SECURITIES REGULATION CODE
See Yujuico
Objectives of SRC
1. Protect investors from unsound and
unworthy securities (WHY? Because its
so easy to create a corporation)
2. Prevent fly-by-night corporations (quick
operators)
3. Insider information that can affect the
decision-making of the market
(corporate knowledge or sensitive
information that is not available to the
market)
4. To have only one securities market
(Philippine Stock Exchange)
Sec. 2 of SRC
Disclosure Approach
If you want to sell securities, it must go
through the Registration Process,
whereby one should disclose
information pertaining to the securities
that are going to be offered to the
market, in order to make such
information available to the market.
SEC has the authority to compel the
detailed disclosure of the business
(information that cannot be seen in the
Articles of Incorporation).
The SEC sees to it that the reports are
updated, that the provisions against
fraud are in place, and that brokers or
dealers of securities are accredited by
the SEC.
There is a change in SEC jurisdiction.
vs. Quiambao case, GR No. 168639, 29 January
2007
See GSIS vs. CA case, GR No. 183905, 16 April
2009
Sec. 5.2, SRC
Sec. 5 (a), (b), (c), Presidential Decree 902-A
(SEC Reorganization Act of 1976)
If a corporate officer / director (of
whose position and name are reflected
in or stated by the Articles of
Incorporation and corporate By-Laws) is
dismissed, the dismissal case is
cognizable by the RTC (and not the
NLRC).
The relationship of the trustee or officer
with the corporation AND the kind of
dispute are taken in consideration, in
order to determine which among the
NLRC or regular courts of justice has the
jurisdiction over the case.
See Yujuico vs. Quiambao case, GR No.
168639, 29 January 2007 In
appropriate cases, the RTC can go to
such extent of giving adequate reliefs
in order to fully address the issue of the
case and to completely accord the
reliefs prayed for. The RTC has
jurisdiction over the Yuijuico case. The
cause of action is whether or not to call
a meeting, which is within the
jurisdiction of the SEC. But it can be
cognizable by the RTC if such cause of
action is an offshoot or incidental to the
main case which is cognizable by the
 RTC (making the RTC, the competent
court).
Sec. 5.1 (k), SRC The Powers & Functions of
the Commission
1. Compel the officers to call meetings
(authority to call a meeting)
2. Strengthen the regulatory authority of
SEC (administrative power)
3. To give adequate reliefs in appropriate
cases
GSIS vs. CA case, GR No. 183905, 16 April 2009
GSIS filed a complaint before the SEC
enjoining the inclusion of proxies (either
in the determination of a quorum, and
in voting).
See Sec. 6, PD 902-A (SEC powers)
The power of the SEC to pass upon the
validity of proxies in relation to election
controversy, has been effectively
withdrawn. If the issue with regard to
the validity of proxies (solicitation of
proxies) is not in relation to election of
directors, the SEC can take cognizance
of the case.
If the solicitation of proxies has nothing
to do with election of directors, the SEC
has jurisdiction.
See Sections 5.1, 53.3, and 64 of the
SRC
Securities cover written and electronic
2 Kinds of Securities
1. Equity shares, ownership right in the
corporation
2. Debt securities require the issuer to
repay the principal amount loaned to it
at maturity date and a stated rate of
interest
In Equity, there is an element of risk(when the
company incurs losses)
In Debt secuirites,
1. It is secured with return
2. It earns interest
3. It repays the amount invested
HOWEY Investment Contract
Debt Securities Evidence of indebtedness
1. Bonds secured debt instrument
(longer 365 days)
2. Bills of exchange
3. Promissory notes negotiate at
discounted rates
4. Trust certificate
5. Subscription
6. Securities enrolling concept General
rule, registration of securities to be
offered to the public. (Registration
statement as may be required by the
SEC)
SEC. 8, SRC Required only if offered to the
public / Indicators of Public Offering
1. Publication (newspaper or magazine
circulated and distributed within a
locality)
2. Presentation in public places
3. Advertisement
 4. Distribution of fliers
Sec. 10 (k) SRC
Exempted transaction
Registration is imperative
No choice but to disclose information
that is material to investors
Force to disclose things not usually seen
in the By-Laws and/or Articles of
Incorporation. The nitty-gritty is
addressed by the Registration
Statement.
Prospectus
Satisfies SEC Rules in substance and in
form. It clearly conveys the information
in a language for the benefit of the
investors. This is for the protection of
investors (disclosure)
Only warrants that there is readily
available material information of
offerors of securities
SEC does not warrant that the
investment (of investors) will be
profitable. SEC is not responsible for the
actions of offerors
Matters that SEC normally ask
Info that are material to the concerned
investors
Personal background of organizers of
the corporation
Developments, resignations,
appointments of new investments
Confidence of investors in the Registration
Statement Executive officer of the corporation
signs the verified Registration Statement
Investors are assured
Reliance on the information stated in
Registration Statement
Undertaking thorough review of the
accuracy of the information
Sec. 8.1, SRC
General Rule: Registration of Securities
Exceptions: Sec. 9, SRC (You do not need to
register) Issuances by
1. Government
2. Foreign government
3. Trustee or receiver
4. Registered entities
5. Banks (except its own shares)
The law sees these enumerated sources as
trustworthy sources of securities. It is unlikely
for the abovementioned issuer to commit fraud
upon investors. Evil that registration seeks to
suppress does not appear here.
However, when the reason / purposes ceases
(behind Sec. 9, SRC), the law ceases.
Sec. 10, SRC Exempt Transactions
1. Judicial sale
2. Sale of foreclosed securities
3. Isolated transactions
4. Stock dividends (See Sec. 43, of the
Corporation Code)
5. Sale to own stockholders
6. Issuance to a single purchaser
 7. Conversion of shares
8. Brokers (who is accredited by SEC)
transaction the offer or initiative to
buy comes from the investor himself
9. Pre-incorporation or capital increase
subscription
10. Exchange of securities
11. Private placements (19 persons or less
during the 12-month period) there is a
presumption that these private
placements are not public. The SEC has
discretion to look into the transaction
concerning private placements.
12. Sale to qualified buyers (banks,
retirement plan or funds, investment
companies) These qualified buyers are
experts in securities transactions. They
are wiser than the issuer of these
transactions. They know the intricacies
or complexities of securities
transactions
13. Catch all provision
Sec. 13, SRC
Rejections involves pending
application
Revocation involves approved
application which is revocable in the
future
Reportial Requirements apply to
1. Companies whose shares have been
subject to public offering (Close
corporations are not included)
2. Companies whose shares are listed on
exchange
3. Companies whose assets of PHP 50-
million, and whose stockholders are 200
or more
Reports include:
1. Annual report (Sec. 17, SRC)
2. Beneficial ownership report (Sec. 18,
SRC)
3. Other disclosures (as provided by the
Philippine Stock Exchange Rules)
Material Information
1. Material developments
2. Change in the control of issuer
3. Case filed against an issuer (10% or
more of the present shares)
4. Officers and directors
5. Resignation and removal of officers and
directors
6. Change of purpose of the corporation
7. Investment
8. Losses or potential losses amounting to
10%
9. Dissolution
10. Licensing Requirements
11. Delay in payment
12. Purchase of stocks
13. Sale of assets
14. Listing of SEC
15. Imposition of fines
16. Merger or consolidation
17. Qualifications of stockholders
18. Change in fiscal year
19. Change of address of corporation
20. Change of auditors
21. Joint venture
22. Receivership
23. Insolvency
24. Suspension of payment
25. Discovery of new products
26. Briefing of directors
27. Transactions of directors
Sec. 19, SRC
Mandatory tender offer
Applies to public companies
 Tender offer it is publicly announced
intention by a person acting alone or in
concert with other persons to acquire
equity securities (shares) of a public
company
To protect minority stockholders when
there is a buyout resulting in dilution of
investment there is no guaranty of
preemptive right
3 tests of a Public company
1. Not limited to public
2. PHP 50-million, 200 shares
3. ???
Beneficial Ownership Report (Sec. 18, SRC)
Somebody is secretly acquiring
ownership of the company through
another vehicle from the stockholders
concerned. It involves acquisition of
shares that are more than 5% of the
_____.
Easy to circumvent
Clean hands doctrine No relief will be
accorded to by the court
See Cemco Holdings, Inc. vs. National Life
Insurance Company case, GR No. 171815, 7
August 2007
35% - 40% acquisition (basic threshold) which
can be a one-time acquisition
At the expense of the minority
stockholders against buyout of big
stockholders
Solution public tender offer, where
everyone has the opportunity to tender
offer
CEMCO case ruling SEC has the full authority
to nullify tender offer, instruct or direct the
tender offer
SEE Implementing Rules and Regulation (IRR) of
SRC Rule #19 [3]
Tender offer does not apply
1. Foreclosure sale in connection with
privatization rehabilitation
2. Merger or consolidation
3. Purchase from / increase in capital stock
4. Foreclosure sale
5. Open market at prevailing market price
6. Purchase from unissued capital stock (?)
Sec. 27, SRC Insider Trading
Definition of insider (external auditors),
issuer, officer
Being a mere insider is not penalized
Acts penalized - Unlawful for any insider
(insiders spouse or relative by affinity or
consanguinity within the 2nd degree, legitimate
or common wife)
1. To purchase or sell security while in
possession of a material non-public
information
2. To communicate material non-public
information (until information is
disclosed to and absorbed by the public
 1. Sec. 28, SRC
2. Sec. 30, SRC Broker (middleman)
Director Rule Sec. 35, Corporation Code
Broker vs. Dealer
Interlocking persons
Purpose : to minimize inside
Sec. 41, Corporation Code
trading
3. Sec. 20, SRC Proxy solicitation

Implementing Rules and Sec. 32, Corporation Code Self-dealing

Regulation of SRC Prohibitions director

Postdated proxies
(undated) when
stockholders change
their mind with regard
to proxy solicitation

4. Sec. 38, SRC Independent

Directors
Applies to public companies
Requirements at least 2 or
at least 20% of the
members of the Board,
whichever is lesser
Independent director is a
person other than an officer
or employee of the
corporation
Not minority or majority
He has objectivity or is the
best person to neutralize
differences in judgment or
opinion
He decides independently

Sec. 32, SRC Use of Exchanges and other

securities market

Sec. 3.7, SRC Exchange

Sec. 3.3, SRC