Securities Regulation Code

Question 1

Protection of the Public

Answer 1

1. Requiring full disclosure of information to the public regarding the securities that are being offered and the issuers, including the filing and approval of the registration statemetn and the approval of the prospectus;
2. The requirement of regularly submitting material information to the SEC
3. Close monitoring of the securities and other circumstances that may affect the same as well as the persons involved incluidng brokers, issuers, the exchange itself, etc. in order to ensure compliance with pertinent laws and regulations.
4. Prohibiting and penalizing different fraudulent practices and transactions; and
5. Providing the SEC the powers and functions

Question 2

It is a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others.

Answer 2

Investment contract

Question 3

Requisites for investment contract

(4)

Answer 3

1. An investment money
2. In a common enterprise;
3. with expectation of profits
4. Primarily from the efforts of others

Question 4

Transactions exempt from registration

BISCEPS SMILE

Answer 4

1. BROKER’S transaction, executed upon customer’s orders, on any registered Exchange or other trading market.
2. An ISOLATED transaction in which any security is sold, offered for sale, subscription or delivery by the owner thereof, or by his representative for the owner’s account, such sale or offer for sale or offer for sale, subscription or delivery not being
   made in the course of repeated and successive transaction of a like character by such owner, or on his account by such
   representative and such owner or representative not being the underwriter of such security.
3. The distribution by a corporation actively engaged in the business authorized by its articles of incorporation, of securities
   to its stockholders or other security holders as a STOCK dividend or other distribution out of surplus.
4. The issue and delivery of any security in exchange for any other security of the same issuer pursuant to a right of
   CONVERSION entitling the holder of the security surrendered in exchange to make such conversion: Provided, That the
   security so surrendered has been registered under the SRC or was, when sold, exempt from the provision of the SRC, and that the security issued and delivered in exchange, if sold at the conversion price, would at the time of such conversion fall within the class of securities entitled to registration under the SRC. Upon such conversion the par value of the security surrendered in such exchange shall be deemed the price at which the securities issued and delivered in such exchange are sold.
5. EXCLUSIVE SALE: The sale of capital stock of a corporation to its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock.
6. PRIVATE PLACEMENT: The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines
   during any twelve-month period.
7. SUBSCRIPTIONS for shares of the capitals stocks of a corporation prior to the incorporation thereof or in pursuance
   of an increase in its authorized capital stocks under the Corporation Code, when no expense is incurred, or no commission, compensation or remuneration is paid or given in connection with the sale or disposition of such securities, and only when the purpose for soliciting, giving or taking of such subscription is to comply with the requirements of such law as to the percentage of the capital stock of a corporation which should be subscribed before it can be registered and duly incorporated, or its authorized, capital increase.
8. Sale to SOPHISTICATED (Qualified) Buyers: The sale of securities to any number of the following qualified buyers:
   a. Bank;
   b. Registered investment house;
   c. Insurance company;
   d. Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof or manage by a bank or other persons authorized by the Bangko Sentral to engage in trust functions;
   e. Investment company or
   f. Such other person as the SEC may rule by determine as qualified buyers, on the basis of such factors as financial sophistication, net worth, knowledge, and experience in financial and business matters, or amount of assets under management
9. MORTGAGE-BACKED SECURITIES: The issuance of bonds or notes secured by mortgage upon real estate or tangible
   personal property, when the entire mortgage together with all the bonds or notes secured thereby are sold to a single purchaser at a single sale.
10. At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in INSOLVENCY or bankruptcy.
11. By or for the account of a pledge holder, or mortgagee or any of a pledge lien holder selling of offering for sale or delivery
    in the ordinary course of business and not for the purpose of avoiding the provision of SRC, to LIQUIDATE a bonafide debt, a security pledged in good faith as security for such debt.
12. The EXCHANGE of securities by the issuer with the existing security holders exclusively, where no commission or
    other remuneration is paid or given directly or indirectly for soliciting such exchange.

Question 5

Filing of General Information Sheet (GIS)

Answer 5

All corporations shall file their GIS within 30 calendar days from:
1. Stock Corporations – date of annual stockholders’ meeting
2. Non-Stock Corporations – date of annual members’ meeting
3. Foreign Corporations – anniversary date of the issuance of SEC license

Question 6

Filing of Annual Financial Statements (AFS)

Answer 6

1. Corporations using calendar year: depending on the last numerical digit of their SEC registration or license number
2. Corporations using fiscal year:
   a. General rule: 120 calendar days from the end of the fiscal year
   b. Exceptions:
   i. Broker dealers - 110 calendar days from the end of the fiscal year
   ii. Listed companies and Public Companies - 105 days from the end of the fiscal year.

Question 7

Any transaction in a security which involves no change in the beneficial ownership. A series of buy and sale transaction may be placed by one and the same beneficial owner in the exchange which would not affect any change of
ownership of the shares transacted.

Answer 7

Wash Sale

Not illegal but is considered fraudulent

Question 8

refers to an order or orders for the purchase or sale of security with the knowledge that a simultaneous order or orders of substantially the same size, time and price for the sale or purchase of such security has, or wil be entered by or for the same or different parties.

Answer 8

Matched Order

Not illegal but is considered fraudulent

Question 9

placing of purchase or sale order, at or near the close of the trading period in order to affect the closing price likewise affecting the opening price the following day.

Answer 9

Marking the Close

Question 10

akin to marking the close but the activity is made during normal trading hours which involves buying activity among nominee accounts at increasingly higher or lower prices or causing fictitious reports to appear on the ticker tape.

Answer 10

Painting the tape

Question 11

A part of portion of the issue/security which is outstanding but intentionally held by dealers or other person with a view of reselling them later for profit. Thereby affecting supply of the security or its availability while demand remains the same or increases, driving the prices up.

Answer 11

Squeezing the float

Question 12

It involves the following steps:
a. Purchase of outstanding capital stock of a dormant public shell company for a nominal amount;
b. Merger of the shell company with the privately held company of the person or group of persons involved to gain control of the majority of the stocks of the merged entity;
c. Reverse-split of the shares
d. Reissuance of the shares certificates in the name of the merged entity to relatives and associates;
e. Hiring a broker-dealer who would market the stocks of the newly merged entity;
f. Hiring a promoter to “hype” the virtues of the company;
g. When the market reaches the high price, they would “dump” their shareholdings and bail out.

Answer 12

Hype and Dump

Question 13

involves an intensive selling campaign through numerous salesmen by telephone or through direct mail offerings for securities of either a certain type or from a specific issuer. Investors are induced to purchase through hard-sell techniques based on unfounded predictions and mailing of misleading market letters.

Answer 13

Boiler Room Operations

Question 14

How does ‘marking the close,’ ‘painting the tape’, ‘squeezing the float’, ‘hype and dump’, and ‘boiler room operations’ become illegal/unlawful?

Answer 14

a. Raise the price or induce the purchase of a security or of a controlling, controlled or commonly controlled company by others;
b. Depresses their price to induce the sale of a security, whether of the same or of a different class, of the same issuer or of
a controlling, controlled company, or commonly controlled company by others; and
c. Creates active trading to induce such purchase or sale through said devices or schemes.

Question 15

Mandatory Tender Offer

Answer 15

It applies to any person who intends to acquire at least 35% over a period of 12 months of any class of any equity security of a:
1. Listed corporations; or
2. Corporations with:
a. Assets of at least P50M and
b. Having at least 200 shareholders who each have at least 100 shares.

The rule shall likewise apply even if the acquisition is less than 35% but will result in ownership of over 50% of the total outstanding equity securities of the public company.