Securities Regulation Code Flashcards
What is the purpose of this code?
Protect the investing public through a system of disclosure and providing punishment for fraudulent practices
Shares, participation or interest in a corporation or commercial enterprise or profit-making venture and evidenced by a certificate, contract, instruments, whether written or electronic
Securities
Purchased or acquired in the expectation of obtaining passive income or asset appreciation
Main feature of a security
SRC protects the public through?
(1) Full disclosure of information about the securities being offered and the issuers
(2) Regular submission to SEC
(3) Monitoring the securities and other circumstances and persons involved to ensure compliance
(4) Providing SEC with powers and functions
Examples of securities (7)
- Stocks, bonds, debentures, notes, asset-backed securities
- Investment contracts, certificates of interest or profit sharing agreement, certificate of deposit for future subscription
- Fractional undivided interest in oil, gas or other mineral rights
- Derivatives like option and warrants
- Certificates of assignment, participation, trust, voting trust
- Proprietary or nonproprietary membership certificates in corporations
- Other instruments as may determined in the future by the Commission
Contract, transaction or scheme where a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others
Investment contract
Requisites of an investment contract?
- Investment of money
- In a common enterprise
- Expectation of profits
- Primarily for the efforts of others
When shall information on the securities be made available to prospective purchases?
Prior to sale of securities
What is the procedure for registration?
- Filing of sworn registration statement
- Payment of filing fees
- Publication of notice of filing in two newspapers once for two cons weeks
- Within 45 days, SEC shall declare if effective or rejected
- Prospectus under oath that all requirements and all statements are correct
What are the required information in the sworn registration statement?
- Required signatories
- Written consent of expert having names as certified any part of the registration statement
- Certification by selling shareholders, if any, as to the accuracy of any part of the registration statement
Required reports
- Annual report (BS, PLS, SCF certified by CPA and mgt discussion and analysis of results of operations)
- Other periodical reports for interim fiscal periods and current reports on significant developments
Securities exempt from registration (5) GGRIB
- Securities issued by the gov’t
- Issued by the govt of any country with diplomatic relations
- Issued by receiver or trustee in bankruptcy
- Security under the supervision of IC, HLURRB, and BIR
- Issued by a bank except its own shares of stock
What are the required signatories to registration statement?
Executive officer, principal operating officer, principal financial officer, comptroller, principal accounting officer, corporate secretary
What is the rate of the filing fees?
Shall not exceed 1/10 of 1% of the aggregate price at which the securities are proposed to be offered
Special rule if holders holding at least 100 shares are reduced to less than 100
Obligation to file reportorial requirements shall be terminated 90 days after notification to SEC
Exemption fee?
1/10 of 1% of the maximum aggregate price or issued value of the securities
Transactions exempt from registrations (BISCEPS SMILE)
- Brokers transactions
- Isolated transaction
- Stock dividend
- Conversion of any security for another
- Exclusive sale
- Private sale
- Subscriptions for shares of a corporation prior to incorporation
- Sale to sophisticated buyers (qualified)
- Mortgage backed securities
- Insolvency sale
- Liquidate bonafide debt where the security was pledged in good faith
- Exchange by the issuer and existing shareholders
Reportorial requirements shall apply to an issuer
- Which has sold a class of its securities pursuant to reg
- Class of securities listed in exchange
- Assets of at least 50M & 200 or more holders holding at least 100 shares
Liability for disclosure?
It is unlawful for any insider to communication MNPI to any person who becomes an insider where the insider knows or has reason to believe that such person will likely buy or sell a security of the issuer in possession of such information
Deadline of filing of general information sheet (GIS)
- Stock corp - 30D from annual stockholders meeting
- Non-stock - 30D from members’ meeting
- Foreign - 30D from anniversary date of issuance of SEC license
Deadline of filing of AFS
- Calendar year: depending on the last numerical digit of SEC license in accordance with schedule set by SEC
- Fiscal Year
General rule: 120D from end of fiscal year
Exceptions:
a. Broker dealers - 110D from end of FY
b. Listed companies - 105D from end of FY
The AFS shall be stamped
“received by BIR” or its authorized banks
Information that will affect the price of the security or would influence a person in deciding whether to buy, sell, or hold a security which is not available to the public
Material non-public information
Who can be an insider?
- The issuer
- Director or officer or person controlling the issuer
- A person whose relationship to the issuer gave him access to MNPI
- Government employee of a self-regulatory agency who has access
- A person who learns such information from any of the foregoing
Committed whenever an insider, in possession of material non-public information, transacts on the securities
Insider trading
A transaction made by an insider or relatives by affinity or consanguinity within the 2nd degree shall be presumed to have been effected while in possession of MNPI if transacted
- After such information came into existence
- But prior to the dissemination to the public and the lapse of a reasonable time for the market to absorb such information
Exceptions to insiders?
- When he can prove that the information was not gained from an insider
- The other party is identified and he either disclosed the information or had reason to believe the other party was also in possession of the information
Transaction which involves no change in beneficial ownership
Wash sale
Order for purchase or sale with the knowledge that a simultaneous order of substantially the same size, time and price will be entered by the same or different parties.
Matched order
Which transactions are not in themselves illegal but considered fraudulent when they are resorted to create a false or misleading appearance of active trading?
Wash sale and matched order
Placing or purchase or sale order at or near the close of the trading period to affect the closing and opening price?
Marking the close
Activity is made during normal trading hours which involves buying activity among nominee accounts at increasingly higher or lower prices causing fictitious reports to appear on the ticker tape
Painting the tape
Involves a dormant public shell company, a merger with a privately held company, reverse split of the shares, re-issuance to relatives and associates, hiring a broker-dealer to market, hiring a promoter to hype, dump shareholding and bail out
Hype and dump
Part or portion of the issue which is outstanding but intentionally held by dealers or other persons with a view of reselling them later at a profit - drives prices up
Squeezing the float
Involves an intensive selling campaign through numerous salesmen by telephone of through direct mail offering for securities of either a certain type or from a specific user inducing investing to purchase through hard-sell techniques based on unfounded predictions and mailing of misleading market letters
Boiler room operations
Selling the security which the vendor does not own (only borrowed from another)
Not illegal per se but only regulated
Short sale
Involves people providing information that the price will or is likely to drop or fall for the purpose of raising or depressing the price of the security
Circulating or disseminating information on share price movement
Effected either alone or with others through any series of transaction for the purchase or sale, if done for such purpose
Pegging or fixing or stabilizing the price of security
Making false or misleading statements for the purpose of inducing the purchase or sale of security
Making false or misleading statements
An offer by a person or group of persons to the stockholders of a corporation to tender their shares for a purchase
Tender offer
What is the purpose of the mandatory tender offer?
To protect minority shareholder and provide them with a fair price for their share whenever a person or group intends to buy a sizable number of shares in a company
When does the mandatory tender offer apply?
To any person who intends to acquire at least 35% over a period of 12 months of any class of any equity security
Corporations where mandatory tender offer applies?
- Listed corporations
- Corporations with assets of at least 50 and at least 200 shareholder with at least 100 shares
Exemption to the general rule of 35%?
When the acquisition will result in ownership of over 50% of the total outstanding equity securities of the public company
When should the results of the tender offer be reported to the commission?
Not later than 10 calendar days after the termination of the tender offer
Transactions exempt from mandatory tender offer? (7)
- Purchase from unissued capital stock - will not result in 50% ownership
- Purchase from increase in authorized capital stock
- In connection with foreclosure proceedings
- Privatization by the govt of the PH
- Corporate rehabilitation (court supervised)
- Through open market at prevailing market price
- Merger or consolidation
