2. Registration of Securities

A. Framework for Regulating of Securities Trading – R.A. No. 8799, Sections 8-10

SEC. 8. Requirement of Registration of Securities.¹ — 8.1. 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. Prior to such sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser.

8.2.   The Commission may conditionally approve the registration statement under such terms as it may deem necessary.

8.3.  The Commission may specify the terms and conditions under which any written communication, including any summary prospectus, shall be deemed not to constitute an offer for sale under this Section.

8.4   A record of the registration of securities shall be kept in a Register of Securities in which shall be recorded orders entered by the Commission with respect to such securities. Such register and all documents or information with respect to the securities registered therein shall be open to public inspection at reasonable hours on business days.

8.5.   The Commission may audit the financial statements, assets and other information of a firm applying for registration of its securities whenever it deems the same necessary to insure full disclosure or to protect the interest of the investors and the public in general.

SEC. 9. Exempt Securities². — 9.1. The requirement of registration under Subsection 8.1 shall not as a general rule apply to any of the following classes of securities:

• Any security issued or guaranteed by the Government of the Philippines, or by any political subdivision or agency thereof, or by any person controlled or supervised by, and acting as an instrumentality of said Government.
• Any security issued or guaranteed by the government of any country with which the Philippines maintains diplomatic relations, or by any state, province or political subdivision thereof on the basis of reciprocity: Provided, That the Commission may require compliance with the form and content of disclosures the Commission may prescribe.
• Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body.
• Any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation of the Office of the Insurance Commission, Housing and Land Use Regulatory Board, or the Bureau of Internal Revenue.
• Any security issued by a bank except its own shares of stock.

9.2. The Commission may, by rule or regulation after public hearing, add to the foregoing any class of securities if it finds that the enforcement of this Code with respect to such securities is not necessary in the public interest and for the protection of investors.

SEC. 10. Exempt Transactions.³ — 10.1. The requirement of registration under Subsection 8.1 shall not apply to the sale of any security in any of the following transactions:

• At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in insolvency or bankruptcy.
• By or for the account of a pledge holder, or mortgagee or any other similar lien holder selling or offering for sale or delivery in the ordinary course of business and not for the purpose of avoiding the provisions of this Code, to liquidate a bona fide debt, a security pledged in good faith as security for such debt.
• An isolated transaction in which any security is sold, offered for sale, subscription or delivery by the owner thereof, or by his representative for the owner's account, such sale or offer for sale, subscription or delivery not being made in the course of repeated and successive transactions of a like character by such owner, or on his account by such representative and such owner or representative not being the underwriter of such security.
• The distribution by a corporation, actively engaged in the business authorized by its articles of incorporation, of securities to its stockholders or other security holders as a stock dividend or other distribution out of surplus.
• The sale of capital stock of a corporation to its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock.
• The issuance of bonds or notes secured by mortgage upon real estate or tangible personal property, where the entire mortgage together with all the bonds or notes secured thereby are sold to a single purchaser at a single sale.
• The issue and delivery of any security in exchange for any other security of the same issuer pursuant to a right of conversion entitling the holder of the security surrendered in exchange to make such conversion: Provided, That the security so surrendered has been registered under this Code or was, when sold, exempt from the provisions of this Code, and that the security issued and delivered in exchange, if sold at the conversion price, would at the time of such conversion fall within the class of securities entitled to registration under this Code. Upon such conversion, the par value of the security surrendered in such exchange shall be deemed the price at which the securities issued and delivered in such exchange are sold.
• Broker's transactions, executed upon customer's orders, on any registered Exchange or other trading market.
• Subscriptions for shares of the capital stock of a corporation prior to the incorporation thereof or in pursuance of an increase in its authorized capital stock under the Corporation Code⁴, when no expense is incurred, or no commission, compensation or remuneration is paid or given in connection with the sale or disposition of such securities, and only when the purpose for soliciting, giving or taking of such subscriptions is to comply with the requirements of such law as to the percentage of the capital stock of a corporation which should be subscribed before it can be registered and duly incorporated, or its authorized capital increased.
• The exchange of securities by the issuer with its existing security holders exclusively, where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.
• The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period.
• The sale of securities to any number of the following qualified buyers:
• Bank;
• Registered investment house;
• Insurance company;
• Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof or managed by a bank or other persons authorized by the Bangko Sentral to engage in trust functions;
• Investment company; or
• Such other person as the Commission may by rule determine as qualified buyers, on the basis of such factors as financial sophistication, net worth, knowledge, and experience in financial and business matters, or amount of assets under management.

The reference to the Corporation Code and its subscription-percentage requirement in Sec. 10.1(i) is statutory wording. Incorporation is now governed by the Revised Corporation Code (R.A. No. 11232, Secs. 12–13), which removed the former general minimum-subscription requirement; the quoted percentage requirement should not be treated as a current general rule.

10.2   The Commission may exempt other transactions, if it finds that the requirements of registration under this Code is not necessary in the public interest or for the protection of the investors such as by reason of the small amount involved or the limited character of the public offering.

10.3   Any person applying for an exemption under this Section, shall file with the Commission a notice identifying the exemption relied upon on such form and at such time as the Commission by rule may prescribe and with such notice shall pay to the Commission a fee equivalent to one-tenth (1/10) of one percent (1%) of the maximum aggregate price or issued value of the securities.

Securities are shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture evidenced by a certificate, contract, instrument, whether written or electronic in character. The definition includes investment contracts. (SRC, Sec. 3.1)

Registration

General rule: Securities are prohibited to be sold or offered for sale or distribution within the Philippines (SRC. Sec. 8.1)⁶:

• Without registration statement duly filed with and approved by SEC; and
• Prior to such sale, information on the securities, in such form and with such substance as SEC may prescribe, must be made available to each prospective purchaser.

Exception: The following may be sold without need of registration:

• Exempt securities (SRC, Sec. 9)⁷
• Exempt transactions (SRC, Sec. 10)⁸

NOTE:

• Registration is required whenever securities are sold or offered to be sold to the public. At the end of the registration process, the registration statement will be rendered effective by the SEC and a permit to sell will be issued. Registration allows the SEC to ensure that there is full and fair disclosure of all material information in connection with the public offering.
• Under the Securities Regulation Code, the SEC reviews the required disclosures and statutory grounds for refusing or revoking registration; registration does not certify the investment merits of the securities or issuer (RA 8799, Secs. 8, 12–13). The discussion of merits in Philippine Stock Exchange, Inc. v. Court of Appeals, G.R. No. 125469, 27 October 1997, arose under the former securities regime⁹.

NON-EXEMPT TRANSACTIONS

All transactions involving securities which are offered to the public, unless it is an exempt security or an exempt transaction subject to the provisions of the SRC, needs to be registered as such with the Securities and Exchange Commission, unless otherwise provided by law or the Rules, and as such are non-exempt transactions.

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 Securities and Exchange Commission. (SRC, Sec. 8)¹⁰

The Securities and Exchange Commission may conditionally approve registration statements of securities, subject under terms it may deem necessary, and may specify the terms and conditions under which a written communication, including any summary prospectus, shall be deemed not to constitute an offer for sale. (SRC, Sec. 8.2 and 8.3)