The document discusses key concepts related to securities regulation in the Philippines including what constitutes a security, registration requirements, insider trading, and other SEC rules. Philippine depositary receipts, checks, asset-backed securities, investment contracts, derivatives, warrants, options, timeshares, and educational plans can all be considered securities. The document also covers registration statements, prospectuses, proxy solicitation, tender offers, and disclosure obligations of public companies.
The document discusses key concepts related to securities regulation in the Philippines including what constitutes a security, registration requirements, insider trading, and other SEC rules. Philippine depositary receipts, checks, asset-backed securities, investment contracts, derivatives, warrants, options, timeshares, and educational plans can all be considered securities. The document also covers registration statements, prospectuses, proxy solicitation, tender offers, and disclosure obligations of public companies.
The document discusses key concepts related to securities regulation in the Philippines including what constitutes a security, registration requirements, insider trading, and other SEC rules. Philippine depositary receipts, checks, asset-backed securities, investment contracts, derivatives, warrants, options, timeshares, and educational plans can all be considered securities. The document also covers registration statements, prospectuses, proxy solicitation, tender offers, and disclosure obligations of public companies.
The document discusses key concepts related to securities regulation in the Philippines including what constitutes a security, registration requirements, insider trading, and other SEC rules. Philippine depositary receipts, checks, asset-backed securities, investment contracts, derivatives, warrants, options, timeshares, and educational plans can all be considered securities. The document also covers registration statements, prospectuses, proxy solicitation, tender offers, and disclosure obligations of public companies.
– Philippine depositary receipts are not shares of stock (as no voting rights), but they are securities. Thus must be registered with SEC. – Generally, checks are not securities if issued in payment in the course of ordinary business – BUT, when used to obtain funds from the public (eg used to obtain large amount of nonpersonalized individual loans) checks are securities which must be registered
– Asset-backed securities – security whose income payments and hence value are derived from and collateralized by a specific pool of underlying assets.
– Howey test (investment contract test)
– contract/transaction/scheme – INVESTMENT of money – common enterprise – with expectation of profits – PRIMARILY from efforts of others – NOTE: compliance with this test renders it an investment contract which must be registered with SEC – NOTE: – networking marketing which only involves profits from referrals and not investments is NOT an investment contract – investors pool resources to meet financial needs of a borrowing company is an investment contract – commission from interest in real estate is NOT an investment contract – as it is not derived primarily from efforts of others – Derivative – financial security reliant upon assets
– warrant vs option – warrants – cause issuance of new stock – causing dilution of existing stockholders – options – do NOT involve issuance of new stock – since it is a derivative instrument on existing shares – time share – AKA vacation ownership – considered a security as it is a form of membership certificate – property with divided form of ownership or use rights – corporation registered with SEC cannot sell time shares without registration statement duly filed with SEC
– THE REGISTRATION STATEMENT DOES NOT RETROACT TO DATE OF ACTUAL
SALE – security must be registered before sale
– CERTIFICATE OF MEMBERSHIP IS A SECURITY WHETHER PROPRIETARY OR
NOT
– prospectus – prior to sale of securities, information of such securities (contained in prospectus) shall be made available to each prospective purchaser
– insider trading (GIST: Requires disclosure when trading securities)
– GRAVAMAN: BUYING/SELLING OF SECURITIES – or knowingly disclosing to a person likely to buy or sell securities – by an insider – while in possession of material non-public information
– defenses against insider trading
– prove that infromation was not gained from such relationship – OR other party is identified and insider proves – he disclosed information to the other party – or had reason to believe other party was also in possession of information
– presumption of insider trading
– purchase/sale of security by insider or his spouse or relative within 2nd degree consanguinity/affinity, legitimate or common-law – NOTE: unlike in DOSRI which is 1st degree
– when person disclosing (discloser) information may be liable for insider
trading – if he knowingly disclosed it to a person likely to buy or sell securities – NOTE: insider also refers to a person who learns such information by a communication from any foregoing insiders
– penalties – civil liability (brought before RTC) – actual damages – other damages not exceeding 3 times the amount of transaction – exemplary damages in case of bad faith/fraud – no moral damages for insider trading – atty fees not to exceed 30% of award – criminal liability – administrative sanctions – suspension/revocation – fine of 10k-1M pluis no more than 2k for each day of continuing violation – UNLIKE IN RCC which sets limit of not more than 2M
– shortswing transactions – person makes combined buying and selling of securities within a period of 6 months – intention is immaterial – effect: any profit inures to benefit of issuer – The short-swing profit rule is a Securities and Exchange Commission (SEC) regulation that requires company insiders to return any profits made from the purchase and sale of company stock if both transactions occur within a six-month period. A company insider, as determined by the rule, is any officer, director, or shareholder who owns more than 10% of the company's shares. – who should file to recover the profit before RTC? – issuer – or owner of security in name of issuer if – issuer fails to bring suit within 60 days after request or fail to diligently prosecute the same – prescription: 2 years after profit was realized
– exceptions to shortswing transaction
– purchase and sale of security in good faith in connection with debt previously conrtracted – eg foreclosure of mortgage – purchase and sale by dealer in ordinary course of business
– insider trading vs shortswing
– who covered: shortswing only covers directors/shareholders/officer – owning more than 10% of company shares – by definition: shortswing is the combined buying and selling of securities within a period of 6 months – consequence: shortswing profits must be delivered to issuer – unlike in insider trading: criminal, civil, administrative
– mandatory tender offer
– PURPOSE: protect minority shareholders against schemes that dilute the share value of their investments – ELEMENTS – acquire outstanding equity securities – from publicly listed company or associate/related company of such public company – NOTE: direct or indirect acquisitions are covered under mandatory offer rule – but offer must be directed to the public company – any person or group who intends to acquire – 15% equity securities of public company – 35% outstanding voting share or which is sufficient to gain control of public company within 12 month period – more than 50% regardless of time he acquired the shares – price of offer must now be based on fairness opinion prepared by independent party/financial adviser
– tender is only an option, and not mandatory on part of the minority
shareholders
– exceptions to mandatory tender offer rule
– purchase of securities from unissued capital stock – provided acquisition does not result to 50% or more ownership sufficient to gain control – purchase of securities from increase in authorized capital stock – regardless if it will result to 50% ownership – purchase in connection with foreclosure proceedings where acquisition is made by debtor or creditor – purchase in connection with privatization undertaken by govt – purchase in connection with corporate rehabilitation under court supervision – purchases in open market at prevailing market price – eg stock exchange – merger/consolidation – where should CIVIL action for violation of SRC be filed? – RTC – but administrative cases filed with SEC – criminal cases must be filed with SEC first (primary jurisdiction)
– damages that may be awarded in case of sale of unregistered securities based
on false registration statement – damages not exceeding triple the amount of transaction – similar to insider trading – actual damages – exemplary damages in case of bad faith/fraud – atty fees not exceeding 30% of award
– prescription for false registration statement or sale of unregistered securities,
and liability arising from prospectus (CIVIL ACTION) – 2 years after discovery of violation – not more than 5 years after security was bona fide offered to public – applies to false registration statement – or more than 5 years after the sale – applies to sale of unregistered securities – NOTE: administrative liability is not subject to above prescriptive period – NOTE: criminal liability prescribes in 12 years
– violation of section 28 SRC
– engaging in business of buying/selling securities as broker or dealer – OR acting as salesman – OR acting as associated person of any broker/dealer unless registered with SEC
– cease and desist order by SEC
– issued only after proper investigation/verification – AND showing that acts sought to be restrained may result in injury/fraud to investing public – NOTE: SEC may issue CDO motu proprio (even without private complaint)
– an educational/pre-need plan is considered a security
– proxy solicitation – comply with SEC rules – in writing, signed by stockholder/representative, filed before meeting based on period provided in by-laws – valid for meeting intended – unless otherwise provided in proxy – but cannot exceed 5 years at any one time – written authorization of customer required before broker/dealer may give any proxy/consent in respect of security to another person – broker/dealer who holds the proxy for at 10% or as much as SEC may prescribe shall submit report identifying beneficial owner of ten days after such acquisition – person who intends to solicit from public must file a proxy statement with SEC
who has jurisdiction to investigate violations on proxy solication
– SEC = if unrelated to intra-corporate controversies – eg approval of various corporate acts required under RCC – RTC = if intra-corporate controversies such as election of corporate director – eg election contests – eg determination of quorum in election
SEC disclosure obligation of PUBLIC COMPANIES
– financial data on regular basis – material information about the company
what companies are subject to disclosure obligation
