Securities Specialist Course Lecture

THE PHILIPPINE STOCK EXCHANGE, INC.
Securities Regulation Code

Content & Coverage

Securities Regulation and SEC
Definition of Securities
Registration of Securities
Reportorial Requirements
Protection of shareholder interests
Regulation of Securities Market Professionals
Exchanges and Other Securities Trading Markets
Securities Regulation
State Policy
Objectives:

promote the development of the capital market

protect investors

ensure full and fair disclosure about securities

minimize, if not totally eliminate, insider trading and
other fraudulent or manipulative practices

Who administers the Securities
Regulation Code?

the Securities and Exchange
Commission

Composition

1 Chairperson
4 Commissioners
Securities and Exchange Commission
Composition
Regulatory Investigatory Rule-/Policy-Making
Supervise all corporations,
partnerships and
associations who are
grantees of primary
franchises and/or license
Conduct investigations to
determine whether any
person has violated or is
about to violate the SRC or
its implementing rules.

Formulate policies and
recommendations on
issues concerning the
securities market

Suspend/revoke certificate
of registration

Issue cease and desist
orders to prevent
fraud/injury to the
investing public

Propose legislation
regarding the securities
market and amendments
thereto

Approve/reject/suspend/
revoke/require
amendments to RS and
licensing applications

Punish for direct and
indirect contempt of the
SEC

Prepare, approve, amend
or repeal rules, regulations
and orders, and provide
guidance thereon

Powers & Functions
Regulatory Investigatory Rule-/Policy-Making
Supervise, monitor, suspend
or take over the activities of
exchanges, clearing agencies
and other SROs

Issue subpoena duces
tecum and summon
witnesses. In appropriate
cases, order search and
seizure of all documents of
any entity or person under
investigation

Regulate or supervise the
activities of securities market
professionals

Impose sanctions for the
violation of SRC,
implementing rules and
regulations and SEC orders

Powers & Functions
Cases formerly under SECs jurisdiction
Fraud and misrepresentation
Intra-corporate controversies
Stockholder vs. stockholder
Stockholder(s) vs. corporation
Corporation vs. State
Election contests
title or claim to any elective office in a corporation
validation of proxies
manner and validity of elections
qualifications of candidates
Powers & Functions
Overlapping of Jurisdiction: SEC vs. RTC

GSIS vs. Court of Appeals (April 2009) - Regulation of proxies:

Proxies for election of directors RTC (even if it involved
alleged violation of the SEC rules on proxy solicitation)

Proxies for matters unrelated to the cases enumerated in
Section 5 of PD 902-A, the SEC has the power to investigate
violations of the rule on proxy solicitation.

Powers & Functions
Departments & Offices
MSRD Functions
Registers, monitors and supervises Exchanges and
other trading markets, SROs, clearing agencies, transfer
agents
Monitors and supervises brokers, dealers, and their
associated persons and salespersons, investment
houses
Registers securities
Reviews the existing regulatory framework and
proposes necessary reforms
Establishes linkages with national and international
organizations regarding the securities market

CGFD Functions

Monitors and supervises compliance by covered
entities with corporate governance rules and
recommends measures to promote corporate
governance

Reviews activities of financial conglomerates

EIPD Functions

Monitors and supervises compliance by issuers and
all market participants with legal and regulatory
requirements
Takes appropriate enforcement action for infraction
of the SRC and relevant rules
Administers programs for the protection of
shareholders
CRMD Functions

Registers corporations and partnerships

Processes applications for amendment of articles
of incorporation/partnership, by-laws, mergers

Handles petitions for correction and revocation of
articles of incorporation and by-laws and their
amendments

Content & Coverage

Securities
Definition

shares, participation or
interests in a corporation or
in a commercial enterprise
or profit-making venture
and evidenced by a
certificate, contract,
instrument, whether
written or electronic in
character.

Includes:
Shares of stock
Common
preferred

Debt
Bonds
Debentures
Notes
Evidences of indebtedness
Asset-backed securities

Securities
Definition
Investment contracts
a person invests his money in a common enterprise
and is led to expect profits primarily from the efforts
of others

Certificates of interest or participation in a profit sharing
agreement

Certificates of deposit for a future subscription

Securities
Definition
Derivatives
financial instrument whose value changes in response to
the change in a specified security price or similar
underlying factor

Types:
1. Options
right to buy (call option) or sell (put option) an
underlying security at a predetermined exercise/strike
price on or before a predetermined expiry date

2. Warrants
rights to subscribe or purchase new shares or existing
shares in a company on or before the expiry date

Securities
Definition
Proprietary membership certificates in corporations
entitles the holder to enjoy the use of a specific
property, dividends or earnings of the company,
and to proportionate ownership right over its
assets upon liquidation

Non-proprietary share or certificate
entitles the holder to the use of the property but
not to dividends or assets of the company upon
liquidation

Securities
Definition

Fractional undivided interests in oil, gas or other
mineral rights

Trust certificates, voting trust certificates or similar
instruments

Other instruments as may in the future be
determined by the SEC

Securities
Definition
Content & Coverage

Section 8, SRC

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.

Objective: Ensure full disclosure for the benefit of
investors.

Full Disclosure vs. Merit-Based Registration

Merit-based Full disclosure
SEC looks into the merit of the
securities to be sold to the public (e.g.
compliance with min. financial ratios)
SEC does not pass upon judgment on
the investment merit of an issue but
leaves it to the investor to make a
decision on whether or not to buy the
shares.
No standards regarding the extent,
manner or nature of disclosures
Issuer must provide adequate and
accurate disclosure of material facts
concerning it and the securities it
offers.
Issue: lack of equality of access to
information
Objective: To ensure that investors are
equipped with all the necessary
material information upon which to
base their investment decisions.
REGISTRATION STATEMENT UNDER THE SECURITIES REGULATION CODE

1. SEC Identification Number ................................
2. .Exact name of registrant as specified in its charter .

3. ................................................................. 4.
Province, country or other jurisdiction BIR Tax Identification Number
of incorporation or organization

5. ..........................................................................................
General character of business of registrant.

6. Industry Classification Code: (SEC Use Only)

7. ..........................................................................................
Address, including postal code, telephone number, FAX number including area code, of registrant's principal offices

8. ..........................................................................................
If registrant is not resident in the Philippines, or its principal business is outside the Philippines, state name and address
including postal code, telephone number and FAX number, including area code, and email address of resident agent in
the Philippines.

9. Fiscal Year Ending Date (Month and Day) : .................................
SEC Form 12-1
Information required to be included in the RS

Name of the issuer

Terms of the offer including:
Description and amount of securities offered
Public offering price
Where the securities will be traded (exchange or over-
the-counter);

Name(s) of the underwriter(s)

Date of the prospectus

Contents of RS/Prospectus
A statement in bold face 12 point type that:

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE AND SHOULD BE REPORTED IMMEDIATELY TO
THE SECURITIES AND EXCHANGE COMMISSION.

Number of shares offered by current stockholders

Total number of shares outstanding after the offering


Total proceeds raised by the offering

Brief description of use of proceeds from the offering

Underwriters' fees

Dividend policy

Address and telephone number of the company's
principal office.

Table of Contents

Brief description of the company's business

Summary paragraph or key points characterizing the risks of the
offering under the caption Risks of Investing

Summary financial information in tabular or graphic form which
is useful to potential investors, including but not limited to:
Abbreviated income statement data for prior 2 years
Abbreviated balance sheet data for the prior 2 years

Glossary which defines all technical terms used in the
prospectus


The following statement in bold face 12-point type in the case of a preliminary
prospectus:

A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BEEN DECLARED
EFFECTIVE. NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF
THE PURCHASE PRICE CAN BE ACCEPTED OR RECEIVED UNTIL THE REGISTRATION
STATEMENT HAS BECOME EFFECTIVE, AND ANY SUCH OFFER MAY BE WITHDRAWN
OR REVOKED, WITHOUT OBLIGATION OF COMMITMENT OF ANY KIND, AT ANY TIME
PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE. AN
INDICATION OF INTEREST IN RESPONSE HERETO INVOLVES NO OBLIGATION OR
COMMITMENT OF ANY KIND. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICATION OF AN OFFER TO BUY.

In the case of a prospectus that has become effective, the following statement in bold
face 12-point type and signed by the president under oath:

ALL REGISTRATION REQUIREMENTS HAVE BEEN MET AND ALL INFORMATION
CONTAINED HEREIN IS TRUE AND CURRENT.


1

Risk Factors and Other Information

Use of Proceeds

Determination of Offering Price

Dilution

Selling Security Holders

Plan of Distribution

Description of Securities to be Registered

Interests of Named Experts and Independent
Counsel

Information with Respect to the Registrant
Description of Business
Description of Property
Legal Proceedings
Market Price and Dividends
Management's Discussion and Analysis or Plan of
Operation
Changes in and Disagreements With Accountants On
Accounting and Financial Disclosure

Directors, Executive Officers, Promoters and Control
Persons
Executive Compensation
Security Ownership of Certain Record and Beneficial
Owners and Management
Certain Relationships and Related Transactions

Financial Information

Other Expenses of Issuance and Distribution

Exhibits

Signature of the issuers:
executive officer
principal operating officer
principal financial officer
comptroller
principal accounting officer
corporate secretary

Accompanied by:
duly verified resolution of the Board of Directors
written consent of the expert who certified any part of the registration
statement
Where the registration statement includes shares to be sold by selling
shareholders, a written certification by such shareholders as to the
accuracy of any part of the registration statement contributed to by
such selling shareholders

Securities that are exempt from registration requirement

Government securities
issued or guaranteed by the Government of the Philippines, or its
political subdivision, instrumentality or agency
issued or guaranteed by the government of any country with which the
Philippines maintains diplomatic relations on the basis of reciprocity

Certificates issued by a receiver or by a trustee in bankruptcy duly approved
by the proper adjudicatory body

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,
HLURB, or the BIR

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

Exempt Securities
Sales of securities that are exempt from the registration
requirement

any judicial sale, or sale by an executor, administrator,
guardian or receiver or trustee in insolvency or bankruptcy

Sale by or for the account of a pledge holder, or mortgagee or
any other similar lien holder to liquidate a bona fide debt

An isolated transaction in which any security is sold or offered
for sale by its owner or representative, such sale or offer for
sale not being made in the course of repeated and successive
transactions and such owner or representative not being the
underwriter of such security

Exempt Transactions
Distribution by a corporation of securities to its
stockholders or other security holders as a stock dividend

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

Issuance of bonds or notes, secured by mortgage upon real
estate or tangible personal property, to a single purchaser
at a single sale

Exempt Transactions
Issue of any security in exchange for any other security of the same
issuer pursuant to a right of conversion.

Brokers transactions, executed upon customers orders, on any
registered Exchange or other trading market.

Subscriptions for shares of the capital stock of a corporation prior to
the incorporation thereof or in pursuance of an increase in its
authorized capital stock, provided:
no expense is incurred in connection with the sale of such
securities, and
the only purpose of such subscription is to comply with the
requirement of law as to the minimum percentage of capital
stock that must be subscribed

Exempt Transactions
Exchange of securities by the issuer with its existing security
holders exclusively, where no commission or other
remuneration is paid or given directly or indirectly for
soliciting such exchange.

Sale of securities by an issuer to fewer than 20 persons in the
Philippines during any 12-month period.

Sale of securities to any number of the following qualified
buyers:
Bank
Registered investment house

Exempt Transactions
Insurance company
Pension fund or retirement plan
maintained by the government or
managed by a bank or other persons
authorized by the BSP to engage in trust
functions
Investment company
Such other person as the SEC may
determine as qualified buyers

Exempt Transactions
SEC Memorandum Circular No. 6, s. 2007

Qualified individual buyer
Natural person who, at the time of registration, has the following
qualifications:
Minimum annual gross income of Php25M for at least 2 years
prior to registration or total portfolio investment of at least
Php10M or personal net worth of at least Php30M; and

Has been engaged in securities trading for at least 1 year or
held, for at least 2 years, a position of responsibility in an entity
that requires knowledge of securities trading (e.g. financial
adviser, salesman of a broker, trust officer of a bank)
Exempt Transactions
SEC Memorandum Circular No. 6, s. 2007

Qualified institutional buyer
Juridical person that has any of the following
qualifications:
Minimum annual gross income of Php100M
for at least 2 years prior to registration
Total portfolio investment of at least Php60M
Net worth of at least Php100M

Exempt Transactions
Notice of Exemption (SEC Form 10-1)

Sale of securities to fewer than 20 persons

Sale to qualified buyers

Exempt Transactions
File a sworn registration statement and
prospectus in the main office of the SEC
Pay a fee of not more than 1/10 of 1% of the
maximum aggregate price of the offering
Publish a notice of the filing of the
registration statement in 2 newspapers of
general circulation once a week for 2
consecutive weeks
Procedure for Registration
Grounds

Issuer has been judicially declared insolvent

Issuer has violated the Securities Regulation Code, its implementing
rules and regulations, or any order of the SEC in connection with the
offering for which a registration statement has been filed

Issuer has been or is engaged or is about to engage in fraudulent
transactions

Issuer has made any false or misleading representation of material
facts in any prospectus

Rejection and Revocation of Registration
Issuer has failed to comply with any requirement imposed
by the SEC as a condition for registration of the security

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

The issuer or any of its officers, directors or controlling
persons or underwriter has been convicted of an offense
involving moral turpitude and/or fraud or is enjoined or
restrained by the SEC or other competent judicial or
administrative body for violations of securities,
commodities, and other related laws.

Rejection and Revocation of Registration
When is amendment of the registration statement
necessary?

a registration statement or a prospectus filed with the
SEC becomes incomplete or inaccurate in any material
respect

The issuer wants to change any material information
therein
Amendments to the Registration Statement
Material Information

Any event which increases or creates a risk on the
investments or on the securities covered by the
registration

Increase/decrease in the volume of the securities being
offered

Increase/decrease in the issue price range disclosed in the
registration statement

Major change in the primary business of the registrant
Reorganization of the company

Change in the work program or use of proceeds

Loss, deterioration or substitution of the property
underlying the securities

10% or more change in the financial condition or results of
operation of the registrant

Classification, de-classification or re-classification of
securities which results to derogation of rights of existing
security holders
Grounds

Information contained in the registration
statement is or becomes misleading,
incorrect, inadequate or incomplete in any
material respect

the sale or offering for sale of the registered
security may work or tend to work a fraud

Suspension of Registration

Grounds

The registration statement contains, on its effectivity,
an untrue statement of a material fact

The registration statement omits to state a material
fact required to be stated therein or necessary to
make the statements therein not misleading

Civil Liabilities on Account of False
Registration Statement

Who may sue for damages?

Any person acquiring a security who suffers
damage on account of the false registration
statement.

Persons liable

The issuer and every person who signed the registration
statement

The directors of, or partner in, the issuer at the time of the
filing of the registration statement

Every person named in the registration statement as being
or about to become a director of, or a partner in, the issuer
and whose written consent is filed with the registration
statement

Auditor or auditing firm named as having certified any
financial statements used

Every person named as having prepared or certified
any part of the registration statement

Every selling shareholder who certified as to the
accuracy of a portion of the registration statement,
with respect to that portion of the registration
statement contributed by him

Every underwriter

Content & Coverage

Periodic and Other Reports of Issuers
Companies required to file reports (Reporting
Companies)

Issuer which has sold a class of registered securities

Issuer with a class of securities listed for trading on an
Exchange

Issuer with assets of at least P50M and 200 or more
stockholders, each holding at least 100 shares

Required Reports

1. Annual Report (SEC Form 17-A)
filed within 105 calendar days after the
end of the fiscal year
Simultaneously filed with the Exchange if
any class of the issuers securities are listed
in a stock exchange
Contents of Annual Report

Business and General Information
Business
Properties
Legal Proceedings
Matters submitted to a vote of stockholders

Operational and Financial Information
Market for Issuer's Common Equity
Management's Discussion and Analysis or Plan of
Operation
Financial Statements
Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure

Control and Compensation Information
Directors and Executive Officers
Executive Compensation
Security Ownership of Certain Beneficial Owners and
Management
Certain Relationships and Related Transactions

Corporate Governance

Exhibits

Reports on SEC Form 17-C that were filed during the last 6
months

2. Quarterly Report (SEC Form 17-Q)
filed within 45 days after the end of each
quarter
Simultaneously filed with the Exchange if
any class of the issuers securities are
listed in a stock exchange
Contents of Quarterly Report

Financial Information
Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations

Other Information
any information not previously reported in SEC
Form 17-C
3. Current Report (SEC Form 17-C)
if the issuer is listed on an Exchange, filed
with that Exchange within 10 minutes after
occurrence of the event and prior to its
release to the public through the news
media, copy furnished the SEC
filed with the SEC within 5 days after
occurrence of the event being reported

Contents of Current Report

every material fact or event that occurs, which
would reasonably be expected to affect
investors' decisions in relation to those
securities

clarification of a news report involving an
alleged material event
Reportable Events

1. Changes in control of Issuer
2. Acquisition or disposition of assets
3. Changes in Issuer's certifying accountant
4. Resignation, removal or election of directors or
officers
5. Legal proceedings
6. Changes in securities

7. Defaults upon senior securities
8. Change in fiscal year
9. Other events
e.g. changes in the issuers corporate purpose,
declaration of dividend, merger, consolidation or
spin-off, fines of more than Php50,000 and/or
other penalties

10. Fraud and error
11. Financial statements and exhibits


1. Reports by 5% holders of equity securities (SEC Form 18-A)

Who are required to file

persons who acquire, directly or indirectly, the beneficial ownership of
more than 5% of equity securities of Reporting Companies

When to file

within ten (10) days after acquisition

Where to file

SEC
Exchange where the security is traded
Issuer

Reports of Certain Security Holders
Beneficial Owner

any person who has voting power (i.e., power to
vote or to direct the voting) and/or investment
power (i.e., power to dispose or to direct the
disposition)

Indirect beneficial ownership

A person is deemed to have an indirect beneficial
ownership interest in any security which is:

held by members of his immediate family sharing the
same household
held by a partnership in which he is a general partner
held by a corporation of which he is a controlling
shareholder
subject to any contract, arrangement or understanding
which gives him voting power or investment power
Contents of SEC Form 18-A

Security and Issuer
Identity and Background
name
Address
Conviction in a criminal proceeding, if any, in the
last 5 years
Any judgment in a civil proceeding enjoining or
limiting his involvement in any business
citizenship


Purpose of transaction
Interest in securities of the Issuer
Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the Issuer
Exhibits
2. Transactions of Directors, Officers and Principal Stockholders

A. Initial Statement of Beneficial Ownership of Securities (SEC Form 23-A)

Who are required to file

Principal stockholders (i.e., beneficial owners, direct or indirect, of more than
10% of any class of any equity security) of Reporting Companies
Directors and Officers of Reporting Companies

When to file

Within 10 days after he becomes such a beneficial owner, director, or officer

Where to file

SEC
Exchange, if security is listed for trading in such exchange


B. Statement of Changes In Beneficial Ownership
of Securities (SEC Form 23-B)

When to file

Within 10 days after the close of each calendar
month, if there has been a change in beneficial
ownership during such month

Contents of SEC Form 23-A and 23-B

Security and Issuer
Identity and Background
Purpose of Transaction
Interest in Securities of the Issuer
Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the Issuer
Exhibits

Content & Coverage

Protection of Shareholder Interests
Tender Offer

Tender Offer

a publicly announced intention by a person to
acquire equity securities of a public company.

Objective

To give the minority shareholders the chance to
exit the company under reasonable terms
(i.e., opportunity to sell their shares at the
same price as those of the majority
shareholders)
Tender Offer

Public Company

any corporation with a class of equity securities
listed on an Exchange

corporation with assets in excess of Php50M and
having 200 or more stockholders, at least 200 of
which are holding at least 100 shares of a class of
its equity securities
Tender Offer
Mandatory Tender Offer

1. Any person or group of persons acting in
concert intends to acquire 35% or more of
equity shares in a public company

tender offer for the percent sought to all
holders of such class.
Tender Offer

2. Any person or group of persons acting in
concert intends to acquire 35% or more of
equity shares in a public company in one or
more transactions within a 12-month period

tender offer to all holders of such class for
the number of shares so acquired within
the said period.
Tender Offer

3. Any acquisition of even less than 35% if such
acquisition would result in ownership of over
51% of the total outstanding equity securities
of a public company.

tender offer for all the outstanding equity
securities to all remaining stockholders of
the said company
Tender Offer
CEMCO Holdings, Inc. vs. National Life Insurance
Company of the Philippines (August 2007)

The mandatory tender offer rule covers not only
direct acquisition but also indirect acquisition or
any type of acquisition.

Tender Offer
BCI Atlas Cement CEMCO
(21.31%) (29.69%) (9%)

Union Cement Holdings Corp. CEMCO National Life Insurance
(60.51%) (17.03%)

Union Cement Corp.

Tender Offer Report (SEC Form 19-1)

The identity of the bidder and his/its present
occupation
identity of the target company
amount of securities being sought and the type and
amount of consideration being offered
scheduled expiration date of the tender offer
exact dates when security holders who tender will have
the right to withdraw their securities
confirmation by the bidders financial adviser that
bidder has sufficient resources to satisfy full
acceptance of the offer
Tender Offer
Exemptions from the Mandatory Tender Offer Requirement

1. Purchase of shares from the unissued capital stock if the
acquisition will not result to a 50% or more ownership of
shares

2. Purchase of shares from an increase in authorized capital
stock

3.Purchase in connection with foreclosure proceedings
involving a duly constituted pledge or security where the
acquirer is the debtor or creditor
Tender Offer
4. Purchases in connection with privatization undertaken
by the Government of the Philippines

5. Purchases in connection with court-supervised
corporate rehabilitation

6. Purchases through an open market at the prevailing
market price

7. Merger or consolidation
Tender Offer
Issuer Tender Offer / Issuer Buy Back

A publicly announced intention by an issuer to
reacquire any of its own class of equity securities,
or by an affiliate of such issuer to acquire such
securities.

Allowed, subject to the following conditions:
Issuer has sufficient unrestricted retained
earnings

Tender Offer
Buy back is for any of the following
purposes:
to implement a stock option plan
to meet short-term obligations which
can be settled by the re-issuance of the
repurchased shares
to pay dissenting or withdrawing
stockholders
other legitimate corporate purpose/s

Tender Offer
Transactions exempt from the rules on Issuer
Tender Offer

1. Calls for redemption of any security in
accordance with the terms and conditions of its
governing instruments

2. Offers to repurchase securities evidenced by a
certificate or similar document which represents
a fractional interest in a share of stock or similar
security
Tender Offer
Penalty for violation

SEC may nullify the purchase, upon complaint

SEC may direct the holding of a tender offer

Tender Offer
Manipulative Practices
Section 2, SRC

Declaration of State Policy.
minimize if not totally
eliminate insider trading and
other fraudulent or
manipulative devices and
practices which create
distortions in the free
market.

Manipulative Practices
What constitutes
manipulative practice?

Creation of a false or
misleading appearance of
active trading in any listed
security or with respect to
the market for, or the price
of such security.
Market Manipulation
Examples
Painting the tape

Engaging in a series of
transactions in securities that
are reported publicly to give
the impression of activity or
price movement in a security.

E.g.

1. Brokers agree to buy and
sell blocks of XYZ shares
among themselves.

2. Client places a buy order for
100 XYZ shares. Broker places
20 separate orders at intervals
of 5 stocks.

Marking the close

Buying and selling securities at
the close of the market in an
effort to alter the closing price
of the security.

E.g.

Market Manipulation
Examples
Name Bid Ask L/T
XYZ 300 302 300
100
BUY
Stock: XYZ
Price : 600
Vol : 500
BUY
Stock: XYZ
Price : 310
Vol : 10,000

Improper matched orders
Buy and sell orders are
entered at the same time
with the same price and
quantity by different but
colluding parties.
E.g.

Market Manipulation
Examples
100
BUY
Stock: XYZ
Price : 900
Vol : 500
110
SELL
Stock: XYZ
Price : 900
Vol : 500
Hype and dump

Buying at increasingly
higher prices and then
selling securities in the
market at the higher
prices or vice-versa.

E.g.

Market Manipulation
Examples
100
BUY
Stock: XYZ
Price : 320
Vol : 1500
BUY
Stock: XYZ
Price : 350
Vol : 2000
SELL
Stock: XYZ
Price : 370
Vol : 3500

Wash sales

Engaging in transactions in
which there is no genuine
change in actual
ownership of a security.
E.g.

Market Manipulation
Examples
Buy 100
XYZ
shares
Sell 100
XYZ
shares

Squeezing the float

Taking advantage of a shortage of securities in the
market by controlling the demand side and exploiting
market congestion during such shortages in a way as
to create artificial prices

Market Manipulation
Examples

Disseminating false or
misleading market
information through
media, including the
internet, or any other
means to move the price
of a security in a direction
that is favorable to a
position held or a
transaction

Market Manipulation
Examples
Sec. 59, SRC

Any person who willfully participates in any
manipulative practice shall be liable for damages to any
person who shall purchase or sell any security at a price
affected by such manipulative act or transaction.

Market Manipulation
Civil Liability for Manipulation of Security Prices
Insider Trading
Definition of an Insider
Who are insiders

Issuer
director or officer or a person controlling the issuer
a person whose relationship or former relationship to
the issuer gives or gave him access to material non-
public information about the issuer or the security
a government employee, or a director or officer of an
exchange, clearing agency and/or self-regulatory
organization who has access to material non-public
information about an issuer or a security
a person who learns such information by a
communication from any of the foregoing insiders

Material non-public information

Information that:
has not been generally disclosed to the public; and
would likely affect the market price of the security
after dissemination to the public and the lapse of a
reasonable time for the market to absorb the
information; or
would be considered by a reasonable person
important under the circumstances in determining
whether to buy, sell or hold a security.

Insider Trading
Definition of an Insider

1. Trading while in possession of material non-public
information

General Rule:

It is unlawful for an insider to sell or buy a security of the issuer
while in possession of material non-public information about
the issuer or the security.

Presumption: A purchase or sale made by an insider or his spouse or relatives by affinity
or consanguinity within the second degree, legitimate or common-law, shall be presumed
to have been effected while in possession of material non-public information if transacted
after such information came into existence but prior to its dissemination to the public and
the lapse of a reasonable time for the market to absorb such information.

Insider Trading
Prohibitions
Exceptions:

The insider proves that the information was not
gained from such relationship

The insider proves that:
he disclosed the information to the other party, or
he had reason to believe that the other party
otherwise is also in possession of the information

Insider Trading
Prohibitions

2. Communicating material non-public
information about the issuer or the security to
any person if the insider knows or has reason
to believe that such person will likely buy or
sell a security of the issuer while in possession
of such information.

Insider Trading
Prohibitions

3. Where a tender offer has commenced or is about to commence

Purchase or sale of security subject of the tender offer by any
person (other than the bidder) who is in possession of material
non-public information relating to the tender offer, if such person
knows or has reason to believe that the information is non-public
and has been acquired directly or indirectly from the bidder, those
acting on its behalf, the issuer of the subject securities, or any
insider of such issuer

Communication by the bidder, those acting on its behalf, the issuer
of the subject securities, and any insider of such issuer of material
non-public information relating to the tender offer to any other
person, where such communication is likely to result in a violation
of the rules.

Insider Trading
Prohibitions

Any insider purchases or sells a security while in
possession of material non-public information shall be
liable to any investor who contemporaneously purchased
or sold securities of the same class.

Defenses:
Investor knew the information
Investor would have purchased or sold at the same
price regardless of disclosure of the information to him

Market Manipulation
Civil Liability for Insider Trading
Short swing profit rule

Any profit realized by a beneficial owner,
director, or officer from any purchase and sale,
or any sale and purchase, of any equity security
within any period of less than 6 months, by
reason of his relationship to the issuer, shall be
recoverable by the issuer.

Insider Trading
Short Swing Profits Rule
Exceptions:

The security was acquired in good faith in connection
with a debt previously contracted

such beneficial owner was not such both at the time of
the purchase and sale, or the sale and purchase, of the
security involved

any transaction or transactions which the SEC may
exempt

Insider Trading
Short Swing Profits Rule
Content & Coverage

Registration of Securities Market
Professionals
Legal Basis

Section 28, SRC

No person shall engage in
the business of buying or
selling securities in the
Philippines as a broker or
dealer, or act as a salesman,
or an associated person of
any broker or dealer unless
registered as such with the
Commission.

Who are the securities market professionals?

1. Brokers and dealers

2. Salesmen

3. Associated Persons

Registration of Securities Market
Professionals
Brokers and Dealers
Definition

What is a broker?

A person engaged in the
business of buying and
selling securities for the
account of others

What is a dealer?

A person who buys and
sells securities for his/her
own account in the
ordinary course of
business

1. Broker only

2. Dealer Only

3. Broker-Dealer

4. Exchange Trading
Participant Engaged in
Market Making

5. Exchange Trading
Participant Not
Engaged in Market
Making

6. Non-exchange Trading
Participant

Brokers and Dealers
Types
Application for Registration as a
Broker Dealer
SEC FORM 28 BD/28-BDA
APPLICANTS/BROKER DEALERS NAME:___________________________________________________________
DATE: ____________________________________________ Firm T.I.N ___________________________

SEC FORM 28 BD/28-BDA
APPLICATION FOR REGISTRATION AS A BROKER DEALER
AND AMENDMENTS THERETO

NEW APPLICATION
AMENDMENTS This amendment pertains to items
_____________________________________________________

1. Check the applicable boxes:

Broker Dealer

To deal only with:
Equity Securities Proprietary Shares
Fixed Income/Debt Securities Non-Proprietary Shares
Licensed as Government Securities Eligible Dealers (GSED)

Exchange Trading Participant
(Exchange Member)
Clearing Trading Participant Non-Clearing Trading
Participant
Plans to or Engages in Market Making Transactions

Non-Exchange Broker Dealer
(Non-Exchange Member)
Operating a Seat for an Exchange Member
Using Trading Rights of an Exchange Member

What are the requirements
for registration?

1. Unimpaired paid-up
capital:

1
st
time registrants and
successor broker dealers
P100M

Existing broker dealers
P30M + 12M surety bond

Dealers only P2.5M
Brokers and Dealers
General Conditions for Registration
Brokers and Dealers
General Conditions for Registration

2. Registration of branch office

3. At least one trained and
registered salesman at each
registered branch office

4. at least one registered
Associated Person

5. Sufficient number of back
office staff at the main office

6. Computerized and effective
recording and accounting
system

7. Separate bank accounts for
client funds and firm funds

Exchange TPs
Conditions for Registration
In addition to the general terms and
conditions for registration of broker
dealers, what are the conditions for
registration of Exchange TPs?

1. Membership in good standing in
an Exchange.

2. Participation in a trust fund
accredited by SEC.

3. If participant in a clearing agency,
contribution to the guarantee fund.

Section 28.2, SRC

No registered broker or
dealer shall employ any
salesman or any
associated person, and no
issuer shall employ any
salesman, who is not
registered as such with
the Commission.
Registration of Salesmen and
Associated Persons
Legal Basis
Salesmen and Associated Persons
Definition

What is a Salesman?

A natural person
employed by a Broker
Dealer to buy and sell
securities
Salesman

What are the requirements for registration of
salesman?

1. Application for registration verified under oath
by the employing Broker Dealer

2. At least 18 years old

2. No disciplinary history that would subject him
to disqualification from registration

3. For first time applicants
Must have passed the exam in the last 3
years preceding the application

4. If an applicant is a foreigner, certified true copy
of valid work permit duly issued by DOLE or any
appropriate agency
Application for Registration as Salesman
of a Broker Dealer
SEC FORM 28-S/28-AMD
SEC FORM 28-S/28-AMD
APPLICATION FOR REGISTRATION AS A SALESMAN OF A BROKER DEALER

NEW APPLICATION : [ ] First Time Registrant
[ ] Transferee/Change in Employer
[ ] Returnee (please indicate date of last license) _____________________________

AMENDMENTS This amendment pertains to items _____________________________________________

[ ] Change in Information
[ ] Correction/Completion of Deficiency

Type Of Employer

[ ] Broker Dealer in [ ] Equity Securities [ ] Fixed Income/Debt Securities [ ] Proprietary Shares [ ] Non-Proprietary
Shares [ ] GSED

[ ] Others (please specify) __________________________________________________________________________

Registered salesman shall apply for issuance of annual
license in November of each year.
Salesman
Associated Person
Definition

What is an Associated Person?

An employee of the Broker
Dealer responsible for
internal control supervision
of other employees, agents,
salesmen, officers, directors,
clerks and stockholders of
the Broker Dealer for
compliance with the SRC

What are the requirements for
registration as AP?

1. Application for registration verified
under oath by the employing Broker
Dealer

2. Natural person

3. At least 21 years old

4. Must not have been censured by a
regulatory body or dismissed for
negligence, incompetence or
mismanagement, or dismissed

5. If an applicant is a foreigner, certified
true copy of valid work permit duly
issued by DOLE or any appropriate
agency

Associated Person
Application for Registration as an
Associated Person
SEC FORM 28-AP/28-AMD
APPLICANTS/ BROKER DEALERS NAME:_______________________________________________________________________

DATE: ____________________________________________ Firm T.I.N ________________________________________

SEC FORM 28-AP/28-AMD
APPLICATION FOR REGISTRATION AS AN ASSOCIATED PERSON OF A BROKER DEALER
NEW APPLICATION : [ ] First Time Registrant
[ ] Transferee/Change in Employer
[ ] Returnee (please indicate date of last license) ______________________________________

AMENDMENTS This amendment pertains to items _________________________________________________________

[ ] Change in Information
[ ] Correction/Completion of Deficiency
Type Of Employer

[ ] Broker Dealer in [ ] Equity Securities [ ] Fixed Income/Debt Securities [ ] Proprietary Shares [ ] Non-Proprietary Shares [
] GSED

[ ] Others (please specify) ___________________________________________________________________________________
1. Supervise and provide trainings to other employees,
agents, salesmen, officers, directors, clerks and
stockholders of the Broker Dealer for compliance with
the SRC and related rules and regulations;

2. Oversee compliance with legislative and other regulatory;

3. Ensure that all salesmen of the Broker Dealer are
registered and that the SEC is notified when any
salesman is no longer employed by the Broker
Dealer;

Associated Person
Duties of an Associated Person
4. Develop procedures and monitor compliance with financial
resource requirements on a daily basis ;

5. Ensure that there is an audit trail which enables compliance
with applicable laws, Exchange, clearing agency and other
SRO rules;

6. Maintain a supervisory system; and

7. Maintain a logbook of all material non-compliance reports
with the appropriate notation of the action taken by
management on the said occurrences.

Associated Person
Duties of an Associated Person
Regulation of Securities Market
Professionals
Regulatory Authority

Which entity regulates
securities market
professionals?

SEC
SRO of which it is a member
Transactions of Broker Dealers
Affiliated Transactions

Section 30.1, SRC (Broker/Director Rule)

No broker or dealer shall deal in or otherwise buy or sell, for its own
account or for the account of customers, securities listed on an
Exchange issued by any corporation where any stockholder, director,
associated person or salesman, or authorized clerk of said broker or
dealer and all the relatives of the foregoing within the fourth civil
degree of consanguinity or affinity, is at the time holding office in said
issuer corporation as a director, president, vice-president, manager,
treasurer, comptroller, secretary or any office of trust and
responsibility, or is a controlling person of the issuer.

Rationale: Affiliation between brokers and listed companies gives rise
to opportunities for insider trading.

Transactions of Broker Dealers
Monitoring of Affiliated Transactions

How does the SEC monitor compliance
with Sec. 30.1?

1. Every Broker Dealer must request its
stockholders, directors, AP, salesmen
and authorized clerks to submit to it
an executed copy of SEC Form 30.1
under oath.

2. If any of the foregoing holds an
executive position or any position of
trust and responsibility in a listed
company, broker shall submit SEC
Form 30.1 and indicate the
restricted security.

3. Broker Dealer must update the
information contained in this
Form by filing SEC Form 30.1-
AMD no later than 24 hours of
such changes.
Affiliated Transactions Monitoring
Sheet
SEC FORM 30.1/30.1-AMD
NAME OF PERSON REPORTING: _____________________ Date:
_______________
NAME OF RELATED BROKER DEALER: ________________________
Firm T.I.N.: _____________________

SEC FORM 30.1/30.1-AMD
AFFILIATED TRANSACTIONS MONITORING SHEET

NEW
AMENDMENTS This amendment pertains to items: _____________

Check the applicable boxes:

The person accomplishing this Form is a:

[ ] stockholder of a Broker Dealer
[ ] director of a Broker Dealer
[ ] partner in a Broker Dealer Firm
[ ] owner of a Broker Dealer Firm
[ ] associated person of a Broker Dealer
[ ] registered salesman of a Broker Dealer
[ ] authorized clerk of a Broker Dealer

(1) LAST NAME JR./SR., etc. FIRST NAME MIDDLE NAME
(2) OTHER NAMES KNOWN BY
(3) CIVIL STATUS
[ ] single [ ] married
(4) Is your spouse or relative by consanguinity or affinity within the fourth civil degree, a director of a
company listed on a stock exchange, or an affiliate/subsidiary of a company listed on a stock exchange?
[ ] yes [ ] no
(5) Is your spouse or relative by consanguinity or affinity within the fourth civil degree, a president of
accompany listed on a stock exchange, or an affiliate/ subsidiary of a company listed on a stock
exchange?
[ ] yes [ ] no
(6) Is your spouse or relative by consanguinity or affinity within the fourth civil degree, a manager of a
[ ] yes [ ] no
(7) Is your spouse or relative by consanguinity or affinity within the fourth civil degree, a treasurer of a
[ ] yes [ ] no
(8) Is your spouse or relative by consanguinity or affinity within the fourth civil degree, a comptroller of a
[ ] yes [ ] no
(9) Is your spouse or relative by consanguinity or affinity within the fourth civil degree, in an office of trust
and responsibility in a company listed on a stock exchange, or an affiliate/subsidiary of a company listed
on a stock exchange (e.g. as part of their responsibilities they have access to material non-public
information about the company, such as in-house counsel, accountants)?
[ ] yes [ ] no
(10) If you answered yes to any of the questions above, please state the name of the listed
company/affiliate/subsidiary, and the nature of the affiliation in the space provided.
RESTRICTED SECURITY NATURE OF AFFILIATION
Report by Broker Dealers on
Restricted Transactions
SEC REPORT 30.1/30.1-AMD

Name of Broker Dealer: ______________ Date: ___________

SEC REPORT 30.1/30.1-AMD
REPORT BY BROKER DEALERS ON RESTRICTED TRANSACTIONS
NEW
AMENDMENTS This amendment pertains to _____________.

WARNING: Failure to keep this form current and to file accurate supplementary information on a timely
basis, or the failure to keep accurate books and records or otherwise to comply with the Securities
Regulation Code and rules and regulations adopted thereunder may result in disciplinary,
administrative, injunctive or criminal action.

INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACTS MAY CONSTITUTE CRIMINAL VIOLATIONS.

(1) Is the person reporting on this form an associated person?

[ ] yes [ ] no

(2) If the answer to the preceding question is no, please give the full name of the person reporting and the
position occupied in the Firm.

Name: ___________________________
Position: ___________________________

(3) State all securities the Broker Dealer is prohibited from dealing in, purchasing or selling, by virtue of section
30.1 of the Securities Regulation Code, in accordance with the information contained in SEC Form 30.1
(Affiliated Transactions Monitoring Sheet). If the space below is insufficient, please use another sheet of
paper and attach hereto.

Restricted Security Details of Affiliation
Responsibilities of Broker Dealers
Ethical Standards Rule
SRC Rule 30.2

Every Broker Dealer, AP, and salesman of a Broker
Dealer, in the conduct of his business, shall
observe high standards of commercial honor and
just and equitable principles of trade.
IOSCO Standards

1. Observe ethical standards
in its dealings with clients

1. Honesty and fairness

2. Diligence

3. Capabilities

4. Client information
gathering

5.Dissemination of information

6. Absence of conflict of
interest

7. Compliance with regulatory
requirements
Confirmation of Customer Orders

2. Send confirmation of
customer orders

Written confirmation of
purchases and sales

By courier, fax or e-mail

Trader confirms to investor

Order Entry

Confirmation of Customer Orders

Investor
places BUY
order
Broker
transmits
buy order to
the PSE
PSE executes
order and sends
order
confirmation to
broker
Broker
transmits buy
order to the
PSE
Investor
places BUY
order
Broker sends
order
confirmation
to investor
Broker sends
order
confirmation
to investor
Client Agreement

3. Enter into a written Client Agreement

Before providing service
In a language understood by the
client
Contents explained to client:
a. Full name & address of the client
and Broker Dealer
b. Description of the nature of
services to be provided
c. Remuneration
d. Details of margin requirements,
interest charges, and margin calls, if
margin or short selling facilities will
be provided
e. Whether account is a discretionary
account

Suitability Rule

4. Observe suitability rule

Ensure that the
recommendation is suitable
for the customer on the basis
of the facts disclosed by such
customer as to his financial
situation and other security
holdings

Brokers Commissions and Charges

5. File a schedule of minimum commission rates with the SEC
No discounts and/or rebates on the minimum rates.

Supervision

6. Establish a compliance
function within the firm

independent of all operational
and business functions
performed by the Associated
Person, who shall:
maintain a supervisory
system
file with SEC, w/in 15 days
after the end of each
quarter, a Compliance
Report on the firms
compliance or non-
compliance with the SRC
Segregation of Broker and Dealer Functions

SRC Rule 34.1, par. 1.A

An Exchange Trading Participant shall not effect any transaction
on such Exchange for its own account, the account of an
associated person, salesmen, or any other person associated
with the TP, including affiliated persons, or an account with
respect to which it exercises investment discretion unless it
complies with the Customer First policy.

Segregation of Brokers and Dealer
Functions
Customer First Policy

Objective: To avoid front-running

Under the PSE Trading Rules:
a trader handling client accounts shall be separate from a
trader handling proprietary accounts; and
Broker must maintain Chinese walls to ensure proper
segregation of broker and dealer functions.

Segregation of Functions

Chinese Walls
Policies and procedures implemented within a firm to
prevent flow of information between the different units
of the firm.
Information refers to material non-public information

Rule is applicable to brokers which assume more than
one function (e.g. As a dealer, adviser, underwriter or
market maker)

Objective: To avoid conflict of interest.

Accounts, Records, and Reports
of Broker Dealers
Records Retention Rule
Retention Period

5 years

Blotters itemized daily record
of all purchases and sales,
receipts and deliveries of
securities and cash, and all other
debits and credits.

Ledgers reflecting all assets and
liabilities, income, expense, and
capital accounts

Audited financial reports

3 years

Ledger reflecting separately for
each security all long or short
positions carried by the Broker
Dealer for his account or for
the account of customers

Memorandum of each order
and any other instruction given
or received for the purchase or
sale of securities, whether
executed or unexecuted.
Accounts, Records, and Reports
of Broker Dealers

Trial balances and record of
computation of aggregate
indebtedness and net capital

Check books, bank statements,
cancelled checks, and cash
reconciliations

Bills receivable or payable, paid or
unpaid

Communications received and sent by
the Broker Dealer, including inter-
office memoranda

For Broker Dealers who cease
operation

at least 5 years from approval by
the SEC of cessation of operations

For closed accounts

at least 5 years after closing of the
account

If money laundering, criminal, or
administrative cases have been filed in
court or investigation is being
conducted,

beyond the 5-year period until it is
confirmed by final judgment that
the case has been finally resolved
or terminated.

Brokers and Dealers
Audited Financial Reports
Annual Audited Financial Reports of Broker Dealers

Statement of Financial Condition
Statement of Income
Statement of Cash Flows
Statement of Changes in Stockholders or Partners or Sole Proprietors Equity
Statement of Changes in Liabilities Subordinated to Claims of General
Creditors
Computation of Net Capital
Statement of Managements Responsibility
Information Relating to Possession or Control requirements
Computation for Determination of Reserve Requirements
Report of material inadequacies found to have existed since date of previous
audit
Results of Quarterly Securities Count

Customer Account
Information (CAIF Rule)

Objective

To verify and record the true and full identity of its customers.

Anonymous accounts and accounts under fictitious names are
prohibited.

Broker Dealer cannot create new accounts without a face-to-face
meeting.

Broker Dealer is allowed to maintain numbered accounts, provided
the Broker Dealer keeps on file the name of the customer and a written
statement signed by the customer that he owns the account.

Customer Account
Information
Retail accounts
Customers name, address, nationality, date and place of birth
Customers TIN, SSS or GSIS number
Occupation of customer and contact details of employer
Whether the customer is employed by or associated with
another Broker Dealer
Whether the customer is an officer or director of a listed
company
Investment objective
Information concerning the customers financial situation
Source of funds
Customer Account
Information

Institutional accounts

AOI/Articles of Partnership and By-laws
Secretarys Certificate of Board Resolution authorizing the opening of
the account with the Broker Dealer
List of directors/partners
List of stockholders owning at least 2% of the capital stock
Verification of the authority and identification of the clients
representative
Financial information
Investment objective

Institutional Account account of:

Bank

Insurance company

Registered investment company

Pension fund/retirement plan maintained by GRP or managed by a bank or other
persons authorized to engage in trust functions

Registered investment house

Any other entity (whether a natural person, corporation, partnership, trust) with
total assets of at least P1.2B provided the entity confirms ownership of such assets
under oath.

Customer Account
Information
Customer Account
Information
Additional requirements for discretionary accounts

Signature of each person authorized to exercise discretion in
the account

Date of grant of discretion

Order Ticket Rule
For each buy and sell order
Contents:

Whether the transaction will be matched through the Exchange trading
system or transacted as a block sale
Whether the firm is acting as agent or principal in connection with the
transaction
Time of receipt of the customers order and transmission to the trading
floor
Terms and conditions of the order or instruction, including a notation if
the order is a short sale
Any subsequent modification or cancellation
Name of the customer for which the order was entered
Name of the salesman who took the order
Price at which it was executed
Whether the order was solicited or unsolicited

Customer Account Statements
General Rule
Statement of account indicating the customers securities
positions, money balances, and account activity must be sent
not less than monthly.

Exceptions
Inactive accounts statements may be sent on a quarterly
basis
Dormant accounts clients cash and security positions shall be
turned over to SEC for safekeeping, to be escheated in favor of
the government after 10 years.
If, after 3 attempts, mails/registry cards are returned for failure
to locate the customers whereabouts broker is excused from
sending account statements.

Anti-Money Laundering

Anti-Money Laundering Act of 2001

"Covered institution" refers to:

xxx xxx xxx

(3) securities dealers, brokers, salesmen, investment
houses and other similar entities managing securities
or rendering services as investment agent, advisor, or
consultant;

Covered Transactions

Covered Transaction - transaction in cash or other
equivalent monetary instrument involving a
total amount in excess of P500,000.00 within 1
banking day

Reporting obligation is triggered when a
matched trade exceeds P500,000.00

165
Trading
101
BUY
Stock: XYZ
Price : 905
Vol : 1000
XYZ
BID OFFER
Bkr Vol PhP PhP Vol Bkr
905 1000 121 145 500 900
101 1000 895
110 1500 890
100 500 900
915 10000 123
920 5000 123
905 10 110
Matching will be at the limit price or better.
XYZ
BID OFFER
905 1000 121
915 10000 123
920 5000 123
905 10 110
145 500 900
101 1000 895
110 1500 890
100 500 900
101 1000 905
XYZ
BID OFFER
145 500 900
101 1000 895
110 1500 890
100 500 900
915 10000 123
920 5000 123
905 10 110
Trade:
XYZ 1000 @PhP 905 B101 S121
The trade value for this transaction will be P905,000.
Scenario 1:
166
Trading
120
SELL
Stock: XYZ
Price : 895
Vol : 2500
Matching will be at the limit price or better.
XYZ
BID OFFER
145 500 900
101 1000 895
110 1500 890
100 500 900
915 10000 123
920 5000 123
905 10 110
Following are the trade values:
#1 500 @ P900 = P450,000 #3 1000 @ P895 = P895,000
#2 500 @ P900 = P450,000

Scenario 2:
XYZ
BID OFFER
145 500 900
101 1000 895
110 1500 890
100 500 900
915 10000 123
920 5000 123
905 10 110
895 2500 120
XYZ
BID OFFER
123 700 890
110 1500 890
100 530 885
915 10000 123
920 5000 123
905 10 110
895 500 120
1 XYZ 500 @P 900 B145 S120
2 XYZ 500 @P 900 B100 S120
3 XYZ 1000 @ P 895 B101 S120
Suspicious Transaction - transaction with a covered institution,
regardless of the amount involved, where any of the following
circumstances exist:

1.no underlying legal or trade obligation, purpose or economic
justification;

2. client is not properly identified;

3. amount involved is not commensurate with the business or
financial capacity of the client;

Suspicious Transactions

4. taking into account all known circumstances, it may be perceived that
the client's transaction is structured in order to avoid being the subject of
reporting requirements under the AMLA;

5. any circumstances relating to the transaction which is observed to
deviate from the profile of the client and/or the client's past transactions
with the covered institution;

6. the transactions is in a way related to an unlawful activity or offense
under the AMLA that is about to be, is being or has been committed; and

7. any transaction similar or analogous to any of the foregoing.

Suspicious Transactions

Obligations of Broker Dealers
Duties of Broker Dealers under the AMLA

Customer identification
Record-keeping
Existing accounts - 5 years from the dates of transactions
closed accounts - 5 years from closing of the account.
Reporting of Covered and Suspicious Transactions
Report to the AMLC all covered and suspicious transactions
within 5 working days from occurrence
Formulate Anti-Money Laundering Operating Manual
Comply with a freeze order issued by the CA

Freezing of Monetary Instrument or Property

Issued by the CA upon verified ex parte petition by AMLC
Only when there is probable cause that any monetary
instrument or property is related to an unlawful activity shall
not exceed 6 months
Ipso facto lifted if no case is filed within the freeze order
period
Only the SC may issue a TRO or injunction against the freeze
order
Freeze Order
Content & Coverage

Exchanges and Other Trading Markets
Prohibition on Use of Unregistered Exchanges
Prohibited Acts

1. Making use of any facility of an unregistered
Exchange to effect any transaction in a security,
or to report such transaction.

2. Creation or operation of any trading market for
the buying and selling of any security, other than
on a registered Exchange.


Organized as a stock corporation
Engaged solely in the business of operating an
exchange
No person beneficially owns or controls, directly or
indirectly, more than 5% of the voting rights of the
Exchange
No industry or business group beneficially owns or
controls, directly or indirectly, more than 20% of the
voting rights of the Exchange

Registration of Exchanges
Brokers in the board of the Exchange comprises of not
more than 49% of such board
At least 51% of the remaining members of the board is
comprised of 3 independent directors and persons
representing the interests of issuers, investors, and
other market participants not associated with any
broker or dealer for 2 years prior to his/her
appointment
The President and other management of the Exchange
consists only of persons who are not brokers and are
not associated in any capacity, directly or indirectly,
with any broker or dealer or listed company of the
Exchange


Procedure for expulsion, suspension, or
disciplining of a member and persons associated
with a member for conduct or proceeding
inconsistent with just and equitable principles of
fair trade

Transparent, prompt and accurate clearance and
settlement of transactions effected on the
Exchange

Powers of SEC

1. Summarily suspend trading in any listed security
for a period not exceeding 30 days

1. With the approval of the President of the
Philippines, summarily suspend all trading on
any securities Exchange or other trading market
for a period of more than 30 but not exceeding
90 days

Power of SEC over Exchanges
Self-Regulatory Organizations

An organized Exchange, registered clearing
agency or any organization or association
mandated to make and enforce its own rules,
which have been approved by the SEC
Powers of an SRO
Powers and functions of an SRO-licensed Exchange

Adopt, amend and repeal rules and provide interpretative
guidance to aid in compliance.

Approve or reject applications for new listing of shares,
suspension and de-listing of listed issues ,and imposition of
sanctions on listed companies for violation of SRO rules

Establish an independent audit, compliance and
surveillance office
Powers of an SRO
Monitor market conditions and trading activity to
detect violations of the securities law and SRO rules

Monitor compliance by listed companies with
continuing listing obligations

Examine members to determine compliance with the
securities law and SRO rules

Investigate suspected violations of the securities law
and SRO rules
Powers of an SRO
Powers of SEC over an SRO

Suspend for a period not exceeding 12 months or
revoke the registration of an SRO for violation of the
SRC or SRO Rules, or failure to enforce compliance
therewith

Take over the activities of an SRO

Remove from office or censure any officer or director
of the SRO
Powers of an SRO
Thank You.

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Securities Specialist Course Lecture

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Securities Regulation Code

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