QuestionsQuestions (Commonwealth Act No. 83)
Its short title is the “Securities Act.” It regulates the sale of securities, creates the Securities and Exchange Commission (SEC) to enforce the Act, and provides for the appropriation of funds.
“Securities” includes stock certificates, bonds, debentures, investment contracts, voting trust certificates, certificates of deposit, premium/gift sharing certificates, interests in trust estates, profit-sharing agreements, and instruments evidencing beneficial interest in title to property or earnings—among others. Examples: bonds and certificates of deposit for a security.
They include securities promoted by unusual promised profits, whose value materially depends on future promotion rather than present tangible assets, securities with high commissions (>5%), where chance/hazard predominates, securities issued for intangibles/goodwill/promotion as a material part of assets, and securities tied to mineral property promotion/exploitation. Classification is important because speculative securities require a license to sell after SEC determination and have additional limits.
Sec. 5 exempts certain securities such as: securities already sold/previously disposed of before the Act took effect or bona fide offered before effectivity; government securities and certain bank-guaranteed securities; certain foreign government/state securities recognized as valid obligations; public service securities regulated by the Public Service Commission (as then applicable); building and loan/savings and loan association securities meeting conditions; certificates issued by receiver/trustee in bankruptcy with court approval; insurance/endowment/annuity contracts under Insurance Commissioner supervision; and certain issuer exchanges with existing security holders exclusively. The SEC may also add other classes if enforcement is not necessary for investor protection.
Sec. 6 exempts specified transactions from the Act’s requirements, including: judicial/estate/guardian/receiver or bankruptcy sales; sales by pledge holder/mortgagee to liquidate a bona fide debt in the ordinary course and not to avoid the Act; isolated transactions not made in repeated/successive like dealings and not by an underwriter; stock dividends or bona fide reorganization issuances; consolidation/merger transfers; and conversion of registered/exempt securities pursuant to a conversion right (with conditions). Any four of these suffice.
No securities may be sold within the Philippines unless the securities are registered and/or licensed as required, except for classes of securities expressly exempt under Sec. 5 and transactions exempt under Sec. 6.
Yes. Sec. 4 states that registration of stock is deemed to include registration of rights to subscribe if the registration statement filed under Sec. 7 includes a statement that such rights are to be issued.
It requires extensive disclosures such as: issuer identity and principal office/agent in the Philippines; directors/officers/promoters; underwriters; description of business; capitalization and share rights; copies of the security; copies of public-offering materials (circular/prospectus/advertisement/letter); purposes and amounts of funds; income/expenses/fixed charges; balance sheet; officer/director remuneration; amount of issue and estimated net proceeds; pricing and commissions; offering expenses; detailed consideration for which securities are issued; and (for mineral speculative securities) a sworn mining engineer statement. It also requires organizational documents unless previously filed and updated.
After filing the registration statement, paying the fee, and publishing notice in two newspapers (English and Spanish) weekly for two consecutive weeks, registration takes effect seven days after the expiration of the publication period.
If, in the SEC’s opinion, the information is misleading, incorrect, inadequate, or incomplete, or the sale/offering may work or tend to work a fraud, the SEC may require additional information, suspend the right to sell by order specifying grounds, and notify the filer and affected dealers. Refusal to furnish required info within a reasonable time is also a proper ground.
A suspension order is binding upon notified persons and is initially confidential (not published) unless violated after notice. A final order comes after a prompt hearing where SEC determines revocation is warranted; it then prohibits sales and includes findings.
Upon filing, the SEC determines by order whether the security is speculative within the Act’s meaning and advises the issuer/dealer. For speculative securities, Sec. 9 requires further examination; if issuer is of good repute and sale would not be fraudulent and the business is not based on unsound principles, SEC records registration and issues a license to sell with conditions and limits on commissions.
SEC may revoke if the issuer is insolvent; has violated the Act or SEC orders; is or about to engage in fraudulent transactions; is dishonest or made fraudulent representations in prospectus/circulars; has bad business repute; does not conduct business according to law; has affairs in an unsound condition; or has an enterprise/business based on unsound business principles.
No broker, dealer, or salesman may engage in business or sell securities (including exempt securities) unless registered with the SEC, except for transactions exempt under Sec. 6.
If the applicant is of good repute and complies with Sec. 14, SEC registers him upon filing a bond or other security (in a sum fixed by SEC) running to the Government of the Philippines and conditioned on faithful compliance with the Act by the broker/dealer and its registered salesmen. A surety company bond is allowed, and persons damaged by noncompliance may sue sureties on the bond (or proceed against other securities filed in lieu).
It is unlawful for any broker, dealer, salesman, or exchange to use facilities of an exchange in the Philippines to effect or report transactions in securities unless the exchange is registered as a securities exchange under Sec. 17 or exempted from registration upon SEC approval.