BUSINESS ORGANIZATIONS II – ATTY.

ROCHELLE DAKANAY
BUSINESS ORGANIZATIONS II: Securities Regulation Code (R.A. No. 8799)  Exempt Securities  Exempt Transactions  Mandatory Tender Offer SEC. 2. Declaration of State Policy. – The State shall establish a socially conscious, free market that regulates itself, encourage the widest participation of ownership in enterprises, enhance the democratization of wealth, promote the development of the capital market, protect investors, ensure full and fair disclosure about securities, minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market. To achieve these ends, this Securities Regulation Code is hereby enacted.  The provision clarifies what the Code seeks to accomplish. Some provisions of the Code may be strict, but they are meant to assure investors that the Philippine capital market is fair and transparent. Any doubt in the interpretation of the Code and the implementing rules and regulations adopted thereunder should be resolved in such manner that would carry out the above policy and objective – to establish a free market, observe free disclosure on securities, and protect investors. The basic philosophy behind the SRC is that there should be a free securities market, which is self regulated with full and fair disclosure to the entire investing public, prohibiting insider trading and other fraudulent and manipulative devices and practices. Definitions:   “Issuer” is the originator, maker, obligor, or creator of the security. “Insider” means: (a) the issuer; (b) a director or officer (or person performing similar functions) 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; or (e) a person who learns such information by a communication from any of the foregoing insiders. “Insider trading” is the trading of corporation’s stock or other securities by individuals wi th potential access to nonpublic information about the company. It refers to a practice in which an insider or a related part trades based on a material non-public information obtained during the performance of the insider’s duties at the corporation, or otherwise in breach of fiduciary or other relationship of trust and confidence or where the non-public information was misappropriated from the company. “Stock price manipulation” is another prohibited activity under the SRC which, in order to simulate in terest in its stock, a corporation may decide to buy its own shares (usually through a conduit) thereby artificially stimulating the market of its own shares. Some forms of manipulative devices which may bring negative effects to investors who may be subjected to undue advantage are the following: Wash Sales 2 Improper Matched Order 3 “Marking the Close” 4 “Hype & Dump” 5 “Squeezing the Float”
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This occurs when stocks are traded without a genuine change in actual beneficial ownership making it appear that the stocks are actively traded. A matched order occurs when both buy and sell orders are entered at the same time with the same price and quantity by different but colluding parties. This is a practice of placing an order near the close of the trading day in an effort to close the price higher or lower than the previous price.

This is a form of price manipulation in which individuals or entities cause the price of certain stock to go up and then sell the securities in the market at higher prices after announcing a glossy picture of a particular issue as good investment contrived to sustain public interest in the shares and thus lure investors to trade.

Prepared by: DEUS E. DULAY – 3F

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That the Commission may require compliance with the form and content of disclosures the Commission may prescribe. EXEMPT SECURITIES SEC. Shares of stock. 6 7 8 It is a series of transactions in securities that are reported publicly to give the impression of activity or price movement in a security. to buy or sell an underlying security at a predetermined price. the repayment of which shall be derived from the cash flow of assets in accordance with the Securitization Act of 2004. c.BUSINESS ORGANIZATIONS II – ATTY. Certificates of assignments. Exempt Securities. The requirement of registration under Subsection 8. Prepared by: DEUS E. f. By performing similar acts where there is no change in beneficial ownership. instrument. SEC. 10 Warrants are rights to subscribe or purchase new shares or existing shares in a company on or before a predetermined date. certificates of participation. and acting as an instrumentality of said Government. which cab only be extended in accordance with the SEC rules and regulations and/or the Exchange rules. Fractional undivided interests in oil. asset-backed securities . or by any political subdivision or agency thereof. – 9. The material information must be disclosed in a timely manner. 9 10 8 c. Investment contracts. . or by any person controlled or supervised by. ROCHELLE DAKANAY “Painting the Tape” 7 Market Rigging/Jiggling 6 Essentially. trust certificates. bonds. which can only be extended by the SEC upon stockholders’ approval. 9 Options are contracts that give the buyer the right. b. province or political subdivision thereof on the basis of reciprocity: Provided.1 shall not as a general rule apply to any of Any security issued or guaranteed by the Government of the Philippines. b.1. on or before a predetermined date.  “Material information” is anything that might induce an ordinary person to decide to buy or sell the securities. the following classes of securities: a. contract. whether written or electronic in character. Warrants have generally longer exercise periods than options and are evidenced by warrant certificates. e. called the exercise or strike price. The provision is designed to prevent evasion of promoters or issuers who may adopt ingenious schemes in order to escape regulation or registration. or by any state. certificates of deposit for a future subscription. certificates of interest or participation in a profit sharing agreement. 3.3. 5 This is 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. to all investors at the same time. Any security issued or guaranteed by the government of any country with which the Philippines maintains diplomatic relations. Derivatives like option and warrants . g. notes. gas or other mineral rights. ”Securities” are shares. d. voting trust certificates or similar instruments. but not the obligation. debentures. It includes: a. Definition of Terms. Asset-backed securities are defined as certificates issued by a Special Purpose Entity (SPE). and Other instruments as may in the future be determined by the Commission. participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate. Proprietary or non proprietary membership certificates in corporations. DULAY – 3F Page 2 . Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body. called the expiry date. 9.1. evidences of indebtedness.  The catch all provision under paragraph (g) of Section 3 of the Code gives the SEC the authority to regulate trading of any new instruments by an exchange or other recognized markets. called the expiry date. the purpose of all these is to artificially show an upward or downward buying or selling trend.

it would be unregulated leaving the investors without any protection. Any security issued by a bank except its own shares of stock. The imposition is not considered onerous and is common practice in other countries. These include the following: 1. The requirement of registration under Subsection 8. add to the foregoing any class of securities if it finds that the enforcement of this Code with respect to such securities is not necessary in the public interest and for the protection of investors. Evidence of indebtedness e. 4. short or long-term commercial papers. Exempt Transactions. or the Bureau of Internal Revenue: In the event the securities which are supposed to be regulated by the above-mentioned government offices. guardian or receiver or trustee in insolvency or bankruptcy.BUSINESS ORGANIZATIONS II – ATTY. Prepared by: DEUS E. Sale of securities under the regulation of the Office of the Insurance Commission. they should be required to be registered under the Code. are not actually regulated by the concerned government agency. it is not exempted from complying with reportorial requirement [Union Bank vs. EXEMPT TRANSACTIONS SEC. administrator. SEC. is under the supervision and regulation of the Office of the Insurance Commission. otherwise. ROCHELLE DAKANAY d.1 shall not apply to the sale of any security in any of the following transactions: a. 9. or the Bureau of Internal Revenue. Note: If a bank is listed in Exchange.g. Example: Evidence of indebtedness issued by a financial institution itself that has been duly licensed by the Bangko Sentral ng Pilipinas to engage in banking/quasi-banking activity. DULAY – 3F Page 3 . 10. The SEC may prescribe rules for disclosure with respect to offerings of securities by foreign governments. Issuances by Foreign Governments: Those issued/guaranteed by any foreign government with which the Philippines maintains diplomatic relations. by rule or regulation after public hearing. e. or sale by an executor.  Exempt securities are exempt from registration requirements because of the character of the issues or existence of a regulatory regime recognized as already providing adequate protection to the investors. But shares issued by banks to the public for the purpose of raising capital will have to be registered with the SEC. by law. Government Issues: These are issued and sold by the government over which a particular government agency exercises regulatory or supervisory care. Bank Issues. 6. The Commission may. except their own shares of stock: Only customary or traditional banking activities are exempt from SEC registration. thereby. province or political subdivision thereof on the basis of reciprocity. Evidence of indebtedness issued to the Bangko Sentral ng Pilipinas (BSP) under its open market and/or rediscounting operations. Housing and Land Use Regulatory Board. Any security or its derivatives the sale or transfer of which. This exemption is necessary for the efficient and quick processing of claims against an insolvent company. 2. Evidence of indebtedness issued to the following primary institutional lenders. investors are deemed adequately protected. At any judicial sale. 3. and Bills of exchange arising from a bona fide sale of goods and services which are distributed and/or traded by banks or investment houses duly licensed by SEC and BSP through an organized market properly conventioned and governed by rules approved by the appropriate regulatory body. – 10. or any state. Others which the SEC may later decide to grant exemption: Simliar to the ones set forth. 5. The phliosophy behind the exemption is that issuance of securities by banking institutions are already supervised and regulated by the BSP.1. and a finding that the enforcement of the SRC is not necessary in the public interest and for the protection of the investors. 358 SCRA 479 (2001)]. but only the creditors of the issuer seeking full or partial payment of their claims.2. Housing and Land Use Regulatory Board. Certificates issued by a receiver/trustee in bankruptcy duly approved by the proper adjudicatory body: Certificates issued in a rehabilitation/insolvency proceeding does not affect the general public.

compensation or remuneration is paid or given in connection with the sale or disposition of such securities. knowledge. d. and only when the purpose for soliciting. DULAY – 3F Page 4 . a security pledged in good faith as security for such debt. f. executed upon customer’s orders. net worth. Investment company. The following transactions are specifically exempted under this section: Prepared by: DEUS E. subscription or delivery not being made in the course of repeated and successive transactions of a like character by such owner. The exchange of securities by the issuer with its existing security holders exclusively. where no commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock. to liquidate a bona fide debt. shall file with the Commission a notice identifying the exemption relied upon on such form and at such time as the Commission by rule may prescribe and with such notice shall pay to the Commission a fee equivalent to one-tenth (1/10) of one percent (1%) of the maximum aggregate price or issued value of the securities. and experience in financial and business matters. of securities to its stockholders or other security holders as a stock dividend or other distribution out of surplus. j. e. giving or taking of such subscriptions 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. if sold at the conversion price.BUSINESS ORGANIZATIONS II – ATTY. Subscriptions for shares of the capital stock of a corporation prior to the incorporation thereof or in pursuance of an increase in its authorized capital stock under the Corporation Code. The sale of capital stock of a corporation to its own stockholders exclusively. The sale of securities to any number of the following qualified buyers: i. 10. actively engaged in the business authorized by its articles of incorporation. offered for sale. or its authorized capital increased.  What is exempt from the registration requirements under this Section are the “transactions” and not the “securities” themselves. or no commission. 10. k. The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period. subscription or delivery by the owner thereof. Any person applying for an exemption under this Section. The Commission may exempt other transactions. where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange. The issuance of bonds or notes secured by mortgage upon real estate or tangible personal property. Registered investment house. l. such sale or offer for sale. ii.2. v. Broker’s transactions. or on his account by such representative and such owner or representative not being the underwriter of such security.3. when sold. would at the time of such conversion fall within the class of securities entitled to registration under this Code. Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof or managed by a bank or other persons authorized by the Bangko Sentral to engage in trust functions. iv. 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. on the basis of such factors as financial sophistication. g. exempt from the provisions of this Code. and that the security issued and delivered in exchange. or mortgagee or any other similar lien holder selling or offering for sale or delivery in the ordinary course of business and not for the purpose of avoiding the provisions of this Code. Such other person as the Commission may by rule determine as qualified buyers. or vi. ROCHELLE DAKANAY b. By or for the account of a pledge holder. That the security so surrendered has been registered under this Code or was. or amount of assets under management. or by his representative for the owner’s account. The distribution by a corporation. An isolated transaction in which any security is sold. iii. Bank. i. where the entire mortgage together with all the bonds or notes secured thereby are sold to a single purchaser at a single sale. 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. on any registered Exchange or other trading market. c. h. Insurance company. if it finds that the requirements of registration under this Code is not necessary in the public interest or for the protection of the investors such as by reason of the small amount involved or the limited character of the public offering. when no expense is incurred.

9. where no commission or remuneration is paid or given in connection with the transaction. Sec. to its stockholders or other security holders. and only when the purpose for soliciting. on the basis of such factors as financial sophistication. knowledge. pension funds. 3. Exchange of securities by the issuer with its existing security holders exclusively. or for his account. Transaction pursuant to right of conversion: An example of this transaction is conversion of preferred shares or warrants to common shares upon maturity. subscription or delivery by the owner thereof. 10. Sale of foreclosed securities in order to obtain satisfaction of a mortgage out of the proceeds. when no expense is incurred. investment companies. if it finds that the requirements of registration is not necessary in the public interest or for the protection of investors. 5. as one of their major business activities is to invest in securities. 13. Other qualified buyers or qualified institutional investors : The SEC may exempt other transactions. and experience in financial and business matters. 11 Prepared by: DEUS E. compensation or remuneration is paid or given in connection therewith. Example: Employees Stock Ownership Plan: Intended as an effective reward mechanism that has enabled the company to retain key talents in the organization. 2. Pre-incorporation subscription or subscription to a capital increase: Subscriptions of the capital stock of a corporation prior to the incorporation thereof or in pursuance of an increase in its authorized capital stock. offered for sale. investment houses. 4. DULAY – 3F Page 5 .BUSINESS ORGANIZATIONS II – ATTY. ROCHELLE DAKANAY 1. or amount of assets under management. not being made in the course of repeated and successive transactions of a 11 like character. such as by reason of the small amount involved or the limited character of the public offering. it is a common practice for companies in the Philippines to sell small amounts of shares to its stockholders to raise capital. These are exempt from registration because they are generally not given for value and thus do not constitute a sale. 3. and such other person as SEC may by rule determine as qualified buyers. that a corporation extends to it =s employees or staff whereby the corporation allocates a certain portion of it authorized capital stock for subscription under certain terms and conditions stipulated in the plan. 12. Private placements: The sale of securities by an issuer to not more than 19 persons during any twelve month period. Stock dividends: Stock dividend or other distribution out of surplus by a corporation. Sale of shares to stockholders not underwritten: Sale of capital stock of a corporation to its own stockholders exclusively. and such owner or representative not being the underwriter of such security. This is intended to allow ordinary after market trading to occur among investors through brokers and to restrict the registration requirements to primary offerings by issuers directly through undertwriters. a privilege. Issuance of bonds to a single purchaser: This transaction is exempt in the sense that it is of limited character as it involves only one (1) investor. net worth. or its authorized capital increased. insurance companies. actively engaged in the business authorized by its articles of incorporation. Isolated transaction: An isolated transaction in which any security is sold. Broker’s transactions: It is immaterial whether or not brokers solicit the transactions. 8. 6. 11. They are called “qualified buyers” because they are institutional investors who are presumed to know the risks of investing in the securities market.15: “Underwriter” is a person who guarantees on a firm commitment and/or declared best effort basis the distribution and sale of securities of any kind by another company. giving or taking of such subscriptions 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. not a right. whether authorized by a decree of the court or by power of sale contained in the mortgage agreement. Judicial sale of securities made pursuant to a judgment rendered by a court. Sale to qualified buyers such as banks. where no commission or other remuneration is paid or given directly or indirectly in connection therewith. 7. or no commission.

Whatever may be the method by which control of a public company is obtained. The acquirer in such a tender offer shall be required to accept any and all securities thus tendered. Any corporation with a class of equity securities listed on an Exchange.1) Mandatory Tender Offers A. shall be required to make a tender offer to all holders of such class for the number of shares so acquired within the said period. Purchase in connection with foreclosure proceedings involving a duly constituted pledge or security arrangement where the acquisition is made by the debtor or creditor. Purchases in connection with corporate rehabilitation under court supervision. August 7. 171815. National Life Insurance Company. Tender Offers (formerly..000.BUSINESS ORGANIZATIONS II – ATTY. 2007)  Exempt from Mandatory Tender Offer Requirement The mandatory tender offer requirement shall not apply to the following: 1.  Mandatory tender offer is designed and is in place to protect minority shareholders where there is a buy-out of large shareholders.. Callangan. If any acquisition of even less than thirty five percent (35%) would result in ownership of over fifty one percent (51%) of the total outstanding equity securities of a public company. Prepared by: DEUS E. Any person or group of persons acting in concert. who intends to acquire thirty five percent (35%) or more of equity shares in a public company in one or more transactions within a period of twelve (12) months. DULAY – 3F Page 6 .   Tender Offer: A publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company. 171815. C. National Life Insurance Company. or b. vs. 5. Inc. Public Company: a. Inc. giving them the opportunity to sell their shares at the same price as those of the majority shareholders. The bottom line of the law is to give the shareholders of the public company the opportunity to decide whether or not to sell their shares in connection with the transfer of control.R. G.R. provided they meet the requirements enumerated above (Philippine Veterans Bank vs. G. Inc. whose shares are offered only to a specific group of people. (Cemco Holdings. August 7. Inc.R. 2011). vs. With assets in excess of Fifty Million Pesos (P50. No. mandatory tender offer applies. 4. 2007) The rule applies to both direct and indirect acquisition as indirect acquisition would result in a change of influence or control over the public company. who intends to acquire thirty five percent (35%) or more of equity shares in a public company shall disclose such intention and contemporaneously make a tender offer for the percent sought to all holders of such class. No. Any person or group of persons acting in concert. NOTE: “Public Company” as contemplated by the SRC. 191995. SRC Rule 19. ROCHELLE DAKANAY MANDATORY TENDER OFFER SRC Rule 19. 3. are considered a public company. It seeks to protect investors against any scheme that dilutes the share value of their investment where there are no guaranteed preemptive rights. even companies like the Bank. B. at least two hundred (200) of which are holding at least one hundred (100) shares of a class of its equity securities. (Cemco Holdings. No. Any purchase of shares from an increase in authorized capital stock. and gives the minority shareholders the chance to exit the company under reasonable terms. The legislative intent of the SRC is to regulate activities relating to the acquisition of control of a public company. Any purchase of shares from the unissued capital stock provided that the acquisition will not result to a fifty percent (50%) or more ownership of shares by the purchaser. G. August 3. Purchases in connection with privatization undertaken by the government of the Philippines. the acquirer shall be required to make a tender offer under this Rule for all the outstanding equity securities to all remaining stockholders of the said company at a price supported by a fairness opinion provided by an independent financial advisor or equivalent third party. is not limited to a company whose shares of stock are publicly listed.000. 2. either through the direct purchase of its stocks or through an indirect means.00) and having two hundred (200) or more holders.

and 2. Central Book Supply. Jr. Quezon City Jose Jesus G. not later than ten (10) calendar days after the termination of the tender offer. At least two (2) business days prior to the date of the commencement of the tender offer: 1. and Timoteo B.. with the prescribed filing fees.. (2013) The Corporation Code of the Philippines Annotated. De Leon. ROCHELLE DAKANAY 6. Rex Printing Company.. Sr. Purchases through an open market at the prevailing market price. 11th Edition. c) Report the results of the tender offer by filing with the SEC. DULAY – 3F Page 7 . 5th Edition. Sundiang. prior to the commencement of the offer. REFERENCES:      Hector S. File with the SEC a required form for tender offer (SEC Form 19-1) including all exhibits thereto (and any amendments thereto). Quezon City Jose R. Decasa (2013) Securities Regulation Code Annotated (Revised Edition).. Inc. Rex Printing Company. De Leon and Hector M. Obligations of Person Making a Tender Offer A person making a tender offer is required to: a) b) Make an announcement of his intention in a newspaper of general circulation.BUSINESS ORGANIZATIONS II – ATTY. Inc. Manila Prepared by: DEUS E. Quezon City Lucila M. Laurel (2006) Corporation Law Simplified. Rex Printing Company. and Hand deliver a copy of such form including the exhibits (and amendments) to the target company at its principal executive office and to each Exchange where such securities are listed for trading.. Quezon City 2013 Centralized Bar Operations. 7. San Beda College of Law. and Merger or consolidation. Aquino (2011) Reviewer on Commercial Law. Inc. copies of the final amendments to the form. Inc. Memory Aid in Commercial Law.

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