1995 corp disclosure requirements
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Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 1
1995
CORPORATE DISCLOSURE REQUIREMENTS
A Primer
PHILIPPINE STOCK EXCHANGE
Volume 1
1995
Table of Contents
Corporate Disclosure Requirements: A Primer
Insider Trading
"Short-Swing" Liability
Quick Guide on Corporate Disclosures
Continuing Listing Requirements
Corporate Disclosure Requirements: A Primer
PSE Principle
Q: What is the PSE's principle on corporate disclosure?
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 2
A: The basic principle of the Philippine Stock Exchange, Inc., ("PSE" or the
"Exchange") is to ensure full, fair, timely and accurate disclosure for all
listed companies. This principle is founded in Article 1 of its By-laws
which states:
"Sec. 1. The Principles and foundation of the Philippine Stock
Exchange hereinafter referred to as the Exchange are as follows:
xxx xxx xxx
(c) It shall uncompromisingly adhere to the highest ethical standards,
to ensure full, fair, timely and accurate disclosure at all times of material
information that may affect the value and trading of listed securities.
xxx xxx xxx."
Q: What is the purpose behind this principle?
A: It is the position of the Exchange that a fair and orderly market demands
that all listed companies make available to the public information
necessary to enable holders of the listed securities and the public to
appraise the position of the listed company; and to take reasonable steps
to ensure that all who invest in its securities enjoy equal access to such
information. cd
Q: What are the kinds of disclosure?
A: There are two kinds of disclosure: the structured and the unstructured
continuing disclosures.
Ensuring Full & Timely Disclosures Structured Continuing Disclosure
Q: What are structured Continuing Disclosures?
A: Structured Continuing Disclosures are the periodic reportorial
requirements required by the Securities and Exchange Commission ("SEC or the
Commission") and the PSE. The purpose of these structured disclosures is to
assure the public availability of continuing adequate information on publicly
listed companies. The following are the reportorial requirements required by the
Exchange as found in Chapter 9 of the PSE Listing Manual:
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 3
(1) Audited Annual Financial Report — to be furnished the Exchange not
later than 105 days after the end of its fiscal year. 200 copies must be
provided the Exchange for distribution. (SEC Cir. 7 Series of 1988).
(2) Annual Report — to be furnished the Exchange 15 days from Annual
Meeting. 200 copies must be provided the Exchange for distribution.
(SEC Cir. 7 Series of 1988).
(3) Semi-Annual Report — to be furnished the Exchange within 60 days from
the end of the first semester of fiscal year. 200 copies must be provided
the Exchange for distribution.
(4) Quarterly Report — to be furnished the Exchange within 30 days from the
end of the Quarter. 200 copies must be provided the Exchange for
distribution. (SEC.-BED Cir. No. 1 Series of 1987)
(5) Report on Beneficial Ownership as required by Section 36 of the Revised
Securities Act, which shall be filed within 10 days after the close of each
calendar month.
(6) List of stockholders entitled to vote in an annual or special stockholders
meeting as may be required by the Exchange.
(7) Annual Verification of the Bureau of Mines for mining companies.
(8) Duplicate original of every other information, documents, and reports
submitted to the SEC pursuant to Sec. 11 of the Revised Securities Act
(RSA).
UNSTRUCTURED CONTINUING DISCLOSURE
Q: What is unstructured continuing disclosure?
A: Unstructured disclosure is the communication of corporate developments
to the investing public as they occur. aisadc
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 4
Q: Is there a SEC rule on unstructured corporate disclosure?
A: Yes. The SEC rule on unstructured corporate disclosure can be found in
Sec. 11 (A-3) of the Revised Securities Act which requires every issuer
of a security registered pursuant to this Act to file with the Commission
such annual reports and such periodicals and other reports as may be
necessary to update information on the operation of the business of the
issuer or registrant.
Q: Is there a PSE rule on unstructured corporate disclosure?
A: In addition to the various SEC rules, the PSE has disclosure regulation to
which companies must adhere. Recently, the PSE added Chapter 10 to
its listing rules to clarify a listed company's disclosure obligations to the
public and to the PSE Compliance and Surveillance Department
regarding material news, unusual market activity and rumors and to
further clarify the function of temporary trading halts.
Q: What is the PSE rule on unstructured corporate disclosure?
A: A listed company is required to keep the PSE and the Commission
promptly informed by phone or fax immediately, i.e. at least 10 minutes
after, and confirmed in writing within 2 hours of any material
information or corporate act, development or event. During trading
hours, a listed company should inform the Compliance and Surveillance
Department by phone at least 10 minutes after and to be immediately
confirmed by fax.
All unstructured corporate disclosures should be addressed to the attention of
the Compliance and Surveillance Department of the Exchange.
Q: What standards and tests should be employed to determine whether
disclosure should be made?
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 5
A: Immediate disclosure should be made of information about company's
affairs or about events or conditions in the market for the company's
securities which meets either of the following standards:
(1) where the information is necessary to enable the company and the public
to appraise their position or standing; or
(2) where such information is necessary to avoid the creation of a false market
for its securities; or
(3) where such information may reasonably be expected to materially affect
market activity and the price of its securities.
Thus, the test in determining if immediate disclosure should be made: A
material fact does not have to be a decision-changing fact. [The practical test is: Is it a
market-moving event? Is it likely to move the stock price if disclosure is made?]
Whether or not the investor would have changed his or her decision is not a test in
determining if immediate disclosure should be address made. cda
Q. What kind of information helps the public to appraise their position?
A: Material information with a significant impact in the listed company's
operations such as those relating to the issuer's financial condition,
prospects, development projects, contracts entered into in the ordinary
course of the business or otherwise, mergers and acquisitions, dealings
with employees, suppliers, customers and others, as well as information
concerning a significant change in ownership of the company's securities
owned by insiders or representing control of the company.
Q: What are some specific examples of a company's affairs or market
conditions typically requiring disclosure?
A: The following events, while not comprising a list of all the situations
which may require disclosure, are particularly likely to require prompt
disclosure.
(a) Any declaration of a cash dividend, stock dividend and pre-emptive
rights by the Board of Directors;
(b) The holding of any stockholders' meeting;
(c) A tender offer, take-over or reverse take-over and a merger for another
corporation's securities.
(d) Capitalization issues, options, directors/officers/employee stock option
plans, warrants, stock splits and reverse splits;
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 6
e) All material resolutions taken up in a stockholders' meeting of the issuer;
(f) All call to be made on unpaid subscriptions to the capital stock of the
issuer;
(g) Any change of address of the registered office of the issuer or of its
transfer agents;
(h) Any change in the directors, officers, auditors or transfer agent of the
issuer;
(i) Any proposed amendment to the Articles of Incorporation and By-Laws;
(j) Any change in shareholdings of directors, officers and stockholders
owning more than 10% of any class of any security, as provided for
under Sec. 36, Chapter IV of the Revised Securities Act;
(k) Any action filed in court, or any application filed with the SEC, to
dissolve or wind-up the issuer or any of its subsidiaries, or any
amendment to the Articles of Incorporation shortening its corporate
term; or any significant litigation that will affect the corporation;
(l) The appointment of a receiver or liquidator for the issuer or any of its
subsidiaries;
(m) Any acquisition of shares of another corporation or any transaction
resulting in such corporation becoming a subsidiary of the issuer;
(n) Any acquisition by the issuer of shares resulting in its holding 10% or
more of the paid-up capital of another listed corporation or where the
total value of its holdings exceeds 5% of net assets of an unlisted
corporation;
(o) Joint ventures, mergers, consolidation, take-overs, reverse take-overs
and acquisitions; cdasia
(p) Any sale made by the issuer of its shareholdings in another listed or
unlisted corporation,
i. resulting in such corporation ceasing to be its subsidiary;
ii. resulting in its shareholding falling below 10% of the issued
capital stock;
(q) Firm evidence of significant improvement or deterioration in near-term
earnings prospects;
(r) The purchase or sale of significant assets;
(s) A new product or discovery;
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 7
(t) The public or private sale of a significant amount of additional
securities;
(u) A call for redemption of securities;
(v) The borrowing of a significant amount of funds;
(w) Default of financing or sale agreements;
(x) A significant change in capital investment plans;
(y) A significant dispute or disputes with subcontractors, customers or
suppliers, or with any other parties.
Disclosing Cash Dividends
Q: How should a corporation disclose a declaration of cash dividend?
A: Disclosure of cash dividend declarations should be made as follows:
(1) The corporation is required to notify the Exchange by phone, after 10
minutes, and immediately confirmed in writing by fax after the
declaration of cash dividends by the Board of Directors.
(2) The record date set by the corporation shall not be less than 10 nor more
than 30 days from the declaration. In case no record date is specified, the
record date shall be deemed fixed at fifteen (15) days from such
declaration. [Secs. 3 and 10 of the Amended Rules Governing
Pre-emptive and other Subscription Rights and Declaration of Stock or
Cash Dividends of Corporations whose Securities are Registered under
the Revised Securities Act or Listed in the Exchange, April 12, 1991].
Disclosing Stock Dividends
Q: How should a corporation disclose a declaration of stock dividends?
A: If the stock dividend is from the unissued:
(1) The corporation is required to notify the Exchange by phone, after 10
minutes, and immediately confirmed in writing by fax after the
declaration of stock dividends by the Board of Directors.
(2) All corporations declaring stock dividends must secure approval of
stockholders within 45 days from such declaration, notify the Exchange
by phone and immediately confirmed in writing by after the ratification
of the stock dividend by the stockholders specifying the amount of the
stock dividend. The Exchange requires that it be notified by phone or fax
within 10 minutes
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 8
(3) The record date set by the corporation shall not be less than 10 nor more
than 30 days from the approval of the stockholders. In case no record
date is specified, the record date shall be deemed fixed at fifteen (15)
days from such approval. Provided, however, that the record date shall
not be less than 10 trading days from receipt of notice by the Exchange.
[Secs. 2 and 10 of the Amended Rules Governing Pre-emptive and other
Subscription Rights and Declaration of Stock or Cash Dividends of
Corporations whose Securities are Registered under the Revised
Securities Act or Listed in the Stock Exchange, April 12, 1991]. cdt
If the stock dividend is taken from an increase in authorized capital stock:
(1) Upon the declaration of the stock dividend by the Board of
Directors, the corporation should notify the Commission and the
Exchange within 10 minutes by phone after the Board's meeting
declaring the stock dividend and immediately confirmed in writing
by fax.
(2) The approval of the stockholders must be secured within 30 days
from the declaration of the Board.
(3) Within 45 days from the date of the approval of the stockholders,
the application for the increase in authorized the capital stock and
for the registration of the securities must be filed with the
Commission together with all requirements necessary for approval
and within the same period the application for listing of shares to
cover the dividend declaration shall be filed with the Exchange.
(4) The record date shall be fixed by the Commission which shall not
be less than 10 days or more than 30 days after all clearances and
approvals by the Commission shall have been secured.
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 9
Disclosing Pre-emptive Rights
Q: How should a corporation disclose pre-emptive rights declaration?
A: Pre-emptive rights should be made as follows:
(1) Upon the decision by the Board of Directors to offer pre-emptive rights by
the Corporation, notice thereof shall be sent to the Commission and the
Exchange within 10 minutes by phone from the approval and
immediately confirmed in writing.
(2) In making the disclosure, the Corporation shall state the ratio, offer price,
record date, payment terms and the offering period of the rights issue.
(3) If the offered shares shall come from an increase in authorized capital
stock, the Articles of Incorporation should be first amended and
approved by the SEC to reflect the increase.
(4) The Corporation, subject to the approval of the Exchange, may set the
record date for pre-emptive rights provided it has obtained a favorable
endorsement form the Listing Committee. The record date shall not be
less than 10 trading days from receipt of notice by the PSE. cdtai
Disclosing Stockholders' Meeting
Q: What are the rules in disclosing stockholders' meeting?
A. For the holding of any stockholders' meeting and its agenda, the Exchange
must be given at least ten (10) trading days written notice before the
stockholders' meeting.
Q: What rule should be observed in disclosing stockholders who are entitled
to vote and the closing of books?
A: The Exchange shall be given not later than five (5) trading days after the
record date fixed by the issuer the list of stockholders who are entitled to
notice and to vote at a regular or special stockholders' meeting; and to
give ten (10) trading days notice prior to the closing of transfer books.
Disclosing Pre-Emptive Rights, Stock Dividends and Cash Dividends of
Exempt Securities (i.e. commercial banks)
Q: Are "Exempt Securities" excused from complying with the SEC-Amended
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 10
Rules Governing Pre-Emptive and other Subscription Rights and
Declaration of stock or Cash Dividends of Corporations Whose
Securities are Registered under the Revised Securities Act or Listed in
the Stock Exchanges?
A: No. Exempt securities are not excused from complying with the
abovementioned SEC Rule. The said securities are only exempt from the
registration requirements. Thus they must comply with the said Rules as
well as those pertaining to the full disclosure requirements of the
Revised Securities Act.
TRADING OF SECURITIES ON EX-BASIS
Q: How is the Ex-date determined?
A: According to Circular No. 402 dated September 7, 1995, effective
September 22, 1995, "Whenever listed companies announce a date for
closing of books or a record date for any of their corporate action, the
Exchange shall automatically determine the ex-date for which
transactions prior to this ex-date shall be entitled to the announced
corporate action (stock and cash dividends, stockholders' meeting, rights
offering, etc.). This ex-date shall be computed as seven trading days
before the announced record date."
ENSURING ACCURATE DISCLOSURES
Rules in Writing Disclosures
Q: How should a disclosure or public announcement be worded?
A: As stated earlier in Art. 1 of the PSE By-Laws, disclosures should not only
be fair and timely but also full and accurate. Clearly, while the Exchange
does not approve the announcement nor guarantees its accuracy when it
discloses the same to the members, a listed company should not make a
false statement in a public announcement. Thus, in preparing the
contents of a disclosure or public announcement, a listed company
should be guided by the following:
(1) Be factual, clear and succinct and avoid boosterism;
(2) Contain sufficient quantitative information to allow investors to evaluate
its relative importance to the activities of the listed issuer;
(3) Bad news should not be buried or concealed. It must be disclosed in the
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 11
same manner and with the same clarity and emphasis as good news. Its
impact must not be minimized by equivocal or misleading statements. cdtai
Q: What is the PSE policy on boosterism on disclosures?
A: It is the PSE's policy that boosterism on the disclosures should be avoided.
This is also known as "unwarranted promotional disclosure activity."
Q: What is boosterism on disclosures?
A: "Boosterism on disclosures" or "promotional disclosure activity" are
disclosures from listed companies which exceed that which is necessary
to enable the public to make informed investment decision. Such activity
includes in appropriately worded news release, public announcements
not justified by actual developments in the company's affairs,
exaggerated reports or predictions, flamboyant wording and other form
of overstated or over-zealous disclosure activity which may mislead
investors and cause unwarranted price movements and activity in a
company's securities, omission of important unfavorable facts, or the
slighting of such fact, presentation of favorable possibilities as certain,
or as more probable than is actually the case, presentation of projects
without sufficient factual basis, and negative statements phrased so as to
create a positive implication.
Soft information
Q: What listed company activity or development may not be required to be
disclosed?
A: Soft information is not required to be disclosed. Soft information is an
information that is indefinite in nature where it is in the company's and
shareholder's interest to wait until it is certain before it is disclosed to the
public.
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 12
Q: What does soft information include?
A: Soft information includes:
1. "Forward looking" or predictive information — e.g. earnings forecasts,
financial projections.
2. Subjective, evaluative information — e.g. management's beliefs and
opinions asset appraisals.
3. Uncertainties and developments in process — e.g. corporate transactions
in the planning stage or preliminary negotiations, bid submissions.
Forward Looking Statements
Q: What are forward looking statements? How should forward looking
disclosures be prepared?
A: Forward looking statements are disclosures about the company's future
prospects. Forward looking statements include not only projections or
estimates but also subjective statement about a company's view of the
future. Of all types of disclosure statements, forward looking statements
create the greatest risk of facing a plaintiff class action. Thus, the
following guidelines may be used in preparing forward looking
statements:
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 13
1. In making public estimates of revenue and earnings, it is important that the
external statements be consistent with internal planning and budgeting
documents, and of refraining from making optimistic forward looking
statements at times when the company is in possession of undisclosed
information that might seriously undermine the statement. [In re Adobe
Systems, Inc. Securities Litigation, 787 F. Supp. 912 (N.D. Cal. 1992)]. cdt
2. Corporate managers have to be aware not only of the own disclosures, but
of what others are saying about their company which requires a
disclosure which must be transmitted with a degree of intensity and
credibility, sufficient to effectively correct or counter-balance any
misleading impression created by the one-sided representations. [In re
Apple Computer Securities Litigation, 886 F. 2d 1109 (9th Cir. 1989)].
3. Forward looking statements, even if reasonable at the time they are made,
can continue to alter the legal landscape for months to come. [If
subsequent events or information casts significant doubt on the
continued reliability of an earlier statement, there may be a legal duty to
correct that statement.] Moreover, even if there is no duty to
affirmatively correct a previous statement, the fact that it is no longer
reliable in light of subsequent events has an impact on what subsequent
statements the company can make. Therefore, when planning a public
statement, it is necessary to consider and take into account what previous
statements have been made, and whether or not they have been affected
by subsequent events. [Kirby vs. Cullinet Software, Inc., 721 E Supp.
1444 (D.MA. 1989)].
Preliminary Negotiations
Q: What are the issues to be considered in preliminary negotiations?
A: The issues to be considered in preliminary negotiations are:
* when does the company start disclosing;
* when does the negotiation become material.
Q: Is there a duty to disclose preliminary negotiations?
A: No. A listed company is not required to disclose even if the preliminary
negotiation is material. This has been upheld by the U.S. Supreme Court
in the 1988 case of Basic Vs. Levinson (108 S. Ct. 978, 1988) that there
was no inherent duty to disclose the existence of merger negotiations as
long as the public company maintains a consistent silence and "no
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 14
comment" position about the existence of negotiations.
Q: When then is the company, engaged in preliminary negotiations, required
to disclose to the Exchange?
A: Before the Basic vs. Levinson Case, the basic rule adopted was the
agreement-in-principal test which means that there was already an
agreement between the parties on the price and structure of the proposed
transaction. This guideline was however rejected by the U.S. Supreme
Court in the Basic case. In the Basic Case, the court used the
probability/magnitude test where events are speculative or contingent,
i.e. — the question of materiality will depend at any time upon
balancing the probability that the merger negotiation will lead to an
agreement and the anticipated magnitude of the event in light of total
company activity. cd
Q: What factors determine the existence of the probability/magnitude test?
A: This is determined on a case-to-case basis, such as, the degree of interest
in the transaction at the highest corporate levels. With regard to the
magnitude of the transaction, facts such as the size of the different
companies involved and the potential premiums over current market
price must be considered.
Q: What instances require disclosure during the preliminary negotiations?
A: (1) When trading in the company's stock, the company or its directors may
have a duty to disclose material information they possess before
engaging in any transaction.
(2) When confidentiality is not maintained resulting in a leak of the
information.
(3) When disclosure is necessary to correct an earlier affirmative statement
that would be misleading absent disclosure of the negotiation.
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 15
(4) SEC rule requiring disclosures such as the quarterly reports.
(5) When the listed issuer receives a notice of intention to make a tender-offer
or take-over offer.
(6) When the information is requested by the PSE through the Compliance
and Surveillance Department.
Q: In the preceding instances, how does the company make the disclosure?
A: If the company chooses to make a statement on preliminary negotiations,
the statement must be true and complete. In addition, it must be
responsible enough to update the information disclosed when material
changes in the information occur.
Q: What are the sanctions against false and misleading disclosures?
A: As stated, while the Exchange is not obligated to check or approve the
announcements, where suspicious of falsity arise, the same may be
checked. In instances where falsity is verified, the Exchange may in
serious cases delist the corporation. In other instances, the Exchange
may file a report of the fraud committed to the SEC for its proper action
such as suspension or revocation of the registration of securities. (Secs.
15 & 16, RSA). Moreover, the person or corporation responsible for the
false disclosure may be sued in court to recover the consideration paid
for such security with interest thereon, less the amount of any income
received thereon, upon tender of such security, or for damages if he no
longer owns the security. In addition, exemplary damages may likewise
be awarded in cases of bad faith, fraud, malevolence or wantonness.
(Sec. 13, RSA).
Q: Is there any prescriptive period in filing an action based on false
statements?
A: Yes. Under Sec. 14 of the RSA, no action shall be maintained to enforce
any liability on false statements (Secs. 12 & 13, RSA) unless brought
within two years after the discovery of the facts constituting the cause of
action and within five years after such cause of action accrued.
COMMUNICATING THROUGH THE PRESS AND MARKET ANALYSTS
Press and News Releases
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 16
Q: Are press releases prohibited?
A: Generally speaking, press releases are not prohibited provided the SEC
approval to the same (pursuant to the SEC Rules) was acquired prior to
the release. cdasia
Q: What is the purpose of the SEC rule requiring their approval to the
releases?
A: The reason behind this requirement is to assure the public of the veracity
and authenticity of the facts stated in the releases.
Q: What happens if the Exchange receives a press release without the
stamped approval of the SEC-BED?
A: A Trading Halt will be issued when the Exchange receives a press release
from a company which does not have an SEC-BED stamp of approval.
The trading halt will immediately be lifted after the approved press
release has been disseminated to the member-brokers of the Exchange.
This prevents any person to take undue advantage of the information.
Q: Is the PSE's approval to the press and news release required?
A: No. As stated, the Exchange does not approve the contents of the
disclosures submitted for public dissemination.
Q: Is the PSE's approval necessary prior to its release to the public?
A: No. If the release is to be given during trading hours, the exchange requires
that a copy of the press release be submitted to the Exchange at least 30
minutes prior to the public release to enable the Exchange to appraise if
the news in the release is significant enough to warrant a trading halt.
Q: If the approval of the Exchange is not necessary to disseminate a press
release, why does the Exchange monitor and write listed companies
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 17
about releases in newspapers or media?
A: The Exchange writes the companies regarding news found in print and
media to verify the reports stated as most of the news printed or
announced by the media shows material information which the
Exchange is not informed of. Thus it should be stressed that press
release do not relieve the listed company from disclosing material
information to the Exchange by phone or fax within 10 minutes and
confirmed in writing within 2 hours of any corporate meeting or activity
or agreement.
Q: What is the basis of the Exchange to require that copies of press releases
be provided them?
A: Sec. 11 of RSA which mandates that every issuer of a security registered
with the Exchange shall file a duplicate original of such information,
documents, and reports required by the SEC with the Exchange.
Talking to Analysts
Q: Can a listed corporation disclose non-public material information to
analysts?
A: U.S. cases are unanimous in holding that selective disclosure of material
information when the same is not yet public is discouraged as buying on
the basis of the information makes the analyst or his clients liable for
insider trading. Thus, information received or obtained by an analyst of
prior to public disclosure cannot be used by the analyst.
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 18
ANSWERING RUMORS AND REPORTS
Q: Is a listed company required to clarify or confirm rumors or reports not
originating from them?
A: Yes. A public circulation of information, whether by an article published in
a newspaper, by a broker's market letter, or by word of mouth, either
correct or false, which has not been substantiated by the issuer and
which is likely to have, or has had, an effect on the price of the issuer's
securities or would likely to have a bearing on investment decisions by
investors must be promptly and properly clarified or confirmed.
Q: Why should a company correct a false rumor or report that did not
originate from them?
A: It is necessary for the company to correct a false rumor or report to prevent
the creation of a false market. In addition, if the company keeps its
silence, it might be construed by the investing public as a tacit approval
by the company of the rumor, release or report.
Q: How should a company correct a rumor? cdt
A: Rumors or reports of a supposedly factual basis is such that it is manifestly
based on erroneous information, or the listed company or any of its
executive officers is wrongly attributed as the source. the listed company
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 19
should respond promptly to the supposed factual elements of the rumor
or report. If a rumor or report contains a prediction that it is clearly
erroneous, the listed issuer should issue should issue an announcement
to the effect that the issuer itself has made no such prediction and
currently knows of no facts that would justify making such a prediction.
ENSURING FAIR DISCLOSURES
TRADING HALTS
Q: What is a trading halt?
A: A trading halt is a temporary halt or suspension of the trading of the listed
company's securities through the facilities of the Exchange.
Q: What causes a trading halt? What is its purpose?
A: Trading halts are caused by a significant material information or
announcement known to a few and which has not been disseminated to
the Exchange. Its purpose is to enable all market participants to have an
equal opportunity to see the news, digest it and understand its full
impact. It is usually done when the disclosure is made during trading
hours. The Exchange may halt the trading of the listed company's
securities to provide an opportunity for the material information to be
properly disseminated.
Q: Is a trading halt automatic for all disclosures given during trading hours?
A: No. As explained earlier, the Exchange requires notification by phone at
least 10 minutes after the meeting or agreement/event and to be
immediately confirmed in writing by fax. The purpose for this
requirement is to enable the Compliance and Surveillance Department to
make a determination whether the announcement is important enough to
warrant a halt in the trading of the securities. aisadc
Q: How long does a trading halt last? When will trading be resumed?
A: From the time the Compliance and Surveillance Department determines
the existence of a material information that has not been disseminated to
the public, a trading halt will be enforced until after one hour from
distribution of the notice by the Department to the public or the next day
if the notice is circulated after trading hours.
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 20
Q: What are the benefits of a trading halt?
A: A trading halt benefits the investing public because somebody with the
news is unable to take advantage of somebody else who does not know it
yet. It therefore puts the investing public and the insider in the same
position. It also benefits the company because it gives them an
opportunity while trading is halted, to talk to analysts and express their
view to the analysts. In the U.S., some companies request for trading
halts so they can arrange a conference with all analysts.
Q: Why does the exchange implement a trading halt in spite of a submission
of a press release?
A: In cases of press releases, a trading halt is implemented only when the
press release submitted was not approved by the SEC. The reason for the
halt in trading is the inability of the Exchange to disclose the information
to the public in the absence of the SEC approval.
FREEZING DUE TO UNUSUAL
TRADING ACTIVITY
Q: What is unusual trading activity?
A: Unusual trading activity occurs when the trading of the securities of a
listed company is active without any apparent publicly available
information which could account for the activity.
Q: What is the implication when unusual trading activity occurs?
A: Unusual trading activity may signify trading by persons who are acting
either on unannounced material information or on a rumor or report,
whether true or false, about the company.
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 21
Q: What action is undertaken by the Exchange in this situation?
A: If the trading price of the shares moves 50% upward or 40% downward
from the previous closing price, the price of the securities is frozen.
Q: Is trading still allowed during a price freeze?
A: Yes. When freezing occurs, trading is still allowed but the movement of
the price is not allowed to move up beyond 50% or move down beyond
40% from the previous closing price.
Q: What is the reason for freezing the prices?
A: When unusual trading activity occurs, the market action itself may be
misleading to investors, who are likely to assume that a sudden and
appreciable change in the price of a listed issuer's securities must reflect
a parallel change in its business prospects.
Q: Does unusual trading activity occur only when the prices move upward by
50% and downward by 40%? cdtai
A: No. Unusual trading activity occurs even if the prices do not move 50% or
40%, when the Department determines there is unusual trading activity,
the Department will make inquiries with the listed company if they are
aware of any reason that would justify the unusual trading. The listed
company must respond promptly to any inquiries made by the Exchange.
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 22
Q: What guidelines should the company apply when responding to inquiries
of the Exchange?
A: In responding to inquiries of the Exchange, a listed company may be
guided by the following:
(1) If the unusual trading activity results from the "leak" of material
information, the information in question must be announced promptly. If
the unusual trading activity results from a false rumor or report, the
Exchange's policy on correction of such rumors and reports should be
complied with; and
(2) If the listed issuer is unable to determine the cause of the unusual trading
activity, the exchange may suggest that the issuer make a public
announcement to the effect that there are no undisclosed recent
developments affecting the issuer that would account for the unusual
trading activity.
Q: Does a halt or a suspension occur when an unusual trading activity is
detected?
A: No. A trading halt or a suspension is not utilized when unusual trading
activity occurs.
Q: Why does a halt occur when unusual trading activity is detected?
A: A trading halt is utilized when upon inquiry of the Compliance and
Surveillance Department, they were informed of a material information
not yet disclosed which in all probability is the cause of the unusual
activity. If the information of the Department cannot be disseminated
immediately, the Department will enforce a trading halt pending
disclosure.
Q: Can the listed company refuse to respond to the inquiries of the
Exchange regarding the unusual trading activity? If not, what sanctions
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 23
will be applied against the listed company?
A: No. In the event the listed companies refuse to respond to the inquiries
of the Exchange regarding the unusual trading activity, the Exchange
may suspend the trading of the securities.
PENALTIES:
Q: What is the penalty for non-compliance with the PSE disclosure
requirements?
A: Subject to the provisions on delisting, any violations of the terms and
conditions of the Listing Agreement and the Manual of Listing Rules of
the Exchange, except for fraud of the market, manipulation and other
offenses under the Revised Securities Act, shall make the issuer liable
for the following penalties within a period of twelve months:
First Violation P50, 000. 00
Second Violation of a
Similar Nature P75, 000. 00
Third Violation P100, 000. 00
Fourth Violation Suspension of trading the issue
for a period of one (1) month
Fifth Violation Ground for delisting
An additional fine of P1,000.00 shall be imposed for each trading day during
which the offense continues until and including the day on which the violation is
corrected. Failure to pay within one month from the imposition of the penalty will
result in the suspension of trading of the securities of the violator.
Offenses involving fraud, concealment, and other offenses specified in the
RSA shall be referred to the Board for its appropriate action.
THE GENERAL RULE
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 24
In cases of doubt as to whether disclosure should be provided or not, the
presumption must always be in favor of disclosure. However, if disclosure is to be
made, the disclosure must be full, fair, timely and accurate. aisadc
Types of Market Manipulation
1. What is manipulation?
Manipulation is defined as:
a. a series of transactions designed to raise or lower the price of the
security or to give the appearance of trading for the purpose of
inducing others to buy or sell;
b. an intentional interference with the free forces of supply and
demand; and
c. an economically irrational trading.
2. Do we have a policy against price manipulations?
The policy against price manipulations can be found in Sec. 26, 27, 28 & 29 of
the Revised Securities Act which states that:
a. Section 26a, Nos. 2 (i) and 6 entitled Manipulation of Security Prices:
"Sec. 26a: (2) To effect, alone or with one or more other persons, a
series of transactions in securities that (i) raises their price for the purpose of
inducing the purchase of a security, whether of the same or a different class, of
the same issuer or of a controlling, controlled, or commonly controlled company
by others;
(6) To effect, either alone or with one or more persons, any series of
transactions for the purchase and/or sale of any security registered in a securities
exchange for the purpose of pegging, fixing or stabilizing the price of such
security."
b. Section 27b entitled Manipulative and Deceptive Devices:
"Sec. 27b: To use or employ, in connection with the purchase or sale
of any security, any manipulative or deceptive device or contrivance;"
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 25
c. Section 28 entitled Artificial Measures or Price Control:
"Sec. 28: It shall be unlawful for any exchange to adopt and enforce
artificial measures of price control of any nature whatsoever without the prior
approval of the Commission which may be given only if it serves public interest
and benefits the investors;" and
d. Section 29 No. 1 entitled Fraudulent Transactions:
"Sec. 29: It shall be unlawful for any person, directly or indirectly, in
connection with he purchase or sale of any securities (1) To employ any device,
scheme or artifice to defraud . . ." cdtai
3. What are the common manipulation schemes?
A. HYPE AND DUMP MANIPULATIONS
1. Purchase of a privately owned company of that of a public shell company.
* A manipulator and his close associates may purchase the
outstanding capital stock of a dormant public shell company for a
nominal amount. They then merge it with their privately held
company.
* The manipulators would then gain control of a majority of the free
trading stock of the merged entity.
** The manipulator sometimes obtains possession and control
of certificates for the shell's stock from the stock transfer
agent, free of all restrictive legends.
** The shares of the shell company are often reverse-split
four-to-one or more to reduce the number of shares, or split
forward to increase the number of shares.
** Stock certificates are often reissued in the name of the
merged entity to relatives and associates of the manipulator
who acts as nominees under the manipulator's control.
** The "public float" (shares not under their control) is sharply
reduced.
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 26
* The manipulators would then look for a broker-dealer who is
willing to make a market in the stock of the newly merged
company.
* They would then hire a promoter who would "hype" the virtues of
the company, its products and the stock. The broker-dealer then
generates trading volume and advances the bid-price. When the
market price reaches a high level, the manipulators and his
associates would then bail out.
2. Formation of a new company.
* The manipulator and his associates usually formulates the idea of a
new company as well as their formation.
* They then actively promote the company to the broker-dealer
community.
* The company may effect a:
** blank check offering, which means that they will be free to
decide later on what business it will engage in and the
public is asked to invest in the company without knowing
what that business would be;
** blind pool offering which identifies only the general type of
business the company will engage in; and
** hot issue if it will purportedly engage in a trendy line of
business such as high technology, mergers or acquisitions.
* The officers and directors of the company may be related or
associated with the manipulators, have little work experience,
given large blocks of stock prior to the initial public offering and
may have agreed with the manipulators to resign at any given time.
* The shares of stock of the company usually go to the officers and
directors of the company and to associates or individuals who has
nothing to do with the company.
* The company may have very little private capitalization since it
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 27
depends on the proceeds of the initial public offering.
* The prospectus of the company is generally prepared by the
manipulator, without or little input from the nominee officers and
directors. It often contains false and misleading information
regarding the company's assets, prospects and offering proceeds. It
also falls to disclose the involvement of the manipulator and his
associates with any securities violations. It is then reviewed and
filed with the Commission by attorneys and accountants associated
with the manipulator.
* The offering is usually underwritten by a firm associated with the
promoter and securities are purchased by nominees with funds
loaned to them for that purpose. The underwriter, who is also the
lead market maker, dominates the market through price leadership
and control of "floating supply."
* When listed, match trades usually occur between and among
nominee accounts. Promotional materials, such as attractive
brochures, hype the stock to the desired level. After which, the
manipulators ball out and the market collapses.
B. BAIT AND SWITCH MANIPULATIONS:
1. Broker-dealers with boiler-room operations.
* These firms have branches all over the country with large customer
pools. They specialize in marketing low-priced
over-the-counter-securities. They hire young and inexperienced
people who employ specific and detailed marketing schemes. They
use high pressure sales techniques.
2. Underwriters.
* The broker-dealer underwrites the initial public offering of an
over-the-counter security of a company which they may have a
significant stake in.
* They promote the IPO of the new security by distributing periodic
brochures or newsletters which recommends the issue. They may
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 28
also hold meetings to promote the new company.
* The branch managers and sales representatives are provided with
various incentives to sell the new security such as permitting the
branch manager to purchase the shares in the IPO at discounted
prices. cdtai
* Various schemes are used by broker-dealers to control and profit
from the IPO such as:
** purchasing customers at certain branch offices for the
broker-dealers own account and in turn sell them to
customers at other branches at a higher price;
** disseminating false and misleading information about the
security to induce customers to sell their shares to the
broker-dealer at below market prices and in turn the
broker-dealer would sell the shares in the open market at
prevailing market prices.
C. HIGHEST BIDDER OR TRANSACTIONS AT PROGRESSIVELY
HIGHER PRICES
* The manipulator is usually the highest bidder in order to support or
raise the price of a security. This also happens when new investors
enter the market since it exhausts the supply of the securities thus
making the others raise their bid. This is also similar to pump and
dump.
D. TRADITIONAL OR CLASSIC MANIPULATIONS
1. Demand side Manipulation Schemes.
A. Commencing market with arbitrary quotes that bear no logical relation to
the issuer's business history, earnings, assets and products.
B. Marking the close.
* Upping the quoted inside bid at or near the close of the market to
send a positive signal to the market. A market maker will usually
drop its bid back at opening of market next morning, unless it has
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 29
captive accounts in which to place shares he had to purchase at
higher price.
* Purchasing the stock at or near the close of the market.
C. Painting the Tape.
* Buying activity among nominee accounts at increasingly higher
prices or causing fictitious transaction reports to appear on the
"ticker tape."
D. Squeezing the Short Interest.
* Calling for certificates in short sales to force sellers to purchase
more shares in the market to cover their short positions and
accordingly to increase the price of the stock.
* Engaging in wash sales to move shares from an account at one firm
to a new account at another firm to "squeeze" short sellers, thereby
forcing them to "cover" in the market at increasingly high prices.
E. Advancing the bid both to increase the price and to attract further trading
interest. This conduct is highly suspicious when retail sales exceed retail purchases. cdasia
F. Manipulation of Immediate After market.
* It is a case wherein the defendant oversold the IPO unit offerings
during the registration's waiting period. The other investors were
solicited to provide a check for the full indication of interest prior
to effective date. The underwriter then reduced the allocation for
each investor and placed the remainder of the shares in the hands
of the nominees. Prior to the opening of the after market, the
representatives of the defendants filed out order tickets for after
market trades at a pre-determined price. The after market opened
but the firm's trader began executing after market orders of the IPO
investors at a higher level. Thus, such action drove the increased
the actual market price to such level. In order to supply such
demand, the nominee accounts sold their shares with a profit.
* Another case is when an investor in an IPO are required to buy a
common stock in the immediate after market; and broker allocated
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 30
common stock for sale in the immediate after market at a series of
pre-determined and increasing "tick" prices, the lowest of which is
still higher than the actual price of the warrants.
2. Supply Side Manipulation Schemes.
A. Reducing the Floating Supply.
* Purchasing the significant amount of security's float which in turn
makes its price highly sensitive to demand.
B. Tying Up Large Blocks.
* This happens when brokers refuse to execute sell orders or when
they request their clients to withhold a significant number of shares
in relation to the trading float so as making the market sensitive to
demand.
3. Going on the Box.
* Inserting bid and asked quotations on the board before the
broker-dealer's participation in the distribution is complete.
4. Inducing after market purchases while in distribution
* It happens when brokers solicits indication of interest, requests
submission of checks from investors for the total amount and then
cuts back on the allocations to each investor using the balance of
the payment submitted to purchase shares in the aftermarket
pursuant to order tickets written before the aftermarket opens.
5. Entrance of improper stabilizing bid
6. Free Riding and Withholding
* The broker dealer is supposed to distribute the entire offering at the
public offering price and not withhold shares for registered
representatives and their families when the issue is likely to trade at
an immediate premium in the aftermarket.
7. Work Out Market
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 31
* It is when the trader acts essentially as a broker and in which a
customer offers to sell are not accepted unless an equivalent or
greater order to buy exists.
8. Scalping
* It is a practice in which a person, like an investment advisor,
purchases securities for his own account before recommending that
security and then sells the shares at a profit upon the rise in the
market price following the recommendation. cdtai
9. Reaching Across the Market
* This is to purchase shares above the manipulator's current
quotation. In order to raise the bid, the manipulator "takes out" the
asking price of the other market makers to prevent locking the
market when bid is made.
10. Raising the Price to Improve Exchange Ratio.
11. Churning.
* Excessive trading in an account, which usually result in buy/sell
activities against the financial interests of the customer.
12 Box in the Stock.
* It is when an individual has physical possession of a sufficient
number of the issuer's shares to control the market and to make it
nearly impossible for market makers to deliver the securities they
have sold by settlement date. This produces a thin market and
reduces liquidity. The manipulator then locks up the supply and
provides him the ability to sell when he desires and at a profit.
13. Daisy Chain.
* It is a pattern of fictitious trading activity by a group of persons
who lure the innocent people into the scheme who bails out the
manipulators. They are then left with the securities since there is no
one to sell it to.
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 32
14. Flipping.
* It happens when one office buys a particular stock for customers
while another office simultaneously recommends that its customers
sell the stock. Thus the stock is shifted from one office to the other.
The firm then makes a profit and the brokers receive commissions.
15. Ponzi Scheme.
* A fraudulent investment scheme whereby each tier of investors is
paid off using the money provided by each later tier of investors.
16. Chain Letter Rally.
* This occurs when speculators support the manipulators thereby
increasing the volume and price movement.
17. Wash Sales.
* When an order to buy and to sell is placed at the same time even if
beneficial ownership does not change.
18. Failure to Disclose.
* When there is a failure to disclose control or association of the
purchase or sale of a security which then allows a manipulator to
convey to the market that the demand or supply for securities is
genuine when in fact it is related to his own position.
19 Guarantees or Payments.
* Guaranteeing purchasers against loss or making payments to
induce others to purchase or sell the security. cdt
20. Use of Nominee Accounts.
* The use of a nominee or a fictitious account to manipulate a certain
stock conceals the actual control and purpose of the manipulators.
Insider Trading
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 33
General
Q: What is insider trading?
A: The illegal act of insider trading is discussed in Section 30 of the Revised
Securities Act of the Philippines as follows:
"a. It shall be unlawful for an insider to sell or buy a security of the
issuer, if he knows a fact of special significance with respect to the issuer or the
security that is not generally available, unless (1) the insider proves that the fact
is generally available or (2) if the other party to the transaction (or his agent) is
identified, (a) the insider proves that the other party knows it, or (b) that other
party in fact knows it from the insider or otherwise."
Q: What is the present policy of the PSE on insider trading?
A: Under Art. 1 of the PSE By-laws, the PSE is mandated to:
"(b) . . . strengthen itself into an effective and professional
self-regulating organization as it provides one efficient and fair market for
buyers and sellers to conveniently and effectively transact listed securities
through member brokers."
Q: What is meant by a fair and efficient market?
A: In general terms, an efficient market exists where one party cannot
interfere with the free-market forces of supply and demand such that the
price of a given security is not an accurate reflection of the underlying
assets (both physical and human) and information pertaining to those
assets, of a given corporate body. On the other hand, a fair market is
achieved where all participants face the same conditions of trading, i.e.
no party can take advantage of an information that is attained from a
privileged information.
Q: What is the basic principle behind inhibiting insider trading?
A: The obligation of inhibiting oneself from using insider information rests
on two basic principles:
(1) the existence of a relationship giving access, directly or
indirectly, to information intended to be available only for a
corporate purpose and not for the personal benefit of anyone, and
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 34
(2) the inherent unfairness involved where a party takes advantage of
such information knowing it is unavailable to those with whom
he is dealing. 1
Q: What is the purpose of outlawing insider trading?
A: It must be emphasized that the primary purpose of Sec. 30 of RSA is to
outlaw the use of inside information by corporate officers and principal
stockholders for their own financial advantage and to the detriment of
the uninformed public security holders-those who sold or bought shares
without the benefit of the inside information. 1a
Q: Is there an exception to the rule?
A: Yes. Insider trading does not exist when (1) the insider proves that the fact
is generally available or (2) if the other party to the transaction (or his
agent) is identified, (a) the insider proves that the other party knows it, or
(b) that other party in fact knows it, from the insider or otherwise." cda
Q: What are the elements of insider trading?
A: Elements:
(1) An insider
(2) buys or sells a security
(3) due to knowledge of a fact of special significance
(4) which is not generally available.
INSIDERS
Q: Who is an insider?
A: An insider as defined in Sec. 30 (b) of the RSA is any of the following:
(1) the issuer ( i.e. every person who issues any security);
(2) a director or officer of, or a person controlling, controlled by, or
under common control with the issuer;
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 35
(3) a person whose relationship or former relationship to the issuer
gives or gave him access to a fact of special significance about
the issuer or the security that is not generally available; or
(4) a person who learns such a fact from any of the foregoing
insiders as defined in this subsection, with knowledge that the
person from whom he learns the fact is such an insider.
They may be further classified into the following:
CATEGORY 1: CORPORATE INSIDERS — officers, directors, certain
employees and majority or controlling share-holders of the company at issue.
CATEGORY 2: TEMPORARY INSIDERS — underwriters, lawyers,
accountants and consultants who become "temporary" insiders because they have
obtained confidential information about the company while in a fiduciary *
relationship to the company.
CATEGORY 3: TIPPERS and TIPPEES — when an insider or temporary
insider described as the "tipper" provides material, nonpublic information or purchase
or sale recommendations to a third party known as the "tippee," who then trades on
the information or passes it on to the others who do so. In this instance, both the tipper
and the tippee shall be liable. cd
Q: What is the "misappropriation theory" of insider trading?
A: Under the "misappropriation theory", a person who, in breach of duty of
trust and confidence, misappropriated material, nonpublic information
from any source, and uses that information to her advantage in securities
transactions, is guilty of insider trading.
Q: What is an example of a person who can be held for misappropriation of
confidential information?
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 36
A: In the Winans case 2 a Wall Street Journal reporter, R. Foster Winans was
held liable for insider trading for misappropriating a WSJ's confidential
information about what stocks would be mentioned in the column by
tipping others to the information.
Q: Is the misappropriation theory applicable in the Philippines?
A: Our laws are clear as to who shall be considered insiders but silent as to
whether the misappropriation theory is applicable in the Philippines.
However, if the person who misappropriated the information can be
found to fall in any of the four classes of insiders, clearly the theory may
be applicable in the Philippines. cda
Q: What are the reasons for considering the misappropriation of
non-information insider trading?
A: Former US Chief Justice Burger explained in his dissenting opinion in the
Chiarelli case (which eventually became the foundation of the
misappropriation theory in subsequent cases) explained that by obtaining
material, non-public information by unlawful means, the person who
misappropriated clearly breached a duty to his employer thereby
subjecting him to the same duty as an insider to disclose the
misappropriated information or to abstain from trading. The other
reasons propounded was the "equal access theory" suggested in Texas
Gulf Sulfur case which simply contended that the duty to disclose arose
"as a result of the 'inherent unfairness' of turning secret information to
account for personal profit."
SIGNIFICANT INFORMATION
Q: What is significant information?
A: Sec. 30 (c) of the RSA cite two instances when a fact can be considered of
"special significance" if.
(a) in addition to being material it would be likely, on being made
generally available, to affect the market price of a security to a
significant extent, or
(b) a reasonable person would consider it especially important under
the circumstances in determining his course of action in the light
of such factors as the degree of specificity, the extent of its
difference from information generally available previously, and
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 37
its nature and reliability.
Q: Is material information sufficient to be considered specially significant?
A: No. While in the US material information is sufficient, in the Philippines,
the material information must be accompanied by a movement in the
market price of the security by a significant extent.
Q: What is "material' information?
A: Material information is that which induce or tends to induce or otherwise
affect the sale or purchase of the issuers securities.
Q: What are the examples of material information:
According to Chapter 5, number 1 of the Listing Guidelines of the
Philippine Stock Exchange:
"Material information shall include information relating to the issuer's
financial condition, prospects, development projects, contracts entered into in
the ordinary course of the business or otherwise, and other information with
significant impact on the issuer's operations such as, but not limited to the
following:
a. Declaration of a cash dividend;
b. Declaration of stock dividend or pre-emptive rights;
c. Capitalization issues, directors/officers/employee stock option plans,
warrants, stock splits and reverse splits;
d. All material resolutions taken up in a stockholders' meeting of the issuer;
e. All call to be made on unpaid subscriptions to the capital stock of the
issuer;
f. Any change of address of the registered office of the issuer or of its
transfer agents;
g. Any change in the directors, officers, auditors or transfer agent of the
issuer;
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 38
h. Any proposed amendment to the Articles of Incorporation and the
By-Laws;
i. Any change in shareholdings of directors, officers and stockholders
owning more than 10% of any class of any security as provided for under
Sec. 36, Chapter IV of the RSA;
j. Any action filed in court, or any application filed with the SEC, to
dissolve or wind-up the issuer or any of its subsidiaries, or any
amendment to the Articles of Incorporation shortening its corporate
term; or any significant litigation that will affect the corporation;
k. The appointment of a receiver or liquidator for the issuer or any of its
subsidiaries; cdtai
l. Any acquisition of shares of another corporation or any transaction
resulting in such corporation becoming a subsidiary of the issuer;
m. Any acquisition by the issuer of shares resulting in its holding 10% or
more of the paid-up capital of another listed corporation or where the
total value of its holdings exceeds 5% of net assets of an unlisted
corporation;
n. Joint ventures, mergers and acquisitions;
o. Any sale made by the issuer, of its shareholdings in another listed or
unlisted corporation,
i. resulting in such corporation ceasing to be its subsidiary;
ii. resulting in its shareholding falling below 10% of the issued
capital stock;
p. Firm evidence of significant improvement or deterioration in near-term
earning prospects;
q. The purchase or sale of significant assets;
r. A new product or discovery;
s. The public or private sale of a significant amount of additional
securities;
t. A call for redemption of securities;
u. The borrowing of a significant amount of funds;
v. Events of default under financing or sale agreements;
w. A significant change in capital investment plans;
x. A significant dispute or disputes with subcontractors, customers or
suppliers, or with other parties; and
y. A tender offer, take-over and merger for another corporation's securities.
Q: What if an insider bought securities based on a non-public information
that a 40% stock dividend will be declared but upon disclosure the share
prices did not move, is his purchase insider trading?
A: No, since the market price of the security did not increase by a significant
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 39
extent.
Q: What percentage of increase can be considered significant?
A: There is no rule as to what percentage of increase can be considered
significant.
Q: If there is no hard and fast rule in declaring an increase significant, what
factors can be considered in determining if the increase is significant?
A: The historical pricing and movement of the security may be looked into,
thus, if the increase and movement is unusual, the increase may be
considered a significant movement.
Q: Is all information a fact of special significance only if there is a
corresponding significant movement?
A: No. A fact of special significance need not have a corresponding
significant movement in its price if a reasonable person would consider
the fact especially important under the circumstances in determining his
course of action in the light of such factors as the degree of its
specificity, the extent of its difference from information generally
available previously, and its nature and reliability. (Sec 30-c(b), RSA). It
must be noted that Sec. 30 c-b was designed primarily for the case where
there is no market.
Q: Is there an instance when a fact of special significance as defined in 30-c
will be considered insider trading?
A: Yes. The fact that disclosure of insider information may be improper under
some circumstances, as where the insider is disabled from disclosing in
order to protect a corporate conference or preliminary negotiation, does
not excuse transactions by the insider without disclosure. In such a
circumstance, he has no alternative but to forego the transaction or be
liable for insider trading. (SEC v. Texas Gulf, supra). cdt
INFORMATION NOT GENERALLY AVAILABLE
Q: When is information already considered "generally available"?
A: In the Texas Gulf Case, an insider may not act at the moment the company
makes a public announcement of the information, but must wait "until
the news could reasonably have been expected to appear over the media
of widest circulation. The US Federal Securities Code from which we
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 40
copied our insider trading law clearly specified the a fact is "generally
available" one week after is it disclosed by means of a filing or press
release or in any other manner reasonably designed to bring it to the
attention of the investing public, otherwise, the burden of proving that a
fact is "generally available" is on the person who asserts.
The Revised Securities Act of the Philippines has failed to specify when a fact
is considered "generally available".
Q: Do rumors make the information public?
A: No as rumors are not specific and trustworthy 4 as an official statement
from the Exchange.
COUNTERVAILING FIDUCIARY DUTY
Q: Is a broker exempted from insider trading if he sold his customers account
based on his fiduciary obligation to his customers to sell in the event he
comes into possession of adverse information?
A: Brokers may not use his inside information to benefit his clients at the
expense of the general public. aisadc
PENALTIES
Q: What penalties are provided against insider trading?
A: If the Exchange finds insider trading, its usual course is to file the report to
the SEC under SEC. 45 of the RSA. If the person found liable for insider
trading is within its jurisdiction, such as a member, the Exchange may, if
evidence warrants, impose the penalties it may deem appropriate which
may include expulsion of the member. However, since most insider
trader found by the Exchange is outside their jurisdiction, the Exchange
can only file its investigative report to the SEC for its proper action.
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 41
The SEC can impose administrative sanctions or file for a criminal case. The
Administrative sanction can include suspension or revocation of its certificate, fine or
disqualification from being an officer or principal stock holder of an issuer. On the
other hand, a conviction in the regular courts for insider trading may entail
imprisonment of not less than 7 years nor more than 21 years imprisonment and or a
fine of not less than P5,000.00 nor more than P500,000.00. cda
In addition to the foregoing, civil actions for damages may be brought against
the insider by the stockholders.
Q: Can a class action be brought against insiders?
A: It has been held that a class action could be brought on behalf of all person
who purchased stock of a company on an Exchange during the period
that defendants were selling that stock on the basis of inside information.5
Q: How shall damages be measured by the courts?
A: The US Court applied two approaches in determining the damages:
(1) "The Draconian liability" leaves it to the course the "fashioning of
appropriate relief, including the proper measure of damages,"
(2) "The Disgorgement approach" states that any uninformed investor may sue
for the difference between what he paid (or received) for his stock and
the market value that it reached a reasonable time after public disclosure
of the inside information, but the total recovery by all such persons is
limited to "the amount gained by the insider as a result of his selling or
purchasing at the earlier date rather than delaying his sale or purchase
until the parties could trade on an equal information basis."
The Disgorgement approach seems to be the more reasonable
compromise between imposing the "Draconian liability or "no liability at
all.
Q: Is profit necessary to establish insider trading liability?
A: No.
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 42
FINAL ADVISE:
ABSTAIN UNTIL DISCLOSURE!!!
"Short-Swing" Liability
Q: Do we have a policy against "short-swing"?
A: The policy against "short-swing" can be found in Sec. 36 a & b of the RSA
which requires every person who beneficially owns, directly or
indirectly, more than 10% of any class of any equity security which is
registered pursuant to this act, or who is a director or an officer of the
issuer of such security to file with the SEC and, if listed, with the
Exchange (a) at the time of the registration or listing or within 10 days
after he acquires such status if the acquisition was after registration or
listing, a statement indicating the amount of all equity securities of such
issuer of which he is a beneficial owner, and (b) at the end of any month
in which he acquires or disposes any equity security of that company, a
statement indicating his ownership at the close of the calendar month
and such changes in his ownership as have occurred during the calendar
month. For the purpose of preventing the unfair use of information
which may have been obtained by any such officer, director or 10%
shareholder, the issuer or any of its stockholder suing on its behalf may
recover any "profit" realized by any of the foregoing person from any
purchase and sale or sale and purchase, of any equity security of the
company within a period of less than six months.
Q: Is the 10-day calendar disclosure required even if no changes in
ownership happened during the month?
A: No. The disclosure is required only if there has been a change in such
ownership during such month.
Q: In suing for "short-swing" profits, is it necessary to show that the
beneficial owner, director or officer actually took advantage of inside
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 43
information?
A: In suing for short-swing, it is not necessary to show that the defendant
actually took advantage of, or had access to, inside information. 1
PROFITS
Q: For Sec. 30-b, when is there profit?
A: Profits in "short-swing" exists whenever there is a purchase that can be
matched against a sale at a higher price that is made less than six months
after, or before, the purchase. (Smolowe v. Delendo, infra).
Q: What happens when the defendant engages in a series of transactions at
varying prices?
A: In these instances, the profit recoverable by the company is determined by
matching the highest-price sales against the lowest-price purchases. This
is allowed notwithstanding an overall trading loss during the six-month
period involved. 2
Q: Can sales of common shares be matched against purchases of other type
of securities?
A: Yes. There is no need to trace certificates in short-swings. For this purpose,
securities are fungible, thus, sales of common stock can be matched
against purchases of debentures convertible into common stock to
produce a "profit".
OFFICER AND DIRECTOR
Q: Who are officers for short-swing purposes?
A: Officers shall mean the president, the principal financial and accounting
officers, any vice-president in charge of a principal business unit,
division or function, and any other officer or person who performs
similar policy-making functions for the issuer. 3
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 44
Q: Can a purchase or sale of a director or officer before he assumed that
position or after be resigned be sued for "short-swing" liability?
A: It depends. A purchase or sale made by a person while he is a director or
officer can under certain circumstances be matched against a sale or
purchase made within 6 months but before he assumed that position or
after he resigned. 4 However, if both the purchase and sale were made
within the 6-month period following resignation as a director, the
purchase and sale will not be covered. 5
Q: Is the preceding rule applicable to 10% beneficial owners?
A: No. Sec. 30-b explicitly excludes from liability any transaction by a 10%
holder if he was not both at the time of the purchase and sale, or the sale
and purchase, of the security involved. The words 'at the time of' being
interpreted to mean 'simultaneously with' the purchase and sale, not
before or after. Hence, the purchase which makes a person 10%
shareholder cannot be matched against a subsequent sale to create a
liability 6 even if the purchase and sale was all within the 6-month
period. aisadc
PURCHASE AND SALE
Q: What shall be considered purchase and sale?
A: The exercise of an option is NOT a purchase of sale for "short-swing" but
a put or call option on common stock, or of securities convertible into
common stock is. Surrender of securities of one company for another
company as in mergers" may constitute purchase and sale if the insider
had power to put through the merger and there was a possibility for use
of inside information 7 but if the insider was the "forced seller" (defeated
tender-offeror) the disposition of his shares shall not be considered for
"short-swing".
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 45
EXEMPTED TRANSACTIONS FROM SHORT-SWING
Q: What transactions are exempted from short-swing?
A: Sec. 30 b specifically exempts securities acquired in good faith in
connection with a debt previously contracted. Likewise, US Courts have
ruled that transactions by officers and directors pursuant to employee
stock option plans and other employee benefit plans are exempt if the
plan is approved by the shareholders.
WITHIN ANY PERIOD OF LESS THAN SIX-MONTHS
Q: How should the 6-month period be counted?
A: In the US case of Stella v. Graham-Paige, 132 F. Supp 100 (SDNY 1955),
the court defined the six-month period by taking the date on which the
stock was purchased, finding the corresponding date six months later,
and then subtracting one day to determine the date on which the
six-month period terminates. For example if the purchase of stock was
made on March 27, the six-month period would end on September 26,
and the purchaser could sell on that date without incurring liability
because that period would constitute exactly 6-months, not less than
6-months.
SUITS
Q: When must the action to recover such profit be instituted?
A: The action to recover such profit may be instituted in any court of
competent jurisdiction within two years after the date such profit was
realized.
Q: When may a stockholder bring an action for profits in short-swing?
A: If the issuer shall fail or refuse to bring such suit within 60 days after
request or fail diligently to prosecute the same thereafter, the stockholder
may bring the action in the name and in behalf of the issuer.
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 46
Quick Guide on Corporate Disclosures
The purpose of this checklist is to set guidelines for corporate disclosures. The
key objectives are (1) to guide the listed companies on proper disclosures, (2) a
sensitivity to the gray areas, (3) a set of good disclosure and compliance practices and
(4) to propose to management on how they should handle sensitive, nonpublic
informations.
• GENERAL RULE REGARDING DUTY TO DISCLOSE
* All listed companies are required by the securities laws of the Philippines
to disclose all structured and unstructured material information. A company must
disclose when:
a. A major decision has been made during a corporate meeting.
— Under the Listing Rules of the Exchange, a listed company must disclose
material information (i.e. declaration of dividends, call on unpaid subscriptions,
change in officers, directors, etc.) immediately after it was discussed during a
corporate meeting.
b. Prior disclosures are no longer accurate.
— Previous disclosures made to the Exchange which are no longer accurate
must be updated by the company at all times so as not to mislead the investing public.
c. A material information is already made known to a select group of
people.
d. A disclosure has been partially made on the topic.
— A listed company must submit a complete disclosure regarding the topic
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 47
so as not to be misleading.
e. Rumors or leaks are already circulating regarding the company.
— A company must always confirm or deny the rumors circulating about
them to prevent the creation of a false market.
f. False statements has been made by a third party (i. e. the media).
— A company must always correct and update false statements made by third
parties such as analysts and the business media.
g. Unusual trading happens.
— A company must always disclose immediately to the exchange any
material non-public information if there is an unusual trading activity.
h. When requested by the Exchange thru the Compliance and Surveillance
Department.
• FUNDAMENTALS OF MATERIAL INFORMATION
* News should never be withheld on the basis that it is already available in
the market, since a formal confirmation from the listed company is important to
investors.
* An information is likely to be material when it diverts from public
expectations and perceptions especially if it is inconsistent with prior disclosures.
* An information is probably material when one spends time deciding
whether or not it is material.
* Check the market's reaction on previous disclosures.
— The true test of an information's materiality is when it has an effect on the
market when it is made public.
SOFT INFORMATION
* General Rule: Soft Information is not required to be disclosed but
if any disclosure is to be made, it must be done in good faith and
have a reasonable and factual basis.
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 48
* Disclosure of Soft Information must later on be updated or
corrected when a company revises or confirms its projections. cdasia
* Use prudent language so as not to mislead the public.
— It is important to stress the uncertain nature of the
information and avoid undue investor reliance which can
lead to litigation.
* Consider consulting with counsel first before disclosing any soft
information.
* Consider a review of your company's projections by an
independent consultant.
* Disclose or abstain: Consider the need to disclose soft information
when the company purchases or sells its own securities.
ANALYSTS AND ANALYSTS REPORTS
* Give equal treatment to all analysts and do not favor them over the
investing public, the media or the market in general.
* Schedule regular meetings and conference calls with analysts.
* Anticipate the questions that may be asked.
* NON Material Nonpublic information may be disclosed provided it
is consistent with prior disclosures.
* Material Nonpublic information may be disclosed provided it is
released to the public simultaneously.
* Take note of the information to be furnished to the analysts.
* Analysts' statements should not be adopted as one's own.
* Adopt a policy of "no comment" on reports made by analysts.
* Offer general statements in writing to rectify inaccurate analysts'
reports.
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 49
SHAREHOLDER INQUIRIES
* All investors, no matter what the size of the shareholdings, should
be entitled to the same information and treatment.
* Handle institutional investors with extreme care.
— Inquiries should be anticipated and answers to questions
about the company's recent disclosure should be prepared.
— Be ready for questions about management's action that may
be regarded as not maximizing the short term value of the
company's stock.
* Follow the same rules for analysts and media inquiries.
PREPARING FOR THE CORPORATE DISCLOSURE CRISIS
* Set procedures in advance.
— One can never predict when certain management changes and
sudden drop in the stock value would occur.
* Monitor trading closely.
* Disclosures should top the agenda for a crisis response.
* Seek the assistance of counsel and the members of the Board of
Directors when determining whether an information or an event is
material or not.
* Stop company transactions and prohibit trading by management
until disclosure procedures have been made and acted upon.
* It is permissible to include information on management's action
plans.
* At times, even if disclosure is not required, it is better to disclose in
order to maintain the credibility with the market or investors.
* Prepare a press release and a script for senior management and
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 50
personnel.
AVOID INSIDER TRADING LIABILITY
* The company nor its insiders can trade in the company's securities
if they possess material nonpublic information about the company.
* Do not tip/disclose nonpublic material information about the
company to those who do not have a valid reason for being told.
* The "misappropriation" doctrine.
— Fiduciary principles prohibit the improper use of any confidential
information obtained from or through the company. Confidential
information regarding a third party is also subject to the
prohibitions of trading and tipping.
* Protect the confidentiality of non public information.
— When there is a need to disclose nonpublic material information to
anybody, make sure that it is made clear to them that the
information is confidential and if possible. have them sign a
confidentiality agreement.
* Before an insider trades, he must make sure that the information
has already been disclosed and they should ask themselves why
they want to trade. cdt
* Avoid trading on information that has been disclosed but has not
been disseminated.
* Each company should have an insider trading policy which must be
approved by a legal counsel and implemented by the Board of
Directors.
— It should be known by all employees.
— It should be enforced by disciplinary procedures.
— It should address confidential information regarding third parties
and prohibit any trading in the securities of customers, suppliers
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 51
and joint venture partners.
— It should prohibit short selling on company's stock.
— It should be reviewed annually.
* Insiders should have a controlled means of trading in the
company's securities.
— There should be an established trading period and a pre-clearance
procedure. cd
PRESS RELEASES
* All Press Releases must secure the approval of the Securities and
Exchange Commission (SEC). Press Releases without SEC
approval will not be honored by the Exchange.
* All Press Releases, whether aimed at customers, industry groups,
or investors, must be regarded as communications with the
financial markets.
* Stick to the facts; avoid boosterism. Premature announcements of
new products, exaggerated claims, unwarranted promises, and
overly optimistic assessments of current conditions or future
prospects are centerpieces of plaintiffs' securities fraud lawsuits.
DISCLOSING BAD NEWS
— Bad news should not be buried or concealed; it must be disclosed
in the same manner and with the same clarity and emphasis as good
news.
— Bad news must not be minimized by misleading statements about
the uncertainty of its impact.
Continuing Listing Requirements
General
(1) Generally, the issuer must promptly submit to the Exchange for
publication any material information affecting such issuer which is
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 52
of interest to investors.
(2) Material information not yet disclosed to the Exchange should not
be divulged by the issuer, its agent and its advisers to any other
party.
(3) All notices to the Exchange as referred to in this Chapter must be
sent to the attention of the Compliance and Surveillance
Department. Any notice addressed to other Departments and
officials of this Exchange shall not be considered notice to the
Exchange.
Immediate Disclosure to be Made to the Exchange
(1) The issuer shall keep the Exchange and the Commission promptly
informed by phone or fax immediately within ten (10) minutes and
confirmed in writing within two (2) hours, of any material
information or corporate act, development, or event, the knowledge
of which:
(a) Is necessary to enable the investors to appraise the condition
of the issuer;
(b) Is necessary to avoid the creation of a false market for its
securities; and
(c) May reasonably be expected to materially affect market
activity in, and the price of, its securities.
Material information means that which induces or tends to induce
or otherwise affect the sale or purchase of the securities. Without limiting
the generality of the term, it shall also include information relating to the
issuer's financial condition, prospects, development projects, contracts
entered into in the ordinary course of the business or otherwise, and
other information with significant impact on the issuer's operation such
as, but not limited to the following:
(a) Any declaration of a cash dividend, stock dividend and pre-emptive
rights by the Board of Directors;
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 53
(b) The holding of any stockholders' meeting;
(c) A tender offer, take-over or reverse take-over and a merger for
another corporations securities. cdasia
(d) Capitalization issues, options, directors/officers/employee stock
option plans, warrants, stock splits and reverse splits;
(e) All material resolutions taken up in a stockholders' meeting of the
issuer;
(f) All call to be made on unpaid subscriptions to the capital stock of
the issuer;
(g) Any change of address of the registered office of the issuer or of its
transfer agents;
(h) Any change in the directors, officers, auditors or transfer agent of
the issuer;
(i) Any proposed amendment to the Articles of Incorporation and
By-Laws;
(j) Any change in shareholdings of directors, officers and stockholders
owning more than 10% of any class of any security, as provided for
under Sec. 36, Chapter IV of the Revised Securities Act;
(k) Any action filed in court, or any application filed with the SEC, to
dissolve or wind-up the issuer or any of its subsidiaries, or any
amendment to the Articles of Incorporation shortening its corporate
term; or any significant litigation that will affect the corporation;
(l) The appointment of a receiver or liquidator for the issuer or any of
its subsidiaries;
(m) Any acquisition of shares of another corporation or any transaction
resulting in such corporation becoming a subsidiary of the issuer;
(n) Any acquisition by the issuer of shares resulting in its holding 10%
or more of the paid-up capital of another listed corporation or
where the total value of its holdings exceeds 5% of net assets of an
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 54
unlisted corporation;
(o) Joint ventures, mergers, consolidation, take-overs, reverse
take-overs and acquisitions;
(p) Any sale made by the issuer of its shareholdings in another listed or
unlisted corporation,
i. resulting in such corporation ceasing to be its subsidiary;
ii. resulting in its shareholding falling below 10% of the issued
capital stock;
(q) Firm evidence of significant improvement or deterioration in
near-term earnings prospects;
(r) The purchase or sale of significant assets;
(s) A new product or discovery;
(t) The public or private sale of a significant amount of additional
securities;
(u) A call for redemption of securities;
(v) The borrowing of a significant amount of funds;
(w) Default of financing or sale agreements;
(x) A significant change in capital investment plans;
(v) A significant dispute or disputes with subcontractors, customers or
suppliers, or with any other parties.
(2) The issuer shall notify the Exchange of the holding of any
stockholders meeting and its agenda, by giving the Exchange at
least ten (10) trading days prior written notice thereof.
(3) The issuer shall submit the list of stockholders who are entitled to
notice and to vote at a regular or special stockholders meeting not
later than five (5) trading days after the record date fixed by the
issuer for the holding of such meeting; and the issuer shall also
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 55
give the Exchange ten (10) trading days notice prior to the closing
of transfer books.
Clarification or Confirmation of Rumors or Reports
(1) A public dissemination of information by any means, either correct
or false, which has not been substantiated by the issuer and which
is likely to have, or has had, an effect on the price of the issuer's
securities or would likely to have a bearing on investment
decisions by investors must be promptly and properly clarified or
confirmed with the Exchange.
(2) If rumors indicate that material information has been leaked, a
frank and explicit announcement thereof is required. If rumors are
in fact false or inaccurate, they should be promptly denied or
clarified.
(3) Generally, the issuer is not required to respond to rumors or report
predicting future sales, earnings or other data required. However, if
such report is manifestly erroneous, or if the issuer or its officers is
falsely cited as the source, the issuer must promptly deny or correct
such rumor, report or attribution.
Unusual Trading Activity
Unusual trading activity involving an issuer's securities occurs without any
apparent reason gives rise to the presumption that there is insider trading or a rumor or
report, whether true or false, about the company.
Whenever there is unusual trading activity in an issuer's securities, the issuer
must respond promptly to any inquiries made by the Exchange concerning the unusual
trading activity. In this connection:
(1) If the unusual trading activity results from the "leak" of material
information, the information in question must be material
information, the information in question must be announced
promptly. If the unusual trading activity results form a false rumor
or report, the Exchange's policy on correction of such rumors and
reports should be complied with; and cdtai
(2) If the listed issuer is unable to determine the cause of the unusual
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 56
trading activity, the exchange may suggest that the issuer make a
public announcement to the effect that there are no undisclosed
recent developments affecting the issuer that would account for the
unusual trading activity.
Policy on Thorough Public Dissemination
(1) Disclosure of material information should normally be made after
trading hours. If the disclosure is made during trading hours, the
Exchange may halt the trading of the listed issuers securities to
provide an opportunity for the material information to be properly
disseminated. Trading would resume after one (1) hour from the
announcement or dissemination or the next market day.
(2) Public disclosure of material information should be made by an
announcement released to the Exchange. Should the release be in
the form of a press or news release, the SEC approval to the same
pursuant to the SEC Rules must be submitted to the Exchange prior
to its release.
Content and Preparation of Public Announcement
The content of a press or other public announcement is as important as its
timing. Each announcement should:
(1) Be factual, clear and succinct and avoid boosterism;
(2) Contain sufficient quantitative information to allow investors to
evaluate its relative importance to the activities of the listed issuer.
(3) Bad news should not be buried or concealed. It must be disclosed
in the same manner and with the same clarity and emphasis as good
news. Its impact must not be minimized by equivocal or misleading
statements.
Update Prior Statements Which Are No Longer Accurate
Should subsequent events make a prior disclosure inaccurate, the issuer must
update and correct the prior disclosures.
Reporting Requirement
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 57
(1) Audited Annual Financial Report
The issuer shall furnish the Exchange not later than 105 days after the end of
its fiscal year, two hundred (200) copies of its Audited Annual Financial Report which
shall contain the requirements as required in SEC Circular 7 Series of 1988, and
among other things, the following:
(a) a consolidated balance sheet showing assets and liabilities at the
end of the latest concluded fiscal year, with comparative figures
from the previous year;
(b) a consolidated income and expense account for the latest fiscal
year, with comparative figures;
(c) an analysis of surplus account(s) covering the latest fiscal year,
with comparative figures;
(d) a similar set of financial statements:
(i) for the issuer as a separate corporate entity; and
(ii) for each subsidiary owned directly or indirectly;
(e) a review of operations, if any;
(f) the existence of management contracts if any and the amount of the
management fees.
(2) Annual Report
The issuer shall furnish the Exchange within fifteen (15) days from its annual
meeting, two hundred (200) copies of its Annual Report as required by SEC Circular
no. 7 Series of 1988.
(3) Semi-Annual Report
The issuer shall also furnish the Exchange two hundred (200) copies of its
Semi-Annual Report within sixty (60) days from the end of the first semester of its
fiscal year containing similar information as provided in par. 508 section (1) including
among others the following information:
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 58
(a) An updated list of the top twenty (20) shareholders and their
corresponding number of shares.
(b) A distribution schedule indicating number and percentage of
shareholders per range of shares, e.g. 200 shareholders (20%) with
1,000 to 10,000 shares, under the following format,:
Shareholdings No. of Total Percentage of
Holders Shares Total Issued
& Outstanding
Below 1,000 shares
1,000 10,000 shares
10,001 100,000 shares
100,001 500,000 shares
500,001 1,000,000 shares
(4) Quarterly Reports
The issuer shall also furnish the Exchange two hundred (200) copies of its
Quarterly Reports within thirty (30) days from the end of each quarter as required in
SEC-BED Circular No. 1, Series of 1987.
(5) Report on Beneficial Ownership as required by Sec. 36 of the
Revised Securities Act, which shall be filed 10 days from the end
of the month.
(6) Certified copy of the Annual Verification of the Bureau of Mines
for mining companies.
(7) Certificate of Good Standing of the issuer by the SEC to be
submitted within thirty (30) days after the end of the calendar year.
(8) Duplicate original of every other information, documents and
reports submitted to the SEC pursuant to Sec. 11 of the Revised
Securities Act. cda
Inspection and Monitoring
The issuer agree to allow authorized representatives of the Exchange to inspect
and obtain copies of documents relevant to the requirements of listing and the
Copyright 1994-2010 CD Technologies Asia, Inc. Securities and Exchange Commission 2009 59
representation in the prospectus.
Role of Market Surveillance
While an issuer should monitor the trading in its securities to detect any
unusual trading activity, the Compliance Department also monitors trading in the
Exchange. Where there is unusual trading activity in a listed security, and it appears to
the Compliance Department that the unusual trading activity cannot be explained by
known factors, the Department will normally require the listed issuer to issue an
announcement as soon as practicable. The announcement should state whether the
issuer an its directors are aware of the reasons for the unusual trading activity and
whether there is any material information which has not been publicly disclosed.
Footnotes
1. In re Cady, Roberts & Co., 40 S.E.C. 907 (1961).
1a. 69 Am Jur 2d p. 1018.
* means a legal relationship of trust and confidence, in which one person acts on behalf
of another person.
2. U.S. v. Winans, 612 F. Supp. 827 (S.D.N.Y. 1985).
4. In Re Investors Management Co., 44 S.E.C. 633 (1971).
5. Shapiro v. Merrill Lynch, 495 F. 2d 228 (2d Cir. 1974).
1. Smolowe v. Delendo, 136 F. 2d 231 (2d Cir. 1943).
2. Chemical Fund v. Xerox, 377 F. 2d 107 (2d Cir. 1967).
3. CRA Realty Corp. v. Croty, 878 F. 2d 562 (2d Cir. 1989).
4. Alder v. Klawans, 267 F. 2d 840 (2d Cir. 1959); Feder v. Martin, 406 F. 2d 260 (2d
Cir. 1969).
5. Levy v. Seaton, 458 F. Supp. 1 (S.D.N.Y. 1973).
6. Foremoset-McKesson v. Provident, 423 U.S. 232 (1976).
7. Newmark v. RKO, 425 F. 2d 348 (2d Cir. 1970).
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