(g) Other instruments as may in the future be determined by the Commission.

Implementing Rules and Regulations of SRC 2015:

Securities Registration
Atty. Refran 3.1.20:

xxx
Foreword:
Debt securities/instruments include any evidence of indebtedness such
Thank you to my classmates, most of the discussion in the latter portion of this reviewers
as bonds, notes, debentures, commercial papers, treasury bills, treasury
came straight from their presentations. I merely added some of my notes and Atty.
bonds and other similar instruments as may be determined by the
Refran’s comments.
Commission.

AMDG

Equity securities include shares of stock in a corporation.

What are Securities?
❖ Notes:
As defined by Law:
Securities are those enumerated in the law under Section 4 of the SRC. Do
R.A. 8799 or Securities Registration Code (“SRC”): note that letter (g) operates as a catch-all provision for the Securities
Exchange Commission.
Section 4: "Securities" are shares, participation or interests in a corporation
or in a commercial enterprise or profit making venture and evidenced by a 3.1.20 of the SRC IRR is an addition to the enumeration
certificates contract, instrument, whether written or electronic in character. It
includes: SIODAPO
What is a Public Offering?
(a) Shares of stock, bonds, debentures, notes, evidence of indebtedness, asset-
backed securities; IRR of the SRC 2015

(b) Investment contracts, certificates of interest or participation in a profit sharing 3.1.17. Public offering is any offering of securities to the public or to
agreement, certificates of deposit for a future subscription; anyone, whether solicited or unsolicited. Any solicitation or presentation of
securities for sale through any of the following modes shall be presumed to
(c) Fractional undivided interests in oil, gas or other mineral rights; be a public offering:

(d) Derivatives like option and warrants; 3.1.17.1. Publication in any newspaper, magazine or printed reading
(e) Certificates of assignments, certificates of participation, trust certificates, material which is distributed within the Philippines;
voting trust certificates or similar instruments;

(f) Proprietary or nonproprietary membership certificates in corporations; and 3.1.17.2. Presentation in any public or commercial place;
3.1.17.3. Advertisement or announcement on radio, television, telephone,
electronic communications, information communication technology or any other
forms of communication; or
3.1.17.4. Distribution and/or making available flyers, brochures or any
offering material in a public or commercial place or to prospective
purchasers through the postal system, information communication
technology and other means of information distribution.
Atty. Refran: If a particular instrument or contract is within the term “security”
the next question to be asked: Is the transaction of the “security” a Public
Offering (“PO”)?
● If the answer to the above question is YES:
Then register with the SEC. Registration follows certain rules etc.
submission of prospectus.
The rules and procedures for selling and buying should be complied under SRC
and the IRR of the SRC. There are nuances for each security transaction.
However, A PUBLIC OFFERING IS NOT EQUIVALENT TO REGISTRATION.
PRIMARY OFFERING PROCEDURE:
Issuer to shareholder transactions.
PO is a process, first goes the pre-effective clearance then:
● Book building
● Roadshow
● Price fixing
● Public Offering (5 days)
○ This is where the underwriters sell the block shares
● Allocated - Confirmed
○ If there’s unallocated portions (unsold securities) it will be
bought up by the underwriters.
■ If you cannot sell, the buyer will be the underwriter -
that’s their risk.
Hosea L. Salazar ALS 2021
● [DEPENDS]: Listed
Q: What if there’s no compliance? - Criminal & Civil liability for the
responsible officers. These are usually the compliance officers.
SECONDARY MARKET/TRADING PROCEDURE (POST IPO MARKET)
● Shareholder to Shareholder
● This is where the brokers and stock exchanges will come in
PROCESS IN GETTING INTO THE CAPITAL MARKET:
Life-cycle of a Public Offering:
How do you introduce yourself? - YOU REGISTER THE COMPANY.
Registration avoids information asymmetry; the information which is made
available to the public protects the investor.
1. There might be Marketing to show the companies stuff, basically to
inform the public that you’re worth investing in.
2. You might do a public offering (but not necessarily list in an exchange)
● One of the defences against SEC violations is that the
company is merely fundraising which is not equivalent to
public offering.
3. As an investor, you must look at the obligations of the issuer. These
are all in the prospectus, and as counsel it should be stipulated in the
prospectus.
4. SEC will then determine if it’s a public offering
5. Information is important. Price setting comes after the roadshow.
6. The Final Prospectus MUST COME BEFORE the public offering
Atty Refran: In registration what you’re primarily registering is the security.
Selling securities a fund raising operation HOWEVER not all fund-raising
operations are POs
Kinds of Securities:
2
(a) Shares of stock, bonds, debentures, notes, evidence of indebtedness, asset-
backed securities;

(b) Investment contracts, certificates of interest or participation in a profit sharing
agreement, certificates of 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 nonproprietary membership certificates in corporations; and
(g) Other instruments as may in the future be determined by the Commission
SEC v. Prosperity.Com.Inc.
❖ Notes:
When a product is sold the first element of the Howey Test is potentially
violated. When there’s a sale of a product THERE IS NO investment it’s
ONLY A SALE.
However, this does not mean that transaction is a sale; To assess the
transaction thoroughly you could look at a representation if the sale
leads to an expectation of profits, which is the 3rd Element of the
Howey Test.

❖ In PCI the third element is missing (that’s what the court said) and
there was no common enterprise
Atty. Refran:
Atty. Refran:
Letter (a) of the enumeration is what’s called “securities per se” meaning
Q: In this scenario in order to raise funds in order to increase authorised
securities that are by their very nature.
stock, solicited funds from investors with the promise of issuance preferred
❖ Investment Contracts: shares to investors AFTER SEC approved the increase of authorised stock

**Howey Test as modified by the SEC v. Glenn W. Turner Enterprises:
A transaction is deemed an investment contract where it requires a person
to: MC-ES
A: It’s not a share of stock, BUT a certificate of deposit for future subscription.
WHY? The investor does not GET THE STOCK. However, THE SEC allowed
that. However, PSE did not list because

1. makes an investment of money

Atty. Refran:
2. in a common enterprise,
3. with the expectation of profits, The centerpiece or cornerstone securities registration is “PRICING”
4. to be derived *solely from the efforts of others.

*the word “Solely” in the 4th element of the Howey Test should not be Rule 8.1 - Filing of Registration Statement
interpreted strictly. The Court in SEC v. Glenn Turner ruled that the 4th Element
should be construed to mean: 8.1.1. Filing of Registration Statement ("RS") and Effectivity of Offering
“....we adopt a more realistic test, whether the efforts made by those other
than the investor are the undeniably significant ones, those essential
managerial efforts which affect the failure or success of the enterprise.”

Hosea L. Salazar ALS 2021 3

8.1.1.1. No securities shall be sold or offered for sale, or distributed by any person
or entity within the Philippines unless such securities are duly registered with
the Commission through Form 12-1, and the registration statement has been
declared effective by the Commission except of a class exempt under Section
9 of the Code or unless sold in any transaction exempt under Section 10 thereof
and these Rules. No information relating to an offering of securities shall be
disseminated unless a registration statement has been filed with the
Commission and the written communication proposed to be released
contains the required information under SRC Rule 8.3.
8.1.1.2. All outstanding shares of the following corporations shall be
registered with the Commission:
8.1.1.2.1. Corporations that will conduct Initial Public Offerings;
8.1.1.2.2. Corporations that will apply for listing on an Exchange by way of
introduction.
8.1.1.3. No registration shall be required for the outstanding shares of
reporting corporations with shares already listed on an Exchange that were
not registered with the Commission pursuant to Section 5(a)(3) of the
Revised Securities Act, now Section 9.I(e) of the Code.
8.1.1.5. The sale of the securities subject of the registration statement shall
commence within ten (10) business days from the date of the effectivity of
the registration statement' and shall continue until the end of the offering
period or until the sale is terminated by the Issuer. If the sale is not
commenced within ten (10) business days, the RS shall be cancelled and all
fees paid thereon forfeited.
Delayed and Continous Offering and Sale of Securities or SHELF
REGISTRATION:
8.1.2 Delayed and Continous Offering and Sale of Securities:
Securities, which are intended to be issued in tranches at more than one
instance after the registration statement has been rendered effective by the
Commission, may be registered for an offering to be made on a continuous
Hosea L. Salazar ALS 2021
or delayed basis in the future, for a period not exceeding three (3) years
from the effective date of the registration statement under which they are
being offered and sold.
Securities offered after the initial tranche shall comply with the following
requirements:
8.1.2.1. At least five (5) business days prior to the offering or sale of the
securities, it shall disclose to the Commission the required information using
SEC Form 12-I-SR;
8.1.2.2. Filing Fees
8.1.2.2.1. Upon filing of an RS, the total filing fee shall be computed based
on Section 12.5 (a) of the SRC, payable per tranche of issuance and
proportional to the issued value.
8.1.2.2.2. The filing fees of the subsequent tranches shall be payable
within seven (7) business days prior to commencement of the offer/sale of
the said securities.
8.1.2.3. The registrant shall execute an Undertaking to pay the remaining
registration fees no later than thirty (30) business days prior to the expiry
of the three (3) year period reckoned from the date of effectivity of the RS.
Atty. Refran:
Let’s say you have this scenario:
Authorized Capital Stock: Php 2 million worth of common
shares
What you already Issued is: Php 1 Million
You have to fundraise Php 10 Million in just 2 years
But the registration for PO is too long for the commission to render the PO
effective what do you do? What if you want to tap the market right away
Do a Delayed or Continuous Public Offering (shelf registration) under
8.1.2
4
You can only sell per REGISTERED tranche in this method. But this CANNOT
go on indefinitely the selling securities registered per tranche/batches
cannot go on beyond a period of 3 years.
Prospectus Delivery Requirements:
8.1.3.1. The prospectus shall be submitted to the Commission as part of the
registration statement.
8.1.3.2. Securities required to be registered pursuant to Sections 8 and 12 of
the Code shall not be offered for sale or sold unless the prospectus, or any
information material which has been filed with the registration statement in the
form and containing the information described below, has been widely
disseminated and sufficient copies have been made available to interested
parties. Further, the prospectus contains the following statement in bold face
print, at least 12 point type prominently displayed:
A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, BUT HAS NOT YET BEEN
DECLARED EFFECTIVE. NO OFFER TO BUY THE
SECURITIES CAN BE ACCEPTED AND NO PART OF THE
PURCHASE PRICE CAN BE RECEIVED UNTIL THE
REGISTRATION STATEMENT HAS BECOME EFFECTIVE
THEREBY, AND ANY SUCH OFFER MAY BE WITHDRAWN OR
REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF
ANY KIND, AT ANY TIME PRIOR TO THE NOTICE OF ITS
ACCEPTANCE. AN INDICATION OF INTEREST IN RESPONSE
HERETO INVOLVES NO OBLIGATION OR COMMITMENT OF
ANY KIND. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR BE CONSIDERED A SOLICITATION OF
AN OFFER TO BUY.
8.1.3.3. In addition to the requirements of this Rule, the prospectus shall
contain the information required by SRC Rule 12.1 and Form 12-1 and shall
Hosea L. Salazar ALS 2021
be prepared in accordance with the requirements of Rule 72.1. The contents
of the prospectus shall be worded in a language that can be understood by an
ordinary person.
Atty Refran:
Q: Who drafts the prospectus? - THE UNDERWRITER’S COUNCIL
Q: What’s the purpose of a Underwriter? - An Underwriter must be the one
to certify that all the information is true in the prospectus. It must be the
underwriter who does this, because they have the legal obligation under the
IRR to certify.
In Registration, auditing (merit based) is not included because the underwriter
is already certifying that all the information in the prospectus is true.
However, the market operator, does the merit based (PSE)
The moment you do the PO you now have to prove the suitability, so now
suitability requirements now apply. This because when you do a PO and/or list
you open the securities to a broader market which do not necessarily have the
resources to do the due diligence.
The permit to sell OFTEN does not include the suitability aspect. The market
place does that IN ORDER TO DETERMINE if the securities can be sold in a
broader market place
PO =/= Listing =/= Registration
8.1.3.2 Shows that the preliminary prospectus WARNING readers of the
prospectus that it is NOT FINAL.
When does it become final? - It comes after the public comments and
DETERMNATION OF A PRICE then what comes after is that the underwriter
signs the prospectus.
If there’s a disagreement as to the price then THE UNDERWRITER WILL
NOT sign. Because the underwriter will not sign that; the fund raising may not
5
take off and shares cannot be sold; this opens up as the underwriter of the liability
to BUY the unsold shares.
Time is an important element in order to take advantage of the market.
In listing it’s different, the market place/regulator would follow the prospectus
schedule. Listing will come after the shares has been allocated. Listing will follow
the issuance, it cannot be simultaneous or cannot precede.
❖ Notes on Buying Shares in the secondary markets:
The Bulk of the issued shares is going to be offered to the institutions. THE
OTHER 30% is sold in the market place = 10% = might allocated to the small
local investors
Brokers = get the 20%
YOU CAN’T BUY DIRECTLY you have to go to financial intermediaries
Rule 8.5 - Audit by the Commission
The Commission may audit the financial statements, assets and other
information of a firm applying for registration of its securities whenever it
deems the same necessary to insure full disclosure or to protect the interest
of the investors and the public in general.
Rule 8.5 is NOT mandatory, the commission depends on the “gate keepers”
(meaning the compliance officers like: lawyers, accountants etc.)
Rule 8.2 - Conditional Approval
Hosea L. Salazar ALS 2021
The Commission may conditionally render the RS effective under such
terms as it may deem necessary.
8.2 Pricing and certification
Rule 8.3 - Written Communications Not Deemed Offers for Sale
8.3.1. A notice, circular, advertisement, letter or other forms of
communication do not constitute an offer for sale that violates Section 8 of
the Code if it is published or transmitted to any person after a registration
statement has been filed and contains the following information:
8.3.1.1. The name of the issuer of the security;
8.3.1.2. The full title of the security and the amount being offered;
8.3.1.3. A brief indication of the general type of business of the issuer:
8.3.1.4. The price of the security or, if the price is not known, the method of
its determination or the probable price range as specified by the issuer or
the managing underwriter;
8.3.1.5. In the case of a debt security with a fixed (non-contingent) interest
provision, the yield or, if the yield is not known, the probable yield range, as
specified by the issuer or the managing underwriter;
8.3.1.6. The name and address of the sender of the communication and the
fact that he is participating, or expects to participate,in the distribution of the
security;
8.3.1.7. The names of the underwriters;
6
 8.3.1.8. The approximate date upon which the proposed sale to the public
is anticipated to commence;
8.3.1.9. Whether the security is being offered through rights issued to
existing security holders, and, if so, the class of securities the holders of
which will be entitled to subscribe, the subscription ratio, the actual or
proposed record date, the date upon which the rights were issued or are
expected to be issued, the actual or anticipated date upon which they will
expire, and the approximate subscription price, or any of the foregoing;
8.3.1.10. With respect to any class of debt securities, any class of
convertible debt securities or any class of preferred stock, the security rating
or ratings assigned to the class of securities by any credit rating agency
recognized or accredited by the Commission and the name of such rating
agency!ies which assigned such rating/s;
8.3 Safe harbor provisions in terms of PO
**SECTION 9. Exempt Securities. — 9.1. The requirement of registration
under Subsection 8.1 shall not as a general rule apply to any of the following
classes of securities:
(a) Any security issued or guaranteed by the Government of the
Philippines, or by any political subdivision or agency thereof, or by any
person controlled or supervised by, and acting as an instrumentality of said
Government.
(b) Any security issued or guaranteed by the government of any country
with which the Philippines maintains diplomatic relations, or by any
state, province or political subdivision thereof on the basis of reciprocity:
Provided, That the Commission may require compliance with the form and
content of disclosures the Commission may prescribe.
Hosea L. Salazar ALS 2021
(c) Certificates issued by a receiver or by a trustee in bankruptcy duly
approved by the proper adjudicatory body.
(d) 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, Housing and Land Use Regulatory Board, or the Bureau of
Internal Revenue.
(e) Any security issued by a bank except its own shares of stock.
Exempt Transactions:
SECTION 10. Exempt Transactions. — 10.1. The requirement of
registration under Subsection 8.1 shall not apply to the sale of any security
in any of the following transactions:
(a) At any judicial sale, or sale by an executor, administrator, guardian or
receiver or trustee in insolvency or bankruptcy.
(b) By or for the account of a pledge holder, 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, to liquidate a bona fide debt, a security pledged in good faith as
security for such debt.
(c) 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,
subscription or delivery not being made in the course of repeated and
successive transactions 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.
(d) The distribution by a corporation, actively engaged in the business
authorized by its articles of incorporation, of securities to its stockholders or
7
 other security holders as a stock dividend or other distribution out of
surplus.
(e) 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.
(f) The issuance of bonds or notes secured by mortgage upon real
estate or tangible personal property, where the entire mortgage together
with all the bonds or notes secured thereby are sold to a single purchaser
at a single sale.
(g) 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 this Code or was, when sold, exempt from the provisions
of this Code, 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 this Code. 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.
(h) Broker's transactions, executed upon customer's orders, on any
registered Exchange or other trading market.
*(i) 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, 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
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
Hosea L. Salazar ALS 2021
before it can be registered and duly incorporated, or its authorized capital
increased.
*(j) 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 for soliciting such exchange.
(k) The sale of securities by an issuer to fewer than twenty (20) persons
in the Philippines during any twelve-month period.
(l) The sale of securities to any number of the following qualified buyers: (i)
Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) 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;
(v) Investment company; or
(vi) Such other person as the Commission may by rule 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.
10.2. The Commission may exempt other transactions, 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.
10.3. Any person applying for an exemption under this Section, 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
8

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.
❖ Notes:
Exempt transactions are not automatically “exempt” there must be
filing and payment of the fee (which is 1/10th of the 1% of the total
aggregate price or issued value of the shares)
10.1.8. Burden of Proof on the Availability of Exemption
Unless a confirmation of exemption is issued under this Rule, any person
claiming exemption under Section 10 of the Code has the burden of proof,
if challenged, of showing that it is entitled to the exemption. The
Commission may challenge such exemption any time.
Atty. Refran: It is not mandatory to file for confirmation before the exempt
transactions are made, however a confirmation dispenses with the burden of proof
that such transaction is exempt.
“(e) 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.”
Hosea L. Salazar ALS 2021
This is actually called a Stock Rights Offering (“SRO”);
Why is this exempt? Because the stockholders ought to know or they already
know the risks and know the issuer. It’s based on a buyer beware thing.
It must be: exclusively to stockholders only and an underwriter is always
required. Just tell the SEC that you certify that there’s no commission or other
remuneration is paid.
Atty. Refran: There’s really no requirement confirming for you to publicly
offer in exempt transactions, SEC just sends you the notice if you’re
supposed to register. HOWEVER, it’s not mandatory, getting a confirmation is
just due diligence
10 (c) of the IRR 2015 of the SRC:
(c) 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, subscription or delivery
not being made in the course of repeated and successive transactions 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.
IRR 2015:
10.1.7. Isolated Transactions under Section 10.1 (c)
10.1.7.1. A request for confirmation of exemption under Section 10.I(c) of the
Code shall be available to issuers and sellers.
10.1.7.2. The Commission may take any action it may deem appropriate in an
application for confirmation even if it is filed after the offer or sale of the
securities without prejudice to the imposition of penalties if warranted.
9
This is based on frequency. The issuer in this transaction does not foresee a
regular sale of securities or engage in the regular sale of the securities.
If you did not use ordinance of exchange; information will not be readily
available.
10(e) of the IRR 2015 of the SRC:
(k) The sale of securities by an issuer to fewer than twenty (20) persons
in the Philippines during any twelve-month period.
10 (k) is just private placement; the underlying principle here is that the
investors can do their due diligence finding information. This is an over the
counter transaction.

(e) 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. l) The sale of securities to any number of the following qualified buyers:

(i) Bank;
It’s an SRO but really if you want to avoid this risk just register; as you don’t want
to be criminally
(ii) Registered investment house;

(g) The issue and delivery of any security in exchange for any other security
(iii) Insurance company;
of the same issuer pursuant to a right of conversion entitling the holder of
the security surrendered in exchange to make such conversion: Provided,
(iv) Pension fund or retirement plan maintained by the
That the security so surrendered has been registered under this Code or was,
Government of the Philippines or any political subdivision thereof
when sold, exempt from the provisions of this Code, and that the security issued
or managed by a bank or other persons authorized by the Bangko
and delivered in exchange, if sold at the conversion price, would at the time of
Sentral to engage in trust functions;
such conversion fall within the class of securities entitled to registration under this
Code. Upon such conversion the par value of the security surrendered in such
(v) Investment company; or
exchange shall be deemed the price at which the securities issued and delivered
in such exchange are sold.
(vi) Such other person as the Commission may by rule
determine as qualified buyers, on the basis of such factors as
10(g) is a convertible stock option financial sophistication, net worth, knowledge, and experience in
financial and business matters, or amount of assets under
(h) Broker's transactions, executed upon customer's orders, on any management.
registered Exchange or other trading market.

10(h) it’s operable in that transactions on the offer of the broker is NOT for fund
raising; It might only for sale. It differs from underwriter because the latter does
not own the shares he’s just book building; the broker however owns the legal title
and however the beneficial title belongs to other people

Hosea L. Salazar ALS 2021 10

 Who are Qualified Individual Buyers?
NATURAL PERSON
10.1.11.1. For purposes of Section 10
of the Code, a natural person shall be
considered a qualified individual
buyer if he has registered as such
with entities that are authorized by
the Commission to act as registrar
of qualified buyers pursuant to the
rules provided under SRC Rule
39.1.4.
A natural person must possess the
following qualifications:
10.1.11.1.I. Has an annual gross
income of at least Ten Million
Pesos (Php 10,000,000.00) at least
two (2) years prior to registration,
or a total portfolio investment in
securities registered with the
Commission of at least Ten Million
Pesos (Php 10,000,000.00), or a
personal net worth of not less than
Thirty Million Pesos
(Php30,000,000.00); and
Hosea L. Salazar ALS 2021
10.1.11.1.2. Has been engaged in
securities trading personally or
JURIDICAL PERSON through a fund manager for a
minimum period of one (1) year, or
10.1.11.2. If the buyer is a juridical has held for at least two (2) years a
person, it shall, at the time of position of responsibility in any
registration with an authorized professional business entity that
registrar, requires knowledge or expertise in
securities trading, such as, legal
(i) have gross assets of at least consultant, financial adviser, sales
One Hundred Million Pesos person, or associated person of a
(Php100,000,000.00) broker-dealer, bank finance or
treasury officer, trust officer or other
or (ii) a total portfolio investment in similar executive officers.
securities registered with the
Commission or financial
instruments issued by the
government of at least Sixty Million
Pesos (Php 60,000,000.00). Registration to be a QIB and Term:
10.1.11.3. All persons registering as qualified buyers shall, in addition, show
proof that they possess the above-enumerated qualifications and submit
under oath certified copies of the documents or their equivalent that show the
following matters:
10.1.11.3.1. Total portfolio of securities;
10.1.11.3.2. Annual gross income;
10.1.11.3.3. Their net worth; and
10.1.11.3.4. Threshold risk (low, medium, high risk).
10.1.11.4. The registration as qualified buyers shall be valid for 3 years if
the qualifications provided for in 10.1.11. I and 10.1.11.2 above are
11
 continuously complied with. Any application for renewal shall be subject
to new evaluation by the registrar and accompanied by updated
information sheets. For this purpose, the registrar shall maintain a registry
book of qualified buyers that shall be open for inspection by the Commission.
Atty. Refran:
Investment Company - any issuer which is or holds itself out as being engaged
primarily, or proposes to engage primarily, in the business of investing,
reinvesting, or trading in securities1;
Investment house - Investment House is an enterprise which engages or
purports to engage, whether regularly or on an isolated basis, in the underwriting
of securities of another person or enterprise, including securities of the
Government and its instrumentalities2.
Q: Is there a limit as to how many exempt transactions an issuer can deal with a
QIB for securities?
A: NONE. Even if you sell to 100 QIBs or more the law explicitly says “ANY
NUMBER” of QIB can be sold
Commodities and Futures Contracts:
SRC:
SECTION 11. Commodity Futures Contracts. — No person shall offer,
sell or enter into commodity futures contracts except in accordance with
rules, regulations and orders the Commission may prescribe in the public
interest. The Commission shall promulgate rules and regulations involving
commodity futures contracts to protect investors to ensure the development
of a fair and transparent commodities market.
IRR 2015:
1
Investment Company Act, Republic Act No. 2629, June 18, 1960
2
The Investment Houses Law, PD 129,
Hosea L. Salazar ALS 2021
11.1. No person, whether as principal or agent, shall offer, solicit
investments in, sell, deal or enter into commodity futures contracts,
except in accordance with rules, regulations and orders the
Commission may prescribe in the public interest. The Commission shall
promulgate rules and regulations involving commodity futures contracts to
protect investors to ensure the development of a fair and transparent
commodities market.
11.1.1. Commodity futures contract means a contract providing for the
making or taking delivery at a prescribed 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.
11.1.2. Commodity means any goods, articles, agricultural and mineral
products, services, rights and interests, financial instruments, foreign
currencies, including any group or index of any of the foregoing, in which
commodity interest contracts are presently or in the future dealt in.
11.1.3. Forward means a contract between a buyer and a seller whereby
the buyer is obligated to take delivery and the seller is obliged to deliver a
fixed amount of an underlying commodity at a pre-determined price and
date. Payment in full is due at the time of delivery.
11.2. The public trading of commodity futures contracts and pertinent
Commission rules on futures trading shall remain suspended until further
ordered otherwise by the Commission, without prejudice to applicable
Bangko Sentral ng Pilipinas rules and circulars on commodity futures
contracts of entities and persons under BSP's jurisdiction.
12
 ❖ Notes:
Futures contract - is a traded Forward contract
Derivatives - Futures that are traded in an index.
Reportorial Requirements:
SRC:
SECTION 17. Periodic and Other Reports of Issuers. — 17.1. Every issuer
satisfying the requirements in Subsection 17.2 hereof shall file with the
Commission:
(a) Within one hundred thirty-five (135) days, after the end of the issuer's fiscal
year, or such other time as the Commission may prescribe, an annual report
which shall include, among others, a balance sheet, profit and loss statement
and statement of cash flows, for such last fiscal year, certified by an independent
certified public accountant, and a management discussion and analysis of
results of operations; and
(b) Such other periodical reports for interim fiscal periods and current reports on
significant developments of the issuer as the Commission may prescribe as
necessary to keep current information on the operation of the business and
financial condition of the issuer.
17.2. The reportorial requirements of Subsection 17.1 shall apply to the
following:
(a) An issuer which has sold a class of its securities pursuant to a registration
under Section 12 hereof: Provided, however, That the obligation of such issuer
to file reports shall be suspended for any fiscal year after the year such
registration became effective if such issuer, as of the first day of any such fiscal
year, has less than one hundred (100) holders of such class of securities or such
other number as the Commission shall prescribe and it notifies the Commission
of such;
(b) An issuer with a class of securities listed for trading on an Exchange; and
(c) An issuer with assets of at least Fifty million pesos (P50,000,000.00) or such
other amount as the Commission shall prescribe, and having two hundred (200)
Hosea L. Salazar ALS 2021
or more holders each holding at least one hundred (100) shares of a class of
its equity securities: Provided, however, That the obligation of such issuer to
file reports shall be terminated ninety (90) days after notification to the
Commission by the issuer that the number of its holders holding at least one
hundred (100) shares is reduced to less than one hundred (100).
17.3. Every issuer of a security listed for trading on an Exchange shall file
with the Exchange a copy of any report filed with the Commission under
Subsection 17.1 hereof.
17.4. All reports (including nancial statements) required to be led with the
Commission pursuant to Subsection 17.1 hereof shall be in such form,
contain such information and be filed at such times as the Commission shall
prescribe, and shall be in lieu of any periodical or current reports or nancial
statements otherwise required to be filed under the Corporation Code.
17.5. Every issuer which has a class of equity securities satisfying any of the
requirements in Subsection 17.2 shall furnish to each holder of such equity
security an annual report in such form and containing such information as the
Commission shall prescribe.
17.6. Within such period as the Commission may prescribe preceding the
annual meeting of the holders of any equity security of a class entitled to vote
at such meeting, the issuer shall transmit to such holders an annual report in
conformity with Subsection 17.5.
IRR of SRC:
17.1.1. Public and Reporting Companies
This SRC Rule shall apply to all public and reporting companies as defined
in SRC Rule 3. However, the obligation of a company which has sold a class
of its securities pursuant to a registration under Section 12 of the Code shall
be suspended for any fiscal year if, as of the first day of any such fiscal year,
it has less than one hundred (100) holders of such class of securities and the
Commission is notified of that fact. The suspension shall be availed of only
after the year the registration became effective.
13
 Rule 17.2 - Subjects of the Reportorial Requirements
17.2.1. An issuer which has sold a class of its securities pursuant to a
registration under Section 12 of the Code: Provided, however, That the
obligation of such issuer to file reports shall be suspended for any fiscal year
after the year such registration became effective if such issuer, as of the first day
of any such fiscal year, has less than one hundred (100) holders of such class
of securities or such other number as the Commission shall prescribe and it
notifies the Commission of such;
17.2.3. An issuer with assets of at least Fifty million pesos (P50,000,000.00)
or such other amount as the Commission shall prescribe, and having Two
hundred (200) or more holders each holding at least One hundred (100)
shares of a class of its equity securities: Provided, however, That the
obligation of such issuer to file reports shall be terminated ninety (90) days after
notification to the Commission by the issuer that the number of its holders
holding at least one hundred (100) shares is reduced to less than One hundred
(100).
Atty. Refran: If you’re a public company within the ambit of 17.2, you have to
comply with registration; otherwise you’re securities registration will be revoked
and/or even your articles of incorporation
What should reported?
Rule 14 - Amendments on the Registration Statement and Prospectus
14.1. For purposes of this Rule, material information shall include, but not
be limited to, the following:
14.1.1. Any event or transaction which increases or creates a risk on the
investments or on the securities covered by the registration;
14.1.2. Increase or decrease in the volume of the securities being offered at an
issue price higher or lower than the range set and disclosed in the registration
statement and which results to a derogation of the rights of existing security
holders, as may be determined by the Commission;
14.1.3. Major change in the primary business of the Issuer;
Hosea L. Salazar ALS 2021
14.1.4. Reorganization of the company;
14.1.5. Loss, deterioration or substitution of the property underlying the
securities;
14.1.6. Ten percent (10%) or more change in the financial condition or results
of operation of the Issuer unless a report to that effect has been filed with the
Commission and furnished the prospective purchaser;
14.1.7. Classification, de-classification or re-classification of securities which
results to the derogation of the rights of existing security holders, as may be
determined by the Commission.
Atty. Refran: Material Information is required to be reported in the
registration refer to Rule 14.1. However information to be disclosed
pertains to registration of securities only.
Registration of Public Companies:
17.1.1.1.3(a). A current report on SEC Form 17-C, as may be necessary, to
make a full, fair and accurate disclosure to the public of every material fact or
event that occurs which would reasonably be expected to affect the investors'
decisions in relation to those securities. In the event a news report appears in
the media involving an alleged material event, a current report shall be made
within the period prescribed herein in order to clarify the said news item which
may create public speculation if not officially denied or clarified by the
concerned company.
I 7. 1. 1. 1.3(b). The disclosure required by SRC Rule 17.I.I.I.3(a) shall be made
by the company in accordance with the following guidelines:
17.1.1.1.3(b). Promptly to the public through the news media;
17.1.1.1.3(b).2. If the Issuer is listed on an Exchange, to that Exchange
and to the Commission within ten (10) minutes after the occurrence of
the event and prior to its release to the public through the news media;
Provided that, disclosure by the Issuer to the Exchange may be deemed as
14
filing with the Commission pursuant to a Memorandum of Agreement between the
Exchange and the Commission; Provided further that, the Memorandum of
Agreement shall provide for the ability of the Commission to download and upload
the same information made available to the Exchange;
Atty Refran:
For registration of publicly listed companies - refer to 17.1.1.1.3
(a) material information means “which would reasonably be expected to affect the
investors' decisions in relation to those securities.” That’s the standard. This is
subjective; but Refran says the standard “that anything that would impact the
price” or “that would influence person to buy, sell or hold”. It’s a 17- C report
There’s a grace period however of 10 mins who inadvertently did not release
material information
Tender Offer:
Q: Why would you want to delist?
A: When you’re a public company and you delist, you become privately held
company
This might be because of pricing issues or their too encumbered by regulation or
it’s too costly to comply with market operator.
IRR of SRC 2015:
3.1.2. 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 (which includes the power to vote or
direct the voting of such security) and/or investment returns or power
(which includes the power to dispose of, or direct the disposition of such
security); provided, that a person shall be deemed to have an indirect beneficial
ownership interest in any security which is:
3.1.2.1. held by members of his immediate family sharing the same household;
Hosea L. Salazar ALS 2021
3.1.2.2. held by a partnership in which he is a general partner;
3.1.2.3. held by a corporation in which he is a controlling shareholder; or
3.1.2.4. subject to any contract, arrangement or understanding which gives him
voting power or investment power with respect to such securities; provided,
that the following persons or institutions shall not be deemed to be beneficial
owners of securities held by them for the benefit of third parties or in customer
or fiduciary accounts in the ordinary course of business, as long as such shares
were acquired by such persons or institutions without the definite and/or clear
intention of effecting a change or influencing the control of the Issuer:
3.1.2.4.1. A broker dealer;
3.1.2.4.2. An investment house registered under the Investment Houses Law
3.1.2.4.3. A bank authorized to operate by the Bangko Sentral ng Pilipinas
("BSP");
3. I .2.4.4. A duly-registered insurance company;
3.1.2.4.5. An investment company registered under the Investment Company
Act;
3.1.2.4.6. A pension plan registered with and regulated by the Bureau of
Internal Revenue, Insurance Commission or any other regulatory authority;
and
3.1.2.4.7. An entity whose members are the persons specified above.
All securities of the same class that are beneficially owned by a person,
regardless of the form of the beneficial ownership, shall be aggregated in
calculating the number of shares that shall be considered as beneficially owned
by such person.
15
A person shall be deemed to be the beneficial owner of a security if that person
has the right to acquire beneficial ownership within thirty (30) days from the
exercise of any option, warrant or right, or conversion of any security; or pursuant
to the power to revoke a trust, discretionary account or similar arrangement; or
pursuant to the automatic termination of a trust, discretionary account or similar
arrangement.
Rule 19 - Tender Offers
19.1.5. "Issuer Tender Offer" means a publicly announced intention by an
Issuer to reacquire any of its own class of equity securities, or by an associate
of such Issuer to acquire such securities.
19.1.6. "Security holders" mean holders of record and beneficial owners of
securities that are the subject of a tender offer.
19.1.7. "Target company" means any Issuer whose equity securities are
sought by an Offeror pursuant to a tender offer.
19.1.8. "Tender offer" means a publicly announced intention by a person
acting alone or in concert with other persons (hereinafter referred to as
"person") to acquire outstanding equity securities of a public company as
defined in SRC Rule 3, or outstanding equity securities of an associate or
related company of such public company which controls the said public
company.
● When a person acting alone or acting in concert with others acquiring
outstanding equity of:
○ Public Co.
○ Associate or related company w/c control of a public co.
WHY TENDER OFFER? - You’re essentially, asking the stockholders/investors if
they want to remain or leave
Hosea L. Salazar ALS 2021
● There’s a change of control - and when there’s change of control
investor protection interest (which is the fundamental quality of
SECREG) demands an “EXIT” mechanism.
● Tender offer must be done BEFORE closing transaction
● It could be a single acquisition OR “CREEPING” acquisition over a 12
month period
Price after delisting change - HOWEVER they could be low balling you so
TENDER OFFER is required.
Triggers - they are the change of the control (IF THERE’S NO CHANGE
CONTROL YOU DON’T NEED TENDER OFFER):
Mandatory Tender Offers:
19.2.1 Any person or group of persons acting in concert, who intends to
acquire fifteen percent (15 %) of equity securities in a public company in
one or more transactions within a period of twelve (12) months, shall file
a declaration to that effect with the Commission.
19.2.2. Any person or group of persons acting in concert, who intends to
acquire thirty five percent (35%) of the outstanding voting shares or such
outstanding voting shares that are sufficient to gain control of the board
in a public company in one or more transactions within a period of twelve
(12) months, shall disclose such intention and contemporaneously make
a tender offer for the percentage sought to all holders of such securities
within the said period.
If the tender offer is oversubscribed, the aggregate amount of securities to be
acquired at the close of such tender offer shall be proportionately distributed
across selling shareholders with whom the acquirer may have been in private
negotiations and other shareholders. For purposes of SRC Rule 19.2.2, the
last sale that meets the threshold shall not be consummated until the closing
and completion of the tender offer
19.2.3. Any person or group of persons acting in concert, who intends to
acquire thirty five percent (35%) of the outstanding voting shares or such
outstanding voting shares that are sufficient to gain control of the board
16
in a public company through the Exchange trading system shall not be required
to make a tender offer even if such person or group of persons acting in concert
acquire the remainder through a block sale if, after acquisition through the
Exchange trading system, they fail to acquire their target of thirty five percent
(35%) or such outstanding voting shares that is sufficient to gain control of the
board.
19.2.4. Any person or group of persons acting in concert, who intends to
acquire thirty five percent (35%) of the outstanding voting shares or such
outstanding voting shares that are sufficient to gain control of the board in
a public company directly from one or more stockholders shall be required to make
a tender offer for all the outstanding voting shares. The sale of shares pursuant to
the private transaction or block sale shall not be completed prior to the closing and
completion of the tender offer.
19.2.5. If any acquisition that would result in ownership of over fifty percent
(50%) of the total outstanding equity securities of a public company, 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. The acquirer in such a tender offer shall be
required to accept all securities tendered.
Atty. Refran: Don’t be fooled by 19.2.1. JUST FILE DECLARATION AN
INTENTION TO ACQUIRE WITHIN 15% OF THE EQUITY SECURITIES/ YOU
DON’T TENDER OFFER IN THIS CASE
Why is the basis 35%?
35% HAS VETO POWER - certain decisions require 2/3rds vote, having 35% of
that creates sufficient resistance for decisions.
Questions to ask in determining whether there is a mandatory tender offer:
First question - Public Company?
Second - is exempted under 19.3 of the IRR of SRC?
Hosea L. Salazar ALS 2021
19.3. Exemptions from the Mandatory Tender Offer Requirement
19.3.1. Unless the acquisition of equity securities is intended to
circumvent or defeat the objectives of the tender offer rules, the
mandatory tender offer requirement shall not apply to the following:
19.3.1.1. Any purchase of securities from the unissued capital stock; Provided,
the acquisition will not result to a fifty percent (50%) or more ownership of
securities by the purchaser or such percentage that is sufficient to gain control
ofthe board;
19.3.1.2. Any purchase of securities from an increase in authorized
capital stock;
19.3.1.3. Purchase in connection with foreclosure proceedings involving a duly
constituted pledge or security arrangement where the acquisition is made by
the debtor or creditor;
19.3.1.4. Purchases in connection with a privatization undertaken by the
government of the Philippines;
19.3.1.5. Purchases in connection with corporate rehabilitation under court
supervision; 19.3.1 .6. Purchases in the open market at the prevailing market
price; and
19.3.1.7. Merger or consolidation.
19.3.2. Purchasers of securities in the foregoing transactions shall, however,
comply with the disclosure and other obligations under SRC Rules 18.1 and
23.
What if the target company is NOT a public company? - is the target
company a company an associate controlling the public company.
17
 member of the engagement team, in carrying out their responsibilities in
In this scenario it’s = Direct + Indirect Shareholding that should breach 35% assessing the fairness of the issuer's securities;

What if both are public company? - TO for the Hold Company Perception is important here. So it must be perceived to be “independent”

If the acquisition is over 12 months you can argue that you don’t need Tender
(however this really depends with SEC, if a person bought shares near the 19.3.1. Unless the acquisition of equity securities is intended to
acquisition period prescribed in the rules it might also be argued by SEC circumvent or defeat the objectives of the tender offer rules, the
that such is a circumvention to the Mandatory TO requirement) mandatory tender offer requirement shall not apply to the following:

ACQUISITION WILL NOT BE COMPLETED IF W/O TENDER OFFER

19.3.1.2. Any purchase of securities from an increase in authorized
capital stock;
If it’s a creeping acquisition, you TO for the total aggregate percentage of
acquisition in the last acquisition - 19.2.2 shall disclose such intention and
Atty. Refran: In 19.3.1.2 THERE’S NO LIMIT HERE. Comparing it to 19.3.1.1
contemporaneously make a tender offer for the percentage sought to all holders
there’s a hedge of 50% - What do you do?
of such securities within the said period.
If there’s 19.3.1.2 to circumvent of TO, INVOKE 19.3.1.
19.2.5. If any acquisition that would result in ownership of over fifty percent (50%)
of the total outstanding equity securities of a public company, the acquirer shall Tender Offer of the Issuer or Buy Back:
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
19.4.1. A reacquisition or repurchase by an Issuer of its own securities shall
supported by a fairness opinion provided by an independent financial advisor or
only be made if such Issuer has unrestricted retained earnings in its books to
equivalent third party. The acquirer in such a tender offer shall be required to
cover the amount of shares to be purchased, and is undertaken for any of the
accept all securities tendered.
following purposes:

In this case, when you TO the public company CAN compel you TO BUY ALL THE
SHARES, at a price.
The Idea of Fairness Opinion - The price to be consummated in a TO is to be
validated by a “independent” firm
"Independence" shall mean absence of any business interest or family relationship
with any party to the transaction or of any of its directors, officers, or major
stockholders, that could, or could reasonably be perceived to, materially interfere
with the exercise of the professional judgment of the firm, its representative or any
19.4.1.1. To implement a stock option or stock purchase plan;
19.4.1.2. To meet short-term obligations which can be settled by the re-
issuance of the repurchased shares;
19.4.1.3. To pay dissenting or withdrawing stockholders entitled to payment for
their securities under the Corporation Code; and
19.4.1.4. Such other legitimate corporate purpose/s

Hosea L. Salazar ALS 2021 18

19.4.2. An Issuer that intends to reacquire its own secuntles through active and
widespread solicitation from the stockholders in general and in substantial
amounts as the Commission may determine shall comply with the disclosure and
procedural requirements provided for in SRC Rules 19.4.3 and 19.4.4, and the
preceding provisions of this Rule.
19.4.3. If an Issuer publishes, sends or disseminates its tender offer to security
holders by means of summary publication in the manner prescribed in this Rule,
the summary publication shall disclose only the following information
19.4.3.1. The identity of the Issuer making the tender offer;
19.4.3.2. The amount and class of securities being sought and the price being
offered;
19.4.3.3. The information required by SRC Rule 19.7;
19.4.3.4. A statement of the purpose of the tender offer; and
19.4.3.5. The appropriate instruction for security holders on how to obtain
promptly, at the expense of the Issuer making the tender offer, the information
required in SRC Rule 19.7.
19.4.4. Until the expiration of at least ten (10) business days from the date of
termination of the tender offer, the Issuer shall not make any repurchase,
otherwise than pursuant to the tender offer, of:
19.4.4.1. Any security which is the subject of the tender offer, or any security of
the same class and series, or any right to repurchase such securities; and
19.4.4.2. In the case of a tender offer which is an exchange offer, any security
being offered pursuant to the exchange offer, or any security of the same class
and series, or any right to repurchase any such security.
19.4.5. This rule shall not apply to -
Hosea L. Salazar ALS 2021
19.4.5.1. Calls or redemption of any security in accordance with the terms and
conditions of its governing instruments;
19.4.5.2. Offers to repurchase securities evidenced by a certificate, order form
or similar document which represents a fractional interest in a share of stock
or similar security.
19.5. Any person making a tender offer shall make an announcement of its
intention in a national newspaper of general circulation within five (5) business
days from either the company's board approval authorizing negotiations
relative to the purchase of shares that may result to a mandatory tender offer
or thirty (30) business days prior to the commencement of the offer; Provided,
that such announcement shall not be made until the Offeror has the resources
to implement the offer in full. A copy of the said notice shall be submitted to the
Commission on the date of its publication.
Atty. Refran: A TO is not a BUY BACK
TO is to offer to all but BUY BACK can be targeted
You buy shares it becomes treasury shares and after that re-issue them
BUY BACK is not TO because:
● Voluntary
● Price goes up
BUY-BACK is classified as TO’s because compliance must be done
according TO’s
The most common reason for BUY-BACK is that the price is going down
19.9.8. No tender offer shall be made unless:
19.9.8.1. It is open to all security holders of the class of securities subject to
the tender offer; and
19.9.8.2. The consideration paid to any security holder pursuant to the tender
offer shall be the highest consideration paid to any other security holder during
such tender offer.
19

19.9.9. The Offeror shall not extend the period of a tender offer without prior
clearance from the Commission and without issuing a notice of such extension by
publication in a national newspaper of general circulation. The notice shall include
a disclosure of the number of securities deposited to date and shall be made public
not later than the scheduled original expiration date of the offer.
Computation for is trailing 12 months- meaning count back from the last purchase.
19.9. Period and Manner of Making Tender Offers
19.9.1. A tender offer shall, unless withdrawn, remain open until the expiration of:
19.9.1.1. At least twenty (20) business days from its commencement; Provided,
that an offer should as much as possible be completed within sixty (60) business
days from the date the intention to make such offer is publicly announced; or
19.9.1.2. At least ten (10) business days from the date the notice of a change in
the percentage of the class of securities being sought or in the consideration
offered is first published, sent or given to security holders.
19.9.2. In a mandatory tender offer, the Offeror shall be compelled to offer the
highest price paid by him for such securities during the preceding six (6) months.
If the offer involves payment by transfer or allotment of securities, such securities
must be valued on an equitable basis.
19.9.3. In case of a tender offer other than by an Issuer, the subject of the tender
offer ("the target company") shall not engage in any of the following transactions
during the course of a tender offer, or before its commencement if its board has
reason to believe that an offer might be imminent, except if such transaction is
pursuant to a contract entered into earlier, or with the approval of the shareholders
in a general meeting or, where special circumstances exist, the Commission's
approval has been obtained:
19.9.3.1. Issue any authorized but unissued shares;
Hosea L. Salazar ALS 2021
19.9.3.2. Issue or grant options in respect to any unissued shares;
19.9.3.3. Create or issue, or permit the creation or issuance of, any securities
carrying rights of conversion into, or subscription to, shares;
19.9.3.4. Sell, dispose of or acquire, or agree to acquire, any asset whose value
amounts to five percent (5 %) or more of the total value of the assets prior to
acquisition; or
19.9.3.5. Enter into contracts that are not in the ordinary course of business.
Structured reports vs. Current Reports
Annual Stockholders meeting is required for the ff:
● Approval of certain corporate acts check (Corp Code)
● Ratification of certain corporate acts
Election of directors cannot be for more than 5 years
Nominations will be done by the NOMELEC or the Corp Nominations
Committee
What would you put in the list of qualifications:
● “SUITABILITY” - “FIT & PROPER” TESTS:
○ Just a fancy way of qualifying for directors
○ RCC Section 20
Independent Director:
SRC:
20
SECTION 38. Independent Directors. - Any corporation with a class of equity
securities listed for trading on an Exchange or with assets in excess of Fifty million
pesos (P50,000,000.00) and having two hundred (200) or more holders, at least
of two hundred (200) of which are holding at least one hundred (100) shares of a
class of its equity securities or which has sold a class of equity securities to the
public pursuant to an effective registration statement in compliance with Section
12 hereof shall have at least two (2) independent directors or such independent
directors shall constitute at least twenty percent (20%) of the members of such
board, whichever is the lesser. For this purpose, an "independent director" shall
mean a person other than an officer or employee of the corporation, its parent or
subsidiaries, or any other individual having a relationship with the corporation,
which would interfere with the exercise of independent judgment in carrying out
the responsibilities of a director.
IRR of SRC:
38.1 As used in Section 38 of the Code, independent director means a person
who, apart from his fees and shareholdings, is independent of management and
free from any business or other relationship which could, or could reasonably be
perceived to, materially interfere with his exercise of independent judgment in
carrying out his responsibilities as a director in any covered company and
includes, among others, any person who:
38.2 Is not a director or officer of the covered company or of its related companies
or any of its substantial shareholders except when the same shall be an
independent director of any of the foregoing;
Does not own more than two percent (2%) of the shares of the covered company
and/or its related companies or any of its substantial shareholders;
Is not related to any director, officer or substantial shareholder of the covered
company, any of its related companies or any of its substantial shareholders. For
this purpose, relatives include spouse, parent, child, brother, sister, and the
spouse of such child, brother or sister;
Is not acting as a nominee or representative of any director or substantial
shareholder of the covered company, and/or any of its related companies and/or
Hosea L. Salazar ALS 2021
any of its substantial shareholders, pursuant to a Deed of Trust or under any
contract or arrangement;
Has not been employed in any executive capacity by the covered company,
any of its related companies and/or by any of its substantial shareholders within
the last two (2) years;
Is not retained, either personally or through his firm or any similar entity, as
professional adviser, by that covered company, any of its related companies
and/or any of its substantial shareholders, within the last two (2) years;
Has not engaged and does not engage in any transaction with the covered
company and/or with any of its related companies and/or with any of its
substantial shareholders, whether by himself and/or with other persons and/or
through a firm of which he is a partner and/or a company of which he is a
director or substantial shareholder, other than transactions which are
conducted at arms length and are immaterial.
No person convicted by final judgment of an offense punishable by
imprisonment for a period exceeding six (6) years, or a violation of this Code,
committed within five (5) years prior to the date of his election, shall qualify as
an independent director. This is without prejudice to other disqualifications
which the covered company's Manual on Corporate Governance provides.
Any controversy or issue arising from the selection, nomination or election of
independent directors shall be resolved by the Commission by appointing
independent directors from the list of nominees submitted by the stockholders.
When used in relation to a company subject to the requirements of this Rule
and Section 38 of the Code:
Related company means another company which is: (a) its holding company;
(b) its subsidiary; or (c) a subsidiary of its holding company;
Substantial shareholder means any person who is directly or indirectly the
beneficial owner of more than ten percent (10%) of any class of its equity
security.
21
Proxies:
Why do you as management solicits Proxies? - TO SOLICIT VOTES
Proxy Validation:
20.11.2.1. The corporate by-laws shall be controlling in determining the proper
procedure to be followed in the execution and acceptance of proxies, provided
that the minimum required formalities prescribed under Section 58 of the
Corporation Code and SRC Rule 20 shall be complied with.
20.11.2.2. The notice of stockholders' meeting shall also set the date, time and
place of the validation of proxies, which in no case shall be less than five (5) days
prior to the annual stockholders' meeting to be held. The presence of any
stockholder who may wish to be present in person or through counsel shall be
allowed.
20.11.2.3. Failure to affix documentary stamps shall not affect the validity of the
proxy. The only adverse effect of such failure is that the same cannot be recorded
as a public document and cannot be admitted or used as evidence in Court until
the required documentary stamp is affixed and cancelled.
20.11.2.4. A proxy may not be notarized, unless the corporate by-laws provide
otherwise.
20.11.2.5. If the name of the proxy is left in blank, the person to whom it is given
or the issuer corporation receiving the proxy is at liberty to fill in any name he/it
chooses.
20.11.2.6. If a duly accomplished and executed proxy is undated, the postmark or,
if not mailed, its actual date of presentation shall be considered.
20.11.2.7. A proxy executed by a corporation shall be in the form of a board
resolution duly certified by the Corporate Secretary or in a proxy form executed by
a duly authorized corporate officer accompanied by a Corporate Secretary's
Hosea L. Salazar ALS 2021
certificate quoting the board resolution authorizing the said corporate officer to
execute the said proxy.
20.11.2.8. If the by-laws provide for a cut-off date for the submission of proxies
the same should be strictly followed. In the absence of a provision in the by-
laws fixing a deadline, proxies shall be submitted not later than ten (10) days
prior to the date of the stockholders meeting.
20. 11.2.9. Where the corporation receives more than one (I) proxy from the
same stockholder and they are all undated, the postmark dates shall be
considered. If the proxies are mailed on the same date, the one bearing the
latest time of day of postmark is counted. If the proxies are not mailed, then the
time of their actual presentation is considered. That which is presented last will
be recognized.
20.11.2.10. Where a proxy is given to two (2) or more persons in the alternative
in one instrument, the proxy designated as an alternate can only act as proxy
in the event of non- attendance of the other designated person.
20. I I .2.11. Where the same stockholder gives two (2) or more proxies, the
latest one given is to be deemed to revoke all former proxies.
20.1 1.2.12. A proxy shall be valid only for the meeting for which it is intended.
20.11.2.13. Executors, administrators, receivers and other legal
representatives duly appointed by the court may attend and vote on behalf of
the stockholders without a need of any written proxy.
20.11.2.14. If the stockholder intends to designate several proxies, the number
of shares of stock to be represented by each proxy shall be specifically
indicated in the proxy form. If some of the proxy forms do not indicate the
number of shares, the total shareholdings of the stockholder shall be tallied
and the balance thereof, if any, shall be allotted to the holder of the proxy form
without the number of shares. If all are in blank, the stocks shall be distributed
equally among the proxies. The number of persons to be designated as proxies
may be limited by the By-laws.
22
20.11.2.15. In case of shares of stock owned jointly by two (2) or more persons,
the consent of all co-owners shall be necessary to appoint or revoke a proxy.
20.11.2.16. For persons owning shares in an "andlor" capacity, anyone of them
may appoint and revoke a proxy.
20.11.2.17. Proxies executed abroad shall be duly authenticated by the Philippine
Embassy or Consular Office.
20.11.2.18. No member of the Stock Exchange and no broker/dealer shall give
any proxy, consent or authorization, in respect of any security carried for the
account of a customer to a person other than the customer, without the express
written authorization of such customer. The proxy executed by the broker shall be
accompanied by a certification under oath stating that before the proxy was given
to the broker, he had duly obtained the written consent of the persons in whose
account the shares are held.
20. 11.2.19. A proxy shall not be invalidated on the ground that the stockholder
who executed the same has no signature card on file with the Corporate Secretary
or Transfer Agent, unless it can be shown that he/she had refused to submit the
signature card despite written demand to that effect duly received by the said
stockholder at least ten (10) days before the annual stockholders' meeting and
election.
20.11.2.20. There shall be a presumption of regularity in the execution of proxies
and shall be accepted if they have the appearance of prima facie authenticity in
the absence of a timely and valid challenge.
20.11.2.21. In the validation of proxies, a special committee of inspectors shall be
designated or appointed by the Board of Directors which shall be empowered to
pass on the validity of proxies.
20.11.2.22. Any violation of this Rule on Proxy shall be subject to the
administrative sanctions provided for under Section 144 of the Corporation Code
and Section 54 of the Code, and shall render the proceedings null and void.
Hosea L. Salazar ALS 2021
Dematerialized vs. Certificated:
If Certificated - you will be disclosed, you will be included in the GIS of the
Corporation. Therefore you open yourself to suits/garnishment/execution of
your shares.
If Dematerialized - You’re given more convenience in trading securities.
However you shares are held in account by the broker
Can you be held a director without a stock certification?- YES if you are
lodged in the system of a special investment purpose vehicle (most likely a
PDC)
PCD Nominee Corporation (PCNC) is a wholly owned subsidiary of the
Philippine Central Depository, a corporation established to improve operations
in securities transactions and to provide a fast, safe and highly efficient system
for securities settlement in the Philippines
PCD HAS LEGAL TITLE but BENEFICIAL OWNERSHIP is retained by the
customer.
PCD operates as a warehouse of shares for SELLING PURPOSES.
PCD cannot vote WITHOUT customer authorisation
20.4. No broker or dealer shall give any proxy, consent or authorization,
in respect of any security carried for the account of a customer, to a
person other than the customer, without the express written
authorization of such customer.
The Commission en banc may, motu propio, or upon the written request of any
stockholder, direct the calling of an annual stockholders' meeting under its
supervision, if the corporation fails or refuses to call said meeting for any
justifiable reason.
20.11.1.4. If for any justifiable and valid reason, the annual stockholders'
meeting has to be postponed, the corporation shall notify the Commission in
23
writing of such postponement within ten (10) days from the date of such
postponement.
20.11.1.5. No postponement of annual stockholders' meeting shall be allowed
except for justifiable reasons to be stated in writing signed under oath by the
President or Secretary of the corporation.
20.11.1.6. The Commission en banc may, motu propio, or upon the written request
of any stockholder, direct the calling of an annual stockholders' meeting under its
supervision, if the corporation fails or refuses to call said meeting for any justifiable
reason.
What if you don’t choose a proxy? - Broker must certify that you’re the
holder.
But for Quorum purposes to the beneficial owners
You have to disclose the annual stockholders meeting
Rule 23 - Reports to be Filed by Directors, Officers and Principal
Stockholders
23.1. Every person who is, directly or indirectly, the beneficial owner of ten
percent (10%) or more of any class of any security of a company which
satisfies the requirements of Subsection 17.2 of the Code, or who is a director
or an officer of the issuer of such security, shall:
23.1.1. Within ten (10) calendar days after the effective date of the registration
statement for that security, or within ten (10) calendar days after he becomes such
beneficial owner, director or officer, subsequent to the effective date of the
registration statement, whichever is earlier, file a statement with the
Commission, and with the Exchange, if the security is listed on an Exchange, on
Form 23-A indicating the amount of securities of such issuer of which he is the
beneficial owner;
23.1.2. Within ten (10) calendar days after the close of each calendar month
thereafter, if there has been any change in such ownership during the month, file
Hosea L. Salazar ALS 2021
a statement with the Commission and with the Exchange, if the security is
listed on an Exchange, on Form 23-B indicating his ownership at the
close of the calendar month and such changes in his ownership as have
occurred during that calendar month;
23.1.3. Notify the Commission if his direct or indirect beneficial ownership
of securities falls below ten percent (10%), or if he ceases to be an officer
or director of the Issuer. After filing such notification, he shall no longer be
required to file Form 23-8.
However, a newly appointed officer, who has no beneficial ownership over the
shares of the company, shall notify the Commission of such fact within ten (10)
calendar days from such appointment.
23.1.4. If the security is listed on an Exchange, the report shall be filed on that
Exchange in accordance with the rules of the Exchange, but not more than five
(5) calendar days after such person became beneficial owner. The filing with
the Exchange may be deemed as filing with the Commission pursuant to a
Memorandum of Agreement between the Exchange and the Commission;
Provided that, the Memorandum of Agreement shall provide for the ability of
the Commission to download and upload the same information made available
to the Exchange.
23.2. In determining whether a person is the beneficial owner, directly or
indirectly, of more than ten percent (10 %) of any class of any registered
security, such class shall be deemed to consist of the amount of such class
which has been issued.
For the purpose of determining the percentage of ownership of voting trust
certificates or certificates of deposit for securities, the class of voting trust
certificate or certificates of deposit shall consist of the entire amount of issuable
voting trust certificates or certificates of deposit.
23.3. A person filing a statement pursuant to this Rule otherwise than as the
direct beneficial owner of any security shall specify the nature of his beneficial
ownership in such security.
24
23.4. A partner who is required under this Rule to report in respect to any security
owned by the partnership may include in his statement the entire amount of such
security owned by the partnership and state that he has an interest in such security
by reason of his membership in the partnership without disclosing the extent of
such interest; or such partner may file a statement only as to the amount of such
security which represents his proportionate interest in the partnership, indicating
that the statement covers only such interest.
Atty. Refran:
Those who are Required to report:
1. Beneficial owner
2. Elected Officer
Q: What if you’re nominal only?
A: STILL REPORT
You have to report whatever position you have
Whether you or buy or sell you also have to report
SOFT INFORMATION - NOT YET DEMANDABLE AS A RIGHT - this should not
be disclosed.
Prohibitions on Fraud, Manipulation and Insider Trading
SECTION 24. Manipulation of Security Prices; Devices and Practices. —
24.1 It shall be unlawful for any person acting for himself or through a dealer
or broker, directly or indirectly:
Hosea L. Salazar ALS 2021
(a) To create a false or misleading appearance of active trading in any listed
security traded in an Exchange or any other trading market (hereafter referred
to purposes of this Chapter as "Exchange"):
(i) By effecting any transaction in such security which involves no
change in the beneficial ownership thereof;
(ii) By entering an order or orders for the purchase or sale of such
security with the knowledge that a simultaneous order or orders of
substantially the same size, time and price, for the sale or purchase
of any such security, has or will be entered by or for the same or
different parties; or
(iii) By performing similar act where there is no change in beneficial
ownership.
(b) To effect, alone or with others, a series of transactions in securities that:
(i) Raises their price to induce the purchase of a security, whether of
the same or a different class of the same issuer or of a controlling,
controlled, or commonly controlled company by others;
(ii) Depresses their price to induce the sale of a security, whether of
the same or a different class, of the same issuer or of a controlling,
controlled, or commonly controlled company by others; or
(iii) Creates active trading to induce such a purchase or sale through
manipulative devices such as marking the close, painting the tape,
squeezing the float, hype and dump, boiler room operations and such
other similar devices.
(c) To circulate or disseminate information that the price of any security listed
in an Exchange will or is likely to rise or fall because of manipulative market
operations of any one or more persons conducted for the purpose of raising
or depressing the price of the security for the purpose of inducing the
purchase or sale of such security.
25
 (d) To make false or misleading statement with respect to any material fact,
Q: What does that the “market pressure” mean?
which he knew or had reasonable ground to believe was so false or
misleading, for the purpose of inducing the purchase or sale of any security
Atty. Refran: It means that the exchange determines what would be the
listed or traded in an Exchange.
price, that would match the expressions of the buyers and sellers at a
particular price. It IS THE SENTIMENT OF THE MARKET of the price for that
(e) To effect, either alone or others, any series of transactions for the
day.
purchase and/or sale of any security traded in an Exchange for the purpose
of pegging, fixing or stabilizing the price of such security, unless otherwise
*N.B. Sir is just lay-manising the method in determining the “opening
allowed by this Code or by rules of the Commission.
price”. The basis really of the opening price is what happened during
after-trading hours. The closing price and the opening price
24.2. No person shall use or employ, in connection with the purchase or sale
changes because events or information that are received by the
of any security any manipulative or deceptive device or contrivance. Neither
traders may change investor valuations on any given security.
shall any short sale be effected nor any stop-loss order be executed in
connection with the purchase or sale of any security except in accordance
with such rules and regulations as the Commission may prescribe as
It’s important to note who is the stabilizing agent in a listing of a security in the
necessary or appropriate in the public interest or for the protection of
exchange.
investors.

The activities of a stabilizing agent is under Section 24 of the SRC and

24.3. The foregoing provisions notwithstanding, the Commission, having due
regard to the public interest and the protection of investors, may, by rules and
regulations, allow certain acts or transactions that may otherwise be
prohibited under this Section.
also the corresponding 2015 IRR of the SRC.
Atty. Refran: So going back, a list price/issue price of the security may not
be the same as the opening price of that security. Maybe because of certain
shifts in industry and markets.

IS THAT MANIPULATIVE? - Not really.

Atty. Refran:
The more important question is: Does the activities of the stabilization
Illustration of Market Operations in an Exchange: agents partake of the market manipulation?

When market opens at 9:00 am - 9:30 am; a 30 minute is allotted for the market
it’s called a Pre-Open period. 9:30 is when market opens
The pre-open period, when the stock exchange determines the opening price.
This is NOT the same as the closing price of the preceding trading day. In this
period the exchange (the PSE) derives the opening price based on an algorithm
based on the market pressure is at.
Example:
Facts: Resorts World (RW) is going to voluntarily delist. They effected a
voluntary tender offer. As per the rules and regulations, they would need to
consolidate ownership (buy back all of the shares), because it is going to exit
the market; the corporation will now become “privately held”.

Hosea L. Salazar ALS 2021 26

If you’re the holder of the securities, you’ll have no market to transact with those
securities. Which means as a holder of those securities you need incur the costs
to do an over-the-counter transaction for those securities (net capital gains,
documentary stamp etc.)
RW disclosed its public float will fall below 2%
Atty. Refran: Public Float are outside insiders, principal stockholders, directors,
officers and related parties or those person of controlling interest;
PSE requires a public float of 10% to continue to trade. Which means securities
trading for RW will be suspended in the PSE.
Information was released that the tender offer has been made but HAS NOT
been executed.
Atty. Refran: The scenario in this case is: Some investors were saying that price
of the securities during this period of tender offer might go up higher than the
tender offer.
Question: Is this information violative of the Section 24 and Rule 24 of the IRR?
SECTION 24. Manipulation of Security Prices; Devices and Practices. — 24.1
It shall be unlawful for any person acting for himself or through a dealer or broker,
directly or indirectly:
Atty. Refran: If you look at section 24 it says “any person acting for himself or
through a dealer or broker, directly or indirectly:”
Remember there is a difference between being a dealer and a broker.
Broker vs. Dealer:
Broker is acting a financial intermediary for and on behalf of clients by express
license under the SRC as a conferred by the SEC. MEANING they are acting as
agent
Hosea L. Salazar ALS 2021
A Dealer however is ACTING FOR AND ON BEHALF for his own account. A
Broker can also buy securities for and on behalf of his own account.
SRC:
(a) To create a false or misleading appearance of active trading in any listed
security traded in an Exchange or any other trading market (hereafter
referred to purposes of this Chapter as "Exchange"):
(i) By effecting any transaction in such security which involves no
change in the beneficial ownership thereof;
(ii) By entering an order or orders for the purchase or sale of such
security with the knowledge that a simultaneous order or orders
of substantially the same size, time and price, for the sale or
purchase of any such security, has or will be entered by or for the
same or different parties; or
(iii) By performing similar act where there is no change in beneficial
ownership.
Atty. Refran: Letter a (i) is what’s called “Wash sales”.
This means that the company is selling to another buyer company
which appears to be a third party; but really the selling company has
beneficial ownership over that buying-company.
The facts must be clear that the activities done is to influence market
price.
Elements: SNP
1. There must be transactions which simulate active trading.
2. But there is no change in beneficial ownership
3. Which tend to influence the price in the market
27

General rule: Is that if a transaction has no change in beneficial
ownership then that DOES NOT MEAN that it’s violative of Section 24 of
the SRC.
Exception: IT IS ONLY ILLEGAL IF IT SUCH TRANSACTIONS ARE
DESIGNED TO MISLEAD AND CREATE FALSE APPEARANCE OF
ACTIVE TRADING.
Atty. Refran: I could actually transfer my share without changing
beneficial ownership for valid reasons.
Atty. Refran: These are called improperly matched orders.
There might be a private placement, to take advantage of tax benefits.
THIS IN ITSELF IS NOT NOT ILLEGAL. There might be matched orders, were
there is a pre-arranged agreement to transact the same or substantially the
same size, and price.
Nothing is wrong with that. An example of this is a “block sale” where there is
a pre-arranged selling because of variance of a price is in the last closing price
and the opening.

For example: Transactions between brokers of a same customer, where
the customer is only effecting a transfer of shares, for valid trade reasons.
For example someone who wants to buy or sell securities wants to make
the transaction expedient between those who want to trade in such
securities.
There could also be private placement to between companies for listed
securities that the companies opted to transact in the market because of the
tax benefits.

Transactions which does not involve change of beneficial ownership must

SHOW that it is intended to manipulate the market (simulate active trading) Q: What makes this illegal?
IN ORDER for it to be illegal!
A: If the transaction is ANIMATED/MOTIVATED by a SCHEME/DESIGN in
order to influence the market to influence the price of a security EVEN if it’s
SRC:
not really market driven.
(ii) By entering an order or orders for the purchase or sale of such security with
the knowledge that a simultaneous order or orders of substantially the same (iii) By performing similar act where there is no change in beneficial ownership.
size, time and price, for the sale or purchase of any such security, has or will
be entered by or for the same or different parties;
Atty. Refran: There are other schemes which involve trust agreements where
ultimately there is no change in beneficial ownership.
IRR 2015 of SRC:
There’s a lot of other examples but the common thing is about them is that:
24.1.5.3. Engaging in transactions where both the buy and sell orders are
entered at the same time with the same price and quantity by different but
IT’S TO MISLEAD OR CREATE FALSE APPEARANCE OF ACTIVE
colluding parties (improper matched orders);
TRADING.

Hosea L. Salazar ALS 2021 28

(b) To effect, alone or with others, a series of transactions in securities that:
(i) Raises their price to induce the purchase of a security, whether of
the same or a different class of the same issuer or of a controlling,
controlled, or commonly controlled company by others;
(ii) Depresses their price to induce the sale of a security, whether of
the same or a different class, of the same issuer or of a controlling,
controlled, or commonly controlled company by others; or
(iii) Creates active trading to induce such a purchase or sale through
manipulative devices such as marking the close, painting the tape,
squeezing the float, hype and dump, boiler room operations and such
other similar devices.
Atty. Refran: If the price movement is NOT based on market information BUT
BY A DESIGN.
That’s letter b, where your are trying to induce people to buy or sell, but in reality
the price movement of the security is ALL ARTIFICIAL.
IRR 2015 of the SRC:
24.1.5.2. Buying and selling securities at the close of the market in an effort to
alter the closing price of the security (marking the close);
This has already been superseded by technology, nevertheless:
Atty. Refran: Marking the close means trading securities in concert with
others WITHOUT ANY ORDERS BY THE CUSTOMER, in order to create an
increase in the closing price.
The increase in the closing price creates artificial pricing since one of the factors
for deriving opening prices is the closing price.
Hosea L. Salazar ALS 2021
IRR 2015 of the SRC:
24.1.5.1. Engaging in a series of transactions in securities that are
reported publicly to give the impression of activity or price movement in a
security (e.g. painting the tape);
Atty. Refran: You’re making it appear that there’s activity when there is really
no market activity.
**N.B. Does it matter that there is no change in beneficial ownership? -
NO, all the transactions just need to show that it was designed to influence
the price without any legitimate market activity or that the price movement
was created artificially.
24.1.5.6. 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 (squeezing the float);
Atty. Refran: Float means Public Float. It is the amount of the shares held
by the public as defined in the SRC (see page 29).
Q: What is meant when you “squeeze the float”?
A: You’re restricting production of the shares, you’re engaging in transactions
to the effect that your decreasing the liquidity to raise up to the price.
Essentially the YOU’RE CREATING ARTIFICIAL SCARCITY OF THE
SECURITIES.
Q: How do you that?
A: A number of ways; companies who are listed can engage in over the
counter transactions for listed securities which could drive up the price by
29
 taking up most of the public float. So essentially what’s being traded is in the
market is just a very small percentage of the securities.
24.1.5.4. Engaging in buying activity at increasingly higher prices and then
selling securities in the market at the higher prices (hype and dump) or vice
versa (i.e. selling activity at lower prices and then buying at such lower prices);
Atty. Refran: You engage in a series of transactions which creates higher
and higher prices then sell the securities bought at the highest point of
price to make a profit.
**N.B. Take note the IRR says buying or selling activity, meaning the releasing
false information is not material in this kind of market manipulation. That’s a
different matter, that might fall under Rule 24.1(d) of the SRC IRR 2015.
Q: What is material in this crime?
A: It’s the intent to drive up or down the price then sell or buy accordingly
to reap the benefits of artificial price.
SRC Section 24 :
(iii) Creates active trading to induce such a purchase or sale through
manipulative devices such as marking the close, painting the tape, squeezing
the float, hype and dump, boiler room operations and such other similar
devices.
Atty. Refran: Boiler room operations mean; where a group of people call
unsuspecting gullible people with money soliciting investments from people.
Example: Wolf of Wall Street; Leo’s Character is involved in boiler room operations
when he was in the early stages of setting up his firm.
Hosea L. Salazar ALS 2021
(c) To circulate or disseminate information that the price of any security
listed in an Exchange will or is likely to rise or fall because of
manipulative market operations of any one or more persons conducted for
the purpose of raising or depressing the price of the security for the purpose
of inducing the purchase or sale of such security.
Atty. Refran: The information may not be necessarily from the issuer.
Example:
The dissemination of the information of Premier; where it was soft information
with no rights attaching to the deal. Atty. Refran says IT MIGHT fall under this
section.
What’s important is that if there information release was false, and in it is to
INDUCE PEOPLE TO PURCHASE OR TO SELL.
(d) To make false or misleading statement with respect to any material fact,
which he knew or had reasonable ground to believe was so false or
misleading, for the purpose of inducing the purchase or sale of any security
listed or traded in an Exchange.
(e) To effect, either alone or others, any series of transactions for the purchase
and/or sale of any security traded in an Exchange for the purpose of pegging,
fixing or stabilizing the price of such security, unless otherwise allowed by this
Code or by rules of the Commission.
Atty. Refran: When you’re reading these provisions think of how it [the
provisions] will work
**N.B. Atty. Refran in a previous meeting emphasized the importance of who
is the principal actors, the crime, and the elements of each of the crime.
SRC:
SECTION 26. Fraudulent Transactions. — It shall be unlawful for any
person, directly or indirectly, in connection with the purchase or sale of any
securities to:
30
 26.1. Employ any device, scheme, or artifice to defraud;
26.2. Obtain money or property by means of any untrue statement of a
material fact or any omission to state a material fact necessary in order
to make the statements made, in the light of the circumstances under which
they were made, not misleading; or
26.3. Engage in any act, transaction, practice or course of business which
operates or would operate as a fraud or deceit upon any person.
Atty. Refran: Section 26 Pertains only to AN INDIVIDUAL. Section 24 involves
commission of the prohibited acts under the Section 24 through a broker dealer.
You might say that Section 26 is the same of Section 24 but it’s not.
Fraud here covers all transactions NOT just in the market transactions BUT also
off-market transactions involving securities.
IRR 2015 of the SRC:
Rule 24.2-2 - Short Sales
24.2-2.1. Definition of Short Sale
The term "short sale" shall mean any sale of a security which the seller
does not own or any sale which is consummated by the delivery of a
security borrowed by, or for the account of the seller with the
commitment of the seller or securities borrower to return or deliver said
securities or their equivalent to the lender on a determined or determinable
future date. A person shall be deemed to own a security if:
(1) he or his agent has title to it;
(2) he has purchased, or has entered into an unconditional contract, binding
Hosea L. Salazar ALS 2021
on both parties thereto, to purchase it and has not yet received it;
(3) he owns a security convertible into or exchangeable for it and has
tendered such security for conversion or exchange;
(4) he has an option to purchase or acquire it and has exercised such option;
or
(5) he has rights or warrants to subscribe to it and has exercised such rights
or warrants provided, however, that a person shall be deemed to own
securities only to the extent he has a net long position in such securities.
Atty. Refran: Short sales is a sale transaction of a security where you
have a short position as opposed to a long position.
You’re in a long position when you have stocks in your portfolio for the share.
You’re in a short position when you sold stocks you don’t own YET.
Is that valid? YES. Remember in the law of Sales, at the time of perfection
what you don’t have to own what you’re supposed to deliver at the time of the
sale.
You’re obligated to do good on the short sale or you default. In which case
it’s a failed transaction.
Traders sell short because they have a bearish view of the market (meaning
you’re expecting the prices of the shares to go down.) You’re selling now in
order to take advantage of the market.
When you’re selling short you have to “borrow” the shares from someone who
has a long position to that security (somebody who HAS those securities).
Who has these securities; the usual suspects the Banks, Investment
Companies, Pension funds etc.
31
 IS THIS ILLEGAL? - NO!
IS IT REGULATED BY THE RULES? - YES.
24.2-2.6. Failure to Deliver
No person shall, directly or indirectly, by the use of any facility of a secunties
exchange, effect a short sale in a security registered or listed on any securities
exchange, where the seller does not intend or is unable to make delivery of
the securities within the prescribed settlement period. Failure on the part of
the seller to make delivery on such date will be construed by the Commission
as prima facie evidence of the lack of intention on his part to make such
delivery.
Atty. Refran: What is the prohibited is are NAKED SHORTS
NAKED SHORTS: A Short sale may be a “naked short” where there is no shares
to cover a transaction.
When can a short sale be covered? When you have borrowing arrangements to
those who have the shares for a lenders fee (essentially a Securities Lending
Agreement “SBL”.)
For you to have a covered short you HAVE TO HAVE AN SBL.
It's technically a loan but what’s being loaned a security. Again NAKED
SHORTING IS UNLAWFUL!
24.2-2.4. Definition of Qualified Security
For purposes of this rule, the term qualified security shall mean a listed
security that is eligible for short selling in accordance with the following
standards: (1) market capitalization; (2) tradability; (3) liquidity; and (4) with
other applicable guidelines as may be prescribed by the Commission.
Hosea L. Salazar ALS 2021
24.2-2.5. Execution of Short Sale Uptick Rule
No broker or dealer shall use any facility of a securities exchange to effect a
short sale of any security unless (I) at a price higher than the last sale or (2)
at the price of the sale if that price is above the next preceding different sale
price on such day.
Unless otherwise provided by the Commission, this price requirement shall not
apply to a sale due to a bona fide market-making or arbitrage activity executed
by a broker dealer authorized to engage in such activities.
Atty. Refran: The rule just means that when you execute a short it must ONE
TICK SIZE (INCREMENT) OF THE LAST TRADED PRICE (“LTP”) of the
security. A tick size is a price increment which is published
Scenario:
3:04 pm - LTP 95
3:05 pm - LTP 100
3:06 pm - Short sale 105
Tick size - Php 5
It cannot be lower than the previous LTP
SECTION 27. Insider's Duty to Disclose When Trading. — 27.1. 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, 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:
32

(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.
A purchase or sale of a security of the issuer made by an insider defined in
Subsection 3.8, or such insider's spouse or relatives by affinity or
consanguinity within the second degree, legitimate or common-law, shall be
presumed to have been effected while in possession of material nonpublic
information if transacted after such information came into existence but prior
to dissemination of such information to the public and the lapse of a
reasonable time for the market to absorb such information:
Provided, however, That this presumption shall be rebutted upon a
showing by the purchaser or seller that he was not aware of the
material nonpublic information at the time of the purchase or sale
27.2. For purposes of this Section, information is "material nonpublic"
if:
(a) It has not been generally disclosed to the public and would likely affect the
market price of the security after being disseminated to the public and the
lapse of a reasonable time for the market to absorb the information; or
(b) would be considered by a reasonable person important under the
circumstances in determining his course of action whether to buy, sell or hold
a security.
27.3. It shall be unlawful for any insider to communicate material nonpublic
information about the issuer or the security to any person who, by virtue of
the communication, becomes an insider as defined in Subsection 3.8, where
the insider communicating the information knows or has reason to believe
that such person will likely buy or sell a security of the issuer while in
possession of such information.
Hosea L. Salazar ALS 2021
27.4. a) It shall be unlawful where a tender offer has commenced or is
about to commence for:
(i) Any person (other than the tender offeror) who is in possession of
material nonpublic information relating to such tender offer, to buy or
sell the securities of the issuer that are sought or to be sought by
such tender offer if such person knows or has reason to believe that
the information is nonpublic and has been acquired directly or
indirectly from the tender offeror, those acting on its behalf, the issuer
of the securities sought or to be sought by such tender offer, or any
insider of such issuer; and
(ii) Any tender offeror, those acting on its behalf, the issuer of the
securities sought or to be sought by such tender offer, and any insider
of such issuer to communicate material nonpublic information relating
to the tender offer to any other person where such communication is
likely to result in a violation of Subsection 27.4 (a)(i).
(b) For purposes of this subsection the term "securities of the issuer sought
or to be sought by such tender offer" shall include any securities convertible
or exchangeable into such securities or any options or rights in any of the
foregoing securities.
Atty. Refran:
Who is an Insider?
SRC:
3.8. "Insider" means:
(a) the issuer;
(b) a director or officer (or person performing similar functions) of, or a
33
 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.

Hosea L. Salazar ALS 2021 34

What’s Material Non-Public Information?
IRR 2015 of SRC
27.2. For purposes of this Section, information is "material nonpublic"
if:
(a) It has not been generally disclosed to the public and would likely affect the
market price of the security after being disseminated to the public and the
lapse of a reasonable time for the market to absorb the information; or
(b) would be considered by a reasonable person important under the
circumstances in determining his course of action whether to buy, sell or hold
a security.
Understand what’s the presumption under insider trading?
“shall be presumed to have been effected while in possession of material
nonpublic information if transacted after such information came into existence but
prior to dissemination of such information to the public and the lapse of a
reasonable time for the market to absorb such information:
Provided, however, That this presumption shall be rebutted upon a
showing by the purchaser or seller that he was not aware of the material
nonpublic information at the time of the purchase or sale”
This is a presumption. So any time an INSIDER trades on the basis on material
nonpublic information, such TRADER is at risk. Because there is a presumption.
What are your defenses?
Atty. Refran: You can debunk that that the information is non-public you can
prove that it is of public knowledge.
(a) The insider proves that the information was not gained from such relationship;
or
Hosea L. Salazar ALS 2021
(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.
Atty. Refran: Under letter b, the damage really is not for the other party but
to the market/ the public. So for me you could prove damage even if the other
party knew of the information, especially if you’re listed or traded.
Insider trading here may pertain TO a MARKET which is not necessarily an
exchange. It includes over-the-counter market. This is a market without rules,
called “alternative market over-the-counter”
Student: What’s threshold for the amount of time public information to is
deemed “absorbed” by the public
Atty. Refran: 2 TRADING DAYS from the time of disclosed (Black-Out
Rule).
What if the insider traded before the lapse of the Black out rule? - Atty. Refran:
You are violating the black out rule BUT the defenses of the:
(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:
What’s the difference between the black-out rule and the 10 minute
grace period under 17.1.1.1.3(b).2.?
17.1.1.1.3(b).2. If the Issuer is listed on an Exchange, to that Exchange and to
the Commission within ten (10) minutes after the occurrence of the event and
prior to its release to the public through the news media; Provided that,
35

disclosure by the Issuer to the Exchange may be deemed as filing with the
Commission pursuant to a Memorandum of Agreement between the Exchange
and the Commission; Provided further that, the Memorandum of Agreement
shall provide for the ability of the Commission to download and upload the
same information made available to the Exchange;
Atty. Refran: The 10 minute grace period only applies to matters concerns
information which “would reasonably be expected to affect the investors' decisions
in relation to those securities. In the event a news report appears in the media
involving an alleged material event, a current report shall be made within the
period prescribed herein in order to clarify the said news item which may create
public speculation if not officially denied or clarified by the concerned company.”
This is for the reportorial requirements.
The Black Out Rule is for the time you disclose till after 2 days that’s the
presumption where the market has already absorbed the material nonpublic
information.
END OF MIDTERMS COVERAGE
3 4
Author’s note: The most recent version of the MSLA is in the Securities Industry and
Financial Markets Association (SIFMA) website here: https://www.sifma.org/
Hosea L. Salazar ALS 2021
Securities Borrowing and Lending Agreement (SBLA):
Atty. Refran: Recall that we talked about naked shorting which is prohibited.
Short selling is only allowed only if there is a securities borrowing and lending
agreement between the brokers and those that really have the stocks (those
who are in the long position of the stock/shares).
An SBLA is a bilateral arrangement, which governs the contract between the
borrower and the lender, has certain provisions concerning risk and collateral
management.
There’s a general template for this which is called the Masters Securities and
Lending Agreement (MSLA)3. It has all the boiler plate provisions as to a
securities lending agreement.
Q: How liquid do you have to be in order to SBLA?
Atty. Refran: As low as 150% of the borrowed securities by way of collateral.
However there’s really no minimum as to the amount required, as long as
you’re able to cover the requirements of the contract.
Q: Is securities the same with a loan?
Atty. Refran: My answer is a yes and a no. Theoretically it’s lending of
securities BUT there’s transfer of ownership. On other hand a share is a
generic and fungible.
Except there are rights to ownership, the agreement is lending but on paper it
appears as a straight sale. However certain rights should still inure to the
beneficial owner even though the shares have been lent to the broker4.
Q: Are SBLA securities in themselves? Don’t they fall under the term of,
evidence of indebtedness under Section 4 of the SRC?
Author’s note: My answer would be that it’s closer to the concept of a trust. The
structure of a beneficial owner and holder of the legal title is still applicable to this
scheme.
36
Atty. Refran: No, we didn’t come up with a new instrument. It’s just a straight
contract. This is not a derivative.
Market Making Transactions:
IRR 2015 OF THE SRC:
28.1.2.2. "Market making transactions" shall mean transactions In a
particular security/ies:
28.1.2.2. I. By a Broker Dealer which complies with the Commission and
Exchange rules regarding its duty as a market maker;
28.1.2.2.2. To ensure two way quotes, provide liquidity, and maintain a
fair and orderly trading market therein.
Atty. Refran: A Market Maker is a broker who is obligated to provide liquidity.
Q: What is mean by “providing liquidity” in this provision?
A: When there’s an order to buy and there’s no expression of interest to sell. The
market maker is obligated to make an expression to sell. That is how the market
maker provides liquidity5.
Atty. Refran: Why would you want to be a market maker? Answer: For the Fees.
It’s more of contractual service. This scheme provides an exit for certain investors
holding shares to “off-load” their shares in the market through these market
makers.
The market maker must have the its own inventory of securities, and cash to but
these securities.
5
Author’s note: In a way, this ensures that markets are not stagnant. If markets can’t
provide a security, then investors may not be keen on investing and transacting in that
particular market.
Hosea L. Salazar ALS 2021
Suitability Rule:
30.2.4. Suitability Rule
30.2.4.1. In recommending to a customer the purchase, sale or exchange
of any security, a Broker Dealer or an associated person or salesman of a
Broker Dealer, shall have reasonable grounds for believing that the
recommendation is suitable for such customer upon the basis of the facts
disclosed by such customer as to his other security holdings and as to his
financial situation and needs.
30.2.4.2. Except as provided in SRC Rule 52.1.6, prior to the execution of a
transaction recommended to a customer, a Broker Dealer shall execute a
Customer Account Information Form ("CAlF") which complies with SRC
Rule 52.1.6.
Atty Refran: What does suitablility mean?
A: It means that the broker/dealer must research his/her client before giving a
recommendation as what to buy or sell. Suitability means that the transaction
is suitable based on the facts disclosed.
Exchange Regulation (SRO’s):
What are exchanges:
Section 3 of the SRC:
3.7. "Exchange" is an organized marketplace or facility that brings
together buyers and sellers and executes trades of securities and/or
commodities.
37

Atty. Refran: Don’t misunderstand Exchanges as the entity who buys and sells
the securities. It’s merely a facility provider; it’s the investors [through their
brokers or the dealers who participate in the exchange] who use the facility.
It’s akin to a mall; the mall creates rules and the structure, and the lessor/s are
the ones conducting business of some kind.
Q: Where do you go if you want to transact with securities BUT NOT in an
exchange?
Atty. Refran: The Over-The-Counter Markets (OTC Markets) or an
Alternative Trading Systems/Platforms (ATS), Electronic Cross Network
or “Dark Pools”
**N.B. Definition of Dark Pools: Dark pools are an ominous-sounding term for
private exchanges or forums for securities trading. However, unlike stock
exchanges, dark pools are not accessible by the investing public. Also known as
“dark pools of liquidity,” these exchanges are so named for their complete lack
of transparency. Dark pools came about primarily to facilitate block trading by
institutional investors who did not wish to impact the markets with their large
orders and obtain adverse prices for their trades.
You can even trade listed company shares in these “dark pools”.
***HOWEVER, TAKE NOTE, No broker, dealer, salesman, associated
person of a broker or dealer, or Exchange, directly or indirectly participate
in exchanges:
NOT supervised by an SRO
NOT registered as an exchange under the SEC.
SECTION 32. Prohibition on Use of Unregistered Exchange;
Regulation of Over-the-Counter Markets. — 32.1. No broker, dealer,
salesman, associated person of a broker or dealer, or Exchange, directly or
indirectly, shall make use of any facility of an Exchange in the Philippines to
Hosea L. Salazar ALS 2021
effect any transaction in a security, or to report such transaction, unless
such Exchange is registered as such under Section 33 of this Code.
32.2. (a) No broker, dealer, salesman or associated person of a broker
or dealer, singly or in concert with any other person, shall make, create
or operate, or enable another to make, create or operate, any trading
market, otherwise than on a registered Exchange, for the buying and
selling of any security, except in accordance with rules and regulations the
Commission may prescribe.
(b) The Commission may promulgate rules and regulations governing
transactions by brokers, dealers, salesmen or associated persons of a
broker or dealer, over any facilities of such trading market and may
require such market to be administered by a self-regulatory
organization determined by the Commission as capable of insuring
the protection of investors comparable to that provided in the case of
a registered Exchange. Such self-regulatory organization must provide a
centralized marketplace for trading and must satisfy requirements
comparable to those prescribed for registration of Exchanges in Section 33
of this Code.
IRR 2015 of the SRC
Exchanges and Other Securities Trading Markets
Rule 32.1 - Trading Limited to Listed Securities and Exchanges
Registered under the Code
No Broker Dealer or any registered person shall effect any transaction in
any security in an Exchange or any other trading market, unless such
Exchange or any other trading market and the securities listed or allowed to
be traded therein are registered under the Code or exempt from registration
pursuant to Sections 9 and 10 of the Code.
Rule 32.2 - Exchanges and Other Securities Trading Markets To Be
Supervised By Self-Regulatory Organization
38
 32.2.1. No broker, dealer, salesman or associated person of a broker or
dealer, singly or in concert with any other person, shall make, create or
operate, or enable another to make, create or operate, any securities trading
market, for the buying and selling of any security, unless such market
participants are registered with the Commission.
32.2.2. No broker or dealer shall participate in any trading market unless he
is a member of an SRO which has been registered with the Commission to
regulate and supervise the activities of the broker or dealer in such market.
32.2.3. In case a broker or dealer is already a member of an existing SRO
which is authorized to regulate and supervise a market other than the
market in which a broker or dealer will participate, such broker or dealer
may be allowed by the SRO to participate in such other market; Provided,
that the broker or dealer shows proof and the existing SRO is able to
demonstrate that such SRO is capable of performing its regulatory and
supervisory obligations as regards to the activities of the broker or dealer in
the other market; Provided further, that the SRO has committed in writing to
regulate and supervise the broker or dealer with respect to such activities;
Provided finally, that the SRO files an amendment to its current SRO
registration to reflect its intention to act as SRO in such other market.
32.2.4. The Commission may prescribe the governance and ownership
structure of an SRO or require amendment thereto to ensure the effective
regulation and supervision of different markets.
**N.B. So under our laws it’s only a broker, dealer, salesman, associated
person of a broker or dealer, or Exchange THAT IS PROHIBITED to engage
in “dark pools”. It seems that the code and the IRR DOES NOT PROHIBIT
corporations/issuers from engaging with these ATS platforms in order to by-
pass exchange regulation.
Q: Can you do a Public Offering in Dark Pools to skirt the regulation of
registration?
A: NO. Why?
Hosea L. Salazar ALS 2021
Look at 3.1.17 of the IRR 2015 of the SRC which says:
“Public offering is any offering of securities to the public or to
anyone, whether solicited or unsolicited. Any solicitation or
presentation of securities for sale through any of the following
modes shall be presumed to be a public offering:
3.1.17.3. Advertisement or announcement on radio, television,
telephone, electronic communications, information communication
technology or any other forms of communication;”
Atty. Refran: What makes ATS platforms so enticing is the technology that
comes with the trading platform. BUT now Exchanges are now behaving
more and more like ATS’s in terms of technology.
Exchanges have now reduced the “latency” (lag time) between the
information and price movements.
SRC
33.2. Registration of an Exchange shall be granted upon compliance
with the following provisions:
(a) That the applicant is organized as a stock corporation: Provided, That any
registered Exchange existing prior to the effectivity of this Code shall within
one (1) year reorganize as a stock corporation pursuant to a demutualization
plan approved by the Commission;
(b) That the applicant is engaged solely in the business of operating an
exchange: Provided, however, That the Commission may adopt rules,
regulations or issue an order, upon application, exempting an Exchange
organized as a stock corporation and owned and controlled by another
juridical person from this restriction.
**(c) Where the Exchange is organized as a stock corporation, that no
person may beneficially own or control, directly or indirectly, more than
five percent (5%) of the voting rights of the Exchange and no industry
or business group may beneficially own or control, directly or indirectly,
39
 more than twenty percent (20%) of the voting rights of the Exchange:
Provided, however, That the Commission may adopt rules, regulations
or issue an order, upon application, exempting an applicant from this
prohibition where it finds that such ownership or control will not
negatively impact on the exchange's ability to effectively operate in the
public interest.
(d) The expulsion, suspension, or disciplining of a member and persons
associated with a member for conduct or proceeding inconsistent with just
and equitable principles of fair trade, and for violations of provisions of this
Code, or any other Act administered by the Commission, the rules,
regulations and orders thereunder, or the rules of the Exchange;
(e) A fair procedure for the disciplining of members and persons associated
with members, the denial of membership to any person seeking to be a
member, the barring of any person from association with a member, and the
prohibition or limitation of any person from access to services offered by the
Exchange;
(f) That the brokers in the board of the Exchange shall comprise of not more
than forty-nine percent (49%) of such board and shall proportionately
represent the Exchange membership in terms of volume/value of trade and
paid up capital, and that any natural person associated with a juridical entity
that is a member shall himself be deemed to be a member for this purpose:
Provided, That any registered Exchange existing prior to the effectivity of this
Code shall immediately comply with this requirement;
**(g) For the board of the Exchange to include in its composition
(i) the president of the Exchange, and
(ii) no less than fifty one percent (51%) of the remaining members of the
board to be comprised of three (3) independent directors and persons
who represent the interests of issuers, investors, and other market
participants, who are not associated with any broker or dealer or
member of the Exchange for a period of two (2) years prior to his/her
Hosea L. Salazar ALS 2021
appointment. No officer or employee of a member, its subsidiaries or
affiliates or related interests shall become an independent director:
Provided, however, That the Commission may by rule, regulation, or
order upon application, permit the exchange organized as a stock
corporation to use a different governance structure:
Provided, further, That the Commission is satisfied that the
Exchange is acting in the public interest and is able to
effectively operate as a self-regulatory organization under
this Code: Provided, finally, That any registered exchange
existing prior to the effectivity of this Code shall immediately
comply with this requirement.
**(h) The president and other management of the Exchange to consist
only of persons who are not members and are not associated in any
capacity, directly or indirectly with any broker or dealer or member or
listed company of the Exchange:
Provided, That the Exchange may only appoint, and a person
may only serve, as an officer of the exchange if such person has
not been a member or affiliated with any broker, dealer, or
member of the Exchange for a period of at least two (2) years
prior to such appointment;
(i) The transparency of transactions on the Exchange;
(j) The equitable allocation of reasonable dues, fees, and other charges
among members and issuers and other persons using any facility or system
which the Exchange operates or controls;
(k) Prevention of fraudulent and manipulative acts and practices, promotion
of just and equitable principles of trade, and, in general, protection of
investors and the public interest; and
(l) The transparent, prompt and accurate clearance and settlement of
transactions effected on the Exchange.
40
 Atty. Refran: The PSE is actually 24% owned by Brokers. The SEC is hot on
our heels because the law requires that: no person may beneficially own or
control, directly or indirectly, more than five percent (5%) of the voting
rights of the Exchange and no industry or business group may beneficially
own or control, directly or indirectly, more than twenty percent (20%) of
the voting rights of the Exchange.
Now there’s a threat if you’re not compliant with the requirements under Section
33 of the SRC, the exchanges application for registration MAY BE SUSPENDED
or AS A CORPORATION.
Atty. Refran: Coming from the BestWorld financial scandal, the SRC now
required that the brokers be independent from the management.
**(g) For the board of the Exchange to include in its composition
(i) the president of the Exchange, and
(ii) no less than fifty one percent (51%) of the remaining members of the
board to be comprised of three (3) independent directors and persons
who represent the interests of issuers, investors, and other market
participants, who are not associated with any broker or dealer or
member of the Exchange for a period of two (2) years prior to his/her
appointment. No officer or employee of a member, its subsidiaries or
affiliates or related interests shall become an independent director:
Provided, however, That the Commission may by rule, regulation, or
order upon application, permit the exchange organized as a stock
corporation to use a different governance structure:
Provided, further, That the Commission is satisfied that the
Exchange is acting in the public interest and is able to
effectively operate as a self-regulatory organization under this
Code: Provided, finally, That any registered exchange existing
prior to the effectivity of this Code shall immediately comply
with this requirement.
Hosea L. Salazar ALS 2021
Atty. Refran: There seems to be a legal inconsistency with the Section
33.2(c) and (g). Section 33.2 (g) says that the board only limits the non-
independent directors and those who do not represent the interests of
issuers, investors, and other market participants, who are associated with any
broker or dealer or member of the Exchange to 49% only.
HOWEVER, looking at Section 33.2(c) no person may beneficially own or
control, directly or indirectly, more than five percent (5%) of the voting
rights of the Exchange and no industry or business group may
beneficially own or control, directly or indirectly, more than twenty
percent (20%) of the voting rights of the Exchange.
**(h) The president and other management of the Exchange to consist only
of persons who are not members and are not associated in any capacity,
directly or indirectly with any broker or dealer or member or listed company
of the Exchange:
Provided, That the Exchange may only appoint, and a person may
only serve, as an officer of the exchange if such person has not
been a member or affiliated with any broker, dealer, or member of
the Exchange for a period of at least two (2) years prior to such
appointment;
Atty. Refran: One requirement for being eligible as a president or holding a
management position is to not be a member/s and not be associated in
any capacity, directly or indirectly with any broker or dealer or member
or listed company of the Exchange FOR A PERIOD OF 2 YEARS prior to
appointment.
41
 Self-Regulating Organizations (SROs)
SRO’s are “self-policing” entities. Meaning they promulgate their own rules and
regulate themselves.
An SRO doesn’t necessarily have to be a stock exchange. A prime example
of this is the Kapisanan ng Brodkaster ng Pilipinas (KBP) or any other
association.
A clearing house can and should be an SRO.
Pursuant to the requirements under Section 39 of the R.A. 8799.
SECTION 39. Associations of Securities Brokers, and Dealers, and Other
Securities Related Organizations. — 39.1. The Commission shall have the
power to register as a self-regulatory organization, or otherwise grant licenses,
and to regulate, supervise, examine, suspend or otherwise discontinue, as a
condition for the operation of organizations whose operations are related to or
connected with the securities market such as but not limited to associations of
brokers and dealers, transfer agents, custodians, fiscal and paying agents,
computer services, news disseminating services, proxy solicitors, statistical
agencies, securities rating agencies, and securities information processors
which are engaged in the business of:
(a) Collecting, processing, or preparing for distribution or publication, or
assisting, participating in, or coordinating the distribution or publication of,
information with respect to transactions in or quotations for any security; or
(b) Distributing or publishing, whether by means of a ticker tape, a
communications network, a terminal display device, or otherwise, on a
current and continuing basis, information with respect to such transactions
or quotations. The Commission may prescribe rules and regulations which
are necessary or appropriate in the public interest or for the protection of
investors to govern self- regulatory organizations and other organizations
licensed or regulated pursuant to the authority granted in Subsection 39.1
including the requirement of cooperation within and among, and electronic
integration of the records of, all participants in the securities market to ensure
transparency and facilitate exchange of information. c
Hosea L. Salazar ALS 2021
39.3. An association of brokers and dealers shall not be registered as a
securities association unless the Commission determines that:
(a) The association is so organized and has the capacity to be able to carry
out the purposes of this Code and to comply with, and to enforce compliance
by its members and persons associated with its members, with the provisions
of this Code, the rules and regulations thereunder, and the rules of the
association.
(b) The rules of the association, notwithstanding anything in the Corporation
Code to the contrary, provide that:
(i) Any registered broker or dealer may become a member of the
association;
(ii) There exist a fair representation of its members to serve on the Board
of Directors of the association and in the administration of its affairs, and
that any natural person associated with a juridical entity that is a member
shall himself be deemed to be a member for this purpose;
E
(iii) The Board of Directors of the association includes in its composition:
(a) The president of the association and (b) Persons who represent
the interests of issuers and public investors and are not associated
with any broker or dealer or member of the association; that the
president and other management of the association not be a member
or associated with any broker, dealer or member of the association;
(iv) For the equitable allocation of reasonable dues, fees, and other
charges among members and issuers and other persons using any facility
or system which the association operates or controls;
(v) For the prevention of fraudulent and manipulative acts and practices, the
promotion of just and equitable principles of trade, and, in general, the
protection of investors and the public interest;
42
 (vi) That its members and persons associated with its members shall be
appropriately disciplined for violation of any provision of this Code, the rules
or regulations thereunder, or the rules of the association;
(vii) That a fair procedure for the disciplining of members and persons
associated with members, the denial of membership to any person seeking
membership therein, the barring of any person from becoming associated
with a member thereof, and the prohibition or limitation by the association of
any person with respect to access to services offered by the association or
a member thereof.
39.4. (a) A registered securities association shall deny membership to
any person who is not a registered broker or dealer.
(b) A registered securities association may deny membership to, or condition
the membership of, a registered broker or dealer if such broker or dealer:
(i) Does not meet the standards of financial responsibility, operational
capability, training, experience, or competence that are prescribed by the
rules of the association; or
(ii) Has engaged, and there is a reasonable likelihood it will again engage,
in acts or practices inconsistent with just and equitable principles of fair
trade.
(c) A registered securities association may deny membership to a registered
broker or dealer not engaged in a type of business in which the rules of the
association require members to be engaged: Provided, however, That no
registered securities association may deny membership to a registered broker
or dealer by reason of the amount of business done by the broker or dealer.
A registered securities association may examine and verify the qualifications
of an applicant to become a member in accordance with procedures
established by the rules of the association. HAEDCT
(d) A registered securities association may bar a salesman or person
associated with a broker or dealer from being employed by a member or set
conditions for the employment of a salesman or associated if such person:
Hosea L. Salazar ALS 2021
(i) Does not meet the standards of training, experience, or competence that
are prescribed by the rules of the association; or
(ii) Has engaged, and there is a reasonable likelihood he will again engage,
in acts or practices inconsistent with just and equitable principles of fair trade.
A registered securities association may examine and verify the qualifications
of an applicant to become a salesman or associated person employed by a
member in accordance with procedures established by the rules of the
association. A registered association also may require a salesman or
associated person employed by a member to be registered with the association
in accordance with procedures prescribed in the rules of the association.
**Uncertificated Securities:
SECTION 43. Uncertificated Securities. — Notwithstanding Section 63 of
the Corporation Code of the Philippines: 43.1. A corporation whose
securities are registered pursuant to this Code or listed on a securities
Exchange may:
(a) If so resolved by its Board of Directors and agreed by a
shareholder, investor or securities intermediary, issue shares to, or
record the transfer of some or all of its shares into the name of said
shareholders, investors or, securities intermediary in the form of
uncertificated securities. The use of uncertificated securities in these
circumstances shall be without prejudice to the rights of the
securities intermediary subsequently to require the corporation to
issue a certificate in respect of any shares recorded in its name; and
(b) If so provided in its articles of incorporation and by-laws, issue all
of the shares of a particular class in the form of uncertificated securities
and subject to a condition that investors may not require the
corporation to issue a certificate in respect of any shares recorded
in their name.
43.2. The Commission by rule may allow other corporations to provide in
their articles of incorporation and by-laws for the use of uncertificated
securities.
43

43.3. Transfers of securities, including an uncertificated securities,
may be validly made and consummated by appropriate book-entries
in the securities accounts maintained by securities intermediaries, or
in the stock and transfer book held by the corporation or the stock
transfer agent and such bookkeeping entries shall be binding on the
parties to the transfer. A transfer under this subsection has the effect of
the delivery of a security in bearer form or duly indorsed in blank
representing the quantity or amount of security or right transferred, including
the unrestricted negotiability of that security by reason of such delivery.
However, transfer of uncertificated shares shall only be valid, so far as the
corporation is concerned, when a transfer is recorded in the books of the
corporation so as to show the names of the parties to the transfer and the
number of shares transferred.
However, nothing in this Code shall preclude compliance by banking and
other institutions under the supervision of the Bangko Sentral ng Pilipinas
and their stockholders with the applicable ceilings on shareholdings
prescribed under pertinent banking laws and regulations.
**Atty. Refran: What’s the basis for scriptless securities? (Electronic). It’s Sec.
43 of the SRC
Under Sec. 43.1 of the SRC There are only 2 instances where the corporation
may issue scriptless securities or uncertificated securities:
1. If so resolved by its Board of Directors and agreed by a shareholder,
investor or securities intermediary.
2. If provided in the Articles of Incorporation AND by-laws subject to a
condition that the shareholders cannot required the issuer
certificates recorded in their name.
You have the clearly specify via a board resolution and the by-laws that there will
be no issuance of a physical certificates of shares recorded in their name.
Atty. Refran: However, nothing stops the investor from asking a certificate. The
investor might want this for security.
Hosea L. Salazar ALS 2021
**N.B. I think sir was referring to a the first exception only.
Exception no. 2 is a contract between the shareholder and the
issuer.
Atty. Refran: Going scriptless doesn’t stop the security from being pledged.
Dematerialized vs. Certificated:
If Certificated - You will be disclosed, you will be included in the GIS of the
Corporation. Therefore you open yourself to suits/garnishment/execution of
your shares.
If Dematerialized - You’re given more convenience in trading securities.
However you shares are held in account by the broker
Q: Can you be held a director without a stock certification?
A: YES if you are lodged in the system of a special investment purpose
vehicle (most likely a PDC)
PCD Nominee Corporation (PCNC) is a wholly owned subsidiary of the
Philippine Central Depository, a corporation established to improve operations
in securities transactions and to provide a fast, safe and highly efficient system
for securities settlement in the Philippines
PCD HAS LEGAL TITLE but BENEFICIAL OWNERSHIP is retained by the
customer.
PCD operates as a warehouse of shares for SELLING PURPOSES.
PCD cannot vote WITHOUT customer authorization
What’s the liability of persons who are liable for insider trading/securities
fraud?
Q: What are the rights of a minority shareholder in a delisted corporation?
44
A: It’s difficult to have an exit strategy when you’re a minority shareholder in a
delisted corporation. You can’t sell the shares because there’s no basis for the
price. Even though there’s a market for it price might be too low.
SRC:
SECTION 58. Civil Liability for Fraud in Connection with Securities
Transactions. — Any person who engages in any act or transaction in violation
of Sections 19.2, 20 or 26, or any rule or regulation of the Commission
thereunder, shall be liable to any other person who purchases or sells any
security, grants or refuses to grant any proxy, consent or authorization, or
accepts or declines an invitation for tender of a security, as the case may be,
for the damages sustained by such other person as a result of such act or
transaction.
SECTION 61. Civil Liability on Account of Insider Trading. — 61.1. Any
insider who violates Subsection 27.1 and any person in the case of a tender
offer who violates Subsection 27.4 (a)(i), or any rule or regulation thereunder,
by purchasing or selling a security while in possession of material information
not generally available to the public, shall be liable in a suit brought by any
investor who, contemporaneously with the purchase or sale of securities that
is the subject of the violation, purchased or sold securities of the same class
unless such insider, or such person in the case of a tender offer, proves that
such investor knew the information or would have purchased or sold at the
same price regardless of disclosure of the information to him.
61.2. An insider who violates Subsection 27.3 or any person in the case of a
tender offer who violates Subsection 27.4 (a), or any rule or regulation
thereunder, by communicating material nonpublic information, shall be jointly
and severally liable under Subsection 61.1 with, and to the same extent as, the
insider, or person in the case of a tender offer, to whom the communication
was directed and who is liable under Subsection 61.1 by reason of his purchase
or sale of a security.
SECTION 62. Limitation of Actions. — 62.1. No action shall be maintained
to enforce any liability created under Section 56 or 57 of this Code unless
brought within two (2) years after the discovery of the untrue statement or the
Hosea L. Salazar ALS 2021
omission, or, if the action is to enforce a liability created under Subsection 57.1
(a), unless brought within two (2) years after the violation upon which it is
based. In no event shall any such action be brought to enforce a liability created
under Section 56 or Subsection 57.1 (a) more than five (5) years after the
security was bonafide offered to the public, or under Subsection 57.1 (b) more
than five (5) years after the sale.
62.2. No action shall be maintained to enforce any liability created under any
other provision of this Code unless brought within two (2) years after the
discovery of the facts constituting the cause of action and within five (5) years
after such cause of action accrued.
IRR 2015 of the SRC:
61.1. Any insider who violates Subsection 27.1 of the Code and any person
in the case of a tender offer who violates Subsection 27.4 (a)(i) of the Code,
or any rule or regulation thereunder, by purchasing or selling a security while
in possession of material information not generally available to the public,
shall be liable in a suit brought by any investor who, contemporaneously with
the purchase or sale of securities that is the subject of the violation,
purchased or sold securities of the same class unless such insider, or such
person in the case of a tender offer, proves that such investor knew the
information or would have purchased or sold at the same price regardless of
disclosure of the information to him.
61.2. An insider who violates Subsection 27.3 of the Code or any person in
the case of a tender offer who violates Subsection 27.4 (a) of the Code, or
any rule or regulation thereunder, by communicating material non-public
information, shall be jointly and severally liable under Subsection 61.1 of the
Code with, and to the same extent as, the insider, or person in the case of a
tender offer, to whom the communication was directed and who is liable
under Subsection 61.1 of the Code by reason of his purchase or sale of a
security
Rule 62- Limitation of Action
62.1. No action shall be maintained to enforce any liability created under
45
 Delisting doesn’t meant that the company is suffering loss. There are
Section 56 or 57 of the Code unless brought within two (2) years after the
many reasons as to why a corporation might opt to delist from the exchange.
discovery of the untrue statement or the omission, or, if the action is to enforce
Resorts World for instance (who recently) delisted said that most of their
a liability created under Subsection 57.I(a) of the Code, unless brought within
competitors are not listed.
two (2) years after the violation upon which it is based. In no event shall any
such action be brought to enforce a liability created under Section 56 or
Subsection 57.1 (a) of the Code more than five (5) years after the security was
Listing by Way of Introduction and Initial Public Offering:
bona fide offered to the public, or under Subsection 57.1 (b) of the Code, more
than five (5) years after the sale.
Atty. Refran: There are two ways in order to list a company in the PSE these
62.2. No action shall be maintained to enforce any liability created under any are:
other provision of this Code unless brought within two (2) years after the
discovery of the facts constituting the cause of action and within five (5) years 1. IPO
after such cause of action accrued. 2. Listing by Way of Introduction
3. (Backdoor or Reverse Merger)

Technically the last method is a way of entering the exchange HOWEVER it

Pre Listing and Listing: is not encouraged6.

Atty. Refran: Securities Regulation also deals with a fund raising event. Initial Public Offering:

There are companies which are related to listed companies. The listed
companies are usually not dependent to the related companies. There are
holding companies which have multiple listed companies under them.
Normally it’s the holding company which is in the capital markets. But some
conglomerates don’t have this kind of structure.
*Author’s Note: Most of the discussions in this section will come from the
report of Barroso, Fordan, Gonzales, and Merilles:
Initial Public Offering: An initial public offering (IPO) refers to the process of
offering shares of a private corporation to the public in a new stock issuance.
Public share issuance allows a company to raise capital from public investors.

You will see these subsidiary companies which are sent to engage the capital
markets in order to “test the waters” so to speak. However, at some point these
companies must be consolidated.
Other companies however would opt to delist in order to transfer certain
assets in order to have one manageable structure.
It typically refers to an SEC-registered offering of shares of an issuer's capital
stock where the issuer is a non-reporting company offering its equity securities
to the public for the first time. The issuer registers the offering with the SEC
under a registration statement filed with the SEC.

6
Author’s note: Atty. Refran doesn’t like this method of “listing” because in the IPO and Listing by Way
of Introduction there are certain rules created by the SEC/PSE for transparency reasons. Backdoor
skirts all of those rules in a way.

Hosea L. Salazar ALS 2021 46

 The Philippine Stock Exchange, Inc. Consolidated Listing and
Disclosure Rules
SECTION 2. Listing Agreement – Upon the filing of the application for
initial listing, the Applicant Company shall enter into an agreement with the
Exchange manifesting its conformity to comply with and be bound by all the
listing rules, requirements and policies of the Exchange.
SECTION 3. Publication of Application – The Applicant Company shall
cause the publication of a notice of the fact of filing of the listing application
with the Exchange and registration statement as required under the SRC,
or any amendment or revisions thereof, and other pertinent laws. For that
purpose, the Applicant Company shall submit Affidavits of Publication
signed by duly authorized representatives of the newspapers concerned,
attesting to its publication.
SECTION 4. Engagement of Underwriter – The Applicant Company shall
engage the services of a duly licensed Underwriter, who, among others,
shall firmly underwrite the entire issue. The Underwriter may likewise act as
the Applicant Company's lead Underwriter/Issue Manager. The Applicant
Company may at its option, engage the services of another entity to act as
its lead Underwriter/Issue Manager to manage the issue. The lead
Underwriter shall exercise due diligence to ascertain that all material
information contained in the Applicant Company's Prospectus or Offering
Memorandum, including their amendments or supplements, are true and
correct, and that no material information was omitted, which was necessary
in order to make the statements contained in the Applicant Company's
Prospectus or Offering Memorandum not misleading.
SECTION 5. Issue Managers’ and Underwriters’ Undertaking – Upon
the filing of the application for initial listing, the Applicant Company shall
submit to the Exchange the written undertaking of the Issue Managers and
Underwriters manifesting their conformity to comply with and be bound by
all the applicable listing and disclosure rules, requirements and policies of
the Exchange in relation to the issue applied for by the Applicant Company.
Hosea L. Salazar ALS 2021
SECTION 6. Engagement of Stock Transfer Agent – The Applicant
Company shall engage the services of a duly licensed stock transfer agent
acceptable to the Exchange.
The Applicant Company shall take full responsibility for all the acts of its
transfer agent. The Applicant Company shall execute and submit an
undertaking, holding itself jointly and severally liable for all the acts of its
transfer agent in relation to the issue.
SECTION 8. Disclosure – The Applicant Company shall fully disclose any
and all material information relative to the issue. The Exchange may require
disclosure of additional or alternative items of information as it considers
appropriate and material in any particular case.
The Applicant Company must show its willingness to comply with the full
disclosure policy of the Exchange and Commission. If during the application
for initial listing, the Applicant Company fails to make a timely disclosure of
material information or deliberately misrepresents material facts to the
Exchange, then the Exchange may consider said actions as evidence of the
Applicant Company’s refusal to comply with the full disclosure policy of the
Exchange and Commission and on the basis thereof, reject the listing
application.
SECTION 14. Red Herring Prospectus – The Applicant Company shall
submit its Red Herring Prospectus to the Listings Department at least seven
(7) calendar days prior to its presentation to the Listing Committee.
SECTION 15. Offering Prospectus, Press Releases and Other Similar
Documents – All offering Prospectus, primers, subscription agreement
forms, newspaper prints, advertisements, press releases and the like in
connection with the initial listing shall first be submitted to the Exchange for
review and disclosure purposes.
SECTION 16. Lodgment of Securities – As a condition for the listing and
trading of the securities of an Applicant Company, the Applicant Company
shall electronically lodge its registered securities with the Philippine
Depository and Trust Corporation (“PDTC”), or any other entity duly
authorized by the Commission, without any jumbo or mother certificate in
47
 compliance with the requirements of Section 43 of the SRC. In compliance
with the foregoing requirement, the actual listing and trading of securities on
the scheduled listing date shall take effect only after the submission by the
Applicant Company of the following:
1. (a) Sworn corporate secretary’s certificate stating that all the
securities have been issued in uncertificated form in accordance
with the requirements of Section 43 of the SRC and electronically
lodged with the PDTC or any other entity without any jumbo or
mother certificate;
2. (b) Written confirmation issued by the transfer agent confirming
that it has the capability and capacity to handle the issuance and
transfer of uncertificated securities; and
3. (c) Written confirmation issued by the PDTC or any other entity
confirming the electronic lodgment of the Applicant Company’s
securities.
The above requirements shall also apply to follow-on offerings and
additional listing applications.
Q: What’s the process of doing an IPO and listing in the PSE?
A:
1. Simultaneous Filing with the SEC of a registration statement, and with the
PSE an application for listing.
The registration statement shall filed to the SEC is the registration to sell offer
securities to the public. Meanwhile, the listing application is for listing with the PSE
either on the Main Board or the Small, and Medium Enterprises (SME) Board.
Q: What should are the requirements that should submitted and complied
with to the PSE for listing:
• Documents to be Submitted:
1. Listing Agreement
2. Affidavit of Publication of Listing
Hosea L. Salazar ALS 2021
3. Issue Manager’s and Underwriter’s Undertaking Agreement
4. Red Herring Prospectus
5. Offering Prospectus, press release and other similar documents
• Engagement of a stock transfer agent – To facilitate trading, and
transfer of shares
• Lodgment of securities – Electronic lodging of the shares with the
Philippine Depository and Trust Corporation (PDC)
o Actual listing and trading of securities on the scheduled
date shall take effect only after the submission of the
following:
§ Sworn corporate secretary’s certificate stating that
all the securities have been issued in
uncertificated form and electronically lodged with
the PDTC
§ Written confirmation by the underwriter stating that it
has the capacity transfer the securities
§ Written confirmation by the PDTC confirming the
electronic lodgment of the securities
Lock up period:
SECTION 17. Implementation of the Lock-Up – In order to faithfully
observe the lock-up provision, the Exchange shall require the Applicant
Company to lodge the shares with the PCD through a PCD participant or
any other entity authorized by the Commission for the electronic lock-up of
the subject shares or enter into an Escrow Agreement with the Trust
Department or custodian unit of an independent and reputable financial
institution that is acceptable to the Exchange in order to have the subject
shares physically delivered to the escrow agent for deposit and safekeeping
during the lock-up period. The Escrow Agreement shall contain, among
others, the following points:
a) The Company shall ensure that the lock-up shares are
electronically registered with the PCD through a PCD participant or
any other entity authorized by the Commission for the electronic
lock-up of the subject shares for safekeeping;
48
 b) The escrow agent shall notify and seek prior approval from the
Exchange before the subject shares are removed from its custody;
c) The escrow agent shall immediately inform the Exchange of a
subsequent event if in its sound judgment, it perceives that there is
a potential violation of the agreement; and
d) Within seven (7) calendar days after the lapse of the lock-up period
stipulated in the Escrow Agreement, the escrow agent shall make
a final report to the Exchange on the total number of shares held in
escrow and other information required by the Exchange.
The Applicant Company shall furnish the Exchange a certified true copy of
the Escrow Agreement at least seven (7) calendar days before the start of
the Offering Period.
SECTION 17.1. Other Arrangements or Agreements; Conditions – In
cases where the Applicant Company has more than one hundred (100)
security
holders and either the Exchange or the provisions of the Rules require a
lock-up of all existing securities of the Applicant Company, the Exchange
may, at its discretion, accept other arrangements or agreements executed
by the Applicant Company for the purpose of complying with the lock-up
requirements; provided that the said arrangements or agreements may be
availed of by the Applicant Company and accepted by the Exchange only if
the following conditions exist:
a) The Applicant Company has successfully placed ninety- eight
percent (98%) of its security holdings subject to lock-up through an
escrow agreement as described above;
b) The Applicant Company must show that the alternative
arrangements and agreements adopted by the Applicant Company
for the lock-up are effective means of locking-up the security
holders and have substantially the same effect or in case of
contracts, the same provisions required under said escrow
agreement; and
c) The securities of major security holders and security holders who
are project proponents or officers and directors of the Applicant
Hosea L. Salazar ALS 2021
Company and their immediate family must be locked-up by means
of an escrow agreement as described above.
In all cases, the Applicant Company shall cause the recording of the
securities subject of the lock-up in the books of the Company. The Applicant
Company shall furnish the Exchange a sworn corporate secretary’s
certification stating that the subject securities are duly recorded in the
Applicant Company’s books at least seven (7) calendar days before the
offer period.
There’s a lock-up period for the shares of the company to be listed. This is
to prevent insiders from trading the shares.
The PSE requires that the shares that are electronically lodged in the PCD
as precondition for listing are locked up in an escrow account. The PCD and
the applicant corporation must enter into an escrow agreement to “lock-up”
these shares in an escrow and submit the agreement with the PSE within 7
days before Offer Period.
Special rules for lock-up apply to applicant corporations which have 100 or
more securities holders. The exchange may accept other arrangements for
lock-ups however they must comply with the following:
a) The Applicant Company has successfully placed ninety- eight
percent (98%) of its security holdings subject to lock-up through an
escrow agreement as described above;
b) The Applicant Company must show that the alternative
arrangements and agreements adopted by the Applicant
Company for the lock-up are effective means of locking-up the
security holders and have substantially the same effect or in case of
contracts, the same provisions required under said escrow agreement;
and
c) The securities of major security holders and security holders who are
project proponents or officers and directors of the Applicant Company
and their immediate family must be locked-up by means of an
escrow agreement as described above.
49
 6. The Applicant Company shall have an investor relation program to
ensure that information affecting the company are communicated
effectively to investors. Such program shall include, at the minimum,
Eligibility Requirements for Main Board and the SME Board” a corporate website that contains, at the minimum, the following
information:
Main Board SME Board
Common/General Requirements: a) Company information - organizational structure, board of
1. The Applicant Company must have a positive stockholders' equity directors, and management team
in the fiscal year immediately preceding the filing of the listing b) Company news - analyst briefing report, latest news, press
application. releases, newsletter (if any)
2. The Applicant Company operating history of at least three (3) years c) Financial report - annual and quarterly reports, at least for
the past two (2) years
prior to its listing application.
d) Disclosures - recent disclosures to PSE and SEC for the past
3. The Applicant Company shall cause all its subscribed shares of the two (2) years
same type and class applied for listing to be paid in full. e) Investor FAQs - commonly asked questions of stockholders
f) Investor Contact - email address for feedback/ comments,
4. The minimum offering to the public for initial listing shall be based
shareholder assistance and service
on the following schedule:
g) Stock Information - key figures, dividends, and stock
Market Capitalization Public Offer information
Not exceeding P500M 33% or P50M, whichever is higher

Track Record Requirement

Over P500M to P1B 25% or P100M, whichever is higher
Main Board SME Board
1. A cumulative consolidated 1. A cumulative earnings before
earnings before interest, taxes, interest, taxes, depreciation and
Over P1B to P5B 20% or P250M, whichever is higher
depreciation and amortization amortization (EBITDA),
(EBITDA), excluding non- excluding non-recurring items,
Over P5B to P10B 15% or P750M, whichever is higher recurring items, of at least P50 of at least P15 Million for three
Million for three (3) full fiscal (3) fiscal years immediately
years immediately preceding preceding the application for
Over P10B 10% or P1B, whichever is higher the application for listing; listing;
2. A minimum EBITDA of P10 2. A positive EBITDA was
Million for each of the three (3) generated in at least two (2) of
fiscal years; and the last three (3) fiscal years,
5. When required by the Exchange, the Applicant Company shall
including the fiscal year
engage the services of an independent appraiser duly accredited by 3. The applicant company must be
immediately preceding the filing
the Exchange and the Securities and Exchange Commission ("SEC") engaged in materially the same
of the application; and
in determining the value of their assets. business(es) and must have a

Hosea L. Salazar ALS 2021 50

 proven track record of 3. The Applicant Company must Minimum Capital Requirement
management throughout the be engaged in materially the Minimum authorized capital Minimum authorized capital
last three (3) years prior to the same business and must have a stock of P500M, of which, at least stock of P100M, of which, at least
filing of the application. proven track record of 25% is subscribed and fully paid. 25% is subscribed and fully paid.
management throughout the At listing, the market capitalization
Exceptions to the 3-year track last three (3) years prior to the of the Applicant Company must be
record requirement: filing of the application for at least P500M.
listing.
(i). The Applicant Company
has been operating for at The Applicant Company shall
least ten (10) years prior to demonstrate its stable financial Minimum Number of Stockholders
the filing of the application condition and prospects for Upon listing, at least 1,000 Upon listing, at least 200
and has a cumulative EBITDA continuing growth by providing a stockholders each owning stocks stockholders each owning stocks
of at least P50 Million for at business plan indicating the steps equivalent to at least one (1) board equivalent to at least one (1) board
least two (2) of the three (3) that have been taken and to be lot. lot.
fiscal years immediately undertaken in order to advance its
preceding the filing of the business over a period of five (5)
listing application; years. Restrictions
1.No divestment of shares in No listing of holding, portfolio and
As a general rule, financial operating subsidiary - A newly passive income companies;
(ii). The Applicant Company is projections are not required, but formed holding company which
a newly formed holding should there be references made in invokes the operational track record 2.No change in primary purpose
company which uses the the business plan to future profits or of its subsidiary to qualify for the and/or secondary purpose for a
operational track record of its losses, or any other item that would track record requirement of period of seven (7) years following
subsidiary. However, the be construed to indicate forecasts, profitable operations, is prohibited its listing; and
newly formed holding then the Applicant Company is from divesting its shareholdings in
company is prohibited from required to include financial the said subsidiary for a period of 3.No offering of secondary
divesting its shareholdings in projections in the business plan duly three (3) years from the listing of its securities for companies exempt
the said subsidiary for a period reviewed by an independent securities. The prohibition shall not from the track record and operating
of three (3) years from the accounting firm. apply if a divestment plan is history requirements such as
listing of its securities. The approved by majority of the mining, petroleum and renewable
prohibition shall not apply if a Applicant Company's stockholders. energy companies.
divestment plan is approved
by majority of the Applicant 2.No secondary offering for
Company's stockholders. companies invoking exemption of
track record and operating history
requirements, such as mining,
petroleum and renewable energy

Hosea L. Salazar ALS 2021 51

 companies and newly formed transaction price is lower than that Incorporation of the Applicant
holding companies during the initial of the offer price in the Initial Company.
public offering. Public Offering, or listing price for
a listing by way of introduction, all
shares availed of shall be subject
Lock-Up Requirements to a lock-up period of at least
An Applicant Company shall cause An Applicant Company shall cause Three hundred sixty-five (365)
it existing stockholders who own an its existing stockholders to refrain days from full payment of the
equivalent of at least 10% of the from selling, assigning, aforesaid shares.
issued and outstanding shares of encumbering or in any manner
stock of the company to refrain from disposing of their shares for a The lock-up requirement shall be
selling, assigning or in any manner period of one (1) year after the stated in the Articles of
disposing of their shares for a period listing of such shares. Incorporation of the Applicant
of: Company
If there is any issuance or transfer
(i). One hundred eighty (180) days of shares (i.e., private placements,
after the listing of said shares if asset for shares swap or a similar
the Applicant Company meets the transaction) or instruments which Womb to Tomb Process:
track record requirements; or lead to issuance of shares (i.e.,
convertible bonds, warrants or a 1. Have a trusted and reliable management team
(ii). Three hundred sixty-five (365) similar instrument) done and fully
days after listing of said shares if paid for within six (6) months prior a) Going public requires greater demands following the complexity
the Applicant Company is exempt to the start of the offering period, or, of the process. Thus, putting the right people to maneuver the
from the track record and prior to listing date in case of process will help a lot. They must possess strong
operating history requirements. companies listing by way of communication skills to handle investors or SEC queries and be
If there is any issuance or transfer introduction, and the transaction able to clearly present the company’s vision and plans.
of shares (i.e., private price is lower than that of the offer
b) Team includes financial advisor, issue manager, underwriter,
placements, asset for shares price in the initial public offering, or
legal firm and external auditor.
swap or a similar transaction) or listing price for listing by way of
instruments which lead to introduction, all shares subscribed
2. Prepare the pertinent documents. (see previous section)
issuance of shares (i.e., or acquired shall be subject to a
convertible bonds, warrants or a lock-up period of at least one (1) 3. Choose your underwriter.
similar instrument) done and fully year from listing of the aforesaid a) Underwriter is a duly licensed and authorized investment
paid for within One hundred eighty shares. house or universal house which undertakes and guarantees
(180) days prior to the start of the
the distribution of securities to the public.
offering period, or, prior to listing The lock-up requirement shall be
date in case of companies listing stated in the Articles of b) Investment bankers or the “underwriters” play an important
by way of introduction, and the role in the IPO process. They look for and approach potential

Hosea L. Salazar ALS 2021 52

 investors. They act as the sales guy offering to buy shares for
the company. Thus, characteristics of your ideal investment
banker include sales and distribution capabilities and strong
analyst coverage.
B. Register with SEC and PSE simultaneously.
If the securities to be registered with the SEC are intended to be listed with the
Exchange, a copy of the Registration Statement and all other pertinent
documents shall be filed with the Exchange.
C. Road show and book building
1. Upon approval of the SEC and PSE, the company may start the road
show and the book building.
2. Road show is a series of meetings with prospective investors. After
completing the road show, the company and the underwriter agree on
the price of the share of the stock.
3. Book building is a process where investor demand for the IPO is
determined to support efficient price discovery.
4. Allocation of shares
1. a) 60% - Qualified Institutional Buyers (QIBs)
2. b) 10% - local small investors
3. c) 30% - general public
5. Local small investor - a “share subscriber” who is willing to subscribe to
a minimum board lot or whose subscription does not exceed P25,000
6. If there is an over or under subscription of the 10% offer, a clawback or
clawforward mechanism shall be implemented
1. a) An initial allocation of ten percent (10%) of the offer shares
2. b) A clawback mechanism that increases the number of shares
to 15% when the total demand for shares in the local small
investors’ subscription is 5 times or more than the initial
allocation
Hosea L. Salazar ALS 2021
D. Offer Period
1. Sell the shares during the offer period.
2. The company determines the offer period which should not be less
than five (5) trading days
3. The company applies for the listing date and ultimately, the stock is
listed on the Exchange.
4. Upon listing, the stock starts trading in the secondary market and new
investors may start buying and selling the shares.
Atty. Refran: Not all IPO’s result in listing with the exchange. The whole
offering could be sold exclusively to the institutionals (the QIBs, Banks, SSS
GSIS etc.)
Listing By Way of Introduction:
*Author’s Note: Most of the discussions in this section will come from the
report of Gamad, Ham, Manzano, and San Diego:
What is Listing By Way of Introduction?
SECTION 3. By Way of Introduction – Initial listing by way of
introduction shall refer to an application for listing of securities that
are already issued or securities that will be issued upon listing, where
no public offering will be undertaken because the securities for which
listing is sought would be of such an amount and would be so widely
held that their adequate marketability when listed can be assumed, or
when listing in an exchange or public offering is mandated by law or by
the Commission or other government agencies, in the exercise of
their powers under the law.
53
 Listing By Way of Introduction (LBWI) vs. IPO qualified to list under subsection (e) hereof cannot list its holding
company which does not meet the requirements of this section.
LBWI IPO
• Shares are already issued • SEC-registered offering of
**LBWI has the same suitability and eligibility requirements as an IPO
• Or Securities are of such shares of an issuer's capital
amount and so widely held stock where the issuer is a
that their marketability is non-reporting company Features exclusive to LBWI:
assumed offering its equity securities
• Shares of to the public for the first Fairness Opinion:
corporation/securities which time.
are mandated by
law/SEC/Government to be
issued A company applying to list its securities by way of introduction shall
determine the initial listing price of its securities on listing date which is duly
SECTION 3. By Way of Introduction – xxx Listing by way of introduction may supported by a fairness opinion prepared by an independent and
be appropriate in the following circumstances: reputable firm, and in accordance with the guidelines for fairness opinions
and valuation reports.”
a) Where the securities sought for listing are already listed or traded or
will simultaneously be listed on another stock exchange or, subject to Fairness opinion shall be attached to the prospectus of the applicant
the approval of the Exchange, are listed on another trading market; company and discussed in a section of the prospectus. The discussion in
the prospectus shall include a disclaimer in favor of the exchange that the
b) Where the securities of an unlisted issuer are distributed by way of pricing/valuation of the securities to be listed was determined by the
property dividend by a listed issuer to shareholders of that listed issuer; applicant company.
c) Where a holding company is formed and its securities are issued in
exchange for the securities of one or more listed issuer or issuers is This Requirement may not apply to an applicant company under section
withdrawn at the same time the securities of the issuer are listed; 1(A) if it conducted an IPO in another stock exchange simultaneously, or if
it conducted a public offering within six months prior to its listing date, or if
d) Where listing of securities in an exchange is mandated by law or by the
the applicant company listed in another exchange can demonstrate, to the
SEC, in the exercise of its powers under the Securities Regulation
satisfaction of the Exchange, that the public ownership levels and liquidity
Code; and
support the market price.
e) Where public offering of securities is mandated by law or applicable
regulations; provided that the applicant company secures a clearance Secondary Listing:
from the relevant agency stating that such agency does not object to
the listing by way of introduction of the securities of the company; Applicant company’s securities must be or will be listed on a stock
provided further that a company which is considered as a ‘closely held exchange which is a member of the World Federation of Stock Exchanges
corporation’ as such term is defined under Section 127 (B) of the (WFE) or the Asian and Oceanic Stock Exchange Federation (AOSEF), or
National Internal Revenue Code of 1997, is NOT qualified to list by way such other Exchanges as approved by the Exchange.
of introduction under this subsection (e). A subsidiary company that is

Hosea L. Salazar ALS 2021 54

 Simultaneous listing – Certification from the foreign stock exchange of its • Lock-up shall be stated in shares subscribed shall be
duly received application for a proposed listing, acceptance or provisional the Articles of Incorporation subject to a lock-up period.
acceptance for listing on such exchange(s) as well as the dates of such listing of Applicant Company.
or proposed listing.

• Already listed – submit certification of compliance from foreign exchange

and from foreign regulatory bodies.
• ● Disclosures – arrangements may be done between applicant and
Exchange with regard to listing and disclosure requirements OF THE
FOREIGN STOCK EXCHANGE. Exchange shall ensure that none of the Lock-Up Requirements for those falling under 3(D) and 1(E)
arrangements shall controvert the provisions of the Securities Regulation
Code, its Implementing Rules and Regulations, or the Rules of the d.) Where listing of securities in an exchange is mandated by law or by the
Exchange. SEC, in the exercise of its powers under the Securities Regulation Code;
and
Lock-Up Requirements e.) Where public offering of securities is mandated by law or applicable
regulations; provided that the applicant company secures a clearance from
Main Board SME Board the relevant agency stating that such agency does not object to the listing
• Applicant company shall • Prohibition for one year by way of introduction of the securities of the company; provided further
cause its existing after the listing of such that a company which is considered as a ‘closely held corporation’ as such
stockholders who own an shares for ALL existing term is defined under Section 127 (B) of the National Internal Revenue
equivalent of 10% of the stockholders. Code of 1997, is NOT qualified to list by way of introduction under this
issued and outstanding • If there is any issuance or subsection (e). A subsidiary company that is qualified to list under
shares of the stock of the transfer of shares or subsection (e) hereof cannot list its holding company which does not meet
company to refrain from instruments which leads to the requirements of this section.
selling, assigning, or in issuance of shares done
any manner disposing of and fully paid for within six
their shares for a period of: (6) months prior to the start
o ○ 180 days after of the offering period, or, 1(D) and (E) shall cause its existing stockholders or security holders who own
listing if the prior to listing date in case AT LEAST 10% of the issued and outstanding shares to enter into an escrow
applicant company of companies listing by way agreement with an escrow agent not to sell, assign or in any manner
dispose of their shares from the initial listing date until 180 days after it
meets track record of introduction, and the
conducts a public offering.
requirements; or transaction price is lower
o ○ 365 days if than that of the offer price in
exempt from track the IPO, or listing price by
record and way of introduction, all
operating history
requirements.

Hosea L. Salazar ALS 2021 55

 Lifting of trading band
The trading band on the applicant’s securities is lifted on trading date, in order
for market forces to determine the price of the security. However, it shall be
reinstated after the trading date.
Post listing Requirements:
• An issuer whose securities are listed by way of introduction under 1(d)
and (e) shall undertake a public offering within 1 year from its listing
in the Exchange, and comply with the minimum public ownership
requirement.
• ● The Issuer should disclose the indicative terms and the timetable of
its public offering.
• Notwithstanding the foregoing rules, the exchange may require the issuer
to undertake the public offering at any time within the one-year period
should there be a significant demand for the securities thereof. The
required offering shall be in accordance with the rules of on initial public
offerings (IPO).
• ● Non-fulfillment may subject the issuer to:
o ○ Suspension of trading;
o ○ Sanction (ex. Doubling of maintenance fees) ○ Delisting
• ● PROHIBITION ON BACKDOOR LISTING FOR THOSE UNDER 1(D)
AND (E)
Post Listing
Section 24 of the SRC:
(e) To effect, either alone or others, any series of transactions for the
purchase and/or sale of any security traded in an Exchange for the purpose
of pegging, fixing or stabilizing the price of such security, unless otherwise
allowed by this Code or by rules of the Commission.
IRR OF SRC 2015:
Hosea L. Salazar ALS 2021
Rule 24.1(e) - Manipulation of Security Prices - Price Fixing
It shall be unlawful for any person acting for himself or through a dealer or
broker, directly or indirectly, to effect, either alone or others, any series of
transactions for the purchase and/or sale of any security traded in an
Exchange for the purpose of pegging, fixing or stabilizing the price of such
security unless otherwise allowed by the SRC or these Rules.
*Author’s Note: Most of the discussions in this section will come from the
report of Bautista, Galindez, and San Pedro:
Stabilization Activities:
Atty. Refran: Stabilization Activities happens because there’s a shareholder
who wants to stabilization requirement. Normally these shareholders SELL
their shares in order to fund the stabilization activities.
What are Price Stabilization activities?
Activities by a stabilizing agent/underwriter to make the market price
of the shares offered in the secondary market in an initial public offering
(IPO) close to the offer price in the prospectus.
Why are these stabilization activities undertaken by the
underwriter/stabilizing agent?
The goal of the underwriter/s is to keep the market price of the shares
offered to the public as close to the offer price in the prospectus. If the
market price is lower than the offer price in the prospectus, the
investors may take the downward trend of the price negatively and lose
confidence. However, if the market price is higher than the offer price
then it might prove to be difficult for investors to get a hold of the share
in the secondary market.
Stabilization activities are done by the stabilizing agent in order to
“smooth” out these market fluctuations in the price of the share.
56
 How are stabilization activities done?
The Corporation enters into an underwriting agreement, where it names
its stabilizing agent. Afterwards, the Corporation then goes public during
the offer period, and the shares are first sold to the institutional investors.
Then to the secondary market through an exchange.
During the stabilization period (which shall be subject to SEC approval)
the stabilizing agent can either place “stabilizing bids” or exercise an over
allotment option to stabilize the price to be the same as the offer price.
What is a stabilizing agent?
A stabilizing agent is one who supports the trading of a share for a certain
period of time. The stabilizing agent has obligations, such as:
• Providing liquidity to avoid strong price movement
• Supporting the price by buying the stock below a certain level
If a company’s shares at IPO are popular and more shares are sold by the
stabilizing agent, the following could happen:
• If the price goes down, the stabilizing agent buys back the shares
that were over-allotted as part of the Green Shoe option and makes
a profit by stabilizing the price
• If the price goes up, the stabilizing agent exercises the Green Shoe
option to buy the shares at the original IPO price and avoid taking a
loss.
What are Green Shoe/Overallotment Options and how do they work?
A greenshoe option, also called an overallotment option, allows the
stabilization agent/underwriter to buy shares numbering up to 15% in
excess of the shares to be issued in the offering. This is exercisable over
a period of 30 days from an agreed date in the underwriting agreement.
Hosea L. Salazar ALS 2021
These over-alloted shares are sourced from outstanding shares
currently held by a shareholder of the issuer (Selling Shareholder).
These shares can be purchased by the Stabilization Agent from the
Selling Shareholder at the IPO price in order to make the trading price
as close as possible to the offer price
Is Price Stabilization an unlawful market manipulation scheme?
No, price manipulation is not an unlawful market manipulation
scheme.
Price stabilization activities are:
(a) contractually agreed upon
(b) disclosed in the prospectus, and
(c) approved by the SEC.
Since stabilization activities are disclosed in the prospectus, investors
are made aware that these activities will be undertaken to support the
price of the stock during a limited time period. Thus, investor protection
is not compromised.
Corporations wishing to undertake price stabilization activities must file
a “Request for Approval of Stabilization Activities” with the SEC,
subject to the regulatory body’s approval.
57
 Real Estate Investment Trusts (REITs)
*Author’s Note: Most of the discussions in this section will come from the report
of Francisco, Lim, Go, and Razon:
What are REITS?
R.A. No. 9856 AN ACT PROVIDING THE LEGAL FRAMEWORK FOR
REAL ESTATE INVESTMENT TRUST AND FOR OTHER PURPOSES
(cc) "Real Estate Investment Trust' or "RElT' IS a stock corporation
established in accordance with the Corporation Code of the Philippines
and the rules and regulations promulgated by the Commission
principally for the purpose of owning income - generating real estate
assets. For purposes of clarity, a REIT, although designated as a "trust",
does not have the same technical meaning as "trust" under
existing laws and regulations but is used herein for the sole
purpose of adopting the internationally accepted description of the
company in accordance with global best practices.
The presenter’s definition: "Real Estate Investment Trust" or "REIT" is a publicly
listed stock corporation that owns income-generating real-estate assets, such as
malls, offices and hotels.
Envisioned to promote the development of the capital market, REITs are
instruments to recycle capital.
Section 4. Investment in the REIT. - Investment in the REIT shall be by way
of subscription to or purchase of shares of stock of the REIT. No shares of
stock of the REIT shall be offered for subscription or sale except in
accordance with a REIT plan and other requirements and restrictions as
may be prescribed by the Commission.
Hosea L. Salazar ALS 2021
Section 5. Registration and Listing. - The shares of stock of the REIT must
be registered with the Commission and listed in accordance with the rules
of the Exchange.
Section 6. Nationality Requirement. - A REIT that owns land located in
the Philippines must comply with foreign ownership limitations
imposed under Philippine law.
Section 7. Dividend Distribution. - A REIT must distribute annually at'
least ninety percent (90%) of its distributable income as dividends to
its shareholders not later than the last day of the fifth (5") month
following the close of the fiscal 10 year of the REIT. Subject to the
provisions of this Act, the dividends shall be payable only from out of the
unrestricted retained earnings of the REIT as provided for under
Section 43 of the Corporation Code of the Philippines. The percentage
of dividends received by the public shareholders to the total dividends
distributed by the REIT from out of its distributable income must not be less
than such percentage of their aggregate ownership of the total outstanding
shares of the REIT. Any structure, arrangement or provision which would
have the effect of diminishing or circumventing in any form this entitlement
to dividends shall be void and of no force and effect.
Distributable income excludes proceeds from the sale of the REIT's assets
that are re - invested by the REIT within one (1) year from the date of the
sale.
How does a REIT work?
Investors purchase a shares from a REIT company which have real estate
assets that generate substantial revenue. The revenue earned through the
assets held by REIT company is then given as a cash dividend to the
investors who held shares.
What makes the security very attractive is the dividends; no less than the law
requires that a REIT must distribute annually at' least ninety percent
58
 (90%) of its distributable income as dividends to its shareholders not later
than the last day of the fifth (5") month following the close of the fiscal 10
year of the REIT
Requirements in becoming a REIT:
Public Ownership Requirement:
Section 8. Requirements. - Unless the Commission provides otherwise and
after public hearing, taking into account public interest, the need to protect
investors and develop the country's real estate investment industry to make
it globally competitive, the following requirements shall apply:
8.1 Minimum Public Ownership - A REIT must be a public company
and to be considered as such, 'a REIT, must: (a) maintain its
status as a listed company; and (b) upon and after listing, have
at least one thousand (1,000) public shareholders each owning
at least fifty (50) shares of any class of shares who in the
aggregate own at least one - third (1/3) of the outstanding
capital stock of the REIT.
The Commission shall prescribe a recording and monitoring system
that will effectively ensure that the shares of the public shareholders
are traceable to their names and for their own benefit and not for
the benefit of any of the non - public shareholders mentioned above.
Compliance With the minimum public ownership requirement under
this section must be duly certified by a responsible person
designated by the Commission upon listing, as of record date for
any dividend declaration or any qorporate action requiring
shareholder approval and other relevant times as may be required
by the IRR of this Act.
8.2 Capitalization - A REIT must have a minimum paid - up capital of Three
hundred million pesos (Php300, 000.000.00).
i. Real estate, whether freehold or leasehold, located In the
Philippines. A REIT may invest in income - generating real estate
Hosea L. Salazar ALS 2021
located outside of the Philippines: Provided, That such investment
does not exceed forty percent (40%) of its deposited property and
only upon special authority from the Commission. The Commission
in issuing such authority shall consider, among others, satisfactory
proof that the valuation of assets is fair and reasonable. An
investment in real estate may be by way of direct ownership or a
shareholding in an unlisted special purpose vehicle constituted to
hold/own real estate;
ii. Real estate - related assets, wherever the issuers, assets, or
securities are incorporated, located, issued, or traded;
iii. Managed funds, debt securities and listed shares issued by local
or foreign non - property corporations;
iv. Government securities issued on behalf of the Philippine
government or governments of other countries and securities
issued by multilateral agencies;
v. Cash and cash equivalent items; and
vi. Such other similar investment outlets as the Commission may
allow
8.4 Investment in Synthetic Investment Products - A REIT may invest
not more than five percent (5%) of its investible funds in synthetic
investment products such as, but not limited to, credit default swaps, credit
- linked notes, collateralized debt obligations, total return swaps, credit
spread options, and credit default options, and only upon special authority
from the appropriate regulatory authority.
8.5 Income - generating Real Estate - At least seventy - five percent (75%)
of the deposited property of the REIT must be invested in, or consist of,
income - generating real estate.
8.6 Property Development - A REIT must not undertake property
development activities whether on its own, in a joint venture with others, or
59
 by investing in unlisted property development companies, unless it intends
to hold the developed property upon completion. The total contract value of
property development activities undertaken and investments in
uncompleted property developments should not exceed ten percent (10%)
of the deposited property of the REIT.
8.7 Single Entity Limit - Not more than fifteen percent (15%) of investible
funds of the REIT may be invested in any one issuer's securities or anyone
managed fund, except with respect to government securities where the limit
is twenty - five percent (25%).
8.8 Foreign Assets - A REIT may invest in local or foreign, assets,
subject to the terms of its articles of incorporation. Where an
investment in a foreign real estate asset is made, the REIT should
ensure that the investment complies with all the applicable laws and
requirements in that foreign country such as, but not limited to, foreign
ownership restrictions, if any, and requisites of having good and valid title
to that real estate.
8.9 Joint Venture - When investing in real estate as a joint owner, the REIT
should make such investment by acquiring shares or interests in an unlisted
special purpose vehicle constituted to hold/own the real estate and the REIT
should have freedom to dispose of such investment. The joint venture
agreement, memorandum and articles of association or other constitutive
documents of the special purpose vehicle should provide for a minimum
percentage of distributable profits of the special purpose vehicle that will be
distributed and grant the REIT veto rights over key operational issues of the
special purpose vehicle. .
8.10 Aggregate Leverage Limit - The total borrowings and deferred
payments of a REIT should not exceed, 'thirty - five percent (35%) of its
deposited property: Provided, however, That the total borrowings and
deferred payments of a REIT that has a publicly disclosed investment grade
credit rating by a duly accredited or internationally recognized rating agency
may exceed thirty - five percent (35%) but not more than seventy percent
(70%) of its deposited property.
Hosea L. Salazar ALS 2021
8.12 Valuation - A full valuation of a REIT's assets must be conducted by
an independent appraisal company, duly accredited by the Commission, at
least once a year In accordance with the applicable rules of asset valuation
and valuation methodology' as prescribed by the Commission.
8.13 Fund Manager - A REIT must appoint a fund manager that is
independent from the REIT and its sponsor(s)/ promoter(s) and shall be
subject to the following minimum requirements:
i. It must be a corporation duly organize under the laws of the
Republic of the Philippines or a foreign corporation engaged in the
business' of fund management with proven track record and duly
licensed to do business in the Philippines by the appropriate
regulatory agency;
ii. It must have a minimum paid - up capital" stock or assigned
capital of Ten million pesos (Php10, 000.000.00), unless the
Commission provides otherwise;
iii. Its office in the Philippines must have a meaningful role in its
business activities and must perform accounting, compliance and
investor relations, services in the Philippines;
iv. It must comply with the requirements of the relevant law or
appropriate regulatory authority on the number of independent
directors;
v. It must comply with the corporate, governance requirements,
including the fit and proper rule, prescribed by this Act and its IRR;
vi. It must adopt measures as may be prescribed by the IRR of this
Act to avoid conflicts of interest in the discharge of its duties as fund
manager for the REIT; and
vii. It must employ a resident chief executive officer and at least two
(2) full - time professional employees who have a track record' and
60
 experience in financial management as well as experience in the
real estate industry.
8.14 REIT Property Manager - The. RElT must appoint a REIT property
manager who shall be responsible for managing the real estate assets such
as apartment buildings, office buildings, warehouses, hospital buildings"
medical facilities, hotel buildings, resort facilities, manufacturing plants and
other physical assets of the REIT. The contract between the REIT and the
property manager must comply with the disclosure and other requirements
prescribed for related party transactions.
The REIT property manager shall be independent from the REIT and its
sponsor/promoter and possess the qualifications and be subject to such
functions and responsibilities, restrictions and other requirements
prescribed by the Commission.
The property manager must comply with the following minimum
qualifications:
i. It must comply with the requirement of the SRC or the
Commission on the number of independent directors;
ii. It must comply with the corporate governance requirements,
including the fit and proper rule, prescribed by this Act and its IRR;
and
iii. It must adopt measures as may be prescribed by the IRR of this
Act to avoid conflicts of interest in the discharge of its duties as
property manager for the REIT.
8.15 Independent Directors - At least one - third (113) of the board of
directors of a REIT must be independent directors.
**8.16 Fit and Proper Rule - To maintain the quality of management of the
REIT and afford better protection to REIT investors, the Commission, or the
concerned regulatory agency, shall prescribe or pass upon and review the
qualifications and disqualifications of individuals elected or appointed as
Hosea L. Salazar ALS 2021
directors or officers of the REIT, REIT fund managers, REIT property
managers, distributors and other REIT participants and disqualify those
found unfit. The appropriate regulatory agency may disqualify, suspend or
remove any director or officer who commits or omits an act which renders
him unfit for the position.
In determining whether an individual is fit and proper to hold the position,
regard shall be given to his integrity, experience, education, training, and
competence: Provided, however, That the following persons shall in no
case be allowed to serve or act in the capacity of officer, director or
consultant of any REIT, REIT fund manager, or REIT property manager:
i. Any person convicted of any crime involving any security or
financial product;
ii. Any person convicted of an offense involving fraud or
embezzlement, theft, estafa or other fraudulent acts or transactions;
iii. Any person who, by reason of any misconduct, is enjoined by
order, judgment, or decree by any court, quasi - judicial body or
administrative agency of competent jurisdiction from acting as a
director, officer; employee, consultant, or agent occupying any
fiduciary position;
iv. Any person found by the appropriate regulatory agency to have
violated, or aided, abetted, counseled commanded, induced, or
procured the violation of this Act, the Corporation Code, the General
Banking Law, the Insurance Code, the SRC, or' any related laws
and any rules, regulations or orders thereunder; ,
v. Any person judicially declared to be' insolvent, or incapacitated
to contract; and
vi. Any person found guilty by a foreign court, regulatory authority
or government agency of the, acts or violations similar to any of the
acts' or misconduct enumerated in the foregoing paragraphs.
61
 A conviction in the first instance shall be considered sufficient ground for
disqualification.
REIT Plan:
Section 4. Investment in the REIT. - Investment in the REIT shall be by
way of subscription to or purchase of shares of stock of the REIT. No shares
of stock of the REIT shall be offered for subscription or sale except in
accordance with a REIT plan and other requirements and restrictions as
may be prescribed by the Commission.
The Plan shall contain the following:
1. Investment policy, restrictions and strategy;
2. Business plan for property investment and management (including
timetable for renovation and improvements, operating date,
borrowing policy and financing, etc).
3. General character and competitive conditions of all real estate held
or intended to be acquired
4. Nature and risks of making property investments in each of the
relevant locations,
5. Related Party Transactions, Arrangements, and Agreements
6. Dividend Policy, Insurance Arrangements, and Exit Strategy
7. Relevant Information on the Property Manager, Fund Manager,
Directors, Shareholders, etc.
Body Corporate
Hosea L. Salazar ALS 2021
• REIT must be a PUBLIC COMPANY, LISTED COMPANY; and have
at least one thousand (1,000) public shareholders each owning at
least fifty (50) shares of any class of shares
• CAPITALIZATION: Minimum paid in capital of Php 300,000,000.00
• Independent Directors: At least 1⁄3 or at least 2 members of the
board of directors, whichever is higher.
• Independent Fund Manager and REIT Property Manager
Management fees or compensation shall not exceed one percent (1%)
of the net asset value of the assets under management.
• Executive Compensation It shall not exceed such percentage of the
net income before regular corporate income tax of the REIT during the
immediately preceding taxable year.
Minimum Public Ownership
• 40% of the total outstanding capital stock of the REIT shall be publicly
owned at the initial year and it shall be increased to 67% within three
(3) years from listing.
Currently, there’s a proposed amendment to this requirement reverting it back
to its original minimum public ownership of 33% of the total outstanding capital
stock.
Allowable Investments
REIT is like a MUTUAL FUND, however, instead of investing in securities of
public real estate companies, REIT directly invests in income-generating real
estates.
• Real estate;
• Real estate-related assets;
• Managed funds, debt securities and listed shares issued by local or
foreign non property corporations;
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 • Government securities issued on behalf of the Philippine government; or Valuation of REIT assets at least once a year conducted by an independent
• governments of other countries and securities issued by multilateral appraisal company.
agencies
• Cash and cash equivalent items
Repertorial and Disclosure Requirements:

Investment Distribution and Limitations

• Reportorial and disclosure requirements prescribed by the
Corporation Code, the SRC and the Exchange
Income-generating Real Estate at least 75% of the deposited property of the REIT
• Special Quarterly and Annual Reports
must be invested in or consist of income generating real estate.
o Summary of all real estate transactions entered into during the
Property Development
period

• A REIT must NOT undertake property development activities o Summary of all the REIT's real estate assets (location,
valuation, occupancy rate, etc).
• Unless, it intends to hold the developed property upon completion which
should not exceed ten percent (10%) of the deposited property of the o Comparative summary of the financial performance of the
REIT. REIT covering various time periods

As regards the Domestic Reinvestment Problem:

Single Entry Limit
• Not more than 15% of investible funds of the REIT may be invested in any
one issuer's securities or any one managed fund
o EXCEPT with respect to government securities where the limit is
25%.
It seems that the SEC has the power to regulate reinvestments, as
according to the law:
“Under Section 8 of the REIT Law, the SEC has the authority to
restrict foreign investments of REITs ‘to...develop the country’s
real-estate investment industry to make it globally competitive...,’

Synthetic Investment Products ( credit-default swaps, collateralized debt

obligations, credit spread options, etc) - not more than 5% of investible funds
END OF THE REVIEWER
Other Requirements

Aggregate Leverage Limit - The total borrowings and deferred payments of a

REIT should not exceed 35% of its deposited property

Disclosure of Related Party Transactions and other transactions

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