5thFloorCMFFIBuilding
ReSA
The Review School of Accountancy
Regulatory Framework for
Business Transactions (RFBT)
RFBT – 11B: SECURITIES REGULATION CODE (RA 8799)
The SRC is also termed as a “Blue Sky Law”, enacted to
protect the public from unscrupulous promoters, who stake
business or venture claims which have no real basis, and sell
shares or interests therein to investors, who are then left
holding certificates representing nothing more than a claim to
a square of the blue sky.
State Policy: The State shall establish socially conscious, free
market that regulates itself, encourage the widest participation
of ownership in enterprises, enhance the democratization of
wealth, promote the development of the capital market, protect
investors, ensure full and fair disclosure about securities,
minimize if not totally eliminate insider trading and other
fraudulent or manipulative devices and practices which create
distortions in the free market.
Powers and functions of the SEC:
1. Have jurisdiction and supervision over all
corporations, partnerships or associations who are
grantees of primary franchises and/or a license or a
permit issued by the Government
2. Formulate policies and recommendations on issues
concerning the securities market, advise Congress
and other government agencies on all aspects of the
securities market and propose legislation and
amendment thereto
3. Approve, reject, suspend, revoke or require
amendments to registration statements and
registration and licensing applications
4. Regulate, investigate or supervise the activities of
persons to ensure compliance
5. Supervise, monitor, suspend or take over the
activities of exchanges, clearing agencies and other
SROs
6. Impose sanctions for the violation of laws and rules,
regulations and orders and issued pursuant thereto
7. Prepare, approve, amend or repeal rules, regulations
and orders and issue opinions and provide guidance
on and supervise compliance with such rules,
regulations and orders
8. Enlist the aid and support of and/or deputize any and
all enforcement agencies of the Government, civil or
military as well as any private institution,
corporation, firm, association or person in the
implementation of its powers and functions under the
SRC
9. Issue cease and desist orders to prevent fraud or
injury to the investing public
10. Punish for the contempt of the Commission, both
direct and indirect, in accordance with the pertinent
provisions of and penalties prescribed by the Rules of
Court
11. Compel the officers of any registered corporation or
association to call meetings of stockholders or
members thereof under its supervision
12. Issue subpoena duces tecum and summon witnesses
to appear in any proceedings of the Commission and
in appropriate cases, order the examination, search
and seizure of all documents, papers, files and
records, tax returns and books of accounts of any
entity or person under investigation as may be
necessary for the proper disposition of the cases
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813 Cor. R. Papa and S. Loyola Sts.
Sampaloc, Manila
735-9807 / 734-3989 / (0910) 439-1320
 resareview@hotmail.com
Atty. J.C. Domingo ● Atty. N. C. Soriano Jr.
13. Suspend or revoke after proper notice and hearing the
franchise of certificate of registration of corporations,
partnerships or associations, upon any of the grounds
provided by law
14. Exercise such other powers as may be provided by
law as well as those which may be implied from, or
which are necessary or incidental to the carrying out
of, the express powers granted the Commission to
achieve the objectives and purposes of these laws
Securities: shares, participation or interests in a corporation or
in a commercial enterprise or profit-making venture and
evidenced by a certificate, contract, instrument, whether
written or electronic in character
Exempt securities:
1. Any security issued or guaranteed by the Government
of the Philippines, or by any political subdivision or
agency thereof, or by any person controlled and
supervised by, and acting as an instrumentality of
said Government
2. 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
3. Certificate issued by a receiver or by a trustee in
bankruptcy duly approved by the proper adjudicatory
body
4. 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, HLURB
or BIR
5. Any security issued by a bank except its own shares
of stock
Exempt transactions:
1. At any judicial sale, or sale by an executor,
administrator, guardian or receiver or trustee in
insolvency or bankruptcy
2. 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
provisions of the SRC to liquidate a bona fide debt, a
security pledged in good faith as security for such
debt
3. 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 not
being the underwriter of such security
4. The distribution by a corporation, actively engaged in
the business authorized by its articles of
incorporation, of securities to its stockholders or
other security holders as a stock dividend or other
distribution out of surplus
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 ReSA – The Review School of Accountancy
5. The sale of capital stock of a corporation to its own Manipulation of security prices:
stockholders exclusively where no commission or 1. To create a false or misleading appearance of active
other remuneration is paid or given directly or trading in any listed security traded in an exchange or
indirectly in connection with the sale of such capital any other trading market:
stock a. Wash sale: by effecting any transaction in
6. The issuance of bonds or notes secured by mortgage such security which involves no change in
upon real estate or tangible personal property, where the beneficial ownership thereof
the entire mortgage together with all the bonds or b. Matched orders: by entering an order or
notes secured thereby are sold to a single purchaser at orders for the purchase or sale of such
a single sale security with the knowledge that a
7. The issue and delivery of any security in exchange simultaneous order or orders of substantially
for any other security of the same issuer pursuant to a the same size, time and price, for the sale or
right of conversion entitling the holder of the security purchase of any such security, has or will be
surrendered in exchange to make such conversion entered by or for the same or different (but
8. Broker’s transactions, executed upon customer’s colluding) parties
orders, on any registered exchanges or other trading c. Market rigging or jiggling: by performing
market similar act where there is no change in
9. Subscriptions for shares of the capital stock of a beneficial ownership
corporation prior to the incorporation thereof or in 2. To effect, alone or with others, a series of
pursuance of an increase in its authorized capital transactions in securities that:
stock under the Corporation Code, when no expense a. Raises their price to induce the purchase of a
is incurred, or no commission, compensation or security, whether of the same or a different
remuneration is paid or given in connection with the class of the same issuer or of a controlling,
sale or disposition of such securities, and only when controlled or commonly controlled company
the purpose for soliciting, giving or taking of such by others
subscriptions is to comply with the requirements of b. Depresses their price to induce the sale of a
such law as to the percentage of the capital stock of a security, whether of the same or a different
corporation which should be subscribed before it can class, of the same issuer or of a controlling,
be registered and duly incorporated, or its authorized controlled or commonly controlled company
capital increased by others
10. The exchange of securities by the issuer with its c. Creates active trading to induce such a
existing security holders exclusively, where no purchase or sale through manipulative
commission or other remuneration is paid or given devices such as:
directly or indirectly for soliciting such exchange i. Marking the close: placing of
11. The sale of securities by an issuer to fewer than 20 purchase or sale order, at or near
persons in the Philippines during any 12-month the close of the trading period
period ii. Painting the tape: akin to marking
12. The sale of securities to any number of the following the close but the activity us made
qualified buyers: during the normal trading hours
a. Bank iii. Squeezing the float: the part or
b. Registered investment house portion of the issue/security which
c. Insurance company is outstanding but intentionally held
d. Pension fund or retirement plan maintained by dealers or other persons with a
by the Government of the Philippines or any view of reselling them later for
political subdivision thereof or managed by profit
a bank or other persons authorized by the iv. Hype and dump: act employed by a
BSP to engage in trust functions person or group of persons of
e. Investment company purchasing the outstanding capital
f. Such other person as the Commission may stock of a dormant public shell
by rule determine as qualified buyers company for a nominal amount and
merge it with their privately held
Procedure for registration of securities: company
1. Issuer shall file in the main office of the SEC a sworn v. Boiler room operations: involves an
registration statement as prescribed. intensive selling campaign through
2. Upon filing of the registration statement, the issuer numerous salesmen by telephone or
shall pay to the SEC a fee of not more than 1/10 of through direct mail offerings for
1% of the maximum aggregate price at which such securities of either a certain type or
securities are proposed to be offered. from a specific issuer
3. Notice of the filing shall be immediately published vi. Improper matched orders: engaging
by the issuer, at its own expense, in 2 newspapers of in transactions where both the buy
general circulation in the Philippines, once a week for and sell orders are entered at the
2 consecutive weeks. same time with the same price and
4. Within 45 days after the date of filing, the SEC shall quantity by different but colluding
declare the registration statement effective or parties
rejected, unless the applicant is allowed to amend the vii. Scalping: where a person purchases
registration statement. securities for his own account
5. Upon effectivity of the registration statement, the before recommending that security,
issuer shall state under oath in every prospectus that and then sells the share at a profit
all registration requirements have been met and that upon the rise in the market price
all information are true and correct as represented by following the recommendation
the issuer or the one making the statement. viii. Daisy chain: a pattern of fictitious
trading activity by a group of
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RFBT – 11B
https://www.coursehero.com/file/65609039/RFBT-11B-SECURITIES-REGULATION-CODE1docx/
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 ReSA – The Review School of Accountancy
persons who lures innocent people
into the scheme
ix. Flipping: operated where one office
buys a particular stock for
customers, while another office
simultaneously recommends that its
customers sell the stock, with the
stock being shifted from one office
to another, and the firm makes a
profit, and the broker earn their
commissions
x. And such other similar devices
3. 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
4. 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
5. 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 by
the rules of the Commission
6. No person shall use or employ, in connection with the
purchase or sale of any security any manipulative or
deceptive device or contrivance
Fraudulent transactions: it shall be unlawful for any person,
directly or indirectly, in connection with the purchase or sale
of any securities to:
1. Employ any device, scheme or artifice to defraud
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
3. Engage in any act, transaction, practice or course of
business which operated or would operate as a fraud
or deceit upon any person
Short Sale: selling of security which the vendor does not own;
illegal except when in accordance with the rules
Option Trading: endorsing or guaranteeing the performance of
any put, call, straddle, option, or privilege, in relation to any
security registered on an exchange; unlawful
Insider Trading: 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:
1. The insider proves that the information was not
gained from such relationship
2. If the other party selling to or buying from the insider
(or his agent) is identified, the insider proves:
a. That he disclosed the information to the
other party
b. That he had reason to believe that the other
party is otherwise is also in possession of the
information
“Insider” shall include:
1. The issuer;
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RFBT – 11B
https://www.coursehero.com/file/65609039/RFBT-11B-SECURITIES-REGULATION-CODE1docx/
2. A director or officer of, or a person controlling,
controlled by, or under common control with the
issuer;
3. A person whose relationship or former relationship to
the issuer gives or gave him access to a fact of special
significance about the issuer or the security that is not
generally available;
4. A government employee, or directors, or officer of an
exchange, clearing agency and/or self-regulatory
organization (SRO) who has access to material
information about an issuer or a security that is not
generally available to the public; or
5. A person who learns such a fact from any of the
foregoing insiders with knowledge that the person
from whom he learns the fact is an insider.
“Material Non-Public”: 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
“Fact of Special Significance”:
1. A material fact which would be likely, on being made
generally available to affect the market price of a
security to a significant extent, or
2. One which a reasonable person would consider
especially important in determining his course of
action with regard to the shares of stock
“Material Fact”: if it induces or tends to induce or otherwise
affect the sale or purchase of its securities
Tender Offer: publicly announced intention to acquire
securities of a public company; to protect minority
shareholders against any scheme that dilutes the share value of
their investments
When mandatory:
1. When any person or group of persons acting in
concert, who intends to acquire 35% or more of
equity shares in a public company (any corporation
with a class of equity securities listed on an exchange
or with assets in excess of P50 million and having
200 or more holders, at least 200 of which are
holding at least 100 shares of a class of its equity
securities)
2. Any person or group of persons acting in concert,
who intends to acquire 35% or more equity shares in
a public company in one or more transactions within
a period of 12 months, shall be required to make a
tender offer to all holder of such class for the number
of shares so acquired within the said period
3. If any acquisition of even less than 35% would result
in ownership of over 51% of the total outstanding
equity securities of a public company, the acquirer
shall be required to make a tender offer 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 3rd party
Exempted:
1. Any purchase of shares from the unissued capital
stock provided that the acquisition will not result to a
50% or more ownership of shares by the purchaser
2. Any purchase of shares from an increase in
authorized capital stock
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
4. Purchases in connection with privatization
undertaken by the government of the Philippines
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 ReSA – The Review School of Accountancy
5. Purchases in connection with corporate rehabilitation
under court supervision
6. Purchases through an open market at the prevailing
market price
7. Merger or consolidation
Rules on proxy solicitation:
1. Proxies must be issued and proxy solicitation must be
made in accordance with rules and regulations issued
by the SEC.
2. Proxies must be in writing, signed by the stockholder
or his duly authorized representative and file before
the scheduled meeting with the corporate secretary.
3. Unless otherwise provided in the proxy, it shall be
valid only for the meeting for which it is intended.
No proxy shall be valid and effective for a period
longer than 5 years at any one time.
4. No broker or dealer shall give any proxy, consent or
any authorization, in respect of any security carried
for the account of the customer, to a person other than
the customer, without the express written
authorization of such customer.
5. A broker or dealer who holds or acquires the proxy
for at least 10% or such percentage as the SEC may
prescribe of the outstanding share of such issuer, shall
submit a report identifying the beneficial owner
within 10 days after such acquisition, for its own
account or customer, to the issuer of security, to the
exchange where the security is traded and to the SEC.
Disclosure Rule: requires that material information should be
disclosed to the Exchange within the prescribed period from
receipt of such information to protect investors’ interests
Civil liabilities: brought before RTC (exclusive); damages not
exceeding triple the amount of the transaction plus actual and
exemplary damages (if necessary) and attorney’s fees not
exceeding 30% of the award
1. On account of false registration statement
2. Arising in connection with prospectus,
communications and reports
3. For fraud in connection with securities transactions
4. For manipulation of security prices
5. With respect to commodity futures contracts and pre-
need plans
6. On account of insider trading
No action shall be maintained unless brought within 2 years
after discovery and within 5 years after such cause of action
accrued.
Corporate Governance: the system of stewardship and control
to guide organizations in fulfilling their long-term economic,
moral, legal, and social obligations towards their stakeholders;
a system of direction, feedback, and control using regulations,
performance standards and ethical guidelines to hold the board
and senior management accountable for ensuring ethical
behavior—reconciling long-term customer satisfaction with
shareholder value—to the benefit of all stakeholders and
society; to maximize the organization’s long-term success,
creating sustainable value for its shareholders, stakeholders,
and the nation
Filing of General Information Sheet (GIS): All corporations
shall file their GIS within 30 calendar days from:
1. Stock corporations: date of actual annual
stockholders’ meeting
2. Non-stock corporations: date of actual annual
members’ meeting
3. Foreign corporations: anniversary date of the
issuance of the SEC License
Filing of Annual Audited Financial Statements:
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RFBT – 11B
https://www.coursehero.com/file/65609039/RFBT-11B-SECURITIES-REGULATION-CODE1docx/
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1. All corporations, including branch offices,
representative offices, regional headquarters, and
regional operating headquarters of foreign
corporations whose fiscal year ends on December 31:
depending on the last numerical digit of their SEC
registration or license number in accordance with the
schedule set by the SEC (Note: All corporations may
file their AFS regardless of the last numerical digit or
license number on or before the first day stated in the
coding schedule.)
2. Those whose fiscal year ends on a date other than
December 31: within 120 calendar days from end of
their fiscal year
3. Broker dealer whose fiscal year ends on December
31: depending on the last numerical digit of their
SEC registration or license number in accordance
with the schedule set by the SEC
4. Broker dealer whose fiscal year ends on date other
than December 31: within 110 calendar days after the
close of such fiscal year
5. Those whose securities are listed on the Philippine
Stock Exchange (PSE) and those whose securities but
not listed in PSE and Public Companies covered
under SRC: within 105 calendar days after the end of
the fiscal year
6. Those whose AFS are being audited by the COA
provided that the following documents are attached to
their AFS:
a. An affidavit signed by the President and
Treasurer (or CFO) attesting to the fact that
the company timely provided COA with the
financial statements and supporting
documents and that the audit of COA has
just been concluded; and
b. A letter from COA confirming the above
information.
7. Late filings or filing after respective due dates shall
be accepted but subject to the prescribed penalties
which shall computed from the date of the last day of
filing schedule.
8. The AFS, other than the consolidated financial
statements, shall have the stamped “received by the
Bureau of Internal Revenue (BIR) or its authorized
banks”, unless the BIR allows an alternative proof of
submission for its authorized banks.
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