A.

SECURITIES REGULATIONS CODE

(SRC, R.A. No. 8799)
AND RELATED LAWS

1. State the powers and function of the SEC

The Commission shall act with transparency and shall have the
powers and functions provided by the Securities Regulations Code,
Presidential decree No. 902-A, the Corporation Code, the Investment
Houses law, the Financing Company Act and other existing laws.
Pursuant thereto, the Commission shall have, among others, the
following powers and functions:

a) Have jurisdiction and supervision over all corporations,

partnerships or associations who are the grantees of primary
franchises and/or a license or permit issued by the
Government;
b) Formulate policies and recommendations on issues
concerning the securities market, advise Congress and other
government agencies on all aspects of the securities market
and propose legislation and amendments thereto;
c) Approve, reject, suspend, revoke or require amendments to
registration statements, and registration and licensing
applications;
d) Regulate, investigate or supervise the activities of persons to
ensure compliance;
e) Supervise, monitor, suspend or take over the activities of
exchanges, clearing agencies and other SROs;
f) Impose sanctions for the violation of laws and the rules,
regulations and orders issued pursuant thereto;
g) Prepare, approve, amend or repeal rules, regulations and
orders, and issue opinions and provide guidance on and
supervise compliance with such rules, regulations and orders;
h) Enlist the aid and support of and/or deputize any and all
enforcement agencies of the Government,, civil or military as
well as any private institution, corporation, firm, association or
person in the implementation of its powers and functions under
this Code;
i) Issue cease and desist orders to prevent fraud or injury to the
investing public;
j) Punish for contempt of the Commission, both direct and
indirect, in accordance with the pertinent provisions of and
penalties prescribed by the Rules of Court;
 k) Compel the officers of any registered corporation or
association to call meetings of stockholders or members
thereof under its supervision;
l) Issue subpoena duces tecum and summon witnesses to
appear in any proceedings of the Commission in appropriate
cases, order the examination, search and seizure of all
documents, papers, files and records, tax returns, and books of
accounts of any entity or person under investigation as may
be necessary for the proper disposition of the cases before it,
subject to the provisions of existing laws;
m) Suspend, or revoke, after proper notice and hearing the
franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds provided
by law; and
n) Exercise such other powers as may be provided by law as well
as those which may be implied from, or which are necessary or
incidental to the carrying out of, the express powers granted
the Commission to achieve the objectives and purposes of
these laws.

1.01. TRANSFERRED JURISDICTION

a) Under Section 5.2 of the SRC, the Commission’s jurisdiction

over all cases enumerated under Section 5 of Presidential
Decrees No. 902-A has been transferred to the courts of
general jurisdiction or the appropriate Regional trial Court.
Thus, the following are within the jurisdiction of the RTC.

1) Fraudulent devices and schemes employed by directors

detrimental to the public interest and to other firms;
2) Intra-corporate dispute and with the state in relation to
their franchise and right to exist as such;
3) Controversies in election, appointment of directors or
trustees;
4) Petition to be declared in state of suspension of payments;
and
5) Appointment of rehabilitation receiver or Management
Committee.

2. WHAT ARE SECURITIES?

“Securities” are shares, participation or interests in a

corporation or in a commercial enterprise or profit-making venture
 and evidenced by a certificate, contract, instrument, whether
written or electronic in character. It includes:

a) Shares of stock, bonds, debentures, notes, evidences of

indebtedness. Asset-backed securities;
b) Investment contracts, certificates of interest or
participation in a profit sharing agreement, certificates
of deposit for a future subscription;
c) Fractional undivided interests in oil, gas or other mineral
rights;
d) Derivatives like option and warrants;
e) Certificates of assignments, certificates of participation,
trust certificates, voting trust certificates or similar
instruments; and
f) Proprietary or non-proprietary membership certificates in
corporations; and other instruments as may in the future
be determined by the Commission.

3. Define the following terms: a) Issuer; b) broker; c) dealer; d)

clearing agency; e) exchange; f) pre-need plans; g)
uncertificated securities; k) underwriter.

a) “Issuer” is the originator, maker, obligor, or creator of the

security;
b) “Broker” is a person engaged in the business of buying and
selling securities for the account of others.
c) “Dealer” means any person who buys and sells securities for
his/her own account in the ordinary course of business.
d) “Clearing Agency” is any person who act as intermediary in
making deliveries upon payment to effect settlement in
securities transactions.
e) “Exchange” is an organized marketplace or facility that brings
together buyers and sellers and executes trades of securities
and/or commodities.
f) “Pre-need plans” are contracts, agreements, deeds or plans
for the benefit of the plan holders which provide for the
performance of future service/s, payment of monetary
considerations or delivery of other benefits at the time of actual
need or agrees maturity date, as specified therein, in
exchange for cash or installment amounts with or without
interest or insurance coverage and includes life, pension,
education, interment and other plans, instruments, contracts or
deeds as may be determined by the Insurance Commission
(I.C.). Pre-need plans are now being regulated by the I.C.
 under the Pre-need Code of the Philippines (Sec. 4{c}, R.A
No.9829).
g) “Promoter” is a person who, acting alone or with others, take
initiative in founding and organizing the business or enterprises
of the issuer and receives consideration therefore.
h) “Prospectus” is the document made by or on behalf of an
issuer, underwriter or dealer to sell or offer securities for sale to
the public through a registration statement filed with the
Commission.
i) “Registration Statement” is the application for the registration
of securities required to be filed with the Commission.
j) “Uncertificated Security” is a security evidenced by electronic
or similar records.
k) “Underwriter” is a person who guarantees on a firm
commitment and/or declared best effort basis the distribution
and sale of securities of any kind by another company.

3.01. What are investment contracts?

An investment contract means a contract,

transaction or scheme (collectively “contract”) whereby
a person invests his money in a common enterprise and is
led to expect profits primarily from the efforts of others.

a) A presumption that a contract is an investment

contract arises whenever a person seeks to use
the money of others on the promise of profits.
b) When tow or more investors “pool” their resources,
there is a common enterprise, even if the promoter
does not do more than receive a broker’s
commission.
c) Requisites of Investment Contract: (1) an
investment of money, (2) in a common enterprise,
(3) with expectation of profits, (4) primarily from
efforts of others. Note: This modifies the “Howey
test” which requires the profit to be derived
“solely’ from the efforts of others; See: Power
Homes Unlimited Corp. v. SEC, G.R. o. 164182, Feb.
26, 2008; SEC v. Prosperity Com, Inc., G.R. No.
164197, jan. 25, 2012).
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3.02. What are derivatives?

Derivatives, with respect to equity securities, means a

financial instrument, including options and warrants, whose value
 depends on the interest in or performance of an underlying
security, but which does not require any investment of principal
in the underlying security.

a) “Options” are contracts that give the buyer the right, but
not the obligation, to buy or sell an underlying security at
a predetermined price, called the exercise or strike
price, on or before a predetermined date, called the
expiry date, which can only be extended in accordance
with Exchange rules.
b) “Call options” are rights to buy and “put options” are
rights to sell.
c) “Warrants” are rights to subscribe or purchase new
shares or existing shares in a company, on or before a
predetermined date called the expiry date, which can
only be extended in accordance with Exchange rules.
Warrants generally have a longer exercise period than
options.

33.03. What are commodity futures contracts? What is a commodity?

a) “Commodity future contract’ means a contract providing for the

making or taking delivery at a prescribed time in the future of a specific
quantity and quality of a commodity or the cash value thereof, which is
customarily offset prior to the delivery date, and includes standardized
contracts having the indicia of commodities futures, commodity options
and commonly leverage, or margin contracts.

b) Commodity means any goods, articles, services rights and

interests, including any group or index of any of the foregoing, in which
commodity interests contracts are presently or in the future dealt in.

4. How does the SRC protect the public who wishes to invest in
securities?

The law protects the public as follows: a) the law requires full
disclosure of information to the public regarding the securities that
are being offered and the issuers, including the filing of and
approval of the registration statement and the approval of the
prospectus. There is also continuing duty to regularly submit
material information to the SEC; b) close monitoring of the
securities and other circumstances that may affect the same as
well as the person involved including brokers, issuers, the
exchange itself, etc. in order to ensure compliance with pertinent
 laws and regulations; c) prohibiting and penalizing different
fraudulent practices and transactions; and d) providing the SEC
with powers and functions (Philippine Stock exchange v. CA, 281
SCRA 232 {1997}; securities and exchange Commission v. CA, 246
SCRA 738 {1995}.

5. State the basic rules regarding registration of securities

a) The SRC (Sec. 8.1) provides the 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 with such substance as the Commission may
prescribe, shall be made available to each prospective
purchase.

1) The Commission may conditionally approve the registration

statement under such terms as it may deem necessary.
2) 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.
3) 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.
4) 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.

b) In approving the registration of the securities, the SEC is not only

concerned with the requirement that full disclosure of
information is given to the public. The SEC is also concerned
with the merit of the securities themselves and the issuer
(Philippines Stock Exchange v. CA, 281 SCRA 232 {1997}.

6. What securities are exempt from the requirement of registration?

The requirement of registration shall not, as a general rule,

apply to any of the following classes of securities.
 a) 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.
b) 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 or reciprocity: Provided,.
That the Commission may require compliance with the
form and content of disclosures the Commission may
prescribed.
c) Certificates issued by a receiver or by a trustee in
bankruptcy duly approved by the proper adjudicatory
body.
d) 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.
e) Any security issued by a bank except its own shares of
stock.

Note: 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.

7. What transactions are exempt from the registration requirement

under SRC?

The requirement of registration shall not apply to the sale of

any security in any of the following transactions:

a) At any judicial sale, or sale by an executor, administrator,

guardian or receiver or trustee in insolvency or
bankruptcy.
b) 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.
c) 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.
d) The distribution by a corporation, actively engaged in
the business authorized by its articles of incorporation, of
securities of its stockholders or other security holders as a
stock dividend or other distribution out of surplus.
e) 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.
f) 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.
g) 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 the 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.
h) Broker’s transactions, executed upon customer’s orders,
on any registered exchange or other trading market.
i) Subscription 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 Code, 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 subscription
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.
j) 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.
k) The sale of securities by an insurer to fewer than twenty
(20) persons in the Philippines during any twelve-month
period.
l) The sale of securities to any number of the following
qualifies buyers:

(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) 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 Central to
engage in trust functions;
(v) Investment company; or
(vi) 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.

7.01. 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. Any person applying for
exemption under this Section, shall file with the Commission a
notice identifying the exemption relied upon on such form and at
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.

8. What are the grounds for revocation and/or rejection of the

registration of securities?

The SEC may reject a registration statement and refuse

registration of the security there under, or revoke the effectivity of
a registration statement and the registration of the security there
 under after due notice and hearing by issuing an order to such
effect, setting forth its findings in respect thereto, if it finds that:

a) The issuer:

(i) Has been judicially declared insolvent;

(ii) Has violated any of the provisions of this Code, the
rules promulgated pursuant thereto, or any order
of the Commission of which the issuer has notice in
connection with the offering for which a
registration statement has been filed;
(iii) Has been or is engaged or is about to engage in
fraudulent transactions;
(iv) Has made any false or misleading representation
of material facts in any prospectus concerning the
issuer or its securities; or
(v) Has failed to comply with any requirement that the
Commission may impose as a condition for
registration of the security for which the
registration statement has been filed; or

b) The registration statement is on its face incomplete or

inaccurate in any material respect or includes any
untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary
to make the statements therein not misleading; or
c) The issuer, any officer, director or controlling person of
the issuer, or person performing similar functions, or any
underwriter has been convicted, by a competent
judicial or administrative body, upon a plea of guilty, or
otherwise, of an offense involving moral turpitude and/or
fraud or other competent judicial or administrative body
for violations of securities, commodities, and other
related laws.

9. State the devices and practices on manipulation of security price

identified under the SRC.

a) To create a false or misleading appearance of active trading

in any listed security traded in an Exchange or any other
trading market (hereafter referred to purposes of this Chapter
as “Exchange”):
 1) “Wash sale” – By effecting any transaction in such security
which involves no change in the beneficial ownership
thereof;
2) “Matched orders” – by entering an order or orders for the
purchase or sale of such security with the knowledge that a
simultaneous order or orders of substantially the same size,
time and price, for the sale or purchase of any such security,
has or will be entered by or for the same or different (but
colluding) parties; or
3) “Market rigging or jiggling” – By performing similar act where
there is no change in beneficial ownership.

b) To effect, alone or with others, a series of transactions in

securities that:

1) Raises their price to induce 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;
2) Depresses their price to induce the sale 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; or
3) Crates active trading to induce such a purchase or sale
through manipulative devices such as marketing the close,
painting the tape, squeezing the float, hype and dump,
boiler room operations and such other similar devices.

c) To circulate or disseminate information that the price of any

security listed in an Exchange will or is likely to rise or fall
because of manipulative market operations of any one or
more persons conducted for the purpose of raising or
depressing the price of the security for the purpose of inducing
the purchase or sale of such security.
d) To make false or misleading statement with respect to any
material fact, which he knew or had reasonable ground to
believe was so false or misleading, for the purpose of inducing
the purchase or sale of any security listed o traded in an
Exchange.
e) To effect, either alone or others, any series of transactions for
the purchase and/or sale of any security traded in an
Exchange for the purpose of pegging, fixing or stabilizing the
price of such security, unless otherwise allowed by this Code or
by rules of the Commission.
f) No person shall use or employ, in connection with the purchase
or sale of any security any manipulative or deceptive device
or contrivance. Neither shall any short sale be effected nor any
 stop-loss order be executed in connection with the purchase
or sale of any security except in accordance with such rules
and regulations as the Commission may prescribe as necessary
or appropriate in the public interest or for the protection of
investors.

10. Define “put”, “call” and “straddle”. What is the rule regarding
these three practices in the SRC?

“Put’ is a transferable option or offer to deliver a given

number of shares of stock at a stated price at any given time
during a stated period. “Call” is transferable option to buy a
specified number of shares at a stated price. “Straddle” is a
combination of put and call.

The SRC prohibits members of an Exchange from directly or

indirectly indorsing or guaranteeing the performance of a put, call
or straddle.

11. Enumerate the acts that are considered unlawful with respect to
the purchase and sale or securities.

Under Section 26 of the SRC, it shall be unlawful for any

person, directly or indirectly, in connection with the purchase or
sale of any securities to:

a) Employ any device, scheme, or artifice to defraud;

b) Obtain money or property by means of any untrue
statement of a material fact or any omission to state a
materials fact necessary in order to make the statements
made, in the light of the circumstances under which they
were made, not misleading; or
c) Engage in any act, transaction, practice or course of
business which operates or would operate as a fraud or
deceit upon any person.

12. Who is insider?

“Insider” means: (a) the issuer; (b) a director or officer (or person
performing similar functions) of, or a person controlling the issuer;
(c0 a person whose relationship or former relationship to the issuer
 gives or gave him access to material information about the issuer
or the security that is not generally available to the public; (d) a
government employee, or director, or office of an exchange,
clearing agency and/or self regulatory organization who has
access to material information about an issuer or a security that is
not generally available to the public; or (e) a person who learns
such information by a communication from any of the foregoing
insiders.

12.01. What are the duties of an insider when he is trading securities?

It shall be unlawful for an insider to sell or buy a security of

the issuer, while in possession of material information with respect
to the issuer or the security that is not generally available to the
public, unless:

a) The insider proves that the information was not gained

from such relationship; or b) If the other party selling to or
buying from the insider (or his agent) is identified, the
insider proves: (i) that he disclosed the information to the
other party, or (ii) that he had reason to believe that the
other party otherwise is also in possession of the
information.

12.02. Presumption: A purchase or sale of a security of the issuer

made by an insider defined in Subsection 3.8, or such insider’s
spouse or relatives by affinity or consanguinity within the second
degree, legitimate or common-law, shall be presumed to have
been effected while in possession of material non-public
information if transacted after such information came into
existence but prior to dissemination of such information to the
public and the lapse of a reasonable time for the market to
absorb such information: Provided, however, That this
presumption shall be rebutted upon a showing by the purchaser
or seller that he was not aware of the material non-public
information at the time of the purchase or sale.

12.03. What is material non-public information?

An information is “material non-public” if: (a0 it has not been

generally disclosed to the public and would likely affect the
market price of the security after being disseminated to the
public and the lapse of a reasonable time for the market to
absorb the information; or (b0 would be considered by a
reasonable person important under the circumstances I
 determining his course of action whether to buy, sell or hold a
security.

12.04. What is the prohibition imposed on insiders regarding material

non-public information?

It shall be unlawful for any insider to communicate material

non-public information about the issuer or the security to
any person who, by virtue of the communication, becomes
an insider where the reason to believe that such person will
likely buy or sell a security of the issuer while in possession
of such information.

13. TENDER OFFER

13.01. What is Tender Offer? – Tender offer means a publicly

announced intention by a person acting alone or in concert
with other persons (hereinafter referred to as “person”) to
acquire equity securities of a public company.

a) A tender offer is an offer by the acquiring person to

stockholders of a public company for them to tender their
shares therein on the terms specified in the offer. The tender
offer is in place to protect minority shareholders against any
scheme that dilutes the share value of their investments. It
gives the minority shareholders the chance to exit the
company under reasonable terms, giving them the
opportunity to sell their shares at the same price as those of
the majority shareholders (CEMCO Holdings, Inc. v. National
Life Insurance Company, Inc. G.R. No. 171815, Aug. 7, 2007).
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b) Public Company means any corporation with a class of equity

securities listed on an Exchange or with assets in excess of Fifty
Million Pesos or more holders,and with 200 or more
stockholders, at least 200 of them holding not less than 100
shares of such company.|||

13.02. When tender offer is mandatory

a) When any person or group of persons acting in concert, who

intends to acquire thirty-five percent (35%) or more of equity
shares in a public company. (Note: They must disclose their
 intentions to acquire the shares contemporaneously with the
tender offer.)
b) Any person or group of persons acting in concert, who intends
to acquire shares in a public company in one or more
transactions within a period of twelve (12) months, shall be
required to make a tender offer to all holders of such class for
the number of shares so acquired within the said period.
c) If any acquisition of even less than thirty-five percent (35%)
would result in ownership of over fifty-one percent (51%) of the
total outstanding equity securities of a public company, the
acquirer shall be required to make a tender offer for all the
outstanding equity securities to all remaining stockholders of
the said company at a price supported by a fairness opinion
provided by an independent financial advisor or equivalent
third party. The acquirer in such a tender offer shall be required
to accept any and all securities thus tendered.

13.03. Exempt from Mandatory Tender Offer requirement

The mandatory tender offer requirement shall not apply to the

following:

1) Any purchase of shares from the unissued capital stock

provided that the acquisition will not result to a fifty percent
(50%) or more ownership of shares by the purchaser;
2) Any purchase of shares from an increase in authorized capital
stock;
3) Purchase in connection with foreclosure proceedings
involving a duly constituted pledge or security arrangement
where the acquisition is made by the debtor or creditor;
4) Purchases in connection with privatization undertaken by the
government of the Philippines;
5) Purchases in connection with corporate rehabilitation under
court supervision;
6) Purchase through an open market at the prevailing market
price; and
7) Merger or consolidation.

13.04. Obligations of person making a tender offer

a) Make an announcement of his intention in a newspaper of

general circulation, prior to the commencement of the offer;
b) At least two (2) business days prior to the date of the
commencement of the offer;
 1) File with the SEC a required form for tender offer (SEC Form
19-1) including all exhibits thereto (and any amendments
thereto), with the prescribed filing fees; and
2) Hand deliver a copy of such form including all exhibits (and
amendments thereto) to the target company at its
principal executive office and to each Exchange where
such class of the target company’s securities are listed for
trading.
c) Report the results of the tender offer by filing with the
Commission, not later than ten (10) calendar days after the
termination of the tender offer, copies of the final
amendments to the form.

13.05. DIRECT AND INDIRECT ACQUISITION

Ownership acquisition means both direct and indirect. What is

decisive is the determination of the power of control. The bottom
line of the law is to give the shareholder of the public company
the opportunity to decide whether or not to sell in connection
with a transfer of control. Thus, the rules apply even if one will
acquire the shares in the corporation that owns the shares of a
public company (including subsidiary). Example: X Corp. owns
61% of the outstanding shares in B, a public company. The tender
offer rules apply if there will be a sale of the controlling shares in X
Corp. (CEMCO Holdings, Inc. v. National Life Insurance
Company, Inc. supra).

14. MARGIN TRADING

The customer purchases stock by advancing only a portion

of the purchase price with the broker extending credit or making
loan for balance due.

a) The main purpose is to give the government an effective

method of reducing the aggregate amount of the
nation’s credit resources which can be directed by
speculation into the stock market and out of other more
desirable uses of commerce and industry (Abacus
Securities corp. v. Ampil, G.R. No. 160016, Feb. 27, 2006).

14.01. PROHIBITIONS
 a) A broker dealer shall not extend credit to a customer in an
amount that exceeds fifty percent (50%) of the current market
value of the security at the time of the transaction. In no event
shall new or additional credit be extended into an account in
which the equity is less than P50,000.
b) The margin maintained in a margin account of a customer
shall be no less than twenty-five percent (25%) of the current
market value of all securities “long’ in the account and thirty
percent (30%) of the current market value of securities “short”
in the account.
c) Mandatory Close-Out rule - When there is an insufficiency of
margin, a call for additional margin shall be issued promptly
by the Broker dealer to the customer. A call for initial margin
shall be satisfied within five (5) business days from the date the
insufficiency is created. A call for maintenance margin shall
be satisfied within twenty-four (24) hours after the call is issued.

14.02. The parties may be considered in pari delicto if they violate

the limitations on margin trading. If a broker tolerates the
purchases of its customer without performing its obligation under
the Mandatory Close-Out Rule and without requiring the latter to
deposit cash before embarking on trading stocks any further,
broker violated the law at its own peril. Hence, it cannot complain
for failing to obtain the full amount of its claim for later
transactions (Abacus securities corp. v. Ampil, ibid).

15. VIOLATIONS OF SRC

All complaints for any violation of the Code and its

implementing rules and regulations should be filed with the SEC.
Where the complaint is criminal in nature, the SEC shall indorse the
complaint to the DOJ for preliminary investigation and
prosecution (Sec. 53.1, SRC; Baviera v. Paglinawan, et. al. ,G.R. No.
168380, Feb. 8, 2007).