THIRTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session 
S. No. 
50 
INTRODUCED BY HON. MANUEL B. VILLAR, JR. 
EXPLANATORY NOTE 
Comprising ninety percent (90%) of the total number of business establishments and 
about ninety-seven percent (97%) of exporters, small and medium enterprises are the engines of 
the country’s economic growth and development. They provide essential products and services 
and generate needed employment in a developing economy. In fact, it is the entrepreneurial 
energies unleashed by small and medium enterprises that underpin our country’s quest for 
industrialization by the turn of the century. 
Yet the growth and momentum of SMEs are hobbled by capital constraints. Unlike large 
companies, SMEs experience more difficulties in obtaining finance to fund their capitalization or 
expansion requirements. Their growth potentials are thus hindered and so do their contribution to 
national economic development. 
It is for these reasons that this bill is filed to assist SMEs in obtaining their financing 
requirements from the developing capital market in the country. In particular, this measure 
proposes the establishment of a stock exchange that will cater to SMEs. A Small and Medium 
Enterprises Stock Exchange (SMEX) can be the equities market of growing businesses that may 
still not meet the capitalization requirements for public listing by the Philippine Stock Exchange 
(PSE). Public listing in the SMEX may well provide SMEs with a cheap and steady pool of funds 
for their business requirements. 
Creation of the SMEX will also provide SMEs their benchmarks for business 
accomplishments, in making them aware of the processes and demands of making their 
enterprises “investment-ready.” On the other hand, government stands to gain in increased tax 
collection with more businesses going public after conducting their operations in the informal 
sectors. 
The SMEX at the same time will broaden and deepen the capital markets by providing 
both foreign and local investors another window of investment opportunity. This has been the 
experience of the United States when they set up the National Association of Securities Dealers 
Automated Quotations (NASDAQ) stock market for growing companies, which his been the 
market for the public listing of phenomenal companies such as Intel and Microsoft. 
In sum, alternative equities market like the SMEX can provide crucial institutional 
support to SMEs while at the same time lay the groundwork for more investment opportunities in 
the country today. 


c 
For these, immediate approval of this bill is recommended. 
A 
MANUEL B. VIL AR, JR. 
e 


THIRTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session 
SENATE 
S. No. 
0 
INTRODUCED 
BY HON. MANUEL B. VILLAR, JR. 
AN ACT ESTABLISHING THE SMALL AND MEDIUM ENTERPRISES 
STOCK EXCHANGE 
Be it evaded by the Senate and the House of Representatives of the Philippines in Congress 
nssem bled: 
SECTION 1. Title. - This Act shall be known slid cited as the "Small and Medium 
Enterprises Stock Exchange (SMEX) Act of 2004." 
EC. 2. Declaration of Policy. - It is the declared policy of the State to recognize the 
indis lf ensable role of tile private sector, encourage private enterprise, and provide incentives to 
needed investments. And in compliance with this policy, the State shall encourage tile 
establishment of small and medium enterprises; develop an effective and efficient -stock 
exchange for small and medium enterprises; provide for increased access to financing for small 
and medium enterprises in order to facilitate fLinds necessary for their expansion; and stimulate 
investors and private firms, both local and foreign, to invest in small and medium enterprises. 
SEC: 3. Definition of Terms: - When used in this Act and for purposes of SMEX, the 
following definitions shall apply: 
(1) Small Enterprise refers to any business of whatever nature whose net capital amounts to 
2-19.999 million pesos; 
(2) Medium Enterprise refers to any business of whatever nature whose net capital amounts 
to 20-99.999 million pesos; 
(b) 100-300 million pesos (for the SMEX primary board) 
SEC. 4. Creation of the Small arid Medium Enterprises Stock Exchange (SMEX). There is 
hereby established a Small and Medium Enterprises Stock Exchange, (hereinafter referred to as 
the 'ISMEXI'), which shall be a stock market catering to small and medium enterprises. 


The SMEX shall be primarily self-regulatory but shall be under the supervision of the 
Office of the President for purposes of policy coordination. 
SEC. 5. Board of Governors. - To cany out the purposes of this Act, there is hereby 
created a Board of Governors, which shall be organized within sixty days after the approval of 
this Act. It shall operate as an independent entity but shall be attached to the Office of the 
President for budgetary purposes. The operations and activities of the SMEX shall be managed 
and controlled by the Board of Governors (hereinafter referred to as the "Board" composed of the 
Governor of the Banglco Sentral ng Pilipinas, the Securities and Exchange Commission (SEC) 
representative, the Philippine Stock Exchange representative, and five members from the SMEX. 
The five members from tie SMEX shall be selected from the officers of the Board, which 
shall include one stockbroker or securities dealer coming from the registered brokers or securities 
dealers of the SMEX. 
SEC. 6, Transaction of Business. - Only registered members shall transact business on the 
floors of the SMEX and such members shall deal or otherwise transact business only with 
registered brokers or securities dealers of the exchange. 
SEC. 7. Issuance of Implementing Rules and Regulations - The Board, in consultation 
with the Philippine Stock Exchange, Securities and Exchange Commission, the Board of 
Investment and representatives from the small and medium-sized business sector shall 
promulgate and adopt a Code of By-Laws which shall, among others, contain the organizational 
structure; the rules and regulations on the listing and issuance of securities; the code of ethics for 
all members of the exchange, including grounds for disciplinary sanctions or suspension and 
expulsion of any member, and standards to ensure strict adherence thereto. 
SEC. 8. Appropriation. - The amount necessary to carry out the provisions of this Act is 
hereby authorized to -be appropriated in the General Appropriations Act of the fiscal year 
following its enactment into law and thereafter. 
SEC. 9. Accountability. - To ensure accountability of the Board and the SMEX, all funds 
of and held in trust by the. SMEX from the National Government, pursuant to the provisions of 
this Act, shall be audited by the Commission on Audit and all disbursements shall be made in 
accordance with existing auditing rules and regulations. 
SEC. 
10. Transitory Provision. - After a period of five years, the SMEX shall be 
privatised in order to ensure the efficient and effective functioning of the stock exchange. 
SEC. 11. Separability Provision. - If any provision of this Act shall be held invalid, the 
reminder of the Act not otherwise affected thereby shall remain in full force and effect. 


SEC. 12. Repealing Clause. - All laws, executive orders, decrees, rules and regulations, or 
part thereof, contrary to or inconsistent with the provisions of this Act are hereby repealed or 
modified accordingly. 
SEC. 13. Effectivity. - This Act shall take effect fifteen days after its publication in the 
Official Gazette or at least two national newspapers of general circulation. 
Approved,