SECURITIES NOTES distribution within the Philippines, without a

registration statement duly filed with and

By: Atty. Stephen C. Escartin approved by the SEC. Prior to such sale,
information on the securities, in such form and
with such substance as the SEC may prescribe,
A. STATE POLICY shall be made available to each prospective
purchaser. (Sec. 8, SRC)
The State shall:
As a general rule, securities, as defined under
1. Establish a socially conscious, free market Section 3, cannot be sold or offered for sale of
that regulates itself, distribution to the public without a Registration
2. Encourage the widest participation of Statement duly filed by the ―issuer‖, or
ownership in enterprises, originator, maker, obligator or creator of the
3. Enhance the democratization of wealth, said security and approved by the SEC. This is
4. Promote the development of the capital the clear mandate of Section 8 of RA 8799.
market,
5. Protect investors, Section 28, on the other hand, prohibits any
6. Ensure full and fair disclosure about person to engage in the business of buying, or
securities, selling securities in the Philippines as a broker
7. Minimize if not totally eliminate insider or dealer, or act as salesman for such securities
trading and other fraudulent or unless registered and authorized as such by the
manipulative devices and practices which SEC. (Ladia, The Corporation Code of the
create distortions in the free market. (Sec. Philippines (annotated) with The Securities
2, Securities Regulation Code) Regulation Code (R.A. 8799) and Presidential
Decree No. 902-A, pp. 641-642, Third Edition)
B. SECURITIES, DEFINED:
Purpose of Registration requirement:
These are shares, participation or interests in a Registration aids the State in protecting the
corporation or in a commercial enterprise or investing public by mandating the disclosure of
profit-making venture and evidenced by a the important financial information. This
certificate, contract, instrument, whether information, which becomes available to the
written or electronic in character. (Sec. 3.1, SRC) public upon registration, enables investors to
make informed judgement about whether to
C. KINDS OF SECURITIES: purchase corporation securities. (Dizon,
Securities Regulation Code, 2011, pp. 69-70)
1. Shares of stocks, bonds, debentures, notes,
evidences of indebtedness, asset-backed Exceptions to the general rule:
securities;
2. Investment contracts, certificates of 1. Securities exempt from registration under
interest or participation in a profit-sharing Section 9; and
agreement, certifies of deposit for a future 2. Securities sold in exempt transactions
subscription; under Section 10.
3. Fractional undivided interests in oil, gas or
other mineral rights; Exception to the Exception:
4. Derivatives like option and warrants; The re-sale of securities sold in an exempt
5. Certificates of assignments, certificates of transaction must be registered. (Rule 10.2.6 of
participation, trust certificates, voting trust 2015 Implementing Rules and Regulations of
certificates or similar instruments; the Securities Regulation Code)
6. Proprietary or nonproprietary membership
certificates in corporations; and EXEMPT SECURITIES (Securities exempt
7. Other instruments as may in the future be from registration)
determined by the Commission. (Sec. 3.1,
SRC) 1. Any security issued or guaranteed by the
Government of the Philippines, or by any
Registration requirement, as general rule: political subdivision or agency thereof, or
by any person controlled or supervised by,
Securities shall not be sold or offered for sale or and acting as an instrumentality of said

1
Government. representative and such owner or
representative not being the underwriter of
2. Any security issued or guaranteed by the such security.
government of any country with which the 4. The distribution by a corporation, actively
Philippines maintains diplomatic relations, engaged in the business authorized by its
or by any state, province or political articles of incorporation, of securities to its
subdivision thereof on the basis of stockholders or other security holders as a
reciprocity: Provided, That the Commission stock dividend or other distribution out of
may require compliance with the form and surplus.
content of disclosures the Commission may 5. The sale of capital stock of a corporation to
prescribe. its own stockholders exclusively, where no
3. Certificates issued by a receiver or by a commission or other remuneration is paid
trustee in bankruptcy duly approved by the or given directly or indirectly in connection
proper adjudicatory body. with the sale of such capital stock.
4. Any security or its derivatives the sale or 6. The issuance of bonds or notes secured by
transfer of which, by law, is under the mortgage upon real estate or tangible
supervision and regulation of the Office of personal property, where the entire
the Insurance Commission, Housing and mortgage together with all the bonds or
Land Use Regulatory Board, or the Bureau notes secured thereby are sold to a single
of Internal Revenue. purchaser at a single sale.
5. Any security issued by a bank except its 7. The issue and delivery of any security in
own shares of stock. (Sec. 9.1, SRC) exchange for any other security of the
same issuer pursuant to a right of
The Commission may, by rule or regulation after conversion entitling the holder of the
public hearing, add to the foregoing any class of security surrendered in exchange to make
securities if it finds that the enforcement of this such conversion: Provided, That the
Code with respect to such securities is not security so surrendered has been registered
necessary in the public interest and for the under this Code or was, when sold, exempt
protection of investors. (Sec. 9.2, SRC) from the provisions of this Code, and that
the security issued and delivered in
Reason for Exemption: exchange, if sold at the conversion price,
1. Guaranteed by the government would at the time of such conversion fall
2. Regulated by other government agency within the class of securities entitled to
other than SEC. (Sec. 9.1, SRC) registration under this Code. Upon such
conversion the par value of the security
EXEMPT TRANSACTIONS (Transactions surrendered in such exchange shall be
exempt from registration) deemed the price at which the securities
1. At any judicial sale, or sale by an executor, issued and deliBroker‘s transactions, executed
administrator, guardian or receiver or upon customer‘s orders, on any registered
trustee in insolvency or bankruptcy. Exchange or other trading market.
2. By or for the account of a pledge holder, or 9. Subscriptions for shares of the capital stock
mortgagee or any other similar lien holder of a corporation prior to the incorporation
selling or offering for sale or delivery in the thereof or in pursuance of an increase in its
ordinary course of business and not for the authorized capital stock under the
purpose of avoiding the provisions of this Code, Corporation Code, when no expense is
to liquidate a bona fide debt, a incurred, or no commission, compensation
security pledged in good faith as security or remuneration is paid or given in
for such debt. connection with the sale or disposition of
3. An isolated transaction in which any such securities, and only when the purpose
security is sold, offered for sale, for soliciting, giving or taking of such
subscription or delivery by the owner subscriptions is to comply with the
thereof, or by his representative for the requirements of such law as to the
owner‘s account, such sale or offer for sale, percentage of the capital stock of a
subscription or delivery not being made in corporation which should be subscribed
the course of repeated and successive before it can be registered and duly
transactions of a like character by such incorporated, or its authorized capital
owner, or on his account by such increased.

2
10. The exchange of securities by the issuer regulations and orders, and issue opinions
with its existing security holders exclusively, and provide guidance on and supervise
where no commission or other compliance with such rules, regulations and
remuneration is paid or given directly or orders;
indirectly for soliciting such exchange. 8. Enlist the aid and support of and/or deputize
11. The sale of securities by an issuer to fewer any and all enforcement agencies of the
than twenty (20) persons in the Philippines Government, civil or military as well as any
during any twelve-month period. private institution, corporation, firm,
12. The sale of securities to any number of the association or person in the implementation
following qualified buyers: of its powers and functions under the Code;
9. Issue cease and desist orders to prevent
a. Bank; fraud or injury to the investing public;
b. Registered investment house; 10. Punish for contempt of the Commission,
c. Insurance company; both direct and indirect, in accordance with
d. Pension fund or retirement plan the pertinent provisions of and penalties
maintained by the Government of the prescribed by the Rules of Court;
Philippines or any political subdivision 11. Compel the officers of any registered
thereof or managed by a bank or other corporation or association to call meetings
persons authorized by the Bangko of stockholders or members thereof under
Sentral to engage in trust functions; its supervision;
e. Investment company; or 12. Issue subpoena duces tecum and summon
f. Such other person as the Commission witnesses to appear in any proceedings of
may by rule determine as qualified the Commission and in appropriate cases,
buyers, on the basis of such factors as order the examination, search and seizure of
financial sophistication, net worth, all documents, papers, files and records, tax
knowledge, and experience in financial returns, and books of accounts of any entity
and business matters, or amount of or person under investigation as may be
assets under management. (Sec. 10, necessary for the proper disposition of the
SRC) cases before it, subject to the provisions of
existing laws;
The SEC may exempt other transactions, if it 13. Suspend, or revoke, after proper notice and
finds that the requirements of registration in hearing the franchise or certificate of
such exchange are sold. registration of corporations, partnerships or
associations, upon any of the grounds
1. Have jurisdiction and supervision over all provided by law; and
corporations, partnerships or associations 14. Exercise such other powers as may be
who are the grantees of primary franchises provided by law as well as those which may
and/or a license or permit issued by the be implied from, or which are necessary or
Government; incidental to the carrying out of, the express
2. Formulate policies and recommendations on powers granted the Commission to achieve
issues concerning the securities market, the objectives and purposes of these laws.
advise Congress and other government (Sec. 5, SRC)
agencies on all aspects of the securities The SEC's jurisdiction over all cases enumerated
market and propose legislation and under Section 5 of Presidential Decree No. 902-
amendments thereto; A is hereby transferred to the Courts of general
3. Approve, reject, suspend, revoke or require jurisdiction or the appropriate Regional Trial
amendments to registration statements, and Court: Provided, that the Supreme Court in the
registration and licensing applications; exercise of its authority may designate the
4. Regulate, investigate or supervise the Regional Trial Court branches that shall exercise
activities of persons to ensure compliance jurisdiction over these cases. The SEC shall
5. Supervise, monitor, suspend or take over retain jurisdiction over pending cases involving
the activities of exchanges, clearing intra-corporate disputes submitted for final
agencies and other SROs; resolution which should be resolved within one
6. Impose sanctions for the violation of laws (1) year from the enactment of the Code. The
and the rules, regulations and orders issued SEC shall retain jurisdiction over pending
pursuant thereto; suspension of payments/ rehabilitation cases
7. Prepare, approve, amend or repeal rules, filed as of 30 June 2000 until finally disposed.

3
E.PROCEDURE FOR REGISTRATION OF aggregate price of the offering.
SECURITIES B) Notice of the filing of the registration
1. All securities required to be registered shall statement shall be immediately published
be registered through the filing by the by the issuer, at its own expense, in two
issuer in the main office of the SEC, of a (2) newspapers of general circulation in the
sworn registration statement with respect Philippines, once a week for two (2)
to such securities, in such form and consecutive weeks, or in such other manner
containing such information and documents as the Commission by rule shall prescribe,
as the SEC shall prescribe. The registration reciting that a registration statement for the
statement shall include any prospectus sale of such security has been filed, and
required or permitted to be delivered. that the aforesaid registration statement, as
2. In promulgating rules governing the well as the papers attached thereto are
content of any registration statement open to inspection at the Commission
(including any prospectus made a part during business hours, and copies thereof,
thereof or annexed thereto), the SEC may photo static or otherwise, shall be furnished
require the registration statement to to interested parties at such reasonable
contain such information or documents as it charge as the Commission may prescribe.
may, by rule, prescribe. It may dispense 6. Within forty-five (45) days after the date of
with any such requirement, or may require filing of the registration statement, or by
additional information or documents, such later date to which the issuer has
including written information from an consented, the Commission shall declare
expert, depending on the necessity thereof the registration statement effective or
or their applicability to the class of rejected, unless the applicant is allowed to
securities sought to be registered. amend the registration statement as
3. The information required for the provided in Section 14 hereof. The
registration of any kind, and all securities, Commission shall enter an order declaring
shall include, among others, the effect of the registration statement to be effective if
the securities issue on ownership, on the it finds that the registration
mix of ownership, especially foreign and statement together with all the other
local ownership. papers and documents attached thereto is
4. The registration statement shall be signed on its face complete and that the
by the issuer‘s executive officer, its requirements have been complied with. The
principal operating officer, its principal Commission may impose such terms and
financial officer, its comptroller, principal conditions as may be necessary or
accounting officer, its corporate secretary appropriate for the protection of the
or persons performing similar functions investors.
accompanied by a duly verified resolution 7. Upon effectivity of the registration
of the board of directors of the issuer statement, the issuer shall state under oath
corporation. The written consent of the in every prospectus that all registration
expert named as having certified any part requirements have been met and that all
of the registration statement or any information are true and correct as
document used in connection therewith represented by the issuer or the one
shall also be filed. Where the registration making the statement. Any untrue
statement includes shares to be sold by statement of fact or omission to state a
selling shareholders, a written certification material fact required to be stated therein
by such selling shareholders as to the or necessary to make the statement therein
accuracy of any part of the registration not misleading shall constitute fraud. (Sec. 12,
statement contributed to by such selling SRC)
shareholders shall also be filed.
5. A) Upon filing of the registration statement, F.PROHIBITION ON FRAUD,
the issuer shall pay to the Commission a MANIPULATION AND INSIDE TRADING
fee of not more than one-tenth (1/10) of
one per centum (1%) of the maximum Manipulation of security prices
aggregate price at which such securities are It shall be unlawful for any person acting for
proposed to be offered. The Commission himself or through a dealer or broker, directly
shall prescribe by rule diminishing fees in or indirectly:
inverse proportion to the value of the

4
1. To create a false or misleading appearance Commission. (Sec. 24.1, SRC)
of active trading in any listed security No person shall use or employ, in connection
traded in an Exchange or any other trading with the purchase or sale of any security and
market (hereafter referred to purposes of manipulative or deceptive device or contrivance.
this Chapter as ―Exchange‖):
a. By effecting any transaction in such Neither shall any short sale be effected nor any
security which involves no change in the stop-loss order be executed in connection with
beneficial ownership thereof; the purchase or sale of any security except in
b. By entering an order or orders for the accordance with such rules and regulations as
purchase or sale of such security with the Commission may prescribe as necessary or
the knowledge that a simultaneous appropriate in the public interest or for the
order or orders of substantially the same protection if investors. (Sec. 24.2, SRC)
size, time and price, for the sale or
purchase of any such security, has or The Commission, having due regard to the
will be entered by or for the same or public interest and the protection of investors,
different parties; or may, by rules and regulations, allow certain acts
c. By performing similar act where there is of transaction that may otherwise be prohibited
no change in beneficial ownership. under this Section. (Section 24.3, SRC)
2. To effect, alone or with others, a series of
transactions in securities that: Wash Sale
a. Raises their price to induce the purchase It is any transaction in a security which involves
of a security, whether of the same or a no change in the beneficial ownership thereof.
different class of the same issuer or of a Thus, a series of buy and sale transaction may
controlling, controlled, or commonly be placed by one and the same beneficial owner
controlled company by others; in the Exchange which would not affect any
b. Depresses their price to induce the sale change of ownership of the shares transacted.
of a security, whether of the same or a (Sec. 24.1(a)(i), SRC)
different class, of the same issuer or of
a controlling, controlled, or commonly Matched Order
controlled company by others; or It is an order/s for the purchase or sale of
c. Creates active trading to induce such a security with the knowledge that a
purchase or sale through manipulative simultaneous order/s of substantially the same
devices such as marking the close, size, time, and price for the sale or purchase of
painting the tape, squeezing the float, such security has, or will be entered by or for
hype and dump, boiler room operations the same or different parties. (Sec. 24.1[a][ii],
and such other similar devices. SRC).
3. To circulate or disseminate information that
the price of any security listed in an Note:
Exchange will or is likely to rise or fall
because of manipulative market operations Wash sale and marched ordered are NOT
of any one or more persons conducted for by themselves illegal.
the purpose of raising or depressing the
price of the security for the purpose of To be illegal, thus subject to the penal sanctions
inducing the purchase or sale of such provided for in Section 73, they must be used as
security. a means ―to create a false or misleading
4. To make false or misleading statement with appearance of active trading‖ in the security
respect to any material fact, which he knew concerned. (Sec. 24.1 [a], SRC)
or had reasonable ground to believe was so
false or misleading, for the purpose of inducing Marking the close
the purchase or sale of any security listed or
traded in an Exchange. It is placing of purchase or sale order at or near
5. To effect, either alone or others, any series the close of the trading period. The person
of transactions for the purchase and/or sale making the order would thus post a higher or
of any security traded in an Exchange for lower price for the security just barely before
the purpose of pegging, fixing or stabilizing the close of the market thereby increasing or
the price of such security, unless otherwise lowering the closing price. The price of the
allowed by this Code or by rules of the

5
security on the following trading day will thus predictions and mailing of misleading market
be the same price as marked or taped on the letters.
close the day before. (Sec. 24.1[b][4][ii], SRC)
Marking the close/painting the tape, squeezing
Painting the tape the float, hype and dump, boiler room
operations become unlawful if it is effected to
It is akin to marking the close but the activity is either:
made during normal trading hours. It involves
buying activity among nominee accounts at 1. Raise the price or induce the purchase of a
increasingly higher or lower prices or causing security or of a controlling, controlled, or
fictitious reports to appear on the ―ticker commonly controlled company by others;
tape.‖ (Sec. 24.1[b][4][i], SRC) 2. Depresses their price to induce the sale of a
security, whether of the same or of a
Squeezing the float different class, of the same issuer or of a
controlling, controlled company, or common
It is a part or portion of the issue/security which controlled company by others; and
is outstanding but intentionally held by dealers 3. Creates active trading to induce such
or other persons with a view of reselling them purchase or sale through said devices or
later for profit. There would thereby be a short schemes.
on supply or availability of the stock vis-à-vis the
demand which would generally raise the price Circulating or Disseminating Information
of the security involved. (Sec. 24.1[b][4][vi], that the price of any security listed in the
SRC) Exchange will or is likely to rise or fall because
of manipulative market operations of any one
Hype and Dump or more persons conducted for the purpose of
raising or depressing the price of the security
It is an act employed by a person or group of and thus inducing the purchase or sale of such
persons of purchasing the outstanding capital security is outlawed under Section 24.1 (c).
stock of a dormant public shell company for a Marking False or Misleading Statements
nominal amount and merges it with their with respect to any material fact, which he
privately held company. They would then gain knew or had reasonable grounds to believe was
control of the majority of the stocks of the so false or misleading for the purpose of
merged entity. The shares of the Shell Company inducing the purchase or sale of any security is
are often reverse-split four to one or more to likewise illegal under Section 24.1 (d).
reduce the number of shares. Stock certificates
are often re-issued in the name if the merged Pegging or Fixing or stabilizing the price of
entity to relatives and associates who act as security effected either alone or with others
nominees of the person or group pf persons through any series of transactions for the
employing the device. They would then look for purchase or sale thereof, if done for such
a broker-dealer who would be willing to make a purpose is also illegal under Section 24.1 (e).
market relative to the stocks of the newly
merged company; then hire a promoter who Short Sale
would ―hype‖ the virtues of the company; its
products and stocks. The broker-dealer then It is the selling of security which the vendor
generates volume and advances bid price. does not own, and is now illegal per se under
When the market reaches a high price, they Section 24.2, unless, it is done in accordance
would ―dump‖ their shareholdings and bail out. with the rules and regulations of the SEC. Sec.
(Sec. 24.1[b][4][iv], SRC) 24.2-2, IRR of SRC)

Boiler Room Operations Option Trading, regulation:

It involves an intensive selling campaign through No member of an Exchange shall, directly or

numerous salesmen by telephone or through indirectly endorse or guarantee the
direct mail offerings for securities of either a performance of any put, call, straddle, option
certain type or from a specific issuer. or privilege in relation to any security
Investors are induced to purchase through registered on a securities exchange. The
hard sell techniques based on unfounded terms ―put‖, ―call‖, ―straddle‖,

6
―option‖, or ―privilege‖ shall not include any A purchase or sale of a security of the issuer
registered warrant, right or convertible security. made by an insider, or such insider‘s spouse or
(Sec. 26, SRC) relatives by affinity or consanguinity within the
second degree, legitimate or common-law, shall
Fraudulent transactions be presumed to have been effected while in
possession of material non-public information if
It shall be unlawful for any person, directly or transacted after such information came into
indirectly, in connection with the purchase or existence but prior to dissemination of such
sale of any securities to: information to the public and the lapse of a
reasonable time for the market to absorb such
1. Employ any device, scheme, or artifice to information: Provided, however, That this
defraud; presumption shall be rebutted upon a showing
2. Obtain money or property by means of any by the purchaser or seller that he was not aware
untrue statement of a material fact of any of the material non-public information at the
omission to state a material fact necessary time of the purchase or sale. (Sec. 27, SRC)
in order to make the statements made, in What sought to be addressed:
the light of the circumstances under which What is sought to be addressed here is the
they were made, not misleading; or asymmetry in information about a ―public
3. Engage in any act, transaction, practice or company‖ (such as a company listed on the
course of business which operates or would Philippine Stock Exchange) between insiders
operate as a fraud or deceit upon any and outsiders.
person. (Sec. 26, SRC)
Insiders could have material information not yet
Insider Trading known to the public about the company, and
It is the act of an ―insider‖ to buy or sell they might use this information to benefit
security of the issuer while in possession of themselves at the expense of the outsiders or
material information with respect thereto that the public. Therefore, they must not trade in
is not generally available to the public is illegal the shares of the company pending the
unless the conditions set forth in Section 27 are disclosure of such information to the public.
present. (Ladia, The Corporation Code of the
Philippines (annotated) with The Securities Insider
Regulation Code (R.A. 8799) and Presidential
Decree No. 902-A, pp. 647-649, Third Edition) An insider means:
1. The issuer;
Prohibition on insider trading, 2. A director or officer (or any person
requirements for a valid defense against performing similar functions) of, or a
the prohibition: person controlling the issuer; gives or gave
him access to material information about
It shall be unlawful for an insider to sell or buy a the issuer or the security that is not
security of the issuer, while in possession of generally available to the public;
material information with respect to the issuer 3. A government employee, director, or officer
or the security that is not generally available to of an exchange, clearing agency and/or
the public, unless: self-regulatory organization who has access
to material information about an issuer or a
1. The insider proves that the information was security that is not generally available to
not gained from such relationship; or the public; or
2. If the other party selling to or buying from 4. A person who learns such information by a
the insider (or his agent) is identified, the communication from any foregoing insiders
insider proves: (Section 3.8, SRC)
a. that he disclosed the information to the
other party, or Information is “material non-public” if:
b. that he had reason to believe that the
other party otherwise is also in 1. It has not been generally disclosed to the
possession of the information. public and would likely affect the market
Presumption of sale being effected while price of the security after being
in possession of material non-public disseminated to the public and the lapse of
information a reasonable time for the market to absorb

7
the information; or Tender Offer Rule
2. Would be considered by a reasonable
person important under the circumstances in Tender offer is a publicly announced intention
determining his course of action whether to by a person acting alone or in concert with
buy, sell or hold a security. other persons to acquire equity securities of a
public company. Stated differently, a tender
Prohibition on insider of communicating offer is an offer by the acquiring person to
material non-public information about the stockholders of a public company for them to
issuer to another who becomes an insider tender their shares therein on the terms
and who is likely to buy or sell security of specified in the offer. Tender offer is in place to
the issuer It shall be unlawful for any insider to protect minority shareholders against any
communicate material non-public information scheme that dilutes the share value of their
about the issuer or the security to any person investments. It gives the minority shareholders
who, by virtue of the communication, becomes the chance to exit the company under
an insider as defined in Subsection 3.8, where reasonable terms, giving them the opportunity
the insider communicating the information to sell their shares at the same price as those of
knows or has reason to believe that such person the majority shareholders. (Cemco Holdings, Inc.
will likely buy or sell a security of the issuer vs. National Life Insurance
while in possession of such information. Company, Inc. G.R. No. 171815, August 7, 2007)

Prohibition on Tender Offer Mandatory Tender Offers

1. Any person or group of persons acting in
It shall be unlawful where a tender offer has concert, who intends to acquire fifteen
commenced or is about to commence for: percent (15%) of equity securities in a
1. Any person (other than the tender offeror) public company in one or more transactions
who is in possession of material non-public within a period of twelve (12) months,
information relating to such tender offer, to shall file a declaration to that effect with
buy or sell the securities of the issuer that the SEC.
are sought or to be sought by such tender 2. Any person or group of persons acting in
offer if such person knows or has reason to concert, who intends to acquire thirty five
believe that the information is non-public percent (35%) of the outstanding voting
and has been acquired directly or indirectly shares or such outstanding voting shares
from the tender offeror, those acting on its that are sufficient to gain control of the
behalf, the issuer of the securities sought or board in a public company in one or more
to be sought by such tender offer, or any transactions within a period of twelve (12)
insider of such issuer; and months, shall disclose such intention and
2. Any tender offeror, those acting on its contemporaneously make a tender offer for
behalf, the issuer of the securities sought or the percentage sought to all holders of
to be sought by such tender offer, and any such securities within the said period.
insider of such issuer to communicate If the tender offer is oversubscribed, the
material non-public information relating to aggregate amount of securities to be
the tender offer to any other person where acquired at the close of such tender offer
such communication is likely to result in a shall be proportionately distributed across
violation of Subsection 27.4 (a)(i). (Sec. 27, selling shareholders with whom the
SRC) acquirer may have been in private
Included in the term “securities of the negotiations and other shareholders. For
issuer sought or to be sought by such purposes of SRC Rule 19.2.2, the last sale
tender offer” that meets the threshold shall not be
For purposes of this subsection the consummated until the closing and
term ―securities of the issuer sought or to be completion of the tender offer]
sought by such tender offer‖ shall include any 3. Any person or group of persons acting in
securities convertible or exchangeable into such concert, who intends to acquire thirty five
securities or any options or rights in any of the percent (35%) of the outstanding voting
foregoing securities. (Subsection 27.4 [b]) shares or such outstanding voting shares
that are sufficient to gain control of the
G.PROTECTION OF SHAREHOLDER board in a public company through the
INTERESTS Exchange trading system shall not be

8
required to make a tender offer even if Securities Regulation Code is to regulate
such person or group of persons acting in activities relating to acquisition of control of the
concert acquire the remainder through a listed company and for the purpose of
block sale if, after acquisition through the protecting the minority stockholders of a listed
Exchange trading system, they fail to corporation. Whatever may be the method by
acquire their target of thirty five percent which control of a public company is obtained,
(35%) or such outstanding voting shares either through the direct purchase of its stocks
that is sufficient to gain control of the or through an INDIRECT means, mandatory
board. tender offer applies. What is decisive is the
4. Any person or group of persons acting in determination of the power of control. The
concert, who intends to acquire thirty five legislative intent behind the tender offer rule
percent (35%) of the outstanding voting makes clear that the type of activity intended to
shares or such outstanding voting shares be regulated is the acquisition of control of the
that are sufficient to gain control of the listed company through the purchase of shares.
board in a public company directly from Control may [be] effected through a direct and
one or more stockholders shall be required indirect acquisition of stock, and when this
to make a tender offer for all the takes place, irrespective of the means, a tender
outstanding voting shares. The sale of offer must occur. The bottom line of the law is
shares pursuant to the private transaction to give the shareholder of the listed company
or block sale shall not be completed prior to the opportunity to decide whether or not to sell
the closing and completion of the tender in connection with a transfer of control. (Cemco
offer. Holdings, Inc. vs. National Life Insurance
5. If any acquisition that would result in Company, G.R. No. 171815, August 7, 2007)
ownership of over fifty percent (50%) of
the total outstanding equity securities of a Rules on proxy solicitation
public company, the acquirer shall be
required to make a tender offer under this 1. Proxies must be issued and proxy solicitation
Rule for all the outstanding equity securities must be made in accordance with rules and
to all remaining stockholders of the said regulations to be issued by the SEC.
company at a price supported by a fairness 2. Proxies must be in writing, signed by the
opinion provided by an independent stockholder or his duly authorized
financial advisor or equivalent third party. representative and filed before the
scheduled meeting with the corporate
The acquirer in such a tender offer shall be secretary.
required to accept all securities tendered. 3. Unless otherwise provided in the proxy, it
(Rule 19. 2 of 2015 Implementing Rules and shall be valid only for the meeting for which
Regulations of the Securities Regulation Code) it is intended. No proxy shall be valid and
effective for a period longer than five (5)
Purpose of tender offer years at one time.
4. No broker or dealer shall give any proxy,
The purpose of tender offer rule is to protect consent or authorization, in respect of any
the interest of minority stockholders of a target security carried for the account of a
company against any scheme that dilutes the customer, to a person other than the
share value of their investments. It affords such customer, without the express written
minority shareholders the opportunity to authorization of such customer.
withdraw or exit from the company under 5. A broker or dealer who holds or acquires the
reasonable terms or a chance to sell their shares proxy for at least ten per centum (10%) or
at the same price as those of majority such percentage as the SEC may prescribe
stockholders. (Cemco Holdings, Inc. vs. National of the outstanding share of the issuer, shall
Life Insurance Company, Inc. G.R. No. 171815, submit a report identifying the beneficial
August 7, 2007) owner within ten (10) days after such
acquisition, for its own account or customer,
The coverage of the mandatory tender to the issuer of the security, to the
offer rule covers not only direct acquisition Exchange where the security is traded and
but also indirect acquisition or “any type to the SEC. (Sec. 20, SRC)
of acquisition.”
The legislative intent of Section 19 of the

9
Disclosure rule business and financial condition of the
issuer.
All information filed with the SEC in compliance
with the requirements of SRC shall be made Note: Under this Section, ‗issuer‘ includes:
available to any member of the general public, 1. An issuer which has sold a class of its
upon request, in the premises and during securities pursuant to a registration under
regular office hours of the SEC, except as set section 12 hereof.
forth in this Section. Nothing in this Code shall
be construed to require, or to authorize the BUT the requirement shall be suspended for
Commission to require, the revealing of trade any fiscal year after the year such
secrets or processes in any application, report, registration became effective if such issuer,
or document filed with the SEC. as of the first day of any such fiscal year,
has less than one hundred (100) holder of
Any person filing any such application, report or such class of securities or such other
document may make written objection to the number as the SEC shall prescribe and it
public disclosure of information contained notifies the SEC of such;
therein, stating the grounds for such objection,
and the SEC may hear objections as it deems 2. An issuer with a class of securities listed for
necessary. The SEC may, in such cases, make trading on an Exchange; and
available to the public the information 3. An issuer with assets of at least Fifty million
contained in any such application, report, or pesos (50,000,000.00) or such other
document only when a disclosure of such amount as the SEC shall prescribe, and
information is required in the public interest or having two hundred (200) or more holders
for the protection of investors; and copies of each holding at least one hundred (100)
information so made available may be furnished share of a class of its equity securities.
to any person having a legitimate interest
therein at such reasonable charge and under The obligation of such issuer to file report shall
such reasonable limitations as the SEC may be terminated ninety (90) days after notification
prescribe. to the SEC by the issuer that the number of its
holders holding at least one hundred (100)
It shall be unlawful for any member, officer, or shares is reduced to less than one hundred
employee of the SEC to disclose to any person (100). Disclosure by the Issuer (To the equity
other than a member, officer or employee of holders) An annual report shall be furnished by
the SEC or to use for personal benefit, any every issuer which has a class of equity
information contained in any application, report, securities .
or document filed with the SEC which is not
made available to the public pursuant to Disclosure by Equity Holders
Subsection 66.3. (Sec. 66, SRC) Any person who acquires directly or indirectly
the beneficial ownership of more than five of
Who are required? per centum (5%) of such class or in excess of
Issuers, equity holders, and insiders are such lesser per centum as the SEC by rule may
required to disclose certain information to the prescribe, shall, within ten (10) days after such
SEC. (Secs. 17, 18, and 23 of SRC) acquisition or such reasonable time as fixed by
the SEC, submit to: (1) the issuer of the
Disclosure by the Issuer securities; (2) to the Exchange where the
(To the SEC) (Sec. 17, SRC) security is traded; and (3) to the SEC, the
following information:
Every issuer shall file with the SEC:
1. Annual Report within one hundred thirty-five 1. The personal background, identity,
(135) days, after the end of the issuer‘s residence, and citizenship of, and the
fiscal year, or such other time as the SEC nature of such beneficial ownership by,
may prescribe such person and all other persons by whom
2. Such other periodical reports for interim or on whose behalf the purchases are
fiscal periods and current reports on effected; in the event the beneficial owner
significant developments of the issuer as the is a juridical person, the line of business of
SEC may prescribe as necessary to keep the beneficial owner shall also be reported;
current information on the operation of the 2. If the purpose of the purchases or

10
prospective purchases is to acquire control
of the business of the issuer of the
securities, any plans or proposals which
such persons may have that will effect a
major change in its business or corporate
structure;
3. The number of shares of such security
which are beneficially owned, and the
number of shares concerning which there is
a right to acquire, directly or indirectly, by;
(i) such person, and (ii) each associate of
such person, giving the background,
identity, residence, and citizenship of each
such associate; and
4. Information as to any contracts,
arrangements, or understanding with any
person with respect to any securities of the
issuer including but not limited to transfer,
joint ventures, loan or option
arrangements, puts or call guarantees or
division of losses or profits, or proxies
naming the persons with whom such
contracts, arrangements, or understanding
have been entered into, and giving the
details thereof.

Note: If it appears to the SEC that securities

were acquired by person in the ordinary course
of his business and were not acquired for the
purpose of and do not have the effect of
changing or influencing the control of the issuer
nor in connection with any transaction having
such purpose or effect it may permit any person
to file in lieu of the statement required, a notice
stating:

1. The name of such person;

2. The shares of any equity securities which
are owned by him;
3. The date of their acquisition; and
4. Such other information as the commission
may specify.

DISCLOSURE BY INSIDER

An insider has the duty to disclose material

information with respect to the issuer or the
security that is not generally available to the
public.

A beneficial owner of 10% of a public company

becomes a ―principal shareholder‖ required to
disclose his interest to the SEC, the company,
and the Philippine Stock Exchange (if the
company is listed there). (Sec. 23, SRC)

11
 CASES:

1. Tender Offer
Rule
(Cemco Holdings,
Inc. vs. National
Life Insurance
Company, Inc.
G.R. No. 171815,
August 7, 2007)

2. Insider Trading:
Investment
Contract
People v. Petralba
(G.R No. 81337

12