Finals (SRC)

Question 1

in determining a contract is an investment contract, apply the Howey’s Test which is

Answer 1

1. investment of money
2. in a common enterprise
3. with expectation of profits
4. primarily from efforts of others

Power Homes Unlimited case

TN
- if you receive a product, no longer investment contract but sale

Question 2

A entered into a contract where he invested his money and was given products to sell. Is this an investment contract?

LB:

Answer 2

No, as discussed in the case of prosperity.com v. SEC, the SC ruled that since the person is getting product of value that you acquire in exchange for the money you put in. –simply a sales transaction (Usana, Uno, Front Row, etc.)

thus not complying with the 4th element of the Howey’s test, that is, primarily from the efforts of others

Question 3

are College Assurance Plans (CAP) governed by the SRC?

Answer 3

While it is mentioned in the SRC a “pre-need plan” it is a kind of exempted security since it is governed by another entity ESA

Question 4

is HMO an investment contract since you are putting up money and you do not receive anything at that moment?

Answer 4

No, it is not an investment contract since the payment is for a future service thus not governed by the SRC

Question 5

propriety v. non propriety shares

Answer 5

[prop]
- interest/participation in a corp like a share of stock

[non prop]
- by product of interest/privilege over certain property of a corporation. Ex. country cluns where you are allowed to use their golf facilities

Question 6

determination w/n an action is an intra-corporate dispute

Answer 6

1. relationship test
2. nature of the action test

1 - if it’s between and among members, then; intra
2 - if it is illegal dismissal between and among the members, RRC has no application so it is NOT an intra

Question 7

enumerate exempt securities

Answer 7

securities:

1. issued by RP or political subdivision or agency
2. Gov’t of any country w/ diplomatic relations
3. certificates issued by a receiver or a trustee in BANKRUPTCY approved by body
4. regulated by office of the INsurance Commission (IC), BIR, (HLURB) Housing and Land Use Reg Board

5. Bank except its own shares (since this is regulated by BSP)

• but if BPI issues shares, no longer under BSP but SEC so needs registration

Question 8

what are EXEMPT TRANSACTIONS

Answer 8

1. judicial sale in insolvency/bankruptcy (regulated by court so exempt)
2. mortgage
3. isolated transaction
4. stock dividends
5. sale of capital stock/ additional issuance of shares (regulated by SEC)
6. convertible shares
7. broker’s transactions on registered exchange (already registered)
8. sale of securities <20 less than 20 persons in phil w/n 12 months

Question 9

which court has JD;

a - civil
b - criminal

c - what is the prescriptive period ?

Answer 9

a. RTC
b. SEC

c.
- 2 years from discovery of untrue statment
- 2 years from violation but not more than 5 years from public offering

Question 10

who are governed by the disclosure rules?

Answer 10

Public Companies who;

1. sells securities pursuant to a registration
2. securities listed for tradiing in an Exchange
3. asset of at least 50M & 200/> holders with 100 shares each

Question 11

what is the DISCLOSURE RULE

Answer 11

Based on Chapter 5 of the SRC, public company must comply with repertorial requirements known as the “Disclosure Rule” where there is ongoing disclosure of certain information to ensure transparency and protect the investing public

Question 12

what is TENDER OFFER

Answer 12

a publicly announced intention by a person or with others to acquire equity security of a public company

it is to protect minority shareholders

Question 13

when is TO (tender offer) mandatory?

Answer 13

LB: sec. 19 SRC, mandatory if;

1. acquisition of at least 35% of any securities in a public company in one transaction or overtime for a period of 1 year aka creeping aquisition (SEMCO v. SEC)
2. acquisition results in ownership exceeding 51% of the outstanding securities of the company

Question 14

what is the TAG ALONG CLAUSE

Answer 14

grants minority SH the RIGHT but NOT obligation to participate in the sale plan by the majority

It demands from the majority SH to include the miority SH whenever there is a sale

Question 15

what is DRAG ALONG CLAUSE?

Answer 15

allows majority SH to drag minority SH requiring them to sell their shares to the same buyer at the same price

Question 16

if TO necessary in all cases and contracts?

Answer 16

No, if there is a drag-along or tag along clause, then TO is not required

Question 17

what kind of manipulative practice is this

that is just engaging in a series of transactions that are reported publicly to give the impression of an activity or price
movement in a security. Palit kag kausa, kaduha, katulo Just to see that there is movement in your shares. When in fact, it’s just you who’s actually buying and selling the shares.

Answer 17

painting the tape

Question 18

This is buying and selling securities at the close of the market in an effort to alter the closing price of the security. Nga atong transaction ig dayon na ug close sa market aron dako ang value ig open the next day. You see the Philippine Stock Exchange indexes. It’s in the newspaper or the internet. There’s a bid price, there’s a closing price, which shares are closed at
this particular amount.

Answer 18

Marking the close

Question 19

This is engaging in buying activity at increasingly higher prices. And thenselling securities in the market at the higher prices, or vice versa.

Answer 19

hype and dump

Question 20

s engaging in transactions in which there is no change in beneficial ownership of the security. So this is referred to as the 61-day sale.

Answer 20

wash sale

Question 21

when the demand is high, then you can
demand also higher prices. And that’s when you start selling. It’s the same with onions, sugar, etc.

Answer 21

squeezing the float

Question 22

operating a call center

Answer 22

boiler room operations

Question 23

This is a sale of security in which the seller does not own or any sale which is consummated by the delivery of a security borrowed by the seller with commitment to return to the lender on a determined future date

Answer 23

Short sale

Question 24

It’s a team up of investors to increase the value of a security and then flip their ownership of that equity to unsuspecting investors who are chasing an upward trend. Sabot-sabot. This is a syndicate.
Because you have to be in collusion with each other. That you try to hype up the price of your security and then altogether give it to one investor. The investor is made to believe that the prices are
actually high. All because you’re all in connivance

Answer 24

daisy chain

Question 25

what is INSIDER TRADING & is it permissible?

Answer 25

GR: B/S securities w/ material information w/ respect to the security not available to the public

XPN
1. insider proves that the information was not gained from such relationship

2. he disclosed the information to the other party or had reason to believe the other party had the same information

Question 26

what is MARGIN TRADING

Answer 26

trading on CREDIT, where broker advances the balance of the purchase price for the investor & keeps the security as collateral for the advance

(borrowed moeny to trade)

Question 27

what is the allowed margin in margin trading?

Answer 27

1. 65% of the current market price

or

2. 100% of the lowest market price during the past 36 months [but] not more than 75% of the current market price