Securities and Regulations Code

Course Outline in Commercial Law Review Securities Regulations Code (SRC) Fiscal R.S.
Aquino-Tambasacan
C. Definition and general classification of securities (Sec. 3)

SEC. 3. Definition of Terms. 3.1. Securities are shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced ! a certificate, contract, instrument, "hether "ritten or electronic in character. #t includes$ %a& Shares of stock, onds, de entures, notes, evidences of inde tedness, asset- acked securities' % & #nvestment contracts, certificates of interest or participation in a profit sharing agreement, certificates of deposit for a future su scription' %c& (ractional undivided interests in oil, gas or other mineral rights' %d& )erivatives like option and "arrants' %e& Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments' %f& *roprietar! or non proprietar! mem ership certificates incorporations' and %g& +ther instruments as ma! in the future e determined ! the Commission. Profit Participation Certificate
and "ith recogni8ed competence in social and economic disciplines$ Provided, -hat the ma:orit! of Commissioners, including the Chairperson, shall e mem ers of the *hilippine ;ar. ,.3. -he Chairperson is the chief e.ecutive officer of the Commission. -he Chairperson shall e.ecute and administer the policies, decisions, orders and resolutions approved ! the Commission and shall have the general e.ecutive direction and supervision of the "ork and operation of the Commission and of its mem ers, odies, oards, offices, personnel and all its administrative usiness. ,.,. -he salar! of the Chairperson and the Commissioners shall e fi.ed ! the *resident of the *hilippines ased on an o :ective classification s!stem, at a sum compara le to the mem ers of the <onetar! ;oard and commensurate to the importance and responsi ilities attached to the position. ,.9. -he Commission shall hold meetings at least once a "eek for the conduct of usiness or as often as ma! e necessar! upon call of the Chairperson or upon the re0uest of three %3& Commissioners. -he notice of the meeting shall e given to all Commissioners and the presence of three %3& Commissioners shall constitute a 0uorum. #n the a sence of the Chairperson, the most senior Commissioner shall act as presiding officer of the meeting. ,.=. -he Commission ma!, for purposes of efficienc!, delegate an! of its functions to an! department or office of the Commission, an individual Commissioner or staff mem er of the Commission e.cept its revie" or appellate authorit! and its po"er to adopt, alter and supplement an! rule or regulation. -he Commission ma! revie" upon its o"n initiative or upon the petition of an! interested part! an! action of an! department or office, individual Commissioner, or staff mem er of the Commission. SEC. =. Indemnification and Responsibilities of Commissioners.- =.1. -he Commission shall indemnif! each Commissioner and other officials of the Commission, including personnel performing supervision and e.amination functions for all costs and e.penses reasona l! incurred ! such persons in connection "ith an! civil or criminal actions, suits or proceedings to "hich the! ma! e or made a part! ! reason of the performance of their functions or duties, unless the! are finall! ad:udged in such actions or proceedings to e lia le for gross negligence or misconduct. #n the event of settlement or compromise, indemnification shall e provided onl! in connection "ith such matters covered ! the settlement as to "hich the Commission is advised ! e.ternal counsel that the persons to e indemnified did not commit an! gross negligence or misconduct. -he costs and e.penses incurred in defending the aforementioned action, suit or proceeding ma! e paid ! the Commission in advance of the final disposition of such action, suit or proceeding upon receipt of an
Certificate of Membership
D. SEC Structure (Secs. 4 and 6 S!C !ules 3)

SEC. ,. Administrative Agency.
,.1. -his Code shall e administered ! the Securities and E.change Commission %hereafter the Commission& as a collegial od!, composed of a Chairperson and four %,& Commissioners, appointed ! the *resident for a term of seven %/& !ears each and "ho shall serve as such until their successor shall have een appointed and 0ualified. 1 Commissioner appointed to fill a vacanc! occurring prior to the e.piration of the term for "hich his2her predecessor "as appointed, shall serve onl! for the une.pired portion of such term. -he incum ent Chairperson and Commissioners at the effectivit! of this Code, shall serve the une.pired portion of their terms under *residential )ecree 3o. 456-1. 7nless the conte.t indicates other"ise, the term Commissioner includes the Chairperson. ,.6. -he Commissioners must e natural- orn citi8ens of the *hilippines, at least fort! %,5& !ears of age for the Chairperson and at least thirt!-five %39& !ears of age for the Commissioners, of good moral character, of un0uestiona le integrit!, of kno"n pro it! and patriotism,
Consolidated by Didit!, P"P#$a%
*age " of 64
Course Outline in Commercial Law Review Securities Regulations Code (SRC) Fiscal R.S. Aquino-Tambasacan
undertaking ! or on ehalf of the Commissioner, officer or emplo!ee to repa! the amount advanced should it ultimatel! e determined ! the Commission that he2she is not entitled to e indemnified as provided in this su section. =.6. -he Commissioners, officers and emplo!ees of the Commission "ho "illfull! violate this Code or "ho are guilt! of negligence, a use or acts of malfeasance or fail to e.ercise e.traordinar! diligence in the performance of their duties shall e held lia le for an! loss or in:ur! suffered ! the Commission or other institutions as a result of such violation, negligence, a use, malfeasance, or failure to e.ercise e.traordinar! diligence. Similar responsi ilit! shall appl! to the Commissioners, officers and emplo!ees of the Commission for %1& the disclosure of an! information, discussion or resolution of the Commission of a confidential nature, or a out the confidential operations of the Commission, unless the disclosure is in connection "ith the performance of official functions "ith the Commission or "ith prior authori8ation of the Commissioners' or %6& the use of such information for personal gain or to the detriment of the government, the Commission or third parties$ Provided, !o%ever, -hat an! data or information re0uired to e su mitted to the *resident and2or Congress or its appropriate committee, or to e pu lished under the provisions of this Code shall not e considered confidential.
%f& #mpose sanctions for the violation of la"s and the rules, regulations and orders issued pursuant thereto' %g& *repare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance "ith such rules, regulations and orders' %h& Enlist the aid and support of and2or deputi8e an! and all enforcement agencies of the @overnment, civil or militar! as "ell as an! private institution, corporation, firm, association or person in the implementation of its po"ers and functions under this Code' %i& #ssue cease and desist orders to prevent fraud or in:ur! to the investing pu lic' %:& *unish for contempt of the Commission, oth direct and indirect, in accordance "ith the pertinent provisions of and penalties prescri ed ! the Aules of Court' %k& Compel the officers of an! registered corporation or association to call meetings of stockholders or mem ers thereof under its supervision' %l& #ssue subpoena duces tecum and summon "itnesses to appear in an! proceedings of the Commission and in appropriate cases, order the e.amination, search and sei8ure of all documents, papers, files and records, ta. returns, and ooks of accounts of an! entit! or person under investigation as ma! e necessar! for the proper disposition of the cases efore it, su :ect to the provisions of e.isting la"s' %m& Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnerships or associations, upon an! of the grounds provided ! la"' and %n& E.ercise such other po"ers as ma! e provided ! la" as "ell as those "hich ma! e implied from, or "hich are necessar! or incidental to the carr!ing out of, the e.press po"ers granted the Commission to achieve the o :ectives and purposes of these la"s. 9.6. -he CommissionBs :urisdiction over all cases enumerated under Section 9 of *residential )ecree 3o. 456-1 is here ! transferred to the Courts of general :urisdiction or the appropriate Aegional -rial Court$ Provided, that the Supreme Court in the e.ercise of its authorit! ma! designate the Aegional -rial Court ranches that shall e.ercise :urisdiction over these cases. -he Commission shall retain :urisdiction over pending cases involving intra-corporate disputes su mitted for final resolution "hich should e resolved "ithin one %1& !ear from the enactment of this Code. -he Commission shall retain :urisdiction over pending suspension of pa!ments2reha ilitation cases filed as of 35 Cune 6555 until finall! disposed. &ppointment of rehabilitation recei'er
E. SEC po#ers and $urisdiction (Sec. %)

SEC. 9. Po%ers and &unctions of t!e Commission'# 9.1. -he Commission shall act "ith transparenc! and shall have the po"ers and functions provided ! this Code, *residential )ecree 3o. 456-1, the Corporation Code, the #nvestment >ouses ?a", the (inancing Compan! 1ct and other e.isting la"s. *ursuant thereto the Commission shall have, among others, the follo"ing po"ers and functions$ %a& >ave :urisdiction and supervision over all corporations, partnerships or associations "ho are the grantees of primar! franchises and2or a license or permit issued ! the @overnment' % & (ormulate 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 amendments thereto' %c& 1pprove, re:ect, suspend, revoke or re0uire amendments to registration statements, and registration and licensing applications' %d& Aegulate, investigate or supervise the activities of persons to ensure compliance' %e& Supervise, monitor, suspend or take over the activities of e.changes, clearing agencies and other SA+s'
*age ( of 64
)nspection of boo*s
Case+ PSE 's. C& (regulator $S#) ,&C-S+
!ower o" S#C over
-he SEC found oth Cualoping and (idelit! e0uall! negligent in the performance of their duties here ! orders them to %1& :ointl! replace the su :ect shares and for (idelit! to cause the transfer thereof in the names of the u!ers and %6& to pa! a fine of *95,555,55 each for havGingH violated Section 64 %a& of the Aevised Securities 1ct. C1 reversed. )SS.E+ I+3 oth parties are negligent. /E0D+ DES. -he first aspect of the SEC decision appealed to the Court of 1ppeals, i'e', that portion "hich orders the t"o stock transfer agencies to J:ointl! replace the su :ect shares and for (#)E?#-D to cause the transfer thereof in the names of the u!ersJ clearl! calls for an e.ercise of SECLs ad:udicative :urisdiction. -his case, it might e recalled, has started onl! on the asis of a re0uest ! (#)E?#-D for an opinion from the SEC. -he stockholders "ho have een deprived of their certificates of stock or the persons to "hom the forged certificates have ultimatel! een transferred ! the supposed indorsee thereof are !et to initiate, if minded, an appropriate adversarial action. 3either have the! een made parties to the proceedings no" at ench. 1 :usticia le controvers! such as can occasion an e.ercise of SECLs e.clusive :urisdiction "ould re0uire an assertion of a right ! a proper part! against another "ho, in turn, contests it. % #t is one instituted ! and against parties having interest in the su :ect matter appropriate for :udicial determination predicated on a given state of facts. -hat controvers! must e raised ! the part! entitled to maintain the action. >e is the person to "hom the right to seek :udicial redress or relief elongs "hich can e enforced against the part! correspondingl! charged "ith having een responsi le for, or to have given rise to, the cause of action. 1 person or entit! tasked "ith the po"er to ad:udicate stands neutral and impartial and acts on the asis of the admissi le representations of the contending parties. #n the case at ench, the proper parties that can ring the controvers! and can cause an e.ercise ! the SEC of its original and e.clusive :urisdiction "ould e all or an! of those "ho are adversel! affected ! the transfer of the pilfered certificates of stock. 1n! peremptor! :udgment ! the SEC, "ithout such proceedings having first een initiated, "ould e precipitate. Ie thus see nothing erroneous in the decision of the Court of 1ppeals, albeit not for the reason given ! it, to set aside the SECLs ad:udication J"ithout pre:udiceJ to the right of persons in:ured to file the necessar! proceedings for appropriate relief. %on the issue of the legal propriet1 of the imposition b1 the SEC of a P%2 222 fine on each of ,)DE0)-3 and C.&04P)56&-here is, to our mind, no 0uestion that oth (#)E?#-D and C71?+*#3@ have een guilt! of negligence in the conduct of their affairs involving the 0uestioned certificates of stock. -o constitute ho#e'er a 'iolation of the !e'ised Securities &ct that can #arrant an imposition of a fine under Section (7(3) in relation to Section 46 of the &ct fraud or deceit not mere negligence on the part of the offender must be established. (raud here is a*in to bad faith #hich
Cualoping Securities Corporation %C71?+*#3@ for revit!& is a stock roker, (idelit! Stock -ransfer, #nc. %(#)E?#-D for revit!&, on the other hand, is the stock transfer agent of *hile. <ining Corporation %*>#?EE for revit!&. +n or a out the first half of 14FF, certificates of stock of *>#?EE representing one million four hundred GthousandH %1,,55,555& shares "ere stolen from the premises of (#)E?#-D. -hese stock certificates consisting of stock dividends of certain *>#?EE shareholders had een returned to (#)E?#-D for lack of for"arding addresses of the shareholders concerned. ?ater, the stolen stock certificates ended in the hands of a certain 1gustin ?ope8, a messenger of (e% )orld Security Inc., an entirel! different stock rokerage firm. #n the first half of 14F4, 1gustin ?ope8 rought the stolen stock certificates to C71?+*#3@ for trading and sale "ith the stock e.change. Ihen the said stocks "ere rought to C71?+*#3@, all of the said stock certificates ore the JapparentJ indorsement %signature& in blan* of the o"ners %the stockholders to "hom the stocks "ere issued ! *>#?EE& thereof. 1t the side of these indorsements %signatures&, the "ords JSignature KerifiedJ apparently of &ID+$IT, "ere stamped on each and ever! certificate. (urther, on the "ords JSignature KerifiedJ sho"ed the usual initials of the officers of (#)E?#-D. 7pon receipt of the said certificates from 1gustin ?ope8, C71?+*#3@ stamped each and ever! certificate "ith the "ords J#ndorsement @uaranteed,J and thereafter traded the same "ith the stock e.change. 1fter the stock e.change a"arded and confirmed the sale of the stocks represented ! said certificates to different u!ers, the same "ere delivered to (#)E?#-D for the cancellation of the stocks certificates and for issuance of ne" certificates in the name of the ne" u!ers. 1gustin ?ope8 on the other hand "as paid ! C71?+*#3@ "ith several checks for (our >undred -housand %*,55,555.55& *esos for the value of the stocks. 1fter ac0uiring kno"ledge of the pilferage, (#)E?#-D conducted an investigation "ith assistance of the 3ational ;ureau of #nvestigation %3;#& and found that t"o of its emplo!ees "ere involved and signed the certificates. 1fter t"o %6& months from receipt of said stock certificates, (#)E?#-D re:ected the issuance of ne" certificates in favor of the u!ers for reasons that the signatures of the o"ners of the certificates "ere allegedl! forged and thus the cancellation and ne" issuance thereof cannot e effected.
*age 3 of 64
implies a conscious and intentional design to do a #rongful act for a dishonest purpose or moral obli8uit19 it is unli*e that of the negati'e idea of negligence in that fraud or bad faith contemplates a state of mind affirmati'el1 operating #ith furti'e ob$ecti'es. @iven the factual circumstances found ! the appellate court, neither (#)E?#-D nor C71?+*#3@, albeit indeed remiss in the o servance of due diligence, can e held lia le under the a ove provisions of the Aevised Securities 1ct. Ie do not impl!, ho"ever, that the negligence committed ! private respondents "ould not at all e actiona le' upon the other hand, as "e have earlier intimated, such an action elongs not to the SEC ut to those "hose rights have een in:ured. Case+ Cemco /oldings 's. 5ational 0ife )nsurance (!ower o" S#C to nulli" acquisitions violating t%e law) ,&C-S+ 7nion Cement Corporation %7CC&, a pu licl!listed compan!, has t"o principal stockholders 7C>C, a non-listed compan!, "ith shares amounting to =5.91M, and petitioner Cemco "ith1/.53M. <a:orit! of 7C>CBs stocks "ere o"ned ! ;C# "ith 61.31M and 1CC "ith 64.=4M. Cemco, on the other hand, o"ned 4M of 7C>C stocks. #n a disclosure letter, ;C# informed the *hilippine Stock E.change %*SE& that it and its su sidiar! 1CC had passed resolutions to sell to Cemco ;C#Bs stocks in 7C>C e0uivalent to 61.31M and 1CCBs stocks in 7C>C e0uivalent to 64.=4M. 1s a conse0uence of this disclosure, the *SE in0uired as to "hether the -ender +ffer Aule under Aule 14 of the #mplementing Aules of the Securities Aegulation Code is not applica le to the purchase ! petitioner of the ma:orit! of shares of 7CC. -he SEC en anc had resolved that the Cemco transaction "as not covered ! the tender offer rule. (eeling aggrieved ! the transaction, respondent 3ational ?ife #nsurance Compan! of the *hilippines, #nc., a minorit! stockholder of 7CC, sent a letter to Cemco demanding the latter to compl! "ith the rule on mandator! tender offer. Cemco, ho"ever, refused. Aespondent 3ational ?ife #nsurance Compan! of the *hilippines, #nc. filed a complaint "ith the SEC asking it to reverse its 6/ Cul! 655, Aesolution and to declare the purchase agreement of Cemco void and pra!ing that the mandator! tender offer rule e applied to its 7CC shares. -he SEC ruled in favor of the respondent ! reversing and setting aside its 6/ Cul! 655,Aesolution and directed petitioner Cemco to make a tender offer for 7CC shares to respondent and other holders of 7CC shares similar to the class held ! 7C>C in accordance "ith Section 4%E&, Aule 14 of the Securities Aegulation Code. +n petition to the Court of 1ppeals, the C1 rendered a decision affirming the ruling of the SEC. #t ruled that the SEC has :urisdiction to render the 0uestioned decision and, in an! event, Cemco "as
arred ! :urisdiction.
estoppel
from
0uestioning
the
SECBs
#t, like"ise, held that the tender offer re0uirement under the Securities Aegulation Code and its #mplementing Aules applies to CemcoBs purchase of 7C>C stocks. CemcoBs motion for reconsideration "as like"ise denied. )SS.ES+ 1. Ihether or not the SEC has :urisdiction over respondentBs complaint and to re0uire Cemco to make a tender offer for respondentBs 7CC shares. 6. Ihether or not the rule on mandator! tender offer applies to the indirect ac0uisition of shares in a listed compan!, in this case, the indirect ac0uisition ! Cemco of 3=M of 7CC, a pu licl!-listed compan!, through its purchase of the shares in 7C>C, a non-listed compan!. /E0D+ 1. DES. #n taking cogni8ance of respondentBs complaint against petitioner and eventuall! rendering a :udgment "hich ordered the latter to make a tender offer, the SEC "as acting pursuant to Aule14%13& of the 1mended #mplementing Aules and Aegulations of the Securities Aegulation Code, to "it$ 13. Kiolation #f there shall e violation of this Aule ! pursuing a purchase of e0uit! shares of a pu lic compan! at threshold amounts "ithout the re0uired tender offer, the Commission, upon complaint, ma! nullif! the said ac0uisition and direct the holding of a tender offer. -his shall e "ithout pre:udice to the imposition of other sanctions under the Code. -he foregoing rule emanates from the SECBs po"er and authorit! to regulate, investigate or supervise the activities of persons to ensure compliance "ith the Securities Aegulation Code, more specificall! the provision on mandator! tender offer under Section 14thereof. <oreover, petitioner is arred from 0uestioning the :urisdiction of the SEC. #t must e pointed out that petitioner had participated in all the proceedings efore the SEC and had pra!ed for affirmative relief. 6. DES. -ender offer is a pu licl! announced intention ! a person acting alone or in concert "ith other persons to ac0uire e0uit! securities of a pu lic compan!. 1 pu lic compan! is defined as a corporation "hich is listed on an e.change, or a corporation "ith assets e.ceeding *95,555,555.55 and "ith 655 or more stockholders, at least 655 of them holding not less than 155 shares of such compan! . Stated differentl!, a tender offer isan offer ! the ac0uiring person to stockholders of a pu lic compan! for them to tender their shares therein on the terms specified in the offer. -ender offer is in place to protect minorit! shareholders against an! scheme that
*age 4 of 64
dilutes the share value of their investments. #t gives the minorit! shareholders the chance to e.it the compan! under reasona le terms, giving them the opportunit! to sell their shares at the same price as those of the ma:orit! shareholders. -he SEC and the Court of 1ppeals ruled that the indirect ac0uisition ! petitioner of 3=M of 7CC shares through the ac0uisition of the nonlisted 7C>C shares is covered ! the mandator! tender offer rule. -he legislative intent of Section 14 of the Code is to regulate activities relating to ac0uisition of control of the listed compan! and for the purpose of protecting the minorit! stockholders of a listed corporation. Ihatever ma! e the method ! "hich control of a pu lic compan! iso tained, either through the direct purchase of its stocks or through an indirect means, mandator! tender offer applies. 1s appropriatel! held ! the Court of 1ppeals$ -he petitioner posits that "hat it ac0uired "ere stocks of 7C>C and not 7CC. ;! happenstance, as a result of the transaction, it ecame an indirect o"ner of 7CC. Ie are constrained, ho"ever, to construe o"nership ac0uisition to mean oth direct and indirect. Ihat is decisive is the determination of the po"er of control. -he legislative intent ehind the tender offer rule makes clear that the t!pe of activit! intended to e regulated is the ac0uisition of control of the listed compan! through the purchase of shares. Control ma! G eH effected through a direct and indirect ac0uisition of stock, and "hen this takes place, irrespective of the means, a tender offer must occur. -he ottom line of the la" is to give the shareholder of the listed compan! the opportunit! to decide "hether or not to sell in connection "ith a transfer of control. . . . Case+ Phil. &ssociation of Stoc* -ransfer and !egistr1 &gencies )nc. 's C& (!ower to regulate "ees) ,&C-S+ *etitioner *hilippine 1ssociation of Stock -ransfer and Aegistr! 1gencies, #nc.%*1S-A1& is an association of stock transfer agents principall! engaged in the registration of stock transfers in the stock-andtransfer ook of corporations. +n <a! 15, 144=, petitionerBs ;oard of )irectors unanimousl! approved a resolution allo"ing its mem ers to increase the transfer processing fee the! charge their clients. 1fter a dialogue "ith petitioner, pu lic respondent Securities and E.change Commission %SEC& allo"ed petitioner to impose the */9 per certificate transfer fee and *65 per certificate cancellation fee effective Cul! 1, 144=. ;ut, approval of the additional increase of the transfer fees to *155 per certificate effective +cto er 1,
144=, "as "ithheld until after a pu lic hearing. -he SEC issued a letter-authori8ation to this effect. -he *hilippine 1ssociation of Securities ;rokers and )ealers, #nc. registered its o :ection to the measure advanced ! petitioner and re0uested the SEC to defer its implementation. +n Cune 6/, 144=, the SEC advised petitioner to hold in a e!ance the implementation of the increases until the matter "as cleared "ith all the parties concerned. *etitioner nonetheless proceeded implementation of the increased fees. "ith the
*etitionerBs Contention$ that the SEC cannot restrict petitionerBs mem ers from increasing the transfer and processing fees the! charge their clients ecause there is no specific la", rule or regulation authori8ing it. Section ,5 of the then Aevised Securities 1ct, according to petitioner, onl! la!s do"n the general po"ers of the SEC to regulate and supervise the corporate activities of organi8ations related to or connected "ith the securities market like petitioner. #t could not e interpreted to :ustif! the SECBs un:ustified interference "ith petitionerBs decision to increase its transfer fees and impose processing fees, especiall! since the decision involved a management prerogative and "as intended to protect the via ilit! of petitionerBs mem ers. +n Cul! F, 144=, the SEC issued +rder 3o. 15,, series of 144=, en:oining petitioner from imposing the ne" fees %pursuant to Sec. ,5 of the Aevised Securities 1ct& and to sho" a cause "h! no administrative sanctions should e imposed upon the oard and officers of *1S-A1. Su se0uentl! on Cul! 11, 144=, after hearing SEC ordered petitioner to pa! a asic fine of *9,555 and a dail! fine of *955 for continuing violations' it is here ! ordered to immediatel! cease and desist from imposing the ne" rates for issuance and cancellation of stock certificates, until further orders from this Commission. C1 affirmed. >ence this petition. %:hile this case #as pending -he !e'ised Securities &ct b1 authorit1 of #hich the assailed orders #ere issued #as repealed b1 !epublic &ct 5o. ;<77 or -he Securities !egulation Code 6 #hich became effecti'e on &ugust ; (222. 3onetheless,.. Cul! 11, 144= +rder had not een o literated ! the repeal of -he Aevised Securities 1ct and there is still present a need to rule on "hether petitioner "as lia le for the fees imposed upon it&. )SS.E+ "hether the SEC acted "ith grave a use of discretion or lack or e.cess of :urisdiction in issuing the controverted +rders of Cul! F and 11, 144=. /E0D+ 54. Ie find the instant petition ereft of merit. -he Court notes that efore its repeal, Section 4< of -he !e'ised Securities &ct clearl1 ga'e the SEC the po#er to en$oin the acts or practices of securities=
*age % of 64
related organi>ations e'en #ithout first conducting a hearing if upon proper in'estigation or 'erification the SEC is of the opinion that there e?ists the possibilit1 that the act or practice ma1 cause gra'e or irreparable in$ur1 to the in'esting public if left unrestrained. Section ,/ clearl! provided, SEC. ,/. Cease and desist order.N-he Commission, after proper investigation or verification, motu proprio, or upon verified complaint ! an! aggrieved part!, ma! issue a cease and desist order "ithout the necessit! of a prior hearing if in its :udgment the act or practice, unless restrained ma1 cause gra'e or irreparable in$ur1 or pre$udice to the in'esting public or ma! amount to fraud or violation of the disclosure re0uirements of this 1ct and the rules and regulations of the Commission. %Emphasis supplied.& Said section enforces the po"er of general supervision of the SEC under Section ,5 of the then Aevised Securities 1ct. 1s a securities-related organi8ation under the :urisdiction and supervision of the SEC ! virtue of Section ,5 of -he Aevised Securities 1ct and Section 3 of *residential )ecree 3o. 456-1,15 petitioner "as under the o ligation to compl! "ith the Cul! F, 144= +rder. )efiance of the order "as su :ect to administrative sanctions provided in Section ,=11 of -he Aevised Securities 1ct. *etitioner "as fined for violating the SECBs desist order "hich the SEC had issued to interest of the investing pu lic, and not e.ercising its :udgment in the manner appropriate for its usiness. cease-andprotect the simpl! for it deems
pending cases involving intra-corporate disputes su mitted for final resolution "hich should e resolved "ithin one %1& !ear from the enactment of this Code. -he Commission shall retain :urisdiction over pending suspension of pa!ments2reha ilitation cases filed as of 35 Cune 6555 until finall! disposed. P!ES)DE5-)&0 DEC!EE 54. 72(=& SEC !E4!6&5)A&-)45 &C&arc% ''( ')*+ Sec. 9. #n addition to the regulator! and ad:udicative functions of the Securities and E.change Commission over corporations, partnerships and other forms of associations registered "ith it as e.pressl! granted under e.isting la"s and decrees, it shall have original and e.clusive :urisdiction to hear and decide cases involving. %a& )evices or schemes emplo!ed ! or an! acts, of the oard of directors, usiness associates, its officers or partnership, amounting to fraud and misrepresentation "hich ma! e detrimental to the interest of the pu lic and2or of the stockholder, partners, mem ers of associations or organi8ations registered "ith the Commission' % & Controversies arising out of intra-corporate or partnership relations, et"een and among stockholders, mem ers, or associates' et"een an! or all of them and the corporation, partnership or association of "hich the! are stockholders, mem ers or associates, respectivel!' and et"een such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to e.ist as such entit!' and %c& Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations. ". De'ices and schemes amounting to fraud Case+ Sumndad 's. /aringgan ,acts+ *laintiff >arrigan %no" respondent in this case& filed a complaint for collection of sum of mone! "ith a pra!er for preliminar! attachment "ith the A-C <akati against respondent ;oraca! ;each Clu >otel, #nc. %;;C>#&. >arrigan pra!ed for the issuance of the "rit of preliminar! attachment pending the case "hich "as granted ! the trial court after he posted an attachment ond amounting to * 6 million. Su se0uetl!, >arrigan filed an amended complaint impleading the management committee of ;;C># through its acting chairman. -he trial court admitted the amended complaint and issued an amended order for the issuance of "rit of attachment. -hen, petitioner Sumndad filed an 7rgent <otion for ?eave to #ntervene "ith a pra!er for Status Ouo2Supension, pra!ing that she e allo"ed to intervene as a plaintiff or as a defendant. >o"ever, Sumndad "as declared in default upon motion of >arrigan due to her failure to file an ans"er "ithin the reglementar! period as provided under the rules and as a conse0uence the trial
-he regulator1 and super'isor1 po#ers of the Commission under Section 42 of the then !e'ised Securities &ct in our 'ie# #ere broad enough to include the po#er to regulate petitioner@s fees. #ndeed, Section ,/ gave the Commission the po"er to en:oin motu proprio an! act or practice of petitioner "hich could cause grave or irrepara le in:ur! or pre:udice to the investing pu lic. -he intentional omission in the la" of an! 0ualification as to "hat acts or practices are su :ect to the control and supervision of the SEC under Section ,/ confirms the road e.tent of the SECBs regulator! po"ers over the operations of securities-related organi8ations like petitioner.
,. &mendments introduced b1 Sec. %.( to Sec % of PD 72(=&

9.6. -he CommissionBs :urisdiction over all cases enumerated under Section 9 of *residential )ecree 3o. 456-1 is here ! transferred to the Courts of general :urisdiction or the appropriate Aegional -rial Court$ Provided, that the Supreme Court in the e.ercise of its authorit! ma! designate the Aegional -rial Court ranches that shall e.ercise :urisdiction over these cases. -he Commission shall retain :urisdiction over
*age 6 of 64
court proceeded "ith the e. parte presentation of evidence. >arrigan filed a <otion for Cudgment on the *leadings. -he trial court acting on >arriganBs motion for :udgment on the pleadings rendered :udgment in favor of plaintiff >arrigan and ordered ;;C># to pa! the amount of * F million plus 16 M interest per annum, plus attorne!Bs fees and the costs of the suit. 3ot satisfied "ith the decision, the petitioner Sumndad filed a motion for reconsideration "hich "as denied ! the trial court, 1s a recourse, the petitioner then filed "ith the C1, a petition for certiorari, prohi ition and mandamus, ho"ever the C1 dismissed the petition for lack of merit. *etitioner again moved for reconsideration ut "as denied ! the C1' hence, this recourse of petition for revie" on certiorari. Petitioner@s contention+ it is the SEC that has :urisdiction ! virtue of *residential )ecree 3o. 456-1 %Aeorgani8ation of the Securities and E.change Commission "ith 1dditional *o"ers& ecause the complaint alludes to fraud committed ! respondent corporation, and the complainant is a stockholder of the respondent corporation. Pri'ate respondent@s contention+ maintains that :urisdiction is lodged "ith the regular courts, it eing a simple collection case. )ssue+ #s it the regular court or the Securities and E.change Commission %SEC& that has :urisdiction over the su :ect matter of the caseP !uling+ -he petition is unmeritorious. (irst. -he rule is that :urisdiction over the su :ect matter of the case is conferred ! la" and determined ! the allegations of the complaint. -herefore, to resolve the issue raised to us, an interpretation and application of the la" on :urisdiction, must e made vis#-#vis the averments of the petitionerBs complaint. -he la" on :urisdiction of the SEC, Section 9 of *) 4561, states that in addition to the regulator! and ad:udicative functions of the SEC over corporations, partnerships and other forms of associations registered "ith it as e.pressl! granted under the e.isting la"s and decrees, it shall have original and e.clusive :urisdiction to hear and decide cases involving devises or schemes emplo!ed ! or an! acts of the ;oard of )irectors, usiness associates, its officers and partners, amounting to fraud and misrepresentation "hich ma! e detrimental to the interest of the pu lic and2or to the stockholders, partners, mem ers of associations or organi8ations registered "ith the Commission. 3o", from the averments of the amended complaint filed "ith the trial court as 0uoted a ove, >arrigan seeks to collect from ;;C># his advances or loans in the amount of at least *F million, "hich are demanda le in character
pursuant to their agreement, including interest at 65M per annum accruing from Septem er 1, 1445. -he cause of action of the suit is, clearl!, for the collection of a sum of mone!. >o"ever, petitioner interprets said collection complaint as one involving mainl! the issue of fraud committed ! respondent corporation, "hich makes the controvers! fall under the am it of *) 456-1. -he particular portion of the amended complaint referred to ! petitioner states$ 1,. #n so allo"ing another person to have the absolute and uncontrolled possession, management, and utili8ation of the uildings and facilities of the ;oraca! ;each Clu >otel resort "ithout an! corresponding financial return or material enefit therefor, and the misappropriation ! said third part! of the income from the operation of the resort usiness therein, since Cul! 6F, 144, and up to the present or for a period of over seven ./0 mont!s no", defendant has, in effect, disposed of and continues to 1C-71??D )#S*+SE of and2or "antonl! "aste2dissipate said corporate properties and funds, in fraud of its creditors, "hich include herein plaintiff. -o our mind, from the totalit! of the complaint filed ! >arrigan, the main issue is "hether or not he is entitled to collect the loan and not "hether or not he "as defrauded ! ;;C>#. -he mere use of the phrase Jin fraud of creditorsJ does not, ipso facto, thro" the case "ithin SECBs :urisdiction. -he amended complaint filed ! >arrigan does not sufficientl! allege acts amounting to fraud and misrepresentation committed ! respondent corporation. #n Alle1e vs' CA, JfraudJ is defined as a generic term em racing all multifarious means %!ic! !uman ingenuity can devise, and "hich are resorted to ! one individual to secure an advantage over another by false suggestions or by suppression of trut! and includes all surprise, tric*, cunning, dissembling and any unfair %ay by %!ic! anot!er is c!eated. Iithin the conte.t of the complaint as 0uoted a ove, the phrase Jin fraud of creditorsJ can onl! mean, Jto the pre:udice of creditorsJ and not to the use of devises or schemes tantamount to fraud and misrepresentation emplo!ed ! the ;oard of )irectors, usiness associates or its officers and partners to divert corporate funds and assets for personal use, as contemplated in Section 9 of *) 456-1. E0uall! unavailing is petitionerBs contention that the case involves an intra-corporate controvers!, or one et"een the corporation and its stockholder transposing it "ithin the domain of the SEC. #t should e noted that the issue has ecome moot and academic ecause "ith Aepu lic 1ct 3o. F/44, Securities Aegulation Code, it is no" the Aegional -rial Court and no longer the SEC that has :urisdiction. 7nder Section 9.6 of Aepu lic 1ct 3o. F/44, original and e.clusive :urisdiction to hear and decide cases involving intra-corporate controversies have een transferred to a court of general :urisdiction or the appropriate Aegional -rial Court.
*age < of 64
(oregoing given, >arriganBs complaint against petitioner to recoup his financial e.posure "ith ;;C># "as properl! lodged "ith the regular court and not "ith the SEC. -his vie" is in accord "ith the rudimentar! principle that administrative agencies, like the SEC, are tri unals of limited :urisdiction and, as such, could "ield onl! such po"ers as are specificall! granted to them ! their ena ling statutes. (. )ntra=corporate contro'ersies )5-E!)M !.0ES 4, P!4CED.!E ,4! )5-!&= C4!P4!&-E C45-!4BE!S)ES Rule , 6E5E!&0 P!4B)S)45S Section 1. %a& Cases covered' - -hese Aules shall govern the procedure to e o served in civil cases involving the follo"ing$ %1& )evices or schemes emplo!ed !, or an! act of, the oard of directors, usiness associates, officers or partners, amounting to fraud or misrepresentation "hich ma! e detrimental to the interest of the pu lic and2or of the stockholders, partners, or mem ers of an! corporation, partnership, or association' %6& Controversies arising out of intra-corporate, partnership, or association relations, et"een and among stockholders, mem ers, or associates' and et"een, an! or all of them and the corporation, partnership, or association of "hich the! are stockholders, mem ers, or associates, respectivel!' %3& Controversies in the election or appointment of directors, trustees, officers, or managers of corporations, partnerships, or associations' %,& )erivative suits' %9& #nspection of corporate ooks % & Pro!ibition against nuisance and !arassment suits' 3uisance and harassment suits are prohi ited. #n determining "hether a suit is a nuisance or harassment suit, the court shall consider, among others, the follo"ing$ %1& -he e.tent of the shareholding or interest of the initiating stockholder or mem er' %6& Su :ect matter of the suit' %3& ?egal and factual asis of the complaint' %,& 1vaila ilit! of appraisal rights for the act or acts complained of' and %9& *re:udice or damage to the corporation, partnership, or association in relation to the relief sought.crala" #n case of nuisance or harassment suits, the court ma!, motu proprio or upon motion, forth"ith dismiss the case. Sec. 6. Suppletory application of t!e Rules of Court . -he Aules of Court, in so far as the! ma! e applica le
and are not inconsistent "ith these Aules, are here ! adopted to form an integral part of these Aules. Definition9 #ho has $urisdiction
!-C not di'ested of $urisdiction if a person is no longer a stoc*holder
Corporate officer@s dismissal intra=corporate
Cu1ing=out corporate
shares
considered
intra=
Stoc*holder 's stoc*holder considered intra=corporate
dispute
Suit against a non=stoc*holder not intra= corporate
Member 's. corporation considered intra= corporate
Cases+ SPEED D)S-!)C.-)56 C4!P. 0)-& M&!CE04 )!E5E4 M&!CE04 and PED!4 &D.)54 petitioners, vs. C4.!- 4, &PPE&0S and !.,)5& 0)M respondents. ,&C-S+ *astor ?im died intestate and "as survived ! his "ife, the private respondent, and his informall! adopted daughter ?ita ?im <arcelo, among others. +n <arch 1/, 1449, the private respondent, through her nephe" and attorne!-in-fact @eorge ?u!, filed a petition for the administration of the estate of her deceased hus and efore the Aegional -rial Court. -he complaint %su :ect if the issue& is one for the nullification of the deed of a solute sale e.ecuted ! ?eslim %one of the corporations of the deceased& in favor of Speed %another one of the corporations of the deceased& over the propert! covered ! -C- 3o. -3==1/ in the name of ?eslim, the cancellation of -C- 3o. --11=/1= in the name of Speed, as "ell as the
*age ; of 64
Secretar!Bs Certificate dated 1ugust 66, 144,. -he private respondent alleged that since her deceased hus and, *astor ?im, ac0uired the propert! during their marriage, the said propert! is con:ugal in nature, although registered under the name of ?eslim under -C3o. --3==1/. She asserted that the petitioners connived to deprive the estate of *astor ?im and his heirs of their possession and o"nership over the said propert! using a falsified Secretar!Bs Certificate stating that the ;oard of )irectors of ?eslim had a meeting on 1ugust 14, 1449, "hen, in fact, no such meeting "as held. Petitioner 0ita 0im #as ne'er a stoc*holder of 0eslim or a member of its Coard of Directors9 her husband petitioner )reneo Marcelo #as the Bice=President of Speed9 and petitioner Pedro &8uino #as 0eslim@s corporate secretar1. -he private respondent further averred that the amount of *3,455,555.55, the purchase price of the propert! under the deed of a solute sale, "as not paid to ?eslim, and that petitioners Spouses <arcelo and petitioner *edro 10uino contrived the said deed to consummate their devious scheme and chicaner!. -he private respondent concluded that the )eed of 1 solute Sale "as simulated' hence, null and void. )SS.E+ I+3 the case at corporate dispute ar is one involving intra-
E.change Commission %SEC& on 6= <arch 144/ against the Kesagas and 1sis %SEC Case 53-4/-994F&. -he spouses Aaniel asked the Commission to declare as illegal their e.pulsion from the clu as it "as allegedl! done in utter disregard of the provisions of its !-la"s as "ell as the re0uirements of due process. -he! like"ise sought the annulment of the amendments to the !-la"s made on F )ecem er 144=, changing the annual meeting of the clu from the last Sunda! of Canuar! to 3ovem er and increasing the num er of trustees from nine to fifteen. (inall!, the! pra!ed for the issuance of a -emporar! Aestraining +rder and Irit of *reliminar! #n:unction. -he application for -A+ "as denied ! SEC >earing +fficer Soller in an +rder dated 64 1pril 144/. ;efore the hearing officer could start proceeding "ith the case, ho"ever, Kesagas and 1sis filed a motion to dismiss on the ground that the SEC lacks :urisdiction over the su :ect matter of the case. -he motion "as denied on 9 1ugust 144/. -heir su se0uent move to have the ruling reconsidered "as like"ise denied. 7npertur ed, the! filed a petition for certiorari "ith the SEC En ;anc seeking a revie" of the hearing officerLs orders. -he petition "as again denied for lack of merit, and so "as the motion for its reconsideration in separate orders, dated 1, Cul! 144F and 1/ 3ovem er 144F, respectivel!. )issatisfied "ith the verdict, Kesagas and 1sis promptl! sought relief "ith the Court of 1ppeals contesting the ruling of the Commission en anc. -he appellate court, ho"ever, dismissed the petition for lack of merit in a )ecision promulgated on 35 Cul! 1444. -hen, in a resolution rendered on 1= <arch 6555, it similarl! denied their motion for reconsideration. Kesagas and 1sis filed the petition for revie" on certiorari. )ssue+ Ihether the clu corporate od!. /eld+ -he clu , according to the SECLs e.plicit finding, "as dul! registered and a certificate of incorporation "as issued in its favor. -he 0uestion of "hether the clu "as indeed registered and issued a certification or not is one "hich necessitates a factual in0uir!. -he finding of the Commission, as the administrative agenc! tasked "ith among others the function of registering and administering corporations, is given great "eight and accorded high respect. <oreover, ! their o"n admission contained in the various pleadings "hich the! have filed in the different stages of this case, Kesagas and 1sis themselves have considered the clu as a corporation. +ther"ise, there is no cogenc! in spearheading the move for its dissolution. Kesagas and 1sis "ere therefore "ell a"are of the incorporation of the clu and even agreed to get elected and serve as its responsi le officers efore the! reconsidered dissolving its corporate form. +n the other hand, at the time of the institution of the case "ith the SEC, the clu "as not dissolved ! virtue of an alleged ;oard resolution. -he Corporation Code esta lishes the procedure and other formal re0uirements a corporation needs to follo" in case it elects to dissolve and terminate its structure voluntaril! and "here no rights of creditors ma! possi l! e pre:udiced. Section 11F %Koluntar! dissolution "here no has alread! ceased to e a
/E0D$ 3+. -o determine "hether a case involves an intra-corporate controvers!, and is to e heard and decided ! the ;ranches of the A-C specificall! designated ! the Court to tr! and decide such cases, t"o elements must concur$ %a& the status or relationship of the parties' and %6& the nature of the 0uestion that is the su :ect of their controvers!. -he first element re0uires that the controvers! must arise out of intra-corporate or partnership relations et"een an! or all of the parties and the corporation, partnership or association of "hich the! are stockholders, mem ers or associates' et"een an! or all of them and the corporation, partnership or association of "hich the! are stockholders, mem ers or associates, respectivel!' and et"een such corporation, partnership or association and the State insofar as it concerns their individual franchises. -he second element re0uires that the dispute among the parties e intrinsicall! connected "ith the regulation of the corporation. if the nature of the controvers! involves matters that are purel! civil in character, necessaril!, the case does not involve an intra-corporate controvers!. -he determination of "hether a contract is simulated or not is an issue that could e resolved ! appl!ing pertinent provisions of the Civil Code.
Besagas 's. Court of &ppeals E6! "4(7(4 December % (22"F ,acts+ Spouses )elfino and >elenda Aaniel are mem ers in good standing of the ?u8 Killage -ennis Clu , #nc. -eodoro ;. Kesagas, "ho claims to e the clu Ls dul! elected president, "ith Iilfred ). 1sis, "ho, in turn, claims to e its dul! elected vice-president and legal counsel, allegedl! summaril! stripped them of their la"ful mem ership, "ithout due process of la". -hereafter, the spouses filed a Complaint "ith the Securities and
*age 7 of 64
creditors are affected& of the Corporation Code provides that J#f dissolution of a corporation does not pre:udice the rights of an! creditor having a claim against it, the dissolution ma! e effected ! ma:orit! vote of the oard of directors or trustees and ! a resolution dul! adopted ! the affirmative vote of the stockholders o"ning at least t"o-thirds %623& of the outstanding capital stock or at least t"o-thirds %623& of the mem ers at a meeting to e held upon call of the directors or trustees after pu lication of the notice of time, place and o :ect of the meeting for three %3& consecutive "eeks in a ne"spaper pu lished in the place "here the principal office of said corporation is located' and if no ne"spaper is pu lished in such place, then in a ne"spaper of general circulation in the *hilippines, after sending such notice to each stockholder or mem er either ! registered mail or ! personal deliver! at least 35 da!s prior to said meeting. 1 cop! of the resolution authori8ing the dissolution shall e certified ! a ma:orit! of the oard of directors or trustees and countersigned ! the secretar! of the corporation. -he Securities and E.change Commission shall thereupon issue the certificate of dissolution.J -o su stantiate their claim of dissolution, Kesagas and 1sis su mitted onl! t"o relevant documents$ the <inutes of the (irst ;oard <eeting held on 9 Canuar! 144/, and the oard resolution issued on 1, 1pril 144/ "hich declared Jto continue to consider the clu as a non-registered or a non-corporate entit! and :ust a social association of respecta le and respecting individual mem ers "ho have associated themselves, since the 14/5Ls, for the purpose of pla!ing the sports of tennis.J -hese t"o documents "ill not suffice. -he re0uirements mandated ! the Corporation Code should have een strictl! complied "ith ! the mem ers of the clu . -he records reveal that no proof "as offered ! Kesagas and 1sis "ith regard to the notice and pu lication re0uirements. Similarl! "anting is the proof of the oard mem ersL certification. ?astl!, and most important of all, the SEC +rder of )issolution "as never su mitted as evidence. 3. Election officers Cases+ appointment remo'al of corporate
petitioner respecting the settlement of the loan, advised him ! letter dated Cul! 19, 144F that he ma! use his retirement enefits in Sk! Kision in partial settlement of his loan after he settles his accounta ilities to the latter and gives his "ritten instructions to it %Sk! Kision&. *etitioner protested the computation in the said letter. Aespondent filed a complaint for collection of sum of mone! "ith damages at A-C *asig. against petitioner, alleging that petitioner violated the a ove-0uoted Section = of the loan agreement as he failed to put up the needed collateral for the loan and pa! the installments as the! ecame due, and that despite his receipt of letters of demand dated )ecem er 1, 144// and Canuar! 13, 144F,Fhe refused to pa!. #n his ans"er, petitioner alleged that the loan agreement did not reflect his true agreement "ith respondent, it eing merel! a Jcover documentJ to evidence the re"ard to him of ten million pesos %*15,555,555.55& for his lo!alt! and e.cellent performance as @eneral <anager of Sk! Kision... *etitioner thus pra!ed for the dismissal of the complaint and the a"ard of the follo"ing sums of mone! in the form of compulsor1 counterclaims+ 1. *153,565,555.55, *?7S the value of )efendantBs stock options and unpaid share from the net income "ith *laintiff corporation %to e computed& as actual damages' 6. *19,555,555.55, as moral damages' and 3. *1,955,555.55, as attorne!Bs fees plus appearance fees and the costs of suit. QAemedial$ Aespondent filed a manifestation and a motion to dismiss the counterclaim for "ant of :urisdiction. A-C of *asig denied respondentBs motion to dismiss the counterclaim on the follo"ing premises$ 1 counterclaim eing essentiall! a complaint, the principle that a motion to dismiss h!potheticall! admits the allegations of the complaint is applica le' the counterclaim is compulsor!, hence, "ithin its :urisdiction' and there is identit! of interest et"een respondent and Sk! Kision to merit the piercing of the veil of corporate fiction. <A denied. *etition for certiorari at the Court of 1ppeals "hich held that respondent is not the real part!-in-interest on the counterclaim and that there "as failure to sho" the presence of an! of the circumstances to :ustif! the application of the principle of Jpiercing the veil of corporate fiction.J -he +rders of the trial court "ere thus set aside and the counterclaims of petitioner "ere accordingl! dismissed. *etitionerBs <A denied. >ence, this *etition for Aevie". )SS.E+ "hether the defendant in a complaint for collection of sum of mone! can raise a counterclaim for retirement enefits, unpaid salaries and incentives, and other enefits arising from services rendered ! him in a su sidiar! of the plaintiff corporation.
ME0 B. vs. 04PEA )5C. respondent.
BE0&!DE petitioner,
,&C-S+ +n Canuar! =, 144/, Eugenio ?ope8 Cr., then *resident of respondent ?ope8, #nc., as ?E3)EA, and petitioner <el Kelarde, then @eneral <anager of Sk! Kision Corporation %Sk! Kision&, a su sidiar! of respondent, as ;+AA+IEA, forged a notari8ed loan agreement covering the amount of ten million %*15,555,555.55& pesos. -he agreement e.pressl! provided for, among other things, the manner of pa!ment and the circumstances constituting default "hich "ould give the lender the right to declare the loan together "ith accrued interest immediatel! due and pa!a le. petitioner failed to pa! the installments as the! ecame due, respondent, apparentl! in ans"er to a proposal of
*age "2 of 64
/E0D+ 54. Section 9%c& of *.). 456-1 %as amended ! A.1. F/44, the Securities Aegulation Code& applies to a corporate officerBs dismissal. (or a corporate officerBs dismissal is al"a!s a corporate act and2or an intracorporate controvers! and that its nature is not altered ! the reason or "isdom "hich the ;oard of )irectors ma! have in taking such action.6, Iith regard to petitionerBs claim for unpaid salaries, unpaid share in net income, reasona le return on the stock o"nership plan and other enefits for services rendered to Sk! Kision, :urisdiction thereon pertains to the Securities E.change Commission even if the complaint ! a corporate officer includes mone! claims since such claims are actuall! part of the prere0uisite of his position and, therefore, interlinked "ith his relations "ith the corporation.69 -he 8uestion of remuneration in'ol'ing a person #ho is not a mere emplo1ee but a stoc*holder and officer of the corporation is not a simple labor problem but a matter that comes #ithin the area of corporate affairs and management and is in fact a corporate contro'ers1 in contemplation of the Corporation Code. ;ut even if the su :ect matter of the counterclaims is no" cogni8a le ! A-Cs, the filing thereof against respondent is improper, it not eing the real part!-in-interest, for it is petitionerBs emplo!er Sk! Kision, respondentBs su sidiar!. #t cannot e gainsaid that a su sidiar! has an independent and separate :uridical personalit!, distinct from that of its parent compan!, hence, an! claim or suit against the latter does not ind the former and vice versa. *etitioner argues nevertheless that :urisdiction over the su sidiar! is :ustified ! piercing the veil of corporate fiction. 3o"here, ho"ever, in the pleadings and other records of the case can it e gathered that respondent has complete control over Sk! Kision, not onl! of finances ut of polic! and usiness practice in respect to the transaction attacked, so that Sk! Kision had at the time of the transaction no separate mind, "ill or e.istence of its o"n. -he e.istence of interlocking directors, corporate officers and shareholders is not enough :ustification to pierce the veil of corporate fiction in the a sence of fraud or other pu lic polic! considerations. -his Court is thus not con'inced that the real part1= in=interest #ith regard to the counterclaim for damages arising from the alleged tortuous manner b1 #hich petitioner #as forced to retire as 6eneral Manager of S*1 Bision is respondent. <oreover, effect a set-off, it is a condition sine 0ua non that the approval thereof ! JSk!2CentralJ must e o tained, and that petitioner li0uidate his advances from Sk! Kision. -hese conditions hardl! manifest that respondent possessed that degree of control over Sk! Kision as to make the latter its mere instrumentalit!, agenc! or ad:unct. PE-)-)45 DE5)ED.
6.!. 5o. "44<6<
March (" (22(
D)03 D&53 5&CP)0 petitioner, vs. )5-E!5&-)45&0 C!4&DC&S-)56 C4!P4!&-)45 respondent. ,acts+ *etitioner states that he "as 1ssistant @eneral <anager for (inance21dministration and Comptroller of private respondent #ntercontinental ;roadcasting Corporation %#;C& from 144= until 1pril 144/. 1ccording to petitioner, "hen Emiliano -emplo "as appointed to replace #;C *resident -omas @ome8 ### sometime in <arch 144/, the former %-emplo& told the ;oard of )irectors that as soon as he assumes the #;C presidenc!, he "ould terminate the services of petitioner. 1pparentl!, -emplo lamed petitioner, along "ith a certain <r. ;asilio and <r. @ome8, for the prior mismanagement of #;C. 7pon his assumption of the #;C presidenc!, -emplo allegedl! harassed, insulted, humiliated and pressured petitioner into resigning until the latter "as forced to retire. >o"ever, -emplo refused to pa! him his retirement enefits. (urthermore, -emplo allegedl! refused to recogni8e petitionerLs emplo!ment, claiming that petitioner "as not the 1ssistant @eneral <anager2Comptroller of #;C ut merel! usurped the po"ers of the Comptroller. >ence, petitioner filed "ith the ?a or 1r iter a complaint for illegal dismissal and nonpa!ment of enefits. #nstead of filing its position paper, #;C filed a motion to dismiss alleging that the ?a or 1r iter had no :urisdiction over the case. #;C contended that petitioner "as a corporate officer "ho "as dul! elected ! the ;oard of )irectors of #;C' hence, the case 0ualifies as an intracorporate dispute falling "ithin the :urisdiction of the Securities and E.change Commission %SEC&. >o"ever, the motion "as denied ! the ?a or 1r iter in an +rder. -he ?a or 1r iter rendered a )ecision stating that petitioner had een illegall! dismissed. #;C appealed to the 3?AC, ut the same "as dismissed in a Aesolution. #;C then filed a motion for reconsideration that "as like"ise denied. #;C then filed "ith the Court of 1ppeals a petition for certiorari under Aule =9, "hich petition "as granted ! the appellate court in its )ecision "hich reversed and set aside the decision of the ?a or 1r iter and the 3?AC and dismissed the complaint "ithout pre:udice. *etitioner then filed a motion for reconsideration, "hich "as denied ! the appellate court. >ence, this petition. )ssue+ Ihether the ?a or 1r iter had :urisdiction over the case for illegal dismissal and non-pa!ment of enefits filed ! petitioner. !uling+ -he Court finds that the 0abor &rbiter had no $urisdiction o'er the same.
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7nder *residential )ecree 3o. 456-1 %the Aevised Securities 1ct&, the la" in force "hen the complaint for illegal dismissal "as instituted ! petitioner in 144/, the follo"ing cases fall under the e.clusive of the SEC$ a& )evices or schemes emplo!ed ! or an! acts of the oard of directors, usiness associates, its officers or partners, amounting to fraud and misrepresentation "hich ma! e detrimental to the interest of the pu lic and2or of the stockholders, partners, mem ers of associations or organi8ations registered "ith the Commission' & Controversies arising out of intra-corporate or partnership relations, et"een and among stockholders, mem ers or associates' et"een an! or all of them and the corporation, partnership or association of "hich the! are stockholders, mem ers or associates, respectivel!' and et"een such corporation, partnership or association and the State insofar as it concerns their individual franchise or right to e.ist as such entit!' c& Contro'ersies in the election or appointment of directors trustees officers or managers of such corporations partnerships or associations9 d& *etitions of corporations, partnerships, or associations to e declared in the state of suspension of pa!ments in cases "here the corporation, partnership or association possesses propert! to cover all of its de ts ut foresees the impossi ilit! of meeting them "hen the! respectivel! fall due or in cases "here the corporation, partnership or association has no sufficient assets to cover its lia ilities, ut is under the <anagement Committee created pursuant to this decree. %Emphasis supplied.& -he Court has consistentl! held that there are t"o elements to e considered in determining "hether the SEC has :urisdiction over the controvers!, to "it$ %1& the status or relationship of the parties' and %6& the nature of the 0uestion that is the su :ect of their controvers!. *etitioner argues that he is not a corporate officer of the #;C ut an emplo!ee thereof since he had not een elected nor appointed as Comptroller and 1ssistant <anager ! the #;CLs ;oard of )irectors. >e points out that he had actuall! een appointed as such on Canuar! 11, 1449 ! the #;CLs @eneral <anager, Ceferino ;asilio. #n support of his argument, petitioner underscores the fact that the #;CLs ;!-?a"s does not even include the position of comptroller in its roster of corporate officers. >e therefore contends that his dismissal is a controvers! falling "ithin the :urisdiction of the la or courts. *etitionerLs argument is untena le. Even assuming that he "as in fact appointed ! the @eneral <anager, such appointment "as su se0uentl! approved ! the ;oard of )irectors of the #;C. -hat the position of Comptroller is
not e.pressl! mentioned among the officers of the #;C in the ;!-?a"s is of no moment, ecause the #;CLs ;oard of )irectors is empo"ered under Section 69 of the Corporation Code and under the corporationLs ;!-?a"s to appoint such other officers as it ma! deem necessar!. -he ;!-?a"s of the #;C categoricall! provides$ E##. +((#CEAS -he officers of the corporation shall consist of a *resident, a Kice-*resident, a Secretar!-reasurer, a @eneral <anager, and such other officers as the Coard of Directors ma1 from time to time does fit to pro'ide for. Said officers shall be elected b1 ma$orit1 'ote of the Coard of Directors and shall have such po"ers and duties as shall hereinafter provide %Emphasis supplied&. -he Court has held that in most cases the 2 !-la"s ma! and usuall! do provide for such other officers,J and that "here a corporate office is not specificall! indicated in the roster of corporate offices in the !-la"s of a corporation, the oard of directors ma! also e empo"ered under the !-la"s to create additional officers as ma! e necessar!. 1n JofficeJ has een defined as a creation of the charter of a corporation, "hile an JofficerJ as a person elected ! the directors or stockholders. +n the other hand, an Jemplo!eeJ occupies no office and is generall! emplo!ed not ! action of the directors and stockholders ut ! the managing officer of the corporation "ho also determines the compensation to e paid to such emplo!ee. 1s petitionerLs appointment as comptroller re0uired the approval and formal action of the #;CLs ;oard of )irectors to ecome valid, it is clear therefore holds that petitioner is a corporate officer "hose dismissal ma! e the su :ect of a controvers! cogni8a le ! the SEC under Section 9%c& of *.). 456-1 "hich includes controversies involving oth election and appointment of corporate directors, trustees, officers, and managers. >ad petitioner een an ordinar! emplo!ee, such oard action "ould not have een re0uired. -hus, the Court of 1ppeals correctl! held that$ Since complainantLs appointment "as approved unanimousl! ! the ;oard of )irectors of the corporation, he is therefore considered a corporate officer and his claim of illegal dismissal is a controvers! that falls under the :urisdiction of the SEC as contemplated ! Section 9 of *.). 456-1. -he rule is that dismissal or non-appointment of a corporate officer is clearl! an intra-corporate matter and :urisdiction over the case properl! elongs to the SEC, not to the 3?AC. Considering the foregoing, the Court holds that no error "as committed ! the Court of 1ppeals in dismissing the
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case filed efore the ?a or 1r iter, "ithout pre:udice to the filing of an appropriate action in the proper court. #t must e noted that under Section 9.6 of the Securities Aegulation Code %Aepu lic 1ct 3o. F/44& "hich "as signed into la" ! then *resident Coseph E:ercito Estrada on Cul! 14, 6555, the SECLs :urisdiction over all cases enumerated in Section 9 of *.). 456-1 has een transferred to the Aegional -rial Courts. :/E!E,4!E, the petition is here ! D)SM)SSED and the )ecision of the Court of 1ppeals is &,,)!MED. 4. Suspension of pa1ments (PD "<%; amending PD 72(=&) P!ES)DE5-)&0 DEC!EE 5o. "<%; &ME5D)56 ,.!-/E! SEC-)45S ( 3 % 6 &5D ; 4, P!ES)DE5-)&0 DEC!EE 54. 72(=& I>EAE1S, one of the o :ectives of the government as envisioned under *residential )ecree 3o. 456-1, as amended ! *.). 1=93, is to attract and to mo ili8e investments, domestic and foreign, through the participation of private enterprises in activities identified as most contri utive to the gro"th of the national econom!' I>EAE1S, in order to attain this national o :ective, it is incum ent upon government to provide a favora le climate for investments to e vigorousl! mo ili8ed to insure a "ider and more meaningful e0uita le distri ution of "ealth' I>EAE1S, eing the principal agenc! of the governing charged "ith the esta lishment of the needed atmosphere in all phases of the countr!Ls economic and industrial development, the Securities and E.change Commission must e provided "ith the appropriate organi8ational structure, financial support and manpo"er capa ilities commensurate "ith the scope of its tasks' and I>EAE1S, for these programs to succeed, there is no" a pressing need to restructure the Securities and E.change Commission not onl! to make it a more potent, responsive and effective arm of the government ut to ena le it to pla! a more effective role in the socioeconomic development of the countr!' 3+I, ->EAE(+AE, #, (EA)#313) E. <1AC+S, *resident of the *hilippines, ! virtue of the po"ers vested in me ! the Constitution, and the authorit! vested in me ! *residential )ecree 3o. 1,1=, do here ! order and decree$ Section ". -he first and second paragraphs of Section 6 of *residential )ecree 3o. 456-1, as amended ! *residential )ecree 3o. 1=93, is here ! further amended to read as follo"s$
JSec. 6. -hat the Commission shall e a collegial od! composed of a Chairman and four %,& 1ssociate Commissioners "ho shall e appointed ! the *resident and the term of office of each mem er shall e seven %/& !ears' *rovided, ho"ever, -hat the Chairman and the t"o %6& 1ssociate Commissioners of the Commission first appointed ! the *resident shall serve for a period of seven %/& !ears' five %9& !ears and three %3& !ears, as fi.ed in their respective appointments, and shall continue in +ffice in accordance "ith the terms fi.ed in their current respective appointments, and the t"o additional 1ssociate Commissioners first appointed ! the *resident under this )ecree, as amended, shall serve for five %9& !ears and three %3& !ears as fi.ed in their respective appointments' *rovided, further, -hat upon the e.piration of his term, a mem er shall serve as such until his successor shall have een appointed and 0ualified' 1nd *rovided, finall!, -hat no vacanc! shall e filled e.cept for the une.pired portion of the term. -he Commission shall meet as often as ma! e necessar! on such da! or da!s as the Chairman ma! fi.. -he notice of the meeting shall e given to all mem ers of the Commission and the presence of at least three %3& shall constitute a 0uorum. #n the a sence of the Chairman, the more senior 1ssociate Commissioner shall act as presiding officer of the meeting.J Section (. Section 3 of the same *residential )ecree as amended ! *residential )ecree 3o. 1=93, is here ! further amended to read as follo"s$ JSec. 3. -he Commission shall have a solute :urisdiction, supervision and control over all corporations, partnerships, or associations, "ho are the grantees of primar! franchises and2or a license or permit issued ! the government to operate in the *hilippines, and in the e.ercise of its authorit!, it shall have the po"er to enlist the aid and support of and to deputi8e an! and all enforcement, agencies of the government, civil or militar! as "ell as an! private institution, corporation, firm, association or person.J Section 3. Section 9 of the same *residential )ecree is here ! amended ! adding thereunder su -paragraph d& to read as follo"s$ Jd& *etitions of corporations, partnerships or associations to e declared in the state of suspension of pa!ments in cases "here the corporation, partnership or association possesses sufficient propert! to cover all its de ts ut foresees the impossi ilit! of meeting them "hen the! respectivel! fall due or in cases "here the corporation, partnership or association has no sufficient assets to cover its lia ilities, ut is under the management of a Aeha ilitation Aeceiver or <anagement Committee created pursuant to this )ecree.J Section 4. Su -paragraphs c&, d&, h& and m& of Section = of *residential )ecree 3o. 456-1, as amended ! *residential )ecree 3o. 1=93, is here ! further amended to read as follo"s$
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Jc& -o appoint one or more receivers of the propert!, real or personal, "hich is the su :ect of the action pending efore the Commission in accordance "ith the pertinent provisions of the Aules of Court in such other cases "henever necessar! in order to preserve the rights of the parties-litigants and2or protect the interest of the investing pu lic and creditors. *rovided, ho"ever, -hat the Commission ma!, in appropriate cases, appoint a Aeha ilitation Aeceiver "ho shall have, in addition to the po"ers of a regular receiver under the provisions of the Aules of Court, such functions and po"ers as are provided for in the succeeding paragraph d& hereof. *rovided, further, that upon appointment of a management committee, reha ilitation receiver, oard or od!, pursuant to this )ecree, all actions for claims against corporations, partnerships or associations under management or receivership pending efore an! court, tri unal, oard or od! shall e suspended accordingl!.J Jd& -o create and appoint a management committee, oard, or od! upon petition or motu propio to undertake the management of corporations, partnerships or other associations in appropriate cases "hen there is imminent danger of dissipation, loss, "astage or destruction of assets or other properties or paral!8ation of usiness operations of such corporations or entities "hich ma! e pre:udicial to the interest of minorit! stockholders, parties-litigants or the general pu lic. -he management committee or reha ilitation receiver, oard or od! shall have the po"er to take custod! of and control over, all the e.isting assets and propert! of such entities under management' to evaluate the e.isting assets and lia ilities, earnings and operations of such corporations, partnerships or other associations' to determine the est "a! to salvage and protect the interest of the investors and creditors' to stud!, revie" and evaluate the feasi ilit! of continuing operations and restructure and reha ilitate such entities if determined to e feasi le ! the Commission. #t shall report and e responsi le to the Commission until dissolved ! order of the Commission. *rovided, ho"ever, -hat the Commission, ma!, on the asis of the findings and recommendation of the management committee, or reha ilitation receiver, oard or od!, or on its o"n findings, determine that the continuance in usiness of such corporation or entit! "ould not e feasi le or profita le nor "ork to the est interest of the stockholders, parties-litigants, creditors, or the general pu lic, order the dissolution of such corporation entit! and its remaining assets li0uidated accordingl!. -he management committee or reha ilitation receiver, oard or od! ma! overrule or revoke the actions of the previous management and oard of directors of the entit! or entities under management not"ithstanding an! provision of la", articles of incorporation or !-la"s to the contrar!. -he management committee, or reha ilitation receiver, oard or od! shall not e su :ect to an! action, claim or demand for, or in connection "ith, an! act done or omitted to e done ! it in good faith in the e.ercise of its functions, or in connection "ith the e.ercise of its po"er herein conferred.J
Jh& -o issue su poena duces tecum and summon "itnesses to appear in an! proceedings of the Commission and in appropriate cases order the e.amination, search and sei8ure or cause the e.amination, search and sei8ure of all documents papers, files and records, ta. returns, ooks of accounts, as "ell as all deposits of "hatever nature "ith ank or anking institutions in the *hilippines, including investments in onds issued ! the @overnment of the *hilippines, its political su divisions and its instrumentalities and similar documents, of an! entit! or person under investigation as ma! e necessar! for the proper disposition of the cases efore it, not"ithstanding the provisions of an! la" to the contrar!.J Jm& -o e.ercise such po"ers as ma! e provided ! la" as "ell as those "hich ma! e implied from, or "hich are necessar! or incidental to the carr!ing out of, the e.press po"ers granted to the Commission to achieve the o :ectives and purposes of this )ecree.J Section %. Section F of the same *residential )ecree, as amended ! *residential )ecree 3o. 1=93, is here ! further amended to read as follo"s$ JSec. F. -he Commission shall have nine %4& departments each to e headed ! a director, namel!$ Corporate and ?egal' E.aminers and 1ppraisers' ;rokers and E.changes' <one! <arket +perations' Securities #nvestigations and Clearing' 1dministrative and (inance' *rosecution and Enforcement' and Supervision and <onitoring )epartments. -he staffing pattern to implement this amended departmental structure shall e approved pursuant to Section ,5 of *.). 3o. 11//, "ith an! additional costs incurred for 14F5 and 14F1 to e charged to the Special 1ctivities (und of the corresponding !ear upon approval ! the *resident.J Section 6. -he *rosecution and Enforcement )epartment shall have, su :ect to the CommissionLs control and supervision, the e.clusive authorit! to investigate, on complaint or motu propio, an! act or omission of the ;oard of )irectors2 -rustees of corporations, or of partnerships, or other associations, or of their stockholders, officers or partners, including an! fraudulent devices, schemes or representations, in violation of an! la" or rules and regulations administered and enforced ! the Commission' to file and prosecute in accordance "ith la" and rules and regulations issued ! the Commission and in appropriate cases, the corresponding criminal or civil case efore the Commission or the proper court or od! upon prima facie finding of violation of an! la"s or rules and regulations administered and enforced ! the Commission' and to perform such other po"ers and functions as ma! e provided ! la" or dul! delegated to it ! the Commission. *rosecution under this )ecree or an! 1ct, ?a", Aules and Aegulations enforced and administered ! the Commission shall e "ithout pre:udice to an! lia ilit! for violation of an! provision of the Aevised *enal Code.
*age "4 of 64
Section <. -he Supervision and <onitoring )epartment shall have the po"er of supervision over all corporations, partnership and associations registered "ith the Commission in all matters pertaining to their compliance "ith the la"s, mandator! provisions and re0uirements of pertinent rules and regulations administered and enforced ! the Commission, as "ell as their respective !-la"s dul! approved ! the Commission, integrate, anal!8e and evaluate ongoing operations or activities of such entities' coordinate "ith, and recommend to the appropriate departments for proper action and enforcement' and to do and perform such other functions as ma! e dul! delegated ! the Commission. Section ;. -he proceeds and effects of crimes committed ! an! person or entit! in violation of the la"s and regulations administered and enforced ! the Commission shall e forfeited, sei8ed and confiscated in favor of the State upon order of the Commission, after due notice and hearing. Section 7. 1n! provisions of e.isting la", decree, order, rules and regulations inconsistent "ith this )ecree, is here ! repealed, amended or modified accordingl!. Section "2. -his )ecree shall take effect immediatel!. )one in the Cit! of <anila, this 6nd da! of Canuar!, in the !ear of +ur ?ord, nineteen hundred and eight!-one.
necessar! to insure full disclosure or to protect the interest of the investors and the pu lic in general. S!C !ule ;."=" Prospectus Deli'er1 !ule 1. Prospectus Re3uired' - Securities re0uired to e, and "hich are, registered pursuant to Sections F and 16 of the Code shall not e sold unless a prospectus, "hich has een filed "ith the registration statement in the form and containing the information hereinafter descri ed, is "idel! disseminated and sufficient copies have een made availa le so that all "ho desire ma! o tain one. 6. Prospectus Re3uirements' # #n addition to the re0uirements of this Aule, a prospectus, including a preliminar! prospectus, shall contain information as re0uired ! SAC Aule 16 and SEC (orm 16-1 and shall e prepared in accordance "ith the re0uirements of SAC Aule /6.1. 3. Preliminary Prospectus' # 1 preliminar! prospectus, "hich has een filed "ith the registration statement re0uired ! Sections F and 16 of the Code, ma! e circulated to potential investors prior to effectiveness of the registration statement if the follo"ing re0uirements have een met$ a. it meets all the re0uirements for a prospectus contained in paragraph 6 hereof' . it contains the follo"ing statement in old face print, at least 16 point t!pe prominentl! displa!ed$ 1 registration statement relating to these securities has een filed "ith the Securities and E.change Commission, ut has not !et een declared effective. 3o offer to u! the securities can e accepted and no part of the purchase price can e received until the registration statement has ecome effective, and an! such offer ma! e "ithdra"n or revoked, "ithout o ligation or commitment of an! kind, at an! time prior to notice of its acceptance given after the effective date. 1n indication of interest in response hereto involves no o ligation or commitment of an! kind. -his prospectus shall not constitute an offer to sell or the solicitation of an offer to u!. a. it is the onl! selling document utili8ed in the preoffering period, "ith the e.ception that the information contained in SAC Aule F.3-1 ma! e disseminated in "hole or in part to summari8e the offering' . its use is such that "ide dissemination is assured' c. sufficient copies are made availa le so that all "ho desire ma! o tain one' and d. it contains a statement "hether the securit! is eing offered in connection "ith a distri ution ! the issuer or ! a securit! holder, or oth, and "hether the issue represents ne" financing or refunding, or oth.
6. 6eneral rule on registration9 merit s1stem 's. full disclosure method

SEC. F. Re3uirement of Registration of Securities. F.1. Securities shall not e sold or offered for sale or distri ution "ithin the *hilippines, "ithout a registration statement dul! filed "ith and approved ! the Commission. *rior to such sale, information on the securities, in such form and "ith such su stance as the Commission ma! prescri e, shall e made availa le to each prospective purchaser. F.6. -he Commission ma! conditionall! approve the registration statement under such terms as it ma! deem necessar!. F.3. -he Commission ma! specif! the terms and conditions under "hich an! "ritten communication, including an! summar! prospectus, shall e deemed not to constitute an offer for sale under this Section. F.,. 1 record of the registration of securities shall e kept in a Aegister of Securities in "hich shall e recorded orders entered ! the Commission "ith respect to such securities. Such register and all documents or information "ith respect to the securities registered therein shall e open to pu lic inspection at reasona le hours on usiness da!s. F.9. -he Commission ma! audit the financial statements, assets and other information of a firm appl!ing for registration of its securities "henever it deems the same
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,. )ide Dissemination of Preliminary and &inal Prospectus' - 1 preliminar! or final prospectus shall e presumed to have een "idel! disseminated pursuant to paragraphs 1 and 3 of this Aule if copies have een distri uted initiall! and additional copies have een furnished promptl!, upon re0uest, to at least the follo"ing$ a. each participant in the distri ution % e'g., under"riters and rokers&' . the main and e.tension offices of the Commission' c. an E.change if the securities "ill e listed thereon' d. the issuer' and e. to more than t"ent! %65& persons "ho are not 0ualified u!ers under Section 15.1%l& of the Code. 9. (otice of Availability of Prospectus and Preliminary Prospectus' # a. 1ll participants in the distri ution of an offering of securities to the pu lic shall, "hen in0uiries are made as to the offering, inform interested persons of the availa ilit! of preliminar! prospectuses and final prospectuses and provide copies if re0uested. . 1 notice shall e placed on the front of the su scription agreement distri uted in connection "ith the offering informing interested persons that the! are entitled to receive a cop! of a preliminar! and2or final prospectus if the! so desire and ho" and "here one can e o tained. c. #nformation re0uired in su paragraphs a and a ove concerning "here preliminar! and final prospectuses ma! e o tained shall include at least the follo"ing$ addresses of e.tension and main offices of the Commission, an! E.change "herein the securities ma! e listed, and the issuer compan!, and the telephone num er and the person to e contacted at each such location. 1 statement shall also e made that preliminar! prospectuses and final prospectuses are availa le from all under"riters and rokers participating in the distri ution. =. Selling Documents During 4ffering Period' - -he use of selling documents other than the final prospectus during the offering period is prohi ited, "ith the e.ception that the information contained in SAC Aule F.3-1 ma! e disseminated in "hole or in part to summari8e the offering. /. $imitations on "se of Preliminary or &inal Prospectus' - 1 preliminar! or final prospectus shall not e used unless all information contained therein is up to date and accuratel! reflects the terms of the offering and the condition of the compan!. -hus, until such time as appropriate amendments are made thereto and have een filed "ith the Commission under SAC Aule 1,, the use of a preliminar! or final prospectus and the right to sell and offer for sale ma! e suspended under Section 19 of the Code "hen an! of the follo"ing events occurs$ a. there is a material change in an! information contained therein %including ut not limited to, the occurrence of a material event "hich "ould e re0uired to e reported on SEC (orm 1/-C&'
. the financial statements contained therein are over 669 da!s old. F. &ormat of Prospectus' 5 a. Appearance - -he information re0uired in the prospectus need not follo" the order of the items or other re0uirements in *art # of SEC (orm 16-1 "ith the e.ception of #tems 1 and 6. >o"ever, the information shall not e presented in a manner that "ill o scure re0uired information or information that is necessar! to keep re0uired information from eing incomplete or misleading. . Captions of 6eadings # 1ll information included in the prospectus should e properl! captioned or headed in order to reasona l! indicate covered su :ect matter. -he information shall e divided into reasona l! short paragraphs or sections %"ith the e.ception of financial statements and ta ular data&. c. Condensed or Summari7ed &orm - E.cept as to information re0uired in ta ular form and financial statements, the information included in the prospectus ma! e e.pressed in condensed or summari8ed form. Aeference ma! e made to information in other parts of the prospectus instead of repeating the information in the form of notes to the financial statements. d. Date of Prospectus # Each prospectus used after the effective date of the registration statement shall e dated as of the effective date of the prospectus. 1n amended or revised prospectus used thereafter shall ear the date of its issuance. $anguage Clear and "nderstandable - 1ll information that is re0uired to e included in the prospectus shall e clearl! understanda le "ithout the necessit! of referring to SEC (orm 16-1 or to the general rules and regulations. -he chief goal of registration %disclosure for the enefit of investors& involves, among other things, the use of language that can e understood readil! ! the persons to "hom it is addressed. (ailure to use language that is clear and understanda le to the investor ma! operate to defeat the purpose of the prospectus. S!C !ule "4 &mendments to the !egistration Statement 1. #f a prospectus filed "ith the Commission under the Code ecomes incomplete or inaccurate in an! material respect or if the issuer "ants to change an! material information therein, the issuer shall$ a. file an amendment to the registration statement "ith the Commission e.plaining all proposed changes "hich shall e revie"ed ! the Commission in accordance "ith Section 1, of the Code' . "here the registration statement has een declared effective ! the Commission, pu lish a notice in t"o ne"spapers of general circulation in the *hilippines stating that the offering in its current form has een cancelled, citing the reasons for such
*age "6 of 64
proposed changes to the offering, and offering to rescind all transactions that have een completed for sale to date, "ithout making an! deduction pursuant to paragraph c elo" and "ait thirt! %35& da!s for purchasers to respond to the rescission offer efore initiation of the amended offering' and c. "here material amendments have een made to the prospectus after the effective date thereof, purchasers ma!, "ithin thirt! %35& da!s from the date of such notification, renounce their purchase of securities, "hereupon the issuer, or an! person acting on ehalf of the issuer in connection "ith the distri ution of said securities, shall, "ithin ten %15& da!s of receipt of notification of such election, return the contri utions paid ! such purchasers "ithout making an! deductions. *urchasers "ho decide not to renounce their purchase of securities shall e su :ect to the terms of the amended offering. 6. 1n amendment containing information regarding the volume of securities eing offered, the pu lic offering price, under"riters %including discounts and commissions&, amount of proceeds, and other items dependent on the offering price %pricing amendment&, shall not generall! e deemed to e a material amendment and "ill not recommence the fort! five %,9& da! period under Section 1,.6 of the Code as long as an! change in the volume of securities eing offered or the bona fide estimate of the ma.imum offering price range, if previousl! indicated, "ould not materiall! change the disclosure contained in the prospectus. 3. #f after commencement of a pu lic offering, the Commission ecomes a"are that the prospectus is on its face incomplete or inaccurate in an! material respect, or there is a material omission therefrom, the Commission ma! re0uire an issuer to compl! "ith paragraph 1 a ove or suspend or revoke registration under Section 13 or 19 of the Code. ,. #f, during a pu lic offering, information other than material information in the prospectus changes, the issuer shall file a cop! of the ne" information2changes "ith the Commission prior to making such changes in the registration statement, e.plaining all proposed changes thereto. 7nless, "ithin t"ent! %65& da!s of receipt of such changes, the Commission provides a "ritten response to the issuer regarding such disclosure, the proposed changes shall e deemed to e part of the original disclosure$ Provided, !o%ever, that a pricing amendment "hen filed pursuant to paragraph 6 of this Aule shall, upon such filing, e deemed to e part of the original disclosure. 9. Ever! amendment to a registration statement shall e signed ! the persons specified in Section 16., of the Code. =. -here shall e filed "ith the Commission five %9& complete, unmarked copies of ever! amendment, including e.hi its and other papers and documents filed as part of the amendment and three %3& additional copies marked to indicate clearl! and precisel!, ! underlining or in some other appropriate
manner, the changes effected in the registration statement ! the amendment. /. Ever! amendment "hich relates to the prospectus shall include copies of the prospectus, as amended. +nl! copies of the changed pages of the prospectus need to e included in the amendment. F. Ever! amendment of a financial statement "hich is not included in the prospectus shall include copies of the financial statement as amended. 1 cop! of ever! amendment relating to a certified financial statement shall include the consent of the certif!ing accountant to the use of his certificate in connection "ith the amended financial statement in the registration statement or prospectus and to eing named as having certified such financial statement. 4. -he date on "hich amendments are actuall! received ! the Commission shall e the date of filing thereof if all of the re0uirements of the Code, and rules adopted thereunder, "ith respect to such filing have een complied "ith. Case+ PSE 's. C& P/)0)PP)5E S-4CG EHC/&56E )5C. petitioner, vs. -/E /454!&C0E C4.!4, &PPE&0S SEC.!)-)ES &5D EHC/&56E C4MM)SS)45 and P.E!-4 &A.0 0&5D )5C. respondents. ,&C-S+ *etitioner assails the validit! of the order of the SEC %affirmed ! the C1& "hich orders the *SE to allo" the listing of the shared of *uerto 18ul ?and #nc. %*1?#& in the *SE. -he *uerto 18ul ?and, #nc. %*1?#&, a domestic real estate corporation, had sought to offer its shares to the pu lic in order to raise funds allegedl! to develop its properties and pa! its loans "ith several anking institutions. #n Canuar!, 1449, P&0) #as issued a Permit to Sell its shares to the public b1 the Securities and E?change Commission (SEC&. -o facilitate the trading of its shares among investors, P&0) sought to course the trading of its shares through the Philippine Stoc* E?change )nc. (PSE), for "hich purpose it filed "ith the said stock e.change an application to list its shares, "ith supporting documents attached. ;efore acting upon the application, it came to *SELs attention, through a letter, that the a num er of *1?#Ls properties are part of the <arcos ill-gotten "ealth. *1?# has previousl! secured a -A+ against the <arcoses, to en:oin the latter from interfering "ith the pu lic offering in the *SE. #n its regular meeting held on <arch 6/, 144=, the ;oard of @overnors of the PSE reached its decision to re$ect P&0)Is application citing the e.istence of serious claims, issues and circumstances surrounding *1?#Ls o"nership over its assets that adversel! affect the suita ilit! of listing *1?#Ls shares in the stock e.change. +n 1pril 11, 144=, *1?# "rote a letter to the SEC addressed to the then 1cting Chairman, *erfecto A.
*age "< of 64
Dasa!, Cr., ringing to the SECLs attention the action taken ! the *SE in the application of *1?# for the listing of its shares "ith the *SE, and re8uesting that the SEC in the e?ercise of its super'isor1 and regulator1 po#ers o'er stoc* e?changes under Section 6($) of P.D. 5o. 72(=& re'ie# the PSEIs action on P&0)Is listing application and institute such measures as are $ust and proper under the circumstances. -he SEC on 1pril 6,, 144= rendered a decision reversing the denial of application ! *1?#, ordering the *SE to immediatel! list the shares of *1?#. *SELs <A "as denied. -he C1 affirmed. PSEIs &rguments+ *SE su mits that the Court of 1ppeals erred in ruling that the SEC had authorit! to order the *SE to list the shares of *1?# in the stock e.change. 7nder presidential decree 3o. 456-1, the po"ers of the SEC over stock e.changes are more limited as compared to its authorit! over ordinar! corporations. #n connection "ith this, the po"ers of the SEC over stock e.changes under the Aevised Securities 1ct are specificall! enumerated, and these do not include the po"er to reverse the decisions of the stock e.change. -his is in accord "ith the J usiness :udgment ruleJ "here ! the SEC and the courts are arred from intruding into usiness :udgments of corporations, "hen the same are made in good faith. the said rule precludes the reversal of the decision of the *SE to den! *1?#Ls listing application, a sent a sho"ing of ad faith on the part of the *SE. 7nder the listing rules of the *SE, to "hich *1?# had previousl! agreed to compl!, the *SE retains the discretion to accept or re:ect applications for listing. -hus, even if an issuer has complied "ith the *SE listing rules and re0uirements, *SE retains the discretion to accept or re:ect the issuerLs listing application if the *SE determines that the listing shall not serve the interests of the investing pu lic. #SS7E$ I+3 the SEC has authorit! to order the *SE to list *1?#Ls shares >E?)$ DES, ut onl! if the e.ercise of the *SELs po"ers "as attended "ith ad faith. -he denial of the application of *1?# is proper due to the controversies surrounding its o"nership. Sec. 3 of *.). 456-1, give the SEC the special mandate to e vigilant in the supervision of the affairs of stock e.changes so that the interests of the investing pu lic ma! e full! safeguard. Section 3 of *residential )ecree 456-1, standing alone, is enough authorit! to uphold the SECLs challenged control authorit! over the petitioner *SE even as it provides that Jthe Commission shall have a solute :urisdiction, supervision, and control over all corporations, partnerships or associations, "ho are the grantees of primar! franchises and2or a license or permit issued ! the government to operate in the *hilippines. . .J -he SECLs regulator! authorit! over private corporations encompasses a "ide margin of areas, touching nearl! all of a corporationLs concerns. -his authorit! springs from the fact that a corporation o"es its e.istence to the concession of its corporate franchise from the state.
SEC is the entit1 #ith the primar1 sa1 as to #hether or not securities including shares of stoc* of a corporation ma1 be traded or not in the stoc* e?change. -his is in line #ith the SECIs mission to ensure proper compliance #ith the la#s such as the !e'ised Securities &ct and to regulate the sale and disposition of securities in the countr1. -his is not to sa!, ho"ever, that the *SELs management prerogatives are under the a solute control of the SEC. -he *SE is, alter all, a corporation authori8ed ! its corporate franchise to engage in its proposed and dul! approved usiness. +ne of the *SELs main concerns, as such, is still the generation of profit for its stockholders. <oreover, the *SE has all the rights pertaining to corporations, including the right to sue and e sued, to hold propert! in its o"n name, to enter %or not to enter& into contracts "ith third persons, and to perform all other legal acts "ithin its allocated e.press or implied po"ers. -hus, not"ithstanding the regulator! po"er of the SEC over the *SE, and the resultant authorit! to reverse the *SELs decision in matters of application for listing in the market, the SEC ma1 e?ercise such po#er onl1 if the PSEIs $udgment is attended b1 bad "ait%. ;ad faith does not simpl! connote ad :udgment or negligence. #t imports a dishonest purpose or some moral o li0uit! and conscious doing of "rong. #t means a reach of a kno"n dut! through some motive or interest of ill "ill, partaking of the nature of fraud. -he petitioner #as in the right #hen it refused application of P&0) for a contrar1 ruling #as not to the best interest of the general public. -he purpose of the !e'ised Securities &ct after all is to gi'e ade8uate and effecti'e protection to the in'esting public against fraudulent representations or false promises and the imposition of #orthless 'entures. #n an! case, for the purpose of determining "hether *SE acted correctl! in refusing the application of *1?#, the true o"nership of the properties of *1?# need not e determined as an a solute fact. Ihat is material is that the uncertaint! of the propertiesL o"nership and aliena ilit! e.ists, and this puts to 0uestion the 0ualification of *1?#Ls pu lic offering. #n sum, the Court finds that the SEC had acted arbitraril1 in arrogating unto itself the discretion of appro'ing the application for listing in the PSE of the pri'ate respondent P&0) since this is a matter addressed to the sound discretion of the *SE, a corporation entit!, "hose usiness :udgments are respected in the absence of bad faith. +->EA #SS7ES under this case included in the topics$ 1. *urpose of la"s on securities - -he purpose of the Aevised Securities 1ct, after all, is to give ade0uate and effective protection to the investing pu lic against fraudulent representations, or false promises, and the imposition of "orthless ventures. #t is to e o served that the 7.S. Securities 1ct emphasi8ed its avo"ed protection to acts detrimental to legitimate usiness, thus$ -he Securities 1ct, often referred to as the Jtruth in securitiesJ 1ct, "as designed not onl! to provide investors "ith ade0uate information upon "hich to ase their decisions to u! and
*age "; of 64
sell securities, ut also to protect legitimate usiness seeking to o tain capital through honest presentation against competition from crooked promoters and to prevent fraud in the sale of securities. %-enth 1nnual Aeport, 7.S. Securities R E.change Commission, p. 1,&. 1s has een pointed out, the effects of such an act are chiefl! %1& prevention of e.cesses and fraudulent transactions, merel! ! re0uirement of that their details e revealed' %6& placing the market during the earl! stages of the offering of a securit! a od! of information, "hich operating indirectl! through investment services and e.pert investors, "ill tend to produce a more accurate appraisal of a securit!, . . . -hus, the Commission ma! refuse to permit a registration statement to ecome effective if it appears on its face to e incomplete or inaccurate in an! material respect, and empo"er the Commission to issue a stop order suspending the effectiveness of an! registration statement "hich is found to include an! untrue statement of a material fact or to omit to state an! material fact re0uired to e stated therein or necessar! to make the statements therein not misleading. %#dem&. 6. Aegulator! po"er of the SEC over the *SE discussed na sa digest $& 3. <erit S!stem vs. (ull )isclosure method %in registration& Section 4 of the Aevised Securities 1ct sets forth the possi le8rounds for t!e Re1ection of the registration of a securit!$ N -he Commission ma! re:ect a registration statement and refuse to issue a permit to sell the securities included in such registration statement if it finds that N %1& T!e registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statement of a material fact or omits to state a material fact re3uired to be stated t!erein or necessary to ma*e t!e statements t!erein not misleading' or %6& -he issuer or registrant N %i& is not solvent or not in sound financial condition' %ii& has violated or has not complied "ith the provisions of this 1ct, or the rules promulgated pursuant thereto, or an! order of the Commission' %iii& has failed to compl! "ith an! of the applica le re0uirements and conditions that the Commission ma!, in the pu lic interest and for the protection of investors, impose efore the securit! can e registered' %iv& has een engaged or is engaged or is a out to engage in fraudulent transaction'
%v& is in an! "a! dishonest or is not of good repute' or %vi& does not conduct its usiness in accordance "ith la" or is engaged in a usiness that is illegal or contrar! to government rules and regulations. %3& -he enterprise or the usiness of the issuer is not sho"n to e sound or to e ased on sound usiness principles' %,& 1n officer, mem er of the oard of directors, or principal stockholder of the issuer is dis0ualified to e such officer, director or principal stockholder' or %9& T!e issuer or registrant !as not s!o%n to t!e satisfaction of t!e Commission t!at t!e sale of its security %ould not %or* to t!e pre1udice of t!e public interest or as a fraud upon t!e purc!asers or investors. %Emphasis +urs& 1 reading of the foregoing grounds re'eals the intention of the la#ma*ers to ma*e the registration and issuance of securities dependent to a certain e?tent on the merits of the securities themsel'es and of the issuer, to e determined ! the Securities and E.change Commission. -his measure "as meant to protect the interests of the in'esting public against fraudulent and #orthless securities , and the SEC is mandated ! la" to safeguard these interests, follo"ing the policies and rules therefore provided. -he absolute reliance on the full disclosure method in the registration of securities is therefore untenable . 1s it is, the Court finds that the private respondent *1?#, on at least t"o points %nos. 1 and 9& has failed to support the propriet! of the issue of its shares "ith unfailing clarit!, there ! lending support to the conclusion that the *SE acted correctl! in refusing the listing of *1?# in its stock e.change. -his does not discount the effectivit! of "hatever method the SEC, in the e.ercise of its vested authorit!, chooses in setting the standard for pu lic offerings of corporations "ishing to do so. >o"ever, the SEC must recogni8e and implement the mandate of the la", particularl! the Aevised Securities 1ct, the provisions of "hich cannot e amended or supplanted ! mere administrative issuance.
>#3)# )#3#SC7SS mashado !ung full disclosure method pero inanggit si!a sa ruling ng SEC against *SE$ I>EAE(+AE, premises considered, the Commission finds no compelling reason to reconsider its order dated 1pril 6,, 144=, and in the light of recent developments on the adverse claim against the *1?# properties, PSE should re8uire P&0) to submit full disclosure of material facts and information to protect the in'esting public. #n this regard, *1?# is here ! ordered to amend its registration statements filed "ith the Commission to incorporate the full disclosure of these material facts and information.
/. E?empt Securities (Sec. 79 S!C !ule 7.() *age "7 of 64
SEC. 4. +9empt Securities. 4.1. -he re0uirement of registration under Su section F.1 shall not as a general rule appl! to an! of the follo"ing classes of securities$ %a& 1n! securit! issued or guaranteed ! the @overnment of the *hilippines, or ! an! political su division or agenc! thereof, or ! an! person controlled or supervised !, and acting as an instrumentalit! of said @overnment. % & 1n! securit! issued or guaranteed ! the government of an! countr! "ith "hich the *hilippines maintains diplomatic relations, or ! an! state, province or political su division thereof on the asis of reciprocit!$ Provided, -hat the Commission ma! re0uire compliance "ith the form and content of disclosures the Commission ma! prescri e. %c& Certificates issued ! a receiver or ! a trustee in ankruptc! dul! approved ! the proper ad:udicator! od!. %d& 1n! securit! or its derivatives the sale or transfer of "hich, ! la", is under the supervision and regulation of the +ffice of the #nsurance Commission, >ousing and ?and 7se Aegulator! ;oard, or the ;ureau of #nternal Aevenue. %e& 1n! securit! issued ! a ank e.cept its o"n shares of stock. 4.6. -he Commission ma!, ! rule or regulation after pu lic hearing, add to the foregoing an! class of securities if it finds that the enforcement of this Code "ith respect to such securities is not necessar! in the pu lic interest and for the protection of investors. S!C !ule 7.( E?empt Securities 1n! securit! issued ! a financial institution licensed ! the ;angko Sentral ng *ilipinas to engage in 0uasianking, other than its o"n shares of stock, shall e e.empt from registration under Section F.1 of the Code' provided, !o%ever, that the purchase and sale of an! such securit! shall not e e.empt from antifraud, civil lia ilit! or other provisions of the Code. Case+ .nion Can* 's. SEC (e-em!tion "rom registration requirements vis-a-vis disclosure requirements) ,&C-S+ +n 1pril ,, 144/, petitioner, through its @eneral Counsel and Corporate Secretar!, sought the opinion of Chairman *erfecto Dasa!, Cr. of respondent SEC as to the applica ilit! and coverage of the (ull <aterial )isclosure Aule on anks, contending that said rules, in effect, amend Section 9 %a& %3& of the Aevised Securities 1ct "hich e.empts securities issued or guaranteed ! anking institutions from the registration re0uirement provided ! Section , of the same 1ct.
Chairman Dasa!, in a letter dated 1pril F, 144/, informed petitioner that "hile the re0uirements of registration do not appl! to securities of anks "hich are e.empt under Section 9%a& %3& of the Aevised Securities 1ct, ho"ever, anks "ith a class of securities listed for trading on the *hilippine Stock E.change, #nc. are covered ! certain Aevised Securities 1ct Aules governing the filing of various reports "ith respondent Commission, i.e., %1& Aule 11%a&-1 re0uiring the filing of 1nnual, Ouarterl!, Current, *redecessor and Successor Aeports' %6& Aule 3,-%a&-1 re0uiring su mission of *ro.! Statements' and %3& Aule 3,-%c&-1 re0uiring su mission of #nformation Statements, among others. *etitioner informed Chairman Dasa! that the! "ill refer the matter to the *hilippine Stock E.change for clarification. Aespondent SEC, through its <one! <arket +perations )epartment )irector, "rote petitioner, reiterating its previous position that petitioner is not e.empt from the filing of certain reports. -he letter further stated that the Aevised Securities 1ct Aule 11%a& re0uires the su mission of reports necessar! for full, fair and accurate disclosure to the investing pu lic, and not the registration of its shares. SEC "rote petitioner, en:oining the latter to sho" cause "h! it should not e penali8ed for its failure to su mit a *ro.!2#nformation Statement in connection "ith its annual meeting held on <a! 63, 144/, in violation of respondent CommissionBs S(ull <aterial )isclosure Aule.B *etitioner "as assessed a fine of *95,555.55 plus *955.55 for ever! da! that the report "as not filed, or a total of *41, 555.55 as of Cul! 61, 144/. *etitioner "rote respondent Commission disputing the assessment. Aespondent issued the assailed +rder. *etitioner filed <A. #t "as denied ! SEC. C1 also denied the appeal. >ence, this *etition. )SS.E+ I+3 petitioner is re0uired to compl! "ith the respondent SECBs full disclosure rules. !.0)56+ ;ecause its securities are e9empt from t!e registration re0uirements under Section 9%a&%3& of the Aevised Securities 1ct, petitioner argues that it is not covered ! AS1 #mplementing Aule 11%a&-1, "hich re0uires the filing of annual, 0uarterl!, current predecessor and successor reports' Aule 3,%a&-1, "hich mandates the filing of pro.! statements and forms of pro.!' and Aule 3,%c&-1, "hich o ligates the su mission of information statements. Ie do not agree. Section 9%a&%3& of the said 1ct reads$ Sec :' +9empt Securities' .a0 +9cept as e9pressly provided, t!e re3uirement of registration under subsection .a0 of Section four of t!is Act s!all not apply to any of t!e follo%ing classes of securities 9 9 9 99 9 999 .;0 Any securit issued or guaranteed by any ban*ing institution aut!ori7ed to do business in t!e P!ilippines, t!e business of %!ic! is substantially confined to
*age (2 of 64
ban*ing, or a financial institution licensed to engage in 3uasi#ban*ing, and is supervised by t!e Central <an*' -his provision e.empts from registration the securities issued ! anking or financial institutions mentioned in the la". 3o"here does it state or even impl! that petitioner, as a listed cor!oration, is e.empt from compl!ing "ith the reports re0uired ! the assailed AS1 #mplementing Aules. Iorth repeating is the C1Bs dis0uisition on the matter, "hich "e 0uote$ >o"ever, the e.emption from the registration re0uirement en:o!ed ! petitioner does not necessaril! connote that it is e.empted from the other reportorial re0uirements. >aving confined the e.emption en:o!ed ! petitioner merel! to the initial re0uirement of registration of securities for pu lic offering, and not to the su se0uent filing of various periodic reports, respondent Commission, as the regulator! agenc!, is a le to e.ercise its po"er of supervision and control over corporations and over the securities market as a "hole. +ther"ise, the o :ectives of the T(ull <aterial )isclosureB polic! "ould e defeated since petitioner corporation and its dealings "ould e totall! e!ond the reach of respondent Commission and the investing pu lic. *etitioner is a commercial anking corporation listed in the stock e.change. -hus, it must adhere not onl! to anking and other allied special la"s, ut also to the rules promulgated ! Aespondent SEC, the government entit! tasked not onl! "ith the enforcement of the Aevised Securities 1ct, ut also "ith the supervision of all corporations, partnerships or associations "hich are grantees of government-issued primar! franchises and2or licenses or permits to operate in the *hilippines. AS1 Aules 11%a&-1, 3,%a&-1 and 3,%c&-1 re0uire the su mission of certain reports to ensure full, fair and accurate disclosure of information for the protection of the investing pu lic. -hese Aules "ere issued ! respondent pursuant to the authorit! conferred upon it ! Section 3 of the AS1. -he said Aules do not amend Section 9%a&%3& of the Aevised Securities 1ct, ecause the! do not revoke or amend the e.emption from registration of the securities enumerated thereunder. -he! are reasona le regulations imposed upon petitioner as a anking corporation trading its securities in the stock market. -hat petitioner is under the supervision of the ;S* and the *hilippine Stock E.change does not e.empt it from compl!ing "ith the continuing disclosure re0uirements em odied in the assailed Aules. *etitioner, as a ank, is primaril! su :ect to the control of the ;S*' and as a corporation trading its securities in the stock market, it is under the supervision of the SEC. #t must e pointed out that even the *SE is under the control and supervision of respondent. -here is no over-supervision here. Each regulating authorit! operates "ithin the sphere of its po"ers. -hat stringent re0uirements are imposed is understanda le, considering the paramount importance given to the interests of the investing pu lic. -hese regulations are meant to assure full, fair and accurate disclosure of information for the protection
of investors in the stock market. #mposing such regulations is a function "ithin the :urisdiction of the SEC. Since petitioner opted to trade its shares in the e.change, then it must a ide ! the reasona le rules imposed ! the SEC. I>EAE(+AE, the *etition is here ! D+(I+D'
). E?empt transactions (Sec. "2)

SEC. 15. +9empt Transactions. - 15.1. -he
re0uirement of registration under Su section F.1. shall not appl! to the sale of an! securit! in an! of the follo"ing transactions$chanro lesvirtuala"li rar! %a& 1t an! :udicial sale, or sale ! an e.ecutor, administrator, guardian or receiver or trustee in insolvenc! or ankruptc!. % & ;! or for the account of a pledge holder, or mortgagee or an! other similar lien holder selling or offering for sale or deliver! in the ordinar! course of usiness and not for the purpose of avoiding the provisions of this Code, to li0uidate a bona fide de t, a securit! pledged in good faith as securit! for such de t. %c& 1n isolated transaction in "hich an! securit! is sold, offered for sale, su scription or deliver! ! the o"ner thereof, or ! his representative for the o"nerBs account, such sale or offer for sale, su scription or deliver! not eing made in the course of repeated and successive transactions of a like character ! such o"ner, or on his account ! such representative and such o"ner or representative not eing the under"riter of such securit!. %d& -he distri ution ! a corporation, activel! engaged in the usiness authori8ed ! its articles of incorporation, of securities to its stockholders or other securit! holders as a stock dividend or other distri ution out of surplus. %e& -he sale of capital stock of a corporation to its o"n stockholders e.clusivel!, "here no commission or other remuneration is paid or given directl! or indirectl! in connection "ith the sale of such capital stock. %f& -he issuance of onds or notes secured ! mortgage upon real estate or tangi le personal propert!, "here the entire mortgage together "ith all the onds or notes secured there ! are sold to a single purchaser at a single sale. %g& -he issue and deliver! of an! securit! in e.change for an! other securit! of the same issuer pursuant to a right of conversion entitling the holder of the securit! surrendered in e.change to make such conversion$ Provided, -hat the securit! so surrendered has een registered under this Code or "as, "hen sold, e.empt from the provisions of this Code, and that the securit! issued and delivered in e.change, if sold at the conversion price, "ould at the time of such conversion fall "ithin the class of securities entitled to registration under this Code. 7pon such conversion the par value of the securit! surrendered in such e.change shall e deemed the price at "hich the securities issued and delivered in such e.change are sold.
*age (" of 64
%h& ;rokerBs transactions, e.ecuted upon customerBs orders, on an! registered E.change or other trading market. %i& Su scriptions for shares of the capital stock of a corporation prior to the incorporation thereof or in pursuance of an increase in its authori8ed capital stock under the Corporation Code, "hen no e.pense is incurred, or no commission, compensation or remuneration is paid or given in connection "ith the sale or disposition of such securities, and onl! "hen the purpose for soliciting, giving or taking of such su scriptions is to compl! "ith the re0uirements of such la" as to the percentage of the capital stock of a corporation "hich should e su scri ed efore it can e registered and dul! incorporated, or its authori8ed capital increased. %:& -he e.change of securities ! the issuer "ith its e.isting securit! holders e.clusivel!, "here no commission or other remuneration is paid or given directl! or indirectl! for soliciting such e.change. %k& -he sale of securities ! an issuer to fe"er than t"ent! %65& persons in the *hilippines during an! t"elvemonth period. %l& -he sale of securities to an! num er of the follo"ing 0ualified u!ers$chanro lesvirtuala"li rar! %i& ;ank' %ii& Aegistered investment house' %iii& #nsurance compan!' %iv& *ension fund or retirement plan maintained ! the @overnment of the *hilippines or an! political su division thereof or managed ! a ank or other persons authori8ed ! the <ang*o Sentral to engage in trust functions' %v& #nvestment compan!' or %vi& Such other person as the Commission ma! ! rule determine as 0ualified u!ers, on the asis of such factors as financial sophistication, net "orth, kno"ledge, and e.perience in financial and usiness matters, or amount of assets under management. 15.6. -he Commission ma! e.empt other transactions, if it finds that the re0uirements of registration under this Code is not necessar! in the pu lic interest or for the protection of the investors such as ! reason of the small amount involved or the limited character of the pu lic offering. 15.3. 1n! person appl!ing for an e.emption under this Section, shall file "ith the Commission a notice identif!ing the e.emption relied upon on such form and at such time as the Commission ! rule ma! prescri e and "ith such notice shall pa! to the Commission a fee e0uivalent to one-tenth %1215& of one percent %1M& of the ma.imum aggregate price or issued value of the securities. Case+ 5estle 's C& (issuance o" additional ca!ital stoc.)
5ES-0E P/)0)PP)5ES )5C. petitioner 's. C4.!4, &PPE&0S and SEC.!)-)ES &5D EHC/&56E C4MM)SS)45 respondents. 6.!. 5o. ;6<3; 5o'ember "3 "77" ,&C-S+ +n (e ruar! 61, 14F3, the 1uthori8ed Capital Stock %1CS& of petitioner 3estle "as increased from *355 million divided into 3 million shares "ith a par value of *155 per share, to *=55 million divided into = million shares "ith a par value of *155 per share. 3estle under"ent the necessar! procedures involving ;oard and stockholders approvals and the necessar! filings to secure the approval of the increase of 1CS. #t "as approved ! respondent SEC. 3estle issued 3,,,955 shares out of its previousl! authori8ed ut unissued capital stock e.clusivel! to its principal stockholders San <iguel Corporation and to 3estle S.1. San <iguel Corporation su scri ed to and completel! paid up 1=F,F55 shares, "hile 3estle S.1. su scri ed to and paid up the alance of 1/9,/55 shares of stock. #n 14F9, petitioner 3estle filed a letter to SEC seeking e.emption of its proposed issuance of additional shares to its e.isting principal shareholders, from the registration re0uirement of Section , of the Aevised Securities 1ct and from pa!ment of the fee referred to in Section =%c& of the same 1ct to "it$ Sec' =' +9empt transactions' > a0 T!e re3uirement of registration under subsection .a0 of Section four of t!is Act s!all not apply to t!e sale of any security in any of t!e follo%ing transactions 999 999 999 .?0 T!e distribution by a corporation, actively engaged in t!e business aut!ori7ed by its articles of incorporation, of securities to its stoc*!olders or ot!er security !olders as a stoc* dividend or ot!er distribution out of surplus@ or t!e issuance of securities to t!e security !older or ot!er creditors of a corporation in t!e process of a bona fide reorgani7ation of suc! corporation made in good fait! and not for t!e purpose of avoiding t!e provisions of t!is Act, eit!er in e9c!ange for t!e securities of suc! security !olders or claims of suc! creditors or partly for cas! and partly in e9c!ange for t!e securities or claims of suc! security !olders or creditors@ or t!e issuance o" additional ca!ital stoc. o" a cor!oration sold or distributed by it among its o%n stoc*!olders e9clusively, %!ere no commission or ot!er remuneration is paid or given directly or indirectly in connection %it! t!e sale or distribution of suc% increased ca!ital stoc.' 3estle argued that Section =%a& %,& of the Aevised Securities 1ct em races Jnot onl! an increase in the authori8ed capital stock ut also the issuance of additional shares to e?isting stockholders of the unissued portion of the unissued capital stoc*J. SEC denied petitionerLs re0uests and ruled that the proposed issuance of shares did not fall under Section = %a& %,& of the Aevised Securities 1ct, since Section = %a& %,& is applica le onl1 "here there is an increase in the authori>ed capital stock of a corporation.
*age (( of 64
<A "as denied and appeal to C1 "as also denied. -hus this *etition for Aevie". )SS.E+ I+3 petitioner 3estleBs e.emptions should e granted. application for
!.0)56+ 3o. 7nder Sec 3F of the Corporation Code, a corporation engaged in increasing its authori8ed capital stock, "ith the re0uired vote of its <oard of Directors and of its stoc*!olders, must file a s"orn statement of the treasurer of the corporation sho"ing that at least 69M of Jsuch increased capital stockJ has een su scri ed and that at least 69M of the amount su scri ed has een paid either in actual cash or in propert! transferred to the corporation. -he corporation must issue at least 69M of the ne"l! or contemporaneousl! authori8ed capital stock in the course of compl!ing "ith the re0uirements of the Corporation Code for increasing its authori8ed capital stock. 1fter approval ! the SEC of the increase of its authori8ed capital stock, and from time to time thereafter, the corporation, ! a vote of its <oard of Directors, and %it!out need of either stockholder or SEC approval, ma! issue and sell shares of its already aut!ori7ed but still unissued capital stock to e.isting shareholders or to mem ers of the general pu lic. #n the case at ar, since the 3,,,955 shares of 3estle capital stock are proposed to e issued from already aut!ori7ed but still unissued capital stock and since the present authori8ed capital stock of =,555,555 shares "ith a par value of *155.55 per share is not proposed to e further increased, the SEC and the C1 correctl! re:ected 3estleLs petition. Ihen capital stock is issued in the course of and in compliance "ith the re0uirements of increasing its authori8ed capital stock under Section 3F of the Corporation Code, the SEC e.amines the financial condition of the corporation, and hence there is no real need for e.ercise of SEC authorit! under the Aevised Securities 1ct. -hus, one of the re0uirements under the current regulations of the SEC in respect of filing a certificate of increase of authori8ed capital stock, is su mission of Ja financial statement dul! certified ! an independent C*1 as of the latest date possi le or as of the date of the meeting "hen stockholders approved the increase2decrease in capital stock or therea outs. Ihen all or part of the ne"l! authori8ed capital stock is proposed to e issued as stock dividends, the SEC re0uirements are even more e.acting' the! re0uire, in addition to the regular audited financial statements, the su mission ! the corporation of a Jdetailed or ?ong (orm Aeport of the certif!ing 1uditor.J <oreover, since approval of an increase in authori8ed capital stock ! the stockholders holding 623 of the outstanding capital stock is re0uired ! Section 3F of the Corporation Code, at a stockholders meeting held for that purpose, the directors and officers of the corporation ma! e e.pected to inform the shareholders of the financial condition and prospects of the corporation and of the proposed utili8ation of the fresh capital sought to e raised.
+n the other hand, issuance of previousl! authori8ed ut theretofore unissued capital stock ! the corporation re0uires onl! ;oard of )irectors approval. 3either notice to nor approval ! the shareholders or the SEC is re0uired for such issuance. -here "ould e no opportunit! for the SEC to see to it that shareholders %especiall! the small stockholders& have a reasona le opportunit! to inform themselves a out the ver! fact of such issuance and a out the condition of the corporation and the potential value of the shares of stock eing offered. 1n issuance of previousl! authori8ed ut still unissued capital stock ma! e held to e an e.empt transaction ! the SEC under Section =% & so long as the SEC finds that the re0uirements of registration under the Aevised Securities 1ct are Jnot necessar! in the pu lic interest and for the protection of the investorsJ ! reason, inter alia, of the small amount of stock that is proposed to e issued or ecause the potential u!ers are ver! limited in num er and are in a position to protect themselves. *etitioner 3estleLs second claim for e.emption is from pa!ment of the fee provided for in Section = %c& of the Aevised Securities 1ct. *etitioner claims that to re0uire it no" to pa! one-tenth of one percent %1M& of the issued value of the 3,,,955 shares of stock proposed to e issued, is to re0uire it to pa! a second time for the same service on the part of the SEC. Ie think it clear that the fee collected in 61 (e ruar! 14F3 ! the SEC "as assessed in connection "ith the e.amination and approval of the certificate of increase of authori8ed capital stock then su mitted ! petitioner. -he fee, on the other hand, provided for in Section = %c& "hich petitioner "ill e re0uired to pa! if it does file an application for e.emption under Section = % &, is 0uite different' this is a fee specificall! authori8ed ! the Aevised Securities 1ct, %not the Corporation Code& in connection "ith the grant of an e.emption from normal registration re0uirements imposed ! that 1ct. Ie do not find such fee either unreasona le or e.or itant. I>EAE(+AE, *etition for Aevie" Certiorari is here ! )E3#E) for lack of merit. on
J. Commodit1 future contract (Sec. "")

Commodit! future contract means a contract providing for the making or taking deliver! at a prescri ed time in the future of a specific 0uantit! and 0ualit! of a commodit! or the cash value thereof, "hich is customaril! offset prior to the deliver! date, and includes standardi8ed contracts having indicia of commodities futures, commodit! options and commodit! leverage, or margin contracts.
Case+ 4napal 's. C& (trading contract vs. gambling contracts) ,&C-S+ -he petitioner, +31*1? *hilippines Commodities, #nc. %petitioner&, a dul! organi8ed and
*age (3 of 64
e.isting corporation, "as licensed as commission merchant2 roker ! the SEC, to engage in commodit! futures trading in Ce u Cit! under Certificate of Aegistration 3o. CE;-1F6. +n 1pril 6/, 14F3, petitioner and private respondent concluded a J-rading ContractJ. ?ike all customers of the petitioner, private respondent "as furnished regularl! "ith JCommodities )ail! OuotationsJ sho"ing dail! movements of prices of commodit! futures traded and of market reports indicating the volume of trade in different future e.changes in >ongkong, -ok!o and other centers. Ever! time a customer enters into a trading transaction "ith petitioner as roker, the trading order is communicated ! tele. to its principal, (rank"ell Enterprises of >ongkong. #f the transaction, either u!ing or selling commodit! futures, is consummated ! the principal, the petitioner issues a document kno"n as JConfirmation of Contract and ;alance SheetJ to the customer. 1n order of a customer of the petitioner is supposed to e transmitted from Ce u to petitionerLs office in <anila. (rom <anila, it should e for"arded to >ongkong and from there, transmitted to the Commodit! (utures E.change in Capan. -he term JfuturesJ has gro"n out of those purel! speculative transactions in "hich there are nominal contracts to sell for future deliver!, ut "here in fact no deliver! is intended or e.ecuted. -he nominal seller does not have or e.pect to have a stock of merchandise he purports to sell nor does the nominal u!er e.pect to receive it or to pa! for the price. #nstead of that, a percentage or margin is paid, "hich is increased or diminished as the market rates go up and do"n, and accounted for to the u!er. -his is simple speculation, gam ling or "agering on prices "ithin a given time' it is not u!ing and selling and is illegal as against pu lic polic!. -he trading contract signed ! private respondent and 1l ert Chiam, representing petitioner, is a contract for the sale of products for future deliver!, in "hich either seller or u!er ma! elect to make or demand deliver! of goods agreed to e ought and sold, ut "here no such deliver! is actuall! made. ;! deliver! is meant the act ! "hich the res or su :ect is placed in the actual or constructive possession or control of another. #t ma! e actual as "hen ph!sical possession is given to the vendee or his representative' or constructive "hich takes place "ithout actual transfer of goods, ut includes s!m olic deliver! or su stituted deliver! as "hen the evidence of title to the goods, the ke! to the "arehouse or ill of lading2"arehouse receipt is delivered. 1s a contract in printed form, prepared ! petitioner and served on private respondent, for the latterLs signature, the trading contract ears all the indicia of a valid trading contract ecause it complies "ith the Aules and Aegulations on Commodit! (utures -rading as prescri ed ! the SEC. ;ut "hen the transaction "hich "as carried out to implement the "ritten contract deviates from the true import of the agreement as "hen no such deliver!, actual or constructive, of the commodit! or goods is made, and final settlement is made ! pa!ment and receipt of onl! the difference in prices at the time of deliver! from that prevailing at the time the sale is made, the dealings in futures ecome mere speculative contracts in "hich the parties merel! gam le on the rise
or fall in prices. 1 contract for the sale or purchase of goods2commodit! to e delivered at future time, if entered into "ithout the intention of having an! goods2commodit! pass from one part! to another, ut "ith an understanding that at the appointed time, the purchaser is merel! to receive or pa! the difference et"een the contract and the market prices, is a transaction "hich the la" "ill not sanction, for eing illegal. )SS.E+ I+3 their agreement is illegal %I+3 it is considered as gam ling contract&. /E0D+ -he "ritten trading contract in 0uestion is not illegal ut the transaction et"een the petitioner and the private respondent purportedl! to implement the contract is in the nature of a gam ling agreement and falls "ithin the am it of 1rticle 651F of the 3e" Civil Code, "hich is 0uoted hereunder$ #f a contract "hich purports to e for the deliver! of goods, securities or shares of stock is entered into "ith the intention that the difference et"een the price stipulated and the e.change or market price at the time of the pretended deliver! shall e paid ! the loser to the "inner, the transaction is null and void. -he loser ma! recover "hat he has paid. 1fter considering all the evidence in this case, it appears that petitioner and private respondent did not intend, in the deals of purchasing and selling for future deliver!, the actual or constructive deliver! of the goods2commodit!, despite the pa!ment of the full price therefor. -he contract et"een them falls under the definition of "hat is called JfuturesJ. -he pa!ments made under said contract "ere pa!ments of difference in prices arising out of the rise or fall in the market price a ove or elo" the contract price thus making it purel! gam ling and declared null and void ! la". #n England and 1merica "here contracts commonl! called futures originated, such contracts "ere at first held valid and could e enforced ! resort to courts. ?ater these contracts "ere held invalid for eing speculative, and in some states in 1merica, it "as unla"ful to make contracts commonl! called JfuturesJ. Such contracts "ere found to e mere gam ling or "agering agreements covered and protected ! the rules and regulations of e.change in "hich the! "ere transacted under devices "hich rendered it impossi le for the courts to discover their true character. -he evil sought to e suppressed ! legislation is the speculative dealings ! means of such trading contracts, "hich degenerated into mere gam ling in the future price of goods2commodities ostensi l! ut not actuall!, ought or sold. 7nder 1rticle 651F, the private respondent is entitled to refund from the petitioner "hat she paid. -here is no evidence that the orders of private respondent "ere actuall! transmitted to the petitionerLs principal in >ongkong and -ok!o. -here "as no arrangement made ! petitioner "ith the Central ;ank for the purpose of remitting the mone! of its customers a road. -he mone!
*age (4 of 64
"hich "as supposed to e remitted to (rank"ell Enterprises of >ongkong "as kept ! petitioner in a separate account in a local ank. >aving received the mone! and orders of private respondent under the trading contract, petitioner has the urden of proving that said orders and mone! of private respondent had een transmitted. ;ut petitioner failed to prove this point.
G. !egistration of securities (Secs. "( to "%)

SEC. "(. $rocedure "or Registration o" Securities. = 16.1. 1ll securities re0uired to e registered under Su section F.1 shall e registered through the filing ! the issuer in the main office of the Commission, of a s"orn registration statement "ith respect to such securities, in such form and containing such information and documents as the Commission shall prescri e. -he registration statement shall include an! prospectus re0uired or permitted to e delivered under Su sections F.6, F.3 and F.,. 16.6. #n promulgating rules governing the content of an! registration statement %including an! prospectus made a part thereof or anne.ed thereto&, the Commission ma! re0uire the registration statement to contain such information or documents as it ma!, ! rule, prescri e. #t ma! dispense "ith an! such re0uirement, or ma! re0uire additional information or documents, including "ritten information from an e.pert, depending on the necessit! thereof or their applica ilit! to the class of securities sought to e registered. 16.3. -he information re0uired for the registration of an! kind, and all securities, shall include, among others, the effect of the securities issue on o"nership, on the mi. of o"nership, especiall! foreign and local o"nership. 16.,. -he registration statement shall e signed ! the issuerBs e.ecutive officer, its principal operating officer, its principal financial officer, its comptroller, principal accounting officer, its corporate secretar! or persons performing similar functions accompanied ! a dul! verified resolution of the oard of directors of the issuer corporation. -he "ritten consent of the e.pert named as having certified an! part of the registration statement or an! document used in connection there"ith shall also e filed. Ihere the registration statement includes shares to e sold ! selling shareholders, a "ritten certification ! such selling shareholders as to the accurac! of an! part of the registration statement contri uted to ! such selling shareholders shall also e filed. 16.9. %a& 7pon filing of the registration statement, the issuer shall pa! to the Commission a fee of not more than one-tenth %1215& of one per centum %1M& of the ma.imum aggregate price at "hich such securities are proposed to e offered. -he Commission shall prescri e ! rule diminishing fees in inverse proportion to the value of the aggregate price of the offering. % & 3otice of the filing of the registration statement shall e immediatel! pu lished ! the issuer, at its o"n e.pense, in t"o %6& ne"spapers of general circulation in
the *hilippines, once a "eek for t"o %6& consecutive "eeks, or in such other manner as the Commission ! rule shall prescri e, reciting that a registration statement for the sale of such securit! has een filed, and that the aforesaid registration statement, as "ell as the papers attached thereto are open to inspection at the Commission during usiness hours, and copies thereof, photostatic or other"ise, shall e furnished to interested parties at such reasona le charge as the Commission ma! prescri e. 16.=. Iithin fort!-five %,9& da!s after the date of filing of the registration statement, or ! such later date to "hich the issuer has consented, the Commission shall declare the registration statement effective or re:ected, unless the applicant is allo"ed to amend the registration statement as provided in Section 1, hereof. -he Commission shall enter an order declaring the registration statement to e effective if it finds that the registration statement together "ith all the other papers and documents attached thereto, is on its face complete and that the re0uirements have een complied "ith. -he Commission ma! impose such terms and conditions as ma! e necessar! or appropriate for the protection of the investors. 16./. 7pon effectivit! of the registration statement, the issuer shall state under oath in ever! prospectus that all registration re0uirements have een met and that all information are true and correct as represented ! the issuer or the one making the statement. 1n! untrue statement of fact or omission to state a material fact re0uired to e stated therein or necessar! to make the statement therein not misleading shall constitute fraud. SEC. "3. Re/ection and Revocation o" Registration o" Securities. - 13.1. -he Commission ma! re:ect a registration statement and refuse registration of the securit! thereunder, or revoke the effectivit! of a registration statement and the registration of the securit! thereunder after due notice and hearing ! issuing an order to such effect, setting forth its findings in respect thereto, if it finds that$ %a& -he issuer$ %i& >as een :udiciall! declared insolvent' %ii& >as violated an! of the provisions of this Code, the rules promulgated pursuant thereto, or an! order of the Commission of "hich the issuer has notice in connection "ith the offering for "hich a registration statement has een filed' %iii& >as een or is engaged or is a out to engage in fraudulent transactions' %iv& >as made an! false or misleading representation of material facts in an! prospectus concerning the issuer or its securities' %v& >as failed to compl! "ith an! re0uirement that the Commission ma! impose as a condition for registration of the securit! for "hich the registration statement has een filed' or
*age (% of 64
% & -he registration statement is on its face incomplete or inaccurate in an! material respect or includes an! untrue statement of a material fact or omits to state a material fact re0uired to e stated therein or necessar! to make the statements therein not misleading' or %c& -he issuer, an! officer, director or controlling person of the issuer, or person performing similar functions, or an! under"riter has een convicted, ! a competent :udicial or administrative od!, upon plea of guilt!, or other"ise, of an offense involving moral turpitude and2or fraud or is en:oined or restrained ! the Commission or other competent :udicial or administrative od! for violations of securities, commodities, and other related la"s. (or purposes of this su section, the term competent 1udicial or administrative body shall include a foreign court of competent :urisdiction as provided for under the Aules of Court. 13.6. -he Commission ma! compel the production of all the ooks and papers of such issuer, and ma! administer oaths to, and e.amine the officers of such issuer or an! other person connected there"ith as to its usiness and affairs. 13.3. #f an! issuer shall refuse to permit an e.amination to e made ! the Commission, its refusal shall e ground for the refusal or revocation of the registration of its securities. 13.,. #f the Commission deems it necessar!, it ma! issue an order suspending the offer and sale of the securities pending an! investigation. -he order shall state the grounds for taking such action, ut such order of suspension although inding upon the persons notified thereof, shall e deemed confidential, and shall not e pu lished. 7pon the issuance of the suspension order, no further offer or sale of such securit! shall e made until the same is lifted or set aside ! the Commission. +ther"ise, such sale shall e void. 13.9. 3otice of issuance of such order shall e given to the issuer and ever! dealer and roker "ho shall have notified the Commission of an intention to sell such securit!. 13.=. 1 registration statement ma! e "ithdra"n ! the issuer onl! "ith the consent of the Commission. SEC. "4. Amendments to t%e Registration Statement . - 1,.1. #f a registration statement is on its face incomplete or inaccurate in an! material respect, the Commission shall issue an order directing the amendment of the registration statement. 7pon compliance "ith such order, the amended registration statement shall ecome effective in accordance "ith the procedure mentioned in Su section 16.= hereof. 1,.6. 1n amendment filed prior to the effective date of the registration statement shall recommence the fort!-five %,9& da! period "ithin "hich the Commission shall act on a registration statement. 1n amendment filed after the effective date of the registration statement shall ecome
effective onl! upon such date as determined Commission.
! the
1,.3. #f an! change occurs in the facts set forth in a registration statement, the issuer shall file an amendment thereto setting forth the change. 1,.,. #f, at an! time, the Commission finds that a registration statement contains an! false statement or omits to state an! fact re0uired to e stated therein or necessar! to make the statements therein not misleading, the Commission ma! conduct an e.amination, and, after due notice and hearing, issue an +rder suspending the effectivit! of the registration statement. #f the statement is dul! amended, the suspension order ma! e lifted. 1,.9. #n making such e.amination the Commission or an! officer or officers designated ! it ma! administer oaths and affirmations and shall have access to, and ma! demand the production of, an! ooks, records or documents relevant to the e.amination. (ailure of the issuer, under"riter, or an! other person to cooperate, or his o struction or refusal to undergo an e.amination, shall e a ground for the issuance of a suspension order. SEC. "%. Sus!ension o" Registration. - 19.1. #f, at an! time, the information contained in the registration statement filed is or has ecome misleading, incorrect, inade0uate or incomplete in an! material respect, or the sale or offering for sale of the securit! registered thereunder ma! "ork or tend to "ork a fraud, the Commission ma! re0uire from the issuer such further information as ma! in its :udgment e necessar! to ena le the Commission to ascertain "hether the registration of such securit! should e revoked on an! ground specified in this Code. -he Commission ma! also suspend the right to sell and offer for sale such securit! pending further investigation, ! entering an order specif!ing the grounds for such action, and ! notif!ing the issuer, under"riter, dealer or roker kno"n as participating in such offering. 19.6. -he refusal to furnish information re0uired ! the Commission ma! e a ground for the issuance of an order of suspension pursuant to Su section 19.1. 7pon the issuance of an! such order and notification to the issuer, under"riter, dealer or roker kno"n as participating in such offering, no further offer or sale of an! such securit! shall e made until the same is lifted or set aside ! the Commission. +ther"ise, such sale shall e void. 19.3. 7pon issuance of an order of suspension, the Commission shall conduct a hearing. #f the Commission determines that the sale of an! securit! should e revoked, it shall issue an order prohi iting sale of such securit!. 7ntil the issuance of a final order, the suspension of the right to sell, though inding upon the persons notified thereof, shall e deemed confidential, and shall not e pu lished, unless it shall appear that the order of suspension has een violated after notice. #f, ho"ever, the Commission finds that the sale of the
*age (6 of 64
securit! "ill neither e fraudulent nor result in fraud, it shall forth"ith issue an order revoking the order of suspension, and such securit! shall e restored to its status as a registered securit! as of the date of such order of suspension.
0. Pre=need Plans (Sec. "6)

SEC.1=. Pre#(eed Plans. - 3o person shall sell or offer for sale to the pu lic an! pre-need plan e.cept in accordance "ith rules and regulations "hich the Commission shall prescri e. Such rules shall regulate the sale of pre-need plans !, among other things, re0uiring the registration of pre-need plans, licensing persons involved in the sale of pre-need plans, re0uiring disclosures to prospective plan holders, prescri ing advertising guidelines, providing for uniform accounting s!stem, reports and record keeping "ith respect to such plans, imposing capital, onding and other financial responsi ilit!, and esta lishing trust funds for the pa!ment of enefits under such plans.
as the Commission shall prescri e, and having -"o hundred %655& or more holders each holding at least +ne hundred %155& shares of a class of its e0uit! securities$ Provided, !o%ever, -hat the o ligation of such issuer to file reports shall e terminated ninet! %45& da!s after notification to the Commission ! the issuer that the num er of its holders holding at least one hundred %155& shares is reduced to less than +ne hundred %155&. 1/.3. Ever! issuer of a securit! listed for trading on an E.change shall file "ith the E.change a cop! of an! report filed "ith the Commission under Su section 1/.1 hereof. 1/.,. 1ll reports %including financial statements& re0uired to e filed "ith the Commission pursuant to Su section 1/.1 hereof shall e in such form, contain such information and e filed at such times as the Commission shall prescri e, and shall e in lieu of an! periodical or current reports or financial statements other"ise re0uired to e filed under the Corporation Code. 1/.9. Ever! issuer "hich has a class of e0uit! securities satisf!ing an! of the re0uirements in Su section 1/.6 shall furnish to each holder of such e0uit! securit! an annual report in such form and containing such information as the Commission shall prescri e. 1/.=. Iithin such period as the Commission ma! prescri e preceding the annual meeting of the holders of an! e0uit! securit! of a class entitled to vote at such meeting, the issuer shall transmit to such holders an annual report in conformit! "ith Su section 1/.9. SEC. 1F. Reports by &ive per centum .:A0 6olders of +3uity Securities . - 1F.1. #n ever! case in "hich an issuer satisfies the re0uirements of Su section 1/.6 hereof, an! person "ho ac0uires directl! or indirectl! the eneficial o"nership of more than five per centum %9M& of such class or in e.cess of such lesser per centum as the Commission ! rule ma! prescri e, shall, "ithin ten %15& da!s after such ac0uisition or such reasona le time as fi.ed ! the Commission, su mit to the issuer of the securit!, to the E.change "here the securit! is traded, and to the Commission a s"orn statement containing the follo"ing information and such other information as the Commission ma! re0uire in the pu lic interest or for the protection of investors$ %a& -he personal ackground, identit!, residence, and citi8enship of, and the nature of such eneficial o"nership !, such person and all other persons ! "hom or on "hose ehalf the purchases are effected' in the event the eneficial o"ner is a :uridical person, the lines of usiness of the eneficial o"ner shall also e reported' % & #f the purpose of the purchases or prospective purchases is to ac0uire control of the usiness of the issuer of the securities, an! plans or proposals "hich such persons ma! have that "ill effect a ma:or change in its usiness or corporate structure'
M. !eportorial re8uirements (Secs. "< and ";)

SEC. 1/. Periodic and 4t!er Reports of Issuers. -1/.1. Ever! issuer satisf!ing the re0uirements in Su section 1/.6 hereof shall file "ith the Commission$ %a& Iithin one hundred thirt!-five %139& da!s, after the end of the issuerBs fiscal !ear, or such other time as the Commission ma! prescri e, an annual report "hich shall include, among others, a alance sheet, profit and loss statement and statement of cash flo"s, for such last fiscal !ear, certified ! an independent certified pu lic accountant, and a management discussion and anal!sis of results of operations' and % & Such other periodical reports for interim fiscal periods and current reports on significant developments of the issuer as the Commission ma! prescri e as necessar! to keep current information on the operation of the usiness and financial condition of the issuer. 1/.6.-he reportorial re0uirements of Su section 1/.1 shall appl! to the follo"ing$ %a& 1n issuer "hich has sold a class of its securities pursuant to a registration under Section 16 hereof$ Provided, !o%ever, -hat the o ligation of such issuer to file reports shall e suspended for an! fiscal !ear after the !ear such registration ecame effective if such issuer, as of the first da! of an! such fiscal !ear, has less than one hundred %155& holders of such class of securities or such other num er as the Commission shall prescri e and it notifies the Commission of such' % & 1n issuer "ith a class of securities listed for trading on an E.change' and %c& 1n issuer "ith assets of at least (ift! million pesos %*95,555,555.55& or such other amount
*age (< of 64
%c& -he num er of shares of such securit! "hich are eneficiall! o"ned, and the num er of shares concerning "hich there is a right to ac0uire, directl! or indirectl!, !$ %i& such person, and %ii& each associate of such person, giving the ackground, identit!, residence, and citi8enship of each such associate' and %d& #nformation as to an! contracts, arrangements, or understanding "ith an! person "ith respect to an! securities of the issuer including ut not limited to transfer, :oint ventures, loan or option arrangements, puts or calls, guarantees or division of losses or profits, or pro.ies naming the persons "ith "hom such contracts, arrangements, or understanding have een entered into, and giving the details thereof. 1F.6. #f an! change occurs in the facts set forth in the statements, an amendment shall e transmitted to the issuer, the E.change and the Commission. 1F.3. -he Commission, ma! permit an! person to file in lieu of the statement re0uired ! Su section 1/.1 hereof, a notice stating the name of such person, the shares of an! e0uit! securities su :ect to Su section 1/.1 "hich are o"ned ! him, the date of their ac0uisition and such other information as the Commission ma! specif!, if it appears to the Commission that such securities "ere ac0uired ! such person in the ordinar! course of his usiness and "ere not ac0uired for the purpose of and do not have the effect of changing or influencing the control of the issuer nor in connection "ith an! transaction having such purpose or effect. Case+ Philippine Beterans Can* 's. Callangan 6.!. 5o. "7"77% &ugust 3 (2"" ,&C-S+ +n <arch 1/, 655,, respondent Custina (. Callangan, the )irector of the Corporation (inance )epartment of the Securities and E.change Commission %S+C&, sent the ;ank a letter, informing it that it 0ualifies as a pu lic compan! under Section 1/.6 of the Securities Aegulation Code %SRC& in relation "ith Aule 3%1&%m& of the 1mended #mplementing Aules and Aegulations of the SAC. -he ;ank is thus re0uired to compl! "ith the reportorial re0uirements set forth in Section 1/.1 of the SAC. -he ;ank responded ! e.plaining that it should not e considered a pu lic compan! ecause it is a private compan! "hose shares of stock are availa le onl! to a limited class or sector, i'e', to Iorld Iar ## veterans, and not to the general pu lic. #n a letter dated 1pril 65, 655,, )irector Callangan re:ected the ;ankBs e.planation and assessed it a total penalt! of +ne <illion 3ine >undred -hirt!Seven -housand -"o >undred Si.t!--"o and F52155 *esos %*1,43/,6=6.F5& for failing to compl! "ith the SAC reportorial re0uirements from 6551 to 6553. -he ;ank moved for the reconsideration of the assessment, ut )irector Callangan denied the motion in SEC-C() +rder 3o. 5F9, Series of 6559 dated Cul! 6=, 6559. Ihen the SEC +n <anc also dismissed the ;ankBs appeal for lack of merit in its +rder dated 1ugust 31, 655=, prompting
the ;ank to file a petition for revie" "ith the Court of 1ppeals %CA&. +n <arch =, 655F, the C1 dismissed the petition and affirmed the assailed SEC ruling, "ith the modification that the assessment of the penalt! e recomputed from <a! 31, 655,. -he C1 also denied the ;ankBs motion for reconsideration, opening the "a! for the ;ankBs petition for revie" on certiorari filed "ith this Court. +n Cune 1=, 6515, the Court denied the ;ankBs petition for failure to sho" an! reversi le error in the assailed C1 decision and resolution. )SS.E+ Ihether or not the reportorial re0uirements of the SEC are applica le to ;anks. /E0D+ -he Securities and E.change Commission %SEC& re0uired the ;ank to compl! "ith the reportorial re0uirements under Section 1/.1 of SAC since it 0ualifies as a pu lic compan! under Section 1/.6 of the SAC. -he ;ank argued that it is a private compan! and not a pu lic compan! ecause its shares are availa le onl! to a limited class or sector. -he Supreme Court held that pu lic compan!, as contemplated ! the SAC, is not limited to a compan! "hose shares of stocks are pu licl! listed' even companies like the ;ank, "hose shares are offered onl! to a specific group of people, are considered a pu lic compan!, provided the! meet the re0uirement as re0uired under the SAC.
5. Protection of shareholder interest

". -ender offer (Sec. "7 S!C !ule "7) SEC. 14. Tender 4ffers. 14.1. %a& 1n! person or group of persons acting in concert "ho intends to ac0uire at least fifteen per cent %19M& of an! class of an! e0uit! securit! of a listed corporation or of an! class of an! e0uit! securit! of a corporation "ith assets of at least (ift! <illion *esos %*95,555,555.55& and having t"o hundred %655& or more stockholders "ith at least one hundred %155& shares each or "ho intends to ac0uire at least thirt! per cent %35M& of such e0uit! over a period of t"elve %16& months shall make a tender offer to stockholders ! filing "ith the Commission a declaration to that effect' and furnish the issuer, a statement containing such of the information re0uired in Section 1/ of this Code as the Commission ma! prescri e. Such person or group of persons shall pu lish all re0uests or invitations for tender, or materials making a tender offer or re0uesting or inviting letters of such a securit!. Copies of an! additional material soliciting or re0uesting such tender offers su se0uent to the initial solicitation or re0uest shall contain such information as the Commission ma! prescri e, and shall e filed "ith the Commission and sent to the issuer not later than the time copies of such materials are first pu lished or sent or given to securit! holders. % & 1n! solicitation or recommendation to the holders of such a securit! to accept or re:ect a tender offer or
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re0uest or invitation for tenders shall e made in accordance "ith such rules and regulations as the Commission ma! prescri e. %c& Securities deposited pursuant to a tender offer or re0uest or invitation for tenders ma! e "ithdra"n ! or on ehalf of the depositor at an! time throughout the period that the tender offer remains open and if the securities deposited have not een previousl! accepted for pa!ment, and at an! time after si.t! %=5& da!s from the date of the original tender offer or re0uest or invitation, e.cept as the Commission ma! other"ise prescri e. %d& Ihere the securities offered e.ceed that "hich a person or group of persons is ound or "illing to take up and pa! for, the securities that are su :ect of the tender offer shall e taken up as nearl! as ma! e pro rata, disregarding fractions, according to the num er of securities deposited ! each depositor. -he provisions of this su section shall also appl! to securities deposited "ithin ten %15& da!s after notice of an increase in the consideration offered to securit! holders, as descri ed in paragraph %e& of this su section, is first pu lished or sent or given to securit! holders. %e& Ihere an! person varies the terms of a tender offer or re0uest or invitation for tenders efore the e.piration thereof ! increasing the consideration offered to holders of such securities, such person shall pa! the increased consideration to each securit! holder "hose securities are taken up and paid for "hether or not such securities have een taken up ! such person efore the variation of the tender offer or re0uest or invitation. 14.6. #t shall e unla"ful for an! person to make an! untrue statement of a material fact or omit to state an! material fact necessar! in order to make the statements made, in the light of the circumstances under "hich the! are made, not misleading, or to engage in an! fraudulent, deceptive, or manipulative acts or practices, in connection "ith an! tender offer or re0uest or invitation for tenders, or an! solicitation of securit! holders in opposition to or in favor of an! such offer, re0uest, or invitation. -he Commission shall, for the purposes of this su section, define and prescri e means reasona l! designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative. S!C !ule "7." -ender 4ffers 1. )efinitions a. ;eneficial o"ner shall have the same meaning as set forth in SAC Aule 3. . ;idder means an! person "ho makes a tender offer or on "hose ehalf a tender offer is made. c. Commencement means the date a tender offer is first pu lished, sent or given to securit! holders. d. E0uit! securities shall have the same meaning as set forth in SAC Aule 1F.1. e. Securit! holders means holders of record and eneficial o"ners of securities that are the su :ect of a tender offer. f. -arget compan! means an! issuer of securities that are sought ! a idder pursuant to tender offer.
g. -ender offer means a pu licl! announced intention ! a person acting alone or in concert "ith other persons %hereinafter referred to as person& to ac0uire e0uit! securities of a pu lic compan! as defined in SAC Aule 3. h. -ender offer materials means$chanro lesvirtualla"li rar! %i& the idderBs formal offer, including all the material terms and conditions of the tender offer and all amendments thereto' %ii& the related transmittal letter %"here ! securities of the target compan! "hich are sought in the tender offer ma! e transmitted to the idder or its depositor!& and all amendments thereto' and %iii& press releases, advertisements, letters and other documents pu lished ! the idder or sent or given ! the idder to securit! holders "hich, directl! or indirectl!, solicit, invite or re0uest tenders of the securities eing sought in the tender offer. i. -ermination means the date after "hich securities ma! not e tendered pursuant to the tender offer. 6. <andator! tender offers a. E.cept as provided in paragraph 3 elo", a person is re0uired to make a tender offer for e0uit! shares of a pu lic compan! in an amount e0ual to the num er of shares that the person intends to ac0uire in the follo"ing circumstances$ i. -he person intends to ac0uire fifteen percent %19M& or more of the e0uit! shares of a pu lic compan! pursuant to an agreement made et"een or among the person and one or more sellers' ii. -he person intends to ac0uire thirt! percent %35M& or more of the e0uit! shares of a pu lic compan! "ithin a period of 16 months' or iii. -he person intends to ac0uire shares that "ould result in o"nership of more than fift! percent %95M& of the e0uit! shares of a pu lic compan!. . 1 person shall e presumed to have the intent that "ould mandate the making of a tender offer pursuant to paragraph %a& a ove "hen the person, respectivel!$ i. ac0uires 19M or more of the e0uit! shares of a pu lic compan! pursuant to an agreement made et"een or among the person and the seller or sellers' ii. ac0uires 35M or more of the shares of a pu lic compan! "ithin a period of 16 months' or iii. ac0uires shares that result in o"nership of more than fift! percent %95M& of the e0uit! shares of a pu lic compan!. c. 1 mandator! tender offer shall e made in accordance "ith this Aule. 3. Aelief from <andator! -ender +ffer Ae0uirement
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a. -he Commission, upon "ritten application, and consistent "ith the policies set forth in Section 6 of the Code and pursuant to its po"ers under Section /6.1 thereof, ma! e.empt from the re0uirement to make a mandator! tender offer the follo"ing proposed purchases of e0uit! shares of a pu lic compan!$ i. the purchase of ne"l! issued shares from unissued capital stock' ii. in connection "ith foreclosure proceeding involving a dul! constituted pledge or securit! arrangement "here the ac0uisition is made ! the de tor or creditor' iii. purchases in connection "ith privati8ation undertaken ! the government of the *hilippines' or iv. purchases in connection "ith corporate reha ilitation under court supervision. *urchasers "ho are granted an e.emption are re0uired to compl! "ith disclosure and other o ligations under SAC Aule 1F, SAC Aule 63, and Section 63 of the Code$ Provided !o%ever, an e.emption under paragraph 3%a& of this Aule shall not ecome effective until pu licl! disclosed ! the purchaser in a ne"spaper of general circulation. Such disclosure shall descri e the proposed transaction and indicate the su section of paragraph 3%a& a ove under "hich e.emption "as claimed. 1n! person seeking an e.emption under this paragraph ma! not rel! upon the grant of a previous e.emption and shall separatel! appl! for such relief. c. E0uit! shares of a pu lic compan! ac0uired through open market purchases at the prevailing market price shall e automaticall! e.empted from mandator! tender offer re0uirements provided that such purchaser complies "ith disclosure re0uirements under Sections 1F and 63 of theCode and rules adopted thereunder. ,. Koluntar! tender offers a. 1 person ma! make a voluntar! tender offer. . 1 voluntar! tender offer shall e made in accordance "ith this Aule. c. 1 person "ill e presumed to e making a voluntar! tender offer "here some or all of the follo"ing factors are present$chanro lesvirtualla"li rar! i. 1ctive and "idespread solicitation of pu lic shareholders for the shares of a pu lic compan!' ii. Solicitation made for a su stantial percentage of the issuerBs stock' iii. +ffer to purchase is made at a premium over the prevailing market price, at firm rather than negotia le terms' iv. 1n offer is contingent on the tender of a fi.ed num er of shares' and2or v. +ffer is onl! open for a limited period of time. 9. 1n! person making a tender offer shall make a pu lic announcement of his intention, prior to the commencement of the offer' Provided, !o%ever, such announcement shall not e made .
until the idder has the resources to implement the offer in full. =. -ender +ffer Statement a. 3o idder shall make a tender offer unless as soon as practica le on the date of the commencement of the tender offer such idder$ i. (iles "ith the Commission copies of SEC (orm 14-1, including all e.hi its thereto' and ii. >and delivers a cop! of such SEC (orm 14-1, including all e.hi its thereto to the target compan! at its principal e.ecutive office and to each E.change "here such class of the target compan!Bs securities are listed for trading. . -he idder shall file "ith the Commission copies of an! additional tender offer materials as an e.hi it to the SEC (orm 14-1 and, if a material change occurs in the information set forth in such SEC (orm 14-1, copies of an amendment to such SEC (orm. Copies of such additional tender offer materials and amendments shall e hand delivered to the compan! and to an! E.change as re0uired a ove. c. -he idder shall report the results of the tender offer ! filing "ith the Commission, not later than ten %15& calendar da!s after the termination of the tender offer, copies of the final amendments to SEC (orm 14-1. /. )isclosure Ae0uirements "ith Aespect to -ender +ffers a. -he idder shall pu lish, send or give to securit! holders in the manner prescri ed in this Aule, a report containing the follo"ing information$ i. #dentit! of the idder' ii. #dentit! of the target compan!' iii. 1mount of class of securities eing sought and the t!pe and amount of consideration eing offered therefor' iv. -he scheduled e.piration date of the tender offer, "hether the tender offer ma! e e.tended and, if so, the procedures for e.tension of the tender offer' v. -he e.act dates securit! holders "ho deposit their securities "ill have the right to "ithdra" their securities pursuant to this Aule and the manner in "hich shares "ill e accepted for pa!ment and in "hich "ithdra"al ma! e effected' vi. #f the tender offer is for less than all of the securities of the class and the idder is not o ligated to purchase all of the securities tendered, the e.act date of the period during "hich securities "ill e accepted on a pro rata asis under this Aule and the present intention or plan of the idder "ith respect to the tender offer in the event of an oversu scription ! securit! holders' vii. Confirmation ! the idderBs financial adviser or another appropriate third part! that resources are availa le to the idder sufficient to satisf! full acceptance of the offer' and viii. -he information included in SEC (orm 14-1.
*age 32 of 64
. #f an! material change occurs in the information previousl! disclosed to securit! holders, the idder shall disclose promptl! such change in the manner prescri ed ! this Aule. F. )issemination of -ender +ffers a. 1 idder ma! pu lish, send or make the tender offer ! compl!ing full! "ith one of the follo"ing methods of dissemination$chanro lesvirtualla"li rar! i. $ong &orm Publication' -he idder ma! pu lish in t"o ne"spapers of general circulation in the *hilippines on the date of commencement of the tender offer and for t"o consecutive da!s thereafter the information re0uired ! paragraph / %a& of this Aule' or ii. Summary Publication' -he idder ma! pu lish in t"o ne"spapers of general circulation in the *hilippines on the date of commencement of the tender offer and for t"o consecutive da!s thereafter the information re0uired ! paragraph / %a&%i& through %vii& of this Aule, including appropriate instructions for securit! holders regarding ho" to o tain promptl!, at the e.pense of the idder, the information included in SEC (orm 14-1, and furnish promptl! a cop! of SEC (orm 14-1 to an! securit! holder "ho re0uests a cop! of such information. . #f a material change occurs in the information pu lished, sent or given to securit! holders, the idder shall disseminate promptl! disclosure of such change in a manner reasona l! calculated to inform securit! holders of such change. 4. <anner of <aking -ender +ffer a. -he tender offer, unless "ithdra"n, shall remain open until the e.piration of$ i. 1t least t"ent! %65& usiness da!s from its commencement' provided, ho"ever, that an offer should generall! e completed "ithin si.t! %=5& da!s from the date it is pu licl! announced' and ii. 1t least ten %15& usiness da!s from the date that notice of a change in the percentage of the class of securities eing sought or in the consideration offered is first pu lished, sent or given to securit! holders. . Ihere a mandator! tender offer is re0uired, the idder is re0uired to offer the highest price paid ! him for such shares during the past si. %=& months. Ihere the offer involves pa!ment ! transfer or allotment of securities, such securities must e valued on an e0uita le asis. c. )uring the course of a tender offer, or efore the commencement thereof if the oard of the target compan! has reason to elieve that an offer might e imminent, it shall not engage in an! of the follo"ing transactions, e.cept in pursuance of a contract entered into earlier, or "ith the approval of shareholders in a general meeting or, "here special circumstances e.ist, Commission approval has een o tained$chanro lesvirtualla"li rar!
i. #ssue an! authori8ed ut unissued shares' ii. #ssue or grant options in respect to an! unissued shares' iii. Create or issue, or permit the creation or issue of, an! securities carr!ing rights of conversion into, or su scription for, shares' iv. Sell, dispose of or ac0uire, or agree to ac0uire, an! assets, the value of "hich amounts to five percent %9M& or more of the total value of assets prior to ac0uisition' or v. Enter into contracts other"ise than in the ordinar! course of usiness. d. -he idder in a tender offer shall permit securities tendered to e "ithdra"n$ i. 1t an! time during the period such tender offer remains open' and ii. #f not !et accepted for pa!ment, after the e.piration of si.t! %=5& usiness da!s from the commencement of the tender offer. e. #f the tender offer is for less than all of the outstanding e0uit! securities of a class, and if a greater num er of securities is tendered pursuant thereto than the idder is ound or "illing to take up and pa! for, the securities taken up and paid for shall e taken up and paid for as nearl! as ma! e pro rata, disregarding fractions, according to the num er of securities tendered ! each securit! holder during the period such offer remains open. f. #n the event the idder in a tender offer increases the consideration offered after the tender offer has commenced, such idder shall pa! such increased consideration to all securit! holders "hose tendered securities are accepted for pa!ment ! such idder, "hether or not the securities "ere tendered prior to the variation of the tender offerBs terms. g. -he idder in a tender offer shall either pa! the consideration offered, or return the tendered securities, not later than ten %15& usiness da!s after the termination of "ithdra"al of the tender offer. h. 3o tender offer ma! e made unless$ i. -he tender offer is open to all securit! holders of the class of securities su :ect to the tender offer' and ii. -he consideration paid to an! securit! holder pursuant to the tender offer is the highest consideration paid to an! other securit! holder during such tender offer. i. -he idder in a tender offer ma! not e.tend the length of a tender offer "ithout issuing a notice of such e.tension ! press release or other pu lic announcement, "hich notice shall include
*age 3" of 64
disclosure of the appropriate num er of securities deposited to date and shall e issued no later than the scheduled original e.piration date of the offer. 15. -ransactions on the ;asis of <aterial, 3on-*u lic #nformation #f a person ecomes a"are of a potential tender offer efore the tender offer has een pu licl! announced, such person ma! not u! or sell, directl! or indirectl!, the securities of the target compan! until the tender offer is pu licl! announced. Such u!ing or selling shall constitute insider trading under Section 6/., of the Code. E.cept "ith the consent of the Commission, "here an offer has een announced ut has not ecome unconditional in all respects, and has een "ithdra"n or lapsed, neither the idder nor an! person "ho acted in concert "ith it in the course of the offer, ma! "ithin si. %=& months, from the date on "hich such offer has een "ithdra"n or lapses, announce an offer for the target compan! nor ac0uire an! e0uit! securities of the target compan! "hich "ould re0uire such person to make a mandator! tender offer under this Aule and Section 14.1 of the Code. Cattlement@s )n'estment Compan1 's ,ears 343 ,. Supp. "(4; "7<( ,acts+ -he complaint, <arch 6, 14/6, alleges that defendant, @eorge E. (ears %(ears&, chairman of the oard of directors, president, and the controlling stockholder of 3ational *ioneer #nsurance Co. %*ioneer&, on +cto er 31, 14/1, "as the eneficial o"ner of 165,94= shares, or ,.F=M, of the outstanding shares of plaintiff, a securit! registered "ith SEC pursuant to Section 16%g& of the Securities E.change 1ct' and that, during 3ovem er and earl! )ecem er of 14/1, (ears purchased in his o"n name and eneficiall! 1//,55, additional shares, there ! increasing his holdings in e.cess of the 9M fi.ed ! Section 1,%d& of the Securities 1ct of 143, as amended ! the Iilliams 1ct of 14=F. -he complaint further alleges that (ears during the month of 3ovem er 14/1, and during the period of )ecem er 1-15, 14/1, through his agents and certain emplo!ees of 3ational *ioneer, "as activel! engaged in making tender offers for, or re0uests or invitations for tenders of, the Stock Gof CattlemenLsH ! telephone calls, use of the mails and personal visits "ithout compl!ing "ith the re0uirements of Section 1, %d& of the 1ct and the rules and regulations issued ! the Commission pursuant thereto, all in violation of Section 1,%d& of the 1ct. Plaintiff@s contention+ )efendant should e en:oined from additional purchase of the stock and from voting the stock ac0uired. Defendant@s contention+ )efendantLs alleged actions did not, as a matter of la", constitute Jtender offersJ. )ssue+ Ihether or not the alleged actions of defendant (ears constitute tender offers. !uling+ 3es.
-he complaint alleges a failure of the defendant to compl! "ith Section 1, %d& of the Securities E.change 1ct of 143,, as amended. -he Iilliams 1ct "as added to the E.change 1ct on Cul! 64, 14=F. #t has its genesis in the "ave of cash tender offers that had ecome increasingl! popular in the !ears immediatel! preceding enactment. -here "as an increasing use of the cash tender to ac0uire control of corporations. E E.isting legislation did not re0uire disclosure to investors of facts concerning the offeror. 1 need "as felt to enact legislation "hich "ould re0uire disclosure to shareholders not onl! ! those making cash tender offers ut also ! su stantial holders entering into the securities markets to ac0uire stock of a target compan!. <eans "ere sought ! Congress to help maintain honest securities markets and to insure that pu lic investors have truthful information on "hich to make investment decisions. 1ccordingl!, the Iilliams 1ct, effective Cul! 64, 14=F, re0uired the filing of pu lic information in response to prescri ed 0uestions, if a tender offer for an e0uit! securit! of a pu licl! held compan! "ould result in eneficial o"nership of more than ten Gno" fiveH percent of the securities of that class U 1, GdH %1&. -he Aules and Aegulations of the Securities E.change Commission set forth in detail the information to e included in statements filed pursuant to the Aule. -he information to e filed "ith the SEC "ith reference to tender offers includes the follo"ing$ the identit! and ackground of persons on "hose ehalf the purchases are eing made' the source and amount of funds to e used and description of financing arrangements' the purposes of the purchase, and if one such purpose is to ac0uire control, a description of plans or proposals relating to an! ma:or changes in the compan!' and an! contracts, arrangements or understanding "ith respect to an! of the securities to e ac0uired. -he Aule has additional provisions designed to afford further protection to a tender offeree. (or e.ample, it gives a right of "ithdra"al of tendered shares for seven da!s after the first pu lication or transmission of the tender offer and at an! time after =5 da!s from the date of the original offer' provides for pro rata acceptance of securities tendered "ithin the first ten da!s of the offer %"here more securities have een deposited than the tender offeror is ound to take up&' and re0uires that an! increase in the tender price shall e paid to all persons "hose securities are taken up. -he statute does not define the phrase Jtender for, or re0uest or invitation for tenders ofJ securities. -he 1ct is, ho"ever, a remedial statute and should e interpreted li erall! to carr! out the legislative intent. G#t is aH familiar cannon of statutor! construction that remedial legislation should e construed roadl! to effectuate its purposes. -he Securities E.change 1ct 0uite clearl! falls into the categor! of remedial legislation. -cherepnin v. Vnight, 14=/, 3F4 7.S. 336, 33=, FF S.Ct. 9,F, 993, 14 ?.Ed.6d 9=,. #t is fundamental that a statute designed to protect the pu lic, if its language permits, must e construed in the light of the legislative intent and purposes it sought to achieve. #t is entitled to a road interpretation so that its
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pu lic purposes ma! e full! effectuated. <arriott v. 3ational <ut. @as Co., C1 15, 1496, 149 (.6d ,=6, ,==. Ie think it clear that the purpose of -he Congress, in the enactment of the legislation in 0uestion, is to provide investors "ho hold e0uit! interests in pu lic corporations, material information "ith respect to the potential impact of an! effort to ac0uire control of a compan!, sufficient time "ithin "hich to make an unhurried investment decision as to "hether to dispose of or retain their securities, and to assure fair treatment of the investors. Ie deem it a undantl! clear that there is an o ligation on persons attempting to gain control of a corporation ! means of tender offers to make the re0uired filings and disclosures. -he activities of the defendant set out in the complaint and not denied ! the defendant, i. e. an active and "idespread solicitation of pu lic shareholders in person, over the telephone and through the mails, contain potential dangers "hich Section 1,GdH of the statute is intended to alleviate. -he defendant, in not compl!ing "ith the statute, deprived shareholders of information prescri ed ! the Aule, "hich information "as material to their investment decisions, and denied to them the fair treatment provided ! other parts of Section 1,GdH. #n truth, the contacts utili8ed ! the defendant seem even more designed than a general ne"spaper advertisement, the more conventional t!pe of Jtender offer,J to force a shareholder into making a hurried investment decision "ithout access to information, in circumvention of the statutor! purpose. ;oth the plaintiff and the shareholders in the case at ar have een deprived of the information on "hich to make investment decisions "hich "ould have een afforded if the filing and notice provisions of the statute and the rule had een complied "ith. 3evertheless the defendant asserts a right to vote the stock ac0uired "ithout compliance "ith the statute and the rule. -he Court finds that the defendant should not e permitted so to do. 1ccordingl!, #t is ordered that defendant @eorge E. (ears e and he is here ! en:oined and restrained from voting all stock ac0uired ! him during the months of 3ovem er and )ecem er 14/1 "ithout prior compliance "ith Section 1,GdH of the Securities E.change 1ct and Aule 1,d of the SEC. Case+ CEMC4 /40D)56S )5C. 's. 5&-)45&0 0),E )5S.!&5CE C4MP&53 4, -/E P/)0)PP)5ES )5C.6! 5o. "<";"% &ugust < (22<Chico=5a>ario J. ,&C-S+ 7nion Cement Corporation %7CC&, a pu licl!listed compan!, has t"o principal stockholders 7C>C, a non-listed compan!, "ith shares amounting to =5.91M, and petitioner Cemco "ith1/.53M. <a:orit! of 7C>CBs stocks "ere o"ned ! ;C# "ith 61.31M and 1CC "ith 64.=4M. Cemco, on the other hand, o"ned 4M of 7C>C stocks. #n a disclosure letter, ;C# informed the *hilippine Stock E.change %*SE& that it and its su sidiar! 1CC had passed resolutions to sell to Cemco ;C#Bs stocks in 7C>C e0uivalent to 61.31M and 1CCBs stocks in 7C>C e0uivalent to 64.=4M.
1s a conse0uence of this disclosure, the *SE in0uired as to "hether the -ender +ffer Aule under Aule 14 of the #mplementing Aules of the Securities Aegulation Code is not applica le to the purchase ! petitioner of the ma:orit! of shares of 7CC. -he SEC en anc had resolved that the Cemco transaction "as not covered ! the tender offer rule. (eeling aggrieved ! the transaction, respondent 3ational ?ife #nsurance Compan! of the *hilippines, #nc., a minorit! stockholder of 7CC, sent a letter to Cemco demanding the latter to compl! "ith the rule on mandator! tender offer. Cemco, ho"ever, refused. Aespondent 3ational ?ife #nsurance Compan! of the *hilippines, #nc. filed a complaint "ith the SEC asking it to reverse its 6/ Cul! 655, Aesolution and to declare the purchase agreement of Cemco void and pra!ing that the mandator! tender offer rule e applied to its 7CC shares. -he SEC ruled in favor of the respondent ! reversing and setting aside its 6/ Cul! 655,Aesolution and directed petitioner Cemco to make a tender offer for 7CC shares to respondent and other holders of 7CC shares similar to the class held ! 7C>C in accordance "ith Section 4%E&, Aule 14 of the Securities Aegulation Code. +n petition to the Court of 1ppeals, the C1 rendered a decision affirming the ruling of the SEC. #t ruled that the SEC has :urisdiction to render the 0uestioned decision and, in an! event, Cemco "as arred ! estoppel from 0uestioning the SECBs :urisdiction. #t, like"ise, held that the tender offer re0uirement under the Securities Aegulation Code and its #mplementing Aules applies to CemcoBs purchase of 7C>C stocks. CemcoBs motion for reconsideration "as like"ise denied. )SS.ES+ 1. Ihether or not the SEC has :urisdiction over respondentBs complaint and to re0uire Cemco to make a tender offer for respondentBs 7CC shares. 6. Ihether or not the rule on mandator! tender offer applies to the indirect ac0uisition of shares in a listed compan!, in this case, the indirect ac0uisition ! Cemco of 3=M of 7CC, a pu licl!-listed compan!, through its purchase of the shares in 7C>C, a non-listed compan!. /E0D+ 1. DES. #n taking cogni8ance of respondentBs complaint against petitioner and eventuall! rendering a :udgment "hich ordered the latter to make a tender offer, the SEC "as acting pursuant to Aule14%13& of the 1mended #mplementing Aules and Aegulations of the Securities Aegulation Code, to "it$ 13. Kiolation #f there shall e violation of this Aule ! pursuing a purchase of e0uit! shares of a pu lic compan! at threshold amounts "ithout the re0uired tender offer, the Commission, upon complaint, ma! nullif!
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the said ac0uisition and direct the holding of a tender offer. -his shall e "ithout pre:udice to the imposition of other sanctions under the Code. -he foregoing rule emanates from the SECBs po"er and authorit! to regulate, investigate or supervise the activities of persons to ensure compliance "ith the Securities Aegulation Code, more specificall! the provision on mandator! tender offer under Section 14thereof. <oreover, petitioner is arred from 0uestioning the :urisdiction of the SEC. #t must e pointed out that petitioner had participated in all the proceedings efore the SEC and had pra!ed for affirmative relief. 6. DES. -ender offer is a pu licl! announced intention ! a person acting alone or in concert "ith other persons to ac0uire e0uit! securities of a pu lic compan!. 1 pu lic compan! is defined as a corporation "hich is listed on an e.change, or a corporation "ith assets e.ceeding *95,555,555.55 and "ith 655 or more stockholders, at least 655 of them holding not less than 155 shares of such compan! . Stated differentl!, a tender offer isan offer ! the ac0uiring person to stockholders of a pu lic compan! for them to tender their shares therein on the terms specified in the offer. -ender offer is in place to protect minorit! shareholders against an! scheme that dilutes the share value of their investments. #t gives the minorit! shareholders the chance to e.it the compan! under reasona le terms, giving them the opportunit! to sell their shares at the same price as those of the ma:orit! shareholders. -he SEC and the Court of 1ppeals ruled that the indirect ac0uisition ! petitioner of 3=M of 7CC shares through the ac0uisition of the nonlisted 7C>C shares is covered ! the mandator! tender offer rule. -he legislative intent of Section 14 of the Code is to regulate activities relating to ac0uisition of control of the listed compan! and for the purpose of protecting the minorit! stockholders of a listed corporation. Ihatever ma! e the method ! "hich control of a pu lic compan! iso tained, either through the direct purchase of its stocks or through an indirect means, mandator! tender offer applies. 1s appropriatel! held ! the Court of 1ppeals$ -he petitioner posits that "hat it ac0uired "ere stocks of 7C>C and not 7CC. ;! happenstance, as a result of the transaction, it ecame an indirect o"ner of 7CC. Ie are constrained, ho"ever, to construe o"nership ac0uisition to mean oth direct and indirect. Ihat is decisive is the determination of the po"er of control. -he legislative intent ehind the tender offer rule makes clear that the t!pe of activit! intended to e regulated is the ac0uisition of control of the listed compan! through the purchase of shares. Control ma! G eH effected through a direct and indirect ac0uisition of stock, and "hen this
takes place, irrespective of the means, a tender offer must occur. -he ottom line of the la" is to give the shareholder of the listed compan! the opportunit! to decide "hether or not to sell in connection "ith a transfer of control. . . . (. Pro?1 solicitation (Sec. (2) SEC. 65. Pro9y Solicitations. 65.1. *ro.ies must e issued and pro.! solicitation must e made in accordance "ith rules and regulations to e issued ! the Commission' 65.6. *ro.ies must e in "riting, signed ! the stockholder or his dul! authori8ed representative and filed efore the scheduled meeting "ith the corporate secretar!. 65.3. 7nless other"ise provided in the pro.!, it shall e valid onl! for the meeting for "hich it is intended. 3o pro.! shall e valid and effective for a period longer than five %9& !ears at one time. 65.,. 3o roker or dealer shall give an! pro.!, consent or authori8ation, in respect of an! securit! carried for the account of a customer, to a person other than the customer, "ithout the e.press "ritten authori8ation of such customer. 65.9. 1 roker or dealer "ho holds or ac0uires the pro.! for at least ten per centum %15M& or such percentage as the Commission ma! prescri e of the outstanding share of the issuer, shall su mit a report identif!ing the eneficial o"ner "ithin ten %15& da!s after such ac0uisition, for its o"n account or customer, to the issuer of the securit!, to the E.change "here the securit! is traded and to the Commission. 3. )nternal record *eeping and accounting controls (Sec. (() SEC. 66. Internal Record Beeping and Accounting Controls. - Ever! issuer "hich has a class of securities that satisfies the re0uirements of Su section 1/.6 shall$ 66.1. <ake and keep ooks, records, and accounts "hich, in reasona le detail accuratel! and fairl! reflect the transactions and dispositions of assets of the issuer' 66.6. )evise and maintain a s!stem of internal accounting controls sufficient to provide reasona le assurances that$ %a& -ransactions and access to assets are pursuant to management authori8ation' % & (inancial statements are prepared in conformit! "ith generall! accepted accounting principles that are adopted ! the 1ccounting Standards Council and the rules promulgated ! the Commission "ith regard to the preparation of financial statements' and %c& Aecorded assets are compared "ith e.isting assets at reasona le intervals and differences are reconciled. 4. -ransactions of directors et.al (Sec. (3)
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SEC. 63. Transactions of Directors, 4fficers and Principal Stoc*!olders. - 63.1. Ever! person "ho is directl! or indirectl! the eneficial o"ner of more than ten per centum %15M& of an! class of an! e0uit! securit! "hich satisfies the re0uirements of Su section 1/.6, or "ho is a director or an officer of the issuer of such securit!, shall file, at the time either such re0uirement is first satisfied or "ithin ten da!s after he ecomes such a eneficial o"ner, director, or officer, a statement "ith the Commission and, if such securit! is listed for trading on an E.change, also "ith the E.change, of the amount of all e0uit! securities of such issuer of "hich he is the eneficial o"ner, and "ithin ten %15& da!s after the close of each calendar month thereafter, if there has een a change in such o"nership during such month, shall file "ith the Commission, and if such securit! is listed for trading on an E.change, shall also file "ith the E.change, a statement indicating his o"nership at the close of the calendar month and such changes in his o"nership as have occurred during such calendar month. 63.6. (or the purpose of preventing the unfair use of information "hich ma! have een o tained ! such eneficial o"ner, director, or officer ! reason of his relationship to the issuer, an! profit reali8ed ! him from an! purchase and sale, or an! sale and purchase, of an! e0uit! securit! of such issuer "ithin an! period of less than si. %=& months, unless such securit! "as ac0uired in good faith in connection "ith a de t previousl! contracted, shall inure to and e recovera le ! the issuer, irrespective of an! intention of holding the securit! purchased or of not repurchasing the securit! sold for a period e.ceeding si. %=& months. Suit to recover such profit ma! e instituted efore the Aegional -rial Court ! the issuer, or ! the o"ner of an! securit! of the issuer in the name and in ehalf of the issuer if the issuer shall fail or refuse to ring such suit "ithin si.t! %=5& da!s after re0uest or shall fail diligentl! to prosecute the same thereafter, ut no such suit shall e rought more than t"o %6& !ears after the date such profit "as reali8ed. -his su section shall not e construed to cover an! transaction "here such eneficial o"ner "as not such oth at the time of the purchase and sale, or the sale and purchase, of the securit! involved, or an! transaction or transactions "hich the Commission ! rules and regulations ma! e.empt as not comprehended "ithin the purpose of this su section. 63.3. #t shall e unla"ful for an! such eneficial o"ner, director, or officer, directl! or indirectl!, to sell an! e0uit! securit! of such issuer if the person selling the securit! or his principal$ %a& )oes not o"n the securit! sold' or % & #f o"ning the securit!, does not deliver it against such sale "ithin t"ent! %65& da!s thereafter, or does not "ithin five %9& da!s after such sale deposit it in the mails or other usual channels of transportation' ut no person shall e deemed to have violated this su section if he proves that not"ithstanding the e.ercise of good faith he "as una le to make such deliver! or deposit "ithin such time, or that to do so "ould cause undue inconvenience or e.pense. 63.,. -he provisions of Su section 63.6 shall not appl! to an! purchase and sale, or sale and purchase, and the provisions of Su section 63.3 shall not appl! to an! sale, of an e0uit! securit! not then or thereafter held ! him in an investment account, ! a
dealer in the ordinar! course of his usiness and incident to the esta lishment or maintenance ! him of a primar! or secondar! market, other"ise than on an E.change, for such securit!. -he Commission ma!, ! such rules and regulations as it deems necessar! or appropriate in the pu lic interest, define and prescri e terms and conditions "ith respect to securities held in an investment account and transactions made in the ordinar! course of usiness and incident to the esta lishment or maintenance of a primar! or secondar! market.
4. Manipulati'e practices and insider trading (S!C !ule (4)

S!C !ule (4."(b)=" Manipulati'e Practices 1. #t shall e unla"ful for an! person to make a id or offer, or deal in securities, "ith the intention, or if that id, offer or dealing, has the effect or is likel! to have the effect, of creating a false or misleading appearance of active trading in an! securit! or "ith respect to the market for, or the price of, an! securit!. 6. #t shall e unla"ful for an! ;roker )ealer, associated person or salesman of a ;roker )ealer %hereinafter collectivel! referred to as registered person&, to make a id or offer for, or deal in securities, on account of an! other person "here the registered person intends to create, or the registered person is a"are that the other person intends to create, or taking into account the circumstances of the order, the registered person reasona l! suspects that a person has placed the order "ith the intention of creating, a false or misleading appearance of active trading in an! securit! or "ith respect to the market for, or the price of, an! securit!. 3. #n considering "hether an order violates Section 6, of the Code a Cro*er Dealer shall consider+ a. Ihether the order, or e.ecution of the order, "ould materiall! alter the market for, and2or the price of, the securities' . -he time the order is entered or an! instructions concerning the time of entr! of the order' c. Ihether the person on "hose ehalf the order is placed, or another person "ho the ;roker )ealer kno"s to e a related part! of that person, ma! have an interest in creating a false or misleading appearance of active trading in an! securit! or "ith respect to the market for, or the price of, an! securit!' d. Ihether the order is accompanied ! settlement, deliver! or securit! arrangements "hich are unusual' e. Ihether the order appears to e part of a series of orders, "hether "hen put together "ith orders "hich appear to make up the series, the order or the series is unusual having regard to the matters referred to in this paragraph 3' and
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f. Ihether there appears to e a legitimate commercial reason for that person placing the order, unrelated to an intention to create a false or misleading appearance of active trading in or "ith respect to the market for, or price of, an! securit!. (ailure to consider these factors shall raise a presumption that a transaction2s is manipulative. ,. + ligations imposed on registered persons under this rule appl! in respect of all orders, irrespective of the trading s!stem used. 9. Set forth elo" are non-e.clusive e.amples of t!pes of prohi ited conduct a. Engaging in a series of transactions in securities that are reported pu licl! to give the impression of activit! or price movement in a securit! %e.g. painting the tape&' . ;u!ing and selling securities at the close of the market in an effort to alter the closing price of the securit! %marking the close&' c. Engaging in transactions "here oth the u! and sell orders are entered at the same time "ith the same price and 0uantit! ! different ut colluding parties %improper matched orders&' d. Engaging in u!ing activit! at increasingl! higher prices and then selling securities in the market at the higher prices %h!pe and dump&' e. Engaging in transactions in "hich there is no genuine change in actual o"nership of a securit! %"ash sales&' f. -aking advantage of a shortage of securities in the market ! controlling the demand side and e.ploiting market congestion during such shortages in a "a! as to create artificial prices %s0uee8ing the float&' or g. )isseminating false or misleading market information through media, including the internet, or an! other means to move the price of a securit! in a direction that is favora le to a position held or a transaction. S!C !ule (4."(d)=" &d'ertisements and Communications #ith the Public 1. 1ll communications ! ;roker )ealers or associated persons or salesmen of ;roker )ealers %hereinafter registered persons&, "ith the pu lic shall e ased on principles of fair dealing and good faith and should provide a sound asis for evaluating the facts in regard to an! particular securit! or securities or t!pe of securit!, industr! discussed, or service offered. 3o material fact or 0ualification ma! e omitted if the omission, in the light of the conte.t of the material presented, "ould cause the advertising or sales literature to e misleading.
6. E.aggerated, un"arranted or misleading statements or claims are prohi ited in all pu lic communications of registered persons. #n preparing such literature, it must e orne in mind ! registered persons that inherent in investment are the risks of fluctuating prices and the uncertaint! of dividends, rates of return and !ield, and no registered person shall, directl! or indirectl!, pu lish, circulate or distri ute an! pu lic communication that he kno"s, or had reason to kno", contains an! untrue statement of a material fact or is other"ise false or misleading. 3. Communications "ith the pu lic shall not contain promises of specific results, e.aggerated or un"arranted claims or un"arranted superlatives, opinions for "hich there is no reasona le asis, or forecasts of future events "hich are un"arranted, or "hich are not clearl! la eled as forecasts. ,. #n :udging "hether a communication or a particular element of a communication ma! e misleading, several factors should e considered, including ut not limited to$ a. the overall conte.t in "hich the statement or statements are made. 1 statement made in one conte.t ma! e misleading even though such a statement could e perfectl! appropriate in another conte.t. 1n essential test in this regard is the alance of treatment of risks and potential enefits' . the audience to "hich the communication is directed. )ifferent levels of e.planation or detail ma! e necessar! depending on the audience to "hich a communication is directed and the a ilit! of the registered person given the nature of the media used, to restrict the audience appropriatel!. #f the statements made in a communication "ould e applica le onl! to a limited audience, or if additional information might e necessar! for other audiences, it should e kept in mind that it is not al"a!s possi le to restrict the readership of a particular communication' and2or c. the overall clarit! of the communication. 1 statement or disclosure made in an unclear manner o viousl! can result in a lack of understanding of the statement, or in a serious misunderstanding. 1 comple. or overl! technical e.planation ma! e "orse than too little information. ?ike"ise material disclosure relegated to legends or footnotes realisticall! ma! not enhance the readerLs understanding of the communication. S!C !ule (4."(d)=( Publication of -ransactions and Duotations 3o ;roker )ealer, or associated person or salesman of a ;roker )ealer, shall pu lish or circulate, or cause to e pu lished or circulated, an! notice, circular, advertisement, ne"spaper article, investment service, or communication of an! kind "hich purports to report an! transaction as a purchase or sale of an! securit! unless such person elieves that such transaction "as a ona fide purchase or sale of such securit!' or "hich purports to 0uote the id price or asked price for an! securit!, unless such person
*age 36 of 64
elieves that such 0uotation represents a ona fide id for, or offer of, such securit!. S!C !ule (4."(d)=3 Pa1ment to )nfluence Mar*et Prices 3o ;roker )ealer shall, directl! or indirectl!, give, permit to e given, or offer to give, an!thing of value to an! person for the purpose of influencing or re"arding the action of such person in connection "ith the pu lication or circulation in an! ne"spaper, investment service, or similar pu lication, of an! matter "hich has, or is intended to have, an effect upon the market price of an! securit!, provided that this rule shall not e construed to appl! to matter "hich is clearl! distinguisha le as paid advertising. S!C !ule (4.(=3 Prohibition on 6uarantees against 0oss 5o Cro*er Dealer or salesman shall guarantee a customer against loss in an1 securities account of such customer carried b1 the Cro*er Dealer or in an1 securities transaction effected b1 the Cro*er Dealer #ith or for the customer. ". Manipulation of securit1 prices (Sec.(4) SEC. 6,. Canipulation of Security Prices@ Devices and Practices. - 6,.1 #t shall e unla"ful for an! person acting for himself or through a dealer or roker, directl! or indirectl!$chanro lesvirtuala"li rar! %a& -o create a false or misleading appearance of active trading in an! listed securit! traded in an E.change or an! other trading market %hereafter referred to purposes of this Chapter as +9c!ange&$ %i& ;! effecting an! transaction in such securit! "hich involves no change in the eneficial o"nership thereof' %ii& ;! entering an order or orders for the purchase or sale of such securit! "ith the kno"ledge that a simultaneous order or orders of su stantiall! the same si8e, time and price, for the sale or purchase of an! such securit!, has or "ill e entered ! or for the same or different parties' or %iii& ;! performing similar act "here there is no change in eneficial o"nership. % & -o effect, alone or "ith others, a series of transactions in securities that$ %i& Aaises their price to induce the purchase of a securit!, "hether of the same or a different class of the same issuer or of a controlling, controlled, or commonl! controlled compan! ! others' %ii& )epresses their price to induce the sale of a securit!, "hether of the same or a different class, of the same issuer or of a controlling, controlled, or commonl! controlled compan! ! others' or %iii& Creates active trading to induce such a purchase or sale through manipulative devices such as marking the close, painting the tape, s0uee8ing the float,
h!pe and dump, oiler room operations and such other similar devices. %c& -o circulate or disseminate information that the price of an! securit! listed in an E.change "ill or is likel! to rise or fall ecause of manipulative market operations of an! one or more persons conducted for the purpose of raising or depressing the price of the securit! for the purpose of inducing the purchase or sale of such securit!. %d& -o make false or misleading statement "ith respect to an! material fact, "hich he kne" or had reasona le ground to elieve "as so false or misleading, for the purpose of inducing the purchase or sale of an! securit! listed or traded in an E.change. %e& -o effect, either alone or others, an! series of transactions for the purchase and2or sale of an! securit! traded in an E.change for the purpose of pegging, fi.ing or sta ili8ing the price of such securit!, unless other"ise allo"ed ! this Code or ! rules of the Commission. :ash sale
(. Manipulati'e and decepti'e de'ides (Sec. (4.() 6,.6. 3o person shall use or emplo!, in connection "ith the purchase or sale of an! securit! an! manipulative or deceptive device or contrivance. 3either shall an! short sale e effected nor an! stop-loss order e e.ecuted in connection "ith the purchase or sale of an! securit! e.cept in accordance "ith such rules and regulations as the Commission ma! prescri e as necessar! or appropriate in the pu lic interest or for the protection of investors. 6,.3. -he foregoing provisions not"ithstanding, the Commission, having due regard to the pu lic interest and the protection of investors, ma!, ! rules and regulations, allo" certain acts or transactions that ma! other"ise e prohi ited under this Section. 3. 4ption -rading (Sec. (%) SEC. 69. Regulation of 4ption Trading. 3o mem er of an E.change shall, directl! or indirectl! endorse or guarantee the performance of an! put, call, straddle, option or privilege in relation to an! securit! registered on a securities e.change. -he terms put, call, straddle, option, or privilegeshall not include an! registered "arrant, right or converti le securit!. 4. ,raudulent transactions9 insider trading (Sec.(6 and (<) SEC. 6=. &raudulent Transactions. - #t shall e unla"ful for an! person, directl! or indirectl!, in
*age 3< of 64
connection "ith the purchase or sale of an! securities to$chanro lesvirtuala"li rar! 6=.1. Emplo! an! device, scheme, or artifice to defraud' 6=.6. + tain mone! or propert! ! means of an! untrue statement of a material fact of an! omission to state a material fact necessar! in order to make the statements made, in the light of the circumstances under "hich the! "ere made, not misleading' or 6=.3. Engage in an! act, transaction, practice or course of usiness "hich operates or "ould operate as a fraud or deceit upon an! person. SEC. 6/. InsiderDs Duty to Disclose )!en Trading. 6/.1. #t shall e unla"ful for an insider to sell or u! a securit! of the issuer, "hile in possession of material information "ith respect to the issuer or the securit! that is not generall! availa le to the pu lic, unless$ %a& -he insider proves that the information "as not gained from such relationship' or % & #f the other part! selling to or u!ing from the insider %or his agent& is identified, the insider proves$ %i& that he disclosed the information to the other part!, or %ii& that he had reason to elieve that the other part! other"ise is also in possession of the information. 1 purchase or sale of a securit! of the issuer made ! an insider defined in Su section 3.F, or such insiderBs spouse or relatives ! affinit! or consanguinit! "ithin the second degree, legitimate or common-la", shall e presumed to have een effected "hile in possession of material non-pu lic information if transacted after such information came into e.istence ut prior to dissemination of such information to the pu lic and the lapse of a reasona le time for the market to a sor such information$ Provided, !o%ever, -hat this presumption shall e re utted upon a sho"ing ! the purchaser or seller that he "as not a"are of the material non-pu lic information at the time of the purchase or sale. 6/.6. (or purposes of this Section, information is material non#public if$ %a& #t has not een generall! disclosed to the pu lic and "ould likel! affect the market price of the securit! after eing disseminated to the pu lic and the lapse of a reasona le time for the market to a sor the information' or % & "ould e considered ! a reasona le person important under the circumstances in determining his course of action "hether to u!, sell or hold a securit!. 6/.3. #t shall e unla"ful for an! insider to communicate material non-pu lic information a out the issuer or the securit! to an! person "ho, ! virtue of the communication, ecomes an insider as defined in Su section 3.F, "here the insider communicating the information kno"s or has reason to elieve that such person "ill likel! u! or sell a securit! of the issuer "hile in possession of such information. 6/.,. %a& #t shall e unla"ful "here a tender offer has commenced or is a out to commence for$chanro lesvirtuala"li rar!
%i& 1n! person %other than the tender offeror& "ho is in possession of material non-pu lic information relating to such tender offer, to u! or sell the securities of the issuer that are sought or to e sought ! such tender offer if such person kno"s or has reason to elieve that the information is non-pu lic and has een ac0uired directl! or indirectl! from the tender offeror, those acting on its ehalf, the issuer of the securities sought or to e sought ! such tender offer, or an! insider of such issuer' and %ii& 1n! tender offeror, those acting on its ehalf, the issuer of the securities sought or to e sought ! such tender offer, and an! insider of such issuer to communicate material non-pu lic information relating to the tender offer to an! other person "here such communication is likel! to result in a violation of Su section 6/., %a&%i&. % & (or purposes of this su section the term securities of t!e issuer soug!t or to be soug!t by suc! tender offer shall include an! securities converti le or e.changea le into such securities or an! options or rights in an! of the foregoing securities. Case+ SEC 's. C& (fraud 's. negligence) 6.!. 5os. "264(% K "2643"=3( Jul1 (" "77% ,&C-S+ Cualoping Securities Corporation %C71?+*#3@ for revit!& is a stock roker, (idelit! Stock -ransfer, #nc. %(#)E?#-D for revit!&, on the other hand, is the stock transfer agent of *hile. <ining Corporation %*>#?EE for revit!&. +n or a out the first half of 14FF, certificates of stock of *>#?EE representing one million four hundred GthousandH %1,,55,555& shares "ere stolen from the premises of (#)E?#-D. -hese stock certificates consisting of stock dividends of certain *>#?EE shareholders had een returned to (#)E?#-D for lack of for"arding addresses of the shareholders concerned. ?ater, the stolen stock certificates ended in the hands of a certain 1gustin ?ope8, a messenger of (e% )orld Security Inc., an entirel! different stock rokerage firm. #n the first half of 14F4, 1gustin ?ope8 rought the stolen stock certificates to C71?+*#3@ for trading and sale "ith the stock e.change. Ihen the said stocks "ere rought to C71?+*#3@, all of the said stock certificates ore the JapparentJ indorsement %signature& in blan* of the o"ners %the stockholders to "hom the stocks "ere issued ! *>#?EE& thereof. 1t the side of these indorsements %signatures&, the "ords JSignature KerifiedJ apparently of &ID+$IT, "ere stamped on each and ever! certificate. (urther, on the "ords JSignature KerifiedJ sho"ed the usual initials of the officers of (#)E?#-D. 7pon receipt of the said certificates from 1gustin ?ope8, C71?+*#3@ stamped each and ever! certificate "ith the "ords J#ndorsement @uaranteed,J and thereafter traded the same "ith the stock e.change. 1fter the stock e.change a"arded and confirmed the sale of the stocks represented ! said certificates to different u!ers, the same "ere delivered
*age 3; of 64
to (#)E?#-D for the cancellation of the stocks certificates and for issuance of ne" certificates in the name of the ne" u!ers. 1gustin ?ope8 on the other hand "as paid ! C71?+*#3@ "ith several checks for (our >undred -housand %*,55,555.55& *esos for the value of the stocks. 1fter ac0uiring kno"ledge of the pilferage, (#)E?#-D conducted an investigation "ith assistance of the 3ational ;ureau of #nvestigation %3;#& and found that t"o of its emplo!ees "ere involved and signed the certificates. 1fter t"o %6& months from receipt of said stock certificates, (#)E?#-D re:ected the issuance of ne" certificates in favor of the u!ers for reasons that the signatures of the o"ners of the certificates "ere allegedl! forged and thus the cancellation and ne" issuance thereof cannot e effected. -he SEC found oth Cualoping and (idelit! e0uall! negligent in the performance of their duties here ! orders them to %1& :ointl! replace the su :ect shares and for (idelit! to cause the transfer thereof in the names of the u!ers and %6& to pa! a fine of *95,555,55 each for havGingH violated Section 64 %a& of the Aevised Securities 1ct. C1 reversed. #SS7E$ I+3 oth parties are negligent. >E?)$ DES. -he first aspect of the SEC decision appealed to the Court of 1ppeals, i'e', that portion "hich orders the t"o stock transfer agencies to J:ointl! replace the su :ect shares and for (#)E?#-D to cause the transfer thereof in the names of the u!ersJ clearl! calls for an e.ercise of SECLs ad:udicative :urisdiction. -his case, it might e recalled, has started onl! on the asis of a re0uest ! (#)E?#-D for an opinion from the SEC. -he stockholders "ho have een deprived of their certificates of stock or the persons to "hom the forged certificates have ultimatel! een transferred ! the supposed indorsee thereof are !et to initiate, if minded, an appropriate adversarial action. 3either have the! een made parties to the proceedings no" at ench. 1 :usticia le controvers! such as can occasion an e.ercise of SECLs e.clusive :urisdiction "ould re0uire an assertion of a right ! a proper part! against another "ho, in turn, contests it. % #t is one instituted ! and against parties having interest in the su :ect matter appropriate for :udicial determination predicated on a given state of facts. -hat controvers! must e raised ! the part! entitled to maintain the action. >e is the person to "hom the right to seek :udicial redress or relief elongs "hich can e enforced against the part! correspondingl! charged "ith having een responsi le for, or to have given rise to, the cause of action. 1 person or entit! tasked "ith the po"er to ad:udicate stands neutral and impartial and acts on the asis of the admissi le representations of the contending parties. #n the case at ench, the proper parties that can ring the controvers! and can cause an e.ercise ! the SEC of its original and e.clusive :urisdiction "ould e all or an! of those "ho are adversel! affected ! the transfer of the pilfered certificates of stock. 1n!
peremptor! :udgment ! the SEC, "ithout such proceedings having first een initiated, "ould e precipitate. Ie thus see nothing erroneous in the decision of the Court of 1ppeals, albeit not for the reason given ! it, to set aside the SECLs ad:udication J"ithout pre:udiceJ to the right of persons in:ured to file the necessar! proceedings for appropriate relief. %on the issue of the legal propriet1 of the imposition b1 the SEC of a P%2 222 fine on each of ,)DE0)-3 and C.&04P)56&-here is, to our mind, no 0uestion that oth (#)E?#-D and C71?+*#3@ have een guilt! of negligence in the conduct of their affairs involving the 0uestioned certificates of stock. -o constitute ho#e'er a 'iolation of the !e'ised Securities &ct that can #arrant an imposition of a fine under Section (7(3) in relation to Section 46 of the &ct fraud or deceit not mere negligence on the part of the offender must be established. (raud here is a*in to bad faith #hich implies a conscious and intentional design to do a #rongful act for a dishonest purpose or moral obli8uit19 it is unli*e that of the negati'e idea of negligence in that fraud or bad faith contemplates a state of mind affirmati'el1 operating #ith furti'e ob$ecti'es. @iven the factual circumstances found ! the appellate court, neither (#)E?#-D nor C71?+*#3@, albeit indeed remiss in the o servance of due diligence, can e held lia le under the a ove provisions of the Aevised Securities 1ct. Ie do not impl!, ho"ever, that the negligence committed ! private respondents "ould not at all e actiona le' upon the other hand, as "e have earlier intimated, such an action elongs not to the SEC ut to those "hose rights have een in:ured.
P. Securities mar*et professionals9 bro*er=director rule (Sec. 3 (; to 3")

SEC. 3. Definition of Terms. 3.1. Securities are shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced ! a certificate, contract, instrument, "hether "ritten or electronic in character. #t includes$ %a& Shares of stock, onds, de entures, notes, evidences of inde tedness, asset- acked securities' % & #nvestment contracts, certificates of interest or participation in a profit sharing agreement, certificates of deposit for a future su scription' %c& (ractional undivided interests in oil, gas or other mineral rights' %d& )erivatives like option and "arrants' %e& Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments' %f& *roprietar! or non proprietar! mem ership certificates incorporations' and %g& +ther instruments as ma! in the future e determined ! the Commission. 3.6 Issuer is the originator, maker, o ligor, or creator of the securit!.
*age 37 of 64
3.3 <ro*er is a person engaged in the usiness of u!ing and selling securities for the account of others. 3., Dealer means an! person "ho u!s and sells securities for his2her o"n account in the ordinar! course of usiness. 3.9. Associated person of a bro*er or dealer is an emplo!ee thereof "ho, directl! e.ercises control of supervisor! authorit!, ut does not include a salesman, or an agent or a person "hose functions are solel! clerical or ministerial. 3.=. Clearing Agency is an! person "ho acts as intermediar! in making deliveries upon pa!ment to effect settlement in securities transactions. 3./. +9c!ange is an organi8ed marketplace or facilit! that rings together u!ers and sellers and e.ecutes trades of securities and2or commodities. 3.F. Insider means$ %a& the issuer' % & a director or officer %or person performing similar functions& of, or a person controlling the issuer' %c& a person "hose relationship or former relationship to the issuer gives or gave him access to material information a out the issuer or the securit! that is not generall! availa le to the pu lic' %d& a government emplo!ee, or director, or officer of an e.change, clearing agenc! and2or self-regulator! organi8ation "ho has access to material information a out an issuer or a securit! that is not generall! availa le to the pu lic' or %e& a person "ho learns such information ! a communication from an! of the foregoing insiders. 3.4. Pre#(eed Plans are contracts "hich provide for the performance of future services or the pa!ment of future monetar! considerations at the time of actual need, for "hich planholders pa! in cash or installment at stated prices, "ith or "ithout interest or insurance coverage and includes life, pension, education, interment, and other plans "hich the Commission ma! from time to time approve. 3.15. Promoter is a person "ho, acting alone or "ith others, takes initiative in founding and organi8ing the usiness or enterprise of the issuer and receives consideration therefor. 3.11. Prospectus is the document made ! or on ehalf of an issuer, under"riter or dealer to sell or offer securities for sale to the pu lic through a registration statement filed "ith the Commission. 3.16. Registration statement is the application for the registration of securities re0uired to e filed "ith the Commission. 3.13. Salesman is a natural person, emplo!ed as such or as an agent, ! a dealer, issuer or roker to u! and sell securities. 3.1,. "ncertificated security is a securit! evidenced ! electronic or similar records. 3.19. "nder%riter is a person "ho guarantees on a firm
commitment and2or declared est effort asis the distri ution and sale of securities of an! kind ! another compan!. SEC. 6F. Registration of <ro*ers, Dealers, Salesmen and Associated Persons. - 6F.1. 3o person shall engage in the usiness of u!ing or selling securities in the *hilippines as a roker or dealer, or act as a salesman, or an associated person of an! roker or dealer unless registered as such "ith the Commission. 6F.6. 3o registered roker or dealer shall emplo! an! salesman or an! associated person, and no issuer shall emplo! an! salesman, "ho is not registered as such "ith the Commission. 6F.3. -he Commission, ! rule or order, ma! conditionall! or unconditionall! e.empt from Su sections 6F.1 and 6F.6 an! roker, dealer, salesman, associated person of an! roker or dealer, or an! class of the foregoing, as it deems consistent "ith the pu lic interest and the protection of investors. 6F.,. -he Commission shall promulgate rules and regulations prescri ing the 0ualifications for registration of each categor! of applicant, "hich shall, among other things, re0uire as a condition for registration that$ %a& #f a natural person, the applicant satisfactoril! pass a "ritten e.amination as to his proficienc! and kno"ledge in the area of activit! for "hich registration is sought' % & #n the case of a roker or dealer, the applicant satisf! a minimum net capital as prescri ed ! the Commission, and provide a ond or other securit! as the Commission ma! prescri e to secure compliance "ith the provisions of this Code' and %c& #f located outside of the *hilippines, the applicant files a "ritten consent to service of process upon the Commission pursuant to Section =9 hereof. 6F.9. 1 roker or dealer ma! appl! for registration ! filing "ith the Commission a "ritten application in such form and containing such information and documents concerning such roker or dealer as the Commission ! rule shall prescri e. 6F.=. Aegistration of a salesman or of an associated person of a registered roker or dealer ma! e made upon "ritten application filed "ith the Commission ! such salesman or associated person. -he application shall e separatel! signed and certified ! the registered roker or dealer to "hich such salesman or associated person is to ecome affiliated, or ! the issuer in the case of a salesman emplo!ed, appointed or authori8ed solel! ! such issuer. -he application shall e in such form and contain such information and documents concerning the salesman or associated person as the Commission ! rule shall prescri e. (or purposes of this Section, a salesman shall not include an! emplo!ee of an issuer "hose compensation is not determined directl! or indirectl! on sales of securities of the issuer. 6F./. 1pplications filed pursuant to Su sections 6F.9 and
*age 42 of 64
6F.= shall e accompanied ! a registration fee in such reasona le amount prescri ed ! the Commission. 6F.F. Iithin thirt! %35& da!s after the filing of an! application under this Section, the Commission shall ! order$ %a& @rant registration if it determines that the re0uirements of this Section and the 0ualifications for registration set forth in its rules and regulations have een satisfied' or % & )en! said registration. 6F.4. -he names and addresses of all persons approved for registration as rokers, dealers, associated persons or salesmen and all orders of the Commission "ith respect thereto shall e recorded in a Aegister of Securities <arket *rofessionals kept in the office of the Commission "hich shall e open to pu lic inspection. 6F.15. Ever! person registered pursuant to this Section shall file "ith the Commission, in such form as the Commission shall prescri e, information necessar! to keep the application for registration current and accurate, including in the case of a roker or dealer changes in salesmen, associated persons and o"ners thereof. 6F.11. Ever! person registered pursuant to this Section shall pa! to the Commission an annual fee at such time and in such reasona le amount as the Commission shall prescri e. 7pon notice ! the Commission that such annual fee has not een paid as re0uired, the registration of such person shall e suspended until pa!ment has een made. 6F.16. -he registration of a salesman or associated person shall e automaticall! terminated upon the cessation of his affiliation "ith said registered roker or dealer, or "ith an issuer in the case of a salesman emplo!ed, appointed or authori8ed ! such issuer. *romptl! follo"ing an! such cessation of affiliation, the registered roker or dealer, or issuer, as the case ma! e, shall file "ith the Commission a notice of separation of such salesman or associated person. SEC. 64. Revocation, Refusal or Suspension of Registration of <ro*ers, Dealers, Salesmen and Associated Persons. 64.1. Aegistration under Section 6F of this Code ma! e refused, or an! registration granted thereunder ma! e revoked, suspended, or limitations placed thereon, ! the Commission if, after due notice and hearing, the Commission determines the applicant or registrant$chanro lesvirtuala"li rar! %a& >as "illfull! violated an! provision of this Code, an! rule, regulation or order made hereunder, or an! other la" administered ! the Commission, or in the case of a registered roker, dealer or associated person has failed to supervise, "ith a vie" to preventing such violation, another person "ho commits such violation' % & >as "illfull! made or caused to e made a materiall! false or misleading statement in an! application for registration or report filed "ith the Commission or a self-regulator! organi8ation, or has "illfull! omitted to state an! material fact that is re0uired to e stated therein'
%c& >as failed to satisf! the 0ualifications or re0uirements for registration prescri ed under Section 6F and the rules and regulations of the Commission promulgated thereunder' %d& >as een convicted, ! a competent :udicial or administrative od! of an offense involving moral turpitude, fraud, em e88lement, counterfeiting, theft, estafa, misappropriation, forger!, ri er!, false oath, or per:ur!, or of a violation of securities, commodities, anking, real estate or insurance la"s' %e& #s en:oined or restrained ! a competent :udicial or administrative od! from engaging in securities, commodities, anking, real estate or insurance activities or from "illfull! violating la"s governing such activities' %f& #s su :ect to an order of a competent :udicial or administrative od! refusing, revoking or suspending an! registration, license or other permit under this Code, the rules and regulations promulgated thereunder, an! other la" administered ! the Commission' %g& #s su :ect to an order of a self-regulator! organi8ation suspending or e.pelling him from mem ership or participation therein or from association "ith a mem er or participant thereof' %h& >as een found ! a competent :udicial or administrative od! to have "illfull! violated an! provisions of securities, commodities, anking, real estate or insurance la"s, or has "illfull! aided, a etted, counseled, commanded, induced or procured such violation' or %i& >as een :udiciall! declared insolvent. (or purposes of this su section, the term competent 1udicial or administrative body shall include a foreign court of competent :urisdiction and a foreign financial regulator. 64.6. %a& #n cases of charges against a salesman or associated person, notice thereof shall also e given the roker, dealer or issuer emplo!ing such salesman or associated person. % & *ending the hearing, the Commission shall have the po"er to order the suspension of such rokerBs, dealerBs, associated personBs or salesmanBs registration$ Provided, -hat such order shall state the cause for such suspension. 7ntil the entr! of a final order, the suspension of such registration, though inding upon the persons notified thereof, shall e deemed confidential, and shall not e pu lished, unless it shall appear that the order of suspension has een violated after notice. 64.3. -he order of the Commission refusing, revoking, suspending or placing limitations on a registration as herein a ove provided, together "ith its findings, shall e entered in the Aegister of Securities <arket *rofessionals. -he suspension or revocation of the registration of a dealer or roker shall also automaticall! suspend the registration of all salesmen and associated persons affiliated "ith such roker or dealer.
*age 4" of 64
64.,. #t shall e sufficient cause for refusal, revocation or suspension of a rokerLs or dealerBs registration, if an! associated person thereof or an! :uridical entit! controlled ! such associated person has committed an! act or omission or is su :ect to an! disa ilit! enumerated in paragraphs %a& through %i& of Su section 64.1 hereof. SEC. 35. Transactions and Responsibility of <ro*ers and Dealers. - 35.1. 3o roker or dealer shall deal in or other"ise u! or sell, for its o"n account or for the account of customers, securities listed on an E.change issued ! an! corporation "here an! stockholder, director, associated person or salesman, or authori8ed clerk of said roker or dealer and all the relatives of the foregoing "ithin the fourth civil degree of consanguinit! or affinit!, is at the time holding office in said issuer corporation as a director, president, vice-president, manager, treasurer, comptroller, secretar! or an! office of trust and responsi ilit!, or is a controlling person of the issuer. 35.6. 3o roker or dealer shall effect an! transaction in securities or induce or attempt to induce the purchase or sale of an! securit! e.cept in compliance "ith such rules and regulations as the Commission shall prescri e to ensure fair and honest dealings in securities and provide financial safeguards and other standards for the operation of rokers and dealers, including the esta lishment of minimum net capital re0uirements, the acceptance of custod! and use of securities of customers, and the carr!ing and use of deposits and credit alances of customers. SEC. 31. Development of Securities Car*et Professionals. - -he Commission, in :oint undertaking "ith self regulator! organi8ations, organi8ations and associations of finance professionals as "ell as private educational and research institutions shall undertake or facilitate2organi8e continuing training, conferences2 seminars, updating programs, research and development as "ell as technolog! transfer at the latest and advanced trends in issuance and trading of securities, derivatives, commodit! trades and other financial instruments, as "ell as securities markets of other countries. Case+ 5icolas 's. C& (repercussion of being unregistered) ,&C-S+ +n (e ruar! 14, 14F/, petitioner Ao! 3icolas and private respondent ;lesito ;uan entered into a *ortfolio <anagement 1greement, "herein the former "as to manage the stock transactions of the latter for a period of three months "ith an automatic rene"al clause. >o"ever, upon the initiative of the private respondent the agreement "as terminated on 1ugust 14, 14F/, and thereafter he re0uested for an accounting of all transactions made ! the petitioner. -hree "eeks after the termination of the agreement, petitioner demanded from the private respondent the amount of *=F,6=3.=/ representing his alleged management fees covering the periods of Cune 35, Cul! 31 and 1ugust 14, 14F/ as provided for in the *ortfolio <anagement 1greement. ;ut the demands "ent unheeded, much to the chagrin of the petitioner.
Ae uffed, petitioner filed a complaint for collection of sum of mone! against the private respondent efore the trial court. #n his ans"er, private respondent contended that petitioner mismanaged his transactions resulting in losses, thus, he "as not entitled to an! management fees. )SS.E+ Ihether or not the roker ma! sell securities in the a sence of registration or license from the SEC. /E0D+ *etitioner has not proven the amounts indicated ade0uatel!. >is testimon! e.plaining the ases for the management fees demanded ! him are nothing more than a self-serving e.ercise "hich lacks pro ative value. -here "ere no credi le documentar! evidence %e.g. receipts of the transactions, order ticket, certificate of deposit' "hether the stock certificates "ere deposited in a ank or professional custodian, and others& to support his claim that profits "ere indeed reali8ed. 1t est, his assertions are founded on mere inferences and generalities. -here must e more convincing proof "hich in this case is "anting. -o our mind, petitionerBs complaint is similar to an action for damages, "herein the general rule is that for the same to e recovera le it must not onl! e capa le of proof ut must actuall! e proved "ith a reasona le degree of certaint!, and courts, in making the a"ards, must posit specific facts "hich could afford sufficient asis for measuring compensator! or actual damages. Since petitioner could not present an! credi le evidence to su stantiate his claims, the Court of 1ppeals "as correct in ordering the dismissal of his complaint. -he futilit! of petitionerBs action ecame more pronounced ! the fact that he traded securities for the account of others "ithout the necessar! license from the Securities and E.change Commission %SEC&. Clearl!, such omission "as in violation of Section 14 of the Aevised Securities 1ct "hich provides that no roker shall sell an! securities unless he is registered "ith the SEC. -he purpose of the statute re0uiring the registration of rokers selling securities and the filing of data regarding securities "hich the! propose to sell, is to protect the pu lic and strengthen the securities mechanism. 1merican principle that$ :urisprudence emphasi8es the
. . ., an unlicensed person ma! not recover compensation for services as a roker "here a statute or ordinance re0uiring a license is applica le and such statute or ordinance is of a regulator! nature, "as enacted in the e.ercise of the police po"er for the purpose of protecting the pu lic, re0uires a license as evidence of 0ualification and fitness, and e.pressl! precludes an unlicensed person from recovering compensation ! suit, or at least manifests an intent to prohi it and render unla"ful the transaction of usiness ! an unlicensed person.
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Ie see no reason not to appl! the same rule in our :urisdiction. Stock market trading, a technical and highl! speciali8ed institution in the *hilippines, must e entrusted to individuals "ith proven integrit!, competence and kno"ledge, "ho have due regard to the re0uirements of the la". :/E!E,4!E, in vie" of the foregoing, the assailed decision of the Court of 1ppeals dated 1ugust 1=, 1449 as "ell as the Aesolution dated 3ovem er 64, 1449 are here ! 1((#A<E). Costs against petitioner.
C<S Stock ;rokerage, #nc., filed a complaint docketed as Civil Case 3o. 1,91F in the Court of (irst #nstance of Ai8al against ?ope8, ?ocsin, ?edesma R Co., #nc., to compel the latter to accept the shares of stock in 0uestion. -rial court ruled in favor of plaintiff. Conse0uentl!, ?ope8, ?ocsin, ?edesma R Co., #nc., and third-part! defendants Cose <a. ?ope8 and Cesar ?ope8, Cr., and 1lfredo Aamos appealed to the Court of 1ppeals. C1 affirmed, "ith the e.ception of the a"ard of damages and attorne!Ls fees in favor of plaintiff-appellee "hich is here ! set aside. )SS.E+ I+3 petitioner ma! e compelled ! respondent to accept the deliver! /E0D+ #t is the petitionerLs main contention that the la" on contracts is controlling in this case$ >ence, C<SL failure to deliver the 6,=95 ;enguet Consolidated shares of stocks "ithin the stipulated time of ten %15& to t"ent! %65& da!s "arrants the rescission of the e.change contracts in 0uestion. nature and purposes of an e.changeN 1n e.change is a voluntar! association or corporation organi8ed for the purpose of furnishing to its mem ers a convenient and suita le place to transact their usiness of promoting uniformit! in the customs and usages of merchants, of inculcating principles of :ustice and e0uit! in trade, of facilitating the speed! ad:ustment of usiness disputes, of ac0uiring and disseminating valua le commercial and economic information and generall! of securing to its mem ers the enefits of cooperation in the furtherance of their legitimate pursuits. 0i*e an1 other association an e?change has the po#er to adopt its o#n constitution b1=la#s rules and regulations so far as the1 are not contrar1 to la# or public polic1 and #hich #ill secure to the members e?clusi'e rights and pri'ileges #hich the courts ha'e full1 recogni>ed. &n1one #ho becomes a member of the e?change 'oluntaril1 submits himself to the operation of these rules and is e?pected to be bound b1 and to respect them -he rule at issue in the instant case is Section #, 1rticle K of the Aules and Aegulations. #t reads$ #n the event of a Selling <em er failing to make deliver! "ithin a reasona le period of time of shares sold under dela!ed deliver! contract, it shall e the ;u!ing <em er dut! to advise the Selling <em er in "riting giving him 1 full usiness da! from the time of receipt of said letter of demand to make deliver!. -he ;u!ing <em er shall o tain a "ritten receipt from the Selling <em er on the duplicate cop! of the letter of demand. -his
D. E?changes and other securities trading mar*ets

Case+ 0ope> 0ocsin 0edesma K Co. Bs. C& ,&C-S+ +n 1ugust 1, and 6=,14=4 C<S Stock ;rokerage, #nc. %C<S for short& sold to ?ope8, ?ocsin, ?edesma and Co., #nc., %??? for short& on the floor of the <akati Stock E.change, among others, 6,=95 ;enguet Consolidated shares for the total price of *64/,=95.55 on a ten %15& to t"ent! %65& da!s dela!ed deliver! asis. -he sale is evidenced ! E.change Contracts.. +f these 6,=95 shares, 955 shares "ere purchased for and on orders of Cose <a. ?ope8, 1,=55 shares for and on orders ofL 1lfredo Aamos' 6/9 shares for and on orders of Aene ?edesma' and 6/9 shares for and on orders of Cesar 1. ?ope8, Cr. C<S, ho"ever, failed to deliver to ??? the 6,=95 ;enguet Consolidated shares "ithin the ten %15& to t"ent! %65& da!s stipulated in the e.change contracts et"een them alleging non-deliver! as due to mere oversight o"ing to the huge volume of transactions. the auditors discovered that the 6,=95 ;enguet Consolidated shares "hich C<S sold to ??? still remained undelivered and unpaid ! ???. So C<S made kno"n the ??? that it "ould effect deliver! of said shares of stocks the follo"ing da!. ??? in its letter dated Canuar! /, 14/5, ho"ever, refused to accept deliver! at that late time since its clients for "hom the purchases "ere made had Jelected to cancelJ the orders. +n Canuar! F, 14/5, C<S replied that, pursuant to the Aules and Aegulations of the <akati Stock E.change, ??? had no right to cancel its orders, nevertheless, made a disposal in favor of ??? the ne.t da!. +n Canuar! 4,14/5, ??? refused to ackno"ledge receipt of and sign the covering disposal letter. Ihat C<S did "as to deposit the letter "ith the +ffice of the Stock E.changeLs E.ecutive Secretar! "ith the notation$ JAefused 1cceptance pending decision of the E.change.J
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receipt must state the time of deliver! of the letter of demand to the Selling <em er. (ifteen da!s shall e considered a reasona le period of time "ithin "hich to effect deliver! unless other"ise stated in the sales contract. #n the event a Selling <em er is una le to make deliver! "ithin said period, the ;u!ing <em er shall deliver a cop! of his letter of demand to the Chairman of the (loor -rading R 1r itration Committee "ho ma! purchase the shares for the Selling <em erLs 1ccount. -he rule is clear that the e?change contracts in 8uestion fall under the last clause. -he parties ha'e merel1 specified the period #ithin #hich deli'er1 must be made #hich is ten ("2) to t#ent1 ((2) da1s. Such 8ualification does not in an1 #a1 change the nature of the e?change contracts. -he bu1ing memberIs dut1 under the rules remains. <ore than an! person, it is the u!er "ho should e a"are "hether or not "hat he purchased has een delivered to him. ;ecause of this a"areness, the E.change imposes upon him the primar! o ligation of giving notice. #t "ould, therefore, e safe to sa! that unless the u!ing mem er timel! notifies the seller that he is canceling his orders, then the orders placed ! the u!ing mem er still stand. ??? must, therefore, accept the deliver! of the shares of stocks. #f the shares had dou led or tre led in value, it could demand deliver! of "hat it purchased. -he rule is clear. )t #as the dut1 of 000 to ma*e a demand in the e'ent CMS failed to deli'er #ithin the stipulated time. :e 8uote #ith fa'or the distinction made b1 the trial court bet#een a Ldut1L and a LrightL.+ PE-)-)45 D)SM)SSED. ". Prohibition on use of unregistered e?change regulatin of 4-C mar*ets (Sec. 3() SEC. 36. Pro!ibition on "se of "nregistered +9c!ange@ Regulation of 4ver#t!e#Counter Car*ets. 36.1. 3o roker, dealer, salesman, associated person of a roker or dealer, or E.change, directl! or indirectl!, shall make use of an! facilit! of an E.change in the *hilippines to effect an! transaction in a securit!, or to report such transaction, unless such E.change is registered as such under Section 33 of this Code. 36.6. %a& 3o roker, dealer, salesman or associated person of a roker or dealer, singl! or in concert "ith an! other person, shall make, create or operate, or ena le another to make, create or operate, an! trading market, other"ise than on a registered E.change, for the u!ing and selling of an! securit!, e.cept in accordance "ith rules and regulations the Commission ma! prescri e. % & -he Commission ma! promulgate rules and regulations governing transactions ! rokers, dealers,
salesmen or associated persons of a roker or dealer, over an! facilities of such trading market and ma! re0uire such market to e administered ! a self-regulator! organi8ation determined ! the Commission as capa le of insuring the protection of investors compara le to that provided in the case of a registered E.change. Such self-regulator! organi8ation must provide a centrali8ed marketplace for trading and must satisf! re0uirements compara le to those prescri ed for registration of E.changes in Section 33 of this Code. (. !egistration of E?changes (Sec. 33) SEC. 33. Registration of +9c!anges. - 33.1. 1n! E.change ma! e registered as such "ith the Commission under the terms and conditions hereinafter provided in this Section and Section ,5 hereof, ! filing an application for registration in such form and containing such information and supporting documents as the Commission ! rule shall prescri e, including the follo"ing$chanro lesvirtuala"li rar! %a& 1n undertaking to compl! and enforce compliance ! its mem ers "ith the provisions of this Code, its implementing rules or regulations and the rules of the E.change' % & -he organi8ational charts of the E.change, rules of procedure, and a list of its officers and mem ers' %c& Copies of the rules of the E.change' and %d& 1n undertaking that in the event a mem er firm ecomes insolvent or "hen the E.change shall have found that the financial condition of its mem er firm has so deteriorated that it cannot readil! meet the demands of its customers for the deliver! of securities and2or pa!ment of sales proceeds, the E.change shall, upon order of the Commission, take over the operation of the insolvent mem er firm and immediatel! proceed to settle the mem er firmBs lia ilities to its customers. 33.6. Aegistration of an E.change shall e granted upon compliance "ith the follo"ing provisions$chanro lesvirtuala"li rar! %a& -hat the applicant is organi8ed as a stock corporation$Provided, -hat an! registered E.change e.isting prior to the effectivit! of this Code shall "ithin one %1& !ear reorgani8e as a stock corporation pursuant to a demutuali8ation plan approved ! the Commission' % & -hat the applicant is engaged solel! in the usiness of operating an e.change$ Provided, !o%ever, -hat the Commission ma! adopt rules, regulations or issue an order, upon application, e.empting an E.change organi8ed as a stock corporation and o"ned and controlled ! another :uridical person from this restriction' c& Ihere the E.change is organi8ed as a stock corporation, that no person ma! eneficiall! o"n or control, directl! or indirectl!, more than five percent %9M& of the voting rights of the E.change and no industr! or usiness group ma! eneficiall! o"n or control, directl! or indirectl!, more than t"ent! percent %65M& of the voting rights of the E.change$ Provided, !o%ever, -hat the Commission ma! adopt rules, regulations or issue an
*age 44 of 64
order, upon application, e.empting an applicant from this prohi ition "here it finds that such o"nership or control "ill not negativel! impact on the e.changeBs a ilit! to effectivel! operate in the pu lic interest' %d& -he e.pulsion, suspension, or disciplining of a mem er and persons associated "ith a mem er for conduct or proceeding inconsistent "ith :ust and e0uita le principles of fair trade, and for violations of provisions of this Code, or an! other 1ct administered ! the Commission, the rules, regulations and orders thereunder, or the rules of the E.change' %e& 1 fair procedure for the disciplining of mem ers and persons associated "ith mem ers, the denial of mem ership to an! person seeking to e a mem er, the arring of an! person from association "ith a mem er, and the prohi ition or limitation of an! person from access to services offered ! the E.change' %f& -hat the rokers in the oard of the E.change shall comprise of not more than fort!-nine percent %,4M& of such oard and shall proportionatel! represent the E.change mem ership in terms of volume2value of trade and paid up capital, and that an! natural person associated "ith a :uridical entit! that is a mem er shall himself e deemed to e a mem er for this purpose$ Provided, -hat an! registered E.change e.isting prior to the effectivit! of this Code shall immediatel! compl! "ith this re0uirement' %g& (or the oard of the E.change to include in its composition %i& the president of the E.change, and %ii& no less than fift! one percent %91M& of the remaining mem ers of the oard to e comprised of three %3& independent directors and persons "ho represent the interests of issuers, investors, and other market participants, "ho are not associated "ith an! roker or dealer or mem er of the E.change for a period of t"o %6& !ears prior to his2her appointment. 3o officer or emplo!ee of a mem er, its su sidiaries or affiliates or related interests shall ecome an independent director$ Provided, !o%ever, -hat the Commission ma! ! rule, regulation, or order upon application, permit the e.change organi8ed as a stock corporation to use a different governance structure$ Provided, furt!er, -hat the Commission is satisfied that the E.change is acting in the pu lic interest and is a le to effectivel! operate as a selfregulator! organi8ation under this Code$ Provided, finally, -hat an! registered e.change e.isting prior to the effectivit! of this Code shall immediatel! compl! "ith this re0uirement. %h& -he president and other management of the E.change to consist onl! of persons "ho are not mem ers and are not associated in an! capacit!, directl! or indirectl! "ith an! roker or dealer or mem er or listed compan! of the E.change$ Provided, -hat the E.change ma! onl! appoint, and a person ma! onl! serve, as an officer of the e.change if such person has not een a mem er or affiliated "ith an! roker, dealer, or mem er of the E.change for a period of at least t"o %6& !ears prior to such appointment' %i& -he transparenc! of transactions on the E.change'
%:& -he e0uita le allocation of reasona le dues, fees, and other charges among mem ers and issuers and other persons using an! facilit! or s!stem "hich the E.change operates or controls' %k& *revention of fraudulent and manipulative acts and practices, promotion of :ust and e0uita le principles of trade, and, in general, protection of investors and the pu lic interest' and %l& -he transparent, prompt and accurate clearance and settlement of transactions effected on the E.change. 33.3. #f the Commission finds that the applicant E.change is capa le of compl!ing and enforcing compliance ! its mem ers, and persons associated "ith such mem ers, "ith the provisions of this Code, its rules and regulations, and the rules of the E.change, and that the rules of the E.change are fair, :ust and ade0uate, the Commission shall cause such E.change to e registered. #f, after notice due and hearing, the Commission finds other"ise, the application shall e denied. 33.,. Iithin ninet! %45& da!s after the filing of the application the Commission ma! issue an order either granting or den!ing registration as an E.change, unless the E.change appl!ing for registration shall "ithdra" its application or shall consent to the CommissionBs deferring action on its application for a stated longer period after the date of filing. -he filing "ith the Commission of an application for registration ! an E.change shall e deemed to have taken place upon the receipt thereof. 1mendments to an application ma! e made upon such terms as the Commission ma! prescri e. 33.9. 7pon the registration of an E.change, it shall pa! a fee in such amount and "ithin such period as the Commission ma! fi.. 33.=. 7pon appropriate application in accordance "ith the rules and regulations of the Commission and upon such terms as the Commission ma! deem necessar! for the protection of investors, an E.change ma! "ithdra" its registration or suspend its operations or resume the same. 3. Cro*er=dealer segregation rule (Sec. 34) SEC. 3,. Segregation and $imitation of &unctions of Cembers, <ro*ers and Dealers. - 3,.1. #t shall e unla"ful for an! mem er- roker of an E.change to effect an! transaction on such E.change for its o"n account, the account of an associated person, or an account "ith respect to "hich it or an associated person thereof e.ercises investment discretion$ Provided, !o%ever, -hat this section shall not make unla"ful %a& 1n! transaction ! a mem er- roker acting in the capacit! of a market maker' % & 1n! transaction reasona l! necessar! to carr! on an odd-lot transactions'
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%c& 1n! transaction to offset a transaction made in error' and %d& 1n! other transaction of a similar nature as ma! e defined ! the Commission. 3,.6. #n all instances "here the mem er- roker effects a transaction on an E.change for its o"n account or the account of an associated person or an account "ith respect to "hich it e.ercises investment discretion, it shall disclose to such customer at or efore the completion of the transaction it is acting for its o"n account$Provided, furt!er, -hat this fact shall e reflected in the order ticket and the confirmation slip. 3,.3. 1n! mem er- roker "ho violates the provisions of this Section shall e su :ect to the administrative sanctions provided in Section 9, of this Code. 4. Po#er #ith respect to e?changes (Sec. 36)
purpose of compensating investors for the e.traordinar! losses or damage the! ma! suffer due to usiness failure or fraud or mismanagement of the persons "ith "hom the! transact, under such rules and regulations as the Commission ma! from time to time prescri e or approve in the pu lic interest. % & -he Commission ma!, having due regard to the pu lic interest or the protection of investors, regulate, supervise, e.amine, suspend or other"ise discontinue such and other similar funds under such rules and regulations "hich the Commission ma! promulgate, and "hich ma! include taking custod! and management of the fund itself as "ell as investments in and dis ursements from the funds under such forms of control and supervision ! the Commission as it ma! from time to time re0uire. -he authorit! granted to the Commission under this su section shall also appl! to all funds esta lished for the protection of investors, "hether esta lished ! the Commission or other"ise. %. )ndependent directors (Sec. 3; S!C !ule 3;)
SEC. 3=. Po%ers %it! Respect to +9c!anges and 4t!er Trading Car*et. - 3=.1. -he Commission is authori8ed, if in its opinion such action is necessar! or appropriate for the protection of investors and the pu lic interest so re0uires, summaril! to suspend trading in an! listed securit! on an! E.change or other trading market for a period not e.ceeding thirt! %35& da!s or, "ith the approval of the *resident of the *hilippines, summaril! to suspend all trading on an! securities E.change or other trading market for a period of more than thirt! %35& ut not e.ceeding ninet! %45& da!s$ Provided, !o%ever, -hat the Commission, promptl! follo"ing the issuance of the order of suspension, shall notif! the affected issuer of the reasons for such suspension and provide such issuer "ith an opportunit! for hearing to determine "hether the suspension should e lifted. 3=.6. Iherever t"o or more E.changes or other trading markets e.ist, the Commission ma! re0uire and enforce uniformit! of trading regulations in and2or et"een or among said E.changes or other trading markets. 3=.3. #n addition to the e.isting *hilippine Stock E.change, the Commission shall have the authorit! to determine the num er, si8e and location of stock E.changes, other trading markets and commodit! E.changes and other similar organi8ations in the light of national or regional re0uirements for such activities "ith the vie" to promote, enhance, protect, conserve or rationali8e investment. 3=.,. -he Commission, having due regard to the pu lic interest, the protection of investors, the safeguarding of securities and funds, and maintenance of fair competition among rokers, dealers, clearing agencies, and transfer agents, shall promulgate rules and regulations for the prompt and accurate clearance and settlement of securities transactions. 3=.9. %a& -he Commission ma! esta lish or facilitate the esta lishment of trust funds "hich shall e contri uted ! E.changes, rokers, dealers, under"riters, transfer agents, salesmen and other persons transacting in securities, as the Commission ma! re0uire, for the
SEC. 3F. Independent Directors. - 1n! corporation "ith a class of e0uit! securities listed for trading on an E.change or "ith assets in e.cess of (ift! million pesos %*95,555,555.55& and having t"o hundred %655& or more holders, at least of t"o hundred %655& of "hich are holding at least one hundred %155& shares of a class of its e0uit! securities or "hich has sold a class of e0uit! securities to the pu lic pursuant to an effective registration statement in compliance "ith Section 16 hereof shall have at least t"o %6& independent directors or such independent directors shall constitute at least t"ent! percent %65M& of the mem ers of such oard, "hichever is the lesser. (or this purpose, an independent director shall mean a person other than an officer or emplo!ee of the corporation, its parent or su sidiaries, or an! other individual having a relationship "ith the corporation, "hich "ould interfere "ith the e.ercise of independent :udgment in carr!ing out the responsi ilities of a director. S!C !ule 3;." Definition of 0,nde!endent 1irector2 1. 1s used in Section 3F of the Code, independent director means a person "ho, apart from his fees and shareholdings, is independent of management and free from an! usiness or other relationship "hich could, or could reasona l! e perceived to, materiall! interfere "ith his e.ercise of independent :udgement in carr!ing out his responsi ilities as a director in an! corporation that meets the re0uirements of Section 1/.6 of the Code and includes, among others, an! person "ho$ a. #s not a director or officer of the corporation or of its related companies or an! of its su stantial shareholders %other than as an independent director of an! of the foregoing&' . #s not a su stantial shareholder of the corporation or of its related companies or an! of its su stantial shareholders'
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c. #s not a relative of an! director, officer or su stantial shareholder of the corporation, an! of its related companies or an! of its su stantial shareholders. (or this purpose, relatives includes spouse, parent, child, rother, sister, and the spouse of such child, rother or sister' d. #s not acting as a nominee or representative of an! director or su stantial shareholder of the corporation, an! of its related companies or an! of its su stantial shareholders' e. >as not een emplo!ed in an! e.ecutive capacit! ! that pu lic compan!, an! of its related companies or ! an! of its su stantial shareholders "ithin the last five %9& !ears' f. #s not retained as professional adviser ! that pu lic compan!, an! of its related companies or an! of its su stantial shareholders "ithin the last five %9& !ears' g. #s not retained as professional adviser, ! that pu lic compan!, an! of its related companies or ! an! of its su stantial shareholders, either personall! or through his firm' or h. >as not engaged and does not engage in an! transaction "ith the corporation or "ith an! of its related companies or "ith an! of its su stantial shareholders, "hether ! himself or "ith other persons or through a firm of "hich he is a partner or a compan! of "hich he is a director or su stantial shareholder, other than transactions "hich are conducted at arms length and are immaterial. Ihen used in relation to a compan! su :ect to the re0uirements of this Aule and Section 3F of the Code$ a. Aelated compan! means another compan! "hich is$ %a& its holding compan!, % & its su sidiar!, or %c& a su sidiar! of its holding compan!' and . Su stantial shareholder means an! person "ho is directl! or indirectl! the eneficial o"ner of more than ten percent %15M& of an! class of its e0uit! securit!. S!C !ule 37."=" !ules 6o'erning a Self !egulator1 4rgani>ations #hich is an 4rgani>ed E?change 1. 1pplica ilit!. 1ll organi8ed E.changes shall e su :ect to these procedures and re0uirements set forth in this Aule. 6. )efinitions. (or purposes of this Aule$ a. +rgani8ed E.change or E.change means a registered E.change, "hether or not registered as an SA+ under the Code. . *articipant refers to an! person "ho has een approved to use the SA+Bs services and facilities ut is not a mem er therein. c. Securities la"s refers to the Code and rules, regulations and orders issued ! the Commission. d. SA+ means a Self Aegulator! +rgani8ation "hich is an organi8ed E.change.
e. SA+ rule refers to the constitution, articles of incorporation, !-la"s and rules, or instruments corresponding to the foregoing and such policies, practices and interpretations of the SA+, other than those designated ! the SA+ as constituting a polic!, practice or interpretation of an e.isting rule or esta lishing or concerning solel! matters of SA+ administration under Section ,%c& of this Aule. 3. SA+ Aulemaking a. Su :ect to Commission approval and pursuant to the procedures set forth herein, an SA+Bs po"er to adopt and amend rules shall also include the po"er to repeal e.isting rules, implement such rules and provide interpretative guidance to aid in compliance. . 1n SA+ shall adopt comprehensive rules governing its organi8ation and governance, 0ualifications and rights of shareholders, listing of securities, trading of securities, settlement of contracts, 0ualification of mem ers and other participants, ethical conduct of mem ers and other participants, supervision and control of mem ers, financial and operational responsi ilit! of mem ers, and discipline of mem ers and other participants. ,. Commission Aevie" *rocedures a. 1n SA+ shall su mit to the Commission for prior approval an! proposed rule or amendment thereto %hereinafter collectivel! referred to as proposal&, together "ith a concise statement of the reason and effect of the proposal. #f the Commission elieves that such proposal is of ma:or significance, at least thirt! %35& da!s efore approving such proposal, the Commission shall direct the SA+ to pu lish the te.t of the proposal and a statement of the reasons and effect in a ne"spaper of general circulation or ! some other means to guarantee the pu lic circulation thereof, and shall afford interested persons an opportunit! to su mit "ritten data, vie"s and arguments, provided that comment period shall not e.ceed a period of t"ent! %65& da!s. -he SA+ shall file "ith the Commission a "ritten summar! of the comments received, along "ith responses thereto, no later than thirt! %35& da!s after the end of the comment period. Ihere the comments cause the SA+ proposal to e changed in a material manner, a ne" revie" period shall e triggered. . E.cept as provided in paragraph %c& elo", "ithin the later of si.t! %=5& da!s after su mission of the proposal or summar! of comments re0uired to e filed "ith the Commission pursuant to paragraph %a& a ove, the Commission shall, ! order, approve the proposal, or institute proceedings to determine "hether the proposal should e disapproved. #f the Commission does not institute proceedings to disapprove the proposal "ithin such period, the proposal ma! e declared effective ! the SA+. #f a proceeding is instituted, the Commission shall provide notice to the SA+ of the proposed grounds for disapproval, and an opportunit! for hearing, at the conclusion of "hich the Commission shall grant or den! approval of the proposal. -he Commission shall approve a proposal "here it finds that the proposal is consistent "ith the
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re0uirements of the securities la", and shall disapprove if it does not make such findings. #f the proceeding is not concluded "ithin ninet! %45& da!s follo"ing its commencement, the proposal shall e made effective ! the SA+. c. 3ot"ithstanding paragraph % & a ove, a proposal ma! take effect "ithin ten %15& usiness da!s after its su mission to the Commission if designated ! the SA+ as constituting a polic!, practice or interpretation of an e.isting rule, esta lishing or concerning solel! matters of administration of the SA+ %e.g. setting of dues, fees and charges & or such other matters as the Commission ! rule or order, ma! prescri e, unless the Commission, "ithin the ten %15& da! period, provides "ritten notice to the SA+ of its determination to revie" such proposal for prior approval pursuant to paragraphs %a& and % & a ove. d. 3ot"ithstanding an! other provision of this section, in an emergenc! re0uiring action for the protection of investors, the maintenance of fair and orderl! markets, or the safeguarding of securities and funds, the SA+ ma! summaril! put into effect a proposal' provided !o%ever that the proposal made effective shall e promptl! su mitted to the Commission pursuant to paragraph %a& a ove. e. Commission directions regarding rulemaking i. -he Commission ma! re0uest in "riting that the SA+ effect on its o"n ehalf specified changes in its rules and practices "hich are necessar! or appropriate for the protection of investors, to insure fair dealing in securities traded on the SA+, insure fair administration of the SA+, conform SA+ rules to the re0uirements set forth in the securities la", or to other"ise further the purpose of the securities la" on such matters as$ 1. safeguards in respect of the financial responsi ilit! of mem ers and ade0uate provision against the evasion of financial responsi ilit! through the use of corporate forms or special partnerships' 6. supervision of trading practices' 3. listing or delisting an! securit!' ,. hours of trading' 9. manner, method and place of soliciting usiness' =. fictitious accounts' /. time and method of making settlements, pa!ments and deliveries and of closing accounts' F. transparenc! of securities transactions and prices' 4. fi.ing of reasona le rates of fees, interest, listing and other charges ut not rates of commission' 15. minimum units of trading' 11. odd-lot purchases and sales' 16. minimum deposits on margin accounts' and 13. supervision, auditing and disciplining of mem ers or participants. ii. #f after making such re0uest in "riting to the SA+, and after due notice of the reasons and effects of the proposed changes and opportunit! for a hearing, the Commission determines that the SA+ has not made the changes so re0uested, the Commission ma! alter, a rogate, or supplement the SA+Bs rules, "ith
such changes to e made effective immediatel! upon adoption ! the Commission. 9. *o"er over listed companies -he SA+ shall e solel! responsi le for processing and approving or re:ecting applications for ne" listing of shares, suspension and de-listing of listed issues and imposition of sanctions on listed companies for violation of SA+ rules' provided, !o%ever, that such po"ers shall e e.ercised pursuant to SA+ rules. =. Compliance and Surveillance a. 1n SA+ shall esta lish a separate audit, compliance and surveillance department2s, overseen ! at least one independent mem er of the ;oard of )irectors, and one other non- roker mem er. Such department shall not e su ordinated or other"ise controlled in its activit! ! the E.change ;oard and shall e responsi le for carr!ing out the SA+Bs enforcement role pursuant to the securities la" and the disciplining of participants, "ith findings to e provided simultaneousl! to the Commission and E.change ;oard "hich shall notif! the Commission "ithin fort! five %,9& da!s as to the ;oardBs decision. . 1 sent reasona le :ustification or e.cuse, the SA+ shall enforce compliance "ith provisions of the securities la"s regulating rokers, dealers and trading on the SA+ and SA+ rules ! its mem ers. c. 1n SA+ shall enter into a <emorandum of 7nderstanding "ith other SA+s to clarif! its oversight responsi ilities over persons "ho are mem ers of or participants in more than one SA+ and coordinate "ith other SA+s to ensure ade0uate oversight. Such plan shall e su mitted to the Commission for approval under SAC Aule 34.1-=. d. 1n SA+ shall monitor market conditions and trading activit! to detect violations of the securities la" and SA+ rules$ i. -he SA+ shall conduct market surveillance of all trading activit! on the SA+ pursuant to SA+ rules setting forth surveillance procedures and guidelines. ii. -he SA+ shall monitor compliance ! listed companies "ith continuing listing o ligations@ provided !o%ever, primar! oversight for compliance "ith full disclosure regulation under the securities la" shall remain the responsi ilit! of the Commission. e. -he Commission ma!, on its o"n initiative, monitor the market to ensure that the SA+ is fulfilling its SA+ functions. /. *eriodic E.aminations a. -he SA+ shall e.amine mem ers to determine "hether the! are in compliance "ith the securities la" and SA+ rules governing, among other things, financial responsi ilit!, dealings "ith mem ers of the pu lic, ack office procedures, trading practices, and supervision and shall su mit to the Commission for revie" and comment its e.amination calendar for the
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!ear on or efore the 19th of Canuar! of ever! !ear, provided that an! amendment to the calendar shall e promptl! provided to the Commission. -his calendar shall e treated as confidential information. *eriodic e.amination of each mem er firm shall e conducted "ithout prior notice to the mem er firm. . -he SA+ shall file "ith the Commission monthl! reports of its periodic e.aminations started and completed during the month, "ithin ten %15& da!s after the end of each month, together "ith a summar! of findings for audits completed. *eriodic e.aminations of each mem er firm shall e made ! the SA+ pursuant to "ritten procedures approved ! the Commission. Ihere deficiencies are detected, the SA+ shall either send a letter to the firm "ithin three %3& usiness da!s of the completion of such e.amination re0uesting that such deficiencies e corrected or, "here such deficiencies evidence violations of the securities la", SA+ rules and2or other"ise negativel! reflect upon the firmBs integrit! or solvenc!, initiate an investigation. c. -he Commission ma!, on its o"n initiative, conduct periodic or parallel e.aminations of mem ers to validate the SA+Bs findings and conduct on-spot audit inspections of the relevant SA+ department to check if it is fulfilling its duties and responsi ilities as an SA+. F. #nvestigations a. 1n SA+ shall investigate suspected violations of the securities la" and SA+ rules ased on complaints, e.amination2audit findings or unusual trading activities and take disciplinar! action, "here appropriate, pursuant to SA+ rules. . -he SA+ shall e primaril! responsi le for conducting investigations "hich concern suspected violation of rules governing sales practices, financial and operational re0uirements, trading and floor related violations, and compliance procedures2supervision of mem ers. c. -he SA+ shall promptl! notif! the Commission of an! investigation "hich involves suspected violations of the securities la" involving persons notsu :ect to the SA+Bs :urisdiction, concerning the disclosure o ligations of listed companies under the securities la", and2or involving fraud or manipulation. -he SA+ shall cooperate "ith the Commission "hich shall have primar! investigative authorit! over such suspected violations. 4. )iscipline of SA+ <em ers and *articipants a. 1n SA+ shall discipline a mem er, including suspension or e.pulsion of a mem er, if such person has een found to have een engaged in a violation of SA+ rules or provisions of the securities la", including, ut not limited to, illegal sales practices, financial and operational re0uirements, trading and floor related violations, and2or violation of SA+ listing rules. . #n an! disciplinar! hearing ! the SA+, other than a proceeding rought pursuant to paragraph %c&
elo", the SA+ shall ring specific charges, provide notice to the mem er or participant charged, afford such person charged "ith an opportunit! to defend against the charges, and keep a "ritten record of the proceeding. 1 determination to ring a disciplinar! sanction shall e supported ! a "ritten statement of the offense, a summar! of the evidence presented and a statement of the sanction imposed. c. -he SA+ ma! summaril! suspend a mem er or person associated "ith a mem er "ho has een e.pelled or suspended from another SA+, and2or suspend a mem er "ho the SA+ finds to e in such financial or operating difficult! that the mem er cannot e permitted to do usiness as a mem er "ith safet! to investors, creditors, other mem ers, or the SA+' provided, !o%ever that the SA+ immediatel! provides "ritten notice to the Commission of the action taken. 1n! person aggrieved ! a summar! action pursuant to this paragraph shall e promptl! afforded an opportunit! for a hearing ! the SA+ in accordance "ith paragraph % & a ove. -he Commission, ! order, ma! sta! a summar! action on its o"n motion or upon application ! an! person aggrieved there ! if the Commission determines summaril! or after notice and an opportunit! for hearing %"hich ma! consist solel! of the su mission of affidavits or presentation of oral arguments& that a sta! is consistent "ith the pu lic interest and the protection of investors. d. -he SA+ shall promptl! notif! the Commission in "ritten reports of an! disciplinar! sanction imposed on an! mem er or participant. Iithin thirt! %35& da!s after receipt of such notice, an! aggrieved person ma! appeal to the Commission from, or the Commission on its o"n motion "ithin such period, ma! institute revie" of, the decision of the SA+, at the conclusion of "hich, after due notice and opportunit! for hearing "hich ma! consist solel! of revie" of the record efore the SA+, the Commission shall affirm, modif! or set aside the sanction. #n such proceeding, the Commission shall determine "hether the aggrieved person has engaged or omitted to engage in the acts and practices as found ! the SA+, "hether such acts and practices constitute "illful violations of the securities la" or SA+ rules, "hether such provisions "ere applied in a manner consistent "ith the purposes of the securities la", and "hether, "ith due regard for the pu lic interest and the protection of investors, the sanction is e.cessive or oppressive. 15. SA+ )iscipline ! the Commission -he Commission ma!, if in its opinion such action is necessar! or appropriate in the pu lic interest or for the protection of investors, or other"ise in furtherance of the purposes of the securities la", after due notice and an opportunit! for a hearing$ a. suspend for a period not to e.ceed t"elve %16& months or revoke the registration of an SA+, or censure or impose limitations on the activities, functions and operations of the SA+ as an SA+, if the Commission finds that the SA+ has "illfull! violated or is una le to compl! "ith an! provision of the securities la" or SA+ rules, or "ithout reasona le :ustification or
*age 47 of 64
e.cuse has failed to enforce compliance there"ith ! a mem er or participant' . take over the activities of an SA+ pursuant to SAC rule ,5.9.1' c. suspend for a period not e.ceeding t"elve %16& months or to e.pel from the SA+ an! mem er "ho is su :ect to an order of the Commission under Section 64 of the Code or is found to have "illfull! violated an! provision of the securities la", or effected, directl! or indirectl!, an! transaction for an! person "ho such mem er had reason to elieve "as violating in respect of such transaction an! of such provisions' d. remove from office or censure an! officer or director of the SA+ if it finds that such officer or director has violated an! provision of the securities la" or the rules of such SA+, a used his authorit! or "ithout reasona le :ustification or e.cuse, has failed to enforce compliance "ith an! of such provisions' and2or e. -ake other actions as provided ! the Code. 11. SA+ Aeporting 1n SA+ shall su mit the follo"ing reports to the Commission$ a. <onthl! reports on dockets of e.aminations and investigations eing conducted, containing the docket num er, name of SA+ e.aminer2investigator, ho" audit2e.amination originated %investor complaint, e.amination, surveillance&, name of the mem er or participant, including a listed compan! eing audited2investigated, nature of the violations alleged, status, findings, sanctions imposed and other courses of action taken ! the SA+ relative thereto' . <onthl! reports re0uirements ! mem ers' on capital ade0uac!
disclosure shall meet "ith their SA+ counterparts at least once a month to discuss issues and concerns relating to the operation of the SA+ as an SA+. <inutes of such meetings shall e prepared and circulated to SA+ management and Commissioners of the Commission. -his monthl! meeting ma!, at the discretion of the Commission and SA+, involve officials of the Commission and2or SA+, directors of the Commission and their SA+ counterparts, or technical "orking groups from oth sides. . -he Commission and SA+ shall "ork closel! and tr! to coordinate their media campaigns on the securities industr! to generate positive pu lic opinion and increase investor confidence.
!. !egistration responsibilities and o'ersight of S!4 (Sec.37 ans 42)

SEC. 34. Associations of Securities <ro*ers, and Dealers, and 4t!er Securities Related 4rgani7ations. -34.1. -he Commission shall have the po"er to register as a self-regulator! organi8ation, or other"ise grant licenses, and to regulate, supervise, e.amine, suspend or other"ise discontinue, as a condition for the operation of organi8ations "hose operations are related to or connected "ith the securities market such as ut not limited to associations of rokers and dealers, transfer agents, custodians, fiscal and pa!ing agents, computer services, ne"s disseminating services, pro.! solicitors, statistical agencies, securities rating agencies, and securities information processors "hich are engaged in the usiness of$ %a& Collecting, processing, or preparing for distri ution or pu lication, or assisting, participating in, or coordinating the distri ution or pu lication of, information "ith respect to transactions in or 0uotations for an! securit!' or % & )istri uting or pu lishing, "hether ! means of a ticker tape, a communications net"ork, a terminal displa! device, or other"ise, on a current and continuing asis, information "ith respect to such transactions or 0uotations. -he Commission ma! prescri e rules and regulations "hich are necessar! or appropriate in the pu lic interest or for the protection of investors to govern self-regulator! organi8ations and other organi8ations licensed or regulated pursuant to the authorit! granted in Su section 34.1 including the re0uirement of cooperation "ithin and among, and electronic integration of the records of, all participants in the securities market to ensure transparenc! and facilitate e.change of information. 34.6. 1n association of rokers and dealers ma! e registered as a securities association pursuant to Su section 34.3 ! filing "ith the Commission an application for registration in such form as the Commission, ! rule, ma! prescri e containing the rules of the association and such other information and documents as the Commission, ! rule, ma! prescri e as necessar! or appropriate in the pu lic interest or for the protection of investors. 34.3. 1n association of rokers and dealers shall not e registered as a securities association unless the Commission determines that$chanro lesvirtuala"li rar!
c. Ouarterl! reports on the result of the monitoring of trading of listed companies and investigations conducted "ith respect thereto' d. Semi- annual report on the num er of ne"l! listed issues, delisted2suspended issues and reasons therefor, and the num er, t!pe and issuer of current listed issues' e. Semi-annual report containing information on the num er of investor complaints received, investigated, nature of claim, status and manner of disposition' and f. Such other information as ma!, from time to time, e re0uired ! the Commission from the SA+. 16. SA+ Aelationship "ith Commission. a. #n order to enhance investor protection and more effectivel! utili8e e.isting resources, the Commission and SA+ shall "ork to"ards a more harmonious and cooperative relationship among their officers and personnel. Commission staff "orking in the area of ;roker )ealer and market regulation and corporate
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%a& -he association is so organi8ed and has the capacit! to e a le to carr! out the purposes of this Code and to compl! "ith, and to enforce compliance ! its mem ers and persons associated "ith its mem ers, "ith the provisions of this Code, the rules and regulations thereunder, and the rules of the association. % & -he rules of the association, not"ithstanding an!thing in the Corporation Code to the contrar!, provide that$chanro lesvirtuala"li rar! %i& 1n! registered roker or dealer ma! ecome a mem er of the association' %ii& -here e.ist a fair representation of its mem ers to serve on the ;oard of )irectors of the association and in the administration of its affairs, and that an! natural person associated "ith a :uridical entit! that is a mem er shall himself e deemed to e a mem er for this purpose' %iii& -he ;oard of )irectors of the association includes in its composition$ %a& -he president of the association and % & *ersons "ho represent the interests of issuers and pu lic investors and are not associated "ith an! roker or dealer or mem er of the association' that the president and other management of the association not e a mem er or associated "ith an! roker, dealer or mem er of the association' %iv& (or the e0uita le allocation of reasona le dues, fees, and other charges among mem ers and issuers and other persons using an! facilit! or s!stem "hich the association operates or controls' %v& (or the prevention of fraudulent and manipulative acts and practices, the promotion of :ust and e0uita le principles of trade, and, in general, the protection of investors and the pu lic interest' %vi& -hat its mem ers and persons associated "ith its mem ers shall e appropriatel! disciplined for violation of an! provision of this Code, the rules or regulations thereunder, or the rules of the association' %vii& -hat a fair procedure for the disciplining of mem ers and persons associated "ith mem ers, the denial of mem ership to an! person seeking mem ership therein, the arring of an! person from ecoming associated "ith a mem er thereof, and the prohi ition or limitation ! the association of an! person "ith respect to access to services offered ! the association or a mem er thereof. 34.,. %a& 1 registered securities association shall den! mem ership to an! person "ho is not a registered roker or dealer. % & 1 registered securities association ma! den! mem ership to, or condition the mem ership of, a registered roker or dealer if such roker or dealer$chanro lesvirtuala"li rar! %i& )oes not meet the standards of financial responsi ilit!, operational capa ilit!, training, e.perience, or competence that are prescri ed ! the rules of the association' or %ii& >as engaged, and there is a reasona le likelihood it
"ill again engage, in acts or practices inconsistent "ith :ust and e0uita le principles of fair trade. %c& 1 registered securities association ma! den! mem ership to a registered roker or dealer not engaged in a t!pe of usiness in "hich the rules of the association re0uire mem ers to e engaged$ Provided, !o%ever, -hat no registered securities association ma! den! mem ership to a registered roker or dealer ! reason of the amount of usiness done ! the roker or dealer. 1 registered securities association ma! e.amine and verif! the 0ualifications of an applicant to ecome a mem er in accordance "ith procedures esta lished ! the rules of the association. %d& 1 registered securities association ma! ar a salesman or person associated "ith a roker or dealer from eing emplo!ed ! a mem er or set conditions for the emplo!ment of a salesman or associated if such person$chanro lesvirtuala"li rar! %i& )oes not meet the standards of training, e.perience, or competence that are prescri ed ! the rules of the association' or %ii& >as engaged, and there is a reasona le likelihood he "ill again engage, in acts or practices inconsistent "ith :ust and e0uita le principles of fair trade. 1 registered securities association ma! e.amine and verif! the 0ualifications of an applicant to ecome a salesman or associated person emplo!ed ! a mem er in accordance "ith procedures esta lished ! the rules of the association. 1 registered association also ma! re0uire a salesman or associated person emplo!ed ! a mem er to e registered "ith the association in accordance "ith procedures prescri ed in the rules of the association. 34.9. #n an! proceeding ! a registered securities association to determine "hether a person shall e denied mem ership, or arred from association "ith a mem er, the association shall provide notice to the person under revie" of the specific grounds eing considered for denial, afford him an opportunit! to defend against the allegations, and keep a record of the proceedings. 1 determination ! the association to den! mem ership shall e supported ! a statement setting forth the specific grounds on "hich the denial is ased. SEC. ,5. Po%ers %it! Respect to Self#Regulatory 4rgani7ations. - ,5.1. 7pon the filing of an application for registration as an E.change under Section 33, a registered securities association under Section 34, a registered clearing agenc! under Section ,6, or other self-regulator! organi8ation under this Section, the Commission shall have ninet! %45& da!s "ithin "hich to either grant registration or institute a proceeding to determine "hether registration should e denied. #n the event proceedings are instituted, the Commission shall have t"o hundred sevent! %6/5& da!s "ithin "hich to conclude such proceedings at "hich time it shall, ! order, grant or den! such registration. ,5.6. Ever! self-regulator! organi8ation shall compl! "ith the provisions of this Code, the rules and regulations
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thereunder, and its o"n rules, and enforce compliance there"ith, not"ithstanding an! provision of the Corporation Code to the contrar!, ! its mem ers, persons associated "ith its mem ers or its participants. ,5.3. %a& Each self-regulator! organi8ation shall su mit to the Commission for prior approval an! proposed rule or amendment thereto, together "ith a concise statement of the reason and effect of the proposed amendment. % & Iithin si.t! %=5& da!s after su mission of a proposed amendment, the Commission shall, ! order, approve the proposed amendment. +ther"ise, the same ma! e made effective ! the self-regulator! organi8ation. %c& #n the event of an emergenc! re0uiring action for the protection of investors, the maintenance of fair and orderl! markets, or the safeguarding of securities and funds, a self-regulator! organi8ation ma! put a proposed amendment into effect summaril!$ Provided, !o%ever, -hat a cop! of the same shall e immediatel! su mitted to the Commission. ,5.,. -he Commission is further authori8ed, if after making appropriate re0uest in "riting to a self-regulator! organi8ation that such organi8ation effect on its o"n ehalf specified changes in its rules and practices and, after due notice and hearing it determines that such changes have not een effected, and that such changes are necessar!, ! rule or regulation or ! order, ma! alter, a rogate or supplement the rules of such selfregulator! organi8ation in so far as necessar! or appropriate to effect such changes in respect of such matters as$chanro lesvirtuala"li rar! %a& Safeguards in respect of the financial responsi ilit! of mem ers and ade0uate provision against the evasion of financial responsi ilit! through the use of corporate forms or special partnerships' % & -he supervision of trading practices' %c& -he listing or striking from listing of an! securit!' %d& >ours of trading' %e& -he manner, method, and place of soliciting usiness' %f& (ictitious accounts' %g& -he time and method of making settlements, pa!ments, and deliveries, and of closing accounts' %h& -he transparenc! of securities transactions and prices' %i& -he fi.ing of reasona le rates of fees, interest, listing and other charges, ut not rates of commission' %:& <inimum units of trading' %k& +dd-lot purchases and sales'
%l& <inimum deposits on margin accounts' and %m& -he supervision, auditing and disciplining of mem ers or participants. ,5.9. -he Commission, after due notice and hearing, is authori8ed, in the pu lic interest and to protect investors$chanro lesvirtuala"li rar! %a& -o suspend for a period not e.ceeding t"elve %16& months or to revoke the registration of a selfregulator! organi8ation, or to censure or impose limitations on the activities, functions, and operations of such self-regulator! organi8ation, if the Commission finds that such a self-regulator! organi8ation has "illfull! violated or is una le to compl! "ith an! provision of this Code or of the rules and regulations thereunder, or its o"n rules, or has failed to enforce compliance there"ith ! a mem er of, person associated "ith a mem er, or a participant in such self-regulator! organi8ation' % & -o e.pel from a self-regulator! organi8ation an! mem er thereof or an! participant therein "ho is su :ect to an order of the Commission under Section 64 of this Code or is found to have "illfull! violated an! provision of this Code or suspend for a period not e.ceeding t"elve %16& months for violation of an! provision of this Code or an! other la"s administered ! the Commission, or the rules and regulations thereunder, or effected, directl! or indirectl!, an! transaction for an! person "ho, such mem er or participant had reason to elieve, "as violating in respect of such transaction an! of such provisions' and %c& -o remove from office or censure an! officer or director of a self-regulator! organi8ation if it finds that such officer or director has violated an! provision of this Code, an! other la" administered ! the Commission, the rules or regulations thereunder, or the rules of such self-regulator! organi8ation, a used his authorit!, or "ithout reasona le :ustification or e.cuse has failed to enforce compliance "ith an! of such provisions. ,5.=. %a& 1 self-regulator! organi8ation is authori8ed to discipline a mem er of or participant in such self-regulator! organi8ation, or an! person associated "ith a mem er, including the suspension or e.pulsion of such mem er or participant, and the suspension or ar from eing associated "ith a mem er, if such person has engaged in acts or practices inconsistent "ith :ust and e0uita le principles of fair trade or in "illful violation of an! provision of the Code, an! other la" administered ! the Commission, the rules or regulations thereunder, or the rules of the self-regulator! organi8ation. #n an! disciplinar! proceeding ! a selfregulator! organi8ation %other than a summar! proceeding pursuant to paragraph % & of this su section& the self-regulator! organi8ation shall ring specific charges, provide notice to the person charged, afford the person charged "ith an opportunit! to defend against the charges, and keep a record of the proceedings. 1 determination to impose a disciplinar! sanction shall e supported ! a "ritten statement of the offense, a summar! of the evidence presented and a statement of the sanction imposed.
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% & 1 self-regulator! organi8ation ma! summaril!$ %i& Suspend a mem er, participant or person associated "ith a mem er "ho has een or is e.pelled or suspended from an! other self-regulator! organi8ation' or %ii& Suspend a mem er "ho the self-regulator! organi8ation finds to e in such financial or operating difficult! that the mem er or participant cannot e permitted to continue to do usiness as a mem er "ith safet! to investors, creditors, other mem ers, participants or the self-regulator! organi8ation$ Provided,-hat the self-regulator! organi8ation immediatel! notifies the Commission of the action taken. 1n! person aggrieved ! a summar! action pursuant to this paragraph shall e promptl! afforded an opportunit! for a hearing ! the association in accordance "ith the provisions of paragraph %a& of this su section. -he Commission, ! order, ma! sta! a summar! action on its o"n motion or upon application ! an! person aggrieved there !, if the Commission determines summaril! or after due notice and hearing %"hich hearing ma! consist solel! of the su mission of affidavits or presentation of oral arguments& that a sta! is consistent "ith the pu lic interest and the protection of investors. ,5./. 1 self-regulator! organi8ation shall promptl! notif! the Commission of an! disciplinar! sanction on an! mem er thereof or participant therein, an! denial of mem ership or participation in such organi8ation, or the imposition of an! disciplinar! sanction on a person associated "ith a mem er or a ar of such person from ecoming so associated. Iithin thirt! %35& da!s after such notice, an! aggrieved person ma! appeal to the Commission from, or the Commission on its o"n motion "ithin such period, ma! institute revie" of, the decision of the self-regulator! organi8ation, at the conclusion of "hich, after due notice and hearing %"hich ma! consist solel! of revie" of the record efore the self-regulator! organi8ation&, the Commission shall affirm, modif! or set aside the sanction. #n such proceeding the Commission shall determine "hether the aggrieved person has engaged or omitted to engage in the acts and practices as found ! the self-regulator! organi8ation, "hether such acts and practices constitute "illful violations of this Code, an! other la" administered ! the Commission, the rules or regulations thereunder, or the rules of the self-regulator! organi8ation as specified ! such organi8ation, "hether such provisions "ere applied in a manner consistent "ith the purposes of this Code, and "hether, "ith due regard for the pu lic interest and the protection of investors the sanction is e.cessive or oppressive. ,5.F. -he po"ers of the Commission under this section shall appl! to organi8ed e.changes and registered clearing agencies.
use of an! facilit! of a clearing agenc! in the *hilippines to make deliveries in connection "ith transactions in securities or to reduce the num er of settlements of securities transactions or to allocate securities settlement responsi ilities or to provide for the central handling of securities so that transfers, loans and pledges and similar transactions can e made ! ookkeeping entr! or other"ise to facilitate the settlement of securities transactions "ithout ph!sical deliver! of securities certificates, unless such clearing agenc! is registered as such under Section ,6 of this Code or is e.empted from such registration upon application ! the clearing agenc! ecause, in the opinion of the Commission, ! reason of the limited volume of transactions "hich are settled using the clearing agenc!, it is not practica le and not necessar! or appropriate in the pu lic interest or for the protection of investors to re0uire such registration. SEC. ,6. Registration of Clearing Agencies. ,6.1. 1n! clearing agenc! ma! e registered as such "ith the Commission under the terms and conditions hereinafter provided in this Section, ! filing an application for registration in such form and containing such information and supporting documents as the Commission ! rule shall prescri e, including the follo"ing$chanro lesvirtuala"li rar! %a& 1n undertaking to compl! and enforce compliance ! its participants "ith the provisions of this Code, and an! amendment thereto, and the implementing rules or regulations made or to e made thereunder, and the clearing agenc!Bs rules' % & -he organi8ational charts of the E.change, its rules of procedure, and a list of its officers and participants' %c& Copies of the clearing agenc!Bs rules. ,6.6. 3o registration of a clearing agenc! shall e granted unless the rules of the clearing agenc! include provision for$chanro lesvirtuala"li rar! %a& -he e.pulsion, suspension, or disciplining of a participant for violations of this Code, or an! other 1ct administered ! the Commission, the rules, regulations, and orders thereunder, or the clearing agenc!Bs rules' % & 1 fair procedure for the disciplining of participants, the denial of participation rights to an! person seeking to e a participant, and the prohi ition or limitation of an! person from access to services offered ! the clearing agenc!' %c& -he e0uita le allocation of reasona le dues, fees, and other charges among participants' %d& *revention of fraudulent and manipulative acts and practices, promotion of :ust and e0uita le principles of trade, and, in general, protection of investors and the pu lic interest' and %e& -he transparent, prompt and accurate clearance and settlement of transactions in securities handled ! the clearing agenc!.
S. &8uisition and transfer of securities and settlement of transactions in securities (Sec. 4" to 4<)
SEC. ,1. Pro!ibition on "se of "nregistered Clearing Agency. - #t shall e unla"ful for an! roker, dealer, salesman, associated person of a roker or dealer, or clearing agenc!, directl! or indirectl!, to make
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%f& -he esta lishment and oversight of a fund to guarantee the prompt and accurate clearance and settlement of transactions e.ecuted on an e.change, including a re0uirement that mem ers each contri ute an amount ased on their volume and a relevant percentage of the dail! e.posure of the four %,& largest trading rokers "hich ade0uatel! reflects trading risks undertaken or pursuant to another formula set forth in Commission rules or regulations or order, upon application$Provided, !o%ever, -hat a clearing agenc! engaged in the usiness of a securities depositor! shall e e.empt from this re0uirement. ,6.3. #n the case of an application filed pursuant to this Section, the Commission shall grant registration if it finds that the re0uirements of this Code and the rules and regulations thereunder "ith respect to the applicant have een satisfied, and shall den! registration if it does not make such finding. ,6.,. 7pon appropriate application in accordance "ith the rules and regulations of the Commission and upon such terms as the Commission ma! deem necessar! for the protection of investors, a clearing agenc! ma! "ithdra" its registration or suspend its operation or resume the same. ,6.9. Section 36 of this Code shall appl! to ever! registered clearing agenc!. SEC. ,3. "ncertificated Securities. - 3ot"ithstanding Section =3 of the Corporation Code of the *hilippines$chanro lesvirtuala"li rar! ,3.1. 1 corporation "hose securities are registered pursuant to this Code or listed on a securities E.change ma!$chanro lesvirtuala"li rar! %a& #f so resolved ! its ;oard of )irectors and agreed ! a shareholder, investor or securities intermediar!, issue shares to, or record the transfer of some or all of its shares into the name of said shareholders, investors or, securities intermediar! in the form of uncertificated securities. -he use of uncertificated securities in these circumstances shall e "ithout pre:udice to the rights of the securities intermediar! su se0uentl! to re0uire the corporation to issue a certificate in respect of an! shares recorded in its name' and % & #f so provided in its articles of incorporation and !la"s, issue all of the shares of a particular class in the form of uncertificated securities and su :ect to a condition that investors ma! not re0uire the corporation to issue a certificate in respect of an! shares recorded in their name. ,3.6. -he Commission ! rule ma! allo" other corporations to provide in their articles of incorporation and !-la"s for the use of uncertificated securities. ,3.3. -ransfers of securities, including an uncertificated securities, ma! e validl! made and consummated ! appropriate ook-entries in the securities accounts maintained ! securities intermediaries, or in the stock and transfer ook held ! the corporation or the stock transfer agent and such ookkeeping entries shall e inding on the parties to the transfer. 1 transfer under
this su section has the effect of the deliver! of a securit! in earer form or dul! indorsed in lank representing the 0uantit! or amount of securit! or right transferred, including the unrestricted negotia ilit! of that securit! ! reason of such deliver!. >o"ever, transfer of uncertificated shares shall onl! e valid, so far as the corporation is concerned, "hen a transfer is recorded in the ooks of the corporation so as to sho" the names of the parties to the transfer and the num er of shares transferred. >o"ever, nothing in this Code shall preclude compliance ! anking and other institutions under the supervision of the <ang*o Sentral ng Pilipinas and their stockholders "ith the applica le ceilings on shareholdings prescri ed under pertinent anking la"s and regulations. SEC. ,,. +videntiary Ealue of Clearing Agency Record. -he official records and ook entries of a clearing agenc! shall constitute the est evidence of such transactions et"een clearing agenc! and its participants and mem ers, "ithout pre:udice to the right of participantsB or mem ersB clients to prove their rights, title and entitlement "ith respect to the ook-entr! securit! holdings of the participants or mem ers held on ehalf of the clients. >o"ever, the corporation shall not e ound ! the foregoing transactions unless the corporate secretar! is dul! notified in such manner as the Commission ma! provide. SEC. ,9. Pledging a Security or Interest T!erein. - #n addition to other methods recogni8ed ! la", a pledge of, or release of a pledge of, a securit!, including an uncertificated securit!, is properl! constituted and the instrument proving the right pledged shall e considered delivered to the creditor under 1rticles 6543 and 6549 of the Civil Code if a securities intermediar! indicates ! ook-entr! that such securit! has een credited to a speciall! designated pledge account in favor of the pledgee. 1 pledge under this su section has the effect of the deliver! of a securit! in earer form or dul! indorsed in lank representing the 0uantit! or amount of such securit! or right pledged. #n the case of a registered clearing agenc!, the procedures ! "hich, and the e.act time at "hich, such ook-entries are created shall e governed ! the registered clearing agenc!Bs rules. >o"ever, the corporation shall not e ound ! the foregoing transactions unless the corporate secretar! is dul! notified in such manner as the Commission ma! provide. SEC. ,=. IssuerDs Responsibility for )rongful Transfer to Registered Clearing Agency. - -he registration of a transfer of a securit! into the name of and ! a registered clearing agenc! or its nominee shall e final and conclusive unless the clearing agenc! had notice of an adverse claim efore the registration "as made. -he a ove provision shall e "ithout pre:udice to an! rights "hich the claimant ma! have against the issuer for "rongful registration in such circumstances. SEC. ,/. Po%er of t!e Commission )it! Respect to Securities 4%ners!ip. - -he Commission is authori8ed, having due regard to the pu lic interest and the protection of investors, to promulgate rules and regulations "hich$
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,/.1. Kalidate the transfer of securities ! ookentries rather than the deliver! of ph!sical certificates' ,/.6. Esta lish "hen a person ac0uires a securit! or an interest therein and "hen deliver! of a securit! to a purchaser occurs' ,/.3.Esta lish "hich records constitute the est evidence of a personBs interests in a securit! and the effect of an! errors in electronic records of o"nership' ,/.,. Codif! the rights of investors "ho choose to hold their securities indirectl! through a registered clearing agenc! and2or other securities intermediaries' ,/.9. Codif! the duties of securities intermediaries %including clearing agencies& "ho hold securities on ehalf of investors' and ,/.=. @ive first priorit! to an! claims of a registered clearing agenc! against a participant arising from a failure ! the participant to meet its o ligations under the clearing agenc!Bs rules in respect of the clearing and settlement of transactions in securities, in a dissolution of the participant, and an! such rules and regulations shall ind the issuers of the securities, investors in the securities, an! third parties "ith interests in the securities, and the creditors of a participant of a registered clearing agenc!.
conditions' the "ithdra"al of funds or securities' the transfer of accounts from one lender to another' special or different margin re0uirements for dela!ed deliveries, short sales, ar itrage transactions, and securities to "hich letter % & of the second paragraph of this su section does not appl!' the ases and the methods to e used in calculating loans, and margins and market prices' and similar administrative ad:ustments and details. ,F.6. 3o mem er of an E.change or roker or dealer shall, directl! or indirectl!, e.tend or maintain credit or arrange for the e.tension or maintenance of credit to or for an! customer$ %a& +n an! securit! unless such credit is e.tended and maintained in accordance "ith the rules and regulations "hich the Commission shall prescri e under this Section including rules setting credit in relation to net capital of such mem er, roker or dealer' % & Iithout collateral or on an! collateral other than securities, e.cept %i& to maintain a credit initiall! e.tended in conformit! "ith the rules and regulations of the Commission' and %ii& in cases "here the e.tension or maintenance of credit is not for the purpose of purchasing or carr!ing securities or of evading or circumventing the provisions of paragraph %a& of this su section. ,F.3. 1n! person not su :ect to Su section ,F.6 hereof shall e.tend or maintain credit or arrange for the e.tension or maintenance of credit for the purpose of purchasing or carr!ing an! securit!, onl! in accordance "ith such rules and regulations as the Commission shall prescri e to prevent the e.cessive use of credit for the purchasing or carr!ing of or trading in securities in circumvention of the other provisions of this Section. Such rules and regulations ma! impose upon all loans made for the purpose of purchasing or carr!ing securities limitations similar to those imposed upon mem ers, rokers, or dealers ! Su section ,F.6 and the rules and regulations thereunder. -his su section and the rules and regulations thereunder shall not appl!$ %a& -o a credit e.tension made ! a person not in the ordinar! course of usiness' % & -o a loan to a dealer to aid in the financing of the distri ution of securities to customers not through the medium of an E.change' or %c& -o such other credit e.tension as the Commission shall e.empt from the operation of this su section and the rules and regulations thereunder upon specified terms and conditions or for stated period. SEC. ,4. Restrictions on <orro%ings by Cembers, <ro*ers, and Dealers. - #t shall e unla"ful for an! registered roker or dealer, or mem er of an E.change, directl! or indirectl!$chanro lesvirtuala"li rar! ,4.1. -o permit in the ordinar! course of usiness as a roker or dealer his aggregate inde tedness including customersB credit alances, to e.ceed such percentage of the net capital %e.clusive of fi.ed assets and value of E.change mem ership& emplo!ed in the usiness, ut not e.ceeding in an! case t"o thousand per centum%6,555M&, as the Commission ma! ! rules and
-. Margin re8uirements and restrictions on borro#ings (Sec. 4; to %2)

SEC. ,F. Cargin Re3uirements. - ,F.1. (or the purpose of preventing the e.cessive use of credit for the purchase or carr!ing of securities, the Commission, in accordance "ith the credit and monetar! policies that ma! e promulgated from time to time ! the <onetar! ;oard of the <ang*o Sentral ng Pilipinas, shall prescri e rules and regulations "ith respect to the amount of credit that ma! e e.tended on an! securit!. (or the e.tension of credit, such rules and regulations shall e ased upon the follo"ing standard$chanro lesvirtuala"li rar! 1n amount not greater than "hichever is the higher of %a& Si.t!-five per centum %=9M& of the current market price of the securit!' or % & +ne hundred per centum %155M& of the lo"est market price of the securit! during the preceding thirt!-si. %3=& calendar months, ut not more than sevent!-five per centum %/9M& of the current market price. >o"ever, the <onetar! ;oard ma! increase or decrease the a ove percentages, in order to achieve the o :ectives of the @overnment "ith due regard for promotion of the econom! and prevention of the use of e.cessive credit. Such rules and regulations ma! make appropriate provision "ith respect to the carr!ing of undermargined accounts for limited periods and under specified
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regulations prescri e as necessar! or appropriate in the pu lic interest or for the protection of investors. ,4.6. -o pledge, mortgage, or other"ise encum er or arrange for the pledge, mortgage or encum rance of an! securit! carried for the account of an! customer under circumstances$ %a& -hat "ill permit the commingling of his securities, "ithout his "ritten consent, "ith the securities of an! customer' % & -hat "ill permit such securities to e commingled "ith the securities of an! person other than a bona fide customer' or %c& -hat "ill permit such securities to e pledged, mortgaged or encum ered, or su :ected to an! lien or claim of the pledgee, for a sum in e.cess of the aggregate inde tedness of such customers in respect of such securities. >o"ever, the Commission, having due regard to the protection of investors, ma!, ! rules and regulations, allo" certain transactions that ma! other"ise e prohi ited under this su section. ,4.3. -o lend or arrange for the lending of an! securit! carried for the account of an! customer "ithout the "ritten consent of such customer or in contravention of such rules and regulations as the Commission shall prescri e. SEC. 95. +nforcement of Cargin Re3uirements and Restrictions on <orro%ing. - -o prevent indirect violations of the margin re0uirements under Section ,F, the roker or dealer shall re0uire the customer in nonmargin transactions to pa! the price of the securit! purchased for his account "ithin such period as the Commission ma! prescri e, "hich shall in no case e.ceed the prescri ed settlement date. +ther"ise, the roker shall sell the securit! purchased starting on the ne.t trading da! ut not e!ond ten %15& trading da!s follo"ing the last da! for the customer to pa! such purchase price, unless such sale cannot e effected "ithin said period for :ustifia le reasons. -he sale shall e "ithout pre:udice to the right of the roker or dealer to recover an! deficienc! from the customer. -o prevent indirect violation of the restrictions on orro"ings under Section ,4, the roker shall, unless other"ise directed ! the customer, pa! the net sales price of the securities sold for a customer "ithin the same period as a ove prescri ed ! the Commission$ Provided, -hat the customer shall e re0uired to deliver the instruments evidencing the securities as a condition for such pa!ment upon demand ! the roker. Margin -rading !ule
petitioner in the sum of *=,=1/,53=.66 as of 1pril 35, 144/. Aespondent failed to pa! petitioner his lia ilities. *etitioner sold respondentBs securities to set off against his unsettled o ligations. 1fter the sale of respondentBs securities and application of the proceeds thereof against his account, respondentBs remaining unsettled o ligation to petitioner "as *3,3=,,313.9=. *etitioner demanded that respondent settle his o ligation plus the agreed penalt! charges accruing thereon e0uivalent to the average 45-da! -reasur! ;ill rate plus 6M per annum. )espite said demand and the lapse of said re0uested e.tension, respondent failed and2or refused to pa! his accounta ilities to petitioner. Aespondent claims that he "as induced to trade in a stock securit! "ith petitioner ecause the latter allo"ed offset settlements "herein he is not o liged to pa! the purchase price. Aather, it "aits for the customer to sell. 1nd if there is a loss, petitioner onl! re0uires the pa!ment of the deficienc! %i.e., the difference et"een the higher u!ing price and the lo"er selling price&. #n addition, it charges a commission for rokering the sale. >o"ever, if the customer sells and there is a profit, petitioner deducts the purchase price and delivers onl! the surplus after charging its commission. A-C- <akati Cit! held that petitioner and respondent "ere in pari delicto and therefore "ithout recourse against each other. C1 upheld the lo"er courtBs finding that the parties "ere in pari delicto. #t castigated petitioner for allo"ing respondent to keep on trading despite the latterBs failure to pa! his outstanding o ligations. #t e.plained that Jthe reason ehind petitionerBs act is ecause "hether respondentBs trading transaction "ould result in a surplus or deficit, he "ould still e lia le to pa! petitioner its commission. >ence, this *etition. )SS.ES+ Ihat is margin re0uirement. !.0)56+ -he main purpose of the statute on margin re0uirements is to regulate the volume of credit flo", ! "a! of speculative transactions, into the securities market and redirect resources into more productive uses. #t is also to give a government credit agenc! an effective method of reducing the aggregate amount of the nationBs credit resources "hich can e directed ! speculation into the stock market and out of other more desira le uses of commerce and industr!. #t is for the sta ili8ation of the econom!. Aestrictions on margin percentages are imposed Jin order to achieve the o :ectives of the government "ith due regard for the promotion of the econom! and prevention of the use of e.cessive credit.J +ther"ise stated, the margin re0uirements set out in the AS1 are primaril! intended to achieve a macroeconomic purpose -- the protection of the overall econom! from e.cessive speculation in securities. -heir recogni8ed secondar! purpose is to protect small investors.
Case+ &bacus Securities Corp. Bs. &mpil (purpose of margin re8uirements9 mandator1 close=out rule) ,&C-S+ #n 1pril 144/, respondent opened a cash or regular account "ith petitioner for u!ing and selling securities as evidenced ! the 1ccount 1pplication (orm. -he partiesB usiness relationship "as governed ! the terms and conditions stated therein. Since 1pril 15, 144/, respondent activel! traded his account, and as a result of such trading activities, he accumulated an outstanding o ligation in favor of
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-he la" places the urden of compliance "ith margin re0uirements primaril! upon the rokers and dealers. Sections 63 and 69 and Aule 69-1 %3+-E$ please read AS1, ang ha a kasi if isa-cite ko pa& , other"ise kno"n as the Jmandator! close-out rule,J clearl! vest upon petitioner the o ligation, not :ust the right, to cancel or other"ise li0uidate a customerBs order, if pa!ment is not received "ithin three da!s from the date of purchase. (or transactions su se0uent to an unpaid order, the roker should re0uire its customer to deposit funds into the account sufficient to cover each purchase transaction prior to its e.ecution. -hese duties are imposed upon the roker to ensure faithful compliance "ith the margin re0uirements of the la", "hich for ids a roker from e.tending undue credit to a customer. #t "ill e noted that trading on credit %or Jmargin tradingJ& allo"s investors to u! more securities than their cash position "ould normall! allo". #nvestors pa! onl! a portion of the purchase price of the securities' their roker advances for them the alance of the purchase price and keeps the securities as collateral for the advance or loan. ;rokers take these securities2stocks to their ank and orro" the J alanceJ on it, since the! have to pa! in full for the traded stock. >ence, increasing margins i.e., decreasing the amounts "hich rokers ma! lend for the speculative purchase and carr!ing of stocks is the most direct and effective method of discouraging an a normal attraction of funds into the stock market and achieving a more alanced use of such resources. -he nature of the stock rokerage usiness ena les rokers, not the clients, to verif!, at an! time, the status of the clientBs account. ;rokers are in the superior position to prevent the unla"ful e.tension of credit. ;ecause of this a"areness, the la" imposes upon them the primar! o ligation to enforce the margin re0uirements. 3onetheless, these margin re0uirements are applica le onl! to transactions entered into ! the present parties su se0uent to the initial trades of 1pril 15 and 11, 144/. -hus, "e hold that petitioner can still collect from respondent to the e.tent of the difference et"een the latterBs outstanding o ligation as of 1pril 11, 144/ less the proceeds from the mandator! sell out of the shares pursuant to the AS1 Aules. *etitionerBs right to collect is :ustified under the general la" on o ligations and contracts. -he right to collect cannot e denied to petitioner as the initial transactions "ere entered pursuant to the instructions of respondent. -he o ligation of respondent for stock transactions made and entered into on 1pril 15 and 11, 144/ remains outstanding. -hese transactions "ere valid and the o ligations incurred ! respondent concerning his stock purchases on these dates su sist. 1t that time, there "as no violation of the AS1 !et. *etitionerBs fault arose onl! "hen it failed to$ 1& li0uidate the transactions on the fourth da! follo"ing the stock purchases, or on 1pril 1, and 19, 144/' and 6& complete its li0uidation no later than ten da!s thereafter, appl!ing the proceeds thereof as pa!ment for respondentBs outstanding o ligation. Since the u!er "as not a le to pa! for the transactions that took place on 1pril 15 and 11, the roker "as dut!- ound to advance the pa!ment to the
settlement anks "ithout pre:udice to the right of the roker to collect later from the client. #n securities trading, the rokers are essentiall! the counterparties to the stock transactions at the E.change. Since the principals of the roker are generall! undisclosed, the roker is personall! lia le for the contracts thus made. >ence, petitioner had to advance the pa!ments for respondentBs trades. ;rokers have a right to e reim ursed for sums advanced ! them "ith the e.press or implied authori8ation of the principal, in this case, respondent. 3ot to re0uire respondent to pa! for his 1pril 15 and 11 trades "ould put a premium on his circumvention of the la"s and "ould ena le him to enrich himself un:ustl! at the e.pense of petitioner. #n the present case, petitioner failed to enforce the terms and conditions of its 1greement "ith respondent, specificall! paragraph F thereof, purportedl! acting on the plea of respondent to give him time to raise funds therefor. ;! failing to ensure respondentBs pa!ment of his first purchase transaction "ithin the period prescri ed ! la", there ! allo"ing him to make su se0uent purchases, petitioner effectivel! converted respondentBs cash account into a credit account. >o"ever, e.tension or maintenance of credits on nonmargin transactions, are specificall! prohi ited under Section 63% &. -hus, petitioner "as remiss in its dut! and cannot e said to have come to court "ith Jclean handsJ insofar as it intended to collect on transactions su se0uent to the initial trades of 1pril 15 and 11, 144/. +n the other hand, respondent is e0uall! guilt! in entering into the transactions in violation of the AS1 and AS1 Aules. Aespondent is an e.perienced and kno"ledgea le trader "ho is "ell versed in the securities market and "ho made his o"n investment decisions. #n fact, in the 1ccount +pening (orm, he indicated that he had e.cellent kno"ledge of stock investments' had e.perience in stocks trading, considering that he had similar accounts "ith other firms. >e kno"ingl! speculated on the market, ! taking advantage of the Jno-cash-outJ arrangement e.tended to him ! petitioner. ;oth parties acted in violation of the la" and did not come to court "ith clean hands "ith regard to transactions subse3uent to the initial trades made on 1pril 15 and 11, 144/. Since the initial trades %1pril 15 and 11& are valid and su sisting o ligations, respondent is lia le for them. Custice and good conscience re0uire all persons to satisf! their de ts. +urs are courts of oth la" and e0uit!' the! compel fair dealing' the! do not a et clever attempts to escape :ust o ligations. *ursuant to AS1 Aule 69-1, petitioner should have li0uidated the transaction %sold the stocks& on the fourth da! follo"ing the transaction %-W,& and completed its li0uidation not later than ten da!s follo"ing the last da! for the customer to pa! %effectivel! -W1,&. AespondentBs outstanding o ligation is therefore to e determined ! using the closing prices of the stocks purchased at -W1, as asis.
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Ie consider the foregoing formula to e :ust and fair under the circumstances. Ihen petitioner tolerated the su se0uent purchases of respondent "ithout performing its o ligation to li0uidate the first failed transaction, and "ithout re0uiring respondent to deposit cash efore em arking on trading stocks an! further, petitioner, as the roker, violated the la" at its o"n peril. I>EAE(+AE, the assailed )ecision and Aesolution of the Court of 1ppeals are here ! <+)#(#E).
clearing agenc!, securities association, and other selfregulator! organi8ation, and ever! other person re0uired 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 ! its rules and regulations ma! prescri e. Such accounts, correspondence, memoranda, papers, ooks, and other records shall e su :ect at an! time to such reasona le periodic, special or other e.aminations ! representatives of the Commission as the Commission ma! deem necessar! or appropriate in the pu lic interest or for the protection of investors. 96.6. 1n! roker, dealer or other person e.tending credit, "ho is su :ect to the rules and regulations prescri ed ! the Commission pursuant to this Code, shall make such reports to the Commission as ma! e necessar! or appropriate to ena le it to perform the functions conferred upon it ! this Code. 96.3. (or purposes of this Section, the term records refers to accounts, correspondence, memoranda, tapes, discs, papers, ooks and other documents or transcri ed information of an! t!pe, "hether "ritten or electronic in character. SEC. 93. Investigations, In1unctions and Prosecution of 4ffenses . - 93.1. -he Commission ma!, in its discretion, make such investigations as it deems necessar! to determine "hether an! person has violated or is a out to violate an! provision of this Code, an! rule, regulation or order thereunder, or an! rule of an E.change, registered securities association, clearing agenc!, other selfregulator! organi8ation, and ma! re0uire or permit an! person to file "ith it a statement in "riting, under oath or other"ise, as the Commission shall determine, as to all facts and circumstances concerning the matter to e investigated. -he Commission ma! pu lish information concerning an! such violations, and to investigate an! fact, condition, practice or matter "hich it ma! deem necessar! or proper to aid in the enforcement of the provisions of this Code, in the prescri ing of rules and regulations thereunder, or in securing information to serve as a asis for recommending further legislation concerning the matters to "hich this Code relates$ Provided, !o%ever, -hat an! person re0uested or su poenaed to produce documents or testif! in an! investigation shall simultaneousl! e notified in "riting of the purpose of such investigation$ Provided, furt!er, -hat all criminal complaints for violations of this Code, and the implementing rules and regulations enforced or administered ! the Commission shall e referred to the )epartment of Custice for preliminar! investigation and prosecution efore the proper court$ Provided, furt!ermore, -hat in instances "here the la" allo"s independent civil or criminal proceedings of violations arising from the same act, the Commission shall take appropriate action to implement the same$ Provided, finally, -hat the investigation, prosecution, and trial of such cases shall e given priorit!. 93.6. (or the purpose of an! such investigation, or an! other proceeding under this Code, the Commission or an! officer designated ! it is empo"ered to administer oaths and affirmations, subpoena"itnesses, compel attendance, take evidence, re0uire the production of an!
.. 0iabilities sanctions and prescription of offenses (Secs. %" to <;)

SEC. 91. $iabilities of Controlling Persons, Aider and Abettor and 4t!er Secondary $iability. 91.1. Ever! person "ho, ! or through stock o"nership, agenc!, or other"ise, or in connection "ith an agreement or understanding "ith one or more other persons, controls an! person lia le under this Code or the rules or regulations of the Commission thereunder, shall also e lia le :ointl! and severall! "ith and to the same e.tent as such controlled persons to an! person to "hom such controlled person is lia le, unless the controlling person proves that, despite the e.ercise of due diligence on his part, he has no kno"ledge of the e.istence of the facts ! reason of "hich the lia ilit! of the controlled person is alleged to e.ist. 91.6. #t shall e unla"ful for an! person, directl! or indirectl!, to do an! act or thing "hich it "ould e unla"ful for such person to do under the provisions of this Code or an! rule or regulation thereunder. 91.3. #t shall e unla"ful for an! director or officer of, or an! o"ner of an! securities issued !, an! issuer re0uired to file an! document, report or other information under this Code or an! rule or regulation of the Commission thereunder, "ithout :ust cause, to hinder, dela! or o struct the making or filing of an! such document, report, or information. 91.,. #t shall e unla"ful for an! person to aid, a et, counsel, command, induce or procure an! violation of this Code, or an! rule, regulation or order of the Commission thereunder. 91.9. Ever! person "ho su stantiall! assists the act or omission of an! person primaril! lia le under Sections 9/, 9F, 94 and =5 of this Code, "ith kno"ledge or in reckless disregard that such act or omission is "rongful, shall e :ointl! and severall! lia le as an aider and a ettor for damages resulting from the conduct of the person primaril! lia le$ Provided, !o%ever, -hat an aider and a ettor shall e lia le onl! to the e.tent of his relative contri ution in causing such damages in comparison to that of the person primaril! lia le, or the e.tent to "hich the aider and a ettor "as un:ustl! enriched there !, "hichever is greater. SEC. 96. Accounts and Records, Reports, +9amination of +9c!anges, Cembers, and 4t!ers. - 96.1. Ever! registered E.change, roker or dealer, transfer agent,
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ook, paper, correspondence, memorandum, or other record "hich the Commission deems relevant or material to the in0uir!, and to perform such other acts necessar! in the conduct of such investigation or proceedings. 93.3. Ihenever it shall appear to the Commission that an! person has engaged or is a out to engage in an! act or practice constituting a violation of an! provision of this Code, an! rule, regulation or order thereunder, or an! rule of an E.change, registered securities association, clearing agenc! or other self-regulator! organi8ation, it ma! issue an order to such person to desist from committing such act or practice$ Provided, !o%ever, -hat the Commission shall not charge an! person "ith violation of the rules of an E.change or other self regulator! organi8ation unless it appears to the Commission that such E.change or other self-regulator! organi8ation is una le or un"illing to take action against such person. 1fter finding that such person has engaged in an! such act or practice and that there is a reasona le likelihood of continuing, further or future violations ! such person, the Commission ma! issue e9#parte a cease and desist order for a ma.imum period of ten %15& da!s, en:oining the violation and compelling compliance "ith such provision. -he Commission ma! transmit such evidence as ma! e availa le concerning an! violation of an! provision of this Code, or an! rule, regulation or order thereunder, to the )epartment of Custice, "hich ma! institute the appropriate criminal proceedings under this Code. 93.,. 1n! person "ho, "ithin his po"er ut "ithout cause, fails or refuses to compl! "ith an! la"ful order, decision or subpoena issued ! the Commission under Su section 93.6 or Su section 93.3 or Section =, of this Code, shall after due notice and hearing, e guilt! of contempt of the Commission. Such person shall e fined in such reasona le amount as the Commission ma! determine, or "hen such failure or refusal is a clear and open defiance of the CommissionBs order, decision or subpoena, shall e detained under an arrest order issued ! the Commission, until such order, decision or subpoena is complied "ith. SEC. 9,. Administrative Sanctions. - 9,.1. #f, after due notice and hearing, the Commission finds that$ %a& -here is a violation of this Code, its rules, or its orders' % & 1n! registered roker or dealer, associated person thereof has failed reasona l! to supervise, "ith a vie" to preventing violations, another person su :ect to supervision "ho commits an! such violation' %c& 1n! registrant or other person has, in a registration statement or in other reports, applications, accounts, records or documents re0uired ! la" or rules to e filed "ith the Commission, made an! untrue statement of a material fact, or omitted to state an! material fact re0uired to e stated therein or necessar! to make the statements therein not misleading' or, in the case of an under"riter, has failed to conduct an in0uir! "ith reasona le diligence to insure that a registration statement is accurate and complete in all material respects' or %d& 1n! person has refused to permit an! la"ful e.aminations into its affairs, it shall, in its discretion, and su :ect onl! to the limitations hereinafter prescri ed, impose an! or all of the follo"ing sanctions as ma! e appropriate in light of the facts and circumstances$chanro lesvirtuala"li rar!
%i& Suspension, or revocation of an! registration for the offering of securities' %ii& 1 fine of no less than -en thousand pesos %*15,555.55& nor more than +ne million pesos %*1,555,555.55& plus not more than -"o thousand pesos %*6,555.55& for each da! of continuing violation' %iii& #n the case of a violation of Sections 14.6, 65, 6,, 6= and 6/, dis0ualification from eing an officer, mem er of the ;oard of )irectors, or person performing similar functions, of an issuer re0uired to file reports under Section 1/ of this Code or an! other act, rule or regulation administered ! the Commission' %iv& #n the case of a violation of Section 3,, a fine of no more than three %3& times the profit gained or loss avoided as a result of the purchase, sale or communication proscri ed ! such Section' and %v& +ther penalties "ithin the po"er of the Commission to impose. 9,.6. -he imposition of the foregoing administrative sanctions shall e "ithout pre:udice to the filing of criminal charges against the individuals responsi le for the violation. 9,.3. -he Commission shall have the po"er to issue "rits of e.ecution to enforce the provisions of this Section and to enforce pa!ment of the fees and other dues collecti le under this Code. SEC. 99. Settlement 4ffers. 99.1. 1t an! time, during an investigation or proceeding under this Code, parties eing investigated and2or charged ma! propose in "riting an offer of settlement "ith the Commission. 99.6. 7pon receipt of such offer of settlement, the Commission ma! consider the offer ased on timing, the nature of the investigation or proceeding, and the pu lic interest. 99.3. -he Commission ma! onl! agree to a settlement offer ased on its findings that such settlement is in the pu lic interest. 1n! agreement to settle shall have no legal effect until pu licl! disclosed. Such decision ma! e made "ithout a determination of guilt on the part of the person making the offer. 99.,. -he Commission shall adopt rules and procedures governing the filing, revie", "ithdra"al, form of re:ection and acceptance of such offers. SEC. 9=. Civil $iabilities on Account of &alse Registration Statement. - 9=.1. 1n! person ac0uiring a securit!, the registration statement of "hich or an! part thereof contains on its effectivit! an untrue statement of a material fact or omits to state a material fact re0uired to e stated therein or necessar! to make such statements not misleading, and "ho suffers damage, ma! sue and recover damages from the follo"ing enumerated persons, unless it is proved that at the time of such ac0uisition he kne" of such untrue statement or omission$
*age %7 of 64
%a& -he issuer and ever! person "ho signed the registration statement' % & Ever! person "ho "as a director of, or an! other person performing similar functions, or a partner in, the issuer at the time of the filing of the registration statement or an! part, supplement or amendment thereof "ith respect to "hich his lia ilit! is asserted' %c& Ever! person "ho is named in the registration statement as eing or a out to ecome a director of, or a person performing similar functions, or a partner in, the issuer and "hose "ritten consent thereto is filed "ith the registration statement' %d& Ever! auditor or auditing firm named as having certified an! financial statements used in connection "ith the registration statement or prospectus. %e& Ever! person "ho, "ith his "ritten consent, "hich shall e filed "ith the registration statement, has een named as having prepared or certified an! part of the registration statement, or as having prepared or certified an! report or valuation "hich is used in connection "ith the registration statement, "ith respect to the statement, report, or valuation, "hich purports to have een prepared or certified ! him. %f& Ever! selling shareholder "ho contri uted to and certified as to the accurac! of a portion of the registration statement, "ith respect to that portion of the registration statement "hich purports to have een contri uted ! him. %g& Ever! under"riter "ith respect to such securit!. 9=.6. #f the person "ho ac0uired the securit! did so after the issuer has made generall! availa le to its securit! holders an income statement covering a period of at least t"elve months eginning from the effective date of the registration statement, then the right of recover! under this su section shall e conditioned on proof that such person ac0uired the securit! rel!ing upon such untrue statement in the registration statement or rel!ing upon the registration statement and not kno"ing of such income statement, ut such reliance ma! e esta lished "ithout proof of the reading of the registration statement ! such person. SEC. 9/. Civil $iabilities Arising in Connection )it! Prospectus, Communications and Reports. - 9/.1. 1n! person "ho$chanro lesvirtuala"li rar! %a& +ffers to sell or sells a securit! in violation of Chapter ###' or % & +ffers to sell or sells a securit!, "hether or not e.empted ! the provisions of this Code, ! the use of an! means or instruments of transportation or communication, ! means of a prospectus or other "ritten or oral communication, "hich includes an untrue statement of a material fact or omits to state a material fact necessar! in order to make the statements, in the light of the circumstances under "hich the! "ere made, not misleading %the purchaser not kno"ing of such untruth or omission&, and "ho shall fail in the urden of proof that he did not kno", and in the e.ercise of reasona le care could not have kno"n, of such untruth or omission, shall e lia le to the person purchasing such securit! from him, "ho ma! sue to recover the consideration paid for such securit! "ith interest thereon, less the amount of an! income received thereon, upon
the tender of such securit!, or for damages if he no longer o"ns the securit!. 9/.6. 1n! person "ho shall make or cause to e made an! statement in an! report, or document filed pursuant to this Code or an! rule or regulation thereunder, "hich statement "as at the time and in the light of the circumstances under "hich it "as made false or misleading "ith respect to an! material fact, shall e lia le to an! person "ho, not kno"ing that such statement "as false or misleading, and rel!ing upon such statements shall have purchased or sold a securit! at a price "hich "as affected ! such statement, for damages caused ! such reliance, unless the person sued shall prove that he acted in good faith and had no kno"ledge that such statement "as false or misleading. SEC. 9F. Civil $iability &or &raud in Connection )it! Securities Transactions. - 1n! person "ho engages in an! act or transaction in violation of Sections 14.6, 65 or 6=, or an! rule or regulation of the Commission thereunder, shall e lia le to an! other person "ho purchases or sells an! securit!, grants or refuses to grant an! pro.!, consent or authori8ation, or accepts or declines an invitation for tender of a securit!, as the case ma! e, for the damages sustained ! such other person as a result of such act or transaction. SEC. 94. Civil $iability &or Canipulation of Security Prices. - 1n! person "ho "illfull! participates in an! act or transaction in violation of Section 6, shall e lia le to an! person "ho shall purchase or sell an! securit! at a price "hich "as affected ! such act or transaction, and the person so in:ured ma! sue to recover the damages sustained as a result of such act or transaction. SEC. =5. Civil $iability )it! Respect to Commodity &utures Contracts and Pre#need Plans. - =5.1. 1n! person "ho engages in an! act or transaction in "illful violation of an! rule or regulation promulgated ! the Commission under Section 11 or 1=, "hich the Commission denominates at the time of issuance as intended to prohi it fraud in the offer and sale of preneed plans or to prohi it fraud, manipulation, fictitious transactions, undue speculation, or other unfair or a usive practices "ith respect to commodit! future contracts, shall e lia le to an! other person sustaining damage as a result of such act or transaction. =5.6. 1s to each such rule or regulation so denominated, the Commission ! rule shall prescri e the elements of proof re0uired for recover! and an! limitations on the amount of damages that ma! e imposed. SEC. =1. Civil $iability on Account of Insider Trading. - =1.1. 1n! insider "ho violates Su section 6/.1 and an! person in the case of a tender offer "ho violates Su section 6/., %a&%i&, or an! rule or regulation thereunder, ! purchasing or selling a securit! "hile in possession of material information not generall! availa le to the pu lic, shall e lia le in a suit rought ! an! investor "ho, contemporaneousl! "ith the purchase or sale of securities that is the su :ect of the violation, purchased or sold securities of the same class unless such insider, or such person in the case of a tender offer, proves that such investor kne" the information or "ould
*age 62 of 64
have purchased or sold at the same price regardless of disclosure of the information to him. =1.6. 1n insider "ho violates Su section 6/.3 or an! person in the case of a tender offer "ho violates Su section 6/., %a&, or an! rule or regulation thereunder, ! communicating material non-pu lic information, shall e :ointl! and severall! lia le under Su section =1.1 "ith, and to the same e.tent as, the insider, or person in the case of a tender offer, to "hom the communication "as directed and "ho is lia le under Su section =1.1 ! reason of his purchase or sale of a securit!. SEC. =6. $imitation of Actions. - =6.1. 3o action shall e maintained to enforce an! lia ilit! created under Section 9= or 9/ of this Code unless rought "ithin t"o %6& !ears after the discover! of the untrue statement or the omission, or, if the action is to enforce a lia ilit! created under Su section 9/.1%a&, unless rought "ithin t"o %6& !ears after the violation upon "hich it is ased. #n no event shall an! such action e rought to enforce a lia ilit! created under Section 9= or Su section 9/.1 %a& more than five %9& !ears after the securit! "as bona fide offered to the pu lic, or under Su section 9/.1 % & more than five %9& !ears after the sale. =6.6. 3o action shall e maintained to enforce an! lia ilit! created under an! other provision of this Code unless rought "ithin t"o %6& !ears after the discover! of the facts constituting the cause of action and "ithin five %9& !ears after such cause of action accrued. SEC. =3. Amount of Damages to be A%arded . - =3.1. 1ll suits to recover damages pursuant to Sections 9=, 9/, 9F, 94, =5 and =1 shall e rought efore the Aegional -rial Court, "hich shall have e.clusive :urisdiction to hear and decide such suits. -he Court is here ! authori8ed to a"ard damages in an amount not e.ceeding triple the amount of the transaction plus actual damages. E.emplar! damages ma! also e a"arded in cases of ad faith, fraud, malevolence or "antonness in the violation of this Code or the rules and regulations promulgated thereunder. -he Court is also authori8ed to a"ard attorne!Bs fees not e.ceeding thirt! percentum %35M& of the a"ard. =3.6. -he persons specified in Sections 9=, 9/, 9F, 94, =5 and =1 hereof shall e :ointl! and severall! lia le for the pa!ment of damages. >o"ever, an! person "ho ecomes lia le for the pa!ment of such damages ma! recover contri ution from an! other person "ho, if sued separatel!, "ould have een lia le to make the same pa!ment, unless the former "as guilt! of fraudulent representation and the latter "as not. =3.3. 3ot"ithstanding an! provision of la" to the contrar!, all persons, including the issuer, held lia le under the provisions of Sections 9=, 9/, 9F, 94, =5 and =1 shall contri ute e0uall! to the total lia ilit! ad:udged herein. #n no case shall the principal stockholders, directors and other officers of the issuer or persons occup!ing similar positions therein, recover their contri ution to the lia ilit! from the issuer. >o"ever, the right of the issuer to recover from the guilt! parties the
amount it has contri uted under this Section shall not e pre:udiced. SEC. =,. Cease and Desist 4rder. =,.1. -he Commission, after proper investigation or verification, motu proprio, or upon verified complaint ! an! aggrieved part!, ma! issue a cease and desist order "ithout the necessit! of a prior hearing if in its :udgment the act or practice, unless restrained, "ill operate as a fraud on investors or is other"ise likel! to cause grave or irrepara le in:ur! or pre:udice to the investing pu lic. =,.6. 7ntil the Commission issues a cease and desist order, the fact that an investigation has een initiated or that a complaint has een filed, including the contents of the complaint, shall e confidential. 7pon issuance of a cease and desist order, the Commission shall make pu lic such order and a cop! thereof shall e immediatel! furnished to each person su :ect to the order. =,.3. 1n! person against "hom a cease and desist order "as issued ma!, "ithin five %9& da!s from receipt of the order, file a formal re0uest for a lifting thereof. Said re0uest shall e set for hearing ! the Commission not later than fifteen %19& da!s from its filing and the resolution thereof shall e made not later than ten %15& da!s from the termination of the hearing. #f the Commission fails to resolve the re0uest "ithin the time herein prescri ed, the cease and desist order shall automaticall! e lifted. SEC. =9. Substituted Service "pon t!e Commission . Service of summons or other process shall e made upon the Commission in actions or legal proceedings against an issuer or an! person lia le under this Code "ho is not domiciled in the *hilippines. 7pon receipt ! the Commission of such summons, the Commission shall "ithin ten %15& da!s thereafter, transmit ! registered mail a cop! of such summons and the complaint or other legal process to such issuer or person at his last kno"n address or principal office. -he sending thereof ! the Commission, the e.penses for "hich shall e advanced ! the part! at "hose instance it is made, shall complete such service. SEC. ==. Revelation of Information &iled %it! t!e Commission. ==.1. 1ll information filed "ith the Commission in compliance "ith the re0uirements of this Code shall e made availa le to an! mem er of the general pu lic, upon re0uest, in the premises and during regular office hours of the Commission, e.cept as set forth in this Section. ==.6. 3othing in this Code shall e construed to re0uire, or to authori8e the Commission to re0uire, the revealing of trade secrets or processes in an! application, report, or document filed "ith the Commission. ==.3. 1n! person filing an! such application, report or document ma! make "ritten o :ection to the pu lic disclosure of information contained therein, stating the grounds for such o :ection, and the Commission ma! hear o :ections as it deems necessar!. -he Commission ma!, in such cases, make availa le to the pu lic the information contained in an! such application, report, or
*age 6" of 64
document onl! "hen a disclosure of such information is re0uired in the pu lic interest or for the protection of investors' and copies of information so made availa le ma! e furnished to an! person having a legitimate interest therein at such reasona le charge and under such reasona le limitations as the Commission ma! prescri e. ==.,. #t shall e unla"ful for an! mem er, officer, or emplo!ee of the Commission to disclose to an! person other than a mem er, officer or emplo!ee of the Commission or to use for personal enefit, an! information contained in an! application, report, or document filed "ith the Commission "hich is not made availa le to the pu lic pursuant to Su section ==.3. ==.9. 3ot"ithstanding an!thing in Su section ==., to the contrar!, on re0uest from a foreign enforcement authorit! of an! countr! "hose la"s grant reciprocal assistance as herein provided, the Commission ma! provide assistance in accordance "ith this su section, including the disclosure of an! information filed "ith or transmitted to the Commission, if the re0uesting authorit! states that it is conducting an investigation "hich it deems necessar! to determine "hether an! person has violated, is violating, or is a out to violate an! la"s relating to securities or commodities matters that the re0uesting authorit! administers or enforces. Such assistance ma! e provided "ithout regard to "hether the facts stated in the re0uest "ould also constitute a violation of la" of the *hilippines. SEC. =/. +ffect of Action of Commission and "nla%ful Representations %it! Respect T!ereto. - =/.1. 3o action or failure to act ! the Commission in the administration of this Code shall e construed to mean that the Commission has in an! "a! passed upon the merits of or given approval to an! securit! or an! transaction or transactions therein, nor shall such action or failure to act "ith regard to an! statement or report filed "ith or e.amined ! the Commission pursuant to this Code or the rules and regulations thereunder to e deemed a finding ! the Commission that such statements or report is true and accurate on its face or that it is not false or misleading. #t shall e unla"ful to make, or cause to e made, to an! prospective purchaser or seller of a securit! an! representation that an! such action or failure to act ! the Commission is to e so construed or has such effect. =/.6. 3othing contained in Su section =/.1 shall, ho"ever, e construed as an e.emption from lia ilit! of an emplo!ee or officer of the Commission for an! nonfeasance, misfeasance or malfeasance in the discharge of his official duties. SEC. =F. Special Accounting Rules. -he Commission shall have the authorit! to make, amend, and rescind such accounting rules and regulations as ma! e necessar! to carr! out the provisions of this Code, including rules and regulations governing registration statements and prospectuses for various classes of securities and issuers, and defining accounting, technical and trade terms used in this Code. 1mong other things, the Commission ma! prescri e the form or forms in "hich re0uired information shall e set forth, the items or
details to e sho"n in the alance sheet and income statement, and the methods to e follo"ed in the preparation of accounts, appraisal or valuation of assets and lia ilities, determination of depreciation and depletion, differentiation of recurring and non-recurring income, differentiation of investment and operating income, and in the preparation, "here the Commission deems it necessar! or desira le, of consolidated alance sheets or income accounts of an! person directl! or indirectl! controlling or controlled ! the issuer, or an! person under direct or indirect common control "ith, the issuer. SEC. =4. +ffect on +9isting $a%. - -he rights and remedies provided ! this Code shall e in addition to an! and all other rights and remedies that ma! no" e.ist. >o"ever, e.cept as provided in Sections 9= and =3 hereof, no person permitted to maintain a suit for damages under the provisions of this Code shall recover, through satisfaction of :udgment in one or more actions, a total amount in e.cess of his actual damages on account of the act complained of$Provided, -hat e.emplar! damages ma! e a"arded in cases of ad faith, fraud, malevolence or "antonness in the violation of this Code or the rules and regulations promulgated thereunder. SEC. /5. Fudicial Revie% of Commission 4rders. - 1n! person aggrieved ! an order of the Commission ma! appeal the order to the Court of 1ppeals ! petition for revie" in accordance "ith the pertinent provisions of the Aules of Court. SEC. /1. Ealidity of Contracts. - /1.1. 1n! condition, stipulation, provision inding an! person to "aive compliance "ith an! provision of this Code or of an! rule or regulation thereunder, or of an! rule of an E.change re0uired there !, as "ell as the "aiver itself, shall e void. /1.6. Ever! contract made in violation of an! provision of this Code or of an! rule or regulation thereunder, and ever! contract, including an! contract for listing a securit! on an E.change heretofore or hereafter made, the performance of "hich involves the violation of, or the continuance of an! relationship or practice in violation of, an! provision of this Code, or an! rule or regulation thereunder, shall e void$ %a& 1s regards the rights of an! person "ho, in violation of an! such provision, rule or regulation, shall have made or engaged in the performance of an! such contract' and % & 1s regards the rights of an! person "ho, not eing a part! to such contract, shall have ac0uired an! right thereunder "ith actual kno"ledge of the facts ! reason of "hich the making or performance of such contract "as in violation of an! such provision, rule or regulation. /1.3. 3othing in this construed$chanro lesvirtuala"li rar! Code shall e
%a& -o affect the validit! of an! loan or e.tension of credit made or of an! lien created prior or su se0uent to the effectivit! of this Code, unless at the time of the making of such loan or e.tension of credit or the creating
*age 6( of 64
of such lien, the person making such loan or e.tension of credit or ac0uiring such lien shall have actual kno"ledge of the facts ! reason of "hich the making of such loan or e.tension of credit or the ac0uisition of such lien is a violation of the provisions of this Code or an! rules or regulations thereunder' or % & -o afford a defense to the collection of an! de t, o ligation or the enforcement of an! lien ! an! person "ho shall have ac0uired such de t, o ligation or lien in good faith, for value and "ithout actual kno"ledge of the violation of an! provision of this Code or an! rule or regulation thereunder affecting the legalit! of such de t, o ligation or lien. SEC. /6. Rules and Regulations@ +ffectivity. /6.1. -his Code shall e self-e.ecutor!. -o effect the provisions and purposes of this Code, the Commission ma! issue, amend, and rescind such rules and regulations and orders necessar! or appropriate, including rules and regulations defining accounting, technical, and trade terms used in this Code, and prescri ing the form or forms in "hich information re0uired in registration statements, applications, and reports to the Commission shall e set forth. (or purposes of its rules or regulations, the Commission ma! classif! persons, securities, and other matters "ithin its :urisdiction, prescri e different re0uirements for different classes of persons, securities, or matters, and ! rule or order, conditionall! or unconditionall! e.empt an! person, securit!, or transaction, or class or classes of persons, securities or transactions, from an! or all provisions of this Code. (ailure on the part of the Commission to issue rules and regulations shall not in an! manner affect the selfe.ecutor! nature of this Code. /6.6. -he Commission shall promulgate rules and regulations providing for reporting, disclosure and the prevention of fraudulent, deceptive or manipulative practices in connection "ith the purchase ! an issuer, ! tender offer or other"ise, of and e0uit! securit! of a class issued ! it that satisfies the re0uirements of Su section 1/.6. Such rules and regulations ma! re0uire such issuer to provide holders of e0uit! securities of such dates "ith such information relating to the reasons for such purchase, the source of funds, the num er of shares to e purchased, the price to e paid for such securities, the method of purchase and such additional information as the Commission deems necessar! or appropriate in the pu lic interest or for the protection of investors, or "hich the Commission deems to e material to a determination ! holders "hether such securit! should e sold. /6.3. (or the purpose of Su section /6.6, a purchase ! or for the issuer or an! person controlling, controlled !, or under common control "ith the issuer, or a purchase su :ect to the control of the issuer or an! such person, shall e deemed to e a purchased ! the issuer. -he Commission shall have the po"er to make rules and regulations implementing this su section, including e.emptive rules and regulations covering situations in "hich the Commission deems it unnecessar! or inappropriate that a purchase of the t!pe descri ed in this su section shall e deemed to e a purchase ! the
issuer for the purpose of some or all of the provisions of Su section /6.6. /6.,. -he rules and regulations promulgated ! the Commission shall e pu lished in t"o %6& ne"spapers of general circulation in the *hilippines, and unless other"ise prescri ed ! the Commission, the same shall e effective fifteen %19& da!s after the date of the last pu lication. SEC. /3. Penalties. - 1n! person "ho violates an! of the provisions of this Code, or the rules and regulations promulgated ! the Commission under authorit! thereof, or an! person "ho, in a registration statement filed under this Code, makes an! untrue statement of a material fact or omits to state an! material fact re0uired to e stated therein or necessar! to make the statements therein not misleading, shall, upon conviction, suffer a fine of not less than (ift! thousand pesos %*95,555.55& nor more than (ive million pesos %*9,555,555.55& or imprisonment of not less than seven %/& !ears nor more than t"ent!one %61& !ears, or oth in the discretion of the court. #f the offender is a corporation, partnership or association or other :uridical entit!, the penalt! ma! in the discretion of the court e imposed upon such :uridical entit! and upon the officer or officers of the corporation, partnership, association or entit! responsi le for the violation, and if such officer is an alien, he shall in addition to the penalties prescri ed, e deported "ithout further proceedings after service of sentence. SEC. /,. Transitory Provisions. - -he Commission, as organi8ed under e.isting la"s, shall continue to e.ist and e.ercise its po"ers, functions and duties under such la"s and this Code$ Provided, -hat until other"ise mandated ! a su se0uent la", the Commission shall continue to regulate and supervise commodit! futures contracts as provided in Section 11 and pre-need plans and the preneed industr! as provided in Section 1= of this Code. 1ll further re0uirements herein shall e complied "ith upon approval of this Code$ Provided, !o%ever, -hat compliance ma! e deferred for such reasona le time as the Commission ma! determine ut not to e.ceed one %1& !ear from approval of this Code$ Provided, furt!er,-hat securities "hich are eing offered at the time of effectivit! of this Code pursuant to an effective registration and permit, ma! continue to e offered and sold in accordance "ith the provisions of the Aevised Securities 1ct in effect immediatel! prior to approval of this Code. 1ll une.pended funds for the calendar !ear, properties, e0uipment and records of the Securities and E.change Commission are here ! retained ! the Commission as reorgani8ed under this Code and the amount of -"o hundred million %*655,555,555.55& or such amount necessar! to carr! out the reorgani8ation provided in this Code is here ! appropriated. 1ll emplo!ees of the Commission "ho voluntaril! retire or are separated from the service "ith the Commission and "hose retirement or separation has een approved ! the Commission, shall e paid retirement or separation enefits and other entitlements granted under e.isting la"s.
*age 63 of 64
SEC. /9. Partial "se 4f Income' # -o carr! out the purposes of this Code, the Commission is here ! authori8ed, in addition to its annual udget, to retain and utili8e an amount e0ual to one hundred million pesos %*155,555,555.55& from its income. -he use of such additional amount shall e su :ect to the auditing re0uirements, standards and procedures under e.isting la"s. SEC. /=. Repealing Clause. - -heAevised Securities 1ct %;atas *am ansa ;lg. 1/F&, as amended, in its entiret!, and Sections 6, , and F of *residential )ecree 456-1 as amended, are here ! repealed. 1ll other la"s, orders, rules and regulations, or parts thereof, inconsistent "ith an! provision of this Code are here ! repealed or modified accordingl!.
*age 64 of 64

Securities and Regulations Code

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Securities and Regulations Code

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Course Outline in Commercial Law Review Securities Regulations Code (SRC) Fiscal R.S.

C. Definition and general classification of securities (Sec. 3)

D. SEC Structure (Secs. 4 and 6 S!C !ules 3)

Consolidated by Didit!, P"P#$a%

E. SEC po#ers and $urisdiction (Sec. %)

Consolidated by Didit!, P"P#$a%

Case+ PSE 's. C& (regulator $S#) ,&C-S+

!ower o" S#C over

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

,. &mendments introduced b1 Sec. %.( to Sec % of PD 72(=&

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

!-C not di'ested of $urisdiction if a person is no longer a stoc*holder

Corporate officer@s dismissal intra=corporate

Stoc*holder 's stoc*holder considered intra=corporate

Suit against a non=stoc*holder not intra= corporate

Member 's. corporation considered intra= corporate

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

ME0 B. vs. 04PEA )5C. respondent.

Consolidated by Didit!, P"P#$a%

6.!. 5o. "44<6<

March (" (22(

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

6. 6eneral rule on registration9 merit s1stem 's. full disclosure method

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

/. E?empt Securities (Sec. 79 S!C !ule 7.() *age "7 of 64

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

). E?empt transactions (Sec. "2)

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

J. Commodit1 future contract (Sec. "")

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

G. !egistration of securities (Secs. "( to "%)

Consolidated by Didit!, P"P#$a%

effective onl! upon such date as determined Commission.

Consolidated by Didit!, P"P#$a%

0. Pre=need Plans (Sec. "6)

M. !eportorial re8uirements (Secs. "< and ";)

Consolidated by Didit!, P"P#$a%

5. Protection of shareholder interest

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

4. Manipulati'e practices and insider trading (S!C !ule (4)

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

Consolidated by Didit!, P"P#$a%

Stocholder 's stocholder considered intra=corporate

P. Securities maret professionals9 broer=director rule (Sec. 3 (; to 3")