group 4 Flashcards
According to the _____ also known as the Securities Regulation Code
R.A. 8799
________ are shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instruments, whether written or electronic in character.
Securities
“no securities shall be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the SEC.”
(Sec. 8.1, SRC)
if the business operation or the scheme constitutes an investment contract, it must be registered with the ____ before its sale or offer
for sale or distribution to the public.
SEC (Securities and Exchange Commission)
these are financial instruments that represent a part of ownership of a corporation, the shareholder gets the right to participate in the forms of decision-making process and can receive dividends if the firm operates with
profit.
EQUITY SECURITIES
are issued by the government, a company, or an individual and are sold to parties for a specific amount along with a promise of interest and repayment, ____ include a maturity date, a specified rate of interest, and a fixed amount.
DEBT SECURITIES
financial instruments whose value is derived from an underlying asset, index, or rate, it offers the right to trade one financial securities at pre-determined terms
DERIVATIVE SECURITIES
combine features of both equity and debt securities.
HYBRID SECURITIES
MAIN CATEGORIES OF SECURITIES
- EQUITY SECURITIES
- DEBT SECURITIES-
- DERIVATIVE SECURITIES
- HYBRID SECURITIES
These represent ownership in a company. Investors who purchase shares become shareholders, entitled to potential dividends and voting rights.
Shares of stocks
These are debt instruments where an investor lends money to a company
or government entity for a specific period and receives interest payments in return.
Bonds
These are unsecured bonds, meaning they are not backed by specific assets (collateral). Their value relies on the issuer’s creditworthiness.
Debentures
These are written instruments acknowledging a debt owed by one party to another.
Notes evidences of indebtedness:
These are securities backed by a pool of assets, such as loans, leases, or receivables. Investors receive income based on the
performance of the underlying assets.
Asset-backed securities (ABS)
KINDS OF SECURITIES
(a) Shares of stocks, bonds, debentures, notes evidences of indebtedness, asset-backed
securities
(b) Investment contracts, certificates of interest or participation in a profit-sharing
agreement, certifies of deposit for a future subscription;
(c) Fractional undivided interests in oil, gas or other mineral rights
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of participation, trust certificates, voting trust
certificates or similar instruments
(e) Certificates of assignments, certificates of participation, trust certificates, voting trust
certificates or similar instruments
(g) Other instruments as may in the future be determined by the Commission.
An amendment filed prior to the effective date of the registration statement shall
recommence the ______ period within which the Commission shall act
on a registration statement.
forty-five (45) day
_________ involves engaging in deceptive trading practices to create false or
misleading appearances in securities transactions. These actions distort market
conditions and can mislead investors.
Market manipulation
Prohibited Acts (Sec. 24)
- False Trading Activity
- Price Manipulation
- Spreading False Information
- Misleading Statements
- Price Fixing
Creating the illusion of high trading activity in the market when there is none.
- False Trading Activity
Artificially influencing the price of a security through deceptive practices.
- Price Manipulation
Deliberately publishing misleading news or rumors to impact security prices.
- Spreading False Information
Making false, exaggerated, or deceptive claims about a company’s financial standing.
- Misleading Statements
Coordinating with other traders to set a predetermined price for a security.
- Price Fixing
Manipulative Devices
Wash Sales
Marketing the Close
Painting the Tape
Squeezing the Float
A trader buys and sells the same security to create false market activity
Wash Sales
Placing large trades right before the market closes to artificially influence closing prices.
Marketing the Close
Several investors buying and selling the same security amongst themselves to mislead the market.
Painting the Tape
A small group acquiring most of a stock’s available shares, forcing others to buy at higher prices.
Squeezing the Float
_____ refer to deceptive financial activities *that involve misrepresenting, concealing, or manipulating information to gain an unfair advantage in securities trading
Fraudulent transactions
Prohibited Acts (Sec. 26)
- Fraudulent Schemes
- Misleading Statements
- Deceptive Practices
Engaging in financial practices designed to mislead investors for profit.
- Fraudulent Schemes
Providing incomplete, exaggerated, or false financial information to mislead
investors.
- Misleading Statements
Engaging in unfair or dishonest financial strategies to manipulate investors.
- Deceptive Practices
TYPES OF FRAUD
Financial Statement Fraud
Employee Fraud
Customer Fraud
Cyber Fraud
Money Laundering
Companies manipulating financial reports to appear more profitable.
Financial Statement Fraud
Workers stealing funds, creating fake invoices, or embezzling money.
Employee Fraud
Clients providing false financial information to secure loans.
Customer Fraud
Hackers stealing financial data or engaging in identity theft for
trading advantages.
Cyber Fraud
Concealing illegally obtained money by passing it through legitimate transactions.
Money Laundering
____ occurs when a person with nonpublic material information about a
company buys or sells its securities for personal gain.
Insider trading
Prohibited Acts (Sec. 27)
- Trading on Material Nonpublic Information
- Sharing Insider Information
- Tender Offer Restrictions
- Government Employees or Regulatory Staff
Buying or selling securities while in possession of confidential company information.
- Trading on Material Nonpublic Information
Passing confidential information to friends, family, or other traders.
- Sharing Insider Information
Using nonpublic information related to a company’s buyout offer to trade securities.
- Tender Offer Restrictions
Officials using privileged access to trade securities unfairly
- Government Employees or Regulatory Staff
Who is an Insider?
- Issuer
- Directors, Officers, or Controlling Persons
- Any Individual Learning Confidential Information
This refers to the measures, practices, and strategies employed by companies,
regulatory bodies, and stakeholders to ensure that the rights, investments, and interests
of shareholders are safeguarded. This involves promoting transparency, accountability,
and fairness in corporate governance
PROTECTION OF SHAREHOLDERS INTEREST
A _____ happens when someone wants to buy a large portion of shares from the
stockholders of a company directly.
tender offer
A person or group must make a tender offer if they plan to:
● Buy 15% or more of a listed company’s shares, OR
● Buy 30% or more of the shares within 12 months.
This applies if the company has:
● ₱50 million or more in assets, AND
● At least 200 stockholders, each holding at least 100 shares.
What Are the steps or processes you should take?
- File a Declaration:
○ Submit a formal notice to the Commission about the plan to acquire
shares. - Notify Stockholders:
○ Share detailed information about the offer with the company and its
stockholders
○ Submit a formal notice to the Commission about the plan to acquire
shares.
File a Declaration:
○ Share detailed information about the offer with the company and its
stockholders
Notify Stockholders
FINANCIAL REPORTING FRAMEWORK
The framework that governs how companies prepare financial reports ensures
accuracy, reliability, and consistency.
PFRS and PAS: These standards are adopted by companies to ensure consistency and
transparency in financial reporting.
Objective: The purpose of financial statements is to provide users, such as investors
and creditors, with relevant financial information that helps in making informed
decisions. Accrual Basis of Accounting: Financial statements should be prepared
using the accrual basis, where transactions are recorded when they happen, rather than
when cash is received or paid.
Going Concern Assumption: The company’s financial statements should be prepared
on the assumption that it will continue operating in the future.
Fair Presentation: Financial statements must present a true and accurate view of the
company’s financial position and performance, in accordance with PFRS and PAS.
Hierarchy: When applying PFRS and PAS, companies must prioritize higher standards
if any conflicts arise.
Comparability: Information must be presented in a way that allows comparisons across
periods and with other entities, ensuring consistency in reporting.
It is _____ to make false or misleading statements or omit important facts that
could make the information misleading in the context of a tender offe
illegal
related to a tender offer or
solicitation are prohibited.
Fraudulent, deceptive, or manipulative acts
The _____ will define and create rules to prevent such fraudulent or
deceptive practices.
Commission
When submitting required filings to the Commission for a tender offer (under Section
19), issuer purchases (under Section 72.2), or proxy solicitations (under Section 20), a
fee may be charged. This fee can be no more than 1% of:
● 21.1: The total purchase price in cases of transactions under Section 20 or
72.2.
● 21.2: The total value of cash payments, securities, or property being
transferred in an acquisition, merger, consolidation, or sale of assets under
Section 20
Section 21. Fees of Tender Offers and Certain Proxy Solicitations
Financial Statements Must Include:
● Statement of Financial Position
● Statement of Comprehensive Income
● Statement of Changes in Equity
● Statement of Cash Flows
● Notes to Financial Statements
Reflects the company’s assets, liabilities, and
equity as of a particular date.
Statement of Financial Position
Provides information on changes in equity
from the beginning to the end of the period.
Statement of Changes in Equity
Provides additional details that explain figures
in the financial statements
Notes to Financial Statements
Submission Deadline:
Listed companies must submit their financial statements within ___ after the fiscal
year-end.
120 days
The financial statements must be audited by an independent CPA
accredited by the Board of Accountancy (BOA).
Audit Requirement
The report should include necessary ____ on accounting policies,
financial risks, related party transactions, and significant estimates.
disclosures
Companies must adhere to the Corporation Code of the
Philippines and all other relevant regulations.
Compliance with Local Laws
A set of documents that include the balance sheet (statement of financial position), income statement (statement of comprehensive income), cash flow statement, and accompanying notes.
Financial Statements
The period covered by the financial statements, usually one year,
although it can vary depending on the company’s fiscal year.
Reporting Period
Present obligations of the entity that require an outflow of resources, like
debts or payables.
Liabilities
The residual interest in the assets of the entity after deducting liabilities,
representing ownership in the company.
Equity
Refers to increases in equity, except for contributions from owners, which
occur from regular business operations like sales or services.
Income
Decreases in equity, representing costs incurred in earning income.
Expenses
Financial transactions are recognized when they occur, not when
cash is exchanged. This means that revenues and expenses are recorded when
earned or incurred, even if cash has not yet been received or paid.
Accrual basis
Significant items must be presented separately in financial statements.
Small, less important items can be grouped together for simplicity.
Materiality
Transactions must be reported based on their economic
substance rather than their legal form. For example, a lease may be recorded as an
asset even if it’s legally considered a rental agreement.
Substance Over Form
Going Concern: This principle assumes that the entity will continue its operations for
the foreseeable future, unless there’s evidence to the contrary.
This principle assumes that the entity will continue its operations for
the foreseeable future, unless there’s evidence to the contrary.
Going Concern
The financial statements are presented fairly in all material
respects according to the applicable financial reporting framework.
Unqualified Opinion
The financial statements are fairly presented except for
specific issues identified by the auditor.
Qualified Opinion
The financial statements do not present a fair view due to
significant issues identified by the auditor.
Adverse Opinion:
The auditor is unable to form an opinion due to
limitations in the scope of their audit.
Disclaimer of Opinion
Resources controlled by the entity that are expected to generate future
economic benefits, such as cash, inventory, or property.
Asset
A business or organization that is required to prepare financial statements,
including corporations, partnerships, and other legal structures.
Entity
The financial statements must provide a _____ of the company’s financial position and performance.
true and fair view
Shows the company’s income and expenses during a reporting period.
Statement of comprehensive income
mandates that all companies listed in
the
Philippines comply with the Philippine Financial Reporting Standards (PFRS) and
Philippine Accounting Standards (PAS) in their financial reporting. This ensures
transparency and consistency in the financial information provided to the public.
The Securities and Exchange Commission (SEC)
● 23.1: Beneficial owners (10% or more), directors, or officers must file a statement
with the Commission (and exchange if listed) when they first meet the
ownership requirement, and update it within 10 days of any change in
ownership.
● 23.2: Profits from buying or selling securities within 6 months must be returned
to the issuer, with legal action possible within 2 years, unless the transaction is
related to a pre-existing debt.
● 23.3: Beneficial owners, directors, or officers must own and deliver securities
sold within 20 days or mail them within 5 days, unless it is proven that good faith
or undue hardship prevented timely delivery.
● 23.4: The rules do not apply to dealers making transactions in the regular course
of business outside of an exchange.
Section 23. Transactions of Directors officers and Principal Stockholders.
● 22.1: Establish and maintain a system of internal accounting controls that
ensures:
(a) Transactions and access to assets are authorized by management.
(b) Financial statements comply with generally accepted accounting
principles (GAAP), as set by the Accounting Standards Council and the
Commission’s rules.
(c) Recorded assets are regularly compared with actual assets, and any
differences are reconciled at reasonable intervals.
Section 22: Internal Record Keeping and Accounting Control
Types of Audit opinions
Unqualified Opinion
Qualified Opinion
Adverse Opinion
Disclaimer of Opinion
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
The Commission may:
a. Conditionally approve the registration;
b. Specify the terms and conditions which written communication, including any summary prospectus, shall be deemed not to constitute an offer for sale:
c. Enter a record of registration of securities in Register Securities and be open to the public;
d. Audit financial statements, assets and other information of firm applying for registration of
its securities.
a. Any security issued or guaranteed by the Government of the Philippines, its agencies, or instrumentalities.
b. Any security issued or in guaranteed by a foreign government with diplomatic ties to the Philippines, based on reciprocity.
c. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body.
d. Securities supervised by the Insurance Commission, Housing and Land Use Regulatory Board, or Bureau of Internal
Revenue
e.Any security issued by a bank except its own shares of stock.
EXEMPT SECURITIES
The Commission may _______ 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.
EXEMPT
Any person applying for an exemption under this exempt transaction, 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 ______________________ of the maximum value aggregate price or issued value of the securities.
one-tenth (1/10) of one percent (1%)
(1/10 of 1%)
a. At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in insolvency or bankruptcy.
b. Sales by pledge holders, mortgagees, or lien holders to settle a legitimate debt, provided it is done in the ordinary course of business and not to evade the law.
c. Isolated (one-time) sales by an owner or representative, not part of repeated transactions.
d. Stock dividends or distributions by a corporation to its stockholders, if the corporation is actively engaged in its authorized business.
e. Sales of capital stock exclusively to existing stockholders, with no commission or remuneration involved.
f. Issuance of bonds or notes secured by mortgage, sold entirely to a single buyer in a single
transaction.
g. Security exchanges within the same issuer under a right of conversion, provided the original security
was registered or exempt.
h.Broker transactions executed on a registered exchange or trading market based on customer orders.
i. Stock subscriptions before a corporation is officially registered or during an authorized capital stock
increase, with no commission or fees involved.
j. Security exchanges by an issuer with existing security holders, where no commission or remuneration
is paid for solicitation.
k. Sales of securities by an issuer to fewer than 20 persons in the Philippines within a 12-month period.
l. Sales of securities to qualified buyers.
EXEMPT TRANSACTION
The SEC may grant further exemptions if registration is unnecessary for public interest or investor protection.
Applicants for exemptions must file a notice with the SEC and pay a 0.1% fee based on the securities’ maximum
value.
Additional Exemptions
- Filing
- SEC review
- Ownership and Disclosure
- Signatories and Certifications
- Fee Payment
- Public Notice
- SEC Decision
- Oath and Compliance
Procedure of Registration of Securities
(As per SECTION 12 of THE SECURITIES REGULATION CODE)
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:
The issuer:
i. Has been judicially declared insolvent;
ii. Has violated any of the provisions of the law;
iii. Engages in fraudulent transactions
iv. Has made any false or misleading representation of material facts;
v. Has failed to comply with any requirements that the Commission may impose as a condition for registration; 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.
Rejection and Revocation
T or F
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.
A registration statement may be withdrawn by the issuer only with the consent of the
Commission.
T
- If the registration statement is incomplete or inaccurate, the SEC will order the issuer to amend it.
- If an amendment is filed before approval, the 45-day review restarts. If filed after approval, the SEC decides the new effective date.
- If there are any changes after filing, the issuer must submit an amendment.
- The SEC can suspend registration if it contains false, misleading, or missing information until corrected.
- The SEC can demand records, conduct investigations, and suspend registration if the issuer refuses to cooperate.
Amendment to the Registration Statements
