G.R. No. L-17314 - De Winkleman vs. Veluz

Case Summary (G.R. No. L-17314)

Petitioner

Makati Stock Exchange, Inc. — sought registration and license to operate as a stock exchange under the Securities Act (Commonwealth Act No. 83, as amended) and objected to the Commission’s imposed condition forbidding the listing of securities already listed on the Manila Stock Exchange.

Respondents

Securities and Exchange Commission — issued a resolution conditioning any permit to Makati on an agreement not to list securities already listed in the Manila Stock Exchange. Manila Stock Exchange — asserted interests as the incumbent exchange and claimed res judicata based on an earlier Commission order.

Key Dates (administrative orders relevant to the dispute)

May 27, 1963 — Commission issued an order allowing issuance of Makati’s certificate of incorporation but indicating it would permit operation only if Makati agreed to the no-double-listing condition when it applied for registration.
May 7, 1964 — Commission denied Makati’s request to dispense with the no-double-listing condition; this denial was the subject of the present review.

Applicable Law and Statutory Provisions

Securities Act (Commonwealth Act No. 83, as amended): sec. 17 (registration requirements for a stock exchange), sec. 17-a-1 (agreement to comply with Act and rules), sec. 28 (powers of the Commission with respect to exchanges and securities, including suspension of trading), sec. 28b-13 (requiring and enforcing uniformity of trading regulations where two or more exchanges exist), sec. 28b-3 (authority to alter or supplement an exchange’s rules with respect to listing/striking of securities), and sec. 33 (general power to regulate).
Constitutional guarantees invoked by the court: equality before the law, liberty to pursue lawful occupation or trade, and the investors’ freedom to choose brokers and venues for trade. (Decision made before the 1973 Constitution; the 1935 Constitution is the appropriate constitutional framework for analysis.)

Procedural and Factual Background

Under the Securities Act, a stock exchange must register with the SEC by filing the statement required by sec. 17. Makati complied with the statutory filing requirements for corporate existence and anticipated registration as an exchange. The Commission conditioned its permission to operate on Makati’s agreement not to list securities already listed on the Manila Stock Exchange. Makati did not appeal an earlier administrative order that contained the proviso (May 27, 1963) but later contested the validity of the no-double-listing condition when it sought registration and license; the Commission denied the contest (May 7, 1964), prompting judicial review.

Legal Issue Presented

Whether the Securities and Exchange Commission had statutory authority to impose, as a condition for registration and licensing, a rule barring a newly organized exchange from listing securities already listed on an existing exchange — i.e., a prohibition on double listing — and whether such a condition violated statutory limits or constitutional rights.

Commission’s Stated Justifications for the No-Double-Listing Rule

The Commission defended the rule on two primary grounds: (a) public interest — the Commission considered that allowing multiple exchanges listing the same securities was inimical to the public interest and might undermine market stability; and (b) investor protection — the Commission asserted that double listing would divide buyers and sellers across exchanges, thereby “destroying the essence” of a two-way auction market and exposing investors to harm, citing as authority its powers (including prior departmental approval and general regulatory authority).

Court’s Analysis of the Commission’s Statutory Authority

Limited Delegation Principle: The court emphasized that administrative agencies possess only powers expressly granted by statute and those necessarily implied. The Commission failed to point to a specific statutory provision expressly authorizing a prohibition on double listing.
Inapplicability of General Regulatory Power: The court found that the general power to “regulate” (sec. 33) does not, under prevalent judicial precedents cited in the opinion, imply authority to prohibit outright.
Suspension Power Not a Substitute: The Commission’s power under sec. 28 to suspend trading in a security (for protection of investors and if the public interest so requires) does not authorize indefinite prohibition or a permanent bar on listing the same security on another exchange. Moreover, the suspension power is framed as a short-term remedy (ten days was noted in the opinion as the authorized suspension period) and would apply uniformly across exchanges when invoked to protect investors, not selectively to bar a new exchange from listing.
Rule-Change Authority Not Applicable: The Commission’s reliance on its authority (under sec. 28b-3 as cited in its brief) to alter or supplement an exchange’s rules was rejected because the dispute did not involve changing the internal rules of Makati’s purported exchange but rather a precondition to registration applicable to the Commission itself.

Court’s Analysis on Public Interest and Monopoly Concerns

Statutory Intent and Historical Practice: The court reasoned that the Securities Act itself contemplates the existence of two or more exchanges (sec. 28b-13 requires uniformity of trading regulations where multiple exchanges exist) and acknowledged that, historically, several exchanges operated prior to World War II and dual listing was practiced. Consequently, the mere existence of multiple exchanges cannot be assumed to be contrary to the public interest.
Monopoly and Competition: The Commission’s condition would, in practice, perpetuate a monopoly (the Manila Stock Exchange would remain effectively the sole place where many widely traded securities could be dealt). The court considered the Commission’s paradoxical statements — recognizing benefits of multiple exchanges and fair competition while imposing a rule that effectively preserved a single exchange’s dominance — and concluded that such a restriction improperly restrains free competition and could contravene statutory and constitutional protections.
Legislative Prerogative: The court observed that if Congress intended to prohibit multiple exchanges or double listing on public-interest grounds it would have done so; where the statute specifies registration conditions, it is not the Commission’s role to impose additional conditions amounting to economic regulation that the legislature did not enact.

Court’s Analysis on Investor Protection Argument

Distinction Between “Beneficial” and “Necessary”: The court accepted, arguendo, that some arrangements favored by the Commission might benefit investors, but noted that not every beneficial rule is “necessary” for their protection under the Securities Act’s remit (which principally targets fraud, misrepresentation, and worthless ventures).
Price Variance as a Market Benefit: The court reasoned that variance in price across exchanges and differences in brokerage rates offer investors alternative options to buy at lower cost or sell at higher prices; such competition may better serve investors rather than harm them.
Targeted Remedies for Specific Abuses: If abuses such as price manipulation occur, the Commission has other statutory means to address specific unfair practices; a blanket prohibition on double listing is an overbroad tool not shown to be necessary for investor protection.

Res Judicata and the Prior Order of May 27, 1963

Nature of the Prior Order: The May 27, 1963 Commission order issued Makati’s certificate of incorporation and contained an anticipatory statement that the Commission would permit operation only if the organizers agreed to the no-double-listing condition when they applied for registration.
Non-Appeal and Later Challenge: Makati did not appeal the May 27 order because it o

Case Syllabus (G.R. No. L-17314)

Procedural Posture and Relief Sought

Petition for judicial review of a resolution of the Securities and Exchange Commission (SEC) denying Makati Stock Exchange, Inc. permission to operate a stock exchange unless it agreed not to list for trading securities already listed in the Manila Stock Exchange.
Petitioner Makati Stock Exchange, Inc. objects to the requirement (the “rule against double listing”) on the grounds that the Commission lacks power to impose it and that the rule is illegal, discriminatory and unjust.
The resolution under review is dated May 7, 1964; a prior Commission order of May 27, 1963, had conditionally issued petitioner’s certificate of incorporation but included the same proviso against double listing which Makati did not appeal.
The Supreme Court granted the petition, holding that the Commission possessed no power to impose the condition and approving petitioner’s license to operate a stock exchange without the condition; costs were awarded against the Manila Stock Exchange.

Parties and Citation

Reported at 121 Phil. 1412; G.R. No. L-23004; decision dated June 30, 1965.
Petitioner: Makati Stock Exchange, Inc.
Respondents: Securities and Exchange Commission and Manila Stock Exchange.
Opinion authored by Chief Justice Bengzon, with concurrence by the full court listed in the source.

Statutory Framework and Specific Provisions Cited

Securities Act (Commonwealth 83, as amended) governs registration and operation of stock exchanges.
Section 17: No stock exchange may do business in the Philippines unless previously registered with the Commission by filing a statement containing information described in sec. 17; sec. 17(a)(1) and (d) permit denial of registration where the applicant shows inability or refusal to abide by rules.
Section 28: Titled “Powers (of the Commission) with respect to Exchanges and Securities”; includes the power to suspend trading in any registered security on any exchange “if in its opinion, the public interest so requires,” and authorizes suspension for ten days under sec. 28(3).
Section 28b-13 (referred to as Sec. 28b-13, Securities Act): “Wherever two or more exchanges exist, the Commission, by order, shall require and enforce uniformity of trading regulations in and/or between said exchanges.” (Italics in source.)
Section 28b-3 (cited by the Commission in its brief): authority “to alter or supplement the Rules of such exchange … in respect of such matters as: … the listing or striking from listing of any security.” (Court finds this inapplicable to changing Makati Exchange’s rules.)
Section 17-a-1 (quoted): contains an agreement clause that such agreement “shall not be construed as a waiver of any constitutional right or any right to contest the validity of any rule or regulation,” supporting the proposition that acceptance of certain conditions does not preclude later challenge.

Factual Background

The Manila Stock Exchange had been operating alone for approximately 25 years and, according to the Court’s summary of the market situation, “all or presumably all available or worthwhile securities for trading in the market are now listed there.”
Before the Pacific War, there were five stock exchanges in Manila and dual listing was practiced then (as admitted by respondents).
Makati Stock Exchange sought registration and permission to operate as a stock exchange and was issued a certificate of incorporation by the Commission on May 27, 1963, with the proviso that it would not list securities already listed in the Manila Stock Exchange; Makati did not appeal that order.
When Makati later applied for registration and licensing to operate, it challenged the condition and the Commission issued a resolution denying relief dated May 7, 1964, prompting this judicial review.

Administrative Action Challenged — The Rule Against Double Listing

The Commission’s rule (quoted in the record) provides: “nor shall a security already listed in any securities exchange be listed anew in any other securities exchange,” here characterized as a rule against double listing.
The Commission conditioned issuance of registration/licensing on Makati’s agreement to abide by that rule; refusal to accept or to operate contrary to the rule was treated as inability or refusal to abide by Commission rules and grounds for denial under sec. 17 provisions.
The Commission asserted the rule served the public interest and the protection of investors; it also relied on the claim that the rule had Department Head approval before the War.

Petitioner's Contentions

The Commission has no power under the Securities Act to impose the prohibition against double listing as a condition of registration.
The rule is illegal, discriminatory and unjust, and would, in effect, make it impossible for Makati to operate (its “permission” would amount to a “prohibition”).
Denial of the right to list securities already listed in the Manila Stock Exchange would create a monopoly, restricting free competition and depriving the public and investors of advantages of competition.
Makati challenged the condition when it followed through on registration and licensing; it relied on the statutory regime and the right to contest administrative rules.

Respondents’ Contentions and Justifications

The Commission defended the rule as necessary “in the public interest” and for the “protection of the investors,” arguing double listing divides sellers and buyers and destroys the essence of a stock exchange as a two-way auction market where buyers and sellers converge in a defined place.
The Commission suggested its rule was acceptable be