r
I
I
I
I
I
I,

T
i

182

OFFICIAL GAZETTE

VOL. 97, NO.1

S. No. 1220
H. No. 8015

Begun and held in Metro Manila, on Monday, the seventeenth day ofJuly, two thousand.

[R~PUBLIC

ACT

I
I

No. 8799] .

iI

I

t

!

THE SECURITIES REGULA nON CODE
i

,

I
I

i
I
I
I
I
I
I
I
I

I

i
I

Be it enacted by the Senate and House of Representatives
Philippines ill Congress assembled:of theCHAPTER I
TITLE AND DEFINITIONSSECTION 1. Titie. - This shall be known as "The Securities
Regulation Code".

!

,,~

I
I
I
I
I
I
I
I

""'

__

""'

,"'' ' ' '~' '••••••••••••• _••••••••.••••• """"'El"<l:l'll!-""""""'"!C!!IllIOI!l=='9""m<@E""~Nm!1l,miiM.lOOih5ii!'AI::~I

Ii JANUARYOFFICIAL

1, 2001183

GAZETTE

SEC. 2. Declaration of Scate Policy. - The State shall establish
3. sociallyconscious, free market that regulates itself, encourage thewidest participationof ownership in enterprises, enhance thedemocratization 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 ormanipulative devices and practices which create distortions in the freemarket.
To.achie've th-:se ends, this Securities Regula.tion Code is hereby
enacted.
SEC. 3. Definition of Terms. ~ 3.1. "Securities" are shares,
participation or interests in a corporation or in a commercial enterpriseor profit-making venture and evidenced by a certificate, contract,
instrument, whether written or electronic in character. It includes:(a)Shares of stock, bonds,. debentures, notes, evidences ofindebtednes~, asset-backed securities;(b) Investment c;ontracts, certificates of interest or participation
in a profit sharing agreement, certificates of deposit for a future

I
I
I
I
I
I
I
I
I
I

subscription;(c)Fractional undivided interests in oil, gas or other mineral(d)

Derivatives like option and warrants;rights;(e)
Certificates of assignments, certificates of participation,
tnlst certificates, voting trust certificates or similar insnuments;(f)corporations;(g)

Proprietary or nonproprietary membership certificates

ill

and
Other insnuments as may in the' future be determined by

the Corrunission.

"'"i'd.2),JUQ4Jt¥gM$';4@«tA...J~ .• '~ .•.o.,; .••. _ ..•••••

I
I
I
I
I
I
I
I
I
I
I
I
I

~ •.• ~).,.

•.•.•• ,<..-OFFICIAL
184

3.2. "Issuer"

I
I

1
I..
'.

is Ll,.eoriginator.

maker, obligor,

or creator of the

security.
3.3. "Broker"
sellingsecurities

is a person engaged in the businessfor his/nerof buying andfor the account of others.

3.4 .. "Dealer"means any person who buys and sells securities

own accountin the ordinary

course of business.

3.5. "Assoc"iated person of a broker or dealer" is an employee
thereof who, directly exercises control of supervisory authority, butdoes not include a salesman, or an agent or a person whose functions
are solely clerical or ministerial.
3.6. "Clearing
in making deliveries

agency" is any person who acts as intermediary
upon payment to effect settlernent in securities

transactions,

3.7.
brings"Exchange " is an organized

togetherbuyersmarketplaceand sellers and executes

or facility

tradesthatof securities

and/or commodities.
3.8. "Insider" me3.ns: (a) the issuer; (b) a director or officer (orperson performing sL."TIilarfunctions) of. or a person controlling theissuer; (c) a person whose relationship or former relationship to theissuer 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-regulatoryorganization \\'ho 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 acommunication

I

VOL. 97, NO.1

GAZETTE

from any of the foregoinginsiders.

3.9. "Pre-needplans" are contracts which provide for the
performanceof future services or the payment of future monetaryconsiderations
at the time of actual need, for which planholders pay
in cash or installment at stated prices, with or \vithout interest or

,

o
o

185
JANUARY

3.10. "Promoter" is a person who, acting alone or with others,
takes initiative in founding and organizing the business or enterpriseof the issuer and receives consideration therefor.

~

ill i
I

~I

I

o

1, 2001

insurance coverage and includes life, pension, education, interment,
and other plans which the Commission may from time to time approve.

u
I

OFFICIAL GAZETTE

3.11. "Prospectus" is the document made by or on behalf of anissuer, underwriter or dealer to sell or offer securities for sale to the
public through a registration statement filed with the Commission.
3.12. "Registration statement" is the application for the registrationof securities required to be filed with the Commission.
3.13. "Salesman" is a natural person, employed as such or as anagent, by a dealer, issuer or broker to buy and sell securities.

oelectronic or similar records.

o3 .15. "Underwriter" is a person who guarantees on a firm
commitment and/or declared best effort basis the distribution and sale

E

o
E

in
I~
I

10

o
o
o

3.14.

"Uncertificatedsecurity" is a security evidenced byof securities of any kind by another company.

CHAPTER IISECURITIES Al'ID
EXCHAt~GE COMMISSION
SEC. . 4. Administrative Agency. - 4.1. This Code shall beadministered by the. Securities and Exchange Commission (hereinafterreferred to as the "Commission") as a collegial body, composed of a
Chairperson and four (4) Commissioners, appointed by the President
for a term of seven (7) years each and who shall serve as such until
theirsuccessor
shall have been appointed
and qualified. A
Commissioner appointed to fill a vacancy
occurring prior to
the expiration of the term for whichhis/her predecessor was appointed,
shall serve only for the unexpired portion of such term. The.
incumbent Chairperson and Commissioners at the effectivity of this

;:~

.,

I
I
I
I
I
I

VOL.

OfFICIAL

97, N(). 1

G~ZETTE

186

Code, shall serve the unexpired portion of their tenns under Presidential
Decree No. 902-A. Unless the context indicates otherwise, the term"Commissioner"

includes the Chairperson.
,.4.2. The Commissioners must be natural-born citizens of thePhilippines, at least forty (40) years of age for the Chairperson and at
least thirty-five (35) years of age for the Commissioners, of good moral
character, of unquestionable integrity, of knO\\l'11
probity and patriotism.
and with recognized competence in social and economic disciplines:
Provided, That the majority of Commissioners,
including the
Chairperson, shall be members of the Philippine Bar.
4.3. The Chairperson is chief executive officer of the Commission.
The Chairperson shall execute and administer the policies, decisions,orders and resolutions approved by the Commission and shall have thegeneral executive direction and supervision of the work and operationof the Commission and of its members, bodies, boards, offices, personnel
and all its administrative business.

I
I
I
I
I
I
I
I
I
I
I~
;

fl-

l ..

4.4. The salary of the Chairperson and the Commissioners shallbe fLxed by the President of the Philippines based on an objectiveclassification system, at a sum comparable to the members of theMone..tary Board and commensurate
to the importanceandresponsibilities

attached to the position.

4.5. The Cominission shall hold meetings at least once a week
for the conduct of business or as often as may be necessary upon callof the Chairperson or upon the request of three (3) Commissioners. The. notice of the meeting shall be given to all Commissioners and thepresence of three (3) Commissioners shall constitute a quorum. In theabsence of the Chairperson, the most senior Commissioner shall act aspresiding officer of the meeting.
4.6. The Commission may, for purposes of efficiency, delegate
any of its functions to any departmtnt or office of the Commission, an
individual Commissioner or staff member of the Commission except its
review or appellate authority and its power to adopt, alter andsupplement any rule or regulation.

..
JANUARY~'.,....

1, 2001

OFFICIAL GAZETTE------------------------------The Commission may revie\v upon its own initiative or upon the
petition of any interested partY any action of any department or office,individual Commissioner, or staff member of the Commission.

!

:
I

°1
1

8;
0:
01
0,,
I

SEC. 5. powers and Functions of the Commission. - 5.1. The
commission shall act with transparency and shall have the powers andfunctions provided by this Code, Presidential Decree No. 902-A, theCorporation Code, the Investment Houses Law, the Financing Company
Act and other existing laws. Pursuant thereto the Commission shallhave, among others, the following powers and functions:(a) Have jurisdiction and supervision over all corporations,partnerships or associations who are the grantees of primary franchises
andior a license or permit issued by the Government;(b) 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

\

I

D\

,I

0:

amendments thereto;(c) Approve, reject, suspend, revoke or require amendments toregistration statements, and registration and licensing applications;(d) Regulate, investigate or supervise the activities of persons toensure compliance~(e) Supervise, monitor, suspend or take over the activities of

0:

o
~

o
10

o
o

exchanges, clearing agencies and other SROs;(f) Impose sanctions for the violation of laws and the rules,
regulations

and orders issued pursuant thereto;(g) Prepare, approve, amend or repeal rules, regulationS andorders, and issue opinions and provide guidance on and supervise
compliance with such rules, regulations and orders;

187

n-

o
D

o
o

o

o
o

o
o

o
I
II

n

10
I

o
o
o
,

~

,0

o
i

;

1,(1
I

'ill

VOL.

OFFICIALGAZETTE

97, No.1

188(h) 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, finn, association or person in theimplementation of its powers and functions under this Code;(i) Issue cease and desist orders to prevent fraud or injury to theinvesting public;U)

Punish for contempt of the Conunission, both direct andindirect, in accordance with the pertinent provisions of and penalties
prescribed by the Rules of Court;(k) Compel the officers of any registered corporation or association
to call meetings of stockholders or members thereof under its
supervision;(1) Issue subpoena duces tecum and surnmon wimesses to appear
in any proceedings of the Cormnission and in appropriate cases, order
the examination, search and seizure of all documents, papers, files andrecords, tax rerums, and books of accounts of any entity or person
under investigation as may be necessary for the proper disposition of
the cases before it, subject to the provisions of existing laws;(m) Suspend, or revoke, after proper notice and hearing the
franchise or certificate of registration of corporations, partnerships or
associations, upon any of the grounds provided by law; and(n) 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 theCormnission to achieve the ~bjectives and purposes of these laws.
5.2. The Commission's jurisdiction over all cases enumerated
under Section 5 of Presidential Decree No. 902-A is hereby transferredto the Courts of general jurisdiction or the appropriate Regional Trial
Court: Provided, That the Supreme Court in the exercise of its authority
may designate the Regional Trial Court branches that shall exercise
jurisdiction over these cases. The Commission shall retain jurisdiction

o
ill
B

ill

o
o
o
o
o

189
OFFICIAL GAZETTEJANUARY----

1, 2001

over pending cases involving intra-corporate disputes subwitted forfinal resolution which should be resolved within one (1) year from theenactment of this Code. The Commission shall retain jurisdiction overpending suspension of paymentslrehabilitatibn cases filed as of 30
June 2000 until [mally disposed.
SEC. 6. Indemnification and Responsibilities of Commissioners.
_ 6.1. The Commission shall indemnify each Commissioner and otherofficials of the Commission, including personnel performing supervisionand examination functions for all costs and expenses reasonahly
incurred by such persons in connection with. any civil or criminal
actions, suits. or proceedings to which they may be or made a party
by re~son of the performance of their functions or duties, unless they
are finally adjudged in such actions or proceedings to be Liable forgross negligence or misconduct.

oIn the event of settlemeJ;1tor compromise, indemnification shallbe provided only in connection with such matters covered by thesettlement as to which the Commission is advised by extema,l counsel
that the persons to be indemnified did not commit any gross negligenceDor misconduct.

I
~

I~
fl
~

o
o

o
D

The costs and expenses incurred in defending the aforementioned
actio , suit or proceeding may be paid by the Commission in advanceIlof the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the Commissioner, officer or
employee to repay the amount advanced should it ultimately be
deterrnined by the Commission that he/she is not entitled to beindemnified as provided in this subsection.
6.2. The Commissioners,
officers and employees of theCommission who willfully violate this Code or who arc guilty ofnegligence, abuse or acts of malfeasance or fail to exercise extraordinary
diligence in the performance of their duties shall be held liable for any
loss or injury suffered by the Commission or other institutions as aresult of such violation, negligence, abuse, malfeasance, or failure to
exercise extraordinary diligence.

I

I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

OFFICIALGAZETTE

VOL. 97, NO.1

190

Similar responsibility shall apply to the Commissioners, officers
and employees of the Commission for (1) the disclosure of any
information, discussion or resolution of the Commission of a confidential
nature, or about the confidential operations of the Commission, unlessthe disclosure is in connection with the performance of official functions
with the Commission or with prior authorization of the Commissioners;or (2) the use of such information for personal gain or to the detrimentof the government, the Commission or third parties: Provided. however,That any data or information required to be submitted to the President
and/or Congress or its appropriate committee, or to be published under
the provisions of this Code shall not be considered confidential.

.•.

SEC. 7. Reorganization. - 7.1. To achieve the goals of thisCode, consistent with Civil Service laws, the Commission is hereby_ authorized to provide for its reorganization, to streamline its structure
and operations, upgrade its human resource component and enable it
to more efficiently and effectively perform its functions and exercise its
powers under this Code.
7.2. All positions of the Commission shall be governed by acompensation and position c1assifica'tion systems and qualificati'on
standards approved by the Commission based on a comprehensive job
analysis and audit of actual duties and responsibilities.
The
compensation plan shan be comparable with the prevailing compensation
plan in the Bangko Sentral ng Pilipinas and other government fmancial
institutions and shall be subject to periodic review by ~e Commission
no more than once every two (2) years without prejudice to yearly
merit reviews or increases based on productivity and efficiency. The
Commission shall, therefore, be exempt from laws, rules, and regulations
on compensation, position classification and qualification standards.
The Commission shall, however; endeavor to make its system conformas closely as possible with the principles under the Compensation and.
position Classification Act of 1989 (Republic Act No. 6758, as amended).

J"

"

r,

o --

JI'J'IUARYOFFICIAL GAZETTE

1, 2001cHAPTER IIIo

REGISTRAnON OF SECURITIESSEC. 8. Requirement of Registration of Securities. - 8.1.
Securities shall not be sold or offered for sale or distribution within thePhilippines, without a registration statement duly filed with andapproved by the Commission. Prior to such sale, informati?n on the
securities, in such form and with such s.ubstance as the Commission.
may prescribe, shall be made available to each prospective purchaser.

0
10
ill
I
I

8.2. The Commission may conditionally approve the registration
statement under such terms as it may deem necessary.

o, 8.3. The Commission may specify the terms and conditions underwhich any written communication, inC!udLig any summary prospectus,
shall be deemed not to constitute an offer for sale under this Section.

0
o

1

D

o

j

8.4. A record of the registration of securities shall be kept in a
Register of Securities in which shall be recorded orders entered by theCommission with respect to such securities. Such register and all
documents or information with respect to the securities registered
therein shall be open to public. inspection at reasonable hours on
businessdays.

o8.5. The Commission may audit the financial statements, assets
and other information of a finn applying for registration of its securities
whenever it deems the same necessary to insure full disclosure or. toprotect the interest of the investors and the public in general.

oSEC. 9. Exempt Securities. - 9.1. The requirement of registration
under Subsection 8.1 shall not as a general rule apply to any of thefollowin~ classes of securities:

1°'0(a) Any security issued or guaranteed by the Govern-ment of thePhilippines, or by any political subdivision or agency thereof, or by
any person controlled or supervised by, and acting as an instrumentalityof said Government.

ooo044814-A-13

191

II
II

'I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I,
"

f

~I'
I

OFFICIAL GAZETTE

VOL, 97, No, 1

192(b) Any security issued or guaranteed by the government of any
counrry with wrnchthe Philippines maintains diplomatic relations, or, by any state, province or political subdivisioI:l thereof on the basis ofreciprocity: Provided, That the Commission may require compliancewith the form and content of disclosures the Commission may prescribe.
(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 at 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 ofstock.
9.2. The Conunission may, by rule or regulation after public
hearing, add to the foregoing any class of securities if it fmdS that theenforcement of this Code with respect to such securities is not
Mcessary in the public interest and for the protection of investors.
SEC. 10. Exempt Transactions. - 10.1. The requirement ofregistration 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 inthe 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.

I
I
I
I
I
I

193
OFFICIAL GAZETTEJ~UARY. ..--'

1, 2001(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 andsuccessive transactions of a like character by such owner, or 011 his
account by such representative and such owner or representative notbeing the underwriter of such security.

.

(d) The distribution by a corporation, actively engaged in thebusiness authorized by its articles of incorporation,. of securities to its
stockholders or other security holders as a stock dividend or other

I
I
I
I
I
I
I
I
I
I
I
I
I

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 ofsuch 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 asingle purchaser at a single. sale.
(g) The issue and delivery of any security in exchange for .anyother security of the same issuer pursuant to a right of conversion
entitling the holder of the security surrendered in exchange to makesuch conversion: Provided, That the security so surrendered has beenregistered under this Code or was, when sold, exempt from theprovisions 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 o:t whic.h thesecurities 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.

o ~~~~:s=:I:==========-----..
?
r 9,. q-;,>. ...• ,::,~I~.'.,'"
_c

I

0
o

o
o

o

o
o
o
o
o
o

o

_I'"

~

.,-->;''"-,.,,~,"VOL.

OFFICIALGAZETTE

97, No.1

194(i) Subscriptions for shares of the capital stock of a corporation
prior to the incorporation thereof or inpursuance of an increase in its
authorized capital stock under the Corporation Code, when no expense
is incurred, or no commission, compensation or remuneration is paidor 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 thepercentage of the capital stock of a corporation which should be
subscrihed before it can be registered and duly incorporated, or its
authO'rized 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 suchexchange.
(k) The sale of securities by an issuer to fewer than twenty (20)persons in the Philippines during any tvielve-month period.
(1) 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 theGovernment 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
fmancial sophistication, net worth, knowledge, and experience

~

o
o
o
0'

\ .•

Il'~
II

I, I~--------------JtJ'VARY

1, 2001

OFFICIAL GAZETTE

195

in financial and business matters, or amount of assets undet
management.

I
I
.1

•

10.2. The commission may exempt other transactions, if it findsthat the requirements of registration under this Code is not necessary
in the public interest or for tbe protection of the investors sucb as byreason of the small amount involved or the limited cbaraerer of the
public offering .

1

I
I
I
I
I
I
I
I
I
I
I

\I

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
prescribe and with such notice shall pay to the Commission a fee
equivalent to one-tenth (1110) of one percent (1%) of the maximum
aggregate price or issued value of the securities.
SEC. 11. Commodity
Futures Contracts.
- No person shalloffer, sell or enter into commodity futures contracts except in accordancewith rules, regulations and orders the Commissinn may prescribe in the
public interest The commission shall promulgate mles and regulations
involving commodity futures contracts to protect investors to ensure
the development of a fair and transparentcommodities market.

SEC. 12. Procedure for Regisrration of Securities. - 12.\. All
securities required to be registered under Subsection 8.1 shall be
registered through the filing by the issuer in the main office of theCommission, of a sworn registration statement with respect to suchsecurities, in such form and containing such information and documents
as the commission shall prescribe. The registration statement sball
include any prospectus required or permitted to be delivered under
Subsections 8.2, 8.3 and 8.4.
12.2. In promulgating rules governing the content of any
registration statement (including any prospectuS made a part thereofor annexed thereto), the commission may require the lCgistration
statement to contain such information or documents as it may, by rule,prescribe. It may dispense with any such requirement, or may require

~n~~Ji~~::'- ,:::;:;:=~*c.:=:=,,.======-_.....--..:..:.:....-::::I,.,:::::'o

OFFICIAL GAZETTE

196

o

VOL.

97, No.1

additional information or documents, including written information froman expert, depending on the necessity thereof or their applicability to
the class of securities sought to be registered.

o12.3. The information required for the registration of any kind,and an securities, shall include, among others, the effect of the securities
issue on ownership, on the mix of ownership, especially foreign ando

10c3.1ownership.

o-f2.4. The registration statement shall be signed by the issuer's

executive officer, its principal operating officer, its principalTmancial
officer, its comptroller, its principal accounting officer, its corporate
secretary or persons performing similar functions accompanied by aduly verified resolution of the board of directors of the issuer corporation.
The wTitten consent of the expert named as having certified any partof the registration statement or any document used in connection
therewith shall also be filed. Where the registration statement includes
shares to be sold by selling shareholders, a written certification bysuch selling shareholders as to the accuracy of any part of theregistration statement contributed to by such selling shareholders shall

o
o
o

o

also be filed.
12.5. (a) Upon filing of the registration statement, the issuer shall
pay to the Commission a fee of not more than one-tenth (1/10) of one
per centum (1%) of the maximum aggregate price at which such securities
are proposed to be offered. The Commission shall prescribe by rulediminishing fees in inverse proportion the value of the aggregate priceooof the offering.

o(b) Notice of the filing of the registration statement shall be
immediately published by the issuer, at its own expense, in two (2)newspapers of general circulation in the Philippines, once a week fortwo (2) consecutive weeks, or in such other manner as the Commission
by rule shall prescribe, reciting that a registration statement for the saleof such security has been filed, and that the aforesaid registration
statement, as well as the papers attached thereto are open to inspection
at the Commission during business hours, and copies thereof,

o

o
'~

o
o

'~
,

O
I

O

.~~-"

•

,~'

,

.
. :.>,.:,
....
".;

.

'

.;~,.

~

..~_.'-:L~.:.~.:'__-:=::::1

I
I
I
I
I
I
I

197
OFFICIALGAZETTE

photostatic or otherwise, shall be furnished to interested parties atsuch reasonable charge as the Cornrrtission may prescribe.
12.6. Within forty-five (45) days after the date of filing of theregistration statement, or by such later da.te to which the issuer has
consented, the Commission shall declare the registration statement
effective or rejected, unless the applicant is ailowed to amend theregistration statement as provided in Section 14 hereof. The Commission shall enter an order declaring the registration statement to be effective
if it fmds' that the registration statement together with all the otherpapers and documents attached thereto, is on its face complete and, that the requirements have been complied with. The Commission may
impose such terms and conditions as may be necessary or ap'propriate
for the protection of the investors.

I
I
I
I
I
I
I
I
I
I
I

,
12.7. Upon effectiviry of the registration statement, the issuer
shall state under oath in every prospectus that all registration
requirements have been met and that all information are trUe andcorrect as represented by the issuer or the one making the statement.
Any untrUe statement of fact or omission to state a material fact
required to be stated therein or necessary to make the statement
therein not misleading shall constitute fraud.
SEC. 13. Rejection and Revocation of Registration of Securities.
,_ 13.1. The Commission may reject a registration statement and refuse
registration of the security thereunder, or revoke the effectivity of aregistration statexnent and the registration of the security thereunderafter due notice and hearing by issuing an order to such effect, setting
forth its fmdings in respect thereto, if it finds that:(a) The issuer:(i) Has been judicially declared 'insolvent;(ii) Has violated any of the provisions of this Code, therules promulgated pursuant thereto, or any order of theCommission of which the issuer has notice in connection withthe offering for which a registration statement has been filed;~''''"',,., ~""

o
o
o
o
o
o
o
ill
ill

o

o
o

o
o
D-

O

o
o

o
i'

m tf
t
I!

~."4" •••••••,•. , ~.,.
~~~~=====~~.;;:::::::::=::'; ~"'~?-,:~~S~,£•.:;~~J'.;.'._'~Z'.L;,.'.I: ,'. ~, .~i':

OFFICIALGAZETTE

97, No.1

VOL.

198

(iii) Has been or IS engaged or 1S about to engage

1Il,

fraudulent transactions;(iv) Has made any false or misleading representation ofmaterial facts in any prospectus concerning the issuer or its
securities;•..

(v) Has failed to comply with any requirement that theCommission may impose as a condition for registration of the
security for which the registration statement has been filed; or(b) The registration statement is on its face incomplete or
inaccurate in any material respect or includes any untrue statement ofa material fact or omits to state a material fact required to be statedtherein or necessary to make the statements therein not misleading; or(c) The issuer, any officer, director or controlling person of theissuer, or person performing sunilar functions, or any underwriter has
been convicted, by a competent judicial or administrative body, uponplea of guilty, or otherwise, of an offense involving moral turpitude
and/or fraud or is enjoined or restrained by the Commission or othercompetent judicial or administrative body for violations of securities,
commodities, and other related laws.

'

For purposes of this subsection, the term "competent judicial oradministrative body" shall include a foreign court of competentjurisdiction as provided for under the Rules of Court.
13.2. The Commission may compel the production of all the
books and papers of such issuer, and may administer oaths to, andexamine the officers of such issuer or any other person connected
therewith as to its business and affairs.
13.3. If any issuer shall refuse to permit an examination to bemade by the Commission, its refusal shall be ground for the refusal or
revocation of the registration of its s~curities.

1.

Di

;

JANUARY

1, 2001

OFFICIAL GAZETTE

Oi

13.4. If the Comrniss~on deems it necessary, it may issue an ordersuspending
the offer and sale of the securities pending any
investigation. The order shall state. the grounds for taking such action,
but such order of suspension although binding upon the persons
notified thereof, shall be deemed confidential, and shall not be published.
Upon the issuance of the suspension order, no further offer or sale ofsuch security shall be made until the same is lifted or set aside by theCommission. Otherwise, such sale shall be void.

D

13.5. Notice of issuance of such order shall be given to the issuer
and every dealer and broker who shall have notified the Commissionof an intention to sell such security.

o

13.6. A registration statement may be withdrawn by the issuer
only with the consent of the Commission.

1
rn.

Lll
1.

I

01
1

o
i

o
oI
o
I

j

o
o

o
,0
i
iJ.i:

'rJ

o
o
o

SEC. 14. Amendments to the Registration Statement. - 14.1. If aregistration statement is on its face incomplete or inaccurate in any
material respect, the Commission shall issue an order directing theamendment of the registration statement Upon compliance with suchorder, the amended registration statement shall become effective inaccordance with the procedure mentioned in Subsection 12.6 hereof.
14.2. An amendment filed prior to the effective date of theregistration statement shall recommence the forty-five (45) day period
within which the Commission shall act on a registration statement. An
amendment filed after the effective date of the registration statement
shall become effective only upon such date as determined by theCommission.
14.3. If any change occurs in the facts set forth in a registration
statement, the issuer shall file an amendment thereto setting forth thechange.
14.4. If, at any time, the Commission finds that a registration
statement contains any false statement or omits to state any fact
required to be stated therein or necessary to make the statements
therein not misleading, the Commission may conduct an examination,
and, after due notice and hearing, issue an Order suspending the

199

I
I
I
I
I
I
I
I
I
I
I
I
I

VOL. 97, NO.1

OFFICIALGAZETTE200

effectivity of the registration

statement.

If the statement

is dulyamended, the suspension order may be lifted.
14.5. In making such examination the Commission or any officer
or officers designated by it may administer oaths and affirmations andshall have access to, and may demand the production of, any books,
records or documents relevant to the examination.
Failure of theissuer, underwriter, or any other person to cooperate, or his obstrUction
or refusal to undergo an examination, shall be a ground for the issuanceof a suspension order.

-

SEC. 15. Suspension of Registration. - 15.1. If, at any time, theinformation contained in the registration statement filed is or has become
misleading, incorrect, inadequate or incomplete irtany material respect.
or the sale or offering for sale of the security registered thereunder may
work or tend to work a fraud, the Commission may require from theissuer such further informati<:>nas may in its judgment be necessary toenable the Commission to ascertain whether the registration of suchsecurity should be revoked on any grourid specified in this Code. The
Commission may also suspend the right to sell and offer for sale suchsecurity pending further investigation. by entering an order specifying
the grounds for such action, and by notifying the issuer, underwriter,
dealer or broker known as participating in such offering.
15.2. The refusal to furnish information required by theCommission may be a ground for the issuance of an order of suspension
pursuant to Subsection 15.1. Upon the issuance of any such order andnotification to the issuer, underwriter, dealer or broker known asparticipating in such offering, no further offer or sale of any suchsecurity shall be made until the same is lifted or set aside by theCommission.

Otherwise, such sale shall be void .

_ 15.3. Upon issuance of an order of suspension, the Commission
shall conduct a hearing. If the Commission' determines that the saleof any security should be revoked, it shall issue an order prohibiting.• 10.

isale of such security.

~.?..

I'

I. -.

I

I

.I..
.~;.,:IIL..[:t\.:. .
.

:'[--

,.

~ t

.>1.;.

;,.

•.•

201
OFFICIAL GAZETTE

Until the issuance of a final order, the suspension of the rightto sell, though binding upon the persons notified thereof, shall bedeemed confldential, and shall not be published, unless it shall appear
that the order of suspension has been violated after notice. If, however,
the Commission fmds that the sale of the security' will neither be
fraudulent nor result in fraud, it shall forthwith issue an order revoking
the' order of suspension, and such security shall be restored to its
status as a registered security as of the date of such order of

i

r

1:-..

'Suspension.

~

/
r."

{.:
f
"

REGULA nON OF PRE-NEED PL~'\iS
SEC. 16. Pre-Need Plans. - No person shall sell or offer for saleto the public any pre-need plan except in accordance with rules andregulations which the Commission shall prescribe. Such rules shallregulate the sale of pre-need plans by, among other things, requiring
the registration of pre-need plans, licensing persons involved in thesale ofpre-neeq. plans, requiring disclosures to prospective plan holders,prescribing advertising guideli...'1es,providing for uniform accounting
system, reports and record keeping with respect to such plans, imposing
capital, bonding and other fmancial responsibility, and establishingtrust funds for the paynient of benefits under such plans.

CHAPTER V
~

I
I
I
]

I

I
I
j

i

•I
I

REPORTORIAL REQUIRE:.\1ENfS
SEC. 17. Periodic and Other Reports of Issuers. - 17.1. Every
issuer satisfying the requirements in Subsection 17.2 hereof shall filewith 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

t~

\
.

J

"

._

p-

o
o

n

OFFICIAL202

GAZETTE

VOL. 97, NO.1

last fiscal year, certified by an independent certified public accountant,and a management discussion and analysis of results of operations;
and

fl
.

\

10

(b) Such othe: periodical reports for interim fiscal periods and'current reports on significant developments of the issuer as theCommission may prescribe as necessary to keep current information on
the operation of the business and fmancial condition of t.~e issuer.

'0
,

"oj

o
m
\

'-.

'U'
:-'1.

,,~

17.2: The reportorial requirements of Subsection 17.1 shall apply
to the following:(a) ..<\11issuer which has sold a class of its securities pursuant
to a registration under Settion 12 hereof: Provided. however, Tnat 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 tha:1 one
hundred (100) holders of such class of securities or such other number
as the Commission shall prescribe and it notifies the Commission ofsuch;(b) An issuer "'1th a class of securities listed for trading on an
Exchange; and~'O'; .

~

1:0(c) An issuer with assets of at least Fifty million pesos"(P50,OOO,OOO.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 beterminated ninety (90) days after notification to the Commission by theissuer that the number of its holders holding at least one hundred (100)shares is reduced to less than one hundred ( 100 y.
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 theCommission under Subsection 17.1 hereof.
17.4. All reports (including fmancial statements) required to be
filed with the Commission pursuant to Subsection 17.1 hereof shall beO!
\
JANUARS

01
I~

OFFICIAL203

GAZETTE

in such form, contai...rlsuch information and be filed at such times as
the Commission shall prescribe, and shall be in lieu of any periodical
or current repons or fmancial statements otherwise required to be filed
under the Corporation Code.

I

U
0'

17.5. Every issuer which has a class of equity securities satisfying
any of the requirements in Subsection 17.2 shall furnish to each holderof such equity security an annual repon in such form and containing.
such information as the Commission shall prescribe.

II

1, 2001

17.6. Within such period as the Corrunission may prescribe
preceding the annual meeting of the holders of any equity security ofa class entitled to vote at such meeting, the issuer s.hall transmit tosuch holders an annual repon in conformity with Subsection 17.5.

i~

m

I

SEC. 18. Reports by Five per cenrum (5%) Holders of Equity
Securities. - 18.1. In every case in which an issuer satisfies therequirements of Subsection 17.2 hereof, any person \vno acquires
directly or indirectly the beneficial o\vnership of more than five per
centum (5%) of such class or in excess of such lesser per centum as
the Commission by rule may prescribe, shall, within ten (10) days after
such acquisition or such reasonable time as fixed by the Cominission;
submino the issuer of the security, to the Exchange where the security
is traded, and to the Commission a sworn statement containing thefollowing information and such other information as the Commission
may require in the public interest or for the protection of investors:

ill'
1

B

o
o
01

(a) The personal background, identity, residence, and citizenshipof, and the nature of such beneficial ownership by, such person andall other persons by whom or on whose behalf the purchases are
effected; in the event the beneficial o\vner is a juridical person, thelines of business of the beneficial owner shall also be reported;

ID

I
I
DI
g
D

o
o
l.

-

(b) If the purpose of the purchases or prospective purchases isto acquire control of the business of the issuer of the securities, anyplans or proposals which such persons may have that will effect amajor change in its business or corporate structure;

11£

.1
I
I
I
I
I
I

OFFICIAL204

GAZETTE

VOL, 97, No, 1(c) The number of shares of suchsecuriry which are beneficiallyowned, and the number of shares concerning which there is a right toacquire, directly or inclirectly, by: (i) such person, and (ii) each associateof such person, giving the background, identity, residence, andcitizenship of each such associate; and(d)Information
as to any contracts, arrangements,
or.
understanding with any person with respect to any securities of theissuer including but not limited. to transfer, joint ventures, loan or
option arrangements, puts or calls, guarantees or division of losses or
profits, or proxies naming the persons with wIiom such contracts,
arrangements, or understanding have been entered into, and giving thedetails thereof.
18.2. If any change occurs in the facts set forth in the statements,:m amendment shall be transmined to the issuer, the Exchange and theCom.-russion.

I
I
.l .
\':

I.
i

I.
~,.

,
I
i.'.,
i'

,

I

.

.

18.3. The Commission, may permit any person to file in lieu of thestatement required by Subsection 17.1 hereof, a notice stating thename of such person, the shares of any equity securities subject toSubsection 17.1 which are owned by him, the date of their acquisitionand such other information as the Commission may specify, if it appears
to u.1.eCommission that such securities were acquired by such personin the ordinary course of his business and were not acquired for the
purpose of and do not have the effect of changing or influencing thecontrol of the issuer nor in connection with any transaction havingsuch purpose or effect.

CHAPTER VI
PROTECTION OF
SHAREHOLDER il't"TERESTS
SEC. 19. Tender Offers. -19.1. (a) Any person or group of
persons acting in concert who intends to acquire at least fifteen
percent (15%) of any class of any equity security of a listed corporation
or of any class of any equity security of a corporation with assets ofd

JANUARY

1, 2001

OFFICIAL GAZETTE

205

at le<lstFifty million pesos (P50,OOO,000.00) and having two hundred(200) or more stockholders with at least one hundred (100). shares eachor who intends to acquire at least thirty percent (30%) of such equity
OVer a period of twelve (12) months shall make a tender offer tostockholders by filing with the Corrunission a declaration to that effect;
and furnish the issuer, a statement containing such of the information
required in Section 17 of this Code as the' Commission may prescribe.
Such person or group of persons shall publish ali requests or invitations
for tender, or materials making a tender offer or requesting or inviting
letters of such a security. Copies of any additional material soliciting
or requesting such tender offers subsequent to the initial solicitation
or request shall contain such information as the Comrnission may
prescribe, and shall be filed with the Commission and sent to the issuer
not later than the time copies of such materials are first published or
sent or given to security holders.
(b) Any solicitation or recommendation to the holders of such asecurity to accept or reject a tenaer offer or request or invitation for
tenders shall be made in accordance with such rules and regulations
as the Comrnission may prescribe.
(c) Securities deposited pursuant to a tender offer or request or
invitation for tenders may be withd.rawn by or on behalf of the depositor
at any time throughout the period that the tender offer remains open
and if the securities deposited have not been previously accepted for
payment, and at any time after sixty (60) days from the date of theoriginal tender offer or request or invitation, except as the Conurussion
may otherwise prescribe.
(d) Where the securities offered exceed that which a person orgroup of persons is bound or willing to take up and pay for, thesecurities that are subject of the tender offer shall be taken up as
nearly as may be prf?l" rata, disregarding fractions, according to thenumber of securities deposited by each depositor. The provisions of
this subsection shall also apply to 'securities deposited within ten (10)days after notic.e of an increase in the consideration offered to security
holders, as described in paragraph (e) of this subsection, is firstpublished or sent or given to security holders.

,

iI
.•••.
".

>,

l

J

.'.

206

OFFICIALGAZETTE

VOL. 97, No.1(e) \\llere any person varies the terms of a tender offer orrequest or invitation for tenders before the expiration thereof byincreasing.the consideration offered to holders of such securities, such
person shall pay the increased consideration to each security holder
whose securities are taken up and paid for whether or not such securities
have been taken up by such person before the variation of the tender
offer or request or invitation.
19.2. It shall be unlawful for any person to make any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements made, in the light of the circum~ncesunder which they are made, not misleading, or to engage in any
fraudulent, deceptive, or manipulative acts or practices, in connection\vith any tender offer or request or invitation for tenders, or any
solicitation of security holders in opposition to or in favor.of any suchoffer, request, or invitation. The Commission shall, for the purposes ofthis subsection, defme and prescribe !Deans reasona: ly designed toprevent, such acts and practices as are fraudulent, deceptive, or
ma.."lipulative.
SEC. 20. Proxy SoliCitations. - 20.1. Proxies must be issued andproxy solicitation must be made in accordance with rules and regulations
to be issued by the Commission;
20.2. Proxies must be in writing, signed by the stockholder or his
duly authorized representative and filed before the scheduled meetingwith the corporate secretary.
20.3. Uniess otherwise provided in the proxy, it shall be valid
only for t.1.emeeting for which it is intended. No proxy shall be valid
and effective for a period longer than fh.:e (5) years at one time.
20.4. No broker or dealer shall give any proxy, consent orauthorization, in respect of any security carried for the account of acustomer, to a person other than. the customer, without the .express\\'Tinen authorization of such customer.

I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
.
I

JANUARY

OFFICIAL

1, 2001GAZETTE

20.5. A broker or dealer who holds or acquires the proxy for atleast ten per centum (10%) or such percentage as the Commission rnayprescribe of the outstanding share of the issuer, shall submit a report
identifying the beneficial owner within ten (10) days after suchacquisition, for its own account or customer, to the issuer of the
security, to the Exchange where the security is traded and to theCom.-nission.
SEC. 21. Fees for Tender Offers and Certain Proxy Solicitations.

_ At the time of filLTlgwith the Commission of any statemeJ;ltrequired
under Section 19 for any tender offer or Section 72.2 for issuer
re:;:lUrchases, or Section 20 for proxy or consent solicitation, theCommission may require that the person making such filing pa.y a feeof not more than one-tenth (1110) of one percentum (1%) of:
21.1. The proposed aggregate purchase price LTJ.
the case of J
transaction under Section.s 20 or n.:!; or
21.2. The proposed payment in cash, and the value of any
securities or property to be transferred in the acquisition, merger orconsolidation., or the cash and value of any securities proposed to be .
received upon the sale or disposition of such assets in the case of asolicitation under Section 20. The Commission shall prescribe by rulediminishing fees in inverse proportion to the value of the aggregate
price of the offering.
SEC. 22. Internal Record Keeping and A~counting Controls. Every issuer which has a class of securities that satisfies therequirements of Subsection 17.2 shall:
22.1. Make and keep books, records, and accounts which, inreasonable detail accurately and fairly reflect the transactions anddispositions of assets of the issuer;
22.2. Devise and mainta~ a system of internal accounting controls
sufficient to provide reasonable assurances that: (a) Transactions and .
access to assets are pursuant to management authorization; (b).
Financial statements are prepared in conformity with generally accepted

044814-A-14

207

208

OFFICIAL GAZETTE

VOL. 97, NO.1

accounting principles that are adopted by the Accounting Standards
Council and the rules promulgated by the Commission with regard to
the preparation of fmancial statements; and (c) Recorded assets arecompared with existing assets at reasonable intervals and differences
are reconciled.
SEC. 23. Transactions of Directors, Officers and Principal
Stockholders. - 23.1. Every person who is directly or indirectly thebeneficial owner of more than ten per centum (1 O~'o)of any class of any
equity security which satisfies the requirements of Subsection 17.2, or
who is a director or an officer of the issuer of such secur~ty, shall file,at the time eimersuch requirement is first sansfj.ed or within ten days
after he becomes such a beneficial o\vner, director; or officer, a statement
wim the Commission and, if such security is listed for trading on an
Exchange, also with the Exchange, of the amount of all equity securities
of such issuer of which he is me beneficial ov..'ner, and within ten (10)days after the close of each calendar month thereafter, if there has
been a change in such ownership during such month, shall file with
the Commission."and if such security is listed for trading on an Exch:mge,
shall also file with the Exchange, a statement indicating his ownershipat the close of the calendar month and such changes in his o"\'nershipas have occurred during sucn calendar momh.
23.2. For the purpose of preventing the unfair use or information
which may have been obt<lined by such beneficial O\V!ler,director, or
officer by reason of his relationship to the issuer, any profit realizedby him from any purchase and sale, or any sale and purchase, of any
equity security of such issuer within any period of less than six (6)months, unless such security was acquired in good faith in connection
with a debt previously contracted, shall inure to and be recoverable by
the issuer, irrespective of any intention of holding the security
purchased or of not repurchasing the securitY sold for a period
exceeding si;'((6) months. Suit to recover such profit may be instituted
before the Regional Trial Court by the issuer, or by the owner of any. security of the issuer in the name and in behalf of the issuer if theissuer shall fail or refuse to bri.'1gsuch suit within sixty (60) days after
request or shall fail diligently to prosecute the same thereafter, but nosuch suit shail be brought more than two (2) years after the date suchprofit was realized. ThIs subsection shall not be construed to cover

I
I
I
I
I
I
I
I

JANUARY'Al

209

23.3. It shall be unlawful for any such beneficial owner, director,
or officer, directly or indirectly, to sell any equity security of such
issuer if the person selling the security or his principal: (a) Does not
own the secu ..•.
ity sold; or (b) If owning the security, does not deliverit against such sale within twenty (20) days thereafter, or does notwithin five (5) days aftersuch sale deposit it in the mails or other usual
channels of transportation; but no person shall be deemed to haveviolated this subsection if he proves that notwithstanding the exerciseof good faith he was unable to make such delivery or deposit withinsuch time, or that to do so would cause undue inconvenience or
expense.

I!

1

OFFICIAL GAZETTE

any transaction where such beneficial O\\-l1erwas not such both at thetime of the purchase and sale, or the sale and purchase, of the security
involved, or any transaction or transactions which the Commission byrules and regulations may exempt as not comprehended within the
purpose of this subsection.

II
I
I
I
I
1
I
I
I
I

1, 2001

23.4. The provisions of Subsection 23.2 shall not apply to any
purchase and sale, or sale and purchase, and the provisions ofSubsection 23.3 shall not apply to any sale, of an equity security notthen or thereafter held by him in an investment account, by a dealer
in the ordinary course of his business and incident to the establishment
or maintenance by him of a primary or secondary market, otherwise
than on an Exchange, for such security. The Commission may, by suchrules and regulations as it deems necessary or appropriate in the public
interest, define and prescribe terms and conditions with respect tosecurities held in an investment account and transactions made in theordmary course of business and incident to the establishment or
mamtenance of a primary or secondary market

CHAPTERVTI;.

PROHIBmONS ON FRAUD,MANIPULA nON AND INSIDER TRADLNG-

SEC. 24. Manipulation of Security Prices; Devices and Practices.
- 24.1 It shall be unlawful for any person acting for himself or througha dealer or broker, directly or indirectly:

,",j

I
I
I
I

:1

I
I
I

I

J,

210

OFFICIALGAZETTEVOL.

(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 orsale of such security with the knowledge that a simultaneousorder or ~rders of substantially the same size, time and price,for the sale or purchase of any such security, has or will beentered by or for the same or different parties; or(iii) By performing similar act where there is no change
in beneficial ownership .

.,

I
.'1
:1

(b) To effect, alone or with others, a series of transactions insecurities 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 acontrolling, controlled, or conunonly controiled company by others; (ii)
Depresses their price to induce the sale of a security, whether of thesame ora different class, of the same issuer or ofa 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 thefloat, hype and dump, boiler room o.perations 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
ma:lipulative market operations of anyone or more persons conducted
for the purpose of raising or depressing the price of the security forthe purpose of inducing the purchase or sale of such security.

I
".;.

I
'.,
'.

I
'ir

i
H i,i.

im\(d) To make false or misleading statement with respect to any
material fact, which he knew or had reasonable 2round to believe wasso false or misleading, for the purpose of inducing the purchase or saleof any security listed or traded in an Exchange;

97, No, 1

I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

211
JANUARY

OFFICIAL

1, 2001GAZETTE(e) To effect, either alone or others, any senes of transactions forthe purchase and/or sale of any security traded in an Exchange for the
purpose of pegging, flxing or stabilizing the price of such security,
unless otherwise allowed by this Code or by rules <:>f the Commission.
24.2, No person shall use or employ, in connection with thepurchase or sale of any security any manipulative or deceptive device
or contrivance. Neither shall any short sale be effected nor any stoploss order be executed in connection with the purchase or sale of any
security except in accordance v:ith such rules and regulations as theCommission may. prescribe as necessary or ctppropriate in the public
i11terest or for the protection of investors.
24.3. The foregoing provisions not\Vithstanding, the Commission,having due regard to the public interest and the protection of investors,
may, by rules and regulations, allow cel.ain acts or transactions that
may otherwise be prohibited under this Section.
SEC. 25. Regulation of Option Trading. - No member of an. Exchange shall, directly or indirectly endorse. or guarantee theperformance of any put, call, straddle, option or privilege in relation to
any security registered on a securities exchange.
The terms "put", "call", "straddle", "option", or "privilege" shallnot include any registered warrant, right or convertible security.
SEC. 26. Fraudulent Transactions. - It shall be unlawful for any
person, directly or indirectly, in connection with the purchase or saleof any securities to:
26.1. Employ any device, scheme, or artifice to defraud;
26.2. Obtain money or property by means of any untrue statementof a material fact of any omission to state a material fact necessary inorder to make the statements made, in the li2htof the circumstances--

under which they were made, not misleading; or

".

I
I
I
I
,I
I
I

212

I

B

I
H

I

,.q,

I

....
i.f
I
. .
..
.:

I
I
I
I:

I".;

I
.~h
"

i

OFFICIALGAZETTE

VOL, 97, NO.1

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.
SEC. 27. Insider's Duty to Disclose When Trading: - 27.1. It shallbe unlawful for an insider to sell or buy a security of the issuer, whilein 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 theinsider (or his agent) is identified, the insider proves: (i) that he disclosed
the information to the other party, or (ii) that h..-had reason to believethat 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
defmed in Subsection 3.8, or such insider's spouse or relatives byaffmity or consanguinity within the second degree, legitimate orcommon-law, shall be presumed to have been effected while inpossession of material nonpublic information if transacted after suchinformation came into existence but prior to dissemination of suchinformation to the public 'and the lapse of a reasonable time for themarket to absorb such information: Provided, however, That thispresumption shall be rebutted upon a showing by the purchaser orseller that he was not aware of the material nonpublic informatio~ atthe time of the purchase or sale .
27.2. For purposes of this Section, information is "material
nonpublic" if: (a) It has not been generaily disclosed to the public andwould likely affect the market price of the security after being
disseminated to the public and the lapse of a reasonable time for themarket to absorb the information; or (b) would be considered by areasonable 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 defmed
in Subsection 3.8, .where the insider communicating the information
knows or has reason to believe that such person will likely buy or sella security of the issuer while in possession of such information.

I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

JANUARY

1, 2001

OFFICIALGAZETTE.27.4. a) It shall be unlawful where a tender offer has commenced
to commence for:CX' is about(i) Any person (other than the tender offeror) who is inpossession of material nonpublic information relating to suchtender offer, to buy or sell the securities of the issuer that aresought or to be sought by such tender offer if such person
knows or has reason to believe that the information is nonpublicand has been acquired directly or indirectly from the tender
offeror, those acting on its behalf, the issuer of the securities
sought or to be soughoi'by such tender offer, or any insiderof such issuer; and(ii) Any tender offeror, those acting on its behalf, theissuer 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 otherperson 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 theisstr sought or to be sought by such tender offer" shall include any
secrities convertible or exchangeable intO such securities or any
opbns or rights in any of the foregoing securities.

CHAPTER VITIREGULA nON OF SECURITIESMARKET PROFESSIONALS
SEC. 28. Registration of Brokers, Dealers, Salesmen andAssiated Persons. - 28.1. . No person shall engage in the businessof lying or selling securities in the Philippines as a broker or dealer,or t as a sale'sman, or an associated person of any broker or dealer
unls registered as such with the Commission.

213

..
F
.:
'rL'. i' i.

~I" . ,,.

,--OFFICIAL214

GAZETTE

VOL. 97, NO.1

~

..

J:.-

I:'".'
I

j;'

I

28.2. No registered broker or dealer shall employ any salesman
or any associated person, and no issuer shall employ any salesman,
who is not registered as such with the Commission.
-"

28.3. The CommissioIJ, by rule or order, may conditionally 01
unconditionally exempt fro,m Subsections 28.1 and 28.2 any broke~
dealer, salesman, associated person of any broker or dealer, or aD!
class of the foregoing, as it deems consistent with the public intete:t
and the protection of investors.
28.4. The Commission shall promulgate rules and reg'lilatiols
prescribing the qualifications for registration of each category ,fapplicant, which shall, .among other things, require as a condition Dr
registration that:.
(a) If a natural person, the applicant satisfactorily pass a writm
examination as to his proficiency and kilowledge in the area of acti~
for which registration is sought;.
(b) In the case of a broker or dealer, the applicant satisf~aminimum net capital as prescribed by the Commission, and provid abond or other security as the Commission may prescribe to secre
compliance with the provisions of this Code; and(c) If located outside of the Philippines, the applicant file:awritten consent to service of process upon the Commission pursult
to Section 65 hereof.
28.5. A broker or dealer may apply for registration by filing W1
the Commission a \vritten"application in such form and containing SID
information and documents concerning such broker or dealer as .e
Commission by rule shall prescribe. "28.6. Registration of a salesman or of an associated person (aregistered broker or dealer may be made upon written application fd
with the Commission by such salesman or associated person. e
application shall be separately signed and certified by the registed
broker or dealer to which such salesman or associated person is
r

cd

I
I
I
I
I
I
I
I
I

JANUARY

OFFICIAL GAZETTE

1, 2001

become affiliated, or by the issuer in the case of a salesman employed,
appointed or authorized solely by such issuer. The application shallbe in such form and contain such information and docwnents concerning
the salesman or associated person as the Commission by rule shallprescribe. For purposes of this Section, a salesman shall not include
any employee of an issuer whose compensation is not determined
directly or indirectly on sales of securities of the issuer.

•..

28.7. Applications filed pursuant to Subsections 28.5 and 28.6
, shall be accompanied by a registration fee in such reasonabre amountprescribed by the' Commission.
28.8. Within thirty (30) days after the filmg of any application
under this Section., the Commission shall by order: (a) Grant registration,if it determines that the requirement's of this Section and thequalifications for registration set forth in its rules and regulations havebeen satisfied; or (b) Deny said registration.

28:9.

I
I
I
I
I
I
I
I
I
I

The names and addresses of all persons approved forregistration as brokers, dealers, associated persons or salesmen and allorders of the Commission with respect theretp shall be recorded in a
Register of Securities Market Professionals kept in the office of theCommission which shall be open to public inspection.
28.10. Every person registered pursuant to this Section shall filewith the Commission, in such form as the Commission shall prescribe,
information necessary to keep the application for registration current
and accurate, including m the case of a broker or dealer changes insalesmen, associated persons and owners thereof.
. 28.11. Every person registered pursuant to this SectionJhall pay
to the Commission an annual fee at such time and in such reasonableamount as the Commission shall prescribe~ Upon notice by theCommission that such annual fee has not been paid as required, theregistration of such person shall be suspended until payment has been

made.

215

216

OFFICIALGAZETTE

VOL. 97, NO.1

28.12. The registration of a salesman or associated person shallbe automatically terminated upon the cessation of his affiliation withsaid registered broker or dealer, or with an issuer in the case of asalesman employed, appointed or authorized by such issuer. Promptly
following any such cessation of affiliation, the registered broker ordealer, or issuer, as the case may be, shall tile with the Commission a
notice of separation of such salesman or associated person.
SEC. 29. Revocation, Refusal or Suspension of Registration ofBrokers, Dealers, Salesmen and Associated Persons. - 29.1. Registration
under Section 28 of this""Code may be refused" or any registration
granted thereunder may be revoked, suspended,.t>r limitations placed
thereon, by the Commission if, after due notice and hearing, theCommission determines the applicant or registrant:(a) Has willfully violated any provision of this Code, any rule,
regulation or order made hereunder, or any other law administered by
the Commission, or in the case of a registered broker, dealer or associatedperson has failed to supervise, with a view to preventing such violation,. another person who commits such violation;(b) Has willfully made or caused to be made a materially false or
misleading statement in any application for registration or report filedwith the Commission or a self-regulatory organization, or has willfully
omitted to state any material fact that is required to be stated therein;(c) Has failed to satisfy the qualifications or requirements forregistration prescribed under Section 28 and the rules and regulationsof the Commission promulgated thereunder;(d) Has been convicted, by a competent judiciai or administrative
body of an offense involving moral turpitude, fraud, embezzlement,
counterfeiting, theft, estafa, misappropriation, forgery, bribery, false
oath, or perjury, or of a violation of securities, commodities, banking,real estate or insurance laws;(e) Is enjoined or restrained by a competent judicial oradministrative body from engaging in securities, commodities, banking,I
I
I

JANUARY

OFFICIAL

1, 2001GAZETTE

real estate or insurance actIVItles or from willfully violating laws
governing such activities;

I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

(f) Is subject to an order of a competent judicial or administrative
body refusing, revoking or suspending any registration, license orother permit under this Code, the rules and regulations promulgatedthereunder, any other law administered by the Commission;(g) Is subject to an order of a self-regulatory organization. suspending or expelling him from membership or participation thereinor from association with a member or participant thereof;(h) Has been found by a competent judicial or administrative'
body to have willfully violated any provisions of securitieS, cOII'.JI1odities,banking, real estate or insurance laws, or has willfully aided, abetted,
counseled, commanded, induced or procured such violation; or(i) Has been judicially declared insolvent.
For purposes of this subsection, the term "competent judicial oradministrative body" shall include a foreign court of competentjurisdiction and a foreign fmancial regulator.
29.2. (a) In cases of charges against a salesman or associatedperson, notice thereof shall also be given the broker, dealer or issuer
employing such salesman or associated person.
(b) Pending the hearing,the Commission shall have the power toorder the suspension of such broker's, dealer's, associated person'sor salesman's registration: Provided, That such order shall state thecause for such suspensitm. Until the entry of a final order, thesuspension of such registration, though binding upon the persons
notified 'thereof, shall be deemed confidential, and shall not be published,
unless it shall appear that the. order of suspension has been violated
after notice.
29.3. The order of the Commission refusing, revoking, suspendingor placing limitations ona registration as herein above provided,
together with its fmdings, shall be entered in the Register 'of Securities217

r,.:.. ",~
L

,
:'.'

I

:.'..,1'I,.

'

OFFICIAL

218

VOL. 97, NO.1

GAZETTE:"l"~,
.:

II:

"

,~

I'
l\.~
[

! :~

'Market Professionals. TIle suspension or revocation of the registrationof a dealer or broker shall also automatically suspend the registrationof all salesmen and associated persons affiliated with 'such broker ordealer.
29.4. It shall be sufficient cause for refusal, revocation 0(
suspension of a broker's or dealer's registration,. if any associatedperson thereof or any juridical entity .controlled by such associatedperson has committed any act or omission oris subject to any disability
enumerated in paragraphs (a) through (i) of Subsection 29.1 hereof.

-

SEC. 30. Transactions and Responsibility of Brokers and Dealers.
_ 30.1. No broker or dealer shall deal in or otherwise buy or sell, for
its own account or for the account of custOmers.i;securitieslistedon...
an Exchange issued by any corporation where any stockholder, director,
associated person or salesman, or authorized clerk of said broker ordealer and all the relatives of the foregoing within the fourth civil
degree of consanguinity or affinity, is at the time holding office in said
issuer corporation as a director, president, vice-president, manager,
treasurer, comptroller, secretary or any office ofrrust and responsibility,
or is a controlling person of the issuer.
30.2. No broker or dealer shall effect any transaction in securities
or iliduce or attempt to induce the purchase or sale of any security
except in compliance with. such rules and regulations as the Commission
shall prescribe to ensure fair and honest dealings in securities andprovide fmancial safeguards and other standards for the operation of
brokers and dealers, including the establishment of minimum net capitalrequirements, the acceptance of custody and use of securities ofcustomers, and the carrying and use of deposits and credit balancesof customers.
SEC. 31. Development of Securities Market Professionals~ ,The Commission, in joint undertaking with self regulatory organizations,organizations and associations of fmance. professionals as well asprivate educational and research institutions shall undertake or facilitate/organize continuing training, conferences/ seminars, updating programs,
research and development as well as technology transfer at the latest

I
I
I
I

II
I
I
I
I
I
I
I
I
I
I
I
I
I
I

JANUJ\RY

1, 20Q1

OFFICIALGAZETTEand advanced trends in issuance and trading of securities. derivatives,
commodity trades and other fmancial instruments, as well as securities
markets of other countries.

CHAPTER IX

EX~~GESk~OTHER
SEClJRITIES TRADING MARKETS'"
SEC. 32. Prohibition
on Use of Unregistered E:(c!fange;
Regu.lation 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 thePhilippines to- effect any transaction in a security, or to report suchtransaction; unless such Exchange is registered as such under Section
33 of this Code.
32.2. (a) No broker, dealer, salesman or associated person of abroker or dealer, singly orin 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 andregulations the Commission may prescribe.
(b) The Commission may promulgate rules and regulations
governing transactions by brokers, dealers, salesmen or associatedpersons of a broker or dealer, over any facilities of such trading market
and may require such market to be administered by a self-regulatoryorganization detennined by the Commission as capable of insuring the -protection of investors comparable t9 that provided in the case of aregistered 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.
SEC. 33. Registration of Exchanges. - 33.1. Any Exchange may
be registered as such with the Commission under the terms andconditions hereinafter provided in this Section and Section ~o hereof,

219

220

OFFICIALGAZETTE

VOL. 97, NO.1

by filing an application for registration in such form and containing
such information and supporting documents as the Commission byrule shall prescribe, including the following:(a) An undertaking to comply and enforce compliance by its
members with the provisions of this Code, its implementing rules orregulations and the rules of the Exchange;(b) The organizational charts of the Exchange, rules of procedure,
and a list of its' officers and members;(c) Copies of the rules of the Exchange; and(d) An undertaking that in the event a member firm becomesinsolvent or when the Exchange shall have found that the r~ancial
condition of its member fum has so deteriorated that it cannot readily
meet the demands of its customers for the delivery of securities and!
or payment of sales proceeds, the Exchange shall, upon order of theCommission, take over the operation of the insolvent member firm andimmediately proceed to senle the member fum's liabilities to its
customers.
33.2. Registration of an Exchange shall be granted upon compliancewith the following provisions:(a) That the applicant is organized as a stock corporation:
Provided, That any registered Exchange existing prior to the effectivityof 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 L'1 the business ofoperating 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 o\vned and controlled
by another juridical person from tbis restriction.
(c) Where the Exchange is organized as a stock corporation, thatno person may beneficially o\••.n or control, directly or indirectly, morethan five percent (5%) of the voting rights of the Exchange and no

<

I
I
I
I
I

JANUARY

i
!

i,

I

I
1

I

,

-I
I

!
i

1, 2001

OFFICIAL GAZETTE

221

industry or business group may beneficially own or control, directly or
indirectly, 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 fmds 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 andpersons associated with a member for conduct or proceedinginconsistent with just and equitable principles of fair trade, and fur
violations of provisions of this Code, or any other Act administeredby the Commission, the rules, regulations and orders thereunder, or therules 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 fromaccess to services offered by the Exchange;

\

:1
I

II
t

I
II
I

.

I
I
I~
,

I:
I;
:_..1

(f) That the brokers in the board of the Exchange shall comprise. of not .more than forty-nine percent (49%) of such board arid shallproportionately 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 bedeemed to be a member for this purpose: Provided, That any registered
Exchange: existing prior to the effectivity of this Code shall imniediately
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 remain.irig members of the board to be comprised of three(3) independent directors and persons who represent the interests ofissuers, investors, and other market participants, who are not associatedwith any broker or dealer or member of the Exchange for a period oftwo (2) years prior to his/her appointment. No officer or employee ofa member, its subsidiaries or affiliates or related interests shall become...P:.

222

OFFICIALGAZETTE

VOL. 97, NO.1

. an independent director: Provided, hov.:ever, That the COnmUssion may
by rule, regulation, or order upon application, pennit the exchangeorganized as.a stock corporation to use a different governance structure:
Provided, further, That the Commission is satisfied that the Exchangeis acting in the public interest and is able to effectively operate as aself-regulatory organization under this Code: Provided, finally, That
any registered exchange existing prior to the effectivity of this Codeshall immediately comply with this requirement.
(h) ]pe president and other management of the E;\change to consist.only of persons who are not members and are not associated in any
capacity, directly or indirectly with any broker ,?I dealer or member or
listed company of the Exchange: Provided, .;Ihat the Exchange may
only appoint, and a person may only serve, as an officer of theexchange 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) Therransparencyof transactions on the Exchange;U) Tne equitable allocation of reasonable dues, fees, and othercharges 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(1) The transparent, .prompt and accurate clearance and settlementof transactions effected on the Exchange.
33.3. If the Commission finds that the applicant Exchange iscapable of complying and enforcing compliance by its members, andpersons associated with such members, with the provisions of thisCode, its rules and regulations, and the rules of the Exchange, and thatthe rules of the Exchange are fair, just and adequate, the Commission
shall cause such Exchange to be registered. If, after notice due andhearing, the Commission fmds otherwise, the application shall be denied.

I
I
I
I
I
I•..
I
I
I
I
I
I
I
I
I
I
I
I
I
I

JANUARY

OFFICIAL GAZETTE

1, 2001

33.4. Within ninety (90) days after the filing of the application theCommission may issue an order either granting or denying registration
as an Exchange, unless the Exchange applying for registration shallwithdraw. its application or shall consent to the Commission's deferring
action on its application for a stated longer period after the date offiling. The filing with the Commission of an application for registration
by an-Exchange shall be deemed to have taken place upon the receipt
thereof. Amendments to an application may be made upon such terms
as the Commission may prescribe.
33.5. Upon the registration of an Exchange, it shall pay a fee insuch amount and within such period as the Commission may fix.
33.6. Upon appropriate application in accordance with the rules
and regulations of the Commission and upon such terms as theCommission may deem necessary for the protection of investors, an
Exchange may withdraw its registration or suspend its operations orresume the same.
SEC. '34. Segregation and Limitation of Functions of Members,
Brokers and Dealers.,. 34. i. It shall be unlawful for any member-brokerof an Exchange to effect any transaction on such Exchange for its 0~'TI.
account, the account of an associated person, or an account withrespect to which it or an associated person thereof exercises investment
discretion: Provided. ho ..•.
".ever, That this Section shall not makeunlawful- .
(a) Any transaction by a member-broker acting in the capacityof a market maker;(b) Any transaction reasonably necessary to carry on an odd-lot
transactions;(c) Any transaction t6 offset a transaction made in error; and(d) Any other transaction of a similar nature as may b~ defmedby the Commission.

044814-A-15

1

223

OFFICIAL224

GAZETTE

VOL. 97, NO.1

34.2. In all instances where the member-broker effects a transaction
on an Exchange for its own account or the account of an associated.
person or an account with respect to which it exercises investment
discretion, it shall disclose to such customer at or before the completionof the transaction it is acting for its own account: Provided, further,That this fact shall be reflected in the order ticket and the confIrmationslip.
34.3. Any member-broker who violates the provisions of thisSection shall be subject to the ad.ministr.~ve sanctions provided iIl
Section 54 of this Code.
SEC. 35. Additional Fees of Exchanges. - In addition to theregistration fee prescribed in Section 33 of this Code, every Exchange
shall pay to the Commission., on a semestral basis on or before thetenth day of the end of every semester of the calendar year, a fee insuch an amount as the Commission shall prescribe, but not more than
one-hundredth of one per centum (1 ~.~)of the aggregate amount of thesales of securities transacted on such Exchange during the preceding
calendar year, for the privilege of doing business, during the preceding
calendar year or any pan thereof.
SEC. 36. Powers with Respect to Exchanges and Other Trading
Market. - 36.1. The Commission is authorized, if in its opinion suchaction is necessary or appropriate for the protection of investors andthe public interest so requires, summarily to suspend trading in any
listed security on any Exchange or other trading market for a period notexceeding thirty (30) days or, with the approval of the President of thePhilippines, summarily to suspend all trading on any securities Exchange
or other trading market for a period of more than thirty (30) but notexceeding ninety (90) days: Provided, however, That the Commission,'
promptly foHowing the issuance of the order of suspension, shaH.
notify the affected issuer of the reasons for such suspension andprovide such issuer with an opportunity for hearing to determine
whether the s~spension should be lifted.

I
I
I
I
I
I
I
.1
I
I
I
I
I
I
I
I
I
I
I
I

JANUARY

1, 2001

OFFICIAL225

GAZETTE

36.2. Wherever two (2) or more Exchanges or other trading markets
exist, the Commission may require and enforce UIDfomlity of trading
regulations in and/or between or among said Exchanges or other trading.
markets.
36.3. In addition to the. existing Philippine Stock Exchange, theCommission shall have the authority to determine the number, size andlocation of stock Exchanges; other trading markets and commodity
Exchanges and other similar organizations in the light of national orregional requirements for such activities with the view to promote,enhance, protect, conserve or rationalize investment .
36.4. The Commission, having due regard to the public interest,
the protection of investors, the safeguarding of securities and funds,
and rnaintenanc~ of fair competition among brokers, dealers, clearirig
agencies; and transfer agents, shall promulgate rules and regulations
for the prompt and accurate clearance and settlement: of securities
transactions.
36.5. (a) The .Commission may establish or facilitate theestablishment of trust funds which shall be contributed by Exchanges,
brokers, dealers, undervrriters, transfer agents, salesmen and ot4er
persons transacting in securities, as the Commission may require, for I
the purpose of compensating investors for the extraordinary losses ordamage they may suffer due to business failure or fraud or:
mismanagement of the persons with whom they transact, under suchrules and regulations as the Commission may from time to time prescribe
or approve in the public interest.
(b) The Commission may, having due regard to the public interestor the protection of investors, regulate, supervise, examine, suspend orotherwise discontinue such and other similar funds under such rules
and regulations...which the Commission may promulgate, and which
may include taking custody and management of the fund itself as wellas investments in and disbursements from the funds under such formsof control and superviSion by the Corrtmission as it may from time totime require. The authority granted to the Commission under thissubsection shall also apply to all funds established for the protectionof investors, whether established by the Commission or otherwise.

...

~_~

226

OFFICIALGAZETTE

VOL. 97, NO.1

SEC. 37. Registration of Innovative and Other Trading Markets.
- The Commission, having due regard for national economic development,
shall encourage competitiveness in the market by promulgating withinsix (6) months upon the enactment or this -Cede, I1lles for the registrationand licensing of innovative and other trading markets or Exchanges
covering, but not limited to, the issuance and trading of innovative
securities. securities of small. medium, growth and venture enterprises,
and technology-based ventures pursuant to Section 33 of this Code.
SEC. 38. Independent Directors.-A:ny corporation with a classof equity securities listed for trading on an Exchange or with assets inexcess of Fifty million pesos (P50,OOO,OOO.OO)andhaving 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 publicpursuant to an effective registration statement inc'ompliance 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 anofficer 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 carryingout the responsibilities of a director.

CHAPTER XREGISTRATION, RESPONSIBILITIES A,,'\J1)..,VERSIGHf OF SELF-REGULATORY ORGA,,"ITZATIONS.
SEC. 39. Associations of Securities Brokers, and Dealers, andOther Securities Related Organizations. - 39.1. The Commission shallhave 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 cOIlllected with the securities market such

I

l

I
I
I
II
I
I
I
I
I
I
I
I
I
I'

I
I
I
I
I
I"

JANUARY

1, 2001

OFFICIAL227

GAZETTE

as but not limited to assocIatIOns of brokers and dealers, transfer
agents, custodians, fiscal and paying agents, c~mputer services, news
disseminating services, proxy solicitors, statistical' agencies, securities
rating agencies, and securities information processors which areengaged 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 totransactions in or quotations for any security; or (b) Distributing or
publishing, whether by means of a ticker tape, a cormmmications
network, a terminal display device, or otherwise, on a current andcontinuing basis, information with respect to such transactions or
quotations. The Commission may prescribe rules and regulations
which are nece"ssary or appropriate in the public interest or for theprotection of investors. to govern self-regulatoI)' organizations andother 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.

'.
39.2. An association of brokers and dealers may be registered asa securities association pursuantto Subsection 39.3 by filing with theCommission an application for registration in such form as theCommission, by rule, may prescribe containing the rules of theassociation and such other information and documents as tbe
Commission, by rule, may prescribe as necessary or appropriate in the
public interest or for the protection of investors.
39.3. An asscciation of brokers and dealers shall not be registeredas a securities association unless the Commission determines that:(a) The association is so organized and has the capacity to beable to carry out the purposes of this Code and to comply with, andto enforce compliance by its members and persons associated with its
members, with the provisions of this Code, the mles and regulations
thereunder, and the rules of the association.

228

OFFICIAL GAZETTEVOL.

(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 memberof the association;(ii) There exist a fair representation of its members toserve on the Board of Directors of the association and in theadministration 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;(iii) The Board of Directors of the association includes
in its composition: (a) The president of the association and (b)Persons who represe:J.t the interests of issuers and public
investors and are not associated with any broker or dealer ormember of the association; that the president and othermanagement of the association not be a member or associatedwith 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 otherpersons using any facility or system which the association
operates or controls;(v) For the prevention of fraudulent and manipulativeacts and practices, the promotion of just and equitableprinciples of trade, and, in general, the protection of investors
and the public interest;(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 ofmembership to any person seeking membership therein, the97, No.1

I
'1
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
.•.

j

JANUARY

OFFICIAL

1, 2001

229

GAZETTE

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 membershipto 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 deale:, if suchbroker or dealer:"(i) Does not meet the standardS of fmancial responsibility,
operational capability, training, experience, or competence thatare 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 justand e~uitable principies of fair trade.
(c) A registered securities association may deny membership toa registered broker or dealer not engaged in a type of business inwhich the rules of the association require members to be engaged:
Provided, however, That no registered securities association may denymembership to a registered broker or dealer by reason of the amountof business done by the broker or dealer.
A registered securities association may examine and verify thequalifications of an applicant to become a member in accordance withprocedures established by the rules of the association.
(d) A registered securities association may bar a salesman or.person associated with a broker or dealer from being employed by amember or set conditions for the employment of a salesman or associatedif such person:

..•.

230

.oFFICIALGAZETTEVOL.

(i) Does not meet the standards of training, experience,or competence that are prescribed by the rules of theassociation; or(ii) Has engaged, and there is a reasonable likelihood hewill again engage, in 'acts or practices inconsistent with justand equitable principles of fair trade.
A registered securities association may examine and verify thequalifications of an applicant to become a salesman or associatedperson 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 amember to be . registeredwith the association in accordance with~procedures prescribed in the rules of the association.
39.5. In any proceeding by a registered securities association todetermine whether a person shall be denied membership, or barred fromassociation with a member, the association shall provide notice to theperson under review of the specific grounds being considered for
denial, afford him an opportunity to defend against the allegations, andkeep a record of the proceedings. A determination by the association
to deny membership shall be supported by a statement setting forth
the specific grounds on which the denial is based.
SEC. 40. Powers with Respect to Self-Regulatory Organizations.
- 40.1. Upon the filing of an application for registration as an Exchange
under Section 33, a registered securities association under Section 39,
a registered clearing agency under Section 42, or other self-regulatoryorganization under this Section. the Commission shall have ninety (90)days within which to either grant registration or institute a proceeding.to determine whether registration should be denied. In the event
proceedings are instituted, the Commission shall have two hundred
seventy (270) days within '.vhich to conclude such proceedings at
which time it shall, by order, grant or deny. such r~gistration.

97, No. 1

I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

JANUARY

1, 2001

OFFICIALGAZETTE

40.2. Every self-regulatory organization shall comply with theprovisions of this Code, the rules' and regulations thereunder, and its
own rules, and enforce compliance therewith, notwithstanding any
provision of the Corporation Code to the contrary, by its members,
persons associated with its members or its participants.
40.3. (a) Each self-regulatory organization shall submit to theCommission for prior approval any proposed rule or amendment ~ereto,
together with a concise statement of the reJson and effect of the
proposed amendment.
••.
(b) Within sixty (60) days after submission of a proposed
amendment, the Commission shall, by order, approve the proposed
amendment. OthefV;'ise, the same may be made effective by the self.
regulatory organization.
(c) In the event of an emergency requiring action for the protectionof investors, the maintenance of fair and orderly markets, or thesafeguarqing of securities and funds, a self-regulatory organization
may put a proposed amendment into effect summarily: Provided,
however. That a copy of the same shall be immediately submitted to
the Commission.
40.4. The Commission is further authorized, if after making
appropriate request in writing to a self-regulatory organization thatsuch organization effect on its own behalf specified changes in its
rules and practices and, after due notice and hearing it determines thatsuch changes have not been effected, and that such changes arenecessary, by rule or regulation or by order, may alter, abrogate or
supplement the rules of such self-regulatory organization in so far asnecessary or appropriate to effect such changes in respect of suchmatters as:(a) Safeguards in respect of the financial responsibility of members. and adequate provisl'on against the evasion of fmancial responsibility
through the use of corporate forms or special partnerships;(b) The supervision of trading practices;

231

OFFICIAL232

GAZETTE

VOL. 97, NO.1

(c) The listing or striking from listing of any security;(d) Hours of rrading;(e) The manner, method, and place of soliciting business;(f) Fictitious accounts;(g) The time and method of making settlements, payments, anddeliveries, and of closing accounts;(h) The transparency of securities transactions and prices;(i) The fixing of reasonable rates of fees, interest, listing and othercharges, but not rates of commission;(j) Minimum units of trading;(k) Odd-lot purchases, and sales;(1) Minimum deposits on margin accounts; and(m) The supervision, auditing and disciplining of members or
participants.
,40.5. Tne Commission, after due notice and hearing, is authorized,in the public, interest and to protect investors:(a) To suspend for a period not exceeding twelve (12) months or
to revoke the registration of a self-regulatory organization, or to censure
or impose limitations on the activities, functions, and operations ofsuch self-regulatory organization, if the Commission fmds that such a
self-regulatory organization has willfully violated or is unable to comply
with any provision of this Code or of the rules and regulations
thereunder, or its own rules, or has failed to enforce compliance
therewith by a member of, person associated with a member, or aparticipant in such self-regulatory organization;

I
I
I
I
I
I
I
I
I
I
I
I
I
I

JANUARYI~:1'I

1, 2001

OFFICIALGAZETTE233(b) To expel from a self-regulatory organization any member
thereof or any participant therein who is subject to an order of theCommission under Section 29 of this Code or is found to have willfully
violated any provision of this Code or suspend for a period not. exceeding twelve (12) months for violation of any provision of thisCode or any other laws administered by the Commission, or the rules
and regulations. thereunder, or effected, directly or indirectly, anytransaction for any person who, such member or participant had reason
to believe, was violating in respect of such transaction any of suchprovisions; and.
.
(c) To remove from office or censure any officer or director of aself-regulatory organization if it fmds that such officer or director has
violated any provision of this Code, any other law administered by theCommission, the. rules or regulations thereunder, or the rules of suchself-regulatory organization, abused his authority, or without reasonable
justification or excuse has failed to enforce compliance with any ofsuch provisions.
40.6. (a) A self-regulatory organization is authorized to discipline
a member of or participant in such self-regulatory organIzation, or any
person associated with a member, including the suspension or expulsionof such member or participant, and the suspension or bar from being
associated with a member, if such person has engaged in acts orpractices inconsistent with just and equitable principles of fair trade or
in willful violation of any provision of the Code, any other law
administered by the Commission, the rules or regulations thereunder,or the rules of the self.;.regulatory organization. In any disciplinary
proceeding by a self-regulatory organization (other than a summary
proceeding pursuant to paragraph (b) of this subsection) the selfregulatory organization shall bring specific charges, provide notice tothe person charged, afford the person charged with an opportunity to
defend against the charges, and keep a record of the proceedings. A
detennination to impose a disciplinary sanction shall be supported bya written statement of the offense, a summary of the evidence presented
and a statement of the sanction imposed.

.(

I

\1
j

;1

I

b

mA.

234

.-

OFFICIALGAZETTEVOL.

(b) A self-regulatory organization may summarily: (i) Suspend :1
member, participant or person associated with a member who has beenor is expelled or suspended from any other self-regulatory organization;or (ii) Suspend a member who the self-regulatory organization fInds to
be in such fmancial or operating difficulty that the member or participantcannot be permitted to continue to do business as a member withsafety to investors, creditors, other members, participants or the selfregulatory organization: Provided. That the self-regulatory organization
immediately notifies the Commission of the action taken. Any person
aggrieved by a summary action pursuant to this paragraph shall bepromptly afforded an opportunity for a hearing by the association inaccordance with the provisions of par:lgraph. (a) of this subsection.
The Commission, by order, may stay a summary action on its own
motion or upon application by any person aggrieved thereby, if theCommission determines summarily or after due notice and hearing(which hearing may consist solely of the' submission of affidavits orpresentation of oral arguments) 'that a stay is consistent with the
public interest and the protection of investors.
40.7. A self-regulatory organization shall promptly notify theCommission of any disciplinary sanction on any member thereof or'
participant therein, any denial of membership or participation in suchorganization, or the imposition of any disciplinary sanction on a person
associated with a member or a bar of such person from becoming so
associated .. WiL.~i.""lthirty (30) days after such notice, any aggrieved
person may appeal to the Commission from, or the Commission on its
own motion \vithinsuch period, may institute review of, the decisionof the self-regulatory organization, at the conclusion of which, after
due notice and hearing (which may consist solely of review of therecord before the self-regulatory organization), the Commission shallaffmn, modify or set aside the' sanction. In such proceeding theCommission shall determine' whether the aggrieved person has engaged
or omitted to engage in the acts and practices as found by the selfregulatory organization, whether such acts and practices constitutewillful violations .of this Code; any other law administered by the

97, NO.1

I

I.

JANUARY

1, 2001

OFFICIAL GAZETTE

Commission, the rules or regulations thereunder, or t.~e rules of theself-regulatory organization as specified by such organization, whether
such provisions were applied in a manner consistent with the purposesof this Code, and whether, with due regard for the public interest andthe protection of investors the sanction is excessive or oppressive.

I
I
I
I
I
I
I
I
]

I
I

I
j

I
I.;
"

1

.1\

40.8. The powers of the Commission under this section shallapply to organized exchanges and registered clearing agencies.

CHAPTER 'XI
ACQUIsmON AJID TRA1~SFER OF SECt)"RITIES Al'ID
SETILEMENl OF TRA..i~SAcnONS IN SECl.JRITIESSEC. 41. Prohibition on Use of Unregistered Clearing Agency.
_ It shall be unlawful for any broker. dealer, salesman, associatedperson of a broker or dealer, or clearing ilgency, directly or indirectly,
to make use, of any facility of a clearing agency in the Philippines tomake deliveries in connection with. transactions in securities or to
reduce the number of settlements of securities transactions or to allocate
securities settlement responsibilities or to provide for the central
handling of securitie.s so that transfers, loans and pledges and similartransactions can be made by bookkeeping entry or otherwise to facilitatet.'le settlement of securities transactions without physical delivery of
securities certificates, unless such clearing agency is registered assuch under Section 42 of this Code or is exempted from such registration
upon application by the clearing agency because, in the opinion of theCommission, by reason of the limited volume of transactions which aresettled using the clearing agency, it is riot practicable and not necessary
or appropriate in the public interest or for the protection of investors
to require such registration.
SEC. 42. Registration of Clearing Agencies. - 42.1. Any
clearing agency may be registered as such with the Commission under
the terms and conditions hereinafter provided in this Section, by fiiing
an application for registration in such form and containing suchinformation and supporting documents as.the Commission by rule shallprescribe, including the following:

I;
I
I
I,

_.J

235

. OFFICIAL

236

GAZETTEVOL.

97, No.1(a) An undertaking to comply and enforce compliance by its
participants with the provisions of this Code, and any amendment
thereto, and the implementing rules or regulations made or to be madethereunder, and the clearing agency's rules;(b) The organizational charts of the Exchange,
procedure, and a list of its ofticers and participants;

its rules of(c) Copies of the clearing agency's rules .

.•..

42.2. No registration of a clearing agency shall be granted unlessthe rules of the clearing agency include prousion for:(a) The expulsion, suspension, or disciplining of a participant forviolations of this Code, or any other Act administered by theCommission:, the rules, regulations, and orders thereunder, or the clearing
agency's

rules;(b) A fair procedure for the disciplining of participants, the denial..of participation rights to any person seeking to be a participant, andthe prohibition or limitation of any person from access to services
offered by the clearing agency;(c) The equitable allocation of reasonable dues, fees, and othercharges among participants;(d) 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;(e) The transparent, prompt and accurate clearance and settlementof transactions in securities handled by the clearing agency. and(f) The establishment and oversight of a fund to guarantee theprompt and accurate clearance and settlement of transactions executedon an exchange, including a requirement that members each contributean amount based on their volume and a relevant percentage of the

I
I
I
I
I
I
I
I
I
I
I
I,
I
I
I
I
I
I
I
I

JANUARY

OFFICIAL GAZETTE

1, 2001

daily exposure of the four (4) largest trading brokers which adequatelyreflects trading risks undertaken or pursuant to another formula set
forth in Commission rules or regulations or order, upon application:
Provided, however, That a clearing agency engaged in the businessof a securities depository shall be exempt from this requirement
42.3. In the case of an application filed pursuant to this Section,
the Commission shall grant registration if it fmds that the requirementsof this Code and the rules and regulations thereunder with respect tothe applicanrbave been satisfied, and shall deny registration if it does
not make such finding.
42.4. Upon appropriate application in accordance with the rules
and regulations of the Comniission and upon such terms as theCommission may deem necessary for the protection of investors, aclearing agency may withdraw its n~gistration or suspend its operation
or resume the same.
42.5.

Section 32 of this Code shall apply to every registeredclearing agency.
" SEC. 43. Uncertificated Securities. - Notwithstanding Section 63of 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 ashareholder, 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. Theuse of uncertificated securities in thesecircumstances shall be without prejudice to the rights of the securities
intermediary subsequently to require the corporation to issue acertificate in respect. of any shares recorded
in its name; and
..•.

237

-~.---.-~_

0..'i': .
"~-------------------..

OFFICIAL238

GAZETTE..

VOL. 97, NO.1i,,"(b) If so provided in its articles of incorporation and by-laws,
issue all of the ~hares of a particular class in tb;e form of uncerrificatedsecurities and subject to a condition that investors may not require thecorporation to issue a certificate in respect of any shares recorded intheir name.
43.2. The Commission by rule may allow other corporations toprovide in their articles of incorporation and by-laws for the use of
uncertificated securities.
43.3. Transfers of securities, including an uricertificated securities,
may be validly made and consummated by appropriate book-entries inthe securities accounts maintained by securities intermediaries, or in
the stock and transfer book held by the corporation or the" stocktransfer agent and such bookkeeping entries shall be binding on theparties to the transfer. A transfer under this subsection has the effect "of the delivery of a security in bearer form or duly indorsed in blankrepresenting the quantity or amount of security or right transferred,
including the unrestricted negotiability of that security by reason ofsuch delivery. However, transfer of uncertificated shares shall only bevalid, 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 bybanking 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 andregulations.
SEC. 44. Evidentiary Value of Clearing Agency Record. - The
official records and book entries of a clearing agency shaH constitutethe best evidence of such transactions between clearing agency andits participants and members, without prejudice to the right ofparticipants' or members' clients to prove their rights, title andentitlement with respect to the book-entry security holdings of theparticipants or members held on behalf of the clientS. However, thecorporation shall not be bound by the foregoing transactions unless

I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

JANUARY

OFFICIAL

1, 2001

239

GAZETTE

the corporate secretary is duly notified
Commission may provide.

In such manner as theSEC. .45. Pledging a Security or Interest Therein. - In addition
to other methods recognized by law, a pledge of, or release of a pledgeof, a security, including an uncertificatedsecurity, is properly
constituted and the instrilrnent proving the right pledged shall beconsidered delivered to the creditor under Articles 2093 and 2095 of
the Civil Code if a securities intermediary indicates by book-entry thatsuch security has been credited to a specially designated pledge accountin favor of the pledgee. A pledge Under this subsection has the effectof the delivery of a security in bearer form or duly indorsed in blankrepresenting the quantity or amount of such security or right pledged.
In the case of a registered clearing agency, the procedures by which,and the exact time at which, such book-entries are created shall begoverned by the registered clearing agency's rules. However, thecorporation shall not be bound .by the foregoing rransactionsunless_the corporate secretary is duly notified in such manner as theCommission may provide.
SEC. 46. Issuer's -Responsibility for Wrongful Transfer toRegistered Clearing Agency. - The registration of a transfer of asecurity into the name of and by a registered clearing agency or its
nominee shall be [mal and conclusive unless L."leclearing agency had
notice of an adverse claim before the registration was made. The above
provision shall be without prejudice to any rights which the claimant
may have against the issuer fbr wrongful registration in suchcircumstances.
SEC. 47. Power of the Commission W'ith Respect to Securities
Ownership. _ The Commission is authorized, having due regard to thepu~lic interest and the protection of investors. to promulgate rules ano
regulations which:
A 7.1. Validate the transfer of securities by book-entriesrathelthan the delivery of physical certificates;
47.2~Establish when a person acquires a security or an interes
therein and when delivery of a security to' a purchaser occurs;

044814-A-16

ill
~

I
I

~

OFFICIAL240

GAZETTE

VOL. 97, No.1

47.3. Establish which records constitute the best evidence of aperson's interests in a security and the effect of any errors in electronic
re~ords of ownership;
47.4. Codify the rights of investors who choose to hold theirsecurities indirectly through a registered clearing agency and/or othersecurities intermediaries;
47.5. Codify the duties of securities intermediaries (including
clearing agencies) who hold securities on behalf of investors; and•.

47.6. Give fIrst priority to any claims of a- registered clearing
agency against a participant arising from a failure by the participant tomeet its obligations under the clearing agency's rules in respect of the.clearing and settlement of transactions in securities,. in a dissolutionof the participant, and any such rules and regulations shall bind theissuers of the securities, investors in the securities, any third parties
with interests in the securities, and the creditors of a participant of aregistered clearing agency.
CHAPTER XIIMARGIN Ml) CREDIT
SEC. 48. Margin Requirements. - 48.1. For the purpose of
preventing the excessive use of credit for the purchase or carrying of
securities, the Commission, in accordance with the credit and monetary
policies that may be promulgated from time to time by the Monetary
Board of the Bangko Sentral ng Pilipinas, shall prescribe rules andregulations with respect to the amount of credit that may be extended
on any security. For the extension of credit, such rules and regulations
shall be based upon the following standard:
An amount not greater than whichever is the higher of (a) SL'{ty-fiveper centum (65%) of the current market price of the
security, or

-I
I
I

JANUARY

1, 2001

OFFICIALGAZETTE(b) One hundred per centum (100%) of ~e lowest market price ofthe security during the preceding thirty-six (36) calendar months, but
not more than seventy-five per centum (75%) of the current market
pnce.

I
I
I
I
I
I
I
I
I
I
I
I
.1

I

However, the Monetary Board may increase or decrease theabove percentages, in order to achieve the objectives of the Government
with due regard for promotion of the economy and prevention of theuse of excessive credit.
Such rules and regulations may make appropriate provision withresped to the carrying of undermargined accounts for limited periods
and under specified conditions; the withdrawal of funds or securities;
the transfer of accounts from one lender to another; special or different
margin requirements for delayed deliveries, short sales, arbitragetransactions, and securities to which letter (b) of the second paragraphof this subsection does not apply; the bases and the methods to be
used in calculating loans, and margins and market prices; and similaradministrative adjustments and details.
48.2. No member of an Exchange or broker or dealer shall,
directly or indirectly, extend or maintain credit or arrange for theextension or maintenance of credit to or for any customer:(a) OIi any security unless such credit is extended and maintainedin accordance with the rules and regulations which the Commission
shall prescribe under this Section including rules .setting credit ill
relation to net capital of such member, broker or dealer; and(b) Without collateral or on any collateral other than securities,
except (i) to maintain a credit initially extended in confonnity with therules and regulations of the Commission and (ii) in cases where theextension or maintenance of credit is not for the purpose of purchasingor carrying securities or of evading or circumventing the provisions ofparagraph (a) of this subsection ...•.
48.3. Any person not subject to Subsection 48.2 hereof shallextend or maintain credit or arrange for the extension or maintenanceof credit for the purpose .of purchasing or carrying any security, only

241

.

~ '.ii..i.';' .

~,OFFICIAL

242

GAZETTE

VOL. 97, NO.1

in accordance with such rules and regulations as the Commission
shall prescribe to prevent the execessive use of credit for thepurchasing or carrying of or trading in securities in circumventionof the other provisions of this Section. Such rules and regulations
may impose upon all loans made for the purpose of purchasingor carrying securities limitations similar to those imposed upon
members, brokers, or dealers by Section 48.2 and the rules andreg~lations thereunder.
This subsection and the rules andregulations thereunder shall not apply.
(a) To a credit extension made by a persoft not in theordinary course of business; (b) To a loan to a dealer to aid in thefinancing of the distribution of securities to customers not throughthe medium of an Exchange; or (c) To such other credit extension
as the Commission shall exempt from the operation of thissubsection and the rules and regulations thereunderupon
specified terms and conditions or for stated period.
SEC .. 49.

Restrictions

on Borrowing by Members, Brokers andDealers. - It shall be unlawful for any registered broker .or dealer,or member of an Exchange, directly or indirectly:
49.1. To permit in the ordinary course of business as a broker
or dealer his aggregate indebtedness including customer's credit
balances, to increase such percentage of the net capital (exclusiveof fixed assets and value of Exchange membership) employed in
the business, but not exceeding in any case two thousand
percentum (2,000%), as the Commission may by rules andregulations prescribe as necessary or appropriate in the public
interest or for the protection of investors.
49.2. To pledge, mortgage, or otherwise encumber or arrange
for the pledge, mortgage or encumbrance of any security carried
for the account of any customer under circumstances: (a) That
will permit the commingling of his securities, without his writtenconsent with the securities of any customer; (b) That will permit
such securities to be commingled with the securities of any person
other than a bona fide customer; or (c) That will permit suchsecurities to be pledged, mortgaged or encumbered, or subjected
to any lien or claim of the pledgee, for a sum in excess of theo

JANUARY

OFFICIAL

1, 2001GAZETTE243

aggregate indebtedness of such customers in respect of suchsecurities. However, the Commission, having due regard to theprotection of investors, may, by rules and regulations, allow
certain transactions that may otherwise be prohibited under thissubsection.

U

Iiil.'.i.

o
o
o
~

o
D
.'~

49.3. To lend or arrange for the' lending of any security
carried for the account of any customer without the writtenconsent of such customer or in contravention of such rules andregulations as the Commissioner shall prescribe.
SEC. 50. Enforcement of Margin Requirements and Restrictions
on Borrowing. - to prevent indirect violations o! the margin

requirements under Section 48, the broker or dealer shall require
the customer in non-margin transactions to pay the price of the
security purchased for his account within such period as theCommission may prescribe, which shall in no case exceed theprescribed settlement date. Otherwise, the broker shall sell the
security purchased starting on the next trading day but not beyondten (10) trading days following the last day for the customer topay such purchase price, unless such sale cannot be effected within
said period for justifiable reasons. The sale shall be without
prejudice to the right of the broker or dealer to recover any
deficiency from the customer. To prevent indirect violation of
the restrictions on borrowings under Section 49, the broker shall,unless otherwise directed by the customer, pay the net sales priceof the securities sold for a customer within the same period as
above prescribed by the Commission: Provided, That the customer
shall be required to deliver the instruments evidencing thesecurities as a condition for such payment upon demand by thebroker.

'I:)

,Ft

iiJ
\

10
I

'"

. .-:

CHAPTER XIII

m
it.:.

I
~

y. .J

,

GENERAL PROVISIONS...

51. Liabilities of Controlling Persons, Aider and Abettor
and Other Secondary Liability. - 51.1 Every person who, by or
through stock ownership, agency, or otherwise, or in connection.
with an agreement or understanding with one. or more otherpersons, controls any person liable under this Code or the rules
or regul~tions of the Commission thereunder, shall also be liable
SEC.

I

10

-

.."
b
....
t~"'t.•l~...
.,.... ;., ..
.~c[.T.. .':'.

-

'

.

j'

OFFICIAL GAZETTE

244

VOL. 97, NO.1

jointly and severally with and to the same extent as suchcontrolled persons to any person to whom such controlled person
is liable, unless the controlling person proves that, despite theexerc.ise of due diligence on his part, he has no knowledge of theexistence of the facts by reasons of which the liability of thecontrolled p,erson is alleged to exist.
51.2. It shall be unlawful for any person, directly or
indirectly, to do any act or thing which it would be unlawful forsuch person to do under the provisions of this Code or any ruleor regulation thereunder.
51.3. It shall be unlawful for any director or officer of, or
any owner of any securities issued by, any issuer required to file
any document report or other information under this Code or
any rule or regulation of the Commission thereunder, without
just cause, to hinder, delay or obstruct the making or filing of
any such document, report, or information.
51.4. It shall be unlawful for any person to aid, abet, counsel,
command, induce or procure any violation of this Code, or any
Tule, regulation or order of the Commission thereunder.
51.5. Every person who substantially assists the act oromission of any person primarily liable under Sections 57, 58, 59 .
and 60 of this Code, with knowledge or in reckless disregard
that such act or omission is wrongful, shall be jointly and severally
liable as an aider or abettor for damages resulting from theconduct of the person primarily liable; Provided, however, That anaider and abettor shall be liable only to the extent of his relative
contribution in causing such damages in comaprison to that ofthe person primarily liable, or the extent to which the aider andabettor was unjustly enriched thereby, whichever is greater.

52. Accounts and Records, Reports, Examinationof
Exchanges, Members, and Others. - 52.1. Every registered Exchange,
SEC.

brokeror dealer, transfer

agent, dearing

agency; securities

•.

o
10

o
D
~

I.
"'.

i;

~.I'

~

E

n
o
o

JANUARY

OFFICIAL

1, 2001

245

GAZETTE

association, and other self-regulatory organization, and every
other person required to register under this Code, shall make,keep and preserve for such periods, records, furnish such copies
thereof, and make such reports as the Commission by its rules
and regulations may prescribe. Such accounts, correspondence,
memoranda, papers; books, and other records shall be subject at
any time to such reasonable periodic, special or other examinations
by representatives of the Commission as the Commission may
deem necessary or appropriate in the public interest or for the
special protection of the investors.
52.2. Any broker, dealer or other person extending credit,
who is subject to the rules and regulations prescribed by theCommission pursuant to this Code, shall make such reports to
the Commission as may be necessary or appropriate to enable itto perform the functions conferred upon it by this Code.

.

,1
'!

52.3. For purpose of this Section, the term "records" refers
to accounts, correspondence, memoranda, tapes, discs, papers,
books and other documents or transcribed informatioon of any
type, whether written or electronic in character.
>~

SEC. 53. Investigations, Injunctions and Prosecution of Offenses.
53.1. The .Commission may, in its discretion, make suchinvestigations as it deems necessary to determine whether any.
person has violated or is about to violate any provision of thisCode, any rule, regulation or order thereunder, or any rule of an
Exchange, registered securities association, clearing agency, otherself-regulatory organization, and may require or permit any
person to file with itstatement in writing, under oath orotherwise, as the Commission shall determine, as to all facts andcircumstances concerning the matter to .be investigated .. The
Commission may publish information concerning any such
violations, and to investigate any fact, condition, practice or matter
which it may deem necessary or proper to aid in the enforcementof the provisions of this Code, in the prescribing of rules andregulations thereunder, or in securing information to serve as abasis for recommending further legislation concerning the mattersto which this Code relates: Provided, however, That any person
requested or subpoenaed to produce documents or testify in any
investigation shall simultaneously be notified in writing of,c,-,,"

I!1-.

r.'t,

a

~

m
m

lli

o
o
o
g
t

, g; ...

.5

0

J,

C''''':

r!

..

~
~
~
I

ti',

~
'

~

246

OFFICIALGAZETTE

VOL. 97, NO.1

the purpose of such investigation: Provided, further, That all
criminal complaints
for violations of this Code, and theimplementing rules and regulations enforced or administered by
the Commission shall be referred to the Department of Justicefor preliminary investigation and prosecution before the propercourt. Provided, furthermore, That in instances where the law
allows independent civil or criminal proceedings of violations
arising from the same act, the Commission shall take appropriate
action to implement the same: Provided, finally, That theinvestigation, prosecution, and trial of such cases shall be givenpri<1tity.
53.2. For the purpose of any such investigation, or any otherproceeding under this Code, the Commission or any officer
designatedby, it is empoweredto administer
oaths andaffirmations,subpoena witnesses, compel attendance,takeevidence,
requIre' the productionof any book, paper,correspondence,
memorandum,
or other record which theCommission deems relevant or material to the inquiry, and to
perform such other acts necessary in the conduct of suchinvestigation or proceedings.
53.3. Whenever it shall appear tothe Commission that any
person has engaged or is about to engage in any act or practiceconstituting a violation of any provision of this Code, any rule,
regulation or order thereunder, or any rule of an Exchange,
registered securities association, clearing agency or other selfregulatory organization, it may issue an order to such person todesist from committing. such act or practice: Provided, however,That the Commission shall not charge any person with violationof the rules of an Exchange or other self-regulatory organization
unless it appears to the Commission that such Exchange or otherself-regulatory organization is unable or unwilling to take action
against such person.
After finding that such person has
engaged in any such act or practice and that there is a reasonable
likelihoodof continuing,
further or future violations
bysuch person, the Commission may issue ex-parte a cease anddesist order for a maximum period of ten (10) days, enjoining
the violation and compelling compliance with such provision,
The Commission may transmit such evidence as may beavail~ble concerning any violation of any provision of this Code,'

'I

I
I
I
I
I
I
I
I

I

I
I
I
I

II
I

JANUARY

1, 2001

247

OFFICIAL GAZETTE

or any rule, regulation or order thereunder, to the Department of Justice,which may institute the appropriate criminal proceedings under this,Code.
53.4. Any person who, within his power but without cause, fails
or refuses to comply with any lawful order, decision or subpoena
issued by the Commission under Subsection 53.2 or Subsection 53.3
or Section 64 of this Code, shall after due notice and hearing, be guilty
of contempt of the Commission. Such person shall be fined in suchreasonable amount as the Commission may determine, or when such
failure or refusal is a clear and open defiance of the Commission'sorder, decision or subpoena, shall be detained under an arrest orderissued by the Commission, until such order, decision or subpoena iscomplied with.
SEC. 54. Administrative Sancrions. - 54.1. If, after due noticeand hearing, the Commission fmds that: (a) There is a violation of thisCode, its rules, or its orders; (b) Any registered broker or dealer,associated person thereof has failed reasonably to supervise, with aview to preventing violations, another person subject to supervision
who commits any such violation; (c) Any registrant or other personhas, ina registration statement or in other reports, applications, accounts,. records or documents- required by law or rules to be filed with theCommission, made any untrue statement of a material fact, or omitted
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; or, in the case of an
undeI'\\Titer, has failed to conduct an inquiry with reasonable diligence
to insure that a registration statement is accurate and complete in allmaterial respects; or (d) Any person has refused to permit any lawful
examinations into its affairs, it shall, in its discretion, and subject only
to the limitations hereinafter prescribed, impose any or all of thefollowing sanctions as may be appropriate in light of the facts andcircurnstances:(i) Suspension, or revocation of an1registration
offering of securities;

for the

\1
f

;1
;

:1
I

:1
1

~>

•

crI'
~

ID.
~

OFFICIAL

248

GAZETTE.

VOL.

(ii) A fme of no less than Ten thousand pesos (P10,OOO.OO)
nor more than One million pesos (P 1,000,000.00) plus not morethan Two thousand pesos (P2,000.OO) for each day of continuing
violation;(iii) In the case of a violation of Sections 19.2,20,24,26
and 27, disqualification from being an officer, member of theBoard of Directors, or person performing similar functions, of
an issuer required to file reports under Section 17 of this Codeor any other act, rule or r~ulation
administered by theCommission;(iv) In the case of a violation of Section 34, a fme of no
more than three (3) times the profit gained or loss avoided asa result of the purchase, sale or communication proscribed bysuch Section; and(v) Other penalties within the power of the Commission
to impose.
54.2. The imposition of the foregoing administrative sanctions
shall be without prejudice to the filing of criminal charges against theindividuals responsible for the violation.
54.3. The Commission shall have the power to issue writs of. execution to enforce the provisions of this Section and to enforce
payment of the fees and other dues collectible under this Code.
SEC. 55. Settlement Offers. - 55.1. At any time; during an
investigation or proceeding under this Code, parties being investigated
and/or charged may propose in writing an offer of settlement with theCommission.
55.2. Upon receipt of such offer of settlement, the Commission
may cons~der the offer based on timing, the nature of the investigationor proceeding, and the public interest.
55.3. The Commission may only agree to a settlement offer basedon its fmdings that such settlement is in the public interest. Any

97, No.1

""~

ill

o
D-

O

0

o

o
o
10
I

. ,{

;"7

f,

JANUARY

OFFICIAL GAZETTE

1, 2001~249

agreement to settle shall have no legal effect until publicly disclosed.
Such decision may be made without a determination of guilt on the partof the person making the offer.
55.4. The Commission shall adopt rules and procedures governing
the filing, review, withdrawal, form of rejection and acceptance of suchoffers ..

1

I

,

o

10

o
1°

ill

0

1

SEC. 56. Civil Liabiliries on Account .of False Registration
Statement. - 56.1. Any person acquiring a security, the registration
statement of which or any part thereof contains on its effectivity an
untrue statement of a material fact or omits to state a material fact
required .to be stated therein or necessary to make such statements not
misleading, and who suffers damage, may sue and recover damages
from the' following enumerated persons, unless it is proved that at thetime of such acquisition he knew of such untrue statement or omission:Ji(a) The issuer :md every person who signed the registration
statement;II(b) Every person who was a director of, or any other person
performing similar functions, or a partner in, the issuer at the time of
the filing of the registration statement or any part, supplement oramendment thereof with respect to which his liability is asserted;(c) Every person who is named in the registration statement as
being or about to become a director of, or a person performing similarfunctions, or a partner in. the issuer and whose v,rritten consent thereto
is filed with the registration statement;(d) Every auditor or auditing firm named as having certified any
financial statements used in connection with the registration statement
or prospectus.

..•(e) Every person who, with his written consent, which shall be
filed with the registration statement, has been named as ha~'ing preparedor certified any part of the registration statement, or as having preparedor certified any report or valuation which is used in connection with

G

o

o
o

6
~- to'~~.

.1' '.~.,' ,,'.,"-J

OFFICIAL250

GAZETTE

VOL. 97, NO.1

the registration statement, with respect to the statement, report, or
valuation, which purports .to have been prepared or certified by him.
(f) Every selling shareholder who contributed to and certified as
to the accuracy of a portion of the registration statement, with respect
to that portion of the registration statement which purports to havebeen contributed by him.
(g) Every underwriter with respect to such security.
"56.2. If the' person who acquired the security did so after tl1e
issuer has made generally available to its security holders an income
statement covering a period of at least twelve (12) months beginningfrom the effective date of the registration statement, then the right ofrecovery under this subsection shall be conditioned on proof that such
person acquired the security relying upon such untrue statement in the .
registration statement or relying upon the registration statement andnot knowing of such income statement, but such reliance may beestablished without proof of the reading of the registration statement
by such person.
SEC. 57. Civil Liabilities Arising in Connection With Prospectus.
Communications and Reports. - 57.1. Any person who:(a) Offers to sell or sells a security in violation of Chapter III, or(b) Offers to sell or sells a security, whether or not exempted by
the provisions of this Code, by the use of any means or instrumentsof transportation or communication, by means of a prospectus or otherwritten or oral communication, which includes an untrUe statement ofa material fact or omits to state a material fact necessary in order tomake the statements, in the light of the circumstances under which
they were made, not misleading (the purchaser not knowing of such
untruth or omission), and who shall fail in the burden of proof that hedid not know, and in the exercise of reasonable care could not have
known, of such untruth or omission,' shall be liable to the personpurchasing such security from him, who may sue to recover theconsideration paid for such security with interest thereon, less the

,~

'.

---

fl

JANUARYoI

1, 2001~--

OFFICIAL-----~---GAZETTE

amount of any income received thereon, upon the tender of suchsecurity, or for damages if he no longer owns the security.
57.2. Any person who shall make or cause to be made any
statement in any report, or document filed pursuant to this Code or any
rule or regulation thereunder, which statement was at the time and in
the light of the circumstances under which it was made false or
misleading with respect to any material fact, shall be liable to any
person who, not knowing that such statement was false or misleading,and relying upon 'such statements shall have purchased or sold asecurity at a price which was affected by such statement, for damages
caused by such reliance, unless the person sued shall prove that heacted in good faith and had no knowledge that such statement wasfalse or misleading.

~

ID

B
ill
~

o
ill --

n

In
o
o

o

SEC. 58. Ch'U Liability for Fraud in Connection with Securities
Transactions. - Any person who engages in any act or transaction in ~violation of Sectl0ns 19.2, 20 or 26, or any rule or regulation of theCommission thereunder; shall be liable to' any other person whopurchases or sells any security, grants or refuses to grant any proxy,consent or authoriz:ltion, or accepts or declines an invitation for tenderof a security, as the case may be, for the damages sustained by suchother person as a result of such act or transaction.
SEC. 59. Civil Liability for Manipulation of Security Prices.
Any person who ~;illful1y participates in any act or transaction in
violation of Section 24 shall be liable to any person who shall purchase'or sell any security at a price which was affected by such act ortransaction, and the person so injured may sue to recover the damages
sustained as a result of such act or transaction.
SEC. .60. Civil Liability with Respect to Commodity Futures
Contracts and Pre-need Plans. - 60.1. Any person who engages in.
any act or transaction in willful violation of any rule or regulation
promulgated by the Comrnission under Section 11 or 16, which theCommission denominates at the rime of issuance. as intended to prohibit
fraud in the offer and sale of pre-need plans or to prohibit fraud,
manipulation, fictitious transactions, undue speculation, or ot..~erunfair

251

OFFICIAL

252

fill,!,'Ej

GAZETTE

VOL.

'. '
'i.;
,- .~

or abusive practices with respect to commodity future contracts, shaHbe liable to any other person sustaining damage as a result of such act
or transaction .
. 60.2. As to each such rule or regulation so denoIT"inated, theCommission by rule shall prescribe the elements of proof required forrecovery and any limitations on the amount of damages that may be
imposed.
SEC. 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 orregulation thereunder, by purchasing or selling a security while inpossession 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 t.~e
. 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,
provesthat such investor knew the information or would havepurchased or sold at the same price regardless of disclosure of theinformation to him.
61.2. An insider \vho violates Subsection 27.3 or any person in
the case of a tender offer who violates Subsection 27.4 (a), or any ruleor 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 ofa tender offer, to whom the communication was directed. and who isliable under Subsection 61.1 by reason of his purchase or sale of asecurity.
SEC. 62. Limitation of Actions. -62.1.
No action shall bemaintained 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 omission, or, if the action is to enforce a
liability created under Subsection 57.1 (a), unless brought within two(2) years after t..~eviolation upon which it is based. In no event shallany such action be brought to enforce a liabdity created under Section

97, NO.1

I
I
I

JANUARY

1, 2001

253

OFFICIAL GAZETTE

56 or Subsection 57.1 (a) more t..~anfive (5) years after the security wasbonafide 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 createdunder 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.

I
I
I
I
I
I
I,
I
I
I
I
I
I
I

SEC. 63. Amount of Damages to be Awarded. - 63.1. All suits
to recover damages pursuant to Sections 56, 57, 58, 59,60 and 61 sh~ll
be brought before the Regional Trial Court, which shall have exclusive
jurisdiction to hear and decide such suits. The-Court is hereby
authorized to award damages in an amount not exceeding triple tile
amount of the transaction plus acrual damages.
Exemplary damages may also be awarded in cases of bad faith,fraud, malevolence or wantonness in the violation of this Code or therules and regulations promulgated thereunder.
The. Court is also authorized to award attorney's
exceeding thirty percentwn

fees not(30%) of the award.

63.2. The persons specified in Sections 56, 57, 58,59, 60 and 61
hereof shall be jointly and severally liable for the payment of damages.
However, any person who be!=omes liable for the payment of suchdamages may recover contribution from any other person who; if sued
separately, would have been liable to make the same payment, unlessthe former was guilty of fraudulent representation and the latter was
not.
63.3. Notwithstandi...T'lgany provision of law to the contrary, allpersons, inc!luding the issuer, held liable under the provisions ofSections 56, 57, 58, 59, 60 and 61 shall contribute equaily to the total'
liability adjudged herein. In no case shall the principal stockholders,
directors and other officers of the issuer or persons occupying sirnil~r
positions therein, recover their contribution to the liability from theissuer. However, the right of the issuer to recover from the guilty

J

T
I
I

OFFICIAL254

GAZETTE

VOL. 97, NO.1

parties the amount it has contributed under this Section shall not be
prejudiced.

, .
4'

~t

..

SEC. 64. Cease and Desist Order. - 64.1. The Commission, after
proper investigation or verification, motu proprio, or upon verifiedcomplaint by any aggrieved party, may issue a cease and desist orderwithout the necessity of a prior hearing if in its judgment the act orpractice, unless restrained, will operate as a fraud on investors or isotherwise likely to cause grave or irreparable injury or prejudice to theinvesting public.

Ij,
~l

•.•1

.,~l

I

~:

64.2. Until the Commission issues a cease and desist order, thefact that an investigation has been initiated or that a complaint has
been filed, including the contents of the complaint, shall be confidential.
Upon issuance of a cease and desist order. the Commission shall makepublic such order and a copy thereof shall be immediately furnishedto each person subject to the order.
64.3. Any person against whom a cease and desist order was
issued may, within five (5) days from receipt of the order, file a formal
request for a lifting thereof. Said request shall be set for hearing by
the Commission not later than fifteen (15) days from its filing and theresolution thereof shall be made not later than ten (10) days from thetermination of the hearing. If the Commission fails to resolve therequest within the time herein prescribed, the cease and desist ordershall automatically be lifted.
SEC. 65. Substituted Service Upon the Commission. - Service ofsununons or other process shall be made upon the Commission inactions or legal proceedings against an issuer or any person liable
under this Code who is not domiciled in the Philippines. Upon receipt
by the Commission of such summons, the Corrrinission shall within ten(10) days thereafter, transmit by registered mail a copy of such summonsand the complaint or other legal process to such issuer or peI:son at
his last known address or principal office. The sending thereof by theCommission, the expenses for which shall be advanced by the party
at whose instance it is made, shall complete such service.

I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

JANUARY

OFFICIAL

1, 2001GAZETTE. -SEC. 66. Revelation of Information Filed with the Commission.66.1. All infonnationflled with the Commissi0n in compliance with therequirements of this Code shall be made available to any member of thegeneral public, upon request, in the premises and during regular officehours of the Commission, except as set forth in this Section.
66.2. Nothing in this Code shall be construed to require, or toauthoriZe the Commission to require, the revealing of trade secrets orprocesses in any application, report, ,or document filed with theCommission.,
66.3. Any person filing any such application, report or document
may make VvTittenobjection to the public disclosure of information
contained therein, stating the grounds for such objection, and theCommission may hear objections as it deems necessary.
The
Commission may, in such cases, make available to the public theinformation contained in any such 'application, report, or document
only when a disclosure of such information is required in the public
interest or for the. protection of investors; and copies of informationso made available may be furnished to any person having a legitimate
interest therein at such reasonable charge and under such reasonable
limitations as the Commission may prescribe~
66.4.1t shall be unlawful for any member, officer, or employee of
the Commission to disclose to any person other than a member, officer
or employee of the Commission or to use for personal benefit, any
information contained in any application, report, or document filed with .
the Commission which is not made availabie to the public pursuant to
Subsection 66.3.
66.5. Notwithstanding anything in Subsection 66.4 to the contrary,on request from a foreign enforcement authority of any country whose
laws grant reciprocal assistance as herein p~ovided, the Commission.
may provide assistance in accordance with this subsection, including. the disclos~re of any information filed with or transmitted to theCommission, if the requesting authority states that it is conducting an
investigation which it deems necessary to determine whether any person

044814-A-17

255

OFFICIAL256

GAZETTEVOL.

97, No.1

has violated, is violating, or is about to violate any laws relating tosecurities or commodities matters that the requesting authority
administers or enforces. Such assistance may be provided without
regard to whether the facts stated in the request would also constitutea violation of law of the Philippines.
SEC. 67. Effect of Action of Commission
and Unlawful
Representations with Respect Thereto. - 67.1. No action or failure toact by the Commission in the administration of this Code shall be
construed to mean that the Commission has in any way passed upon •..
the merits of or given approval to any security or any transaction ortransactions therein, nor shall such action or failure to act with regard
to any statement or report filed with or exari1ined by the Conumssion
pursuant to this Code or the rules and regulations thereunder to bedeemed a fmding by the Commission that such statements or report istrue and accurate on its face or that it is not false or misleading. It
shall be unlawful to make, or cause to be made, to any prospective
purchaser or seller of a" security any representation that any suchaction or failure to act by the Commission is to be so constrUed or has
such effect.
67.2. Nothing contained in Subsection 67.1 shall, however, beconstrued as an exemption from liability of an employee or officer of
the Commission for any nonfeasance, misfeasance or malfeasance inthe discharge of his official duties.
SEC. 68. Special Accounting Rules. - The Commission shallhave the authority to make, amend, and rescind" such accounting rules
and regulations as may be necessary to carry out the provisions of thisCode, including rules and regulations governing registration statements
and prospectuses for various classes of securities and issuers, anddefining accounting, technical and trade terms used in this Code.
Among other things, the Comrriission may prescribe the form or forms
in which required information shall be set forth, the items or details tobe shown in the balance sheet and incom~ statement, and the methods
to be followed in the preparation of accounts, appraisal or valuationof assets and liabilities, determination of depreciation and depletion,differentiation of recurring and non-recurring income, differentiation of

I
I
I
I
I
I
I
I
I
I
I

,
I

JANUARY

1,,2001

OFFICIAL GAZETTE

257

in\'esnnem and oper:lting income, and in the preparation. where theCommission deems it necessary or desirable, of consolidated balance
sheets or income accounts of any person directly or indirectly
controllir.g. or controlled by the issuer, or any person under direct orindirect common control with, the issuer.
.
SEC. . 69. Effect on Existing Law. - The rights and remedies
provided by this Code shall be in addition to any and all other rights
and rem,edies that may now exist. However, except as provided in
Section~ 56 and 63 hereof, no person permitted to maintain a suit fordamages under the provisions of this Code shall recover, through.satisfaction of judgment in one or more actions, a total amount inexcess of his actual damages on account of the act complained of:Provided, That exemplary damages may be a\\Iarded in cases of bad
faith, fraud, malevolence or wantonness in the violation of this Codeor the rules and regulations promulgated thereunder.
SEC. 70. Judicial Reviel'..' of Commission Orders . ..,Any persiJn:lggrieved by an order of the Cornrrjssion may appeal the order to the
Court of Appeals by petition for review in accordance with the pertinent
provisions of the Rules of CoUrt.
SEC. 71. Validiry of Contracts. - 71.1. Any condition, stipulation,
provision binding any person to waive compliance with any provisionof this Code or of any rule or regulation thereunder, or of any rule of
an Exchange required thereby, as well as the waiver itself, shall be
void.

I
I
I
I
I
I
I
I

,71.2. Every contract made in violation of any provision of thisCode or of any rule or regulation thereunder,. and every contract,
including any contract for listing a security on an Exchange heretoforeor hereafter made, the performance of \vhich involves the violation of,or the continuance of any relationship or practice in violation of, any
provision of this Code, or any rule or regulation thereunder, shall be
void:

=m

•

'If.
I

J

i

,

i

'f

't

OFFICIAL GAZETTE

258

VOL.

97, No.1(a) As regards t.'1erights of any person who, in violation of any
such provision, rule or regulation, shall have made or engaged in theperformance of any such contract, and(b) As regards the rights of any person who, not being a party
to such contract, shall have acquired any right thereunder with actual
knowledge of the facts by reason of which the making o! performanceof such contract was in violation of any such provision, rule or-regulation.
71.3. Nothing in this Code shall be construed:(a) To affect the validity of any loan or extension of credit madeor of any lien created .prior or subsequent to the effectivity of thisCode, unless at the time of the making of such loan or extension of
credit or the creating of such lien, the person making such loan orextension of credit or acquiring such lien shall have actual knowledgeof 1..1.efacts by reason of which the making of such loan or extensionof credit or the acquisition of such lien is a violation of the provisionsof this Code or any rules or regulations thereunder; or(b) To afford a defense to the collection of any debt, obligationor the enforcement of any lien by any person who shall have acquired
such debt, obligation or lien in good faith, for value and without ac.tual
knowledge of the violation of any provision of this Code or any ruleor regulation thereunder affecting the legality of such debt, obligation
or lien.
SEC 72. Rules and Regulations; Effectivity. - 72.1. This Codeshall be s~lf-executory. To effect the provisions and purposes of thisCode, the Commission may issue, amend, and rescind such rules andregulations and orders necessary or appropriate, including rules andregulations deflning accounting, technical, and trade terms used in thisCode, and prescribing the form or forms in which information requiredin registration statements, applications, and reports to the Commission
shall be set forth. For purposes of its rules or regulations, theCommission may classify persons, securities, and other matters within
its j'!risdiction, prescribe different requirements for different classes ofE

_a -----

m

u
~

I~

JANUARY-~-'-------~--------:--------~~

1, 2001

OFFICIAL GAZETTE

persons, securities, or matters, and by rule or order, conditionally or
unconditionally exempt any person, security, or transaction, or class orclasses of persons, securities or transacTIons, from any or all provisionsof this Code.
Failure on the part of the Commission to issue rules andregulations shall not in any manner affect the self-executory nature ofthis Code.

o

o

00
il,l

Ii]

~

o
o
o
o

o

o

72.2. Tne Commission shall promulgate rules and regulations
providing for reporting, disclosure and the prevention of fraudulent,
deceptive or manipulative practices in connection with the purchase by
an issuer, by tender offer or otherwise, of and equity security of a classissued by it that satisfies the requirements of. Subsection 17.2. Suchrules and regulations may require such issuer to provide holders ofequity securities of such dates with such information relating to thereasons for such purchase, the source of funds, the number of shares
to be purchased, the price to be paid for such securities, the methodof purchase and such additional information as me Commission deems
necessary or appropriate in the public interest or for the protection of
investors, or which the Commission deems to be material to a
determination by hblderswhether such security should be sold.
72.3. For the purpose of Subsection 72.2, a purchase by or for'the issuer or any person controlling, controlled by, or under common
conrrol with the issuer, or a purchase subject to the control of theissuer or any such person, shall be deemed to be a purchased by theissuer. The Commission shall have the power fo, make rules andregulations implementing this subsection, including exemptive rules
and regulations covering situations in which the Commission deems it
unnecessary or inappropriate that a purchase of the type described inthis subsection shall be deemed to be a purchase by the issuer for the
purpose of some or all of the provisions of Subsection 72.2.
ion
72.4. The rules and regulations promulgated by the C<;.mmissshall be published in two (2) newspapers of general circulation in thePhilippines, and unless otherwise prescribed by the Commission, the259

OFFICIAL260

GAZETTE

VOL. 97, NO.1

same shall be effective fifteen (15) days after the date of the last
publication.
SEC. 73.
Penalties. - Any person who violates any of theprovisions of this Code, or the rules and regulations promulgated by~e Conumssion under authority thereof, or any person who, in aregistration statement filed under this Code, makes any untrue statement'of a material fact or omits to state any material fact required to bestated therein or necessary to make the statements therein not
misleading, shall, upon conviction, .suffer a fme of not less than Fifty
thousand pesos (P50,OOO.Ot»
nor more than Five million pesos(P5,OOO,OOO.OO) or imprisonment of not less than seven (7) years nor
more than t\venty-one (21) years~ or both in the discretion of the court.
If the offender is a corporation, partnership or association or otherjuridical entity, the penalty may in the discretion of the court be
imposed upon such juridical entity and upon the officer or officers oftl)e corporation, partnership, association or entity responsible for theviolation, and if such officer is an alien, he shall in addition to thepenalties prescribed, be deported without further proceedings after-'. '~' 1

lh

,tl

),",1

'j"
'.l~1
,t

"'f;

'r

• It t
~d

i:.~l

~

i;\1

t '
f ,I

,~I
,
: 1

I

, I

i
I
I

f

service of sentence.

~

SEC. 74. TransiiOT)' Provisions. - The Commission, as organizedunder existing laws, shall continue to exist and exercise its powers.
functions and duties under such laws and this Code: Provided, That
until otherwise mandated by a subsequent law, the Com.TIlission shallcontinue to regulate and supervise commodity futures contracts asprovided in Section 11 and pre-need plans and the pre-need industry
as provided in Section 16 of this Code.

;

!

,

t

;

~t
i ~

All funher requirements herein shall be complied with upon
approval of this Code: Provided, however, That compliance may bedeferred for such reasonable time as the Commission may, determine
but not to exceed one (1) year from approval of this Code: Provided,
further, That securities which are being offered at the time of effectivityof this Code pursuant to an effective registration and permit, may
oontinue to be offered and sold in accordance with the provisions of
the Revised Securities Act in effect immediately prior to approval ofthis Code .

..¥~ .•1
I
I
I

JANUARY

1, 2001

OFFICIAL GAZETTEAU tL"lexpendedfunds for the calendar year, properties, equipment
and records ot the Securities and Exchange Commission are hereby
retained by the Commission as reorganized under this Code and theamount of Two hundred million pesos (P200,OOO,OOO.OO)
or such amountnecessary to carry out the reorganization provided in this Code is
hereby appropriated.

.

All employees of the Commission who voluntarily remeor are
separated from the service with the Commission and whose retirement
or separation has been approved by the Commission, shall be paid
retirement or separation benefits and other entitlements granted under
existing laws.

I
I
I
I
I
I
I
I
I
I
I
I

261

SEC 75. Parrial Use of Income. - To carry out the purposes ofthis Code, the Commission is hereby authorized, in addition to its
annual budget to retain and utilize an amount equal to One hundred
million pesos (P100,OOO,OOO.OO)
from its income.

The use of such additional amount shall be subject to the auditing
requirements, standards and procedures under existiIig laws.

SEC 76. Repealing. Clause. - The Revised Securities Act(Batas Pambansa BIg. 178), as amended, in its entirety, and Sections
2, 4 and 8 ofPresidenttal Decree 902-A, as amended, are hereby repealed.
All other laws, orders, rules and regulations, or parts thereof,inconsistent with any provision of this Code are hereby repealed or. modified accordingly.

SEC 77. Separability Clause.- If any portion or provision ofthis Code is declared unconstirutiPnal or invalid, the other portions orprovisions hereof, which are not affected thereby shall cOGtinlle in fullforce and effect.

..

~.. t.'!
"

I

f.;

I
I

OFFICIAL GAZETTE

262

VOL. 97, NO.1

SEC. 78. Effectivity .• This Code shall take effect fifteen (15) days
after its publicatioQ in the Official Ga=ette or in two (2) newspapersof general circulation.
Approved,
:';

:1;

r!

n
;"

"ll!

I ,
I ~\

M.A.NlJEL B. VII..
Speaker of theof Representa

~,

t

l

~

ouse
':\!es1'CiThis Act, which is a consolidation of Senate Bill No. 1220 and. House Bill No. 8015 was fmally passed by the Senate and the Houseof Representatives on July 17, 2000 and July 13, 2000, respectively.

:~, ~
"I

:f,

,,:.

.-;

~

I

•. I

~YES
Acting Secretary of tire Senate

I
I

Approved:;1,~.'

I:~~;;';~JUL 1 9 2000

Cr.b~.
"OSEPHE.ESTR-illA~;.~~~::-:.;:#.
President of the . Philippinesor .~~.~~.;;..:~:-to/1\11\111\111\111\11\\\1111\1\\\111\~,lrE HOlogram '19075I

CERTIFIED COPY:-I