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THE PHILIPPINE STOCK EXCHANGE, INC.
Securities Regulation Code
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Content & Coverage
Securities Regulation and SEC
Definition of Securities
Registration of Securities
Reportorial Requirements
Protection of shareholder interests
Regulation of Securities Market Professionals
Exchanges and Other Securities Trading Markets
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Securities Regulation
State Policy
Objectives:
promote the development of the capital market
protect investors
ensure full and fair disclosure about securities
minimize, if not totally eliminate, insider trading andother fraudulent or manipulative practices
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Who administers the SecuritiesRegulation Code?
the Securities and ExchangeCommission
Composition
1 Chairperson
4 Commissioners
Securities and Exchange Commission
Composition
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Regulatory Investigatory Rule-/Policy-Making
Supervise all corporations,
partnerships and
associations who are
grantees of primary
franchises and/or license
Conduct investigations to
determine whether any
person has violated or is
about to violate the SRC or
its implementing rules.
Formulate policies and
recommendations on
issues concerning the
securities market
Suspend/revoke certificate
of registration
Issue cease and desist
orders to prevent
fraud/injury to the
investing public
Propose legislation
regarding the securities
market and amendments
thereto
Approve/reject/suspend/
revoke/require
amendments to RS and
licensing applications
Punish for direct and
indirect contempt of the
SEC
Prepare, approve, amend
or repeal rules, regulations
and orders, and provide
guidance thereon
Securities and Exchange Commission
Powers & Functions
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Regulatory Investigatory Rule-/Policy-Making
Supervise, monitor, suspend
or take over the activities of
exchanges, clearing agencies
and other SROs
Issue subpoena duces
tecum and summon
witnesses. In appropriate
cases, order search and
seizure of all documents ofany entity or person under
investigation
Regulate or supervise the
activities of securities marketprofessionals
Impose sanctions for the
violation of SRC,
implementing rules and
regulations and SEC orders
Securities and Exchange Commission
Powers & Functions
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Cases formerly under SECs jurisdiction
Fraud and misrepresentation
Intra-corporate controversies
Stockholder vs. stockholder
Stockholder(s) vs. corporation
Corporation vs. State
Election contests
title or claim to any elective office in a corporation validation of proxies
manner and validity of elections
qualifications of candidates
Securities and Exchange Commission
Powers & Functions
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Overlapping of Jurisdiction: SEC vs. RTC
GSIS vs. Court of Appeals(April 2009) - Regulation of proxies:
Proxies for election of directorsRTC (even if it involvedalleged violation of the SEC rules on proxy solicitation)
Proxies for matters unrelated to the cases enumerated inSection 5 of PD 902-A, the SEC has the power to investigateviolations of the rule on proxy solicitation.
Securities and Exchange Commission
Powers & Functions
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Securities and Exchange Commission
Departments & Offices
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MSRD Functions
Registers, monitors and supervises Exchanges andother trading markets, SROs, clearing agencies, transferagents
Monitors and supervises brokers, dealers, and theirassociated persons and salespersons, investmenthouses
Registers securities
Reviews the existing regulatory framework andproposes necessary reforms
Establishes linkages with national and internationalorganizations regarding the securities market
Securities and Exchange Commission
Departments & Offices
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CGFD Functions
Monitors and supervises compliance by covered
entities with corporate governance rules andrecommends measures to promote corporate
governance
Reviews activities of financial conglomerates
Securities and Exchange Commission
Departments & Offices
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EIPD Functions
Monitors and supervises compliance by issuers and
all market participants with legal and regulatoryrequirements
Takes appropriate enforcement action for infraction
of the SRC and relevant rulesAdministers programs for the protection of
shareholders
Securities and Exchange Commission
Departments & Offices
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CRMD Functions
Registers corporations and partnerships
Processes applications for amendment of articlesof incorporation/partnership, by-laws, mergers
Handles petitions for correction and revocation ofarticles of incorporation and by-laws and theiramendments
Securities and Exchange Commission
Departments & Offices
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Content & Coverage
Securities Regulation and SEC
Definition of Securities
Registration of Securities
Reportorial Requirements
Protection of shareholder interests
Regulation of Securities Market Professionals
Exchanges and Other Securities Trading Markets
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Securities
Definition
shares, participation or
interests in a corporation or
in a commercial enterpriseor profit-making venture
and evidenced by a
certificate, contract,
instrument, whetherwritten or electronic in
character.
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Includes:
Shares of stock
Common
preferred
Debt
Bonds
Debentures Notes
Evidences of indebtedness
Asset-backed securities
Securities
Definition
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Investment contracts
a person invests his money in a common enterprise
and is led to expect profits primarily from the efforts
of others
Certificates of interest or participation in a profit sharing
agreement
Certificates of deposit for a future subscription
Securities
Definition
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Derivatives
financial instrument whose value changes in response tothe change in a specified security price or similarunderlying factor
Types:1. Options
right to buy (call option) or sell (put option) anunderlying security at a predetermined exercise/strikeprice on or before a predetermined expiry date
2. Warrants
rights to subscribe or purchase new shares or existingshares in a company on or before the expiry date
Securities
Definition
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Proprietary membership certificates in corporations
entitles the holder to enjoy the use of a specific
property, dividends or earnings of the company,
and to proportionate ownership right over itsassets upon liquidation
Non-proprietary share or certificate
entitles the holder to the use of the property butnot to dividends or assets of the company upon
liquidation
Securities
Definition
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Fractional undivided interests in oil, gas or other
mineral rights
Trust certificates, voting trust certificates or similar
instruments
Other instruments as may in the future be
determined by the SEC
Securities
Definition
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Content & Coverage
Securities Regulation and SEC
Definition of Securities
Registration of Securities
Reportorial Requirements
Protection of shareholder interests
Regulation of Securities Market Professionals
Exchanges and Other Securities Trading Markets
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Registration of Securities
Section 8, SRC
Securities shall not be sold or offered for sale or
distribution within the Philippines, without a
registration statement duly filed with and approved by
the Commission.
Objective: Ensure full disclosure for the benefit of
investors.
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Registration of Securities
Full Disclosure vs. Merit-Based Registration
Merit-based Full disclosure
SEC looks into the merit of the
securities to be sold to the public (e.g.compliance with min. financial ratios)
SEC does not pass upon judgment on
the investment merit of an issue butleaves it to the investor to make a
decision on whether or not to buy the
shares.
No standards regarding the extent,
manner or nature of disclosures
Issuer must provide adequateand
accuratedisclosure of material factsconcerning it and the securities it
offers.
Issue: lack of equality of access to
information
Objective: To ensure that investors are
equipped with all the necessary
material information upon which tobase their investment decisions.
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REGISTRATION STATEMENT UNDER THE SECURITIES REGULATION CODE
1. SEC Identification Number ................................
2. .Exact name of registrant as specified in its charter .
3. ................................................................. 4.
Province, country or other jurisdiction BIR Tax Identification Number
of incorporation or organization
5. ..........................................................................................
General character of business of registrant.
6. Industry Classification Code: (SEC Use Only)
7. ..........................................................................................Address, including postal code, telephone number, FAX number including area code, of registrant's principal offices
8. ..........................................................................................
If registrant is not resident in the Philippines, or its principal business is outside the Philippines, state name and address
including postal code, telephone number and FAX number, including area code, and email address of resident agent in
the Philippines.
9. Fiscal Year Ending Date (Month and Day) : .................................
Registration of Securities
SEC Form 12-1
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Information required to be included in the RS
Name of the issuer
Terms of the offer including: Description and amount of securities offered
Public offering price
Where the securities will be traded (exchange or over-
the-counter);
Name(s) of the underwriter(s)
Date of the prospectus
Registration of Securities
Contents of RS/Prospectus
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A statement in bold face 12 point type that:
THE SECURITIES AND EXCHANGE COMMISSION HAS NOTAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANYREPRESENTATION TO THE CONTRARY IS A CRIMINALOFFENSE AND SHOULD BE REPORTED IMMEDIATELY TOTHE SECURITIES AND EXCHANGE COMMISSION.
Number of shares offered by current stockholders
Total number of shares outstanding after the offering
Registration of Securities
Contents of RS/Prospectus
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Total proceeds raised by the offering
Brief description of use of proceeds from the offering
Underwriters' fees
Dividend policy
Address and telephone number of the company'sprincipal office.
Registration of Securities
Contents of RS/Prospectus
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Table of Contents
Brief description of the company's business
Summary paragraph or key points characterizing the risks of theoffering under the caption Risks of Investing
Summary financial information in tabular or graphic form whichis useful to potential investors, including but not limited to:
Abbreviated income statement data for prior 2 years Abbreviated balance sheet data for the prior 2 years
Glossary which defines all technical terms used in theprospectus
Registration of Securities
Contents of RS/Prospectus
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The following statement in bold face 12-point type in the case of a preliminaryprospectus:
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITHTHE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BEEN DECLARED
EFFECTIVE. NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OFTHE PURCHASE PRICE CAN BE ACCEPTED OR RECEIVED UNTIL THE REGISTRATIONSTATEMENT HAS BECOME EFFECTIVE, AND ANY SUCH OFFER MAY BE WITHDRAWNOR REVOKED, WITHOUT OBLIGATION OF COMMITMENT OF ANY KIND, AT ANY TIMEPRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE. ANINDICATION OF INTEREST IN RESPONSE HERETO INVOLVES NO OBLIGATION ORCOMMITMENT OF ANY KIND. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFERTO SELL OR THE SOLICATION OF AN OFFER TO BUY.
In the case of a prospectus that has become effective, the following statement in boldface 12-point type and signed by the president under oath:
ALL REGISTRATION REQUIREMENTS HAVE BEEN MET AND ALL INFORMATIONCONTAINED HEREIN IS TRUE AND CURRENT.
Registration of Securities
Contents of RS/Prospectus
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1
Registration of Securities
Contents of RS/Prospectus
Risk Factors and Other Information
Use of Proceeds
Determination of Offering Price
Dilution
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Selling Security Holders
Plan of Distribution
Description of Securities to be Registered
Interests of Named Experts and IndependentCounsel
Registration of Securities
Contents of RS/Prospectus
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Information with Respect to the Registrant
Description of Business
Description of Property
Legal Proceedings Market Price and Dividends
Management's Discussion and Analysis or Plan of
Operation
Changes in and Disagreements With Accountants On
Accounting and Financial Disclosure
Registration of Securities
Contents of RS/Prospectus
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Directors, Executive Officers, Promoters and ControlPersons
Executive Compensation
Security Ownership of Certain Record and BeneficialOwners and Management
Certain Relationships and Related Transactions
Financial Information
Other Expenses of Issuance and Distribution
Exhibits
Registration of Securities
Contents of RS/Prospectus
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Signature of the issuers: executive officer
principal operating officer
principal financial officer
comptroller
principal accounting officer corporate secretary
Accompanied by:
duly verified resolution of the Board of Directors
written consent of the expert who certified any part of the registrationstatement
Where the registration statement includes shares to be sold by sellingshareholders, a written certification by such shareholders as to theaccuracy of any part of the registration statement contributed to bysuch selling shareholders
Registration of Securities
Contents of RS/Prospectus
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Securities that are exempt from registration requirement
Government securities
issued or guaranteed by the Government of the Philippines, or itspolitical subdivision, instrumentality or agency
issued or guaranteed by the government of any country with which thePhilippines maintains diplomatic relations on the basis of reciprocity
Certificates issued by a receiver or by a trustee in bankruptcy duly approvedby the proper adjudicatory body
Any security or its derivatives the sale or transfer of which, by law, is underthe supervision and regulation of the Office of the Insurance Commission,HLURB, or the BIR
Any security issued by a bank, except its own shares of stock
Registration of Securities
Exempt Securities
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Sales of securities that are exempt from the registrationrequirement
any judicial sale, or sale by an executor, administrator,guardian or receiver or trustee in insolvency or bankruptcy
Sale by or for the account of a pledge holder, or mortgagee orany other similar lien holder to liquidate a bona fidedebt
An isolated transaction in which any security is sold or offeredfor sale by its owner or representative, such sale or offer forsale not being made in the course of repeated and successivetransactions and such owner or representative not being theunderwriter of such security
Registration of Securities
Exempt Transactions
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Distribution by a corporation of securities to itsstockholders or other security holders as a stock dividend
Sale of capital stock of a corporation to its own
stockholders exclusively, where no commission or otherremuneration is paid or given directly or indirectly inconnection with the sale of such capital stock
Issuance of bonds or notes, secured by mortgage upon real
estate or tangible personal property, to a single purchaserat a single sale
Registration of Securities
Exempt Transactions
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Issue of any security in exchange for any other security of the sameissuer pursuant to a right of conversion.
Brokers transactions, executed upon customers orders, on anyregistered Exchange or other trading market.
Subscriptions for shares of the capital stock of a corporation prior tothe incorporation thereof or in pursuance of an increase in itsauthorized capital stock, provided:
no expense is incurred in connection with the sale of such
securities, and the only purpose of such subscription is to comply with the
requirement of law as to the minimum percentage of capitalstock that must be subscribed
Registration of Securities
Exempt Transactions
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Exchange of securities by the issuer with its existing securityholders exclusively, where no commission or otherremuneration is paid or given directly or indirectly forsoliciting such exchange.
Sale of securities by an issuer to fewer than 20 persons in thePhilippines during any 12-month period.
Sale of securities to any number of the following qualifiedbuyers:
Bank
Registered investment house
Registration of Securities
Exempt Transactions
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Insurance company
Pension fund or retirement planmaintained by the government or
managed by a bank or other personsauthorized by the BSP to engage in trustfunctions
Investment company
Such other person as the SEC maydetermine as qualified buyers
Registration of Securities
Exempt Transactions
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SEC Memorandum Circular No. 6, s. 2007
Qualified individual buyer
Natural person who, at the time of registration, has the following
qualifications:
Minimum annual gross income of Php25M for at least 2 years
prior to registration ortotal portfolio investment of at least
Php10M orpersonal net worth of at least Php30M; and
Has been engaged in securities trading for at least 1 year or
held, for at least 2 years, a position of responsibility in an entity
that requires knowledge of securities trading (e.g. financial
adviser, salesman of a broker, trust officer of a bank)
Registration of Securities
Exempt Transactions
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SEC Memorandum Circular No. 6, s. 2007
Qualified institutional buyer
Juridical person that has any of the followingqualifications:
Minimum annual gross income of Php100Mfor at least 2 years prior to registration
Total portfolio investment of at least Php60M
Net worth of at least Php100M
Registration of Securities
Exempt Transactions
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Notice of Exemption (SEC Form 10-1)
Sale of securities to fewer than 20 persons
Sale to qualified buyers
Registration of Securities
Exempt Transactions
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File a sworn registration statement and
prospectus in the main office of the SEC
Pay a fee of not more than 1/10 of 1% of the
maximum aggregate price of the offering
Publish a notice of the filing of the
registration statement in 2 newspapers of
general circulation once a week for 2consecutive weeks
Registration of Securities
Procedure for Registration
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Grounds
Issuer has been judicially declared insolvent
Issuer has violated the Securities Regulation Code, its implementingrules and regulations, or any order of the SEC in connection with theoffering for which a registration statement has been filed
Issuer has been or is engaged or is about to engage in fraudulenttransactions
Issuer has made any false or misleading representation of materialfacts in any prospectus
Registration of Securities
Rejection and Revocation of Registration
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Issuer has failed to comply with any requirement imposedby the SEC as a condition for registration of the security
The registration statement is on its face incomplete or
inaccurate in any material respect
The issuer or any of its officers, directors or controllingpersons or underwriter has been convicted of an offenseinvolving moral turpitude and/or fraud or is enjoined or
restrained by the SEC or other competent judicial oradministrative body for violations of securities,commodities, and other related laws.
Registration of Securities
Rejection and Revocation of Registration
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When is amendment of the registration statement
necessary?
a registration statement or a prospectus filed with theSEC becomes incomplete or inaccurate in any material
respect
The issuer wants to change any material informationtherein
Registration of Securities
Amendments to the Registration Statement
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Material Information
Any event which increases or creates a risk on theinvestments or on the securities covered by theregistration
Increase/decrease in the volume of the securities beingoffered
Increase/decrease in the issue price range disclosed in theregistration statement
Major change in the primary business of the registrant
Registration of Securities
Amendments to the Registration Statement
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Reorganization of the company
Change in the work program or use of proceeds
Loss, deterioration or substitution of the propertyunderlying the securities
10% or more change in the financial condition or results ofoperation of the registrant
Classification, de-classification or re-classification ofsecurities which results to derogation of rights of existingsecurity holders
Registration of Securities
Amendments to the Registration Statement
f
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Grounds
Information contained in the registration
statement is or becomes misleading,incorrect, inadequate or incomplete in anymaterial respect
the sale or offering for sale of the registeredsecurity may work or tend to work a fraud
Registration of Securities
Suspension of Registration
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Grounds
The registration statement contains, on its effectivity,an untrue statement of a material fact
The registration statement omits to state a materialfact required to be stated therein or necessary tomake the statements therein not misleading
Registration of SecuritiesCivil Liabilities on Account of False
Registration Statement
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Who may sue for damages?
Any person acquiring a security who suffers
damage on account of the false registration
statement.
Registration of SecuritiesCivil Liabilities on Account of False
Registration Statement
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Persons liable
The issuer and every person who signed the registration
statement
The directors of, or partner in, the issuer at the time of thefiling of the registration statement
Every person named in the registration statement as beingor about to become a director of, or a partner in, the issuerand whose written consent is filed with the registrationstatement
Registration of Securities
Civil Liabilities on Account of False
Registration Statement
R i i f S i i
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Auditor or auditing firm named as having certified anyfinancial statements used
Every person named as having prepared or certifiedany part of the registration statement
Every selling shareholder who certified as to theaccuracy of a portion of the registration statement,
with respect to that portion of the registrationstatement contributed by him
Every underwriter
Registration of SecuritiesCivil Liabilities on Account of FalseRegistration Statement
Content & Co erage
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Content & Coverage
Securities Regulation and SEC
Definition of Securities
Registration of Securities
Reportorial Requirements
Protection of shareholder interests
Regulation of Securities Market Professionals
Exchanges and Other Securities Trading Markets
R i l R i
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Reportorial Requirements
Periodic and Other Reports of Issuers
Companies required to file reports (ReportingCompanies)
Issuer which has sold a class of registered securities
Issuer with a class of securities listed for trading on anExchange
Issuer with assets of at least P50M and 200 or morestockholders, each holding at least 100 shares
R t i l R i t
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Required Reports
1. Annual Report (SEC Form 17-A)
filed within 105 calendar days after the
end of the fiscal year
Simultaneously filed with the Exchange if
any class of the issuers securities are listed
in a stock exchange
Reportorial Requirements
Periodic and Other Reports of Issuers
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R t i l R i t
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Contents of Annual Report
Business and General Information
Business
Properties
Legal Proceedings
Matters submitted to a vote of stockholders
Reportorial Requirements
Periodic and Other Reports of Issuers
R t i l R i t
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Operational and Financial Information
Market for Issuer's Common Equity
Management's Discussion and Analysis or Plan of
Operation Financial Statements
Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure
Reportorial Requirements
Periodic and Other Reports of Issuers
R t i l R i t
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Control and Compensation Information Directors and Executive Officers
Executive Compensation
Security Ownership of Certain Beneficial Owners andManagement
Certain Relationships and Related Transactions
Corporate Governance
Exhibits
Reports on SEC Form 17-C that were filed during the last 6months
Reportorial Requirements
Periodic and Other Reports of Issuers
Reportorial Requirements
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2. Quarterly Report (SEC Form 17-Q)
filed within 45 days after the end of each
quarter
Simultaneously filed with the Exchange if
any class of the issuers securities are
listed in a stock exchange
Reportorial Requirements
Periodic and Other Reports of Issuers
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Reportorial Requirements
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Contents of Quarterly Report
Financial Information
Financial Statements Management's Discussion and Analysis of Financial
Condition and Results of Operations
Other Information
any information not previously reported in SEC
Form 17-C
Reportorial Requirements
Periodic and Other Reports of Issuers
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Reportorial Requirements
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Contents of Current Report
every material fact or event that occurs, which
would reasonably be expected to affectinvestors' decisions in relation to thosesecurities
clarification of a news report involving analleged material event
Reportorial Requirements
Periodic and Other Reports of Issuers
Reportorial Requirements
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Reportable Events
1. Changes in control of Issuer
2. Acquisition or disposition of assets
3. Changes in Issuer's certifying accountant
4. Resignation, removal or election of directors or
officers5. Legal proceedings
6. Changes in securities
Reportorial Requirements
Periodic and Other Reports of Issuers
Reportorial Requirements
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7. Defaults upon senior securities
8. Change in fiscal year
9. Other events
e.g. changes in the issuers corporate purpose,declaration of dividend, merger, consolidation orspin-off, fines of more than Php50,000 and/orother penalties
10. Fraud and error
11. Financial statements and exhibits
Reportorial Requirements
Periodic and Other Reports of Issuers
Reportorial Requirements
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1. Reports by 5% holders of equity securities (SEC Form 18-A)
Who are required to file
persons who acquire, directly or indirectly, the beneficial ownership of
more than 5% of equity securities of Reporting Companies
When to file
within ten (10) days after acquisition
Where to file
SEC
Exchange where the security is traded
Issuer
Reports of Certain Security Holders
Reportorial Requirements
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Beneficial Owner
any person who has voting power (i.e., power to
vote or to direct the voting) and/or investment
power(i.e., power to dispose or to direct the
disposition)
Reportorial Requirements
Reports of Certain Security Holders
Reportorial Requirements
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Indirect beneficial ownership
A person is deemed to have an indirect beneficialownership interest in any security which is:
held by members of his immediate family sharing thesame household
held by a partnership in which he is a general partner
held by a corporation of which he is a controlling
shareholder subject to any contract, arrangement or understanding
which gives him voting power or investment power
Reportorial Requirements
Reports of Certain Security Holders
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Reportorial Requirements
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Contents of SEC Form 18-A
Security and Issuer
Identity and Background
name Address
Conviction in a criminal proceeding, if any, in thelast 5 years
Any judgment in a civil proceeding enjoining orlimiting his involvement in any business
citizenship
Reportorial Requirements
Reports of Certain Security Holders
Reportorial Requirements
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Purpose of transaction
Interest in securities of the Issuer
Contracts, Arrangements, Understandings orRelationships with Respect to Securities of the Issuer
Exhibits
Reportorial Requirements
Reports of Certain Security Holders
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Reportorial Requirements
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B. Statement of Changes In Beneficial Ownership
of Securities (SEC Form 23-B)
When to file
Within 10 days after the close of each calendarmonth, if there has been a change in beneficialownership during such month
Reportorial Requirements
Reports of Certain Security Holders
Reportorial Requirements
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Contents of SEC Form 23-A and 23-B
Security and Issuer
Identity and Background Purpose of Transaction
Interest in Securities of the Issuer
Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the Issuer
Exhibits
Reportorial Requirements
Reports of Certain Security Holders
Content & Coverage
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Content & Coverage
Securities Regulation and SEC
Definition of Securities
Registration of Securities
Reportorial Requirements
Protection of shareholder interests
Regulation of Securities Market Professionals
Exchanges and Other Securities Trading Markets
Protection of Shareholder Interests
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Tender Offer
Tender Offer
a publicly announced intention by a person to
acquire equity securities of a public company.
Protection of Shareholder Interests
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Objective
To give the minority shareholders the chance to
exit the company under reasonable terms
(i.e., opportunity to sell their shares at the
same price as those of the majority
shareholders)
Tender Offer
Protection of Shareholder Interests
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Public Company
any corporation with a class of equity securitieslisted on an Exchange
corporation with assets in excess of Php50M and
having 200 or more stockholders, at least 200 ofwhich are holding at least 100 shares of a class ofits equity securities
Tender Offer
Protection of Shareholder Interests
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Mandatory Tender Offer
1. Any person or group of persons acting in
concert intends to acquire 35% or more of
equity shares in a public company
tender offer for the percent sought to all
holders of such class.
Tender Offer
Protection of Shareholder Interests
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2. Any person or group of persons acting in
concert intends to acquire 35% or more of
equity shares in a public company in one ormore transactions within a 12-month period
tender offer to all holders of such class forthe number of shares so acquired withinthe said period.
Tender Offer
Protection of Shareholder Interests
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3. Any acquisition of even less than 35% if such
acquisition would result in ownership of over
51% of the total outstanding equity securitiesof a public company.
tender offer for all the outstanding equitysecurities to all remaining stockholders ofthe said company
Tender Offer
Protection of Shareholder Interests
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CEMCO Holdings, Inc. vs. National Life Insurance
Company of the Philippines (August 2007)
The mandatory tender offer rule covers not only
direct acquisition but also indirect acquisition or
any type of acquisition.
Tender Offer
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BCI Atlas Cement CEMCO
(21.31%) (29.69%) (9%)
Union Cement Holdings Corp. CEMCO National Life Insurance
(60.51%) (17.03%)
Union Cement Corp.
Protection of Shareholder Interests
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Tender Offer Report (SEC Form 19-1)
The identity of the bidder and his/its presentoccupation
identity of the target company amount of securities being sought and the type and
amount of consideration being offered
scheduled expiration date of the tender offer
exact dates when security holders who tender will havethe right to withdraw their securities
confirmation by the bidders financial adviser thatbidder has sufficient resources to satisfy fullacceptance of the offer
Tender Offer
Protection of Shareholder Interests
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Exemptions from the Mandatory Tender Offer Requirement
1. Purchase of shares from the unissued capital stock if theacquisition will not result to a 50% or more ownership ofshares
2. Purchase of shares from an increase in authorized capitalstock
3.Purchase in connection with foreclosure proceedingsinvolving a duly constituted pledge or security where theacquirer is the debtor or creditor
Tender Offer
Protection of Shareholder Interests
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4. Purchases in connection with privatization undertakenby the Government of the Philippines
5. Purchases in connection with court-supervised
corporate rehabilitation
6. Purchases through an open market at the prevailingmarket price
7. Merger or consolidation
Tender Offer
Protection of Shareholder Interests
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Issuer Tender Offer / Issuer Buy Back
A publicly announced intention by an issuer toreacquire any of its own class of equity securities,
or by an affiliate of such issuer to acquire suchsecurities.
Allowed, subject to the following conditions:
Issuer has sufficient unrestricted retainedearnings
Tender Offer
Protection of Shareholder Interests
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Buy back is for any of the followingpurposes:
to implement a stock option plan
to meet short-term obligations whichcan be settled by the re-issuance of therepurchased shares
to pay dissenting or withdrawingstockholders
other legitimate corporate purpose/s
Tender Offer
Protection of Shareholder Interests
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Transactions exempt from the rules on IssuerTender Offer
1. Calls for redemption of any security in
accordance with the terms and conditions of itsgoverning instruments
2. Offers to repurchase securities evidenced by a
certificate or similar document which representsa fractional interest in a share of stock or similarsecurity
Tender Offer
Protection of Shareholder Interests
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Penalty for violation
SEC may nullify the purchase, upon complaint
SEC may direct the holding of a tender offer
Tender Offer
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Manipulative Practices
Section 2, SRC
Declaration of State Policy.
minimize if not totallyeliminate insider trading and
other fraudulent or
manipulative devices and
practices which createdistortions in the free
market.
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Market Manipulation
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Market Manipulation
Examples
Painting the tape
Engaging in a series oftransactions in securities that
are reported publicly to givethe impression of activity orprice movement in a security.
E.g.
1. Brokers agree to buy andsell blocks of XYZ shares
among themselves.
2. Client places a buy order for100 XYZ shares. Broker places
20 separate orders at intervalsof 5 stocks.
Market Manipulation
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Marking the close
Buying and selling securities at
the close of the market in an
effort to alter the closing price
of the security.
E.g.
Examples
Name Bid Ask L/T
XYZ 300 302 300
100
BUY
Stock: XYZ
Price : 600
Vol : 500
BUY
Stock: XYZ
Price : 310
Vol : 10,000
Market Manipulation
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Improper matched orders
Buy and sell orders are
entered at the same timewith the same price andquantity by different butcolluding parties.
E.g.
Market Manipulation
Examples
100
BUY
Stock: XYZ
Price : 900
Vol : 500
110
SELL
Stock: XYZ
Price : 900Vol : 500
Market Manipulation
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Hype and dump
Buying at increasingly
higher prices and then
selling securities in the
market at the higher
prices or vice-versa.
E.g.
Market Manipulation
Examples
100
BUY
Stock: XYZ
Price : 320
Vol : 1500
BUY
Stock: XYZ
Price : 350
Vol : 2000
SELL
Stock: XYZ
Price : 370Vol : 3500
M k M i l i
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Wash sales
Engaging in transactions in
which there is no genuinechange in actual
ownership of a security.
E.g.
Market Manipulation
Examples
Buy 100
XYZ
shares
Sell 100
XYZ
shares
Market Manipulation
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Squeezing the float
Taking advantage of a shortage of securities in the
market by controlling the demand side and exploitingmarket congestion during such shortages in a way as
to create artificial prices
Examples
M k t M i l ti
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Disseminating false ormisleading marketinformation through
media, including theinternet, or any othermeans to move the priceof a security in a direction
that is favorable to aposition held or atransaction
Market Manipulation
Examples
Market Manipulation
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Sec. 59, SRC
Any person who willfully participates in any
manipulative practice shall be liable for damages to anyperson who shall purchase or sell any security at a price
affected by such manipulative act or transaction.
Civil Liability for Manipulation of Security Prices
Insider Trading
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Definition of an Insider
Who are insiders
Issuer
director or officer or a person controlling the issuer
a person whose relationship or former relationship tothe issuer gives or gave him access to material non-public information about the issuer or the security
a government employee, or a director or officer of anexchange, clearing agency and/or self-regulatoryorganization who has access to material non-publicinformation about an issuer or a security
a person who learns such information by acommunication from any of the foregoing insiders
Insider Trading
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Material non-public information
Information that:
has not been generally disclosed to the public; and
would likely affect the market price of the securityafter dissemination to the public and the lapse of areasonable time for the market to absorb theinformation; or
would be considered by a reasonable personimportant under the circumstances in determiningwhether to buy, sell or hold a security.
Definition of an Insider
Insider Trading
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1. Trading while in possession of material non-public
information
General Rule:
It is unlawful for an insider to sell or buy a security of the issuerwhile in possession of material non-public information aboutthe issuer or the security.
Presumption:A purchase or sale made by an insider or his spouse or relatives by affinityor consanguinity within the second degree, legitimate or common-law, shall be presumedto have been effected while in possession of material non-public information if transactedafter such information came into existence but prior to its dissemination to the public andthe lapse of a reasonable time for the market to absorb such information.
Prohibitions
Insider Trading
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Exceptions:
The insider proves that the information was notgained from such relationship
The insider proves that:
he disclosed the information to the other party, or
he had reason to believe that the other partyotherwise is also in possession of the information
Prohibitions
Insider Trading
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2. Communicating material non-public
information about the issuer or the security to
any person if the insider knows or has reasonto believe that such person will likely buy or
sell a security of the issuer while in possession
of such information.
Prohibitions
Insider Trading
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3. Where a tender offer has commenced or is about to commence
Purchase or sale of security subject of the tender offer by anyperson (other than the bidder) who is in possession of material
non-public information relating to the tender offer, if such personknows or has reason to believe that the information is non-publicand has been acquired directly or indirectly from the bidder, thoseacting on its behalf, the issuer of the subject securities, or anyinsider of such issuer
Communication by the bidder, those acting on its behalf, the issuerof the subject securities, and any insider of such issuer of materialnon-public information relating to the tender offer to any otherperson, where such communication is likely to result in a violationof the rules.
Prohibitions
Market Manipulation
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Any insider purchases or sells a security while inpossession of material non-public information shall beliable to any investor who contemporaneously purchased
or sold securities of the same class.
Defenses:
Investor knew the information
Investor would have purchased or sold at the sameprice regardless of disclosure of the information to him
Civil Liability for Insider Trading
Insider Trading
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Short swing profit rule
Any profit realized by a beneficial owner,
director, or officer from any purchase and sale,or any sale and purchase, of any equity security
within any period of less than 6 months, by
reason of his relationship to the issuer, shall berecoverable by the issuer.
Short Swing Profits Rule
Insider Trading
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Exceptions:
The security was acquired in good faith in connectionwith a debt previously contracted
such beneficial owner was not such both at the time ofthe purchase and sale, or the sale and purchase, of thesecurity involved
any transaction or transactions which the SEC mayexempt
Short Swing Profits Rule
Content & Coverage
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Securities Regulation and SEC
Definition of Securities
Registration of Securities
Reportorial Requirements
Protection of shareholder interests
Regulation of Securities Market Professionals
Exchanges and Other Securities Trading Markets
Registration of Securities Market
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Professionals
Legal Basis
Section 28, SRC
No person shall engage inthe business of buying or
selling securities in thePhilippines as a broker ordealer, or act as a salesman,or an associated person of
any broker or dealer unlessregistered as such with theCommission.
Registration of Securities Market
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Who are the securities market professionals?
1. Brokers and dealers
2. Salesmen
3. Associated Persons
Professionals
Brokers and Dealers
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Brokers and Dealers
Definition
What is a broker?
A person engaged in the
business of buying andselling securities for the
account of others
What is a dealer?
A person who buys and
sells securities for his/herown account in the
ordinary course of
business
Brokers and Dealers
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1. Broker only
2. Dealer Only
3. Broker-Dealer
4. Exchange Trading
Participant Engaged in
Market Making
5. Exchange Trading
Participant Not
Engaged in Market
Making
6. Non-exchange Trading
Participant
Types
Application for Registration as aBroker Dealer
/
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SEC FORM 28 BD/28-BDA
APPLICANTS/BROKER DEALERS NAME:___________________________________________________________
DATE: ____________________________________________ Firm T.I.N ___________________________
SEC FORM 28 BD/28-BDA
APPLICATION FOR REGISTRATION AS A BROKER DEALER
AND AMENDMENTS THERETO
NEW APPLICATION
AMENDMENTS This amendment pertains to items_____________________________________________________
1. Check the applicable boxes:
Broker Dealer To deal only with:
Equity Securities Proprietary Shares
Fixed Income/Debt Securities Non-Proprietary Shares
Licensed as Government Securities Eligible Dealers (GSED)
Exchange Trading Participant
(Exchange Member)
Clearing Trading Participant Non-Clearing Trading
Participant
Plans to or Engages in Market Making Transactions
Non-Exchange Broker Dealer
(Non-Exchange Member)
Operating a Seat for an Exchange Member
Using Trading Rights of an Exchange Member
Brokers and Dealers
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What are the requirementsfor registration?
1. Unimpaired paid-upcapital:
1sttime registrants andsuccessor broker dealersP100M
Existing broker dealers
P30M + 12M surety bond Dealers onlyP2.5M
Brokers and Dealers
General Conditions for Registration
Brokers and Dealers
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Brokers and Dealers
General Conditions for Registration
2. Registration of branch office
3. At least one trained and
registered salesman at eachregistered branch office
4. at least one registered
Associated Person
5. Sufficient number of back
office staff at the main office
6. Computerized and effectiverecording and accounting
system
7. Separate bank accounts forclient funds and firm funds
Exchange TPs
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Exchange TPs
Conditions for Registration
In addition to the general terms andconditions for registration of brokerdealers, what are the conditions forregistration of Exchange TPs?
1. Membership in good standing inan Exchange.
2. Participation in a trust fundaccredited by SEC.
3. If participant in a clearing agency,contribution to the guarantee fund.
Registration of Salesmen andA i d P
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Section 28.2, SRC
No registered broker or
dealer shall employ anysalesman or anyassociated person, and noissuer shall employ any
salesman, who is notregistered as such withthe Commission.
Associated Persons
Legal Basis
Salesmen and Associated Persons
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Definition
What is a Salesman?
A natural personemployed by a Broker
Dealer to buy and sell
securities
Salesman
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Conditions for Registration
What are the requirements for registration ofsalesman?
1. Application for registration verified under oathby the employing Broker Dealer
2. At least 18 years old
2. No disciplinary history that would subject himto disqualification from registration
3. For first time applicants
Must have passed the exam in the last 3years preceding the application
4. If an applicant is a foreigner, certified true copyof valid work permit duly issued by DOLE or anyappropriate agency
Application for Registration as Salesmanof a Broker Dealer
SEC FORM 28 S/28 AMD
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SEC FORM 28-S/28-AMD
SEC FORM 28-S/28-AMD
APPLICATION FOR REGISTRATION AS A SALESMAN OF A BROKER DEALERAND AMENDMENTS THERETO
NEW APPLICATION : [ ] First Time Registrant
[ ] Transferee/Change in Employer
[ ] Returnee (please indicate date of last license) _____________________________
AMENDMENTS This amendment pertains to items _____________________________________________
[ ] Change in Information
[ ] Correction/Completion of Deficiency
Type Of Employer
[ ] Broker Dealer in [ ] Equity Securities [ ] Fixed Income/Debt Securities [ ] Proprietary Shares [ ] Non-ProprietaryShares [ ] GSED
[ ] Others (please specify) __________________________________________________________________________
Salesman
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Registered salesman shall apply for issuance of annual
license in November of each year.
Conditions for Registration
Associated Person
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Definition
What is an Associated Person?
An employee of the Broker
Dealer responsible forinternal control supervisionof other employees, agents,salesmen, officers, directors,clerks and stockholders of
the Broker Dealer forcompliance with the SRC
Associated Person
C di i f R i i
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What are the requirements forregistration as AP?
1. Application for registration verifiedunder oath by the employing BrokerDealer
2. Natural person
3. At least 21 years old
4. Must not have been censured by aregulatory body or dismissed for
negligence, incompetence ormismanagement, or dismissed
5. If an applicant is a foreigner, certifiedtrue copy of valid work permit dulyissued by DOLE or any appropriateagency
Conditions for Registration
Application for Registration as anAssociated Person
S C O 28 /28
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SEC FORM 28-AP/28-AMD
APPLICANTS/ BROKER DEALERS NAME:_______________________________________________________________________
DATE: ____________________________________________ Firm T.I.N ________________________________________
SEC FORM 28-AP/28-AMD
APPLICATION FOR REGISTRATION AS AN ASSOCIATED PERSON OF A BROKER DEALER
AND AMENDMENTS THERETO
NEW APPLICATION : [ ] First Time Registrant
[ ] Transferee/Change in Employer
[ ] Returnee (please indicate date of last license) ______________________________________
AMENDMENTS This amendment pertains to items _________________________________________________________
[ ] Change in Information
[ ] Correction/Completion of Deficiency
Type Of Employer
[ ] Broker Dealer in [ ] Equity Securities [ ] Fixed Income/Debt Securities [ ] Proprietary Shares [ ] Non-Proprietary Shares [
] GSED
[ ] Others (please specify) ___________________________________________________________________________________
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Application for Registration as anAssociated Person
D ti f A i t d P
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4. Develop procedures and monitor compliance with financialresource requirements on a daily basis ;
5. Ensure that there is an audit trail which enables compliancewith applicable laws, Exchange, clearing agency and other
SRO rules;
6. Maintain a supervisory system; and
7. Maintain a logbook of all material non-compliance reportswith the appropriate notation of the action taken bymanagement on the said occurrences.
Duties of an Associated Person
Regulation of Securities MarketProfessionals
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Professionals
Regulatory Authority
Which entity regulates
securities market
professionals?
SEC
SRO of which it is a member
Transactions of Broker Dealers
Affiliated Transactions
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Affiliated Transactions
Section 30.1, SRC (Broker/Director Rule)
No broker or dealer shall deal in or otherwise buy or sell, for its ownaccount or for the account of customers, securities listed on anExchange issued by any corporation where any stockholder, director,associated person or salesman, or authorized clerk of said broker ordealer and all the relatives of the foregoing within the fourth civildegree of consanguinity or affinity, is at the time holding office in saidissuer corporation as a director, president, vice-president, manager,treasurer, comptroller, secretary or any office of trust andresponsibility, or is a controlling person of the issuer.
Rationale: Affiliation between brokers and listed companies gives riseto opportunities for insider trading.
Transactions of Broker Dealers
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Monitoring of Affiliated Transactions
How does the SEC monitor compliancewith Sec. 30.1?
1. Every Broker Dealer must request itsstockholders, directors, AP, salesmen
and authorized clerks to submit to itan executed copy of SEC Form 30.1under oath.
2. If any of the foregoing holds anexecutive position or any position of
trust and responsibility in a listedcompany, broker shall submit SECForm 30.1 and indicate therestrictedsecurity.
3. Broker Dealer must update theinformation contained in this
Form by filing SEC Form 30.1-AMD no later than 24 hours ofsuch changes.
Affiliated Transactions MonitoringSheet
SEC FORM 30 1/30 1 AMD
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SEC FORM 30.1/30.1-AMD
NAME OF PERSON REPORTING: _____________________ Date:
_______________NAME OF RELATED BROKER DEALER: ________________________
Firm T.I.N.: _____________________
SEC FORM 30.1/30.1-AMD
AFFILIATED TRANSACTIONS MONITORING SHEET
NEW
AMENDMENTS This amendment pertains to items: _____________
Check the applicable boxes:
The person accomplishing this Form is a:
[ ] stockholder of a Broker Dealer[ ] director of a Broker Dealer
[ ] partner in a Broker Dealer Firm
[ ] owner of a Broker Dealer Firm
[ ] associated person of a Broker Dealer
[ ] registered salesman of a Broker Dealer
[ ] authorized clerk of a Broker Dealer
(1) LAST NAME JR./SR., etc. FIRST NAME MIDDLE NAME
(2) OTHER NAMES KNOWN BY
(3) CIVIL STATUS
[ ] single [ ] married
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(4) Is your spouse or relative by consanguinity or affinity within the fourth civil degree, a director of a
company listed on a stock exchange, or an affiliate/subsidiary of a company listed on a stock exchange?
[ ] yes [ ] no
(5) Is your spouse or relative by consanguinity or affinity within the fourth civil degree, a president of
accompany listed on a stock exchange, or an affiliate/ subsidiary of a company listed on a stock
exchange?
[ ] yes [ ] no
(6) Is your spouse or relative by consanguinity or affinity within the fourth civil degree, a manager of a
company listed on a stock exchange, or an affiliate/subsidiary of a company listed on a stock exchange?
[ ] yes [ ] no
(7) Is your spouse or relative by consanguinity or affinity within the fourth civil degree, a treasurer of a
company listed on a stock exchange, or an affiliate/subsidiary of a company listed on a stock exchange?
[ ] yes [ ] no
(8) Is your spouse or relative by consanguinity or affinity within the fourth civil degree, a comptroller of a
company listed on a stock exchange, or an affiliate/subsidiary of a company listed on a stock exchange?
[ ] yes [ ] no
(9) Is your spouse or relative by consanguinity or affinity within the fourth civil degree, in an office of trust
and responsibility in a company listed on a stock exchange, or an affiliate/subsidiary of a company listed
on a stock exchange (e.g. as part of their responsibilities they have access to material non-public
information about the company, such as in-house counsel, accountants)?
[ ] yes [ ] no
(10) If you answered yes to any of the questions above, please state the name of the listed
company/affiliate/subsidiary, and the nature of the affiliation in the space provided.
RESTRICTED SECURITY NATURE OF AFFILIATION
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Report by Broker Dealers onRestricted Transactions
SEC REPORT 30.1/30.1-AMD
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Name of Broker Dealer: ______________ Date: ___________
SEC REPORT 30.1/30.1-AMD
REPORT BY BROKER DEALERS ON RESTRICTED TRANSACTIONS
NEW
AMENDMENTS This amendment pertains to _____________.
WARNING: Failure to keep this form current and to file accurate supplementary information on a timelybasis, or the failure to keep accurate books and records or otherwise to comply with the Securities
Regulation Code and rules and regulations adopted thereunder may result in disciplinary,administrative, injunctive or criminal action.
INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACTS MAY CONSTITUTE CRIMINAL VIOLATIONS.
(1) Is the person reporting on this form an associated person?
[ ] yes [ ] no
(2) If the answer to the preceding question is no, please give the full name of the person reporting and theposition occupied in the Firm.
Name: ___________________________
Position: ___________________________
(3) State all securities the Broker Dealer is prohibited from dealing in, purchasing or selling, by virtue of section30.1 of the Securities Regulation Code, in accordance with the information contained in SEC Form 30.1(Affiliated Transactions Monitoring Sheet). If the space below is insufficient, please use another sheet ofpaper and attach hereto.
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Restricted Security Details of Affiliation
Responsibilities of Broker Dealers
Ethical Standards Rule
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Ethical Standards Rule
SRC Rule 30.2
Every Broker Dealer, AP, and salesman of a Broker
Dealer, in the conduct of his business, shallobserve high standards of commercial honor and
just and equitable principles of trade.
Responsibilities of Broker Dealers
IOSCO Standards
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1. Observe ethical standardsin its dealings with clients
1. Honesty and fairness
2. Diligence
3. Capabilities
4. Client information
gathering
5.Dissemination of information
6. Absence of conflict ofinterest
7. Compliance with regulatory
requirements
Responsibilities of Broker Dealers
Confirmation of Customer Orders
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2. Send confirmation ofcustomer orders
Written confirmation of
purchases and sales
By courier, fax or e-mail
Trader confirms to investor
Order Entry
Responsibilities of Broker Dealers
Confirmation of Customer Orders
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Investor
places BUY
order
Broker
transmits
buy order to
the PSE
PSE executes
order and sends
order
confirmation to
broker
Broker
transmits buy
order to the
PSEInvestor
places BUY
orderBroker sendsorder
confirmation
to investor
Broker sendsorder
confirmation
to investor
Responsibilities of Broker Dealers
Client Agreement
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3. Enter into a written Client Agreement
Before providing service
In a language understood by theclient
Contents explained to client:
a. Full name & address of the clientand Broker Dealer
b. Description of the nature ofservices to be provided
c. Remuneration
d. Details of margin requirements,
interest charges, and margin calls, ifmargin or short selling facilities willbe provided
e. Whether account is a discretionaryaccount
Responsibilities of Broker Dealers
Suitability Rule
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4. Observe suitability rule
Ensure that the
recommendation is suitable
for the customer on the basisof the facts disclosed by such
customer as to his financial
situation and other security
holdings
Responsibilities of Broker Dealers
Brokers Commissions and Charges
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5. File a schedule of minimum commission rates with the SEC No discounts and/or rebates on the minimum rates.
Responsibilities of Broker Dealers
Supervision
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6. Establish a compliancefunction within the firm
independent of all operationaland business functions
performed by the Associated
Person, who shall:maintain a supervisory
system
file with SEC, w/in 15 daysafter the end of each
quarter, a ComplianceReport on the firmscompliance or non-compliance with the SRC
Responsibilities of Broker Dealers
Segregation of Broker and Dealer Functions
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SRC Rule 34.1, par. 1.A
An Exchange Trading Participant shall not effect any transaction
on such Exchange for its own account, the account of an
associated person, salesmen, or any other person associatedwith the TP, including affiliated persons, or an account with
respect to which it exercises investment discretion unless it
complies with the CustomerFirstpolicy.
Responsibilities of Broker Dealers
Segregation of Brokers and DealerFunctions
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Functions
Customer First Policy
Objective: To avoid front-running
Under the PSE Trading Rules:
a trader handling client accounts shall be separate from a
trader handling proprietary accounts; and
Broker must maintain Chinese walls to ensure proper
segregation of broker and dealer functions.
Responsibilities of Broker Dealers
Segregation of Functions
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Chinese Walls Policies and procedures implemented within a firm to
prevent flow of information between the different unitsof the firm.
Information refers to material non-public information
Rule is applicable to brokers which assume more thanone function (e.g. As a dealer, adviser, underwriter or
market maker)
Objective: To avoid conflict of interest.
Accounts, Records, and Reportsof Broker Dealers
Records Retention Rule
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Retention Period
5 years
Blotters itemized daily recordof all purchases and sales,receipts and deliveries of
securities and cash, and all otherdebits and credits.
Ledgers reflecting all assets andliabilities, income, expense, andcapital accounts
Audited financial reports
3 years
Ledger reflecting separately foreach security all long or shortpositions carried by the Broker
Dealer for his account or forthe account of customers
Memorandum of each orderand any other instruction givenor received for the purchase orsale of securities, whether
executed or unexecuted.
Accounts, Records, and Reports
of Broker Dealers
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Trial balances and record of
computation of aggregateindebtedness and net capital
Check books, bank statements,cancelled checks, and cashreconciliations
Bills receivable or payable, paid orunpaid
Communications received and sent bythe Broker Dealer, including inter-office memoranda
For Broker Dealers who cease
operation
at least 5 years from approval bythe SEC of cessation of operations
For closed accounts
at least 5 years after closing of theaccount
If money laundering, criminal, oradministrative cases have been filed incourt or investigation is being
conducted,
beyond the 5-year period until it isconfirmed by final judgment thatthe case has been finally resolvedor terminated.
Brokers and Dealers
Audited Financial Reports
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Annual Audited Financial Reports of Broker Dealers
Statement of Financial Condition
Statement of Income
Statement of Cash Flows
Statement of Changes in Stockholders or Partners or Sole Proprietors Equity
Statement of Changes in Liabilities Subordinated to Claims of GeneralCreditors
Computation of Net Capital
Statement of Managements Responsibility
Information Relating to Possession or Control requirements
Computation for Determination of Reserve Requirements
Report of material inadequacies found to have existed since date of previousaudit
Results of Quarterly Securities Count
Customer Account
Information (CAIF Rule)
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Objective
To verify and record the true and full identity of its customers.
Anonymous accounts and accounts under fictitious names areprohibited.
Broker Dealer cannot create new accounts without a face-to-facemeeting.
Broker Dealer is allowed to maintain numbered accounts, providedthe Broker Dealer keeps on file the name of the customer and a writtenstatement signed by the customer that he owns the account.
Customer Account
Information
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Retail accounts Customers name, address, nationality, date and place of birth
Customers TIN, SSS or GSIS number
Occupation of customer and contact details of employer
Whether the customer is employed by or associated withanother Broker Dealer
Whether the customer is an officer or director of a listed
company
Investment objective
Information concerning the customers financial situation
Source of funds
Customer Account
Information
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Institutional accounts
AOI/Articles of Partnership and By-laws
Secretarys Certificate of Board Resolution authorizing the opening of
the account with the Broker Dealer
List of directors/partners
List of stockholders owning at least 2% of the capital stock
Verification of the authority and identification of the clients
representative
Financial information
Investment objective
Customer Account
Information
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Institutional Accountaccount of:
Bank
Insurance company
Registered investment company
Pension fund/retirement plan maintained by GRP or managed by a bank or otherpersons authorized to engage in trust functions
Registered investment house
Any other entity (whether a natural person, corporation, partnership, trust) withtotal assets of at least P1.2B provided the entity confirms ownership of such assetsunder oath.
Customer AccountInformation
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Additional requirements for discretionary accounts
Signature of each person authorized to exercise discretion in
the account
Date of grant of discretion
Order Ticket Rule
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For each buy and sell order
Contents:
Whether the transaction will be matched through the Exchange tradingsystem or transacted as a block sale
Whether the firm is acting as agent or principal in connection with thetransaction
Time of receipt of the customers order and transmission to the tradingfloor
Terms and conditions of the order or instruction, including a notation ifthe order is a short sale
Any subsequent modification or cancellation
Name of the customer for which the order was entered
Name of the salesman who took the order
Price at which it was executed
Whether the order was solicited or unsolicited
Customer Account Statements
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General Rule
Statement of account indicating the customers securitiespositions, money balances, and account activity must be sentnot less than monthly.
Exceptions
Inactive accounts statements may be sent on a quarterlybasis
Dormant accountsclientscash and security positions shall beturned over to SEC for safekeeping, to be escheated in favor ofthe government after 10 years.
If, after 3 attempts, mails/registry cards are returned for failureto locate the customerswhereaboutsbroker is excused fromsending account statements.
Anti-Money Laundering
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Anti-Money Laundering Act of 2001
"Covered institution" refers to:
xxx xxx xxx
(3) securities dealers, brokers, salesmen, investmenthouses and other similar entities managing securitiesor rendering services as investment agent, advisor, orconsultant;
Anti-Money Laundering
Covered Transactions
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Covered Transaction - transaction in cash or other
equivalent monetary instrument involving a
total amount in excess of P500,000.00 within 1banking day
Reporting obligation is triggered when amatched trade exceeds P500,000.00
Trading
Matching will be at the limit price or better.
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165
101
BUY
Stock: XYZ
Price : 905
Vol : 1000
XYZBID OFFER
Bkr Vol PhP PhP Vol Bkr
905 1000 121145 500 900
101 1000 895
110 1500 890
100 500 900
915 10000 123
920 5000 123
905 10 110
g p
XYZBID OFFER
Bkr Vol PhP PhP Vol Bkr
905 1000 121
915 10000 123
920 5000 123
905 10 110145 500 900
101 1000 895
110 1500 890
100 500 900
101 1000 905
XYZBID OFFER
Bkr Vol PhP PhP Vol Bkr
145 500 900
101 1000 895
110 1500 890
100 500 900 915 10000 123
920 5000 123
905 10 110
Trade:
XYZ 1000 @PhP 905 B101 S121
The trade value for this transaction will be P905,000.
Scenario 1:
Trading
Matching will be at the limit price or better.
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166
120
SELL
Stock: XYZ
Price : 895
Vol : 2500
g p
XYZBID OFFER
Bkr Vol PhP PhP Vol Bkr
145 500 900
101 1000 895
110 1500 890
100 500 900 915 10000 123
920 5000 123
905 10 110
Following are the trade values:
#1 500 @ P900 = P450,000 #3 1000 @ P895 = P895,000
#2 500 @ P900 = P450,000
Scenario 2:
XYZBID OFFER
Bkr Vol PhP PhP Vol Bkr
145 500 900
101 1000 895
110 1500 890
100 500 900
915 10000 123
920 5000 123
905 10 110
895 2500 120
XYZBID OFFER
Bkr Vol PhP PhP Vol Bkr
123 700 890
110 1500 890
100 530 885 915 10000 123
920 5000 123
905 10 110
895 500 120
1 XYZ 500 @P 900 B145 S120
2 XYZ 500 @P 900 B100 S120
3 XYZ 1000 @ P 895 B101 S120
Anti-Money Laundering
Suspicious Transactions
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Suspicious Transaction - transaction with a covered institution,regardless of the amount involved, where any of the following
circumstances exist:
1.no underlying legal or trade obligation, purpose or economic
justification;
2. client is not properly identified;
3. amount involved is not commensurate with the business or
financial capacity of the client;
Anti-Money Laundering
Suspicious Transactions
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4. taking into account all known circumstances, it may be perceived that
the client's transaction is structured in order to avoid being the subject of
reporting requirements under the AMLA;
5. any circumstances relating to the transaction which is observed todeviate from the profile of the client and/or the client's past transactions
with the covered institution;
6. the transactions is in a way related to an unlawful activity or offense
under the AMLA that is about to be, is being or has been committed; and
7. any transaction similar or analogous to any of the foregoing.
Anti-Money Laundering
Obligations of Broker Dealers
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Duties of Broker Dealers under the AMLA
Customer identification
Record-keeping
Existing accounts - 5 years from the dates of transactions
closed accounts - 5 years from closing of the account.
Reporting of Covered and Suspicious Transactions
Report to the AMLC all covered and suspicious transactions
within 5 working days from occurrence
Formulate Anti-Money Laundering Operating Manual
Comply with a freeze order issued by the CA
Anti-Money Laundering
Freeze Order
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Freezing of Monetary Instrument or Property
Issued by the CA upon verified ex parte petition by AMLC
Only when there is probable cause that any monetary
instrument or property is related to an unlawful activity shallnot exceed 6 months
Ipso facto lifted if no case is filed within the freeze order
period
Only the SC may issue a TRO or injunction against the freezeorder
Content & Coverage
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Securities Regulation and SEC
Definition of Securities
Registration of Securities
Reportorial Requirements
Protection of shareholder interests
Regulation of Securities Market Professionals
Exchanges and Other Securities Trading Markets
Exchanges and Other Trading Markets
Prohibition on Use of Unregistered Exchanges
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Prohibited Acts
1. Making use of any facility of an unregisteredExchange to effect any transaction in a security,or to report such transaction.
2. Creation or operation of any trading market for
the buying and selling of any security, other thanon a registered Exchange.
Exchanges and Other Trading Markets
Registration of Exchanges
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Conditions for Registration
Organized as a stock corporation
Engaged solely in the business of operating anexchange
No person beneficially owns or controls, directly orindirectly, more than 5% of the voting rights of theExchange
No industry or business group beneficially owns or
controls, directly or indirectly, more than 20% of thevoting rights of the Exchange
Exchanges and Other Trading Markets
Registration of Exchanges
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Brokers in the board of the Exchange comprises of notmore than 49% of such board
At least 51% of the remaining members of the board iscomprised of 3 independent directors and personsrepresenting the interests of issuers, investors, and
other market participants not associated with anybroker or dealer for 2 years prior to his/herappointment
The President and other management of the Exchangeconsists only of persons who are not brokers and are
not associated in any capacity, directly or indirectly,with any broker or dealer or listed company of theExchange
Exchanges and Other Trading Markets
Registration of Exchanges
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Procedure for expulsion, suspension, or
disciplining of a member and persons associatedwith a member for conduct or proceeding
inconsistent with just and equitable principles offair trade
Transparent, prompt and accurate clearance andsettlement of transactions effected on theExchange
Exchanges and Other Trading Markets
Power of SEC over Exchanges
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Powers of SEC
1. Summarily suspend trading in any listed securityfor a period not exceeding 30 days
1. With the approval of the President of thePhilippines, summarily suspend all trading onany securities Exchange or other trading market
for a period of more than 30 but not exceeding90 days
Exchanges and Other Trading Markets
Powers of an SRO
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Self-Regulatory Organizations
An organized Exchange, registered clearing
agency