QuestionsQuestions (SEC)
A futures contract is (1) an agreement to buy and sell a specified quantity and grade of commodity at a future date at a price established on the exchange floor, or (2) an agreement to buy or sell foreign currency or foreign interest notes at a future date where, on expiration, there is cash settlement instead of delivery.
It is any corporation authorized by the SEC to operate as such, whose members are engaged in purchasing and selling futures contracts for the account of other persons, including the market place and the market facilities maintained by the exchange.
A futures broker is a registered and licensed corporation engaged in soliciting or accepting orders for the purchase or sale of futures contracts traded in the Philippine market, collecting margins in money in connection with such solicitation/acceptance.
Locals are individuals authorized by the exchange to trade exclusively for their own personal account. Those who trade exclusively for personal account buy a locals right.
A trading advisor is a person licensed by the SEC who, for a fee, advises others about commodity futures value and advisability of trading, or who regularly issues analyses/reports for compensation. Excluded are banks/trust companies; journalists/reporters/columnists/editors; lawyers/accountants/teachers; publishers of bona fide newspapers/news publications of general regular circulation and their employees; the contract market; and other persons specified by the SEC by rule/order. Incidental furnishing in their profession may be allowed as long as it is solely incidental.
It is the central agency through which transactions of members are cleared and guaranteed, and settlements are effected.
Among others: compliance with minimum SRO requirements (membership acceptance guidelines; organizational structure and key personnel rules; business conduct rules; trading rules and abuse-prevention; uniform accounting/record-keeping and audit trails; surveillance/compliance/enforcement systems; investigation and disciplinary procedures; customer protection/settlement of disputes; risk management; suspension/liquidation procedures); at least 1/3 non-brokers on the board and a non-broker president; adequate facilities/financial/managerial capabilities/expertise/integrity; a public real-time trading price gallery and transparency measures with regulatory access; efficient communication systems; ability to relocate with SEC approval; and if needed, warehouse accessibility for surveillance.
They must submit rules/resolutions containing: screening process for “fit and proper” applicants; preventing dissemination of false/misleading crop/market reports; preventing price manipulation and cornering; warehouse record-keeping/reporting and visitation; delivery notice at least 3 business days prior; delivery standards and grades conforming to exchange standards approved by SEC; acceptance of Warehouse Receipts Law receipts; minimum financial standards for member brokers; contract terms/trading requirements; delivery point/quality/price differentials to prevent manipulation; fair arbitration for customers’ claims; penalties for inactive members; investor education/training/testing for sales reps; making complete lists of accredited brokers and sales reps available; fidelity fund/surety bond; and investor advisory that obligations do not carry implied assurance of foreign exchange by BSP/banking system.
After notice and hearing, failure/refusal to comply with SEC rules or an SEC order is cause for suspension up to 12 months or revocation. The SEC may also suspend up to 12 months or revoke if the exchange is not enforcing rules that were conditions of designation. If public interest requires, the SEC may summarily suspend trading in any futures contract for up to 30 days, or summarily suspend all trading for more than 30 days but not exceeding 90 days.
The clearing house must be an independent credible institution (preferably a reputable bank); be prepared to confirm transactions upon request; and specify/identify and implement with the exchange: initial margin per contract, margin call (intraday) level, mandatory cut-loss level, and maintain buffer margin deposits.
Minimum paid-up capital of PHP 10,000,000; at least PHP 2,000,000 cash operating capital; surety bond of PHP 5,000,000 in favor of the SEC; buffer margin deposited with clearing house (2% of outstanding contract or higher); fidelity fund and a toll per contract charged by the exchange. It must also maintain unimpaired paid-up capital of PHP 10,000,000 with cash operating capital at least PHP 2,000,000, and net assets not less than 20% of total liabilities.
They must keep daily trading records of each customer and books/records of transactions/positions; keep proof of execution for orders executed via a foreign-based contract market; require customers to execute and sign (in presence of authorized officer) a risk disclosure statement in English and Filipino and keep it for inspection; voice-record trading activities; send monthly account statements; file annual/semi-annual financial condition statements within 60 days after period end, certified by an independent CPA; keep required reports for at least 5 years and allow SEC inspection.
Customer money/margins must be treated as belonging to the customer, deposited in a separate “Customers Account,” separately accounted for, and not commingled with broker funds or used to margin/guarantee other customers’ trades or extend credit to others. The rules prohibit commingling with broker funds for those purposes; withdrawals of free deposits must be paid within 2 business days upon demand.
Customers must provide an initial deposit of at least PHP 300,000 before placing an order. The margin for each futures contract must be at least the minimum set by the SEC; brokers may require higher margins. Brokers must impose a minimum initial margin of 5% on all futures products, impose gross margin, and brokers are not allowed to loan clients the exchange-required margin.
Unlicensed/unauthorized persons cannot engage in futures transactions, solicit/accept orders, or act as conduits; they cannot establish or operate offices for solicitation/acceptance unless through a member of a Contract Market. Representations of membership or broker status must be truthful. Discretionary accounts are prohibited except for licensed fund managers; in-house accounts are restricted. Transactions entered into or traded by unlicensed/unauthorized persons are null and void.
Authorized persons commit fraudulent acts if they execute futures contracts for cheating/defrauding/deceiving in connection with hedging, determining price basis, or delivery; execute cross sales outside the exchange floor and not per exchange rules; or bucket orders, fill orders by offsetting against other persons’ orders, or knowingly sell to become buyer / buy to become seller without prior consent.
It aims to minimize/prevent sudden fluctuation in futures prices. The SEC may delegate to contract markets limits on: maximum price fluctuation, amount of trading, positions any person may hold, and delivery dates—except for bona fide hedging transactions.
The SEC may enjoin any act or practice constituting a violation of the rules or SEC orders, and enforce compliance with them. It also has authority to regulate and impose measures (including in other sections such as cease and desist or prohibition from trading).