INTERNATIONAL BUSINESS LAW – 11.

Compel the officers of any registered

MIDTERMS REVIEWER corporation or association to call meetings of
stockholders or members thereof under its
POWERS AND FUNCTIONS OF THE SEC supervision;

POWERS AND FUNCTIONS OF SEC 12. INVESTIGATIVE POWERS OF SEC:

• Issue subpoena duces tecum
The Commission shall act with transparency and shall have the • Summon witnesses to appear in any
powers and functions provided by this Code, Presidential proceedings of the Commission and in
Decree No. 902-A, the Corporation Code, the Investment appropriate cases
Houses Law, the Financing Company Act and other • Order the examination, search and seizure of
existing laws. all documents, papers, files and records, tax
returns and books of accounts of any entity or
1. The SEC has jurisdiction and supervision over all person under investigation as may be
juridical entities who are grantees of primary necessary for the proper disposition of the
franchises, such as the certificate of incorporation from cases before it, subject to the provisions of
SEC, and/or licenses or permits issued by the existing laws;
Government, because one of its powers and function is 13. Suspend, or revoke, after proper notice and
to have jurisdiction and supervision over all hearing the franchise or certificate of
corporations, partnership or associations who registration of corporations, partnership or
are the grantees of primary franchises and/or a associations, upon any of the grounds provided
license or a permit issued by the Government by law – This includes incidental powers necessary to
2. Formulate policies and recommendations on carry powers.
issues concerning the securities market, advise 14. Exercise such other powers as may be provided by law
Congress and other government agencies on all as well as those which may be implied from, or which
aspect of the securities market and propose are necessary or incidental to the carrying out of,
legislation and amendments thereto; the express powers granted the Commission to
3. Approve, reject, suspend, revoke or require achieve the objectives and purposes of these laws.
amendments to registration statements, and
registration and licensing applications. TRANSFER OF JURISDICTION OVER INTRA-
• The registration statement is the application CORPORATE DISPUTES (FROM SEC TO RTC)
for the registration of securities required to be
filed with the Commission. It is required if SEC PD 902-A 1976 formerly vested SEC original and
you want to register your securities. exclusive jurisdiction over the following cases:
• Noting that, the registration of a corporation 1. Devices or schemes employed by or any acts, of the
is separate and distinct from the registration board of directors, business associates, its officers or
of securities because all corporation are partnership, amounting to fraud and misrepresentation
required to register with the SEC. However, which may be detrimental to the interest of the public
not all are required to register their securities. and/or of the stockholder, partners, members of
Moreover, having a certificate of associations or organizations registered with the
incorporation which the corporation shall get Commission;
upon registration, does not entitle the 2. Controversies among out of intra-corporate or
corporation to sell their securities. partnership relations:
a. between and among stockholders, members,
4. Regulate, investigate or supervise the activities of or associates;
persons to ensure compliance; b. between any or all of them and the
corporation, partnership or association of
5. Supervise, monitor, suspend or take over the which they are stockholders, members or
activities of exchanges, clearing agencies and associates, respectively; and
other SROs; c. between such corporation, partnership or
• SROs or Self-Regulatory Organizations are association and the state insofar as it
private entities such as PSE. Despite being concerns their individual franchise or right to
self-regulatory, the SEC still exercises exist as such entity; and
supervision over them in which they have the 3. Controversies in the election or appointments of
power to penalize in any case there is a directors, trustees, officers or managers of such
violation. corporations, partnerships or associations.
However, SEC 5.2 transferred such jurisdiction with the Regional
6. Impose sanctions for the violation of laws and Trial Court. In order for the SEC to acquire original and exclusive
rules, regulations and orders, and issued jurisdiction the case must not be an intra-corporate dispute. To
pursuant thereto; determine whether the dispute is intra-corporate, two tests must
concur:
7. Prepare, approve, amend or repeal rules, 1. RELATIONSHIP TEST – which pertains to the
regulations and orders, and issue opinions and relationship of the parties. The controversy must
provide guidance on and supervise compliance pertain to the following relationships: (1) between
with such rules, regulation and orders; corporation, partnership, or association and the public;
(2) between the corporation, partnership, or
8. Enlist the aid and support of and/or deputized any and association and the state in so far as its franchise,
all enforcement agencies of the Government, civil or permit or license to operate is concerned; (3) between
military as well as any private institution, corporation, the corporation, partnership, or association and its
firm, association or person in the implementation of its stockholders, partners, members or officers; (4)
powers and function under its Code; among the stockholders, partners, or associates
themselves
9. Issue cease and desist orders to prevent fraud 2. CONTROVERSY TEST – which pertains to the nature
or injury to the investing public; of the question that is the subject of the controversy.
It is required that the dispute among the parties be
10. Punish for the contempt of the Commission, intrinsically connected with the regulation of the
both direct and indirect, in accordance with the corporation, partnership, or association. If the nature
pertinent provisions of and penalties prescribed of the controversy involves matters that are purely civil
by the Rules of Court;

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 in character, necessarily, the case does not involve an 3. Fractional undivided interests in oil, gas or other
intra-corporate controversy. mineral rights;
Applying these tests, if found that it is not an intra-corporate 4. Derivatives like option and warrants;
dispute, then the SEC exercises jurisdiction over the dispute.
Otherwise, the Regional Trial Court exercises jurisdiction. DERIVATIVES – It means a financial instrument, including
However, it does not follow that if the RTC exercises the original options and warrants, whose value depends on the interest in
and exclusive jurisdiction the SEC no longer has jurisdiction, it or performance of an underlying security, but which does not
is because the SEC still exercises regulatory and administrative require any investment of principal in the underlying security. A
powers and has jurisdiction over administrative matters. derivative is called a derivative because it derives its value from
the value of the underlying security. Options and warrants are
SECURITIES considered as derivatives because its value will depend on or is
It is important to determine whether or not the security is a derived from the value of the underlying security at a
security as contemplated under SEC because if such security is predetermined time. As for the warrant, aside from the
a security as contemplated under SEC, it is required that the underlying security there is a beneficiary security, wherein
security is a registered security before such security can be sold one where a warrant is attached or a warrant is issued for the
to the general public. benefit of the security.

The New IRR of SEC provides two types of securities: • OPTIONS - contracts that give the buyer the right, but
1. DEBT SECURITIES – are securities which includes not the obligation, to buy or sell an underlying
any evidence of indebtedness such as bonds, notes, security at a predetermined price, called the exercise
debentures, commercial papers, treasury bills, treasury or strike price, on or before a predetermined date,
bonds and other similar instruments which may be called the expiry date, which can only be extended in
determined by the Commission. accordance with Exchange rules. There are two kinds
2. EQUITY SECURITIES – includes shares of stocks in of options:
a corporation. 1. CALL OPTION – is the option to buy. As for
example,
SECURITIES ENUMERATED UNDER SRC 3.1 2. PUT OPTION – is the option to sell.
1. Shares of stock, bonds, government Securities,
commercial papers, debentures, notes, • WARRANTS – rights to subscribe or purchase new or
evidences of indebtedness, asset-backed existing shares in a company on or before a
securities; predetermined date. There are 2 kinds of warrants
which is determined by the corporation or issuer:
SHARES OF STOCK – Equity which shows your participation or 1. DETACHABLE WARRANT- are those warrants
interest in a corporation which can be sold separately from its beneficiary
security. The warrant itself has a value separate
BONDS – Obligation or undertaking to pay a sum certain in from the beneficiary security.
money. The distinction between a bond and a promissory note 2. NON-DETACHABLE WARRANT – are those
is that a bond is a long-term obligation which is generally warrant which you have to sell the shares in order
covered by a mortgage security. This security requires to sell the warrants.
registration with SEC.
5. Certificates of assignments, certificates of
DEBENTURES – Undertaking to pay a sum certain in money participation, trust certificates, voting trust
but normally in short or medium term and are not secured by certificates or similar instruments;
otherS forms of securities.
6. Proprietary or non-proprietary membership
NOTES – such as promissory notes are short term promises to certificates in corporations; and
pay a sum certain in money.
This pertains to country club memberships.
ASSET-BACKED SECURITIES – They are certificates issued • PROPRIETARY – Allowed to use dividends and at the
by an SPE (Special Purpose Entity), the repayment of which shall same time earn dividends.
be derived from the cash flow of the assets in accordance with • NON-PROPRIETARY – Allowed to use facilities but
the Plan. These debt securities normally have very big face no dividends earned.
amounts so the ordinary investing public cannot buy them but
when the SPEs buy them in bulk, then, it will in turn create its 7. Other instruments as may in the future be
own securities and distribute it to the public which becomes determined by the Commission.
smaller denomination securities. As for example, a bulk buying
of debt securities worth 20M, the SPE in turn divide this security REGISTRATION OF SECURITIES
into smaller denomination securities which would be easily
accessible or made affordable to the investing public. REGISTRATION OF SECURITIES
2. Investment contracts, certificates of interest or
participation in a profit-sharing agreement, GENERAL RULE: Securities shall not be sold or offered for sale
certificates of deposit for a future subscription; or distribution within the Philippines, without a registration
statement duly filed with and approved by SEC. This is required
INVESTMENT CONTRACT – An investment contract is a to any type of sale of securities. However, our law only requires
contract, transaction or scheme (collectively ‘contract’) whereby that if the shares are sold within the Philippines, the security
a person invests his money in a common enterprise and is led must be registered. Otherwise, if it is not sold within the
to expect profits primarily from the efforts of others. To Philippines, then it is a matter which does not concern SEC.
determine whether or not the scheme is an investment contract
the Howey test must be observed. Using the Howey Test, it • The documents which are needed to be submitted for
requires that a transaction, contract, or scheme whereby a registration are as follows: (1) registration statement;
person (1) makes an investment of money, (2) in a common (2) prospectus
enterprise, (3) with the expectation of profits, (4) to be • The purpose of registering securities is for the full and
derived solely from the efforts of others. fair disclosure to the general public. To let potential
investors know about the company and make an
CERTIFICATES OF DEPOSIT FOR A FUTURE investment decision with open eyes.
SUBSCRIPTION – These are investment to purchase shares of
stock. They are not yet shares because the purchase is EXCEPTIONS: The requirement of registration shall not apply
incomplete for the company has not yet been incorporated, but to exempt securities as provided by the SRC and its IRR
even if they are not yet shares they can already be sold as and a sale of a security in exempt transactions.
securities. Furthermore, only the registration of such securities is exempted

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from registration. The purchase and sale of such security shall hand, the issuer is anyone because it is the securities
not be exempt from the coverage of the provisions of the Code. which is being owned by the corporation undergoing
receivership.
• The distinction between exempt securities and exempt
transactions is that for exempt securities, regardless of 2. By or for the account of a pledge holder, or
how many times it is traded, the security will always be mortgagee or any of a pledge lien holder selling
exempt. Exempt transaction, on the other hand, it is of offering for sale or delivery in the ordinary
only exempt in a particular instance such that the course of business and not for the purpose of
securities involved in the exempt transaction, if avoiding the provision of this Code, to liquidate
subsequently transacted either sold or resold, may no a bonafide debt, a security pledged in good faith
longer be exempt and may already require registration. as security for such debt. This pertains to securities
which are held as pledge or chattel mortgages. If there
is default by the owner, the security is sold through a
EXEMPT SECURITIES (UNDER SRC) public auction which is an exempt transaction because
such transaction is supervised by the court.
The requirement of registration under subsection 8.1 shall not
as a general rule apply to any of the following classes of 3. An isolated transaction in which any security is
securities: sold, offered for sale, subscription or delivery by
1. Any security issued or guaranteed by the the owner therefore, or by his representative for
government of the Philippines, or by any the owner’s account, such sale or offer for sale
political subdivision or agency thereof, or by any or offer for sale, subscription or delivery not
person controlled or supervised by, and acting being made in the course of repeated and
as an instrumentality of said government. successive transaction of a like character by
such owner, or on his account by such
2. Any security issued or guaranteed by the representative and such owner or
government of any country with which the representative not being the underwriter of
Philippines maintains diplomatic relations, or by such security. This transaction applies only when the
any state, province or political subdivision issuer is the owner of the security, security is sold to
thereof on the basis of reciprocity: provided, one buyer and that there is only one transaction.
that the commission may require compliance
with the form and content for disclosures the 4. The distribution by a corporation actively
commission may prescribe. engaged in the business authorized by its
• NON-RISK SECURITIES – These are the articles of incorporation, of securities to its
securities provided in (a) and (b) are non- stockholders or other security holders as a stock
risk because these are guaranteed or issued dividend or other distribution out of surplus. All
by the Government itself. If a security is distributions of profit are exempt transactions. There
guaranteed by the government, then it is are two known exempt transactions: stock dividends,
considered low-risk because it is backed by when you issue your own shares of stocks instead of
the taxing power of the sovereign. cash and property dividends, which pertains to any
other distributions of income or surplus using securities
3. certificates issued by a receiver or by a trustee owned by the company instead of shares or cash.
in bankruptcy duly approved by the proper
adjudicatory body. They are considered exempt 5. The sale of capital stock of a corporation to its
because the receiver or trustee is an officer of the own stockholders exclusively, where no
court. They will only undertake transactions upon commission or other remuneration is paid or
approval of the court. Thus, when a receiver or trustee given directly or indirectly in connection with
issues securities, then it means that there is proper the sale of such capital stock. This pertains to the
supervision because it is approved by the court. selling of the corporations shares of stocks to its own
shareholders in exchange of cash. This is exempt
4. Any security or its derivatives the sale or because it is presumed that when you are selling your
transfer of which, by law, is under the stocks to your own stockholders, they already have
supervision and regulation of the OIC, HLURB, knowledge about the company.
or the BIR.
6. The issuance of bonds or notes secured by
5. Any security issued by a bank except its own mortgage upon real estate or tangible personal
shares of stock. As a rule, the security is only property, when the entire mortgage together
exempt when the bank will issue a bond. The with all the bonds or notes secured thereby are
exemption does not extend when the bank issues its sold to a single purchaser at a single sale.
own shares of stocks. If so, then the security issued Elements: (1) issuance of bonds or notes secured by a
must be registered as contemplated under Section 8 of chattel mortgage which is a real estate or tangible
the SRC. Moreover, the IRR of the SRC provides as well property; (2) single buyer; (3) single sale
exemptions for issuance of indebtedness issued by a
financial institution that has been licensed by the BSP 7. The issue and delivery of any security in
to engage in banking or quasi- banking. The distinction exchange for any other security of the same
between both is that, the former is an exemption under issuer pursuant to a right of conversion entitling
the law which pertains to issuance of securities by the holder of the security surrendered in
banks, while the latter pertains to issuance of debt exchange to make such conversion:
security issued not just by a bank but also, quasi- Provided, That the security so
banks. surrendered has been registered under this
Code or was, when sold, exempt from the
EXEMPT TRANSACTIONS provision of this Code, and that the security
issued and delivered in exchange, if sold at the
Section 10. Exempt Transactions. – 10.1. The requirement conversion price, would at the time of such
of registration under Subsection 8.1 shall not apply to the sale conversion fall within the class of securities
of any security in any of the following transactions: entitled to registration under this Code. Upon
1. At any judicial sale, or sale by an executor, such conversion the par value of the security
administrator, guardian or receiver or trustee in surrendered in such exchange shall be deemed
insolvency or bankruptcy. This is exempt because the price at which the securities issued and
the transaction is done through court order. The delivered in such exchange are sold.
distinction between (c) exempt security and exempt This pertains to convertible securities. Convertible
transaction is that in exempt security, the issuer is the securities are those which are in one form but can be
receiver or trustee, in exempt transaction, on the other

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 converted to another form. Only from preferred to political subdivision thereof or manage by a
common conversion of shares. bank or other persons authorized by the
Bangko Sentral to engage in trust functions;
8. Broker’s transaction, executed upon customer’s e. Investment company or;
orders, on any registered Exchange or other f. Such other person as the Commission may
trading market. This pertains to the buying and rule by determine as qualified buyers, on the
selling in the PSE. The exemption applies to each basis of such factors as financial
transaction. As a general rule, listed securities are not sophistication, net worth, knowledge, and
exempt securities. As an exception, listed securities experience in financial and business matters,
under broker’s transactions. For the reason that it will or amount of assets under management.
defeat the purpose of listing the shares if registration They are exempt because they are considered experts
is required. of the industry. Moreover, a natural person can be a
qualified buyer.
9. Subscriptions for shares of the capitals stocks of
a corporation prior to the incorporation thereof STAGES OF REGISTRATION
or in pursuance of an increase in its authorized
capital stocks under the Corporation Code, 1. PRE-FILING STAGE
when no expense is incurred, or no commission, The stage of preparation of required documents for registration.
compensation or remuneration is paid or given In this stage, there shall be no sale and dissemination of
in connection with the sale or disposition of such information for everything has to be confidential. Failure to
securities, and only when the purpose for comply, shall be penalize by the SEC.
soliciting, giving or taking of such subscription
is to comply with the requirements of such law The documents required are: Registration Statement and
as to the percentage of the capital stock of a Prospectus. The Registration Statement is the application
corporation which should be subscribed before for the registration of securities required to be filed with the
it can be registered and duly incorporated, or its Commission. The Prospectus, on the other hand, contains all
authorized, capital increase. Only in authorized the information including the financial statements.
capital stock and not in pre-incorporation subscription,
that there is a requirement of 25% subscribed and 2. PRE-OFFERING STAGE
25% paid up. This stage there will be a filing of registration statement and
prospectus. After such, there is payment of filing fee. Lastly, a
10. The exchange of securities by the issuer with simple publishing of notice.
the existing security holders exclusively, where
no commission or other remuneration is paid or The notice available to the issuer:
given directly or indirectly for soliciting such • PRELIMINARY PROSPECTUS (RED HERRING
exchange. The distinction between exchange of PROSPECTUS) – prospectus of the issuer which has
securities and conversion of securities is determined in been filed but has not yet been rendered effective by
the nature of the security, in conversion the right to the SEC.
convert already exists upon its issuance. However, in • TOMBSTONE ADVERTISEMENT – these are
exchange of securities this is not a matter of right, advertisements allowed to the issuer after it has filed
before it is converted there must be an approval by with SEC the registration requirements. This is not
SEC. deemed as an offer for sale.
11. The sale of securities by an issuer to fewer than Moreover, in this stage the receiving of orders to buy, buying
twenty (20) persons in the Philippines during and selling are not allowed.
any twelve-month period.
GENERAL RULE: The sale of securities of an issuer to fewer 3. EFFECTIVITY/DENIAL PERIOD
than 20 persons or 19 persons or less, in the Philippines during The commission after 45 days after date of filing or later date,
any 12-month period, which is not base on the calendar year shall declare the RS EFFECTIVE or REJECTED. It is effective if
are considered exempt securities. it finds that the order is on its face complete and that the
requirements have been complied with.
EXCEPTION: When the number of persons exceeds 19 within
a 12 month period or when the sale, offer for sale, or 4. OFFERING PERIOD
distribution of a security, which is not exempt or which does The registration statement has been declared effective. The
not fall under an exempt transaction, is actively solicited from corporation can now sell its securities.
or marketed to nonqualified buyers in the Philippines by any
entity, including its agents, representatives, employees or any There are 2 methods of selling securities:
person acting on its behalf. 1. PUBLIC OFFERING - is any offering of securities to
the public or to anyone, whether solicited or
RULES: unsolicited.
• Moreover, under the law, when the number of persons 2. SHELF OFFERING – selling of shares in a delayed and
exceed 19 qualified investors within 1 year, then there continuous offering of securities and sale of securities
is a presumption of circumvention of Sec 8 and 12 of
the SRC. PUBLIC OFFERING
• The number of persons is considered to have exceed Any of the following modes shall be presumed to be a
the 19-person rule, if the security is marketed to any public offering:
buyer who wants to buy. 1. Publication in any newspaper, magazine or printed
• If in any case, the original purchasers of the first reading material which is distributed within the
transaction, subsequently resell the said securities Philippines;
resulting to more than 19 holders, Sec. 8 and 12 shall 2. Presentation in any public or commercial place;
apply. It is no longer an exempt transaction. The issuer 3. Advertisement or announcement on radio, television,
is now required to register. Notwithstanding the telephone, electronic communications, information
exemption of their issuances, unless the succeeding communication technology or any other forms of
sale shall qualify as an exempt transaction. communication; or
4. Distribution and/or making available flyers, brochures
12. The sale of securities to any number of the or any offering material in a public or commercial place
following qualified buyers: or to prospective purchasers through the postal
a. Bank; system, information communication technology and
b. Registered investment house; other means of information distribution.
c. Insurance company;
d. Pension fund or retirement plan maintained GENERAL RULE: As a rule, the offering period shall only
by the Government of the Philippines or any commence within 10 business days from the date of effectivity

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of registration statement and shall continue until the end of the 3. The issuer, any officer, director or controlling person
offering period or until the sale is terminated by the ISSUER. If performing similar functions, or any under writer has
the sale is not commenced within 10 business days, then the RS been convicted, by a competent judicial or
shall be cancelled and all the fees shall be forfeited. administrative body, upon plea of guilty, or
otherwise, of an offense involving moral turpitude
EXCEPTION: By way of exception to the offering period is and /or fraud or is enjoined or restrained by the
when the shares is listed in the PSE. However, in PSE you are Commission or other competent or administrative
selling your shares to the public. However, the shares must first body for violations of securities, commodities, and
be registered with SEC. For the reason that, registration with other related laws.
SEC is different from registration with the PSE. Not all public
offering registered in SEC will go to a listing or is listed with the Although Section 13.1 of the SRC requires due notice and
PSE, but all public offering in a listing is registered with SEC. hearing before issuing an order of revocation, the SEC does not
perform such quasi-judicial functions and exercise discretion of
SHELF OFFERING a judicial nature in the exercise of such regulatory power.
As a rule, if there is an intention to issue or sell securities in Rather, when the SEC exercises its incidental power to conduct
tranches, there is a requirement that there must be an intention administrative hearings and make decisions, it does so in the
to sell securities by tranches by the very beginning of the course of the performance of its regulatory and law enforcement
registration. Moreover, the offering period shall not exceed 3 function. Thus, a substantial compliance of due process is
years from the effective date of the registration statement. sufficient enough to satisfy the requirement of due notice and
hearing.
INITIAL PUBLIC OFFERING – an initial public offering, or
IPO, refers to when a company first sells its shares to the public. If the Commission deems it necessary, it may issue an order
• How do you do an IPO? suspending the offer and sale of the securities pending any
1. Go through a book building process investigation. The order shall state the grounds for taking such
2. Get the feel of the market for the purpose of action, but such order of suspension although binding upon the
determining the IPO price persons notified thereof, shall be deemed confidential, and shall
3. Go through a roadshow and get the feel of how not be published. Upon the issuance of the suspension order,
much investors are willing to pay for the security no further offer or sale of such security shall be made until the
• Instances where listing does not go through the whole same is lifted or set aside by the Commission. Otherwise, such
IPO process: sale shall be void.
1. Securities already traded in another exchange
2. Listed issuer is by of property dividend AMENDMENTS TO THE REGISTRATION STATEMENT
3. Holding company and its securities are exchange
by shares of a listed issuer. • If a registration statement is on its face incomplete
or inaccurate in any material respect, the
GREENSHOE AGREEMENT – is an over-allotment option. In Commission shall issue an order directing the
the context of an IPO, it is a provision in an underwriting amendment of the registration statement. Upon
agreement that grants the underwriter the right to sell investors compliance with such order, the amended registration
more shares than initially planned by the issuer if the demand statement shall become effective in accordance with
for a security issue proves higher than expected. This provides the procedure mentioned in Subsection 12.6 hereof.
additional price stability to a security issue because the • If, at any time, the Commission finds that a registration
underwriter can increase supply and smooth out price statement contains any false statement or omits to
fluctuations. It is the only type of price stabilization measure state any fact required to be stated therein or
permitted by SEC. necessary to make the statements therein not
misleading, the Commission may conduct an
UNDERWRITER – person who undertakes to sell securities on examination, and, after due notice and hearing, issue
a guaranteed basis. Thus, if a portion is not sold to public, the an Order suspending the effectivity of the registration
underwriter has to buy it themselves. He is not just a buyer but statement. If the statement is duly amended, the
he is also an agent to sell your securities. suspension order may be lifted.
• In making such examination the Commission or any
GROUNDS FOR REVOCATION officer or officers designated by it may administer
oaths and affirmations and shall have access to, and
As a rule, SEC may: (1) reject a registration statement and may demand the production of, any books, records or
refuse registration of the security thereunder; (2) revoke the documents relevant to the examination. Failure of the
effectivity of a registration statement and the registration of the issuer, underwriter, or any other person to cooperate,
security thereunder after due notice and hearing by issuing or his obstruction or refusal to undergo an
an order to such effect, setting forth its finding in respect examination, shall be a ground for the issuance of a
thereto, if it finds that: suspension order.
1. The issuer:
a. Has been judicially declared insolvent; SUSPENSION OF REGISTRATION
b. Has violated any of the provision of this Code,
the rules promulgate pursuant thereto, or any If, at any time, the information contained in the registration
order of the Commission of which the issuer statement filed is or has become misleading, incorrect,
has notice in connection with the offering for inadequate or incomplete in any material respect, or the sale or
which a registration statement has been filed offering for sale of the security registered thereunder may work
as been or is engaged or is about to engage or tend to work a fraud, the Commission may require from the
in fraudulent transactions; issuer such further information as may in its judgment be
c. Has made any false or misleading necessary to enable the Commission to ascertain whether the
representation of material facts in any registration of such security should be revoked on any ground
prospectus concerning the issuer or its specified in this Code. The Commission may also suspend the
securities; right to sell and offer for sale such security pending further
d. Has failed to comply with any requirements investigation, by entering an order specifying the grounds for
that the Commission may impose as a such action, and by notifying the issuer, underwriter, dealer or
condition for registration of the security for broker known as participating in such offering.
which the registration statement has been
filed; or REPORTORIAL REQUIREMENTS
2. The registration statement is on its face incomplete
or inaccurate in any material respect or includes PERSONS REQUIRED TO FILE
any untrue statements of a material fact required to be 1. An issuer with a class of securities registered under Section
stated therein or necessary to make the statement 12
therein not misleading; or 2. An issuer with a class of securities listed for trading on the
Philippine Stock Exchange

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 3. An issuer with assets of at least Php 50,000,000.00 or such • If it is a creeping transaction, the acquirer is
other amount as the Commission shall prescribe, and only required to make a tender offer when the
having 200 or more stockholders each holding at least 100 threshold is met.
shares, even if the issuer is not listed in the exchange and • If it is done through the Exchange trading
no registered securities. system, tender offer shall not be required. For
the reason that tender offer’s purpose is to
REPORTS REQUIRED TO FILE protect minority stockholders in case the
ANNUAL REPORT (17-A) company would have a private transaction
- Within 135 days after the end of the issuer’s fiscal year with buyers. In the case of acquisition
- Together with a management discussion and analysis through an exchange, the transaction is
public.
PERIODICAL REPORTS • If it is done through a private sale in a one-
- Quarterly Reports time transaction, tender offer is required
- within 45 days after the end of every quarter immediately. Moreover, tender offer is not
only to the percentage sough but also to all
CURRENT REPORTS (17-C) outstanding shares.
- If listed with PSE – 10 Minute Rule 3. If any acquisition that would result in an
- If not – 5 days from the happening of the event ownership over 50% of the total outstanding
equity securities of a public company.
SEC 23 REPORT • The acquirer shall be required to make a
Applies to: tender offer and is required to accept all the
1. Every person who is directly or indirectly the beneficial securities tendered. As long as, the
owner of more than ten per centum (10%) of any class transaction would result to over 50% of the
of any equity security which satisfies the requirements acquisition, you are required to make a tender
of Subsection 17.2 offer.
2. Director or an officer of the issuer of such security
File within 10 days after with SEC and PSE if listed: RULE ON WITHDRAWAL
1. He becomes such a beneficial owner As a rule, the offeror is allowed to withdraw as long as:
2. Close of the calendar month if there has been a change 1. The tender offer remains open
of such ownership 2. The securities deposited has not yet been accepted for
payment, after the expiration of 60 business days
BENEFICIAL OWNER – means any person who, directly or commencement of the tender offer
indirectly through any contract, arrangement, understanding,
relationship or otherwise, has voting power (which include the RULE ON INCREASE OF CONSIDERATION
power to vote or direct voting of such security) and/or As a rule, if there is an increase in consideration the acquirer is
investment returns or power which includes the power to required to pay the increase price to all the offerors, regardless
dispose of, or direct the disposition of such security; provided of when the offer is made.
that a person shall be deemed to have an indirect beneficial
ownership interest in any security which is: EXEMPTIONS FROM MANDATORY TENDER OFFER
1. Held by members of his immediate family sharing the 1. Any purchase of securities from the unissued
same household capital stock;
2. Held by a partnership in which he is a general partner • Provided, the acquisition will not result to a
3. Held by a corporation in which he is a controlling fifty percent (50%) or more ownership of
shareholder securities by the purchaser or such
4. Subject to any contract, arrangement or understanding percentage that is sufficient to gain control
which gives him voting power with respect to such ofthe board;
securities 2. Any purchase of securities from an increase in
authorized capital stock;
TENDER OFFER • Reason: The people who will be voting for the
amendment of your articles of incorporation
TENDER OFFER - A tender offer is a public announcement of will know that you are increasing your ACS
one’s intention to acquire equity securities of a public company and these are the persons who will be buying
and if one intends to acquire equity securities of an associate of from such increase.
the public company who controls that public company. 3. Purchase in connection with foreclosure
proceedings involving a duly constituted pledge or
PURPOSE OF TENDER OFFER security arrangement where the acquisition is made by
In place to protect minority shareholders against any scheme the debtor or creditor;
that dilutes the share value of their investments. It gives the 4. Purchases in connection with a privatization
minority shareholders the chance to exit the company under undertaken by the government of the Philippines;
reasonable terms, giving them the opportunity to sell their 5. Purchases in connection with corporate rehabilitation
shares at the same price as those of the majority. under court supervision;
6. Purchases in the open market at the prevailing market
RULES ON MANDATORY TENDER OFFER price; and
1. A person intends to acquire at least 15% of the 7. Merger or consolidation.
equity securities of a public company in a single
transaction or creeping transaction NOTE: Purchasers of securities in the foregoing transactions
• In this scenario, a tender offer is not required, shall, however, comply with the disclosure and other obligations
what is required is that the person shall file a under SRC Rules 18.1 and 23.
declaration of intention.
2. A person intends to acquire at least 35% of the PROHIBITION OF FRAUD, MANIPULATION, AND
equity securities within a period of 12 months INSIDER TRADING
(creeping transaction) or in such a manner that
would lead to control of the BOD of the issuer PROHIBITED ACTIVITIES
• If there are more people offering
(oversubscribed), the acquirer is required to 1. WASH SALES – Engaging in transactions in which
buy ALL the securities who offered in there is no change of beneficial ownership. The reason
proportionate to each selling shareholder with for the prohibition is because it induces the public to
respect their offered shares. (#of shares of buy and sell shares, while in truth and in fact, the active
the particular person/total #of shares offered trading of the shares was not real. As for example, the
* total # of shares to buy) creation of 2 accounts wherein one account owns the
share and the other buys it.

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 2. IMPROPER MATCHED ORDERS – Engaging in 2. The insider possesses material information with
transactions where both the buy and sell orders are respect to the issuer or security
entered at the same time with the same price and 3. The material information is not generally available to
quantity by different but colluding parties. This is the public
similar with wash sales, but the owner of the two
accounts are different bur they are colluding with each A material non-public information is when:
other. 1. The information can affect the change in the market
price of security or it can potentially affect the decision
3. PAINTING THE TAPE – engaging in a series of of the public to buy and sell securities
transactions in securities that are reported publicly to 2. The information is not generally available to the public,
give the impression of activity or price movement in a or if published or made available to the public, the
security. This paints an illusion about the security that public don’t have the sufficient time to absorb the
it is being actively traded, but in truth and in fact, it is information
not, in order to influence the price.
Defenses:
4. MARKING THE CLOSE – buying and selling securities 1. When the insider did not gain the information from his
at the close market in an effort to alter the closing price relationship with the issuer
of the security. For the reason, that the closing price is 2. Insider disclosed the information to the other party or
the price that is published. he had a reason to believe that the other party has
already the information
5. HYPE AND DUMP – Engaging in buying activity at
increasingly higher prices and then selling securities in FOREIGN INVESTMENT ACT
the market at the higher prices
PHILIPPINE NATIONAL
6. SQUEEZING THE FLOAT – Taking advantage of a 1. citizen of the Philippines
shortage of securities in the market by controlling the 2. domestic partnership or association wholly owned by
demand side and exploiting market congestion during citizens of the Philippines
such shortages in a way as to create artificial prices 3. a corporation organized under the laws of the
Philippines of which at least sixty percent
FRAUDULENT TRANSACTIONS (60%) of the capital stock outstanding and
1. Employ any device, scheme, or artifice to defraud; entitled to vote is owned and held by citizens of
2. Obtain money or property by means of any untrue the Philippines
statement of a material fact of any omission to state a 4. a trustee of funds for pension or other employee
material fact necessary in order to make the retirement or separation benefits, where the trustee is
statements made, in the light of the circumstances a Philippine national and at least sixty (60%) of the
under which they were made, not misleading; or fund will accrue to the benefit of the Philippine
3. Engage in any act, transaction, practice or course of nationals
business which operates or would operate as a fraud
or deceit upon any person. CORPORATION AND ITS NON-FILIPINO
STOCKHOLDERS
SHORT SALES AND SHORT SWING Where a corporation and its non-Filipino stockholders’ own
stocks in a Securities and Exchange Commission (SEC)
SHORT SALE SHORT SWING registered enterprise:
any sale of a security which Purchase or sale of persons 1. at least sixty percent (60%) of the capital stocks
the seller does not own or in 23.1. This is prohibited outstanding and entitled to vote of both corporations
any sale which is when there is a combination must be owned and held by citizens of the Philippines
consummated by the of BUY and SELL of securities and
delivery of a security within the period of 6 2. at least sixty percent (60%) of the members of the
borrowed by. Not a months. If such accrue, then Board of Directors of both corporations must be
manipulative practice but a the profit realized shall inure citizens of the Philippines
speculative practice. to and be recoverable by the
issuer. CONTROL TEST GRANDFATHER TEST
shares belonging to if the percentage of the
corporations or partnerships Filipino ownership in the
INSIDER TRADING at least 60% of the capital of corporation or partnership is
which is owned by Filipino less than 60%, only the
WHO ARE INSIDERS: citizens shall be considered number of shares
1. issuer as of Philippine nationality corresponding to such
2. director or officer (or person performing similar percentage shall be counted
functions) of, or a person controlling the issuer; as Philippine nationality
3. 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 CONTROL TEST 60-40% RULE
generally available to the public; SEC-MC No. 8 is Section 2, which provides:
4. a government employee, or director, or officer of an Section 2. All covered corporations shall, at all times, observe
exchange, clearing agency and/or self-regulatory the constitutional or statutory ownership requirement. For
organization who has access to material information purposes of determining compliance therewith, the required
about an issuer or a security that is not generally percentage of Filipino ownership shall be applied to BOTH (a)
available to the public; or the total number of outstanding shares of stock entitled to vote
5. a person who learns such information by a in the election of directors; AND (b) the total number of
communication outstanding shares of stock, whether or not entitled to vote in
6. from any of the foregoing insiders. the election of directors
||| (Roy III v. Herbosa, G.R. No. 207246, [November 22, 2016],
800 PHIL 459-617)
INSIDER TRADING
There exists insider trading when: 40% - common shares/ shares entitled to vote
1. The insider buys or sells security of the issuer or 40% - total outstanding shares of stock/ common + preferred
communicates a material non-public information to a shares
person whom the insider knows or has a reason to
believe that such person will likely transact with the If a corporation falls below the threshold of the control tests,
securities of the issuer then immediately the subject corporation is considered foreign

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owned, in which case the need to resort the Grandfather rule
disappears. SEC. 8. List of Investment Areas Reserved to Philippine
Nationals (Foreign Investment Negative List). – The
If the corporation passes the control tests, then it is considered Foreign Investment Negative List shall have two (2) components
a PH national within the ambit of the law. However, if doubt lists; A, and B.
exists as to the beneficial ownership and control of the a) List A shall enumerate the areas of activities reserved
corporation, then the Grandfather rule shall apply. to Philippine nationals by mandate of the
Constitution and specific laws.
Department of Justice Opinion No. 165, series of 1984, b) List B shall contain the areas of activities and
identified the following "significant indicators" or badges of enterprises regulated pursuant to law:
"dummy status": a. which are defense-related activities,
1. That the foreign investor provides practically all the requiring prior clearance and authorization
funds for the joint investment undertaken by Filipino from Department of National Defense (DND)
businessmen and their foreign partner to engage in such activity, such as the
2. That the foreign investors undertake to provide manufacture, repair, storage and/or
practically all the technological support for the joint distribution of firearms, ammunition, lethal
venture weapons, military ordinance, explosives,
3. That the foreign investors, while being minority pyrotechnics and similar materials; unless
stockholders, manage the company and prepare all such manufacturing or repair activity is
economic viability studies. specifically authorized, with a substantial
(Narra Nickel Mining and Development Corp. v. Redmont export component, to a non-Philippine
Consolidated Mines Corp., G.R. No. 195580 (Resolution), national by the Secretary of National Defense;
[January 28, 2015], 752 PHIL 255-304) or
b. which have implications on public health
DOING BUSINESS and morals, such as the manufacture and
Includes: distribution of dangerous drugs; all forms of
1. Soliciting orders, service contracts, opening offices, gambling; nightclubs, bars, beerhouses,
whether called "liaison" offices or branches; dance halls; sauna and steam bathhouses and
2. Appointing representatives or distributors domiciled in massage clinics.
the philippines or who in any calendar year stay in the • “Small and medium-sized
country for a period or periods totalling one hundred domestic market enterprises,
eighty (180) days or more; with paid-in equity capital less than
3. Participating in the management, supervision or the equivalent two hundred
control of any domestic business, firm, entity or thousand US dollars (US$200,000)
corporation in the philippines; are reserved to Philippine nationals,
4. And any other act or acts that imply a continuity of Provided that if: (1) they involve
commercial dealings or arrangements, and advanced technology as determined
contemplate to that extent the performance of acts or by the Department of Science and
works, or the exercise of some of the functions Technology or (2) they employ at
normally incident to, and in progressive prosecution of, least fifty (50) direct employees,
commercial gain or of the purpose and object of the then a minimum paid-in capital of
business organization one hundred thousand US dollars
(US$100,000.00) shall be allowed to
Not include: non-Philippine nationals.
1. Mere investment as a shareholder by a foreign entity • Amendments to List B may be
in domestic corporations duly registered to do made upon recommendation of the
business, and/or the exercise of rights as such Secretary of National Defense, or the
investor; Secretary of Health, or the Secretary
2. Nor having a nominee director or officer to represent of Education, Culture and Sports,
its interests in such corporation; endorsed by the NEDA, approved by
3. Nor appointing a representative or distributor the President, and promulgated by a
domiciled in the philippines which transacts business Presidential Proclamation.
in its own name and for its own account;
ALLOWED UP TO 100% OWNERSHIP
RULE 1, IRR • Section 6. Foreign Investments in Export
The following acts shall not be deemed “doing business” in the Enterprises. – Foreign investment in export
Philippines: enterprises whose products and services do not fall
(1) Mere investment as a shareholder by a foreign entity within Lists A and B of the Foreign Investment Negative
in domestic corporations duly registered to do List provided under Section 8 hereof is allowed up to
business, and/or the exercise of rights as such one hundred percent (100%) ownership.
investor; • Section 7. Foreign Investments in Domestic
(2) Having a nominee director or officer to represent its Market Enterprises. – Non-Philippine nationals may
interests in such corporation; own up to one hundred percent (100%) of domestic
(3) Appointing a representative or distributor market enterprises unless foreign ownership therein is
domiciled in the Philippines which transacts prohibited or limited by existing law or the Foreign
business in the representative’s or distributor’s Investment Negative List under Section 8 hereof.
own name and account;
(4) The publication of a general advertisement through
any print or broadcast media;
(5) Maintaining a stock of goods in the Philippines solely
for the purpose of having the same processed by
another entity in the Philippines;
(6) Consignment by a foreign entity of equipment with a
local company to be used in the processing of
products for export;
(7) Collecting information in the Philippines; and
(8) Performing services auxiliary to an existing isolated
contract of sale which are not on a continuing basis,
such as installing in the Philippines machinery it has
manufactured or exported to the Philippines, servicing
the same, training domestic workers to operate it, and
similar incidental services.

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