuer, gives
or gave them access to a fact of special significance
about the issuer or the security that is not generally
available, and one who learns such a fact from an
insider knowing that the person from whom he learns
the fact is such an insider. Insiders have the duty to
disclose material facts which are known to them by
virtue of their position but which are not known to
persons with whom they deal and which, if known,
would affect their investment judgment. (Securities and
Exchange Commission vs. Interport Resources Corporation, et. al., G.R.
No. 135808, October 6, 2008)
 When is there Insider Trading?
There is insider trading when an insider buys or sells
securities of an issuer while in possession of material
information with respect to the issuer or the security that is
not generally available to the public, unless: a) The insider
proves that the information was not gained from such
relationship, or b) If the other party selling to or buying
from the insider (or his agent) is identified, the insider
proves: i) that he disclosed the information to the other
party, or ii) that he had reason to believe that the other
party otherwise is also in possession of the information
(Section 27.1 SRC)
Section 27 (SRC) penalizes an insider’s misuse of
material and non-public information about the issuer,
for the purpose of protecting public investors; Section
26 widens the coverage of punishable acts, which
intend to defraud public investors through various
devices, misinformation and omissions. Section 23
imposes upon (1) a beneficial owner of more than ten
percent of any class of any equity security or (2) a
director or any officer of the issuer of such security, the
obligation to submit a statement indicating his or her
ownership of the issuer’s securities and such changes in
his or her ownership thereof.
(Securities and Exchange Commission vs. Interport Resources
Corporation, et. al., G.R. No. 135808, October 6, 2008)
Disclosure Rule. What kind of information is included
in the full and fair disclosure about securities?

Under the law, what is required to be disclosed is a fact

of “special significance” which may be (a) a material
fact which would be likely, on being made generally
available, to affect the market price of a security to a
significant extent, or (b) one which a reasonable person
would consider especially important in determining his
course of action with regard to the shares of stock.
(Securities and Exchange Commission vs. Interport Resources
Corporation, et. al., G.R. No. 135808, October 6, 2008)
 Manipulative Practices
In considering whether an order is manipulative, a Broker
Dealer shall consider:

Whether the order, or its execution would materially alter the

market for, and/or the price of, the securities;

The time the order is entered or any instructions concerning

the time of entry of the order;

Whether the person on whose behalf the order is placed may

have an interest in creating a false or misleading appearance of
active trading in any security or with respect to the market for,
or the price of, any security;
Whether the order is accompanied by settlement,
delivery or security arrangements which are unusual;

Whether the order appears to be part of a series of

orders which are unusual having regard to the matters
referred to in this paragraph; and

Whether there appears to be a legitimate commercial

reason for that person placing the order, unrelated to
an intention to create a false or misleading appearance
of active trading in or with respect to the market for,
or price of, any security.
 Examples of Manipulative Practices
1. 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
2. Marking the Close – Buying and selling securities at the
close of the market in an effort to alter the closing price of the
security
3. Improper Matched Orders – Engaging in transactions where
both the buy and the sell orders are entered at the same time
with the same price and quantity by different but colluding
parties
4. Hype and Dump – Engaging in buying activity at increasingly
higher prices and then selling securities in the market at the
higher prices
5. Wash Sales – Engaging in transactions in which there is
no genuine change in the actual ownership of the security

6. 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.

7. 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 (Rule 24.1 (b)-
1 IRR of the SRC
PART II
 REPUBLIC ACT No. 10142

AN ACT PROVIDING FOR THE REHABILITATION

OR LIQUIDATION OF FINANCIALLY
DISTRESSED ENTERPRISES AND INDIVIDUALS
 Section 1. Title.

This Act shall be known as the "Financial

Rehabilitation and Insolvency Act (FRIA) of
2010".
 Section 2. Declaration of Policy.

It is the policy of the State to encourage debtors, both

juridical and natural persons, and their creditors to
collectively and realistically resolve and adjust
competing claims and property rights. In furtherance
thereof, the State shall ensure a timely, fair,
transparent, effective and efficient rehabilitation or
liquidation of debtors.
The rehabilitation or liquidation shall be made with a
view to ensure or maintain certainly and
predictability in commercial affairs, preserve and
maximize the value of the assets of these debtors,
recognize creditor rights and respect priority of
claims, and ensure equitable treatment of creditors
who are similarly situated. When rehabilitation is not
feasible, it is in the interest of the State to facilities a
speedy and orderly liquidation of these debtor's
assets and the settlement of their obligations.
 Section 3. Nature of Proceedings.

The proceedings under this Act shall be in rem. Jurisdiction

over all persons affected by the proceedings shall be
considered as acquired upon publication of the notice of the
commencement of the proceedings in any newspaper of
general circulation in the Philippines in the manner
prescribed by the rules of procedure to be promulgated by
the Supreme Court.
The proceedings shall be conducted in a summary and
non-adversarial manner consistent with the declared
policies of this Act and in accordance with the rules of
procedure that the Supreme Court may promulgate.
Section 4. Definition of Terms.

As used in this Act, the term:

Debtor shall refer to, unless specifically excluded
by a provision of this Act, a sole proprietorship
duly registered with the Department of Trade and
Industry (DTI), a partnership duly registered with
the Securities and Exchange Commission (SEC),
a corporation duly organized and existing under
Philippine laws, or an individual debtor who has
become insolvent as defined herein.
Exclusions. - The term debtor does not include
banks, insurance companies, pre-need
companies, and national and local government
agencies or units.
Creditor shall refer to a natural or juridical person
which has a claim against the debtor that arose on
or before the commencement date.
Court shall refer to the court designated by
the Supreme Court to hear and determine, at
the first instance, the cases brought under
this Act.
Insolvent shall refer to the financial condition of
a debtor that is generally unable to pay its or
his liabilities as they fall due in the ordinary
course of business or has liabilities that are
greater than its or his assets.
Liquidator shall refer to the natural person or
juridical entity appointed as such by the court and
entrusted with such powers and duties as set
forth in this Act: Provided, That, if the liquidator is
a juridical entity, it must designated a natural
person who possesses all the qualifications and
none of the disqualifications as its representative,
it being understood that the juridical entity and the
representative are solidarity liable for all
obligations and responsibilities of the liquidator.
Rehabilitation shall refer to the restoration of the
debtor to a condition of successful operation and
solvency, if it is shown that its continuance of
operation is economically feasible and its
creditors can recover by way of the present
value of payments projected in the plan, more if
the debtor continues as a going concern than if it
is immediately liquidated.
Rehabilitation receiver shall refer to the person or
persons, natural or juridical, appointed as such by
the court pursuant to this Act and which shall be
entrusted with such powers and duties as set forth
herein.
Rehabilitation Plan shall refer to a plan by which the
financial well-being and viability of an insolvent debtor
can be restored using various means including, but
not limited to, debt forgiveness, debt rescheduling,
reorganization or quasi-reorganization, dacion en
pago, debt-equity conversion and sale of the business
(or parts of it) as a going concern, or setting-up of new
business entity as prescribed in Section 62 hereof, or
other similar arrangements as may be approved by
the court or creditors.
Commencement Order shall refer to the order
issued by the court under Section 16 of this
Act.
Section 16. Commencement of Proceedings and Issuance
of a Commencement Order.

The rehabilitation proceedings shall commence upon the

issuance of the Commencement Order, which shall:
(a) identify the debtor, its principal business or activity/ies
and its principal place of business;
(b) summarize the ground/s for initiating the proceedings;
(c) state the relief sought under this Act and any
requirement or procedure particular to the relief sought;
(d) state the legal effects of the Commencement Order,
including those mentioned in Section 17 hereof;
(e) declare that the debtor is under rehabilitation;
(f) direct the publication of the Commencement Order in a
newspaper of general circulation in the Philippines once a
week for at least two (2) consecutive weeks, with the first
publication to be made within seven (7) days from the time
of its issuance;
(g) If the petitioner is the debtor direct the service by
personal delivery of a copy of the petition on each creditor
holding at least ten percent (10%) of the total liabilities of
the debtor as determined from the schedule attached to
the petition within five (5) days; if the petitioner/s is/are
creditor/s, direct the service by personal delivery of a copy
of the petition on the debtor within five (5) days;
(h) appoint a rehabilitation receiver who may or not be from
among the nominees of the petitioner/s and who shall
exercise such powers and duties defined in this Act as well
as the procedural rules that the Supreme Court will
promulgate;
(q) include s Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or
otherwise, for the enforcement of claims against the
debtor;
(2) suspend all actions to enforce any judgment,
attachment or other provisional remedies against the
debtor;
(3) prohibit the debtor from selling, encumbering,
transferring or disposing in any manner any of its
properties except in the ordinary course of business;
and
(4) prohibit the debtor from making any payment of its
liabilities outstanding as of the commencement date
except as may be provided herein.
 Section 17. Effects of the Commencement Order.

Unless otherwise provided for in this Act, the court's issuance of

a Commencement Order shall, in addition to the effects of a
Stay or Suspension Order described in Section 16 hereof:
(a) vest the rehabilitation with all the powers and functions
provided for this Act, such as the right to review and obtain
records to which the debtor's management and directors have
access, including bank accounts or whatever nature of the
debtor subject to the approval by the court of the performance
bond filed by the rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis
rendering null and void the results of any extrajudicial
activity or process to seize property, sell encumbered
property, or otherwise attempt to collection or enforce a
claim against the debtor after commencement date unless
otherwise allowed in this Act, subject to the provisions of
Section 50 hereof;
(c) serve as the legal basis for rendering null and void any
setoff after the commencement date of any debt owed to
the debtor by any of the debtor's creditors;
(d) serve as the legal basis for rendering null and
void the perfection of any lien against the debtor's
property after the commencement date; and
(e) consolidate the resolution of all legal proceedings
by and against the debtor to the court Provided.
However, That the court may allow the continuation
of cases on other courts where the debtor had
initiated the suit.
Attempts to seek legal of other resource against the
debtor outside these proceedings shall be sufficient
to support a finding of indirect contempt of court.
 Section 18. Exceptions to the Stay or Suspension Order.

The Stay or Suspension Order shall not apply:

(a) to cases already pending appeal in the Supreme Court
as of commencement date Provided, That any final and
executory judgment arising from such appeal shall be
referred to the court for appropriate action;
(b) subject to the discretion of the court, to cases pending or
filed at a specialized court or quasi-judicial agency which,
upon determination by the court is capable of resolving the
claim more quickly, fairly and efficiently than the
court: Provided, That any final and executory judgment of
such court or agency shall be referred to the court and shall
be treated as a non-disputed claim;
(c) to the enforcement of claims against sureties and
other persons solidarily liable with the debtor, and third
party or accommodation mortgagors as well as issuers
of letters of credit, unless the property subject of the third
party or accommodation mortgage is necessary for the
rehabilitation of the debtor as determined by the court
upon recommendation by the rehabilitation receiver;
(d) to any form of action of customers or clients of a
securities market participant to recover or otherwise
claim moneys and securities entrusted to the latter in the
ordinary course of the latter's business as well as any
action of such securities market participant or the
appropriate regulatory agency or self-regulatory
organization to pay or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell
pledged securities of a debtor pursuant to a securities
pledge or margin agreement for the settlement of securities
transactions in accordance with the provisions of the
Securities Regulation Code and its implementing rules and
regulations;
(f) the clearing and settlement of financial transactions
through the facilities of a clearing agency or similar entities
duly authorized, registered and/or recognized by the
appropriate regulatory agency like the Bangko Sentral ng
Pilipinas (BSP) and the SEC as well as any form of actions
of such agencies or entities to reimburse themselves for
any transactions settled for the debtor; and
(g) any criminal action against individual debtor or owner,
partner, director or officer of a debtor shall not be affected
by any proceeding commend under this Act.
 CHAPTER II

COURT-SUPERVISED REHABILITATION

(1)Voluntary Proceedings.
(2)Involuntary Proceedings.
 Section 12. Petition to Initiate Voluntary Proceedings by
Debtor.

When approved by the owner in case of a sole proprietorship,

or by a majority of the partners in case of a partnership, or in
case of a corporation, by a majority vote of the board of
directors or trustees and authorized by the vote of the
stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, or in case of nonstock corporation,
by the vote of at least two-thirds (2/3) of the members, in a
stockholder's or member's meeting duly called for the purpose,
an insolvent debtor may initiate voluntary proceedings under
this Act by filing a petition for rehabilitation with the court and
on the grounds hereinafter specifically provided. The petition
shall be verified to establish the insolvency of the debtor and
the viability of its rehabilitation,
 Section 13. Circumstances Necessary to Initiate Involuntary
Proceedings.

Any creditor or group of creditors with a claim of, or the

aggregate of whose claims is, at least One Million Pesos
(Php1,000,000.00) or at least twenty-five percent (25%) of the
subscribed capital stock or partners' contributions, whichever is
higher, may initiate involuntary proceedings against the debtor
by filing a petition for rehabilitation with the court if:
(a) there is no genuine issue of fact on law on the claim/s of
the petitioner/s, and that the due and demandable payments
thereon have not been made for at least sixty (60) days or that
the debtor has failed generally to meet its liabilities as they fall
due; or
(b) a creditor, other than the petitioner/s, has initiated
foreclosure proceedings against the debtor that will prevent the
debtor from paying its debts as they become due or will render
it insolvent.
END