QuestionsQuestions (BATAS PAMBANSA BLG. 178)
“Securities” include bonds, debentures, notes, evidences of indebtedness, shares (including preorganization certificates/subscriptions), investment contracts, certificates of interest/participation, collateral trust/equipment trust certificates, voting trust certificates, certificates of deposit (for a security), and fractional undivided interests in oil, gas or mineral rights; also “commercial papers” evidencing indebtedness, regardless of maturity, and a broad set of instruments commonly considered securities, including certain membership certificates, commodity futures contracts, pre-need/pension/life plans, joint venture contracts, and similar investments.
A “person” includes an individual, corporation, partnership, association, joint-stock company, trust, any business organization, or a government or political subdivision thereof. For trusts, it includes only those where beneficiaries’ interests are evidenced by a security.
“Sale”/“sell” includes every contract of sale or disposition of a security or interest in a security for value. “Offer to sell,” “offer for sale,” or “offer” includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value.
A “dealer” is engaged in the business of buying and selling securities for his own account (through a broker or otherwise), except not including those who buy/sell for their own account only individually or in a fiduciary capacity and not as part of regular business. A “broker” is engaged in effecting transactions in securities for the account of others, but does not include a bank.
No securities (except those exempt under Section 5 or sold in exempt transactions under Section 6) may be sold, offered for sale, or distributed to the public within the Philippines unless the securities are registered and permitted to be sold under the Act.
No commercial paper may be issued/endorsed/sold/transferred or otherwise conveyed to the public unless registered as provided by Commission rules, for investor protection; however, the Commission may exempt from registration certain commercial paper by rules, subject to Monetary Board approval.
Examples include: securities issued or guaranteed by the Government of the Philippines or its political subdivisions/public instrumentalities; securities issued/guaranteed by foreign governments/states recognized as valid obligations in the Philippines; securities issued/guaranteed by authorized banking institutions or licensed quasi-banks supervised by the Central Bank; securities of building and loan associations/non-stock savings and loans with limitations (e.g., fees not exceeding specified percentage); certificates issued by court-approved receivers/trustees in bankruptcy; insurance/endowment/annuity contracts supervised by the Insurance Commission; securities covering interests in real property where regulated by the housing authorities; and pension plans supervised by BIR and/or Insurance Commission.
Examples include: judicial sales and sales by executor/administrator/guardian/receiver or trustee in insolvency/bankruptcy; sales by pledge holders/mortgagees/lienholders to liquidate bona fide debt (not to avoid the Act); isolated transactions not part of repeated/successive like sales; stock dividends or distributions out of surplus in good faith reorganizations; transfer/exchange of one corporation’s securities to another in consolidation/merger; sales of mortgage-secured bonds/notes sold to a single purchaser; exchanges under registered conversion rights; certain broker transactions executed on customer orders on an exchange/OTC without solicitation; and certain pre-incorporation subscriptions and exclusive exchange of securities by issuer with its existing security holders.
The Act is administered by the Securities and Exchange Commission (SEC). The SEC continues to have the organization, powers, and functions provided by earlier laws and has, unless expressly provided otherwise, the power to promulgate rules and regulations appropriate in the public interest for enforcement.
The registration statement must include (at minimum) details such as: name of issuer and place of incorporation; principal business office and resident agent (if applicable); names/addresses of directors and key officers/promoters; underwriters; business and financial structure; holders of more than 10% interest; amount of securities held by specified persons; capitalization and rights of each class of shares; copy of the security; prospectus/advertisements/communications; information on options; purposes and use of proceeds; remuneration of directors/officers; issue amount and estimated net proceeds; proposed offering price and variations; underwriting commissions/discounts; expenses; prior securities sold and principal underwriters; payments to promoters; vendor/purchase price for property acquired not in ordinary course; balance sheet and profit/loss statements with required certifications; material contracts and relevant opinions; and other additional information/documents depending on applicability/need.
The SEC may reject if the registration statement is incomplete/inaccurate or contains untrue/misleading material facts/omits required material facts; if the issuer/registrant is not solvent or in sound financial condition; has violated the Act/rules/orders; fails to comply with applicable requirements/conditions; engaged or is about to engage in fraudulent transactions; is dishonest or not of good repute; conducts an illegal business or business contrary to government rules; if the enterprise/business is not shown sound on business principles; if an officer/board member/principal stockholder is disqualified; or if the SEC is not satisfied that the sale would not prejudice public interest or operate as a fraud upon purchasers/investors.
If the registration statement (on its face) is incomplete/inaccurate in a material respect, the SEC may issue an order denying action until amended. If the amendment is filed, it becomes effective upon SEC approval. If the registration statement contains untrue statements or omits material facts, the SEC may suspend the effectivity after notice, opportunity for hearing; lifting occurs once amended as required.
Any person acquiring the security (during effectivity) who suffers damage due to a material untrue statement or omission (and unless the acquirer knew of it) may sue specified persons: signatories, directors/officers/principal partners performing similar functions, persons named as directors, and experts who certified/prepared portions or reports used, plus underwriters with respect to the security.
Actions to enforce Section 12 or Section 13(a)(1) must be brought within 2 years after discovery of the untrue statement/omission; and in no event beyond 5 years after the security was bona fide offered to the public (for Section 12/13(a)(1)). For Section 13(a)(2), no action beyond 5 years after the sale. For Section 13(b) and other provisions of the Act, actions must be brought within 2 years after discovery of the facts constituting the cause of action, and within 5 years after the cause accrued.
After the SEC finds the registration statement complete on its face and investor-protection requirements complied with (and absent grounds for rejection), it issues a permit to sell. However, issuance is permissive and is NOT a finding that the registration statement is true/accurate or that it contains no untrue/misleading omissions; it is NOT an endorsement/recommendation of the securities.