Foreign Investments Acts and Securities Regulation Code

8/19/2019 Foreign Investments Acts and Securities Regulation Code

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Republic Act No. 7042 June 13, 1991

AN ACT TO PROMOTE FORE!N N"E#TMENT#, PRE#CR$E T%E

PROCE&'RE# FOR RE!#TERN! ENTERPR#E# &ON! $'#NE## N T%E

P%(PPNE#, AN& FOR OT%ER P'RPO#E#

Be it enacted by the Senate and House of Representatives of the Philippines in

Congress assembled::

#ection 1. Title. - This Act shall be known as the, )Foreign Investments Act of

1991).

#ection 2. Declaration of Policy. - It is the policy of the State to attract, promote

and welcome productive investments from foreign individuals, partnerships,

corporations, and governments, including their political subdivisions, in activities

which signicantly contribute to national industriali!ation and socioeconomic

development to the e"tent that foreign investment is allowed in such activity by the

#onstitution and relevant laws. $oreign investments shall be encouraged in

enterprises that signicantly e"pand livelihood and employment opportunities for

$ilipinos% enhance economic value of farm products% promote the welfare of $ilipino

consumers% e"pand the scope, &uality and volume of e"ports and their access to

foreign markets% and'or transfer relevant technologies in agriculture, industry and

support services. $oreign investments shall be welcome as a supplement to $ilipino

capital and technology in those enterprises serving mainly the domestic market.

As a general rule, there are no restrictions on e"tent of foreign ownership of e"port

enterprises. In domestic market enterprises, foreigners can invest as much as one

hundred percent ()**+ e&uity e"cept in areas included in the negative list. $oreign

owned rms catering mainly to the domestic market shall be encouraged to

undertake measures that will gradually increase $ilipino participation in their

businesses by taking in $ilipino partners, electing $ilipinos to the board of directors,

implementing transfer of technology to $ilipinos, generating more employment for

the economy and enhancing skills of $ilipino workers.

#ection 3. Denitions. - As used in this Act:

a The term hilippine national shall mean a citi!en of the hilippines or a

domestic partnership or association wholly owned by citi!ens of the hilippines% or a

corporation organi!ed under the laws of the hilippines of which at least si"ty

percent (/*+ of the capital stock outstanding and entitled to vote is owned and

held by citi!ens of the hilippines% or a trustee of funds for pension or other

employee retirement or separation benets, where the trustee is a hilippine

national and at least si"ty (/*+ of the fund will accrue to the benet of the

hilippine nationals: rovided, That where a corporation and its non-$ilipino

stockholders own stocks in a Securities and 0"change #ommission (S0# registered

enterprise, at least si"ty percent (/*+ of the capital stocks outstanding and


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entitled to vote of both corporations must be owned and held by citi!ens of the

hilippines and at least si"ty percent (/*+ of the members of the 1oard of

2irectors of both corporations must be citi!ens of the hilippines, in order that the

corporations shall be considered a hilippine national%

b The term investment shall mean e&uity participation in any enterpriseorgani!ed or e"isting under the laws of the hilippines%

c The term foreign investment shall mean as e&uity investment made by a non-

hilippine national in the form of foreign e"change and'or other assets actually

transferred to the hilippines and duly registered with the #entral 1ank which shall

assess and appraise the value of such assets other than foreign e"change%

d The praise doing business shall include soliciting orders, service contracts,

opening o3ces, whether called liaison o3ces or branches% appointing

representatives or distributors domiciled in the hilippines or who in any calendar

year stay in the country for a period or periods totalling one hundred eighty ()4*

days or more% participating in the management, supervision or control of any

domestic business, rm, entity or corporation in the hilippines% and any other act

or acts that imply a continuity of commercial dealings or arrangements, and

contemplate to that e"tent the performance of acts or works, or the e"ercise of

some of the functions normally incident to, and in progressive prosecution of,

commercial gain or of the purpose and ob5ect of the business organi!ation:

rovided, however, That the phrase doing business: shall not be deemed to include

mere investment as a shareholder by a foreign entity in domestic corporations duly

registered to do business, and'or the e"ercise of rights as such investor% nor having

a nominee director or o3cer to represent its interests in such corporation% nor

appointing a representative or distributor domiciled in the hilippines whichtransacts business in its own name and for its own account%

e The term e"port enterprise shall mean an enterprise which produces goods for

sale, or renders services to the domestic market entirely or if e"porting a portion of

its output fails to consistently e"port at least si"ty percent (/*+ thereof% and

g The term $oreign Investments 6egative 7ist or 6egative 7ist shall mean a list

of areas of economic activity whose foreign ownership is limited to a ma"imum of

forty ownership is limited to a ma"imum of forty percent (8*+ of the e&uity capital

of the enterprise engaged therein.

#ection 4. Scope. - This Act shall not apply to banking and other nancial

institutions which are governed and regulated by the 9eneral 1anking Act and other

laws under the supervision of the #entral 1ank.

#ection *. Registration of Investments of Non-Pilippine Nationals. -

ithout need of prior approval, a non-hilippine national, as that term is dened in

Section ; a, and not otherwise dis&ualied by law may upon registration with the


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Securities and 0"change #ommission (S0#, or with the 1ureau of Trade


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#ection . %ist of Investment Areas Reserve& to Pilippine

Nationals -Foreign Investment Negative %ist . - The $oreign Investment

6egative 7ist shall have three (; component lists: A, 1, and #:

a 7ist A shall enumerate the areas of activities reserved to hilippine nationals by

mandate of the #onstitution and specic laws.

b 7ist 1 shall contain the areas of activities and enterprises pursuant to law:

) hich are defense-related activities, re&uiring prior clearance and authori!ation

from 2epartment of 6ational 2efense (262 to engage in such activity, such as the

manufacture, repair, storage and'or distribution of rearms, ammunition, lethal

weapons, military ordnance, e"plosives, pyrotechnics and similar materials% unless

such manufacturing or repair activity is specically authori!ed, with a substantial

e"port component, to a non-hilippine national by the Secretary of 6ational

2efense% or

C hich have implications on public health and morals, such as the manufacture

and distribution of dangerous drugs% all forms of gambling% nightclubs, bars,

beerhouses, dance halls% sauna and steambath houses and massage clinics.

Small and medium-si!ed domestic market enterprises with paid-in e&uity capital

less than the e&uivalent of ve hundred thousand S dollars (SD@**,*** are

reserved to hilippine nationals, unless they involve advanced technology as

determined by the 2epartment of Science and Technology. 0"port enterprises which

utili!e raw materials from depleting natural resources, with paid-in e&uity capital of

less than the e&uivalent of ve hundred thousand S dollars (SD@**,*** are

likewise reserved to hilippine nationals.

Amendments to 7ist 1 may be made upon recommendation of the Secretary of

6ational 2efense, or the Secretary of Eealth, or the Secretary of 0ducation, #ulture

and Sports, indorsed by the 602A, or upon recommendation motu propio of 602A,

approved by the resident, and promulgated by residential roclamation.

c 7ist # shall contain the areas of investment in which e"isting enterprises already

serve ade&uately the needs of the economy and the consumer and do not re&uire

further foreign investments, as determined by 602A applying the criteria provided

in Section > of this Act, approved by the resident and promulgated in a residential

roclamation.

The Transitory $oreign Investment 6egative 7ist established in Sec. )@ hereof shall

be replaced at the end of the transitory period by the rst of this Act. The rst


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transitory period. Subse&uent $oreign Investment 6egative 7ists shall become

eBective fteen ()@ days after publication in two (C newspapers of general

circulation in the hilippines: rovided, however, That each $oreign Investment

6egative 7ist shall be prospective in operation and shall in no way aBect foreign

investments e"isting on the date of its publication.

Amendments to 7ist 1 and # after promulgation and publication of the rst


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#ection 10. Strategic In&'stries. - ithin eighteen ()4 months after the

eBectivity of this Act, the 602A 1oard shall formulate and publish a list of industries

strategic to the development of the economy. The list shall specify, as a matter of

policy and not as a legal re&uirement, the desired e&uity participation by

9overnment and'or private $ilipino investors in each strategic industry. Said list of

strategic industries, as well as the corresponding desired e&uity participation ofgovernment and'or private $ilipino investors, may be amended by 602A to reGect

changes in economic needs and policy directions of 9overnment. The amended list

of strategic industries shall be published concurrently with publication of the $oreign

Investment 6egative 7ist.

The term strategic industries shall mean industries that are characteri!ed by all of

the following:

a #rucial to the accelerated industriali!ation of the country,

b


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issued pursuant thereto, or aids or abets in any manner any violation shall be

sub5ect to a ne not e"ceeding =ne hundred thousand pesos ()**,***.

If the oBense is committed by a 5uridical entity, it shall be sub5ect to a ne in an

amount not e"ceeding H of )+ of total paid-in capital but not more than $ive million

pesos (@,***,***. The president and'or o3cials responsible therefor shall also besub5ect to a ne not e"ceeding Two hundred thousand pesos (C**,***.

In addition to the foregoing, any person, rm or 5uridical entity involved shall be

sub5ect to forfeiture of all benets granted under this Act.

S0# shall have the power to impose administrative sanctions as provided herein for

any violation of this Act or its implementing rules and regulations.

#ection 1*. Transitory Provisions. - rior to eBectivity of the implementing rules

and regulations of this Act, the provisions of 1ook II of 0"ecutive =rder CC/ and its

implementing rules and regulations shall remain in force.

2uring the initial transitory period of thirty-si" (;/ months after issuance of the


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#. 7ist #:

). Import and wholesale activities not integrated with production or manufacture of

goods%

C. Services re&uiring a license or specic authori!ation, and sub5ect to continuing

regulations by national government agencies other than 1=I and S0# which at the

time of eBectivity of this Act are restricted to hilippine nationals by e"isting

administrative regulations and practice of the regulatory agencies concerned:

rovided, That after eBectivity of this Act, no other services shall be additionally

sub5ected to such restrictions on nationality of ownership by the corresponding

regulatory agencies, and such restrictions once removed shall not be reimposed%

and

;. 0nterprises owned in the ma5ority by a foreign licensor and'or its a3liates for the

assembly, processing or manufacture of goods for the domestic market which are

being produced by a hilippine national as of the date of eBectivity of this Act under

a technology, know-how and'or brand name license from such licensor during the

term of the license agreement: rovided, That, the license is duly registered with

the #entral 1ank and'or the Technology Transfer 1oard and is operatively in force as

of the date of eBectivity of this Act.

602A shall make the enumeration as appropriate of the areas of the investment

covered in this Transitory $oreign Investment 6egative 7ist and publish the 6egative

7ist in full at the same time as, or prior to, the publication of the rules and

regulations to implement this Act.

The areas of investment contained in 7ist # above shall be reserved to hilippine

nationals only during the transitory period. The inclusion of any of them in the

regular 6egative 7ist will re&uire determination by 602A after due public hearings

that such inclusion is warranted under the criteria set forth in Section 4 and >

hereof.

#ection 1+. Repealing (la'se. - Articles forty-four (88 to fty-si" (@/ of 1ook II

of 0"ecutive =rder 6o. CC/ are hereby repealed.

All other laws or parts of laws inconsistent with the provisions of this Act are hereby

repealed or modied accordingly.

#ection 17. Separa+ility. - If any part or section of this Act is declaredunconstitutional for any reason whatsoever, such declaration shall not in any way

aBect the other parts or sections of this Act.

#ection 1. !,ectivity. - This Act shall take eBect fteen ()@ days after approval

and publication in two (C newspaper of general circulation in the hilippines.

Approved: June );, )>>)


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T%E #EC'RTE# RE!'(ATON CO&E

Be it enacted by the Senate and the House of Representative of the Philippines in

the Congress assembled:

C%APTER

TT(E AN& &EFNTON#

#ection 1. Title. - This shall be known as The Securities


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;.@. Associated person of a broker or dealer is an employee therefor whom,

directly e"ercises control of supervisory authority, but does not include a salesman,

or an agent or a person whose functions are solely clerical or ministerial.

;./. #learing Agency is any person who acts as intermediary in making deliveries

upon payment eBect settlement in securities transactions.

;.?. 0"change is an organi!ed market place or facility that brings together buyers

and sellers and e"ecutes trade of securities and'or commodities.

;.4. Insider means (a the issuer% (b a director or o3cer (or any person

performing similar functions of, or a person controlling the issuer% gives or gave

him access to material information about the issuer or the security that is not

generally available to the public% (d A government employee, director, or o3cer of

an e"change, clearing agency and'or self-regulatory organi!ation who has access to

material information about an issuer or a security that is not generally available to

the public% or (e a person who learns such information by a communication from

any forgoing insiders.

;.>. re-need plans are contracts which provide for the performance of future

services of or the payment of future monetary considerations at the time actual

need, for which plan holders pay in cash or installment at stated prices, with or

without interest or insurance coverage and includes life, pension, education,

interment, and other plans which the #ommission may from time to time approve.

;.)*. romoter is a person who, acting alone or with others, takes initiative in

founding and organi!ing the business or enterprise of the issuer and receives

consideration therefor.

;.)). rospectus is the document made by or an behalf of an issuer, underwriter

or dealer to sell or oBer securities for sale to the public through registration

statement led with the #ommission.

;.)C.


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C%APTER

#EC'RTE# AN& E/C%AN!E COMM##ON

#ection 4. !dministrative !gency. K 8.). This #ode shall be administered by the

Security and 0"change #ommission (hereinafter referred to as the #ommission as

a #ollegial body, composed of a chairperson and (8 #ommissioners, appointed bythe resident for a term of (? seven years each and who shall serves as such until

their successor shall have been appointed and &ualied. A #ommissioner appointed

to ll a vacancy occurring prior to the e"piration of the term for which his'her

predecessor was appointed, shall serve only for the une"pired portion of their terms

under residential 2ecree 6o. >*C-A. nless the conte"t indicates otherwise, the

term #ommissioner includes the #hairperson.

8.C. The #ommissioners must be natural-born citi!ens of the hilippines, at least

forty (8* years of age for the #hairperson and at least thirty-ve (;@ years of age

for the #ommissioners, of good moral character, or un&uestionable integrity, of

known probity and patriotism, and with recogni!ed competence in social andeconomic disciplines: Provided, That the ma5ority of #ommissioners, including the

#hairperson, shall be members of the hilippine 1ar.

8.;. The chairperson is chief e"ecutive o3cer of the #ommission. The #hairperson

shall e"ecute and administer the policies, decisions, orders and resolutions

approved by the #ommission and shall have the general e"ecutive direction and

supervision of the work and operation of the #ommission and itLs members, bodies,

boards, o3ces, personnel and all its administrative business.

8.8. The salary of the #hairperson and the #ommissioners shall be "ed by the

resident of the hilippines based on the ob5ective classication system, at a sumcomparable to the members of the onetary 1oard and commensurate importance

and responsibilities attached to the position.

8.@. The #ommission shall hold meetings at least once a week for the conduct of

business or as often as may be necessary upon the call of the #hairperson or upon

the re&uest of (; #ommissioners. The notice of the meeting shall be given to all

#ommissioners and the presence of three (; #ommissioners shall constitute a

&uorum. In the absence of the #hairperson, the most senior #ommissioner shall act

as presiding o3cer of the meeting.

8./. The #ommission may, for purposes of e3ciency, delegate any of its functionsto any department of o3ce of the #ommission, an individual #ommissioner or staB

member of the #ommission e"cept its review or appellate authority and its power to

adopt, alter and supplement any rule or regulation.

The commission may review upon its own initiative or upon the petition of any

interested party any action of any department or o3ce, individual #ommissioner, or

staB member of the #ommission.


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#ection *. Po"ers and #unctions of the Commission.K @.). The commission shall act

with transparency and shall have the powers and functions provided by this code,

residential 2ecree 6o. >*C-A, the #orporation #ode, the Investment Eouses law,

the $inancing #ompany Act and other e"isting laws. ursuant thereto the

#ommission shall have, among others, the following powers and functions:

(a Eave 5urisdiction and supervision over all corporations, partnership or

associations who are the grantees of primary franchises and'or a license or a permit

issued by the 9overnment%

(b $ormulate policies and recommendations on issues concerning the securities

market, advise #ongress and other government agencies on all aspect of the

securities market and propose legislation and amendments thereto%

(c Approve, re5ect, suspend, revoke or re&uire amendments to registration

statements, and registration and licensing applications%

(d


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for the proper disposition of the cases before it, sub5ect to the provisions of e"isting

laws%

(m Suspend, or revoke, after proper notice and hearing the franchise or certicate

of registration of corporations, partnership or associations, upon any of the grounds

provided by law% and

(n 0"ercise 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

e"press powers granted the #ommission to achieve the ob5ectives and purposes of

these laws.

@.C. The #ommissionLs 5urisdiction over all cases enumerated under section @ of

residential 2ecree 6o. >*C-A is hereby transferred to the #ourts of general

5urisdiction or the appropriate


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any information, discussion or resolution of the #ommission of a condential nature,

or about the condential operations of the #ommission unless the disclosure is in

connection with the performance of o3cial functions with the #ommission or prior

authori!ation of the #ommissioners% or (C the use of such information for personal

gain or to the detriment of the government, the #ommission or third parties:

rovided, however, That any data or information re&uired to be submitted to theresident and'or #ongress or its appropriate committee, or to be published under

the provisions of this #ode shall not be considered condential.

#ection 7. Reorgani%ation. K ?.). To achieve the goals of this #ode, consistent with

the #ivil Service laws, the #ommission is hereby authori!ed to provide for its

reorgani!ation, to streamline its structure and operations, upgrade its human

resource component and enable it to more e3ciently and eBectively perform its

functions and e"ercise its power under this #ode.

?.C. All positions of the #ommissions shall be governed by a compensation and

position classication system and &ualication standards approved by the#ommission based on comprehensive 5ob analysis and audit of actual duties and

personal responsibilities. The compensation plan shall be comparable with the

prevailing compensation plan in the 1angko Sentral ng ilipinas and other

government nancial institutions and shall be sub5ect to periodic review by the

#ommission no more than once every two (C years without pre5udice to yearly

merit review or increases based on productivity and e3ciency. The #ommission

shall, therefore, be e"empt from laws, rules, and regulations on compensation,

position classication and &ualications standards. The #ommission shall, however,

endeavor to make its system conform as closely as possible with the principles

under the #ompensation and osition #lassication Act of )>4> (


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4.8. A record of the registration of securities shall be kept in


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(b 1y or for the account of a pledge holder, or mortgagee or any of a pledge lien

holder selling of oBering for sale or delivery in the ordinary course of business and

not for the purpose of avoiding the provision of this #ode, to li&uidate

a bonade debt, a security pledged in good faith as security for such debt.

(c An isolated transaction in which any security is sold, oBered for sale,subscription or delivery by the owner therefore, or by his representative for the

ownerLs account, such sale or oBer for sale or oBer for sale, subscription or delivery

not being made in the course of repeated and successive transaction of a like

character by such owner, or on his account by such representative and such owner

or representative not being the underwriter of such security.

(d The distribution by a corporation actively engaged in the business authori!ed by

its articles of incorporation, of securities to its stockholders or other security holders

as a stock dividend or other distribution out of surplus.

(e The sale of capital stock of a corporation to its own stockholders e"clusively,

where no commission or other remuneration is paid or given directly or indirectly in

connection with the sale of such capital stock.

(f The issuance of bonds or notes secured by mortgage upon real estate or tangible

personal property, when the entire mortgage together with all the bonds or notes

secured thereby are sold to a single purchaser at a single sale.

(g The issue and delivery of any security in e"change for any other security of the

same issuer pursuant to a right of conversion entitling the holder of the security

surrendered in e"change to make such conversion:Provided, That the security so

surrendered has been registered under this #ode or was, when sold, e"empt from

the provision of this #ode, and that the security issued and delivered in e"change, if

sold at the conversion price, would at the time of such conversion fall within the

class of securities entitled to registration under this #ode. pon such conversion the

par value of the security surrendered in such e"change shall be deemed the price at

which the securities issued and delivered in such e"change are sold.

(h 1rokerLs transaction, e"ecuted upon customerLs orders, on any registered

0"change or other trading market.

(i Subscriptions for shares of the capitals stocks of a corporation prior to the

incorporation thereof or in pursuance of an increase in its authori!ed capital stocks

under the #orporation #ode, when no e"pense is incurred, or no commission,

compensation or remuneration is paid or given in connection with the sale or

disposition of such securities, and only when the purpose for soliciting, giving or

taking of such subscription is to comply with the re&uirements of such law as to the

percentage of the capital stock of a corporation which should be subscribed before

it can be registered and duly incorporated, or its authori!ed, capital increase.


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(5 The e"change of securities by the issuer with the e"isting security holders

e"clusively, where no commission or other remuneration is paid or given directly or

indirectly for soliciting such e"change.

(k The sale of securities by an issuer to fewer than twenty (C* persons in the

hilippines during any twelve-month period.

(l The sale of securities to any number of the following &ualied buyers:

(i 1ank%

(ii


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any prospectus re&uired or permitted to be delivered under Subsections 4.C, 4.;,

and 4.8.

)C.C. In promulgating rules governing the content of any registration statement

(including any prospectus made a part thereof or anne" thereto, the #ommission

may re&uire the registration statement to contain such information or documents asit may, by rule, prescribe. It may dispense with any such re&uirements, or may

re&uire additional information or documents, including written information from an

e"pert, depending on the necessity thereof or their applicability to the class of

securities sought to be registered.

)C.;. The information re&uired for the registration of any kind, and all securities,

shall include, among others, the eBect of the securities issue on ownership, on the

mi" of ownership, especially foreign and local ownership.

)C.8. The registration statement shall be signed by the issuerLs e"ecutive o3cer, its

principal operating o3cer, its principal nancial o3cer, its comptroller, its principal

accounting o3cer, its corporate secretary, or persons performing similar functions

accompanied by a duly veried resolution of the board of directors of the issuer

corporation. The written consent of the e"pert named as having certied any part of

the registration statement or any document used in connection therewith shall also

be led. here the registration statement shares to be sold by selling shareholders,

a written certication by such selling shareholders as to the accuracy of any part of

the registration statement contributed to by such selling shareholders shall be led.

)C.@. (a pon ling of the registration statement, the issuer shall pay to the

#ommission a fee of not more than one-tenth ()')* of one per centum ()+ of the

ma"imum aggregate price at which such securities are proposed to be oBered. The#ommission shall prescribe by the rule diminishing fees in inverse proportion the

value of the aggregate price of the oBering.

(b 6otice of the ling of the registration statement shall be immediately published

by the issuer, at its own e"pense, in two (C newspapers of general circulation in the

hilippines, once a week for two (C consecutive weeks, or in such other manner as

the #ommission by the rule shall prescribe, reciting that a registration statement for

the sale of such securities has been led, and that aforesaid registration statement,

as well as the papers attached thereto are open to inspection at the #ommission

during business hours, and copies thereof, photostatic or otherwise, shall be

furnished to interested parties at such reasonable charge as the #ommission mayprescribe.

)C./. ithin forty-ve (8@ days after the date of ling of the registration statement,

or by such later date to which the issuer has consented, the #ommission shall

declare the registration statement eBective or re5ected, unless the applicant is

allowed to amend the registration statement as provided in Section )8 hereof. The

#ommission shall enter an order declaring the registration statement to be eBective


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if it nds that the registration statement together with all the other papers and

documents attached thereto, is on its face complete and that the re&uirements have

been complied with. The #ommission may impose such terms and conditions as

may be necessary or appropriate for the protection of the investors.

)C.?. pon aBectivity of the registration statement, the issuer shall state under oathin every prospectus that all registration re&uirements have been met and that all

information are true and correct as represented by the issuer or the one making the

statement. Any untrue statement of fact or omission to state a material fact

re&uired to be stated herein or necessary to make the statement therein not

misleading shall constitute fraud.

#ection 13. Re*ection and Revocation of Registration of Securities. + );.). The

#ommission may re5ect a registration statement and refuse registration of the

security there-under, or revoke the aBectivity of a registration statement and the

registration of the security there-under after the due notice and hearing by issuing

an order to such eBect, setting forth its nding in respect thereto, if it nds that:

(a The issuer:

(i Eas been 5udicially declared insolvent%

(ii Eas violated any of the provision of this #ode, the rules promulgate pursuant

thereto, or any order of the #ommission of which the issuer has notice in connection

with the oBering for which a registration statement has been led

(iii Eas been or is engaged or is about to engage in fraudulent transactions%

(iv Eas made any false or misleading representation of material facts in anyprospectus concerning the issuer or its securities%

(v Eas failed to comply with any re&uirements that the #ommission may impose as

a condition for registration of the security for which the registration statement has

been led% or

(b The registration statement is on its face incomplete or inaccurate in any material

respect or includes any untrue statements of a material fact re&uired to be stated

therein or necessary to make the statement therein not misleading% or

(c The issuer, any o3cer, director or controlling person performing similar

functions, or any under writer has been convicted, by a competent 5udicial or

administrative body, upon plea of guilty, or otherwise, of an oBense involving moral

turpitude and 'or fraud or is en5oined or restrained by the #ommission or other

competent or administrative body for violations of securities, commodities, and

other related laws.


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$or the purposes of this subsection, the term competent 5udicial or administrative

body shall include a foreign court of competent 5urisdiction as provided for under


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suspending the aBectivity registration statement. If the statement is duly amended,

the suspension order may be lifted.

)8.@. In making such e"amination the #ommission or any o3cer or o3cers

designated by it may administer oaths and a3rmations and shall have access to,

and may demand the production of, any books, records or documents relevant tothe e"amination. $ailure of the issuer, underwriter, or any other person to

cooperate, or his obstruction or refusal to undergo an e"amination, shall be a

ground for the issuance of a suspension order.

#ection 1*. Suspension of Registration. - )@.). If at any time, the information

contained in the registration statement led is or has become misleading, incorrect,

inade&uate or incomplete in any material respect, or the sale or oBering for sale of

the security registered thereunder may work or tend to work a fraud, the

#ommission may re&uire from the issuer such further information as may in its

5udgement be necessary to enable the #ommission to ascertain whether the

registration of such security should be revoked on any ground specied in this #ode. The #ommission may also suspend the right to sell and oBer for the sale such

security 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 oBering.

)@.C. The refusal to furnish information re&uired by the #ommission may be a

ground for the issuance of an order of suspension pursuant to Subsection )@.).

pon the issuance of any such order and notication to the issuer, underwriter,

dealer or broken know as participating in such oBering, no further oBer or sale of

any such security shall be made until the same is lifted or set aside by the

#ommission. =therwise such sale shall be void.

)@.;. pon issuance of an order of suspension, the #ommission shall conduct a

hearing. If the #ommission determines that the sale of any security should be

revoked is shall issue an order prohibiting sale of such security.

)@.8. ntil the issuance of a nal order, the suspension of the right to sell, though

binding upon the persons notied there of, shall be deemed condential, and shall

not be published, unless it shall appear that the order of suspension has been

violated after notice. If, however, the #ommission nds 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 asa registered security as of the date of such order of suspension.

C%APTER "

RE!'(ATON OF PRENEE& P(AN#

#ection 1+. Pre),eed Plans. K 6o person shall sell or oBer for sale to the public any

pre-need plan e"cept in accordance with rules and regulations which the


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#ommission shall prescribe. Such rules shall regulate the sale of pre-need plans by,

among other things, re&uiring the registration of pre-need plans, licensing persons

involved in the sale of pre- need plans, re&uiring disclosures to prospective plan

holders, prescribing advertising guidelines, providing for uniform accounting

system, reports and recording keeping with respect to such plans, imposing capital,

bonding and other nancial responsibility, and establishing trust funds for thepayment of benets under such plans.

C%APTER "

REPORTORA( RE'REMENT#

#ection 17. Periodic and -ther Reports of $ssuer. )?.). 0very issuer satisfying the

re&uirements in Subsection )?.C hereof shall le with the #ommission:

(a ithin one hundred thirty-ve ();@ days, after the end of the issuerLs scal

year, or such other time as the #ommission may prescribe, an annual report which

shall include, among others, a balance sheet, prot and loss statement and

statement of cash Gows, for such last scal year, certied public accountant, an a

management discussion and analysis of results of operation% and

(b Such other periodical reports for interim scal periods and current reports on

signicant developments of the issuer as the #ommission may prescribe as

necessary to keep current information on the operation of the business and nancial

condition of the issuer.

)?.C. The reportorial re&uirements of Subsection )?.) shall apply to the following:

(a An issuer which has sold a class of its securities pursuant to a registration under

section )C hereof:Provided ho"ever That the obligation of such issuer to le reports

shall be suspended for any scal year after the year such registration became

eBective if such issuer, as of the rst day of any such scal year, has less than one

hundred ()** holder of such class securities or such other number as the

#ommission shall prescribe and it noties the #ommission of such%

(b An issuer with a class of securities listed for trading on an 0"change% and

(c An issuer with assets of at least $ifty million pesos (@*,***,***.** or such other

amount as the #ommission shall prescribe, and having two hundred (C** or more

holder each holding at least one hundred ()** share of a class of its e&uity

securities: Provided ho"ever , That the obligation of such issuer to le report shallbe terminate ninety (>* days after notication to the #ommission by the issuer that

the number of its holders holding at least one hundred ()** share reduced to less

than one hundred ()**.

)?.;. 0very issuer of a security listed for trading on an 0"change a copy of any

report led with the #ommission under Subsection )?.). hereof.


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)?.8. All reports (including nancial statements re&uired to be led with the

#ommission pursuant to Subsection )?.) hereof shall be in such form, contain such

information and be led at such times as the #ommission shall prescribe, and shall

be in lieu of any periodical or current reports or nancial statements otherwise

re&uired to be led under the #ommission shall prescribe.

)?.@. 0very issuer which has a class of e&uity securities satisfying any of the

re&uirements in Subsection )?.C shall furnish to each holder of such e&uity security

an annual report in such form and containing such information as the #ommission

shall prescribe.

)?./. ithin such period as the #ommission may prescribe preceding the annual

meeting of the holders of any e&uity security of a class entitled to vote at such

meeting , the issuer shall transmit to such holders an annual report in conformity

with subsection )?.@.

#ection 1. Reports by ve per centum /012 Holders of '&uity Securities. K )4.). In

every case in which an issuer satises the re&uirements of Subsection )?.C hereof

any person who ac&uires directly or indirectly the benecial ownership of more than

ve of per centum (@+ of such class or in e"cess of such lesser per centum as the

#ommission by rule may prescribe, shall, within ten ()* days after such ac&uisition

or such reasonable time as "ed by the #ommission, submit to the issuer of the

securities, to the 0"change where the security is traded, and to the #ommission a

sworn statement containing the following information and such order information as

the #ommission may re&uire in the public interest or for the protection of investors.

(a The personal background, identity, residence, and citi!enship of, and the nature

of such benecial ownership by, such person and all other person by whom or onwhose behalf the purchases are eBected% in the event the benecial owner is a

5uridical person, the of business of the benecial owner shall also be reported%

(b If the purpose of the purchases or prospective purchases is to ac&uire control of

the business of the issuer of the securities, any plans or proposals which such

persons may have that will eBect a ma5or change in its business or corporate

structure%

(c The number of shares of such security which are benecially owned, and the

number of shares concerning which there is a right to ac&uire, directly or indirectly,

by% (i such person, and (ii each associate of such person, giving the background,identity, residence, and citi!enship of each such associate% and

(d Information as to any contracts, arrangements, or understanding with any

person with respect to any securities of the issuer including but not limited to

transfer, 5oint ventures, loan or option arrangements, puts or call guarantees or

division of losses or prots, or pro"ies naming the persons with whom such


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contracts, arrangements, or understanding have been entered into, and giving the

details thereof.

)4.C. If any change occurs in the facts set forth in the statements, an amendment

shall be transmitted to the issuer, the 0"change and the #ommission.

)4.;. The #ommission, may permit any person to le in lieu of the statement

re&uired by subsection )?.) hereof, a notice stating the name of such person, the

shares of any e&uity securities sub5ect to Subsection )?.) which are owned by him,

the date of their ac&uisition and such other information as the commission may

specify, if it appears to the commission that such securities were ac&uired by such

person in the ordinary course of his business and were not ac&uired for the purpose

of and do not have the eBect of changing or inGuencing the control of the issuer nor

in connection with any transaction having such purpose or eBect.

C%APTER "

PROTECTON OF #%ARE%O(&ER# NTERE#T#

#ection 19. Tender -3ers. K Any person or group of persons acting in concert who

intends to ac&uire at least )@+ of any class of any e&uity security of a listed

corporation of any class of any e&uity security of a corporation with assets of at

least fty million pesos (@*,***,***.** and having two hundred(C** or more

stockholders at least one hundred shares each or who intends to ac&uire at least

thirty percent(;*+ of such e&uity over a period of twelve months()C shall make a

tender oBer to stockholders by lling with the #ommission a declaration to that

eBect% and furnish the issuer, a statement containing such of the information

re&uired in Section )? of this #ode as the #ommission may prescribe. Such person

or group of persons shall publish all re&uest or invitations or tender oBer orre&uesting such tender oBers subse&uent to the initial solicitation or re&uest shall

contain such information as the #ommission may prescribe, and shall be led with

the #ommission and sent to the issuer not alter than the time copies of such

materials are rst published or sent or given to security holders.

(a Any solicitation or recommendation to the holders of such a security to accept or

re5ect a tender oBer or re&uest or invitation for tenders shall be made in accordance

with such rules and regulations as may be prescribe.

(b Securities deposited pursuant to a tender oBer or re&uest or invitation for

tenders may be withdrawn by or on behalf of the depositor at any time throughoutthe period that tender oBer remains open and if the securities deposited have not

been previously accepted for payment, and at any time after si"ty (/* days from

the date of the original tender oBer to re&uest or invitation, e"cept as the

#ommission may otherwise prescribe.

(c here the securities oBered e"ceed that which person or group of persons is

bound or willing to take up and pay for, the securities that are sub5ect of the tender


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oBers shall be taken up us nearly as may be pro data, disregarding fractions,

according to the number of securities deposited to each depositor. The provision of

this sub5ect shall also apply to securities deposited within ten ()* days after notice

of increase in the consideration oBered to security holders, as described in

paragraph (e of this subsection, is rst published or sent or given to security

holders.

(d here any person varies the terms of a tender oBer or re&uest or invitation for

tenders before the e"piration thereof by increasing the consideration oBered 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

oBer or re&uest or invitation.

)>.C. It shall be lawful 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 circumstances under which they are made, not mis-leading,or to engaged to any fraudulent, deceptive or manipulative acts or practices, in

connection with any tender oBer or re&uest or invitation for tenders, or any

solicitation for any security holders in opposition to or in favor of any such favor of

any such oBer, re&uest, or invitation. The #ommission shall, for the purposes of this

subsection, dene and prescribe means reasonably designed to prevent, such acts

and practices as are fraudulent, deceptive and manipulative.

#ection 20. Pro(y solicitations. - C*.). ro"ies must be issued and pro"y solicitation

must be made in accordance with rules and regulations to be issued by the

#ommission%

C*.C. ro"ies must be in writing, signed by the stockholder or his duly authori!ed

representative and le before the scheduled meeting with the corporate secretary.

C*.;. nless otherwise provided in the pro"y, it shall be valid only for the meeting

for which it is intended. 6o pro"y shall be valid only for the meting for which it is

intended. 6o pro"y shall be valid and eBective for a period longer than ve (@ years

at one time.

C*.8. 6o broker or dealer shall give any pro"y, consent or any authori!ation, in

respect of any security carried for the account of the customer, to a person other

than the customer, without written authori!ation of such customer.

C*.@. A broker or dealer who holds or ac&uire the pro"y for at least ten percent

()*+ or such percentage as the commission may prescribe of the outstanding

share of such issuer, shall submit a report identifying the benecial owner of ten

days after such ac&uisition, for its own account or customer, to the issuer of

security, to the e"change where the security is traded and to the #ommission.


27/65

#ection 21. #ees of Tender -3ers and Certain Pro(y Solicitations . K At the time of

lling with the #ommission of any statement re&uired under Section )> for any

tender oBer or Section ?C.C for issuer purchases, or Section C* for pro"y or consent

solicitation, The #ommission may re&uire that the person making such ling pay a

fee of not more than one-tenth ()')*()+ of%

C).). The propose aggregate purchase price in the case of a transaction under

Section C* or ?C.C% or

C).C. The proposed payment in cash, and ion value of any securities or property to

be transferred in the ac&uisition, merger or consolidating, or the cash and value of

any securities proposed to be received upon the sale disposition of such assets in

the case of a solicitation under Section C*. The #ommission shall prescribe by rule

diminishing fees in inverse proportion to the value of the aggregate price of the

oBering.

#ection 22. $nternal Record 4eeping and !ccounting Control. - 0very issuer which

has a class of securities that satises the re&uirements of Subsection )?.C shall:

CC.). 2evice and maintain a system of internal accounting controls su3cient to

provide reasonable assurance that: (a Transactions and access to assets are

pursuant to management authori!ation% (b $inancial statements are provided in

conformity with generally accepted accounting principles that are adopted by the

Accounting standards council and the rules promulgated by the #ommission with

the regard to the preparation of the nancial statements% and (c


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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 e"ceeding si" (/ months. Suit to recover

such prot may be instituted before the


29/65

(i 1y eBecting any transaction in such security which involves no change in the

benecial ownership thereof%

(ii 1y entering an order or orders for the purchase or sale of such security with the

knowledge that a simultaneous order or orders of substantially the same si!e, time

and price, for the sale or purchase of any such security, has or will be entered by orfor the same or diBerent parties% or

(iii 1y performing similar act where there is no change in benecial ownership.

(b To aBect, alone or with others, a securities or transactions in securities that: (I


30/65

straddle, option or privilege in relation to any security registered on a securities

e"change. The terms put, call, straddle, option, or privilege shall not

include any registered warrant, right or convertible security.

#ection 2+. #raudulent Transactions. K It shall be unlawful for any person, directly

or indirectly, in connection with the purchase or sale of any securities to:

C/.). 0mploy any device, scheme, or artice to defraud%

C/.C. =btain money or property by means of any untrue statement of a material

fact of any omission to state a material fact necessary in order to make the

statements made, in the light of the circumstances under which they were made,

not misleading% or

C/.;. 0ngage in any act, transaction, practice or course of business which operates

or would operate as a fraud or deceit upon any person.

#ection 27. $nsider9s Duty to Disclose hen Trading. K C?.). It shall be unlawful foran insider to sell or buy a security of the issuer, while in possession of material

information with respect to the issuer or the security that is not generally available

to the public, unless: (a The insider proves that the information was not gained

from such relationship% or (b If the other party selling to or buying from the insider

(or his agent is identied, the insider proves: (I that he disclosed the information

to the other party, or (ii that he had reason to believe that the other party

otherwise is also in possession of the information. A purchase or sale of a security of

the issuer made by an insider dened in Subsection ;.4, or such insiderLs spouse or

relatives by a3nity or consanguinity within the second degree, legitimate or

common-law, shall be presumed to have been eBected while in possession of

material nonpublic information if transacted after such information came into

e"istence but prior to dissemination of such information to the public and the lapse

of a reasonable time for market to absorb such information: Provided ho"ever ,

That this presumption shall be rebutted upon a showing by the purchaser or seller

that he was aware of the material nonpublic information at the time of the purchase

or sale.

C?.C. $or purposes of this Section, information is material nonpublic if: (a It has

not been generally disclosed to the public and would likely aBect the market price of

the security after being disseminated to the public and the lapse of a reasonable

time for the market to absorb the information% or (b would be considered by areasonable person important under the circumstances in determining his course of

action whether to buy, sell or hold a security.

C?.;. 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 dened in Subsection ;.4, where the insider


31/65

communicating the information knows or has reason to believe that such person will

likely buy or sell a security of the issuer whole in possession of such information.

C?.8. (a It shall be unlawful where a tender oBer has commenced or is about to

commence for:

(i Any person (other than the tender oBeror who is in possession of material

nonpublic information relating to such tender oBer, to buy or sell the securities of

the issuer that are sought or to be sought by such tender oBer if such person knows

or has reason to believe that the information is nonpublic and has been ac&uired

directly or indirectly from the tender oBeror, those acting on its behalf, the issuer of

the securities sought or to be sought by such tender oBer, or any insider of such

issuer% and

(ii Any tender oBeror, those acting on its behalf, the issuer of the securities sought

or to be sought by such tender oBer, and any insider of such issuer to communicate

material nonpublic information relating to the tender oBer to any other person

where such communication is likely to result in a violation of Subsection C?.8 (a(I.

(b $or purposes of this subsection the term securities of the issuer sought or to be

sought by such tender oBer shall include any securities convertible or

e"changeable into such securities or any options or rights in any of the foregoing

securities.

C%APTER "

RE!'(ATON OF #EC'RTE# MARET PROFE##ONA(#

#ection 2. Registration of Bro6ers Dealers Salesmen and !ssociated Persons. K

C4.). 6o person shall engage in the business of buying or selling securities in the

hilippine as a broker or dealer, or act as a salesman, or an associated person of

any broker or dealer unless registered as such with the #ommission.

C4.C. 6o 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 #ommission.

C4.;. The #ommission, by rule or order, may conditionally or unconditionally e"empt

from subsection C4.) and C4.C any broker, dealer, salesman, associated person of

any broker or dealer, or any class of the foregoing, as it deems consistent with the

public interest and the protection of investors.

C4.8. The #ommission shall promulgate rules and regulation prescribing the

&ualications for registration of each category of applicant, which shall, among

other things, re&uire as a condition for registration that:

(a If a natural person, the applicant satisfactorily pass a written e"amination as to

his prociency and knowledge in the area of activity for which registration is sought%


32/65

(b In the case of a broker or dealer, the applicant satisfy a minimum net capital as

prescribed by the #ommission, and provide a bond or other security as the

#ommission may prescribe to secure compliance with the provisions of this #ode%

and

(c If located outside of the hilippines, the applicant les a written consent toservice of process upon the #ommission pursuant to Section /@ hereof.

C4.@. A broker or dealer may apply for registration by ling with the #ommission a

written application in such forms and containing such information and documents

concerning such broker or dealer as the #ommission by rule shall prescribe.

C4./. . The names and addresses of all persons approved for the registration as

brokers, dealers, associated persons or salesman and all orders of the #ommission

with respect thereto shall be recorded in a


33/65

has not been paid as re&uired, the registration of such person shall be suspended

until payment has been made.

C4.)C. The registration of a salesman or associated person shall be automatically

terminated upon the cessation of his a3liation with said registered broker or dealer

or with an issuer in the case of a salesman employed, appointed or authori!ed bysuch issuer. romptly following any such cessation of a3liation, the registered

broker or dealer, issuer as the case may be, shall le with the #ommission a notice

of separation of such salesman or associated person.

#ection 29. Revocation Refusal or Suspension of Registration of Bro6ers Dealers

Salesmen and !ssociated Persons. K C>.).


34/65

(h Eas been found by a competent 5udicial or administrative body to have willfully

violated any provisions of securities, commodities, banking, real state or insurance

laws, or has willfully aided, abetted, counseled, commanded, induced or procured

such violation% or

(i Eas been 5udicially declared insolvent.

$or purposes of this subsection, the term competent 5udicial or administrative

body shall include a foreign court of competent 5urisdiction and a foreign nancial

regulator.

C>.C. (a In case of charges against a salesman or associated person, notice thereof

shall also be given the broker, dealer or issuer employing such salesman or

associated person.

(b ending the hearing, the #ommission shall have the power to order the

suspensions of such brokerLs, dealers, associated personLs or salesmanLs

registration: Provided, That such order shall state the cause for such suspension.

ntil the entry of a nal order, the suspension of such registration, though binding

upon the persons notied thereof, shall be deemed condential, and shall not be

published, unless it shall appear that the order of suspension has been violated

after notice.

C>.;. The orders of the #ommission refusing, revoking, suspending or placing

limitations on a registration as herein above provided, together with its ndings,

shall be entered in the .

I hereof.

#ection 30. Transactions and Responsibility of Bro6ers and Dealers. K ;*.) 6o

brokers or dealer shall deal in or otherwise buy or sell, for its own account or for its

own account or for the account of customers, securities listed on an 0"change

issued by any corporation where any stockholders, director, associated person or


35/65

salesman, or authori!ed clerk of said broker or dealer and all the relatives of the

foregoing within the fourth civil degree of consanguinity or a3nity, is at the same

time holding o3ce in said issuer corporation as a director, president, vice-president,

manager, treasurer, comptroller, secretary or any o3ce trust and responsibility, or

is a controlling of the issuer.

;*.C. 6o broker or dealer shall eBect any transaction in securities or induce or

attempt to induce the purchase or sale of any security e"cept in compliance with

such rules and regulations as the #ommission shall prescribe to ensure fair and

honest dealings in securities and provide nancial safeguards and other standards

for the operations of brokers and dealers, including the establishments of minimum

net capital re&uirements, the acceptance of custody and use of securities of

customers, and the carrying and use of deposits and credit balances of customers.

#ection 31. Development of Securities 7ar6et Professionals. K The #ommission in

5oint undertaking with self regulatory organi!ations, organi!ations and associations

of nance professionals as well as private educational and research institute shallundertake or facilitate'organi!e continuing training, conferences'seminars, updating

programs, research and developments as well as technology transfer at the latest

and advance trends in issuance and trading of securities, derivatives, commodity

trades and other nancial instruments, as well as securities markets of other

countries.

C%APTER /

E/C%AN!E# AN& OT%ER #EC'RTE# TRA&N! MARET#

#ection 32. Prohibition on ;se of ;nregistered '(change8 Regulation of -ver)the)

Counter 7ar6ets. K;C.). 6o broker, dealer, salesman, associated person of a brokeror dealer, or 0"change, directly or indirectly shall make use of any facility of an

0"change in the hilippines to eBect any transaction in a security, or to report such

transaction, unless such 0"change is registered as such under Section ;; of this

#ode.

;C.C. (a 6o broker, dealer, salesman or associated person of a broker or dealer,

singly or in concert with any other person, shall make, create or operate, or enable

another to make, create or operate, any trading market, otherwise than on a

registered 0"change, for the buying and selling of any security, e"cept in

accordance with rules and regulations the #ommission may prescribe.

(b The #ommission may promulgate rules and regulations governing transactions

by brokers, dealers, salesmen or associated persons of a broker or dealer, over any

facilities of such trading market and may re&uire such market to be administered by

a self-regulatory organi!ation determined by the #ommission as capable of insuring

the protection of investors comparable to that provided in the case of a registered

0"change. Such self-regulatory organi!ation must provide a centrali!ed marketplace


36/65

for trading and must satisfy re&uirements comparable to those prescribed for

registration of 0"changes in Section ;; of this #ode.

#ection 33. Registration of '(changes. K ;;.). Any 0"change may be registered as

such with the #ommission under the terms and conditions hereinafter provided in

this Section and Section 8* hereof, by ling an application for registration in suchform and containing such information and supporting documents as the #ommission

by rule shall prescribe, including the following:

(a An undertaking to comply and enforce by its members with the provisions of this

#ode, its implementing rules and regulations and the rules of the 0"change%

(b The organi!ational charts of the 0"change, rules of procedure, and a list of its

o3cers and members%

(c #opies of the rules of the 0"change% and

(d An undertaking that in the event a member rm becomes insolvent or when the0"change shall have found that the nancial condition of its member rm 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 0"change shall, upon

order of the #ommission, take over the operation of the insolvent member rm and

immediately proceed to settle the member rmLs liabilities to its customers.

;;.C.


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(d The e"pulsion, suspension, or disciplining of a member and persons associated

with a member for conduct or proceeding inconsistent with 5ust and e&uitable

principles of fair trade, and for violations of provisions of this #ode, or any other Act

administered by the #ommission, the rules, regulations and orders thereunder, or

the rules of the 0"change%L

(e A fair procedure for the disciplining of members and persons associated with

members, the denial of membership to any person seeking to be a member, the

barring of any person from association with a member, and the prohibition or

limitation of any person from association with member, and the prohibition or

limitation of any person from access to services oBered by the 0"change%

(f That the brokers in the board of the 0"change shall comprise of not more than

forty-nine percent (8>+ of such board and shall proportionately represent the

0"change membership in terms of volume'value or trade and paid up capital, and

that any natural person associated with a 5uridical entity that is a member for this

purpose% Provide That any registered 0"change e"isting prior to the aBectivity ofthis #ode shall immediately comply with this re&uirement%

(g $or the board of the 0"change to include in its composition () the president of

the 0"change, and (ii no less than fty one percent (@)+ of the remaining

members of the board to be comprised of three (; independent directors and

persons who represent the interests of issuers, investors, and other market

participants, who are not associated with any broker or dealer or member of the

0"change for a period of two (C years prior to his'her appointment. 6o o3cer or

employee of a member, its subsidiaries or a3liates or related interests shall

become an independent director: Provided, ho"ever That the #ommission may by

rule, regulation, or order upon application, permit the e"change organi!ed as astock corporation to use a diBerent governance structure: Provided further , That

the #ommission is satised that the 0"change is acting in the public interest and is

able to eBectively operate as a self-regulatory organi!ation under this

#ode: Provided nally That any registered e"change e"isting prior to the aBectivity

of this #ode shall immediately comply with this re&uirement.

(h The president and other management of the 0"change to consist only of persons

who are not members and are not associated in any capacity, directly or indirectly

with any broker or dealer or member or listed company of the 0"change: Provided,

That the 0"change may only appoint, and a person may only serve, as an o3cer of

the e"change if such person has not been a member or a3liated with any broker,

dealer, or member of the 0"change for a period of at least two (C years prior to

such appointment%

(i The transparency of transactions on the 0"change%


38/65

(5 The e&uitable allocation of reasonable dues, fees, and other charges among

members and issuers and other persons using any facility or system which the

0"change operates or controls%

(k revention of fraudulent and manipulative acts and practices, promotion of 5ust

and e&uitable principles of trade, and, in general, protection of investors and thepublic interest% and

(l The transparent, prompt and accurate clearance and settlement of transactions

eBected on the 0"change.

;;.;. If the #ommission nds that the applicant 0"change is capable of complying

and enforcing compliance by its members, and persons associated with such

members, with the provisions of this #ode, and the rules of the 0"change, and that

the rules of 0"change are fair, 5ust and ade&uate, the #ommission shall cause such

0"change to be registered. If, after notice due and hearing, the #ommission nds

otherwise, the application shall be denied.

;;.8. ithin ninety (>* days after the ling of the application the #ommission may

issue an order either granting or denying registration as an 0"change, unless the

0"change applying for registration shall withdraw its application or shall consent to

the #ommissionLs deferring action on its application for a stated longer period after

the date of ling. The ling with the #ommission of an application for registration by

an 0"change shall be deemed to have taken place upon the receipt thereof.

Amendments to an application may be made upon such terms as the #ommission

may prescribe.

;;.@. pon the registration of an 0"change, it is shall pay a fee in such amount and

within such period as the #ommission may ".

;;./. pon appropriate application in accordance with the rules and regulations of

the #ommission and upon such terms as the #ommission may deemed necessary

for the protection of investors, an e"change may withdraw its registration or

suspend its operations or resume the same.

#ection 34. Segregation and


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(d Any other transaction of a similar nature as may be dened by the #ommission.

;8.C. In all instances where the member-broker eBects a transaction on an

0"change for its own account or the account of an associated person or an account

with the respect to which it e"ercises investment discretion, it shall disclose to such

customer at or before the completion of the transaction it is acting for its ownaccount: Provided further That this fact shall be reGected in the order ticket and

the conrmation slip.

;8.;. Any member-broker who violates the provisions of this Section shall be sub5ect

to the administrative sanctions provided in Section @8 of this #ode.

#ection 3*. !dditional #ees of '(changes. K In addition to the registration fee

prescribed in Section ;; of this #ode, every 0"change shall pay to the #ommission,

on a semestral basis on or before the tenth day of the end of the end of every

semester of the calendar year, a fee in such an amount as the #ommission shall

prescribe, but not more than one-hundredth of one per centum ()+ of the

aggregate amount of the sales of securities transacted on such 0"change during the

preceding calendar year for the privilege of doing business, during the preceding

calendar year or any part thereof.

#ection 3+. Po"ers "ith Respect to '(changes and -ther Trading 7ar6et. K ;/.).

The #ommission is authori!ed, if in its opinion such action is necessary or

appropriate for the protection of investors and the public interest so re&uires,

summarily to suspend trading in any listed security on any 0"change or other

trading market for a period not e"ceeding thirty (;* days but not e"ceeding ninety

(>* days: Provided ho"ever , That the #ommission promptly following the issuance

of the order of suspension, shall notify the aBected issuer of the reasons for suchsuspension and provide such issuer with an opportunity for hearing to determine

whether the suspension should be lifted.

;/.C. herever two (C or more 0"changes or other trading markets e"ist, the

#ommission may re&uire and enforce uniformity of trading regulations in and'or

between or among said 0"changes or other trading markets.

;/.;. In addition to the e"isting hilippine Stock 0"change, the #ommission shall

have the authority to determine the number, si!e and location of stock 0"changes,

other trading markets and commodity 0"changes and other similar organi!ations in

the light of national or regional re&uirements for such activities with the view topromote, enhance, protect, conserve or rationali!e investment.

;/.8. The #ommission, having due regard to the public interest, the protection of

investors, the safeguarding of securities and funds, and maintenance of fair

competition among brokers, dealers, clearing agencies, and transfer agents, shall

promulgate rules and regulations for the prompt and accurate clearance and

settlement of securities transactions.


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;/.@. (a The #ommission may establish or facilitate the establishment of trust

funds which shall be contributed by 0"changes, brokers, dealers, underwriters,

transfer agents, salesmen and other persons transacting in securities, as the

#ommission may re&uire, for the purpose of compensating investors for the

e"traordinary losses or damage they may suBer due to business failure or fraud or

mismanagement of the persons with whom they transact, under such rules andregulations as the #ommission may from time to time prescribe or approve in the

public interest.

(b The #ommission may, having due regard to the public interest or the protection

of investors, regulate, supervise, e"amine, suspend or otherwise discontinue such

and other similar funds under such rules and regulations which the #ommission

may promulgate, and which may include taking custody and management of the

fund itself as well as investments in and disbursements from the funds under such

forms of control and supervision by the #ommission as it may from time to time

re&uire. The authority granted to the #ommission under this subsection shall also

apply to all funds established for the protection of investors, whether established by

the #ommission or otherwise.

#ection 37. Registration of $nnovative and -ther Trading 7ar6ets. K The

#ommission, having due regard for national economic development, shall

encourage competitiveness in the market by promulgating within si" (/ months

upon the enactment of this #ode, rules for the registration and licensing of

innovative and other trading markets or 0"changes 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 ;; of

this #ode.

#ection 3. $ndependent Directors. K Any corporation with a class of e&uity

securities listed for trading on an 0"change or with assets in e"cess of $ifty million

pesos (@*,***,***.** and having two hundred (C** or more holders, at least of

two hundred (C** of which are holding at least one hundred ()** shares of a class

of its e&uity securities or which has sold a class of e&uity securities to the public

pursuant to an eBective registration statement in compliance with Section )C hereof

shall have at least two (C independent directors or such independent directors shall

constitute at least twenty percent (C*+ of the members of such board whichever is

the lesser. $or this purpose, an independent director shall mean a person other

than an o3cer or employee of the corporation, its parent or subsidiaries, or anyother individual having a relationship with the corporation, which would interfere

with the e"ercise of independent 5udgement in carrying out the responsibilities of a

director.

C%APTER /

RE!#TRATON, RE#PON#$(TE# AN& O"ER#!%T OF #E(FRE!'(ATOR

OR!ANATON#


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#ection 39. !ssociations of Securities Bro6ers and Dealers and -ther Securities

Related -rgani%ations. K ;>.). The #ommission shall have the power to register as a

self-regulatory organi!ation, or otherwise grant licenses, and to regulate, supervise,

e"amine, suspend or otherwise discontinue, as a condition for the operation of

organi!ations whose operations are related to or connected with the securities

market such as but not limited to associations of brokers and dealers, transferagents, custodians, scal and paying agents, computer services, news

disseminating services, pro"y solicitors, statistical agencies, securities rating

agencies, and securities information processor which are engaged in business of: (a

#ollecting, processing, or preparing for distribution or publication, or assisting,

participating in, or coordinating the distribution or publication of, information with

respect to transactions in or &uotations for any security% or (b 2istributing or

publishing, whether by means of a ticker tape, a communications network, a

terminal display device, or otherwise, on a current and continuing basis, information

with respect to such transactions or &uotations. The #ommission may prescribe

rules and regulations which are necessary or appropriate in the public interest or for

the protection of investors to govern self-regulatory organi!ations and other

organi!ations licensed or regulated pursuant to the authority granted in Subsection

;>.) including the re&uirement of cooperation within and among, and electronic

integration of the records of, all participants in the securities market to ensure

transparency and facilitate e"change of information.

;>.C. An association of brokers and dealers may be registered as a securities

association pursuant to Subsection ;>.; by ling with the #ommission an

application for registration in such form as the #ommission, by rule, may prescribe

containing the rules of the association and such other information and documents

as the #ommission, by rule, may prescribe as necessary or appropriate in the publicinterest or for the protection of investors.

;>.;. An association of brokers and dealers shall not be registered as a securities

association unless the #ommission determines that:

(a The association is so organi!ed and has the capacity to be able to carry out the

purposes of this #ode and to comply with, and to enforce compliance by its

members and persons associated with its members, with the provisions of this

#ode, the rules and regulations thereunder, and the rules of the association.

(b The rules of the association, notwithstanding anything in the #orporation #ode

to the contrary, provide that:

(i Any registered broker or dealer may become a member of the association%

(ii There e"ist a fair representation of its members to serve on the 1oard of

2irectors of the association and in the administration of its aBairs, and that may any

natural person associated with a 5uridical entity that is a member shall himself be

deemed to be a member for this purpose%


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(iii The 1oard of 2irectors of the association includes in its composition:

(a The president of the association and

(b erson who represent the interests of the issuer and public investors and are not

associated with any broker or dealer or member of the association% that the

president and other management of the association not be a member or associated

with any broker, dealer or member of the association%

(iv $or the e&uitable allocation of reasonable dues, fees, and other charges among

member and issuers and other persons using any facility or system which the

association operates or controls%

(v $or the prevention of fraudulent and manipulative acts and practices, the

promotion of 5ust and e&uitable principles of trade, and, in general, the protection of

investors and the public interest%

(vi That its members and persons associated with its members shall beappropriately disciplined for violation of any provision of this #ode, the rules and

regulations thereunder, or the rules of the association%

(vii That a fair procedure for the disciplining of members and persons associated

with members, the denial of membership to any person seeking membership

therein, the barring of any person from becoming associated with a member

thereof, and the prohibition or limitation by the association of any person with

respect to access to services oBered by the association or a member thereof.

;>.8. (a A registered securities association shall deny membership to any person

who is not a registered broker or dealer.

(b A registered securities association may deny membership to, or condition the

membership of, a registered broker or dealer if such broker or dealer:

(i 2oes not meet the standards of nancial responsibility, operational capability,

training, e"perience or competence that are prescribe by the rules of the

association% or

(ii Eas engaged, and there is a reasonable likelihood it will again engage, in acts or

practices inconsistent with 5ust and e&uitable principles of fair trade.

(c A registered securities association may deny membership to a registered broker

or dealer not engage in a type of business in which the rules of the association

re&uire members to be engaged: Provided ho"ever That no registered securities

association may deny membership to a registered broker or dealer by reason of the

amount of business done by the broker or dealer.


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A registered securities association may e"amine and verify the &ualications of an

applicant to become a member in accordance with procedure 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 a member or set conditions for theemployment of a salesman or associated if such person:

(i 2oes not meet the standards of training, e"perience, or competence that are

prescribe by the rules of the association% or

(ii Eas engage, and there is a reasonable likelihood he will again engage, in acts or

practices inconsistent with 5ust and e&uitable principles of fair trade.

A registered securities association may e"amine and verify the &ualications of an

applicant to become a salesman or associated person employed by a member in

accordance with the procedures establish by the rules of the association. A

registered association also may re&uire a salesman or associated person employed

by a member to be registered with the association in accordance with the

procedures prescribed in the rules of the association.

;>.@. In any proceeding by a registered securities association to determine whether

a person shall be denied membership, or barred from association with a member,

the association shall provide notice to the person under review of the specic

grounds being considered for denial, aBord him an opportunity to defend against

the allegations, and keep a record of the proceedings. A determination by the

association to deny membership shall be supported by a statement setting forth the

specic grounds on which the denial is based.

#ection 40. Po"ers "ith Respect to Self)Regulatory -rgani%ations. ) 8*.). pon the

ling of an application for registration as an 0"change under Section ;;, a

registered securities association under Section ;>, a registered clearing agency

under Section 8C, or other self-regulatory organi!ation under this Section, the

#ommission shall have ninety (>* days within which to either grant registration

should be denied. In the event proceedings are instituted, the #ommission shall

have two hundred seventy (C?* days within which to conclude such proceedings at

which time it shall, by order, grant or deny such registration.

8*.C. 0very self-regulatory organi!ation shall comply with the provision of this #ode,

the rules and regulations thereunder, and its own rules, and enforce compliance

therewith, notwithstanding any provisions of the #orporation #ode to the contrary,

by its members, persons associated with its members of its participants.

8*.;. (a 0ach self-regulatory organi!ation shall submit to the #ommission for prior

approval any proposed rule or amendment thereto, together with a concise

statement of the reason and eBect of the proposed amendment


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(b ithin si"ty (/* days after submission of a proposed amendment, the

#ommission shall, by order, ap

Foreign Investments Acts and Securities Regulation Code

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Transcript of Foreign Investments Acts and Securities Regulation Code