COURSE OUTLINE

ADVANCED SECURITIES
REGULATION1

I. General
A. State policy: Sec. 2, Securities Regulation Code, RA 8799 (“SRC”)
B. Issuer transactions v trading transactions
C. Regulatory framework
1. History of securities regulation in the Philippines
1.1. Blue Sky Law, Act 2581
1.2. Securities Act, CA 83
1.3. Revised Securities Act, BP Blg. 178 (“RSA”)

Read: Hall v. Geiger-Jones Co. 242 U.S. 539 (1917)

People v Fernandez, 65 Phil 675 (1938)
People v. Rosenthal, 68 Phil 328 (1939)

2. Current regulations
2.1. SRC (August 2000)
2.2. SRC Implementing Rules and Regulations
2.3. Philippine Stock Exchange (“PSE”) Listing Rules
2.4. PSE Disclosure Rules
2.5. Revised Code of Corporate Governance (SEC Memo Circular 6,
series of 2009)
2.6. Philippine Financial Reporting Standards (PFRS)
2.7. Various SEC and PSE rules, regulations and policies

Discussion: The case of BW Resources

3. Nationality requirements
3.1. 1987 Philippine Constitution – Article XII: National Patrimony and
Economy2

Read: Narra Nickel Mining v. Redmont Consolidated, GR 195580, 21

April 2014
Gamboa v Teves et al, G.R. No. 176579, 28 June 2011

4. The Securities and Exchange Commission

Sections 4-7, SRC

II. Definitions, basic concepts

A. What are securities – Sec. 3.1, SRC; compare Sec. 2(a) of RSA
Read: SEC v. W. J. Howey Co., 328 U.S. 293 (1946)
United Housing Foundation, Inc. v Foreman, 421 U.S. 837 (1975)

1
DLSU, 3rd Term, AY 2014-2015 (Atty. Barbara Anne C. Migallos)
2
While not technically part of securities regulation, it is important to understand the rules on
nationality as numerous public corporations are engaged in partly nationalized activities
 2

SEC v. Glenn W. Turner Enterprises, 474 F.2d 476 (1973)

Landreth Timber v Landreth, 471 U.S. 681 (1985)
SEC v. Koscot Interplanetary, US Court of Appeals, 497 F 2d 587
(1974)
Steinhardt Group, Inc. v Citicorp, 126 F.3d 144 (3d Circ. 1997)
SEC v Edwards, 540 US 389 (2004)
SEC v. Life Partners, Inc., D.C. Circuit, 1996, 102 F. 3d 587
(1996)
Reves v. Ernst & Young, 494 U.S. 56 (1990)
Power Homes Unlimited v. SEC, 546 SCRA 567 (2008)
Gabionza v. Court of Appeals, 565 SCRA 39 (2008)
Proctor & Gamble v. Bankers Trust, 925 F. Supplement 1270
(1996)
International Brotherhood of Teamsters v Daniel, 429 US 551
(1979)
People v. Balasa, 295 SCRA 49 [1998]
SEC Opinion dated 21 February 1984 re multi-level marketing
In the Matter of Octopus Network, Inc., PED (SEC) Case 98-2220,
22 May 1998

B. Public company – Rule 3.1(M)

C. Beneficial owner or beneficial ownership – Rule 3.1(A)
Read: SEC v. Interport Resources, et al., 567 SCRA 354 (Oct. 6, 2008)
D. Control – Rule 3.1(E)
E. Material information – Rule 3.1(I); Rule 14.1; PSE Disclosure Rules, Sec. 4.3 &
4.4
F. Stock exchange – SRC Sec. 3.7
G. Brokers and dealers – SRC Sec. 3.3; 3.4
H. Insider – SRC Sec. 3.8
I. Uncertificated security – SRC Sec. 3.14; Sec. 43, SRC
J. Underwriter – SRC Sec. 3.15

III. Registration of securities

When no subsection is indicated, all subsections are included, e.g., when the reference is to
SRC Sec. 8, the student must also read SRC Sections 8.1 to 8.5 inclusive

A. Securities exempt from registration– SRC Sec. 9; Rule 9.2

B. Transactions exempt from registration– SRC Sec. 10; Rule 10.1

Read: Nestle Philippines v. Court of Appeals and SEC, 203 SCRA 504 (1991)
Rivilla v. Intermediate Appellate Court, 175 SCRA 773 (1989)
Union Bank v. SEC, 358 SCRA 479 (2001)
Timbershare Realty Corp. v. Lao and Cortez, 544 SCRA 254 (2008)
SEC Opinions:
24 August 1982 to then Prime Minister Cesar Virata
8 December 1997 to Atty. Claro P. Ison of Penta Capital
06 February 1996 to Mr. Jorge Yuson
16 February 1996 to Air Liquids Asian Management
7 November 1995, to Atty. Roberto O. Parel
18 May 1962 to Laperal and Sons, Inc.
 3

27 April 1990 to Romulo, Mabanta, Buenaventura

14 January 1993 to Imelda P. Marquez of CEPALCO
30 March 2004 to Mr. Manuel Morato

C. Registration of securities

1. The Registration Statement - SRC Sec. 3.12

2. Prospectus - SRC Sec. 3.11
3. Requirement for registration- SRC Sec. 8; Rule 8.1 to 8.3
4. Registration process – SRC Sec. 12
5. Rejection and revocation of RS – SRC Sec. 13
6. Suspension of registration – SRC Sec. 15

Read: PSE v. Court of Appeals, 281 SCRA 232 (1997)

IV. Listing of securities

A. Why listing is necessary

See: Philippine Stock Exchange v. Court of Appeals, 281 SCRA 232 (1997)
B. General objectives and principles - Art. I, Part A, PSE Listing Rules
C. The Suitability Rule – Art. I, Part B, PSE Listing Rules
D. General requirements - Art. III, Part A, PSE Listing Rules
Underwriter; Transfer agent; Issue Manager; Full payment of shares;
Minimum number of directors; Offering price; Offering prospectus; red herring
prospectus; Lodgment of shares; Lock-up of shares
E. Methods of initial listing – Art. III, Part C, PSE Listing Rules
1. Primary offering (initial public offering or IPO)
2. Secondary offering
3. Listing by way of introduction
F. Other PSE rules
1. Special rules for companies engaged in mining; petroleum and renewable
energy (Philippine Mineral Reporting Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves; Supplemental Listing and
Disclosure Requirements for Petroleum and renewable energy companies)
2. Minimum Public Ownership (MPO) rule
3. Taxation of shares listed and traded on the PSE – Sec. 127, NIRC

V. Post-registration and listing – disclosure requirements

A. Basic principle – Preamble, SRC; Rule 3.1(I); PSE Disclosure Rules, Sec.
B. Current reports
1. To SEC - SRC Rule 17.1.1(A)(iii)(1)(2)(3) [SEC 17-C]
2. To PSE - PSE Disclosure Rules, Sec. 4, 4.1, 4.2, 4.3, 4.4
C. Structured reports
1. Annual report - Rule 17.1(2)(A)(i) [SEC 17-A]
2. Quarterly report - Rule 17.1(2)(A)(ii) [SEC 17-Q]
3. Financial report; audited financial statements (SRC Rule 68)
D. Other reports
1. SRC Sec. 18; SRC Rule 18 – 5% or more
 4

2. SRC Sec. 23; SRC Rule 23 – 10% or more; directors; officers

3. Public Ownership Report – PSE Guidelines on Minimum Public Ownership
4. Nationality report – PSE rules

Read: Basic v. Levinson, 485 U.S. 224 (1988)

SEC v. Interport Resources, et al., 567 SCRA 354 (Oct. 6, 2008).
Panter v Marshall Field & Co., 646 F.2d 271, cert. denied 454 US 1092
(1981)

VI. Protection of shareholder interests

A. Tender Offers – SRC Sec. 19; Rule 19

1. Mandatory tender offers (Rule 19.2[A][B][C][D])
2. Exemptions from mandatory tender offer (Rule 19.3[A][B])
3. Buy back of shares – Rule 19.4[A] to [E]
4. Filing and other requirements – Rule 19.6 et seq.

Read: CEMCO v. National Life, 529 SCRA 355 (2007)

B. Proxy solicitation – SRC Sec. 20; Rule 20

1. SRC Rule 20(3) – obligations of issuer proposing to hold a stockholders’
meeting
2. SRC Rule 20(4) – reports to be furnished to stockholders
3. SRC Rule 20(5) – proxy requirements
4. SRC Rule 20(8) – solicitation of votes other than by issuer

C. Transactions of Directors, Officers and principal stockholders – SRC Sec. 23

1. Reporting requirements
a. SRC Sec. 23.1
b. PSE Disclosure rules Sec. 13.1, 13.2.
2. Short swing profits; short sales - SRC Sec. 23.2; 23.3; 23.4
Read: Smolowe v. Delendo Corporation, 136 F.2d 235

VII. Fraud, manipulation, insider trading

A. Manipulative devices and practices

1. Creating false or misleading appearance of active trading - SRC Sec. 24.1(a)
2. Series of transactions intended to raise/depress prices – SRC Sec.24.1(b)
3. Dissemination of false or misleading information – SRC Sec. 24.1(c)
4. False or misleading statements with respect to material facts – SRC 24.1(d
5. Fixing, pegging or stabilizing the price of securities – SRC Sec. 24.1(e)

Read: SEC v. Court of Appeals, 246 SCRA 738 (1995)

SEC v Texas Gulf Sulphur Co., 401 F.2d 83 I(2d Cir. 1968), cert denied
594 U.S. 976 (1969)

B. Insider trading
1. Who is an insider? - SRC Sec. 3.8
 5

2. What constitutes material information? – See Sec. V(3) of this outline Rule
3.1(I); Rule 14.1; PSE Disclosure Rules, Sec. 4.3 & 4.4; Sec. 27.2, SRC
3. Insider’s duty to disclose when trading – SRC Sec. 27; PSE Disclosure Rules
13.1, 13.2

Read: SEC v. Interport Resources et al., 567 SCRA 354 (Oct. 6, 2008)
In the Matter of Cady, Roberts & Co., File No. 8-8925 (US SEC), 8
November 1961
Chiarella v United States, 445 U.S. 222 (1980)
United States v O’Hagan, 521` U.S. 642 (1997)
Dirks v SEC, 463 U.S. 646 (1983)

VIII. Independent Directors

A. Definition – SRC Sec. 38; SRC Rule 38.2 - 38.5; Revised CG Code Art. 1(e)
B. Qualifications and disqualifications – SRC Rule 38.6; “cooling off period”
C. Requirement for independent directors – SRC Sec. 38
D. Nomination and election – SEC Memo Circular 16, Series of 2002

IX. Self-regulatory organizations

A. The Philippine Stock Exchange – SRC Sec. 33 to Sec. 37

B. Others – brokers and dealers; transfer agents; custodians; etc. – SRC Sec. 39.1

X. Corporate Governance – the “Good Housekeeping Seal”

A. Definition – Revised CG Code[SEC Memo Circular No. 6, series of 2009],

Art.1(a)
B. Who are covered – See preamble to CG Cod
C. Why corporate governance is essential
D. Principles – See OECD Corporate Governance Principles3
E. Corporate Governance best practices
F. Essential Board committees – See revised CG Code; see also SEC Memo
Circular 4 (2012)
G. Annual Corporate Governance Report (ACGR) – SEC website

XI. Special Accounting rules

SRC Sec. 68; Rule 68; Philippine Financial Reporting Standards (PFRS)

XII. Liabilities for violation of SRC

A. Civil liability – SRC Sec. 57 to 63, inclusive

B. Administrative and criminal liabilities – SRC Sec. 51 to 55, inclusive

3 Available on the OECD website

 6

XIII. The Securities and Exchange Commission (SEC)

Powers and functions – SRC Sec. 5.1(a) to 5.1(n); SRC Sec. 5.2; SRC Sec. 53 to
53.4

Read: SEC v. Interport Resources Corporation, et al., 567 SCRA 354 (2008)
Baviera v. Paglinawan, 515 SCRA 170 (2007)
GSIS v. Court of Appeals 585 SCRA 679 (2009)
PASTRA v. Court of Appeals, 536 SCRA 61 (2007)
Philippine Stock Exchange v. Court of Appeals, 281 SCRA 232 (1997)
Speed Distribution, Inc. v Court of Appeals, 425 SCRA 691 (2004)
Andres et al v. Cuevas et al., 460 SCRA 38 (2005)