Alternative Investments

Alternative Investments is an investment that is not one of the three traditional

asset types (stocks, bonds and cash). Many alternative investments also have high
minimum investments and fee structures compared to mutual funds and ETFs.
While they are subject to less regulation, they also have less opportunity to publish
verifiable performance data and advertise to potential investors.
Alternative investments are favored mainly because their returns have a low
correlation with those of standard asset classes. Because of this, many large
institutional funds such as pensions and private endowments have begun to
allocate a small portion (typically less than 10%) of their portfolios to alternative
investments such as hedge funds.
Hedge Funds
An aggressively managed portfolio of investments that uses advanced investment
strategies such as leveraged, long, short and derivative positions in both domestic
and international markets with the goal of generating high returns (either in an
absolute sense or over a specified market benchmark).
Legally, hedge funds are most often set up as private investment partnerships that
are open to a limited number of investors and require a very large initial minimum
investment. Investments in hedge funds are illiquid as they often require investors
keep their money in the fund for at least one year.
Both mutual funds and hedge funds are managed portfolios. This means that a
manager (or a group of managers) picks securities that he or she feels will perform
well and groups them into a single portfolio. Portions of the fund are then sold to
investors who can participate in the gains/losses of the holdings. The main
advantage to investors is that they get instant diversification andprofessional
management of their money.
Just like a mutual fund, a hedge fund is a pooled investment vehicle that makes
investments in equities, bonds, options and a variety of other securities.
Hedge funds are managed much more aggressively than their mutual fund
counterparts. They are able to take speculative positions in derivative securities
such as options and have the ability to short sell stocks. This will typically increase
the leverage - and thus the risk - of the fund. This also means that it's possible for
hedge funds to make money when the market is falling. Mutual funds, on the other
hand, are not permitted to take these highly leveraged positions and are typically

safer as a result.
Another key difference between these two types of funds is their availability. Hedge
funds are only available to a specific group of sophisticated investors with high net
worth. The U.S. government deems them as "accredited investors", and the criteria
for becoming one are lengthy and restrictive. This isn't the case for mutual funds,
which are very easy to purchase with minimal amounts of money.
For starters, hedge funds are not regulated. There are limits to what they can do,
such as the number of investors they can have, or the fact they cannot advertise to
the general public, but they are not regulated by theSEC per se. The implications of
this are that an investor should be properly informed about a hedge fund, its
strategy and the character of the principals before investing.
Hedge Funds: Risks
Standard Deviation
The most common risk measure used in both hedge fund and mutual fund
evaluations is standard deviation. Standard deviation in this case is the level of
volatility of returns measured in percentage terms, and usually provided on an
annual basis. Standard deviation gives a good indication of the variability of annual
returns and makes it easy to compare to other funds when combined with annual
return data. For example, if comparing two funds with identical annualized returns,
the fund with a lower standard deviation would normally be more attractive, if all
else is equal.
Unfortunately, and particularly when related to hedge funds, standard deviation
does not capture the total risk picture of returns. This is because most hedge funds
do not have normally distributed returns, and standard deviation assumes a bellshaped distribution, which assumes the same probability of returns being above the
mean as below the mean.
Downside Capture
In relation to hedge funds, and in particular those that claim absolute return
objectives, the measure of downside capture can indicate how correlated a fund is
to a market when the market declines. The lower the downside capture, the better
the fund preserves wealth during market downturns. This metric is figured by
calculating the cumulative return of the fund for each month that the
market/benchmark was down, and dividing it by the cumulative return of the
market/benchmark in the same time frame. Perfect correlation with the market will
equate to a 100% downside capture and typically is only possible when comparing
the benchmark to itself.

Drawdown
Another measure of a fund's risk is maximum drawdown. Maximum drawdown
measures the percentage drop in cumulative return from a previously reached high.
This metric is good for identifying funds that preserve wealth by minimizing
drawdowns throughout up/down cycles, and gives an analyst a good indication of
the possible losses that this fund can experience at any given point in time. Months
to recover, on the other hand, gives a good indication of how quickly a fund can
recuperate losses. Take the case where a hedge fund has a maximum drawdown of
4%, for example. If it took three months to reach that maximum drawdown, as
investors, we would want to know if the returns could be recovered in three months
or less. In some cases where the drawdown was sharp, it should take longer to
recover. The key is to understand the speed and depth of a drawdown with the time
it takes to recover these losses. Do they make sense given the strategy?
Leverage
Finally, leverage is a measure that often gets overlooked, yet is one of the main
reasons why hedge funds incur huge losses. As leverage increases, any negative
effect in returns gets magnified and worse, and causes the fund to sell assets at
steep discounts to cover margin calls. Leverage has been the primary reason why
hedge funds like LTCM and Amaranth have gone out of business. Each of these
funds may have had huge losses due to the investments made, but chances are
these funds could have survived had it not been for the impact of leverage and the
effect it had on the liquidation process.
Hedge Funds: Why Choose Hedge Funds?
Risk Reduction
In any case, a hedge fund that provides consistent returns increases the level of
portfolio stability when traditional investments are underperforming or, at most, are
highly unpredictable. There are many hedge fund strategies that generate attractive
returns with fixed-income-like volatility. The difference between a hedge fund and
traditional fixed income, however, is that during times of low interest rates, fixed
income may provide stable returns, but those are typically very low and may not
even keep up with inflation.
Hedge funds, on the other hand, can use their more flexible mandates and
creativity to generate bond-like returns that outpace inflation on a more consistent
basis. The drawback, as previously mentioned, is that hedge funds have certain

terms that limit liquidity and are highly opaque. That said, a carefully analyzed
hedge fund can be a good way to reduce the risk of a portfolio, but we stress again
the importance of proper due diligence. ( Learn more in Due Diligence In 10 Easy
Steps.)
Return Enhancement
The other primary reason for adding hedge funds to a portfolio is the ability of some
hedge funds to enhance the overall returns of a portfolio. This objective can be
considered in two ways. The first way is to maintain a low-risk portfolio but to try to
squeeze out some additional returns through the use of a low-volatility hedge fund,
as described in the previous section. By adding a hedge fund strategy that
substitutes for an otherwise anemic fixed-income return, the returns on a portfolio
can be increased slightly without any increase in volatility.

The second way, which is much more exciting, is to add a hedge fund with a highreturn strategy to boost overall returns. Some strategies, such as global macro, or
commodity trading advisors, can generate some very high returns. These funds
generally take directional positions based on their forecast of future prices on
stocks, bonds, currencies, and/or commodities and can also invest using derivative
instruments. But buyer beware that although these strategies are not correlated to
traditional investments, they often exhibit high levels of volatility. The result, when
properly allocated, can be a nice boost in returns without a proportional increase in
portfolio volatility. (Learn more in Macroeconomic Analysis.)
Allocation Considerations
Adding hedge funds to a portfolio, however, should not be taken lightly. Even a lowvolatility hedge fund can explode, as we saw in late 2007, when thesubprime
mortgage market dried up and even securities that were paying as planned were
written down to pennies on the dollar, as investors bid down their prices for fear of
foreclosures. (Learn more in The Fuel That Fed The Subprime Meltdown.)
The allocation to hedge funds should consider the overall risk/return objectives of
the portfolio, and proper analysis should be conducted to determine how and
whether a particular hedge fund fits into the asset mix. A portfolio manager should
not only consider the weighting given to any particular investment, but should also
evaluate the level of concentration of the overall portfolio, and the correlation of
each position relative to each other. For example, in a very concentrated portfolio, it
is even more important that each position is less correlated to others, and one must

also make sure that positions do not have similar performance drivers.
Yet another consideration when adding hedge funds to a portfolio is the level of
gross and net exposure of the overall portfolio. With traditional investments, for
example, gross and net exposure will always be the same and will never exceed
100% unless the portfolio adds its own leverage to its positions. With hedge funds,
however, many of them employ leverage and in many cases, their net exposure is
influenced by their long and short positions.
Therefore, a larger allocation to hedge funds will directly affect the total exposures
of an entire portfolio. To use a highly leveraged fund as an example, assume a 10%
position in a fund that is 10-times levered. If all other portfolio positions maintain a
100% exposure, the addition of a 10-times levered hedge fund will increase the
gross exposure of the entire portfolio to 190%. The implications of this change can
be dramatic depending on the strategy being used by the hedge fund.

MANAGED FUTURES
-

The term managed futures describes an industry comprised of professional

money managers known as commodity trading advisors (CTAs). These trading
advisors manage client assets on a discretionary basis using global futures
markets as an investment medium. Trading advisors take positions based on
expected profit potential.

is a type of alternative investment in which trading in the futures markets is

managed by another person or entity, rather than the fund's owner.

Managed futures are futures positions entered into by professional money

managers, known as commodity trading advisors, on behalf of investors.
Managers invest in energy, agriculture and currency markets (among others)
using futures contracts and determine their positions based on expected
profit potential.

A futures contract is a financial contract obligating the buyer to purchase an asset

(or the seller to sell an asset), such as a physical commodity or a financial

instrument, at a predetermined future date and price. Futures contracts detail the
quality and quantity of the underlying asset and are standardized to facilitate
trading on a futures exchange.
Managed futures as Alternative Investment
1.
2.
3.
4.
5.

Broad diversification opportunities

Potential to lower overall portfolio risk
Opportunity to enhance overall portfolio returns
Opportunity to profit in a variety of economic environments
Limited losses due to a combination of flexibility and discipline

Commodity

Commodity is a marketable item produced to satisfy wants or needs. Economic

commodities comprise goods and services. The exact definition of the term commodity is
specifically used to describe a class of goods for which there is demand, but which is
supplied without qualitative differentiation across a market.
How do we earn profit in Commodities:
Hedge Against Inflation
Performance/Return
Enhanced Diversification

REAL ESTATE

Real estate is any land plus anything permanently fixed to it, including
buildings, sheds and other items attached to the structure. Although, media
often refers to the "real estate market" from the perspective of residential
living, real estate can be grouped into three broad categories based on its
use: residential, commercial and industrial. Examples of real estate include
undeveloped land, houses, condominiums, townhomes, office buildings, retail
store buildings and factories.
It is a tangible asset.
It is an immovable asset. Each real estate asset is a unique investment
because of the property and buildings that can be built on it.
Real estate can be very illiquid if the land and buildings are purchased
outright. On the other hand, investors can enjoy higher liquidity if the same
asset (either land or buildings) is purchased through a fund or some other
vehicle.
It can be divided among a pool of investors, and can be categorized by the
way the property is used by the owners or tenants.
Can be owned in various forms such as public, private or financed through
equity of debt.

Characteristics of a Real Estate

1. Produces relatively consistent total returns that are hybrid of income and
capital growth - real estate has a coupon-paying bond-like component in that
it pays a regular, steady income stream, and it has a stock-like component in
that its value has a propensity to fluctuate. And, like all securities that you
have a long position in, you would prefer the value to go up more often than
it goes down!
2. Capital appreciation of a property is determined by having the property
appraised - If the appraiser thinks your property would sell for more than you
bought it for, then you've achieved a positive capital return. Because the
appraiser uses past transactions in judging values, capital returns are directly
linked to the performance of the investment sales market. The investment
sales market is affected largely by the supply and demand of investment
product.
3. No fixed maturity - Unlike a bond which has a fixed maturity date, an equity
real estate investment does not normally mature. In Europe, it is not
uncommon for investors to hold property for over 100 years. This attribute of
real estate allows an owner to buy a property, execute a business plan, then
dispose of the property whenever appropriate. An exception to this
characteristic is an investment in fixed-term debt; by definition a mortgage
would
have
a
fixed
maturity.
4. Tangible - Real estate is, well, real! You can visit your investment, speak with
your tenants, and show it off to your family and friends. You can see it and
touch it. A result of this attribute is that you have a certain degree of physical
control over the investment - if something is wrong with it, you can try fixing
it.
You
can't
do
that
with
a
stock
or
bond.
5. Requires Management - Because real estate is tangible, it needs to be
managed in a hands-on manner. Tenant complaints must be addressed.
Landscaping must be handled. And, when the building starts to age, it needs
to
be
renovated.
6. Inefficient Markets - An inefficient market is not necessarily a bad thing. It just
means that information asymmetry exists among participants in the market,
allowing greater profits to be made by those with special information,
expertise or resources. In contrast, public stock markets are much more
efficient - information is efficiently disseminated among market participants,
and those with material non-public information are not permitted to trade
upon the information. In the real estate markets, information is king, and can
allow an investor to see profit opportunities that might otherwise not have
presented
themselves.

7. High Transaction Costs - Private market real estate has high purchase costs
and sale costs. On purchases, there are real-estate-agent-related
commissions, lawyers' fees, engineers' fees and many other costs that can
raise the effective purchase price well beyond the price the seller will actually
receive. On sales, a substantial brokerage fee is usually required for the
property to be properly exposed to the market. Because of the high costs of
"trading" real estate, longer holding periods are common and speculative
trading
is
rarer
than
for
stocks.
8. Lower Liquidity - With the exception of real estate securities, no public
exchange exists for the trading of real estate. This makes real estate more
difficult to sell because deals must be privately brokered. There can be a
substantial lag between the time you decide to sell a property and when it
actually
is
sold
usually
a
couple
months
at
least.
9. Underlying Tenant Quality - When assessing an income-producing property,
an important consideration is the quality of the underlying tenancy. This is
important because when you purchase the property, you're buying two
things: the physical real estate, and the income stream from the tenants. If
the tenants are likely to default on their monthly obligation, the risk of the
investment
is
greater.
10.Variability among Regions - While it sounds clich, location is one of the
important aspects of real estate investments; a piece of real estate can
perform very differently among countries, regions, cities and even within the
same city. These regional differences need to be considered when making an
investment, because your selection of which market to invest in has as large
an impact on your eventual returns as your choice of property within the
market.

How to gain from Real Estate

1. Appreciation - The most common source for real estate profit is the appreciation the increase in the value - of the property in question. This is achieved in different
ways for different types of real estate. And, most importantly, it is only realized
through selling or refinancing.
Raw Land - The most obvious source of appreciation for undeveloped land is,
of course, developing it. As cities expand, land outside the limits becomes
more and more valuable because of the potential for it to be purchased by
developers. Then developers build houses that raise that value even further.
Appreciation in land can also come from discoveries of valuable minerals or
materials, provided that the buyer holds the rights. An extreme example of
this would be striking oil, but appreciation can also come from gravel
deposits, trees and so on.

Residential Property - When looking at residential properties, location is often

the biggest factor in appreciation. As the neighborhood around a home
evolves, adding transit routes, schools, shopping centers, playgrounds and so
on, the value climbs. Of course, this trend can also work in reverse, with
home values falling as a neighborhood decays. Home improvements can also
spur appreciation, and this is something a property owner can directly
control. Putting in a new bathroom, upgrading to a heated garage and
remodeling to an open concept kitchen are just some of the ways a property
owner may try to increase the value of a home. Many of these techniques
have been refined to high-return fixes by property flippers who specialize in
adding value to a home in a short time.
Commercial Property - Commercial property gains value for the exact same
reasons as the previous two types: location, development and improvements.
The best commercial properties are in demand, and that drives the price up
on them.

2. Income - Generally referred to as rent, income - or regular payments - from real

estate can come in many forms.
Raw Land Income - Depending on your rights to the land, companies
may pay you royalties for any discoveries or regular payments for any
structures they add. These include pump jacks, pipelines, gravel pits,
access roads, cell towers and so on. Raw land can also be rented for
production, usually agricultural production.
Residential Property Income - Although it is possible that you may earn
income from the installation of a cell tower or other structure, the vast
majority of residential property income comes in the form of basic rent.
Your tenants pay a fixed amount per month - and this will go up with
inflation and demand - and you take out your costs from it and claim
the remaining portion as rental income. While it is true that you will get
an insurance payout if your tenants burn down the place, the payout
only covers the cost of replacing what is lost and is not income in a real
sense.
Commercial Property Income - Commercial properties can produce
income from the aforementioned sources - with basic rent again being
the most common - but can also add one more in the form of option
income. Many commercial tenants will pay fees for contractual options
like the right of first refusal on the office next door. These are
essentially options that tenants pay a premium to hold, whether they
exercise them or not. Options income is sometimes used for raw land
and even residential property, but they are far from common.
3. REITs or MICs - Real estate investment trusts (REIT) and Mortgage Investment
Corporations (MIC) are generally considered to be great ways of getting income
from real estate. This is true, but only in the sense that real estate is the underlying

security. With a REIT, the owner of multiple commercial properties sells shares to
investors - usually to fund the purchase of more properties - and then passes on the
rental income in the form of distribution. The REIT is the landlord for the tenants
(who pay rent), but the owners of the REIT get the income once the expenses of
running the buildings and the REIT are taken out. MICs are even a further step
removed, as they invest in private mortgages rather than the underlying properties.
MICs are different from MBSs in that they hold entire mortgages and pass on the
interest from payments to investors, rather than securitizing the interest streams
independent of the original mortgage. Still, they are not so much real estate
investments as they are debt investments, and thus outside of our area of interest.
4. Smoke and Mirrors - Similar to securities with real estate underlying the
investment, most of the alternative "blow your mind with super fantastic return"
methods are merely a layer on top of these two basic steams of income.
For example, there are informal residential real estate options where you pay a fee
to have the right to buy a house at a given time, say after a month, for an agreed
upon price. Then, you find investors who will pay more than your option price for
the property. In this case, the premium you get is essentially a finder's fee for
matching a person looking for an investment with a person looking to sell - no
different than a real estate agent. Although this is income, it doesn't come from
buying (i.e. holding the deed to) a piece of real estate. Similarly, no money down or
OPM deals are simply the financing aspect of the deal - it doesn't change how the
buyer is planning to make money in the long run.
UITF
What are the risks of investing in a UITF?
A client investing in a UITF product should be prepared to absorb the following
potential risks: (a) interest rate risk the potential for an investor to experience
losses due to changes in interest rates; (b) market/price risk the potential for an
investor to experience losses due to changes in the market prices of securities (e.g.
bonds and equities); (c) liquidity risk the inability to sell or convert assets into
cash quickly or where conversion to cash is possible but at a loss; and (d) credit risk
the risk of loss due to a borrower or issuers failure to repay principal and/or
interest on securities issued.
Because the assets of the UITF are valued based on the prevailing market prices,
yields and potential yields cannot be guaranteed. There is a possibility of incurring
losses in the UITF if the client withdraws in a scenario of generally declining market
prices, even if the fund is invested in government securities. It should be noted that
investments in government securities, although considered credit risk free in the
domestic market are also subject to interest rate risk, market risk and under
extreme volatile conditions, to liquidity risk. Should this situation arise, clients may,

however, opt to defer their withdrawals until market conditions become more
favorable.
Being a trust product, there is no guaranty on the principal and income of the
investments and losses, if any, shall be for the risk of the UITF investors. UITFs are
governed by BSP regulations but are not deposit products, hence are not covered by
the Philippine Deposit Insurance Corporation (PDIC). Historical performance of a
fund may be used for reference purposes only and do not guarantee similar future
results.
UNIT INVESTMENT TRUST FUND
Unit Investment Trust Fund (UITF) is an open-pooled trust fund denominated in
pesos or any acceptable currency, which is operated and administered by a trust
entity and made available by participation. It is a collective investment idea offered
by banks wherein money from various investors are pooled together into one fund
to achieve a specific investment objective. UITFs are very good investment vehicles
for people who have no time or expertise to do actual stock or bond trading since
professional investment managers are the ones managing the fund.In UITF, you buy
units of participation in the Trust Fund therefore prices are expressed and reported
in NAVPU (Net Asset Value per Unit).
Net Asset Value represents a fund's per share/unit market value. This is the
price at which investors buy ("bid price") fund shares from a fund company
and sell them ("redemption price") to a fund company. It is derived by
dividing the total value of all the cash and securities in a fund's portfolio, less
any liabilities, by the number of shares outstanding.
Parties involved:
Unit Holder- the investor whos holding a certain number of units
Fund Manager- responsible for the day-to-day running of the trust and for
investing the funds
The Trustee- who is governed by the Trust Companies Act 1967, their role is
to monitor the manager's performance against the trust's deed
Types of UITFs

UITFs are established and managed based on a set of investment objectives

and strategies, and these have varying levels of risks and returns. UITFs may be
denominated in Philippine Pesos, US Dollars and acceptable third currencies.
Following are the four general major types of UITFs listed according to ascending
levels of risk, return and investment time horizon:

a. Money Market Funds - These funds are invested principally in short term, fixed
income deposits and securities with a portfolio duration of one year or less.
b. Bond Funds - The mandate of these funds is to invest in a portfolio of bonds and
other similar fixed income securities with portfolio duration which may exceed one
year. These may further be classified into Intermediate Funds (where the fund
mandate limits the duration up to 3 years), Medium Term Funds (where the fund
mandate allows a duration of up to 5 years) and Long Term Funds (where the fund
mandate allows a duration of greater than 5 years).
c. Balanced Funds - The mandate of these funds is to invest in a diversified
portfolio of bonds and stocks where investments in stocks shall be up to a maximum
of 40% to 60% of the fund, with the balance invested in fixed income securities.
d. Equity Funds - The mandate of these funds is to invest substantially in equities.
Cash may be kept for liquidity and portfolio re-balancing purposes.

What are the benefits of investing in a UITF?

Investors in UITFs can avail of the following benefits:
Diversification. By participating in a UITF, risks are spread out across the various
investments held by the pooled trust fund. Diversification comes in the form of
various types of investments, issuers and tenors. UITFs are required to observe its
exposure in a single entity and its related parties to 15% of the market value of the
fund, except in the case of government securities.
Liquidity. While it is advisable to stay invested in the UITF for a longer period of
time, clients can redeem units of participation at any time. The fund will not have
difficulty redeeming such units of participation because UITF investments are
limited to marketable or tradable securities.
Affordability. UITFs generally have low minimum investment requirements.
Additional investments may be made in tranches as funds become available to the
client.
Better earnings potential. Greater earnings potential is achieved without having to
invest large sums of money. There are opportunities for potentially higher returns
due to possible marked-to-market gains on top of accrued income from
investments. UITFs provide access to financial instruments not readily available to
retail investors.
Exempt from reserve requirements. UITFs are not subject to reserve requirements
imposed on bank deposits and CTFs.

Professional fund management. Participating in a UITF allows clients to gain access

to the expertise and services of seasoned fund managers who are able to actively
monitor the markets for possible investment opportunities.
Transparency. Trust entities are required to publish the UITF NAVPUs at least
weekly, allowing investors to compare investment performance of various fund
managers. Each UITF is subject to a separate annual audit by an independent
auditor acceptable to the BSP, the results of which may be made available to
investors. In addition, each UITF is required to have a BSP accredited third party
custodian, who is tasked with safekeeping the securities of the UITF and performing
independent marking-to-market of such securities.
Regulated product. The management and administration of UITFs are governed by
the
BSP.
How much will an investor get when the UITF investment is redeemed?
The investor can calculate the proceeds of his UITF investment by simply
multiplying the number of units being redeemed by the applicable NAVPU for the
day. Generally, the NAVPU is already net of the trust fees, taxes and qualified
charges. However, there may be additional charges to the client such as early
withdrawal charges in cases where the client redeems his UITF investment prior to
the completion of the minimum holding period required by the trustee.
How does a participant determine how much he earned from the UITF?
The difference between the value of the units of participation at the time of
purchase and the value at the time the units are redeemed determines how much
an investor earned (or the loss incurred) from the UITF investment. As the fund
value increases, each participant earns more. Ideally, the longer a client stays
invested in the fund, the better his chances of earning more since the underlying
investment outlets become less prone to market volatility over time.
How does an investor determine the return on the UITF investment?
The clients return on investment can be determined using the following formula:
Return on Investment = [ (Proceeds of investment Initial investment) / (Initial
investment) ] *100
Where: Proceeds of investment = Applicable NAVPU x number of units of
participation (less early withdrawal charges, if any)
Initial investment = Amount invested.

Derivatives
A derivative is a contract that derives its value from the performance of an
underlying entity. This underlying entity can be an asset, index, or interest rate, and
is often called the "underlying". Derivatives can be used for a number of purposes
including insuring against price movements (hedging), increasing exposure to price
movements for speculation or getting access to otherwise hard to trade assets or
markets. Some of the more common derivatives include forwards, futures, options,
and swaps.
Trading Markets
In broad terms, there are two groups of derivative contracts, which are
distinguished by the way they are traded in the market:
Over-the-counter (OTC) derivatives are contracts that are traded (and
privately negotiated) directly between two parties, without going through an
exchange or other intermediary. The OTC derivative market is the largest market for
derivatives, and is largely unregulated with respect to disclosure of information
between the parties, since the OTC market is made up of banks and other highly
sophisticated parties, such as hedge funds. Reporting of OTC amounts is difficult
because trades can occur in private, without activity being visible on any exchange.
Because OTC derivatives are not traded on an exchange, there is no central counterparty. Therefore, they are subject to counterparty risk, like an ordinary contract,
since each counter-party relies on the other to perform.
Exchange Traded Derivatives (ETD) are those derivatives instruments
that are traded via specialized derivatives exchanges or other exchanges. A
derivatives exchange is a market where individuals trade standardized contracts
that have been defined by the exchange. A derivatives exchange acts as an
intermediary to all related transactions, and takes initial margin from both sides of
the trade to act as a guarantee.

Forward Contract

A contract between two parties to buy or sell an asset at a specified price on

a future date.
It can be used for hedging or speculation
It can be customized to any commodity, amount and delivery date
Forward contracts do not trade on a centralized exchange and are therefore
regarded as over-the-counter (OTC) instruments.

There are two parties in forward contracts:

Short - the party that has the obligation to sell the underlying asset
Long - the party who has an obligation to buy the underlying asset

Counterparty Risk
A risk to each party of a contract that the counterparty will not live up to its
contractual obligations.
A risk to both parties and should be considered when evaluating a contract.

Futures

A financial contract obligating the buyer to purchase an asset (or the seller to
sell an asset), such as a physical commodity or a financial instrument, at a
predetermined future date and price.
Also called as standardized forward contracts
Futures contracts detail the quality and quantity of the underlying asset
They are standardized to facilitate trading on a futures exchange.
Some futures contracts may call for physical delivery of the asset, while
others are settled in cash.

Futures Exchange
Usually owned by its members, determines what contracts will be traded,
what the terms of the contracts will be, the trading hours, and how and when
futures can be traded.
The exchange also is the main regulator of the futures business conducted at
the exchange.
It houses the trading floor for floor trading, and the computers used for
electronic trading.
Clearinghouse
A department of the exchange whose main function is the settling of and
marking to market of the exchange members' accounts, guarantees the other
side of all futures trades, and oversees contract performance.

Future Commission Merchant

The intermediary between the exchanges and the public investor, acting as a
broker for the buying and selling of futures, and as the custodian of the
customers funds.

Margin
It is a margin to minimize credit risk to the exchange; traders must post a
margin or a performance bond, typically 5%-15% of the contracts value. To

minimize counterparty risk to traders, trades executed on regulated

exchanges are guaranteed by a clearing house.
ClearingMargin
Clearing margin are financial safeguards to ensure that companies or
corporations perform on their customers open futures and options contracts.
Clearing margins are distinct from customer margins that individual buyers
and sellers of futures contracts are required to deposit with brokers.
Costumer Margin
Customer margin within the futures industry, financial guarantees required of
both buyers and sellers of futures contracts to ensure fulfillment of contract
obligations.
Futures Commission Merchants are responsible for overseeing customer
margin accounts. Margins are determined on the basis of market risk and
contract value.

Initial Margin
Initial margin is the equity required to initiate a futures position. The
maximum exposure is not limited to the amount of the initial margin;
however the initial margin requirement is calculated based on the maximum
estimated change in contract value within a trading day.
Initial margin is set by the exchange.
Settlement physical vs. cash-settled futures
Physical delivery
The amount specified of the underlying asset of the contract is delivered by
the seller of the contract to the exchange, and by the exchange to the buyers
of the contract.
Physical delivery is common with commodities and bonds.
Cash settled futures
The parties settle by paying/receiving the loss/gain related to the contract in
cash when the contract expires.
Cash settled futures are those that, as a practical matter, could not be settled
by delivery of the referenced item

Options
An option is a contract which gives the buyer (the owner) the right, but not the
obligation, to buy or sell an underlying asset or instrument at a specified strike price
on or before a specified date. The seller has the corresponding obligation to fulfill

the transaction that is to sell or buy if the buyer (owner) "exercises" the option.
The buyer pays a premium to the seller for this right. An option that conveys to the
owner the right to buy something at a specific price is referred to as a call; an
option that conveys the right of the owner to sell something at a specific price is
referred to as a put.
Owners of put and call options have no voting rights, no privileges of ownership,
and no interest or dividend income. They are created by individual investors, not by
the organizations that issue the underlying financial asset.

According to the option right:

Call options give you the right but not the obligation, to buy something at a
specific price for a specific time period.
Put options give you the right but not the obligation, to sell something at a
specific price for a specific time period.

According to the underlying assets

Equity option
Bond option
Future option
Index option
Commodity option
Currency Option

According to the trading markets

Exchange-traded options (also called "listed options") are a class

of exchange-traded derivatives. Exchange traded options have standardized
contracts, and are settled through a clearing house with fulfillment
guaranteed by the Options Clearing Corporation (OCC). Since the contracts
are standardized, accurate pricing models are often available. Exchangetraded options include:
-stock options
-bond options and other interest rate options
-stock market index options or, simply, index options and
-options on futures contracts

callable bull/bear contract

Over-the-counter options (OTC options, also called "dealer options") are

traded between two private parties, and are not listed on an exchange. The
terms of an OTC option are unrestricted and may be individually tailored to
meet any business need. In general, at least one of the counterparties to an
OTC option is a well-capitalized institution. Option types commonly traded
over the counter include:
-interest rate options
-currency cross rate options, and
-options on swaps or swaptions

Swaps

A swap is a derivative in which two counter-parties exchange cash flows of one

party's financial instrument for those of the other party's financial instrument. The
benefits in question depend on the type of financial instruments involved.
Swaps can be used to hedge certain risks such as interest rate
to speculate on changes in the expected direction of underlying prices.

risk,

or

Types of swaps

Interest rate swaps

Currency swaps
Commodity swaps
Credit default swaps
Subordinated risk swaps
Other variations

Interest rate swaps

The most common type of swap is a "plain Vanilla" interest rate swap. It is the
exchange of a fixed rate loan to a floating rate loan. The life of the swap can range
from 2 years to over 15 years.
The reason for this exchange is to take benefit from comparative advantage. Some
companies may have comparative advantage in fixed rate markets, while other

companies have a comparative advantage in floating rate markets. When

companies want to borrow, they look for cheap borrowing, i.e. from the market
where they have comparative advantage. However, this may lead to a company
borrowing fixed when it wants floating or borrowing floating when it wants fixed.
This is where a swap comes in. A swap has the effect of transforming a fixed rate
loan into a floating rate loan or vice versa.
Currency Swaps
A currency swap involves exchanging principal and fixed rate interest payments on
a loan in one currency for principal and fixed rate interest payments on an equal
loan in another currency. Just like interest rate swaps, the currency swaps are also
motivated by comparative advantage. Currency swaps entail swapping both
principal and interest between the parties, with the cashflows in one direction being
in a different currency than those in the opposite direction. It is also a very crucial
uniform pattern in individuals and customers.
Commodity swaps
A commodity swap is an agreement whereby a floating (or market or spot) price is
exchanged for a fixed price over a specified period. The vast majority of commodity
swaps involve crude oil.
Credit default swaps
A credit default swap (CDS) is a contract in which the buyer of the CDS makes a
series of payments to the seller and, in exchange, receives a payoff if an
instrument, typically a bond or loan, goes into default (fails to pay). Less commonly,
the credit
event that
triggers
the
payoff
can
be
a
company
undergoing restructuring, bankruptcy or even just having its credit rating
downgraded. CDS contracts have been compared with insurance, because
the buyer pays a premium and, in return, receives a sum of money if one of the
events specified in the contract occur. Unlike an actual insurance contract the buyer
is allowed to profit from the contract and may also cover an asset to which the
buyer has no direct exposure.
Subordinated risk swaps
A subordinated risk swap (SRS), or equity risk swap, is a contract in which
the buyer (or equity holder) pays a premium to the seller (or silent holder) for the
option to transfer certain risks. These can include any form of equity, management
or legal risk of the underlying (for example a company). Through execution the
equity holder can (for example) transfer shares, management responsibilities or
else. Thus, general and special entrepreneurial risks can be managed, assigned or

prematurely hedged. Those instruments are traded over-the-counter (OTC) and

there are only a few specialized investors worldwide.

Valuation

The value of a swap

flows. A swap is worth
may become positive
of bond prices, or as a

is the net present value (NPV) of all estimated future cash

zero when it is first initiated, however after this time its value
or negative. There are two ways to value swaps: in terms
portfolio of forward contracts.

Using bond prices

While principal payments are not exchanged in an interest rate swap,

assuming that these are received and paid at the end of the swap does not
change its value. Thus, from the point of view of the floating-rate payer, a
swap is equivalent to a long position in a fixed-rate bond (i.e. receiving fixed
interest payments), and a short position in a floating rate note
(i.e. making floating interest payments):

From the point of view of the fixed-rate payer, the swap can be viewed as
having the opposite positions. That is,

PHILIPPINE STOCK EXCHANGE (PSE): ORGANIZATION AND OBJECTIVES

The Philippine Stock Exchange, Inc. (PSE or Exchange) is a private non-profit
and non-stock organization created to provide and maintain a fair, efficient,
transparent and orderly market for the purchase and sale of securities such as
stocks, warrants, bonds, options and others.
The Philippine Stock Exchange (PSE) is the only stock exchange in the Philippines. It
is one of the oldest stock exchanges in Asia, having been in continuous operation
since the establishment of the Manila Stock Exchange in 1927. It currently
maintains two trading floors, one at the PSE Centre (Tektite), Ortigas Center in Pasig
City, and one at its principal office at the Ayala Tower One in Makati City's Central

Business District. The PSE is composed of a 15-man Board of Directors with Jose T.
Pardo as Chairman.
The main index for PSE is the PSEi, which is composed of a fixed basket of thirty
(30) listed companies. The PSEi measures the relative changes in the free floatadjusted market capitalization of the 30 largest and most active common stocks
listed at the PSE. The selection of companies in the PSEi is based on a specific set of
public float, liquidity and market capitalization criteria. There are also six sectorbased indices as well as a broader all shares index.
Trading in the PSE is a continuous session from 9:30AM to 3:30PM daily with a
recess from 12:00PM to 1:30PM.
Role of the PSE
The PSE bring together companies which aim to raise capital through the issue of
new securities.Through the listing of their share in the stock exchange, companies
can have easier access to funds. Raising new capital through an additional public
offering is easier and less expensive when the company is already listed in the
Exchange. Therefore, the PSE plays a vital role in the financing of productive
enterprises that use the funds for growth and expansion of new jobs. It is therefore
essential to the growth of the Philippine economy.
Furthermore, the PSE facilitates the selling and buying of the issued stocks and
warrants. It provides a suitable market for the trading of securities to individuals
and organizations seeking to invest their saving or excess funds through the
purchase of securities.
Apart from these functions, the PSE has committed itself to (a) protecting the
interest of the investing public; and (b) developing and maintaining an efficient, fair,
orderly and transparent market.
Efficient.This means that orders are executed and transactions are settled in
the fastest possible way. Some reforms have been instituted or are being carried out
by the PSE to make the market more efficient, such as:

installation of fully automated trading system;

installation of computer trading terminals in cities outside

Metro Manila to encourage the entry of provincial investors; and
creation of a central cleaning and depository system to
mobilized stock certificates and allow transfer of shares and
funds by book entry.
Fair. This means that the PSE assures that no investor will have an undue
advantage over another, market player in trading by manipulating prices and
engaging into insider trading. Insider trading is the act of buying or selling a
particular stock based on certain privileged information which is not available to the
public. As such it is considered as illegal and prohibited by the PSE.
Market Transparency.Transparency proceeds from the assumption that the
investor can only make informed and intelligent information about the particular
sock he wants to buy. The PSE requires listed companies to disclose timely,
complete and accurate material information to the Exchange and the public on a

regular basis. Such information would include stock price information, corporate
conditions and developments which tend to affect stock prices like dividend,
mergers and joint ventures, and the like.
PSE ORGANIZATION
The PSES organizational structure holds five (5) groups, namely: Listings &
Disclosure Group, Compliance & Surveillance Group, Operations/Automated Trading
Group, Finance and Investment Group and Business Development & Information
Group along with the Office of the General Counsel, Membership Department and
Human Resources Management Department, which reports directly to the Office of
the President.
The functional responsibilities of each department are as follows:
Listings and Disclosure Group.This group is composed of the following
departments: Listing Processing, Legal Advisory and Corporate Disclosure. It
processes and evaluates listing applications, conducts legal due diligence, and
monitors compliance to continuing listing requirements including disclosure of listed
companies. It also coordinates IPO (initial public offering) distribution.
Compliance and Surveillance Group.This group acts as the police of the
Exchange. It is composed of the Compliance Audit Department, Special
Investigation Department, Market Surveillance Department and Legal Section. The
group conducts legal audit and review aside from auditing of member-brokers books
and operations. It also monitors the members compliance to set rules and
regulations and enforces appropriate sanctions to violators or erring memberbrokers. It takes responsibility in the operation of the surveillance activity, to
ascertain that there are no illegal postings and dealings made in any of the issues
listed in the Exchange.
Operations/Automated Trading Group.Placed under this group are the
Computer Operations Unit, Systems Development Unit and Systems Integration and
technical Support Unit along with the Trading & Settlement Department,
Administration Department and PSE Plaza Operations Department to function as
one group. It is considered as one of the most critical responsibility areas in the
organization since it handles the operation of the automated trading and clearing
and settlement activities for stock operations.
The Automated Trading Group examines and controls the monitoring, logging and
analysis of computer system resource utilization; the maintenance of network
connections of all workstations at the trading floor and remote offices; managing of
database of off-floor installed sites; and the implementation and integration of the
different components of the trading and office systems.
On the other hand, the Trading and Settlement Department monitors compliance of
member-brokers to the clearing and settlement requirements of the settlement
banks and central depository. It coordinates with these agencies and the custodian
banks, both local and foreign, any trading discrepancies, irregularities or settlement
concerns of the member-brokers and investing public.

The Administration Department and the PSE Plaza Operations Department handles
the building maintenance, security and administration as well as the procurement
management and utilization of supplies and equipment including the daily
administrative requirements of the Exchange. It is also responsible for the daily
dissemination of all the listed companies corporate announcements along with the
foreign quotation report.
Finance and Investment Group.The group is responsible for the
management of the companys financial resources. It is composed of the Accounting
Department, Treasury Department, Payroll and Budget Section and Investments
Monitoring Section which handles the maintenance of book of accounts, preparation
of financial statements and budget, management and placement of PSE funds,
monitoring of accounts receivables and billing of accounts.
Business Development and Information Group.This group is comprised
of the following: Product Development Department, Market Development
Department,
Research
and
Public
Information
Department,
Corporate
communications Department, PSE Training Institute and PSE Rule Book/Task Force
Quality Unit.
The Product Development Department is in charge of the expansion, development
and packaging of domestic and foreign financial products, equity-related securities,
debt-related securities and other forms of securities and derivatives. It coordinates
with private businesses, government agencies and associations in the overall
development and packaging of the securities, derivatives and trading facilities.
The Market Development Department handles the expansion, development and
monitoring of the investor base for both domestic and foreign market on an
individual and institutional level. It looks at the PSE trading operations presence
and positioning in the domestic, regional, and international markets including the
expansion and development of market intermediation services and facilities
covering secondary, over-the-counter (OTC) and third markets.
The research and Public Information Department is composed of the Research
Services Sections, Information and Publications Section and the Public Information
and Assistance Center (PIAC). It conceptualizes, processes, consolidates and
handles multi-media dissemination of statistical and analytical information and
studies related to the business requirements of members. It conducts research and
provides information support to the expansion and development of the Exchange
trading operations and its markets. It also maintains, develops and disseminates
information through manual or electronic libraries and documentation. The
department produces regular publications Weekly Report, Monthly Reports, and
Fact Book that provide market users with a review of the markets performance
along with historical and current data on stock trading activities and listed
companies. The Department also acts as the liaison of the Exchange through the
sharing of data and information with foreign individuals, organizations and
institutions.
Under the Research and Public Information Department is PIAC which implement the
Exchanges continual public assistance program by covering information promotion

and facilitation along with complaints mediation in the physical center at the
principal offices of the PSE. It also manages the operation of the PSE Souvenir Shop.
The Corporate Communications Department manages all forms of media and public
relation through press releases, information and educational campaigns. It is in
charge of managing and developing business promotional and marketing exposure
requirements of the PSE including the production and dissemination of corporate
internal bulletin and other forms of information materials.
The PSE Training Institute is responsible for the development of programs/curricula
along with providing lectures, trainings and seminars about securities market
participants. Aside from in-house seminars, it conducts road shows to investors in
the provinces. The Institute also provides logistics support to all training-related
activities of the departments in the PSE. In the future, the Institute plans to conduct
activities such as the Certified Securities Representative (CSR) seminars and the
technical and fundamental analysis seminars in the coordination with other
intuitions.
The PSE Rile Book/Task Force Quality is responsible for the codification and the
manualization of the PSEs rules, guidelines, procedures and other legislative
materials coming from government agencies, into a consolidated and
comprehensive Manual of Rules of the Exchange.
The PSE Rule Book consists of five (5) volumes which are: (1) Corporate Rules, (2)
Membership Rules, (3) Listing and Disclosure Rules, (4) Trading and Settlement
Rules, and (5) Compliance and Surveillance Rules.
Membership Department.This department manages, implements and
coordinates members requirements, planned activities and projects with the end in
view of assisting PSE management in the expansion, consolidation and development
of its membership. It also processes membership applications and various corporate
changes of member-brokers for approval by the Membership Committee. It is in
charge of circular preparations concerning membership, and the monitoring of
financial statements of brokers and SEC licenses of its stock traders. In coordination
with the Membership Committee, it facilitates memberships arbitration. Further, the
Membership Department organizes and prepares social activities for all members.
Human Resources Management Department.This department, under the
Office of the President, handles employee career management, administration of
employee compensation and benefits, management of corporate culture and
organization development, implementation of the companys performance
management system and formulation and enforcement of company policies. To
ensure continuing organization and employee development, this department
integrates the organizational structure/processes and workforce issues into the
business equation and evaluates group processes and dynamics to tailor-fit results
with a corporate staff training and management development program.
Office of the General Counsel.The Office of the General Counsel renders
corporate legal services and serves as the primary legal advisor to the Board of
Governors, the President, and the Chief Operating Officer, the various departments,
officers and employees of the Exchange. It also coordinates with the external legal
consultants on matters referred by the exchange; represents the Exchange before

judicial and administrative/quasi-judicial bodies; and, attend legislative and

administrative hearings or meeting as well as draft position papers and/or
comments to pending legislation and administrative issuances.
OBJECTIVES. Primary objective: providing and maintaining a convenient and
suitable market for the exchange, purchase and sale of all types of securities and
other instruments.

PHILIPPINE STOCK EXCHANGE LISTING PROCEDURES

GENERAL REQUIREMENTS
a. The Applicant Company must have a positive stockholders' equity in the fiscal
year immediately preceding the filing of the listing application.
b. The Applicant Company operating history of at least three (3) years prior to
its listing application.
c. The Applicant Company shall cause all its subscribed shares of the same type
and class applied for listing to be paid in full.
d. The minimum offering to the public for initial listing shall be based on the
following schedule:
Market Capitalization
Public Offer
Not exceeding P500M

33% or P50M, whichever is

higher

Over P500M to P1B

25% or P100M, whichever

is higher

Over P1B to P5B

20% or P250M, whichever

is higher

Over P5B to P10B

15% of P750M, whichever

is higher

Over P10B

10% of P1B, whichever is

higher

e. When required by the Exchange, the Applicant Company shall engage the
services of an independent appraiser duly accredited by the Exchange and
the Securities and Exchange Commission ("SEC") in determining the value of
their assets.
f. The Applicant Company shall have an investor relation program to ensure
that information affecting the company are communicated effectively to
investors. Such program shall include, at the minimum, a corporate website

that
i.
ii.
iii.
iv.
v.
vi.
vii.

contains,

at

the

minimum,

the

following

information:

Company information - organizational structure, board of directors, and

management team
Company news - analyst briefing report, latest news, press releases,
newsletter (if any)
Financial report - annual and quarterly reports, at least for the past two
(2) years
Disclosures - recent disclosures to PSE and SEC for the past two (2)
years
Investor FAQs - commonly asked questions of stockholders
Investor Contact - email address for feedback/ comments, shareholder
assistance and service
Stock Information - key figures, dividends, and stock information

MAIN BOARD
TRACK RECORD REQUIREMENTS
a. A cumulative consolidated earnings before interest, taxes, depreciation and
amortization (EBITDA), excluding non-recurring items, of at least P50 Million
for three (3) full fiscal years immediately preceding the application for listing;
b. A minimum EBITDA of P10 Million for each of the three (3) fiscal years; and
c. The applicant company must be engaged in materially the same business(es)
and must have a proven track record of management throughout the last
three (3) years prior to the filing of the application.
Exceptions to the 3-year track record requirement:
1. The Applicant Company has been operating for at least ten (10) years
prior to the filing of the
application and has a cumulative EBITDA of at least P50 Million for at least
two (2) of the three (3) fiscal years immediately preceding the filing of the
listing application;
2. The Applicant Company is a newly formed holding company which uses the
operational track record of its subsidiary. However, the newly formed holding
company is prohibited from divesting its shareholdings in the said subsidiary
for a period of three (3) years from the listing of its securities. The prohibition
shall not apply if a divestment plan is approved by majority of the Applicant
Company's stockholders.
MINIMUM CAPITAL REQUIREMENTS

Minimum authorized capital stock of P500M, of which, at least 25% is

subscribed and fully paid. At listing, the market capitalization of the Applicant
Company must be at least P500M.
MINIMUM NUMBER OF STOCKHOLDERS
Upon listing, at least 1,000 stockholders each owning stocks is equivalent to
at least one (1) board lot.
RESTRICTIONS
a. No divestment of shares in operating subsidiary - A newly formed holding
company which invokes the operational track record of its subsidiary to
qualify for the track record requirement of profitable operations, is prohibited
from divesting its shareholdings in the said subsidiary for a period of three (3)
years from the listing of its securities. The prohibition shall not apply if a
divestment plan is approved by majority of the Applicant Company's
stockholders.
b. No secondary offering for companies invoking exemption of track record and
operating history requirements, such as mining, petroleum and renewable
energy companies and newly formed holding companies during the initial
public offering.
LOCK-UP
An Applicant Company shall cause it existing stockholders who own an
equivalent of at least 10% of the issued and outstanding shares of stock of the
company to refrain from selling, assigning or in any manner disposing of their
shares for a period of:
1. One hundred eighty (180) days after the listing of said shares if the Applicant
Company meets the track record requirements; or
2. Three hundred sixty-five (365) days after listing of said shares if the Applicant
Company is exempt from the track record and operating history
requirements.
If there is any issuance or transfer of shares (i.e., private placements, asset
for shares swap or a similar transaction) or instruments which lead to issuance of
shares (i.e., convertible bonds, warrants or a similar instrument) done and fully paid
for within One hundred eighty (180) days prior to the start of the offering period, or,
prior to listing date in case of companies listing by way of introduction, and the
transaction price is lower than that of the offer price in the Initial Public Offering, or
listing price for a listing by way of introduction, all shares availed of shall be subject
to a lock-up period of at least Three hundred sixty-five (365) days from full payment
of the aforesaid shares.

The lock-up requirement shall be stated in the Articles of Incorporation of the

Applicant Company.

SME (SMALL AND MEDIUM-SIZED ENTERPRISES) BOARD

TRACK RECORDS REQUIREMENTS
a. A cumulative earnings before interest, taxes, depreciation and amortization
(EBITDA), excluding non-recurring items, of at least P15 Million for three (3)
fiscal years immediately preceding the application for listing;
b. A positive EBITDA was generated in at least two (2) of the last three (3) fiscal
years, including the fiscal year immediately preceding the filing of the
application; and
c. The Applicant Company must be engaged in materially the same business
and must have a proven track record of management throughout the last
three (3) years prior to the filing of the application for listing.
The Applicant Company shall demonstrate its stable financial condition and
prospects for continuing growth by providing a business plan indicating the steps
that have been taken and to be undertaken in order to advance its business over
a period of five (5) years.
As a general rule, financial projections are not required, but should there be
references made in the business plan to future profits or losses, or any other
item that would be construed to indicate forecasts, then the Applicant Company
is required to include financial projections in the business plan duly reviewed by
an independent accounting firm.
MINIMUM CAPITAL REQUIREMENT
Minimum authorized capital stock of P100M, of which, at least 25% is
subscribed and fully paid.
MINIMUM NUMBER OF SHAREHOLDERS
Upon listing, at least 200 stockholders each owning stocks is equivalent to at
least one (1) board lot.
RESTRICTIONS
a. No listing of holding, portfolio and passive income companies;
b. No change in primary purpose and/or secondary purpose for a period of
seven (7) years following its listing; and

c. No offering of secondary securities for companies exempt from the track

record and operating history requirements such as mining, petroleum and
renewable energy companies.
LOCK-UP
An Applicant Company shall cause its existing stockholders to refrain from
selling, assigning, encumbering or in any manner disposing of their shares for a
period of one (1) year after the listing of such shares.
If there is any issuance or transfer of shares (i.e., private placements, asset
for shares swap or a similar transaction) or instruments which lead to issuance of
shares (i.e., convertible bonds, warrants or a similar instrument) done and fully paid
for within six (6) months prior to the start of the offering period, or, prior to listing
date in case of companies listing by way of introduction, and the transaction price is
lower than that of the offer price in the initial public offering, or listing price for
listing by way of introduction, all shares subscribed or acquired shall be subject to a
lock-up period of at least one (1) year from listing of the aforesaid shares.
The lock-up requirement shall be stated in the Articles of Incorporation of the
Applicant Company.

Trading Rules and Regulation

Trading Day Schedule
o Trading Day and Non-Trading Day
Every day shall be a trading day except for Saturdays,
Sundays, legal Holidays, special holidays, days when
BangkoSentralngPilipinas(BSP) is closed and such other days
as may otherwise be declared by the SEC or the Exchange,
through its President or other duly authorized representative,
to be Non-Trading Day
o Trading Hours
The Exchange shall determine the hours and schedule of a
Trading Day. Unless the Exchange decides otherwise, a
Trading Day shall conform to the following schedule:

 Trading Floor
o Business Hours
Unless the Exchange decides otherwise, the Trading Floor(s)
shall be open from 8:00am to 5:00pm on a trading day
o Trading Booth
The Exchange shall provide and make available to all the
Trading Participants a trading booth in the Trading Floor(s).
The Exchange reserves the right to operate an electronic
trading environment without a Trading Floor.
o Terminals and Equipment in the Trading Booth
Every Trading Participant and its Salesmen/Traders and other
Trading Floor Personnel shall ensure that: a.) Computer
terminals and equipment installed in the trading booths
conform with the standards as set by the Exchange and,
b.)Only duly authorized personnel of the Trading Participant
have access thereto.
o Admission to the Trading Floor

Unless the Exchange authorizes otherwise, only the following

persons shall allowed to access to the Trading Floor when
open as provided:
a. Salesmen/Traders
b. Dealers
c. Trading Floor Assistant
d. Nominees
e. Trainees for a one-time, non-extendible period of six (6)
months and subject to provisions of SRC Rule 28.1 (4)
(a) and the following conditions:
i. A Salesman/Traders shall at all times must
supervise the trainees.
ii.
The Trainees shall not solicit clients or deal
directly to the clients.
iii.
The Trading Participant shall not pay the Trainees
any form of commission , salary or other
compensation, except for reasonable allowance
iv.
The Trading Participant shall immediately inform
in writing the Exchange of the hiring of the
Trainees and shall comply with all orders or
regulations of the Exchange in relation to such
hiring.
o Conduct in the trading floor
The following offenses are deemed to be detrimental to the
interest of the Exchange and are strictly prohibited in the
Trading Floor:
a. Bringing in food/drinks
b. Horse-playing
c. Bringing in animals
d. Non-compliance with the dress code as provided in this
Rule
e. Bringing in liquor
f. Being in the influence of liquor/drugs
g. Bringing in firecrackers, inflammable materials and
other pyrotechnics
h. Bringing in guns and other deadly weapons
i. Destroying and/ or vandalizing Exchange properties
j. Disrespect to the flag, and member of the Board of
Directors, Nominees of the Trading Participants or
Exchange Officers
k. Engaging in disruptive behavior
l. Immoral conduct or indecent acts, including sexual
harassment.

m. Stealing
n. Gambling
o. Smoking
p. Repetitive minor offenses
q. Answering calls when the national anthem is being
played.
Any personnel violating any of the above-mentioned
acts shall be subject to the penalties imposed by the
Exchange for such acts.
Any Trading Participant or its suly authorized
representative has the duty to exercise due care in
operating and using all equipment found at the
Trading Participants booth inside the Trading Floor.
The Exchange may impose a disciplinary sanction,
provided it is reasonable and appropriate under the
circumstances, if it is proven that the Trading
Participant concerned or any of its authorized
representatives caused the damage intentionally.
Acts deemed to be detrimental to the interests of the
Exchange are not limited by the foregoing
enumeration. The Exchange reserves the right to
take action for other acts or omissions not stated
above the impose penalties on the offender as may
be appropriate under circumstances.
o Dress Code/Hairstyle
Only accepted business attire such as suits, blazer,barong
(long or short sleeves) plain long-sleeved and short-sleeved
shirt with tie, or Exchange uniform shall be allowed in the
trading floor.
Wearing of sandals, shorts, sneakers, jeans, denims, shoes
without socks for men, athletic jacket, t-shirts, plunging
necklines, micro-mini skirts and other improper attire not
suitable during business hours are not allowed in the Trading
Floor.
Trading Participants Nominees are exempted from wearing
the Exchange-designated uniform. However, the Nominees
will be required to observe the above-mentioned acceptable
business attire.
o Identification Accounts/Cards/Passes

All trading Participants must use valid PSE Identification

Accounts/Cards/Passes (IDs). A valid ID is one which has been
issued officially by the PSE personnel connected with the
Trading Participant.
Issuance of PAM Account IDs
The Exchange will only grant terminal account IDs to
Trading Participants and Their Traders with Valid
Licenses issued by the SEC and who have been duly
certified by PSE to use the PAM.
Issuance of color coded PSE IDs
The following PSE IDs/passes shall be observed:
a. For Salesman/Traders and Dealers, ID Color is
Blue
b. For Trading Floor Assistants, ID color is Yellow
c. For Trainees, ID color is Green
d. For guest, ID/Pass color is Black
IDs for new floor personnel
A Trading Participant who hires new Trading Floor
personnel must apply to the Exchange for the
immediate issuance of a new PSE ID/pass to the
employee prior to his assignment to the Trading
Floor.
Unauthorized Use of ID Issued by the Exchange
Any person not connected with any Trading
Participant but who gains access to the Trading Floor
or to the Exchange Trading System by using the PSE
ID issued to him under the name of his previous
employee shall be banned permanently from the
Exchange..
Entry of Guests/trainees to the Trading Floor
A nominee may request for PSE ID/pass for purposes
of allowing entry to the Trading Floor by submitting a
letter-request to the MOD, whenever applicable, at
least one (1) day prior to the actual date of entry to
the Trading Floor.

Registration of Securities
1.

All securities required to be registered under Subsection 8.1 shall be

registered through the filing by the issuer in the main office of the

Commission, of a sworn registration statement with respect to such

securities, in such form and containing such information and documents as
the Commission shall prescribe.
2.

In promulgating rules governing the content of any registration statement

(including any prospectus made a part thereof or annexed thereto), the
Commission may require the registration statement to contain such
information or documents as it may, by rule, prescribe. It may dispense with
any such requirement, or may require additional information or documents,
including written information from an expert, depending on the necessity
thereof or their applicability to the class of securities sought to be
registered.

3.

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

4. The registration statement shall be signed by the issuers executive officer,

its principal operating officer, its principal financial officer, its comptroller,
principal accounting officer, its corporate secretary or persons performing
similar functions accompanied by a duly verified resolution of the board of
directors of the issuer corporation. The written consent of the expert named
as having certified any part of the registration statement or any document
used in connection therewith shall also be filed. Where the registration
statement includes shares to be sold by selling shareholders, a written
certification by such selling shareholders as to the accuracy of any part of
the registration statement contributed to by such selling shareholders shall
also be filed.
4.a)Upon filing of the registration statement, the issuer shall pay to the
Commission a fee of not more than one-tenth (1/10) of one per
centum (1%) of the maximum aggregate price at which such securities
are proposed to be offered. The Commission shall prescribe by rule
diminishing fees in inverse proportion to the value of the aggregate price
of the offering.

4.b) Notice of the filing of the registration statement shall be immediately

published by the issuer, at its own expense, in two(2) newspapers of
general circulation in the Philippines, once a week for two (2) consecutive
weeks, or in such other manner as the Commission by rule shall
prescribe, reciting that a registration statement for the sale of such
security has been filed, and that the aforesaid registration statement, as
well as the papers attached thereto are open to inspection at the
Commission during business hours, and copies thereof, photostatic or
otherwise, shall be furnished to interested parties at such reasonable
charge as the Commission may prescribe.
5.

Within forty-five (45) days after the date of filing of the registration
statement, or by such later date to which the issuer has consented, the
Commission shall declare the registration statement effective or rejected,
unless the applicant is allowed to amend the registration statement as
provided in Section 14 hereof. The Commission shall enter an order
declaring the registration statement to be effective if it finds that the
registration statement together with all the other papers and documents
attached thereto, is on its face complete and that the requirements have
been complied with. The Commission may impose such terms and
conditions as may be necessary or appropriate for the protection of the
investors.

6..

Upon effectivity of the registration statement, the issuer shall state under
oath in every prospectus that all registration requirements have been met
and that all information are true and correct as represented by the issuer
or the one making the statement. Any untrue statement of fact or omission
to state a material fact required to be stated therein or necessary to make
the statement therein not misleading shall constitute fraud.

Requirement in Registration of Securities

1.

Securities shall not be sold or offered for sale or distribution within the
Philippines, without a registration statement duly filed with and approved
by the Commission. Prior to such sale, information on the securities, in
such form and with such substance as the Commission may prescribe,
shall be made available to each prospective purchaser.

2.

The Commission may conditionally approve the registration statement

under such terms as it may deem necessary.

3.

The Commission may specify the terms and conditions under which any
written communication, including any summary prospectus, shall be
deemed not to constitute an offer for sale under this Section.

4.

A record of the registration of securities shall be kept in a Register of

Securities in which shall be recorded orders entered by the Commission
with respect to such securities. Such register and all documents or
information with respect to the securities registered therein shall be open
to public inspection at reasonable hours on business days.

5.

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

Exempt Securities
9.1.

The requirement of registration under Subsection 8.1 shall not as a

general rule apply to any of the following classes of securities:
a)

Any security issued or guaranteed by the Government of the

Philippines, or by any political subdivision or agency thereof, or
by any person controlled or supervised by, and acting as an
instrumentality of said Government.

b)

Any security issued or guaranteed by the government of any

country

with

which

the

Philippines

maintains

diplomatic

relations, or by any state, province or political subdivision

thereof

on

the

basis

of

reciprocity:

Provided,

That

the

Commission may require compliance with the form and content

of disclosures the Commission may prescribe.
c)

Certificates issued by a receiver or by a trustee in bankruptcy

duly approved by the proper adjudicatory body.

d)

Any security or its derivatives the sale or transfer of which, by

law, is under the supervision and regulation of the Office of the
Insurance Commission, Housing and Land Use Regulatory Board,
or the Bureau of Internal Revenue.

e)
9.2.

Any security issued by a bank except its own shares of stock.

The Commission may, by rule or regulation after public hearing, add to

the foregoing any class of securities if it finds that the enforcement of
this Code with respect to such securities is not necessary in the public
interest and for the protection of investors.

Securities and Exchange Commission (SEC)

Law, Rules and Regulations
The Securities and Exchange Commission (SEC) implemented Law, Rules and
Regulations in order to strengthen the corporate and capital market infrastructure
of the Philippines, and to maintain a regulatory system, based on international best
standards and practices, that promotes the interests of investors in a free, fair and
competitive business environment.

Law Implemented by SEC and its IRR

Corporation Code of the Philippines (Batas PambansaBlg. 68)

Securities Regulation Code (RA 8799)
Securitization Act of 2004 (RA 9267)
Real Estate Investment Trust Act of 2009 (R.A. 9856)
Lending Company Regulation Act of 2007 (RA 9474)
Credit Information System Act (R.A. 9510)
Investment Houses Law (PD 129 as amended)
Investment Company Act (RA 2629)

Rules of Procedure

The 2006 Rules of Procedure of the Securities and Exchange

Commission

Pursuant to the Securities Regulation Code (R.A. 8799), Corporation Code

of the Philippines (B.P. 68), Presidential Decree No. 902-A, as amended,
and other related laws, and in the interest of a just, speedy and
inexpensive resolution of disputes and complaints over which the SEC
has jurisdiction, the Commission hereby promulgates the following
rules of procedure to govern actions and proceedings before it.

Corporate Governance

Revised Code of Corporate Governance (posted on 15 July 2009)

Corporate Governance Scorecard Questionnaire (Zip) (posted on 24 August
2009)
Corporate Governance Scorecard Response (Zip) (posted on 24 August 2009)
Foreign Investments Act
R.A. 7042 also known as the Foreign Investments Act
R.A. 8179 also known as the Liberalize Foreign Investments Act
Personal Equity and Retirement Account Act
Amended Implementing Rules and Regulations of the Securities Regulation
Code - Signed version of the Amended IRR
Notice of Amendments to SRC Rules 68 and 68.1 (posted on 15 November
2005)

Implementing Rules and Regulations of Lending Company Regulation Act of

2007 (Republic Act 9474) (posted on 8/31/2007)
Implementing Rules and Regulations of The Securitization Act of 2004

(Republic Act No. 9267) (posted on 7/24/2005)

Rules and Regulation to Implement the Provisions of R.A. 8556 (The
Financing Company Act of 1998)
Implementing Rules and Regulations of the Special Purpose Vehicle (SPV)
Act of 2002 (Republic Act No. 9182)
Implementing Rules and Regulations Republic Act 9160 - Anti-Money
Laundering Act of 2001
Implementing Rules and Regulations of the Real Estate Investment Trust
(REIT) Act of 2009 (Draft as of 15 April 2010) (posted 19 April 2010)
ICA Rule 35-1 - The Investment Company Rule

Other Rules and Regulations Implemented by SEC

Rules Governing the Trading of PSE Shares - signed copy (posted on
6/14/2004)
Rules on Alternative Trading System
Omnibus Rules and Regulations for Investment Houses and Universal Banks
Registered

For investors, equity securities like shares of stock of a corporation and debt
securities like bonds, banknotes, and debentures can be good investing
opportunities to earn profit and increase their wealth. For companies, those
securities can be used to encourage more injection of money or capital into their
businesses. And for our government, the trading of securities in the market
requires regulation that will ensure the protection of everyone who participates
on it. That is why Republic Act No. 8799, known as The Securities Regulation
Code of the Philippines was enacted and approved on July 19, 2000. These are
regulations implemented in Republic Act No. 8799:

REPUBLIC OF THE PHILIPPINES

Congress of the Philippines
Metro Manila
Eleventh Congress
Third Special Session
Begun and held in Metro Manila, on Monday, the seventeenth day of July,
two thousand
[REPUBLIC ACT NO. 8799]
THE SECURITIES REGULATION CODE
Be it enacted by the Senate and House of Representatives of the Philippines in
Congress assembled:

TABLE OF CONTENTS
CHAPTER I - Title and Definitions
Sec. 2.Declaration of State Policy.
Sec. 3.Definition of Terms.
CHAPTER II - Securities and Exchange Commission
Sec. 4.Administrative Agency.
Sec. 5.Powers and Functions of the Commission.
Sec. 6.Indemnification and Responsibilities of Commissioners.
Sec. 7.Reorganization.
CHAPTER III - Registration of Securities
Sec. 8.Requirement of Registration of Securities.
Sec. 9. Exempt Securities
Sec. 10. Exempt Transactions.
Sec. 11.Commodity Futures Contracts.
Sec. 12.Procedure for Registration of Securities.
Sec. 13.Rejection and Revocation of Registration of Securities.
Sec. 14.Amendments to the Registration Statement.
Sec. 15.Suspension of Registration.
CHAPTER IV - Regulation of Pre-Need Plans
Sec. 16. Pre-Need Plans.
CHAPTER V - Reportorial Requirements
Sec. 17.Periodic and Other Reports of Issuers.
Sec. 18. Reports by Five per centum (5%) Holders of Equity Securities.
CHAPTER VI - Protection of Shareholder Interests
Sec. 19.Tender Offers.
Sec. 20.Proxy Solicitations.
Sec. 21.Fees for Tender Offers and Certain Proxy Solicitations.
Sec. 22.Internal Record Keeping and Accounting Controls
Sec. 23.Transactions of Directors, Officers and Principal Stockholders.
CHAPTER VII - Prohibitions on Fraud, Manipulation and Insider Trading
Sec. 24.Manipulation of Security Prices; Devices and Practices.
Sec. 25.Regulation of Option Trading.
Sec. 26.Fraudulent Transactions.
Sec. 27. Insiders Duty to Disclose When Trading.
CHAPTER VIII - Regulation of Securities Market Professional
Sec. 28.Registration of Brokers, Dealers, Salesmen and Associated Persons.
Sec. 29. Revocation, Refusal or Suspension of Registration of Brokers,
Dealers, Salesmen and Associated Persons.
Sec. 31. Development of Securities Market Professionals
CHAPTER IX - Exchanges and Other Securities Trading Markets

Sec. 32.Prohibition on Use of Unregistered Exchange; Regulation of Over-theCounter Markets.

Sec. 33.Registration of Exchanges.
Sec. 34. Segregation and Limitation of Functions of Members, Brokers and
Dealers
Sec. 35.Additional Fees of Exchanges.
Sec. 36.Powers with Respect to Exchanges and Other Trading Market.
Sec. 37.Registration of Innovative and Other Trading Markets.
Sec. 38.Independent Directors.
CHAPTER X - Registration, Responsibilities and Oversight of SelfRegulatory Organizations
Sec. 39.Associations of Securities Brokers, and Dealers, and Other Securities
Related Organizations.
Sec. 40.Powers with Respect to Self-Regulatory Organizations.
CHAPTER XI - Acquisition and Transfer of Securities and Settlement of
Transactions in Securities
Sec. 41.Prohibition on Use of Unregistered Clearing Agency.
Sec. 45.Pledging a Security or Interest Therein.
Sec. 42.Registration of Clearing Agencies.
Sec. 43.Uncertificated Securities.
Sec. 44.Evidentiary Value of Clearing Agency Record.
Sec. 46. Issuer's Responsibility for Wrongful Transfer to Registered Clearing
Agency
Sec. 47.Power of the Commission With Respect to Securities Ownership.
CHAPTER XII - Margin and Credit
Sec. 48.Margin Requirements.
Sec. 49.Restrictions on Borrowings by Members, Brokers, and Dealers.
Sec. 50. Enforcement of Margin Requirements and Restrictions on Borrowing
CHAPTER XIII - General Provisions
Sec. 51.Liabilities of Controlling Persons, Aider and Abettor and Other
Secondary Liability.
Sec. 52.Accounts and Records, Reports, Examination of Exchanges, Members,
and Others.
Sec. 53.Investigations, Injunctions and Prosecution of Offenses.
Sec. 54.Administrative Sanctions.
Sec. 55. Settlement Offers.
Sec. 56.Civil Liabilities on Account of False Registration Statement.
Sec. 57.Civil Liabilities Arising in Connection With Prospectus,
Communications and Reports.
Sec. 58. Civil Liability For Fraud in Connection With Securities Transactions.
Sec. 59 Civil Liability For Manipulation of Security Price.
Sec. 60. Civil Liability With Respect to Commodity Futures Contracts and Preneed Plans.
Sec. 61.Civil Liability on Account of Insider Trading.
Sec. 62.Limitation of Actions.
Sec. 63. Amount of Damages to be Awarded.

Sec.
Sec.
Sec.
Sec.

Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.
Sec.

64. Cease and Desist Order.

65.Substituted Service Upon the Commission.
66. Revelation of Information Filed with the Commission.
67.Effect of Action of Commission and Unlawful Representations with
Respect Thereto.
68.Special Accounting Rules.
69.Effect on Existing Law.
70.Judicial Review of Commission Order.
71.Validity of Contracts.
72.Rules and Regulations; Effectivity.
73.Penalties.
74.Transitory Provisions.
75.Partial use of Income.
76.Repealing Clause.
77.Separability Clause
78.Effectivity.

CHAPTER III
REGISTRATION OF SECURITIES
Section 8. Requirement of Registration of Securities. 8.1. Securities shall not be
sold or offered for sale or distribution within the Philippines, without a registration
statement duly filed with and approved by the Commission. Prior to such sale,
information on the securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each prospective purchaser.
8.2. The Commission may conditionally approve the registration statement under
such terms as it may deem necessary.
8.3. The Commission may specify the terms and conditions under which any written
communication, including any summary prospectus, shall be deemed not to
constitute an offer for sale under this Section.
8.4. A record of the registration of securities shall be kept in Register Securities in
which shall be recorded orders entered by the Commission with respect such
securities. Such register and all documents or information with the respect to the
securities registered therein shall be open to public inspection at reasonable hours
on business days.
8.5. The Commission may audit the financial statements, assets and other
information of firm applying for registration of its securities whenever it deems the
same necessary to insure full disclosure or to protect the interest of the investors
and the public in general.

Section 9. Exempt Securities. 9.1. The requirement of registration under

Subsection 8.1 shall not as a general rule apply to any of the following classes of
securities:
(a) Any security issued or guaranteed by the Government of the Philippines,
or by any political subdivision or agency thereof, or by any person controlled
or supervised by, and acting as an instrumentality of said Government.
(b) Any security issued or guaranteed by the government of any country with
which the Philippines maintains diplomatic relations, or by any state, province
or political subdivision thereof on the basis of reciprocity: Provided, That the
Commission may require compliance with the form and content for
disclosures the Commission may prescribe.
(c) Certificates issued by a receiver or by a trustee in bankruptcy duly
approved by the proper adjudicatory body.
(d) Any security or its derivatives the sale or transfer of which, by law, is
under the supervision and regulation of the Office of the Insurance
Commission, Housing and Land Use Rule Regulatory Board, or the Bureau of
Internal Revenue.
(e) Any security issued by a bank except its own shares of stock.
9.2. The Commission may, by rule or regulation after public hearing, add to the
foregoing any class of securities if it finds that the enforcement of this Code with
respect to such securities is not necessary in the public interest and for the
protection of investors.
Section 10. Exempt Transactions. 10.1. The requirement of registration under
Subsection 8.1 shall not apply to the sale of any security in any of the following
transactions:
(a) At any judicial sale, or sale by an executor, administrator, guardian or
receiver or trustee in insolvency or bankruptcy.
(b) By or for the account of a pledge holder, or mortgagee or any of a pledge
lien holder selling of offering for sale or delivery in the ordinary course of
business and not for the purpose of avoiding the provision of this Code, to
liquidate a bonafide debt, a security pledged in good faith as security for such
debt.
(c) An isolated transaction in which any security is sold, offered for sale,
subscription or delivery by the owner therefore, or by his representative for

the owners account, such sale or offer for sale or offer for sale, subscription
or delivery not being made in the course of repeated and successive
transaction of a like character by such owner, or on his account by such
representative and such owner or representative not being the underwriter of
such security.
(d) The distribution by a corporation actively engaged in the business
authorized by its articles of incorporation, of securities to its stockholders or
other security holders as a stock dividend or other distribution out of surplus.
(e) The sale of capital stock of a corporation to its own stockholders
exclusively, where no commission or other remuneration is paid or given
directly or indirectly in connection with the sale of such capital stock.
(f) The issuance of bonds or notes secured by mortgage upon real estate or
tangible personal property, when the entire mortgage together with all the
bonds or notes secured thereby are sold to a single purchaser at a single
sale.
(g) The issue and delivery of any security in exchange for any other security
of the same issuer pursuant to a right of conversion entitling the holder of the
security surrendered in exchange to make such conversion:Provided, That the
security so surrendered has been registered under this Code or was, when
sold, exempt from the provision of this Code, and that the security issued and
delivered in exchange, if sold at the conversion price, would at the time of
such conversion fall within the class of securities entitled to registration
under this Code. Upon such conversion the par value of the security
surrendered in such exchange shall be deemed the price at which the
securities issued and delivered in such exchange are sold.
(h) Brokers transaction, executed upon customers orders, on any registered
Exchange or other trading market.
(i) Subscriptions for shares of the capitals stocks of a corporation prior to the
incorporation thereof or in pursuance of an increase in its authorized capital
stocks under the Corporation Code, when no expense is incurred, or no
commission, compensation or remuneration is paid or given in connection
with the sale or disposition of such securities, and only when the purpose for
soliciting, giving or taking of such subscription is to comply with the
requirements of such law as to the percentage of the capital stock of a
corporation which should be subscribed before it can be registered and duly
incorporated, or its authorized, capital increase.

(j) The exchange of securities by the issuer with the existing security holders
exclusively, where no commission or other remuneration is paid or given
directly or indirectly for soliciting such exchange.
(k) The sale of securities by an issuer to fewer than twenty (20) persons in
the Philippines during any twelve-month period.
(l) The sale of securities to any number of the following qualified buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement plan maintained by the Government of
the Philippines or any political subdivision thereof or manage by a bank
or other persons authorized by the BangkoSentral to engage in trust
functions;
(v) Investment company or;
(vi) Such other person as the Commission may rule by determine as
qualified buyers, on the basis of such factors as financial
sophistication, net worth, knowledge, and experience in financial and
business matters, or amount of assets under management.
10.2. The Commission may exempt other transactions, if it finds that the
requirements of registration under this Code is not necessary in the public interest
or for the protection of the investors such as by the reason of the small amount
involved or the limited character of the public offering.
10.3. Any person applying for an exemption under this Section, shall file with the
Commission a notice identifying the exemption relied upon on such form and at
such time as the Commission by the rule may prescribe and with such notice shall
pay to the Commission fee equivalent to one-tenth (1/10) of one percent (1%) of the
maximum value aggregate price or issued value of the securities.
Section 11. Commodity Futures Contracts. - No person shall offer, sell or enter into
commodity futures contracts except in accordance with the rules, regulations and
orders the Commission may prescribe in the public interest. The Commission shall
promulgate rules and regulations involving commodity futures contracts to protect
investors to ensure the development of a fair and transparent commodities market.

Section 12. Procedure of Registration Securities. - 12.1. All securities required to

be registered under Subsection 8. I shall be registered through the filing by the
issuer in the main office of the Commission, of a sworn registration statement with
the respect to such securities, in such form and containing such information and
document as the Commission prescribe. The registration statement shall include
any prospectus required or permitted to be delivered under Subsections 8.2, 8.3,
and 8.4.
12.2. In promulgating rules governing the content of any registration statement
(including any prospectus made a part thereof or annex thereto), the Commission
may require the registration statement to contain such information or documents as
it may, by rule, prescribe. It may dispense with any such requirements, or may
require additional information or documents, including written information from an
expert, depending on the necessity thereof or their applicability to the class of
securities sought to be registered.
12.3. The information required for the registration of any kind, and all securities,
shall include, among others, the effect of the securities issue on ownership, on the
mix of ownership, especially foreign and local ownership.
12.4. The registration statement shall be signed by the issuers executive officer, its
principal operating officer, its principal financial officer, its comptroller, its principal
accounting officer, its corporate secretary, or persons performing similar functions
accompanied by a duly verified resolution of the board of directors of the issuer
corporation. The written consent of the expert named as having certified any part of
the registration statement or any document used in connection therewith shall also
be filed. Where the registration statement shares to be sold by selling shareholders,
a written certification by such selling shareholders as to the accuracy of any part of
the registration statement contributed to by such selling shareholders shall be filed.
12.5. (a) Upon filing of the registration statement, the issuer shall pay to the
Commission a fee of not more than one-tenth (1/10) of one per centum (1%) of the
maximum aggregate price at which such securities are proposed to be offered. The
Commission shall prescribe by the rule diminishing fees in inverse proportion the
value of the aggregate price of the offering.
(b) Notice of the filing of the registration statement shall be immediately
published by the issuer, at its own expense, in two (2) newspapers of general
circulation in the Philippines, once a week for two (2) consecutive weeks, or in
such other manner as the Commission by the rule shall prescribe, reciting
that a registration statement for the sale of such securities has been filed,
and that aforesaid registration statement, as well as the papers attached
thereto are open to inspection at the Commission during business hours, and

copies thereof, photostatic or otherwise, shall be furnished to interested

parties at such reasonable charge as the Commission may prescribe.
12.6. Within forty-five (45) days after the date of filing of the registration statement,
or by such later date to which the issuer has consented, the Commission shall
declare the registration statement effective or rejected, unless the applicant is
allowed to amend the registration statement as provided in Section 14 hereof. The
Commission shall enter an order declaring the registration statement to be effective
if it finds that the registration statement together with all the other papers and
documents attached thereto, is on its face complete and that the requirements have
been complied with. The Commission may impose such terms and conditions as
may be necessary or appropriate for the protection of the investors.
12.7. Upon affectivity of the registration statement, the issuer shall state under oath
in every prospectus that all registration requirements have been met and that all
information are true and correct as represented by the issuer or the one making the
statement. Any untrue statement of fact or omission to state a material fact
required to be stated herein or necessary to make the statement therein not
misleading shall constitute fraud.
Section 13. Rejection and Revocation of Registration of Securities. 13.1. The
Commission may reject a registration statement and refuse registration of the
security there-under, or revoke the affectivity of a registration statement and the
registration of the security there-under after the due notice and hearing by issuing
an order to such effect, setting forth its finding in respect thereto, if it finds that:
(a) The issuer:
(i) Has been judicially declared insolvent;
(ii) Has violated any of the provision of this Code, the rules promulgate
pursuant thereto, or any order of the Commission of which the issuer
has notice in connection with the offering for which a registration
statement has been filed
(iii) Has been or is engaged or is about to engage in fraudulent
transactions;
(iv) Has made any false or misleading representation of material facts
in any prospectus concerning the issuer or its securities;
(v) Has failed to comply with any requirements that the Commission
may impose as a condition for registration of the security for which the
registration statement has been filed; or

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

material respect or includes any untrue statements of a material fact required
to be stated therein or necessary to make the statement therein not
misleading; or
(c) The issuer, any officer, director or controlling person performing similar
functions, or any under writer has been convicted, by a competent judicial or
administrative body, upon plea of guilty, or otherwise, of an offense involving
moral turpitude and /or fraud or is enjoined or restrained by the Commission
or other competent or administrative body for violations of securities,
commodities, and other related laws.
For the purposes of this subsection, the term "competent judicial or administrative
body" shall include a foreign court of competent jurisdiction as provided for under
Rules of Court.
13.2. The Commission may compel the production of all the books and papers of
such issuer, and may administer oaths to, and examine the officers of such the
issuer or any other person connected therewith as to its business and affairs.
13.3. If any issuer shall refuse to permit an examination to be made by the
Commission, its refusal shall be ground for the refusal or revocation of the
registration of its securities.
13.4. If the Commission deems its necessary, it may issue an order suspending the
offer and sale of the securities pending any investigation. The order shall state the
grounds for taking such action, but such order of suspension although binding upon
the persons notified thereof, shall be deemed confidential, and shall not be
published. Upon the issuance of the suspension order, no further offer or sale of
such security shall be made until the same is lifted or set aside by the Commission.
Otherwise, such sale shall be void.
13.5. Notice of issuance of such order shall be given to the issuer and every dealer
and broker who shall have notified the Commission of an intention to sell such
security.
13.6. A registration statement may be withdrawn by the issuer only with the
consent of the Commission.
Section 14. Amendment to the Registration Statement. 14.1. If a registration
statement is on its face incomplete or inaccurate in any material respect, the
Commission shall issue an order directing the amendment of the registration
statement. Upon compliance with such order, the amended registration statement

shall become effective in accordance with the procedure mentioned in Subsection

12.6 hereof.
14.2. An amendment filed prior to the effective date of the registration statement
shall recommence the forty-five (45) day period within which the Commission shall
act on a registration statement. An amendment filed after the effective date of the
registration statement shall become effective only upon such date as determined by
the Commission.
14.3. If any change occurs in the facts set forth in a registration statement, the
issuer shall file an amendment thereto setting forth the change.
14.4. If, at any time, the Commission finds that the registration statement contains
any false statement or omits to state any fact required to be stated therein or
necessary to make the statements therein not misleading, the Commission may
conduct an examination, and, after due notice and hearing, issue an order
suspending the affectivity registration statement. If the statement is duly amended,
the suspension order may be lifted.
14.5. In making such examination the Commission or any officer or officers
designated by it may administer oaths and affirmations and shall have access to,
and may demand the production of, any books, records or documents relevant to
the examination. Failure of the issuer, underwriter, or any other person to
cooperate, or his obstruction or refusal to undergo an examination, shall be a
ground for the issuance of a suspension order.
Section 15. Suspension of Registration. - 15.1. If at any time, the information
contained in the registration statement filed is or has become misleading, incorrect,
inadequate or incomplete in any material respect, or the sale or offering for sale of
the security registered thereunder may work or tend to work a fraud, the
Commission may require from the issuer such further information as may in its
judgement be necessary to enable the Commission to ascertain whether the
registration of such security should be revoked on any ground specified in this Code.
The Commission may also suspend the right to sell and offer for the sale such
security pending further investigation, by entering an order specifying the grounds
for such action, and by notifying the issuer, underwriter, dealer or broker known as
participating in such offering.
15.2. The refusal to furnish information required by the Commission may be a
ground for the issuance of an order of suspension pursuant to Subsection 15.1.
Upon the issuance of any such order and notification to the issuer, underwriter,
dealer or broken know as participating in such offering, no further offer or sale of
any such security shall be made until the same is lifted or set aside by the
Commission. Otherwise such sale shall be void.

15.3. Upon issuance of an order of suspension, the Commission shall conduct a

hearing. If the Commission determines that the sale of any security should be
revoked is shall issue an order prohibiting sale of such security.
15.4. Until the issuance of a final order, the suspension of the right to sell, though
binding upon the persons notified thereof, shall be deemed confidential, and shall
not be published, unless it shall appear that the order of suspension has been
violated after notice. If, however, the Commission finds that the sale of the security
will neither be fraudulent nor result in fraud, it shall forthwith issue an order
revoking the order of suspension, and such security shall be restored to its status as
a registered security as of the date of such order of suspension.