Revised Securities Act of the Philippines

Governing authority and rulemaking power

Section 3 provides that the Commission (the Securities and Exchange Commission) administers the Act.
The Commission continues to have the organization, powers, and functions provided by Presidential Decrees No. 902-A, 1653, 1758, and 1799 and Executive Order No. 708 under Section 3.
The Commission may promulgate rules and regulations in the public interest for enforcement of the Act unless otherwise expressly provided under Section 3.
For certain categories (including commercial paper, commodity futures regulation, and exemption approvals that require Monetary Board approval), the Act links Commission action to the Monetary Board of the Central Bank of the Philippines under Sections 4 and 7.

Core definitions governing the Act

Section 2(a) defines “Securities” to include broad categories such as bonds, debentures, notes, evidences of indebtedness, shares (including pre-organization certificates/subscriptions), investment contracts, certificates of interest or participation in profit-sharing agreements, collateral/equipment trust certificates, voting trust certificates, certificates of deposit for a security, fractional undivided interests in oil, gas, or mineral rights, and “interests or instruments commonly considered to be ‘securities’,” plus commercial papers evidencing indebtedness, and various contract/investment forms including transferable stock options, pre-need plans, pension plans, life plans, and related instruments where investment returns include appreciation of capital and enjoyment of particular privileges/services.
Section 2(b) defines “Person” as an individual, corporation, partnership, association, joint-stock company, trust, business organization, or government/political subdivision; it limits “trust” for this paragraph to a trust where the beneficiary interest is evidenced by a security.
Section 2(c) defines “Sale” to include every contract of sale or disposition of a security or interest in a security for value; “offer to sell/offer for sale/offer” includes attempts or offers to dispose of or solicitation of an offer to buy a security for value.
Section 2(d) defines “Buyer/Purchase” as any contract to buy, purchase, or otherwise acquire.
Section 2(e) defines “Issuer” broadly as the person who issues or proposes to issue securities, with special rule exceptions for certificates of deposit, voting trust certificates, certificates of interest or shares in an incorporated investment trust, and fractional undivided rights in oil, gas, or other mineral rights, under Section 2(e).
Section 2(f)–(q) defines “Dealer,” “Salesman,” “Broker,” “Exchange,” “Facility,” “Member,” “Bank,” “Director,” “Commission,” “Clearing agency,” “Transfer agent,” “Underwriter,” and “Promoter”, including:
- Broker as business of effecting securities transactions for the account of others but not including a bank (Section 2(h)).
- Exchange as any organization providing a marketplace/facilities for bringing together purchasers and sellers of securities (Section 2(i)).
- Underwriter includes participation in distribution from or for an issuer and excludes persons limited to distributor-type commissions not exceeding the usual and customary (Section 2(q)).
- Promoter includes founders/organizers who take initiative and meet the 10% threshold for certain securities/proceeds criteria, with a carve-out for those receiving only underwriting commissions or solely consideration of property if they do not otherwise take part in founding and organizing (Section 2(r)).

When registration is required for securities

Section 4(a) provides that no securities may be sold, offered for sale, or distributed to the public within the Philippines unless the securities are registered and permitted to be sold, unless the securities fall under an exemption in Section 5 or a transaction exemption in Section 6.
Section 4(b) imposes a special requirement for commercial paper: no commercial paper may be issued, endorsed, sold, transferred, or otherwise conveyed to the public unless registered under Commission rules for investor protection, while also allowing Commission to exempt certain commercial paper by rules and regulations subject to Monetary Board of the Central Bank of the Philippines approval.
Section 4(b) grants the Monetary Board authority to promulgate its own monetary/credit rules for commercial paper that may include:
- imposing ceilings on issues by any single borrower;
- supervising enforcement; and
- requiring commercial paper issues to submit financial statements and periodic reports necessary for enforcement; and it directs uniformity where both Commission and Monetary Board require financial statements and reports.
Section 4(c) requires the Commission to keep a Register of Securities recording orders regarding registered securities, and it makes the register and related documents/information open to public inspection at reasonable hours on business days.

Exempt securities and exempt transactions

Section 5(a) exempts from the registration requirement certain classes of securities, including:
- securities issued or guaranteed by the Government of the Philippines, political subdivisions/agencies, and government-controlled/supervised instrumentalities; and certificates of deposit for the foregoing;
- securities issued/guaranteed by foreign governments with diplomatic relations (or by states/provinces/political subdivisions having taxing power) recognized as valid obligations in the Philippines using the same;
- securities issued by banking institutions whose business is substantially confined to banking or a licensed quasi-banking financial institution and supervised by the Central Bank;
- certain securities issued by building and loan associations and non-stock savings and loan institutions whose business is confined to member loans, but excluding securities where the issuer takes fees/cash value/other device amounts exceeding three per centum of the face value at maturity or before maturity;
- securities issued by rural credit associations or cooperative marketing associations;
- certificates issued by a receiver or trustee in bankruptcy duly approved by court;
- insurance/endowment policies or annuity contracts (including optional annuity contracts) issued by entities supervised by the Insurance Commission;
- securities covering rights/interest in real property (including subdivision lot/condominium unit) when sale/transfer is supervised/regulatd by the Ministry of Human Settlements or authorized constituent/attached agencies;
- pension plans subject to regulation and supervision by the Bureau of Internal Revenue and/or the Insurance Commission.
Section 5(b) empowers the Commission, after public hearing and subject to terms/conditions it prescribes, to add similar classes of securities if enforcement is not necessary in the public interest and for investor protection.
Section 6(a) exempts from registration the sale of securities in specified transactions, including:
- judicial sales and sales by executor/administrator/guardian/receiver/trustee in insolvency or bankruptcy;
- sales by pledge holders/mortgagees/lienholders to liquidate bona fide debt from pledged securities not for avoiding the Act;
- isolated transactions not in the course of repeated and successive similar transactions;
- stock dividends/distributions out of surplus and certain reorganization issuances made in good faith and not to avoid the Act;
- transfers/exchanges of securities between corporations in consolidation/merger;
- sale of mortgage-secured bonds/notes where the entire mortgage and related bonds/notes are sold to a single purchaser at a single sale;
- exchanges on conversion if the surrendered security is registered/permitted or exempt and conversion-price-issued securities would fall within registerable class;
- broker’s transactions executed on customer orders on an exchange or over-the-counter market but not those made upon solicitation by brokers;
- subscriptions for shares prior to corporation incorporation under the Corporation Code where no expense/commission/remuneration is paid and subscriptions are solely to comply with statutory subscription percentage requirements;
- exchange of securities by the issuer with existing security holders exclusively where no commission/remuneration is paid for solicitation;
- issuance by a public utility/service corporation intended to broaden equity base and finance capital investment through stock issuance and sale pursuant to law/regulation/decree.
Section 6(b) authorizes the Commission to exempt other transactions if it finds registration enforcement is not necessary in the public interest and for investor protection due to small amount involved or limited character of the public offering.
Section 6(c) requires the Commission to collect a free equivalent to one-tenth of one per centum of the maximum aggregate price or issued value of the securities for granting a general or particular exemption from registration requirements.

Commodity futures regulation and restrictions

Section 7 provides that commodity futures contracts may be registered or otherwise regulated, and futures intermediaries (including futures commission merchants, futures brokers, floor brokers, pool operators, and advisors) must be licensed/supervised under Commission rules subject to Monetary Board approval.
Section 7 directs that Commission rules for commodity futures regulation may provide for: exclusive bank accounts for margin deposits/receipts, monitoring withdrawals via periodic reports/examination, requiring at least one withdrawal signatory to be a Filipino citizen and resident of the Philippines, posting bonds sufficient for possible claims based on volume of margin deposits, and establishing a common compensation fund under Commission control/supervision, along with rules on official receipts to evidence commissions.
Section 7 authorizes the Commission, after proper notice and opportunity for hearing, to prohibit transactions with respect to all or specified commodity futures contracts if it finds the transactions are inimical to the economic interest of the country or may cause grave or irreparable injury or prejudice to the investing public.

Registration process, filing contents, and publications

Section 8(a) requires registration of securities through a sworn registration statement filed with the Commission by the issuer or any dealer or underwriter interested in the sale, before selling/offering/delivering securities to the public within the Philippines.
Section 8(a) enumerates mandatory contents attached to or contained in the sworn registration statement, including at minimum:
- issuer identity and principal office, plus resident agent information for non-resident/foreign-placed issuers;
- directors/persons performing similar functions and named officers (chief executive, financial, accounting) or partners/issuer individual, and promoters for business to be formed;
- underwriters names and addresses;
- description of business actually transacted/to be transacted and organization/financial structure and controlling/controlled/common-control companies;
- names/addresses of record or beneficial owners with more than ten (10%) per centum; and amounts of securities held by them within a twenty days period before filing;
- capitalization and capitalization terms (authorized/outstanding, proportion paid up, classes, par/stated/assigned value, voting/dividend/profit/capital/retirement/liquidation rights);
- a copy of the security instrument;
- copies of circular/prospectus/advertisement/letter/communication for the public offering;
- option details where options outstanding or to be created;
- amount/capital stock of each class to be offered;
- funded indebtedness terms (date, maturity, character, interest rate, amortization provisions, other terms), including substitution conditions if substitution permissible;
- specific purposes and approximate amounts for funds and other sources;
- remuneration paid/estimated to directors and officers above PHP 60,000.00 threshold and naming when exceeding PHP 60,000.00;
- issue amount, estimated net proceeds, and offering price/method, including variation via amended registration statement;
- all commissions/discounts paid or to be paid to underwriters, including non-cash value items and control relationships, with amounts per underwriter;
- expenses itemization (legal/engineering/certification/authentication and other charges);
- net proceeds from securities sold by issuer during two years preceding filing, and principal underwriters;
- amounts paid (and consideration) to any promoter within the two years preceding filing;
- vendor/purchase price details for property/goodwill acquired or to be acquired not in ordinary course, with acquisition commission and related expenses;
- interest details of directors/executives and stockholders holding more than ten (10%) per centum in property acquisitions in prior two years or proposed acquisitions;
- names/addresses of independent counsel who passed on legality;
- dates/parties and general effect of material contracts, including management contracts and patent contracts, and specific rules deeming stockholder contracts above ten (10%) per centum as material;
- specified financial statements including balance sheet as of not more than ninety days prior to filing, with certifications and specific rules if assets consist of stock in other companies and when independent CPA certification is required;
- profit and loss statement covering the latest fiscal year and the two preceding years (or shorter if the issuer has been in business less than three years), plus detailed income/charge/depreciation/depletion/maintenance allocation requirements and certification by independent CPA;
- disclosure of liabilities to controlling/controlled companies including use of proceeds and repayment schedule; and if proceeds fund acquisition of a business, certified profit and loss and balance sheet of that business meeting the financial statement requirements;
- underwriter agreements and forms; independent counsel opinions; material contracts copies with potential nondisclosure if Commission disclosure would impair value and not be necessary for investor protection;
- detailed statement of non-cash consideration items; promotion fee/promotion stock amounts and stock issued as promotion stock; mining engineer sworn statement for mineral-claim issuers including ore possibilities/unit cost;
- updates for corporate/organizational documents unless previously filed and brought up to date;
- underlying agreements/indentures affecting offered securities;
- for foreign/non-domestic issuers, a written power of attorney appointing a resident Philippines individual authorized for service of summons and consenting to jurisdiction upon Commission inability to serve resident agent;
- provisions allowing the Commission to require additional information/documents from experts or require dispense with specific requirements depending on necessity for public investor protection and applicability.
Section 8(a) requires the registration statement to be signed by named officers/persons including the issuer and principal executive, operating, financial officer, comptroller/principal accounting officer, and persons performing similar functions, and requires written consent of each expert named as certifying any part.
Section 8(a) sets registration fee and publication steps: upon filing, registrant pays a fee of not more than one-tenth of one per centum of the maximum aggregate price at which securities are proposed to be offered; the registrant’s filing fact must be published by the Commission once a week for two consecutive weeks in two newspapers of general circulation, at the expense of registrant, stating that:
- a registration statement for the sale of the security has been filed;
- the registration statement and attached papers are open to inspection during business hours; and
- interested parties may obtain copies at reasonable charge fixed by Commission.
Section 8(a) grants interested parties the right to file an opposition to registration within ten days from publication.
Section 8(a) provides that if the Commission finds the registration statement is on its face complete and that investor protection conditions are complied with (and no grounds to reject apply), it shall enter an order making the registration effective and issue a permit reciting that brokers/agents of the registrant are entitled to offer the named securities under terms/conditions the Commission imposes.
Section 8(a) requires investor-facing warnings: the permit issuance does not constitute Commission finding that the statements are true/accurate or that no untrue statement or material omission exists, and all printed/public statements referencing the permit must clearly state the permit is permissive and does not recommend or endorse the securities; it is unlawful to make contrary representations to prospective purchasers.
Section 8(a) authorizes the Commission to require securities submitted to rating by Commission-accredited securities rating agencies, with rating reports provided in the registration statement/prospectus.
Section 8(a) imposes update obligation: any change in facts in the registration statement requires the issuer, dealer, or underwriter who filed the original registration statement to submit an amended registration statement for Commission approval.
Section 8(a) empowers the Commission to fix maximum commissions/remuneration connected with sale of the securities and to fix compensation payable for mining claims and mineral rights (with fair valuation after consultation with the Bureau of Mines and after/receiving technical information).
Section 8(a) requires transmittal of the Commission’s effectiveness order plus registration statement to the exchange where the security may be listed and provides that interested parties may inspect copies at reasonable hours on business days.
Section 8(a) requires the Commission’s effectiveness order to be published by the registrant in a newspaper of general circulation within ten days from promulgation, and applies the same rules to amendments.

Commission grounds to reject and orders to suspend

Section 9 authorizes the Commission to reject registration and refuse to issue a permit if it finds any of the following:
- the registration statement is incomplete or inaccurate in any material respect; contains untrue statements of material facts; omits material facts required or necessary to prevent statements from being misleading;
- the issuer/registrant is not solvent or not in sound financial condition; has violated or failed to comply with the Act, rules, or Commission orders; failed to comply with applicable requirements and conditions imposed by Commission; has engaged/is engaged/is about to engage in fraudulent transactions; is dishonest or not of good repute; or does not conduct business according to law or is engaged in illegal business contrary to government rules and regulations;
- the issuer’s enterprise/business is not shown to be sound or based on sound business principles;
- an officer, director, or principal stockholder is disqualified to serve in that capacity;
- the issuer/registrant has not shown that the sale would not prejudice the public interest or operate as a fraud upon purchasers/investors.
Section 10(a) authorizes the Commission to deny action on a registration statement pending amendment when the statement is on its face incomplete or inaccurate in any material respect, using notice by personal service or confirmed telegraphic notice.
Section 10(b) provides that amendments filed after effective date become effective upon Commission approval.
Section 10(c) authorizes the Commission to suspend effectivity of registration if it finds untrue material statements or material omissions (after notice by personal service or confirmed telegraphic notice and after opportunity for hearing), and it directs that suspension is lifted if the statement is amended as required.
Section 10(d) authorizes Commission examinations with access to books/records, ability to demand the product of books/records, power to administer oaths/affirmations, and power to require production of corporate books/records including assets and liabilities and income statement certified by a CPA; failure/refusal/obstruction to cooperate is a ground for issuance of a suspension order.

Ongoing reporting and prospectus/advertising duties

Section 11(a) requires every issuer of a registered security to file with the Commission:
- information/documents kept reasonably current regarding items required in applications/registration statements;
- annual reports and periodic/other reports necessary to update operating information; and
- copies of all circulars, prospectuses, and other advertising matter, before or at issuance for publication, fully setting forth amounts and nature of fees/expenses payable in cash or securities for goodwill/organization/promotion and other matters necessary for investor protection.
Section 11(a) requires every issuer of a security registered with an exchange to file a duplicate original of the required information/documents/reports with the exchange.
Section 11(b) grants the Commission power to prescribe the form/forms and the items/details to be shown in reports.
Section 11(c) provides that if a report requirement is inapplicable to specified class(es), comparable character reports applicable to such class(es) must be submitted.

Liability for false registration statements

Section 12(a) provides that any person acquiring securities whose registration statement in effectivity contains an untrue material fact or omits a required material fact, and who suffers damage, may sue in a competent court unless the defendant proves the acquisition was made with knowledge of the untruth or omission.
Section 12(a) identifies defendants who may be sued, including:
- every person who signed the registration statement;
- directors or similar-function persons or partners in the issuer at filing time;
- persons named as directors/similar function or partners whose written consent is filed;
- persons whose profession gives authority to statements they make and who consent in writing that they were named as preparing/certifying parts or reports/valuations used in connection with registration; and
- every underwriter with respect to the security.
Section 12(b) provides defenses that bar liability for persons other than the issuer if specific conditions are met, including:
- timely resignation/cessation/refusal to act from offices/capacities with written advice to Commission and issuer before effective date;
- reasonable investigation and belief in truth and absence of material omissions for non-expert-authority parts and for other segments based on expert authority/copies of expert reports/valuations with specified fair representation and belief rules;
- for parts based on public official statements/documents, lack of reasonable ground to believe statements were untrue or misleading and failure of omission materiality.
Section 12(c) sets the reasonableness standard as that required of a prudent man in the management of his own property.
Section 12(d) authorizes suit for damages representing double the difference between the amount paid and committed to be paid and the security’s value at suit time, or market disposal price before suit, or disposal price after filing but before judgment; it caps underwriter liability in excess of the total price at which securities underwritten and distributed were offered to the public.
Section 12(d) allows courts, at discretion, to require an undertaking for costs including reasonable attorney’s fees, and it allows costs under Rule 142 of the Rules of Court to the prevailing party.
Section 12(d) authorizes exemplary damages in cases of bad faith, fraud, malevolence, or wantonness in violating the Act or rules.
Section 12(e) makes persons specified in Section 12(a) jointly and severally liable, with a right of contribution among jointly liable persons except where the contributing person was guilty of fraudulent representation and the other was not.
Section 12(f) caps recoverable amounts under Section 12: recovery cannot exceed double the price at which the security was offered to the public plus exemplary damages awarded.
Section 12(g) requires equal contribution among liable persons to total liability adjudged and prohibits directors/officers/principal stockholders from recovering contribution to the issuer from the issuer; however, the issuer’s right to recover from guilty parties the amount it contributed is preserved, without prejudice to that right.

Liability from prospectuses, communications, and reports

Section 13(a) imposes liability on any person who offers for sale or sells securities in violation of Chapter II, or who offers for sale or sells securities using means of transportation or communication by means of prospectus or oral communication that includes untrue material facts or omits material facts necessary to make statements not misleading, when the purchaser does not know of the untruth/omission and the seller fails the burden to prove lack of knowledge and that with reasonable care could not have known; the purchaser may sue to recover the consideration paid with interest, less amounts of income received, upon tender of the security, or damages if the purchaser no longer owns the security.
Section 13(a) provides for exemplary damages in cases of bad faith, fraud, malevolence, or wantonness.
Section 13(b) makes any person who makes or causes to be made false or misleading statements in any report/document filed pursuant to Chapter II or related rules liable to a relying purchaser/seller who purchased or sold at a price affected by such statement, unless the sued person proves good faith and lack of knowledge of falsity/misleading nature.
Section 13(b) allows courts to require undertakings for costs and assess reasonable costs including reasonable attorney’s fees against either party litigant at the court’s discretion.
Section 13(b) provides contribution rights similar to contract contribution when multiple persons would have been liable if joined in the original suit.

Limitation periods for actions

Section 14(a) bars actions to enforce liabilities created under Section 12 or Section 13(a) unless filed within two years after discovery of the untrue statement or omission.
Section 14(a) further bars actions to enforce liability under Section 13(a)(1) unless filed within two years after the violation underlying that liability.
Section 14(a) imposes an overall outer limit: in no case may actions under Section 12 or Section 13(a)(1) be brought more than five years after the security was bona fide offered to the public, or more than five years after the sale under Section 13(a)(2).
Section 14(b) bars actions to enforce liability created under Section 13(b) or any other provision of the Act unless filed within two years after discovery of facts constituting the cause of action and within five years after the cause of action accrued.

Suspension of registration and related powers

Section 15 authorizes the Commission, if information in the registration statement becomes misleading, incorrect, inadequate, or incomplete, or if sale/offering may work or tend to work a fraud, to require further information from the person filing the statement to determine whether registration should be revoked on grounds specified in the Act.
Section 15 allows the Commission to suspend the right to sell the security pending further investigation by entering an order specifying grounds for suspension.
Section 15 requires notification to the person filing the statement and every dealer and broker who notified the Commission of intention to sell the security, using mail or personal notification, or telephone confirmed in writing, or telegraph.