Title
Regulation of Investment Houses in the Philippines
Law
Presidential Decree No. 129
Decision Date
Feb 15, 1973
The Investment Houses Law regulates the establishment and operation of investment houses in the Philippines, including requirements for registration, ownership, and prohibited activities, with violations resulting in fines and suspension of registration.
governing
establishment
operation

Policy, purpose, and legislative basis

  • The Decree directs urgent regulation of “investment banks” pending before Congress prior to Proclamation No. 1081 (September 21, 1972).
  • The Decree establishes an integrated framework to govern the underwriting of securities, and to harmonize quasi-banking-type operations with national monetary goals.
  • The Decree is anchored on the recommendations of an extensive survey of the Philippine financial system endorsed with modifications by monetary authorities, made a basis for the statutory framework.
  • It is implemented through the regulatory roles of the Securities and Exchange Commission and the Central Bank, including consultation with the Monetary Board of the Central Bank of the Philippines. (Sections 4, 11, 12)

Key definitions for underwriting and securities

  • “Underwriting” is defined as the act or process of guaranteeing the distribution and sale of securities of any kind issued by another corporation. (Section 3[a])
  • “Securities” are defined as written evidences of ownership, interest, or participation in an enterprise, or written evidences of indebtedness of a person or enterprise, including but not limited to instruments enumerated in Section 2 of the Securities Act (Commonwealth Act No. 83, as amended). (Section 3[b])

Covered entities and activity scope

  • Any enterprise that engages in the underwriting of securities of other corporations is an “Investment House” subject to this Decree and other pertinent laws. (Section 2)
  • The Decree does not prevent other enterprises from engaging in the mere buying and selling of short-term securities of other persons or enterprises. (Section 2)
  • Investment Houses are required to be organized in the form of stock corporations. (Section 4)
  • The Decree governs registration and continuing regulatory compliance through the SEC and Central Bank/Monetary Board mechanisms. (Sections 4, 10, 11, 12, 16)

Organization, citizenship rules, and SEC registration

  • Investment Houses must be organized as stock corporations. (Section 4)
  • The Securities and Exchange Commission must not register the articles of incorporation of any Investment House, or any amendment thereto, unless satisfied that:
    • all requirements of this Decree and existing laws or regulations to engage in the business have been complied with; (Section 4[a])
    • the proposed enterprise will not conflict with public interest and economic growth; (Section 4[b])
    • the proposed capital, organization, direction and administration, and the organizers’ and managerial staff’s integrity, experience, and expertise provide reasonable assurance of financial prudence. (Section 4[c])
  • For the conflict/public interest and financial prudence determinations, the SEC shall consult the Monetary Board of the Central Bank of the Philippines. (Section 4)
  • Applications for registration must be accompanied by:
    • at least three copies of the proposed articles of incorporation; (Section 4)
    • a statement under oath of educational background and experience of organizers, directors, and proposed managerial staff, and information on any position concurrently held in other financial or banking institutions, if any; (Section 4)
    • a projected statement of assets and liabilities of the proposed Investment House; (Section 4)
    • a tentative program of operation for one year, including its investment direction and volume; and (Section 4)
    • such other information as the SEC may require to support the application and to enable the Commission to determine the justifiability of establishing the proposed enterprise. (Section 4)
  • Enterprises already operating as Investment Houses before the Decree’s effectivity must, within six months, file an information sheet with the SEC in a form and with data the SEC may require to determine in consultation with the Monetary Board whether the enterprise meets Decree requirements. (Section 4)
  • Citizenship requirements are imposed:
    • The majority of the voting stock of any Investment House must be owned by citizens of the Philippines. (Section 5)
    • Foreign ownership percentage is computed by the citizenship of each stockholder, and for corporate owners, by the citizenship of the individual owners of voting stock in the corporation holding shares in the Investment House. (Section 5)
    • The majority of the Board members must be citizens of the Philippines. (Section 5)

Core prohibitions on banking operations

  • Except as authorized by the Monetary Board, no director or officer of an Investment House may concurrently be a director or officer of a bank as defined in Section 2 of Republic Act No. 337, as amended. (Section 6[a])
  • No matter what authorization is contemplated, no person may be authorized to concurrently be an officer of an Investment House and an officer of a bank. (Section 6[a])
  • No Investment House may engage in banking operations as defined in Section 2 of Republic Act No. 337, as amended. (Section 6[a])

Powers of an Investment House

  • Investment Houses are authorized, in addition to general corporate powers, to:
    • arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities; (Section 7[a][1])
    • participate in a syndicate undertaking to purchase and sell, distribute, or arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities; (Section 7[a][2])
    • arrange to distribute or participate in a syndicate undertaking to purchase and sell on a best-efforts basis securities of other corporations and of the Government or its instrumentalities; (Section 7[a][3])
    • participate as soliciting dealer or selling group member in tender offers, block sales, or exchange offerings of securities; (Section 7[a][4])
    • deal in options, rights or warrants relating to securities and other powers a dealer may exercise under the Securities Act (C.A. No. 83, as amended); (Section 7[a][4])
    • promote, sponsor, or assist and implement ventures, projects, and programs that contribute to the economy’s development; (Section 7[a][5])
    • act as financial consultant, investment adviser, or broker; (Section 7[a][6])
    • act as portfolio manager and/or financial agent, but not as trustee of a trust fund or trust property under Chapter VII of Republic Act No. 337, as amended; (Section 7[a][7])
    • encourage companies to go public and initiate and/or promote, whenever warranted, the formation, merger, consolidation, reorganization, or recapitalization of productive enterprises by providing assistance or participation in the form of debt or equity financing or through extension of financial or technical advice or service; (Section 7[a][8])
    • undertake or contract for research, studies, and surveys on matters such as business and economic conditions of various countries, structure of financial markets, and institutional arrangements for mobilizing investments; (Section 7[a][9])
    • acquire, own, hold, lease, or obtain an interest in real and/or personal property necessary or appropriate to carry out its objectives and purposes; (Section 7[a][10])
    • design pension, profit-sharing and other employee benefits plans; and (Section 7[a][11])
    • engage in other activities or business ventures directly or indirectly related to dealing in securities and other commercial papers, unless otherwise governed or prohibited by special laws (in which case the special law applies). (Section 7[a][12])
  • The Decree further provides that entities not covered by this Decree may engage in the activities listed in Subsections (3) to (11), unless otherwise governed by special laws. (Section 7)

Minimum capital, credit coordination, and reporting

  • The minimum initial paid-in capital of any Investment House is PHP 20,000,000. (Section 8)
  • Investment Houses must coordinate their credit policies with the general credit policies of the Monetary Board of the Central Bank. (Section 9)
  • Investment Houses must submit to the SEC and the Central Bank a semi annual report of operations and financial condition, signed under oath by its chief accountant and verified by its president. (Section 10[a])
  • The SEC may, at its discretion, require Investment Houses to include their underwriting commitments as contingent accounts in their financial statements. (Section 10)

Regulatory framework and Monetary Board controls

  • Within six months after approval, the SEC, in coordination with the Central Bank, must promulgate the necessary rules and regulations implementing the Decree. (Section 11)
  • Investment Houses are subject to Central Bank regulations on non-bank financial intermediaries promulgated pursuant to Section 2-B of Republic Act No. 337, as amended. (Section 12)
  • Such regulations may include (but are not limited to):
    • minimum size of fund acceptance or receipt;
    • methods of marketing and distribution;
    • terms of placement and maturities; and
    • uses of funds. (Section 12)
  • The regulations described may be modified by the Monetary Board as they apply to Investment Houses. (Section 12)
  • The Monetary Board may determine, at its discretion, whether Investment Houses may perform quasi-banking functions defined in Section 2-D, subsection (b) of Republic Act No. 337, as amended. (Section 12)
  • The Monetary Board may require, as a condition precedent, that an enterprise obtaining permission to perform quasi-banking functions must incorporate as an Investment House. (Section 12)
  • If the Monetary Board permits Investment Houses to engage in quasi-banking functions, the Board may require a certificate of authority for that purpose from the Monetary Board. (Section 12)
  • When authorizing quasi-banking functions, the Monetary Board may subject Investment Houses to further regulations under Republic Act No. 337, as amended, including (but not limited to):
    • liquidity reserve requirements;
    • capital-to-risk assets ratios;
    • interest rate ceilings; and
    • other constraints the Board deems necessary. (Section 12)
  • The Monetary Board may conduct special examination of an Investment House when circumstances warrant. (Section 12)
  • If the Central Bank finds non-compliance with:
    • this Decree,
    • pertinent provisions of this Decree,
    • other laws,
    • or Monetary Board orders, instructions, rules, or regulations relating to non-bank financial intermediaries and quasi-banking activities,
      the Monetary Board must issue a cease-and-desist order. (Section 12)
  • Failure to comply with a cease-and-desist order subjects the Investment House to a fine not exceeding PHP 200 for every day the order is violated, to be imposed by the Monetary Board, without prejudice to penalties under Section 16. (Section 12)

Interaction with the Securities Act and Corporation Law

  • An Investment House may engage in the business of a dealer or a broker under the Securities Act without obtaining a separate license required in Section 14 of the Securities Act (C.A. No. 83, as amended). (Section 13)
  • The provisions of the Corporation Law (Act No. 1459, as amended) apply to Investment Houses insofar as they are not in conflict or inconsistent with this Decree. (Section 14)

Transitory compliance for existing Investment Houses

  • Existing enterprises already operating as Investment Houses must comply with Decree requirements within one year following approval, except that the filing of the required information sheet must be completed within six months as provided in the last paragraph of Section 4. (Section 15)

Enforcement, fines, suspension, and criminal penalties

  • When proof shows an Investment House is violating or not complying with:
    • this Decree,
    • other pertinent laws,
    • terms or conditions of its certificate of registration or charter, or
    • orders, decisions, rulings, or regulations of the SEC or the Central Bank,
      the SEC shall impose and collect a fine not exceeding PHP 200 per day for every day the violation or non-compliance continues and/or suspend its certificate of registration. (Section 16[a])
  • The officer or director who ordered or authorized the violation or non-compliance is solidarily liable. (Section 16[a])
  • The fine collected by the SEC is paid to the Government of the Philippines through the SEC. (Section 16[a])
  • Independently of Section 16’s first paragraph, any person, director, or officer who violates or does not comply with the Decree or related laws/orders is punished by a fine of not more than PHP 20,000, or imprisonment of not more than five years, or both, at the discretion of the court. (Section 16[b])

Separability, repeal, and immediate effect

  • The Decree contains a separability clause: invalidity of any clause, sentence, provision, section, or its application does not affect other provisions capable of standing without the invalid provisions. (Section 17)
  • All acts and existing laws inconsistent with the Decree are repealed. (Section 18)
  • The Decree takes effect immediately. (Section 19)

Implementing rules and related issuances

  • The SEC and the Central Bank, working through their coordinating roles, issue implementing rules and regulations within six months after Decree approval. (Section 11)
  • In implementing Decree compliance, the Central Bank enacts relevant regulatory measures for non-bank financial intermediaries and quasi-banking activities. (Section 12)
  • Central Bank Circular No. 378 (August 15, 1973) prescribes policy guidelines.
  • Securities and Exchange Commission Rules and Regulations (July 9, 1973) implement the Decree.

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