SPECIAL ISSUES IN COMMERCIAL LAW: Securities Regulation and Cross-Border Transactions Course Outline FRANCHETTE M. ACOSTA Part I. Securities Regulation References: Securities Regulation Code 2004 Implementing Rules and Regulations of the Securities Regulation Code (www.sec.gov.ph) Business Organization and Finance: Legal and Economic Principles, 8th ed. by William A. Klein and John C. Coffee, Jr. Mergers, Acquisitions and Corporate Restructurings by Patrick A. Gaughan New Financial Instruments (Frontiers in Finance Series) by Julian Walmsley Securities Regulation Code by Lucila M. Decasa Securities Regulation, 4th Ed. by Larry D. Solderquist and Therese A. Gabaldon The Handbook of Financial Instruments by Frank J Fabozzi The Philippine Securities Regulation Code by Rafael A. Morales Using and Negotiating Over-the-Counter Derivatives Documentation by Christian A. Johnson June 27 and July 4, 2009 A. Securities Regulation Code and the Securities and Exchange Commission (“SEC”) Sections 1, 2, 4, 5, 53 and 64 of the Securities Regulation Code SRC Rule 1, 2, 4, 5.1, 7.2 and 40.5 Interim Rules on Intra-Corporate Controversies, A.M. No. 01-2-04SC dated March 13, 2001 Sections 5 and 6, P.D. 902-A Getting to know the SEC: Organizational Chart of the SEC (available in www.sec.gov.ph) ; current Commissioners of the SEC Reading Assignment: pp. 1- 9 and 36 - 60, Morales PSE vs. Court of Appeals, 281 SCRA 232 1 Speed Distributing Corp vs. Court of Appeals, 425 SCRA 691 (2004) Morato et. Al vs. Court of Appeals, 436 SCRA 438 (2004) Orendain vs. BF Homes, Inc. 506 SCRA 348 (2006) Yujuico vs. Quiambao, 513 SCRA 243 (2007) Cemco Holdings, Inc. vs. National Life Insurance Company of the Philippines, Inc. 529 SCRA 355 (2007) GSIS vs. Court of Appeals, G.R. No. 183905, dated April 16, 2009 Chapter 2 (The Madness of Crowds), Random Walk Down Wallstreet, Malkiel, Burton G., 1999 (FMA to provide) Just to get a background, read up articles in the internet on Subprime Mess, 2008 economic meltdown, pre-need corporations problems in the Philippines (2008 to present) B. Definition of Securities Section 3 and 11, Securities Regulation Code SRC Rule 3, 11 Section 6, 8, 9 and 41 Corporation Code Reading Assignment: Section 3, Securities Regulation Code SRC Rule 3 Section 6, Corporation Code Rules Governing Redeemable and Treasury Shares Amended Rules for the Registration of Long Term Commercial Paper Amended Rules for the Registration of Short Term Commercial Paper pp. 9 – 35, Morales pp. 3 – 9, Decasa Philippine jurisprudence/ SEC Opinions Gabionza vs. Court of Appeals, G.R. No. 161057, 12 September 2008 Power Homes Unlimited Corp. vs. SEC, et. Al, G.R. No. 164182, February 26, 2008 Onapal Philippines Commodities, Inc. vs. Court of Appeals, G.R. No. 90707, February 1, 1993. SEC Opinion dated 10-21-1982 addressed to Odyssey Park SEC Opinion dated 02-08-1996 addressed to Omni Health Care Organization SEC Opinion dated 04-16-1996 addressed to Atty. Nicanor Zaratan, Jr. 2 SEC Opinion dated 01-02-1997 addressed to Kennedy Sarmiento SEC Opinion No. 03-03 dated 01-22-2003 SED Opinion No. 10-06 dated 02-08-2006 U.S. Jurisprudence SEC v. W.J. Howey Co., Supreme Court of the United States, 1946, 328 U.S. 293 United Housing Foundation, Inc. v. Forman, Supreme Court of the United States, 1975, 421 U.S. 837 International Brotherhood of Teamsters v. Daniel, Supreme Court of the United States, 1979, 429 U.S. 551 SEC v. Koscot Interplanetary, Inc., United States Court of Appeals, Fifth Circuit, 1974, 497 F. 2d 473 SEC v. Life Partners, Incorporated, United States Court of Appeals, D.C. Circuit, 1996, 102 F. 3d 587 United States v. Jones, United States Court of Appeals, Fifth Circuit, 1971, 450 F. 2d 523 In re Tucker Corp, Securities and Exchange Commission, 1947, 26 S.E.C. 249 Procter & Gamble Company v. Bankers Trust Company and BT Securities Corporation, United States District Court, S.D. Ohio, Western Division, 1996, 925 F. Supp. 1270 Landreth Timber Co. v. Landreth, Supreme Court of the United States, 1985, 471 U.S. 681 Reves v. Ernst & Young, Supreme Court of the United States, 1990, 494 U.S. 56 Read up articles in the internet on the definition of the following kinds of securities: - equity (common shares, preferred shares (participating, nonparticipating, cumulative), convertible shares, redeemable shares) - debt - options (call and put options) - derivatives (equity, credit, foreign exchange derivatives) - structured products July 11, 2009 C. Registration of Securities Section 8 Requirements of Registration of Securities, SRC Rule 8.1, SRC Rule 8.3 3 SEC Opinion dated 18 June 1981 addressed to Mr. Tomas R. Porras SEC Opinion dated 26 May 1983 addressed to Santiago, Tinga & Associates SEC Opinion dated 26 July 1984 addressed to C.B. Fuentesfina SEC Opinion dated 10 August 1984 addressed to Danto O. Tinga SEC Opinion dated 14 December 1984 addressed to Mr. Marcelo M. Fernando SEC Opinion dated 27 April 1990 addressed to Atty. Reynaldo G. Geronimo SEC Opinion dated 14 January 1993 addressed to Imelda P. Maiquez SEC Opinion dated 12 October 1995 addressed to Dr. Gonzalo T. Santos, Jr. SEC Opinion dated 7 November 1995 addressed to Atty. Roberto O. Parel SEC Opinion dated 11 April 1995 addressed to Mr. Fiorrello E. Azura SEC Opinion dated 22 June 1995 addressed to Mr. Edward S. de los Reyes SEC Opinion dated 30 April 1996 addressed to Atty. Solomon Hermosura SEC Opinion dated 6 February 1996 addressed to Mr. Jorge Ma. A. Yuzon SEC Opinion dated 8 September 1997 addressed to Atty. Claro P. Ison SEC Opinion dated 12 January 1998 addressed to Ms. Luz Policarpio Say SEC Opinion dated 4 December 1998 addressed to Ms. Tomasa H. Lipana SEC Opinion dated 16 January 1996 addressed to Air Liquide Asia Management Pte, Ltd. SEC Opinion dated 6 February 1996 addressed to Mr. Jorge Ma. A. Yuzon SEC Opinion No. 35-03 dated 30 June 2003 addressed to Ms. Marietta B. Valleser SEC Opinion No. 19-04 dated 30 March 2004 addressed to Mr. Manuel Moraza SEC Opinion No. 10-06 dated 8 February 2006 addressed to Ms. Dorenda M. Dasmarinas Luis TIrso Revilla et al vs. Intermediate Appellate Court, et. al. Nestle Philippines, Inc. vs. Court Appeals and Securities and Exchange Commission, G.R. No. 86738 dated 13 November 1991. SEC vs. Court of Appeals, G.R. No. 10643132 dated 21 July 1995 Pp vs. Petralba, G.R. No. 137512 dated 27 September 2004 Standard Chartered Bank vs. Senate Committee on Banks, Financial Institutions and Currencies, G.R. No. 167173, 27 December 2007 Gabionza vs. Court of Appeals, G.R. No. 161057, 12 September 2008 Timeshare Realty Corporation vs. Cesar Lao and Cynthia V. Cortez, G.R. No. 158941 dated 11 February 2008 Section 9 Exempt Securities, SRC Rule 9.2 Union Bank of the Philippines vs. SEC, 358 SCRA 479 DOJ Opinion No. 144 s. 1993 Section 10 Exempt Transactions, SRC Rule 10.1, SEC Memorandum 4 Circular No. 3, s. 2008 (Rules Governing Registrars of Qualified Buyers), SEC Memorandum Circular No. 6, series of 1007 (Definition of Qualified Buyers under Section 10 of the Securities) July 18, 2009 Section 12 Procedure for Registration of Securities, SRC Rule 12. 1, 12.2, 12.5 Section 13 Rejection and Revocation of Registration of Securities Section 14 Amendments to the Registration Statement, SRC Rule 14 Section 15 Suspension of Registration Section 51 Liabilities of Controlling Persons, Aider and Abettor and Other Secondary Liability Section 56 Civil Liabilities on Account of False Registration Statement Section 57 Civil Liabilities Arising in Connection with Prospectus, Communications and Reports Section 62 Limitation of Actions Section 63 Amount of Damages to be Awarded Section 71 Validity of Contracts Reading Materials: pp. 61 – 133, Morales pp. 22 – 52, Decasa SEC Form 10-1 and SEC Form 12-1; sample registration statement; sample prospectus July 25, 2009 D. Regulation of Pre-Need Plans Section 16 Pre-Need Plans Rules 1, 3, 16, 20, 21 and 22 of the 2001 New Rules on the Registration and Sale of PreNeed Plans Sections 3, 4, 6, 7 and 9 of SEC Memo Circular No. 4, Series of 2007 * Read articles on developments in the pre-need industry in the past year and a half, just to get an idea of the problems faced by the industry and the response of regulatory agencies, particularly the SEC. E. Reportorial Requirements Section 17 Periodic and Other Reports of Issuers, SRC Rule 17.1 5 SEC Form 17-A and 17-C Section 18 Reports by Five Per Centum (5%) Holders of Equity Securities, SRC Rule 18.1 Section 23 Transactions of Directors, Officers and Principal Stockholders, SRC Rule 23 Union Bank of the Philippines vs. Securities and Exchange Commission, G.R. No. 138949 dated 6 June 2001 Basic, Inc. v. Levinson, 485 U.S. 224 (1988) SEC vs. Intreport Resources, G.R. No. 135808, October 6, 2008 GSIS vs. Court of Appeals, G.R. No. 183905, dated April 16, 2009 Readings: pp. 136 – 151, Morales pp. 56 – 61, Decasa * Check the Philippine Stock Exchange website (www.sec.com.ph) for samples of disclosures made by publicly listed companies. F. Protection of Shareholder Interests Sections 19 Tender Offers Sections 72.2 and 72.3, Rules and Regulations; Effectivity SRC SRC Rule 19 SEC Opinion No. 01-03 dated 7 January 2003, addressed to Atty. Mamerto Mondragon SEC Opinion No. 25-06 dated 7 April 2006, addressed to Petron Corporation SEC OGC Opinion No. 16-08 dated July 22, 2008 addressed to Sime Darby Philipines, Inc. Cemco Holdings, Inc. vs. National Life Insurance Company of the Philippines, Inc., G.R. No. 171815, dated 7 August 2007 Sections 55, 58 and 59 of the Corporation Code Section 20 Proxy Solicitations, SRC Rule 20 SEC Form 20-IS Section 21 Fees for Tender Offers and Certain Proxy Solicitations Section 22 Internal Record Keeping and Accounting Controls SEC Memorandum Circular No. 5, series of 2001 Annual Meetings and Proxy SEC Memorandum Circular No. 5 dated August 6, 1996 SEC Opinion dated 01 March 1988, addressed to Leonor Noceda SEC Opinion dated 19 April 1988, addressed to Sycip Salazar Hernandez & Gatmaitan 6 SEC Opinion dated 17 October 1988, addressed to Del Rosario, Lim, Telan, De Vera & Vigilia Law Offices SEC Opinion dated 06 November 1989, addressed to Manny Custodio SEC Opinion dated 15 February 1990, addressed to Felipe Valdez SEC Opinion dated 03 July 1990, addressed to Jose Cervantes SEC Opinion dated 10 July 1990, addressed to Wilson Sy SEC Opinion dated 12 November 1990, addressed to Federico Ylagan Jr. SEC Opinion dated 09 September 1991, addressed to David Sinangote Jr. SEC Opinion dated 28 October 1991, addressed to Norberto Capistrano SEC Opinion dated 14 June 1995, to addressed to Cesar Arambulo SEC Opinion dated 13 November 1995, addressed to F.B. Reyes SEC Opinion dated 15 July 1997 , addressed to Atty. Victor Africa SEC Opinion dated 19 August 2002, addressed to F.B. Reyes SEC Opinion No. 17-03 dated 30 April 2003 Sec Opinion No. 67-03 dated 08 December 2003 SEC-OGC Opinion No. 16-07dated 13 August 2007 August 1, 2009 – No Classes August 15, 2009 Chapter VII – Prohibitions on Fraud, Manipulation and Insider Trading Section 23, SRC Section 24 Manipulation of Security Prices; Devices and Practices SRC Rule 24.1(b) – 1 SRC Rule 24.1(d) SRC Rule 24.2-2 PSE New Rules on Short Selling dated 26 October 2007 (see PSE Website) Section 25 Regulation of Option Trading SRC Rule 25.1 Section 26 Fraudulent Transactions SRC Rule 26.3 Section 27 Insider’s Duty to Disclose When Trading Read concurring opinion of Justice Tinga in SEC vs. Intreport, G.R. No. 135808, October 6, 2008 Section 58 Civil Liability for Fraud in Connection with Securities Transactions 7 Section 59 Civil Liability for Manipulation of Security Prices Section 60 Civil Liability with Respect to Commodity Futures Contracts and Pre-Need Plans Section 61 Civil Liability on Account of Insider Trading Section 62 Limitation of Actions Section 63 Amount of Damages to be Awarded Section 71 Validity of Contracts Readings: pp 152-206, 335-340, Morales pp 62-87, 173 – 179, Decasa Chapter VIII – Regulation of Securities Market Professionals Section 28 Registration of Brokers, Dealers Salesmen and Associated Persons SRC Rule 28.1 SRC Rule 28.2 Section 29 Revocation, Refusal or Suspension of Registration of Brokers, Dealers, Salesmen and Associated Persons SRC Rule 29 Section 30 Transactions and Responsibility of Brokers and Dealers SRC Rule 30.1 SRC Rule 30.2 SEC Memorandum Circular No. 16, series of 2004, Adoption of Risk Based Capital Adequacy Requirement/Ratio for Brokers/Dealers SEC Memorandum Circular No. 12, series of 2001 (Broker-Director Rule) Nicolas vs. Court of Appeals, G.R. No. 122857, dated 27 March 1998 (unlicensed brokers/fees) Chapter IX – Exchanges and Other Securities Trading Markets Section 32 Prohibition on Use of Unregistered Exchange; Regulation of Over-the-Counter Markets SEC Memorandum Circular No. 14, series of 2006, Rules on Over the Counter Markets SRC Rule 32.1 SRC Rule 32.2 Section 33 Registration of Exchanges SRC Rule 33.1 SRC Rule 33.2 (c) SRC Rule 33.2(d) Section 34 Segregation and Limitation of Functions of Members, Brokers and Dealers 8 SRC Rule 34.1 SEC Memorandum Circular No. 13, series of 2004 Section 35 Additional Fees of Exchanges Section 36 Powers with Respect to Exchanges and Other Trading Markets SRC Rule 36.4 SRC Rule 36.5 SEC Memorandum Circular No. 14, series of 2006 Rules Governing the Over the Counter Market Section 37 Registration of Innovative and Other Trading Markets Rules and Regulations on Alternative Trading System dated 4 March 2004 Section 38 Independent Directors SRC Rule 38 SEC Memorandum Circular No. 9, series of 2009 SEC Memorandum Circular No. 13, series of 2004 SEC Memorandum Circular No. 16, series of 2002 Revised Code of Corporate Governance, SEC Memorandum Circular No. 6, series of 2009 Reading Materials: pp. 206-268, Morales pp. 88 – 131, Decasa August 22, 2009 Chapter XI Acquisition and Transfer of Securities and Settlement of Transactions in Securities Chapter XII Margin and Credit Sections 41 – 50 of the SRC SRC Rule 42 SRC Rule 48.1 SRC Rule 49.1 SRC Rule 49.2 SRC Rule 49.3 SCR Rule 50 Listing Rules of the Philippine Stock Exchange (2004) Revised Rules on Listing by Introduction dated 23 March 2009 Rules on Backdoor Listing dated 21 September 2006 Delisting Rules dated 22 September 2004 SEC Memorandum Circular No. 9, series of 2008 Guidelines on the Registration of All Outstanding Shares Prior to Listing PSE Disclosure Rules (2003) 9 *Check the newsroom www.pse.com.ph for copies of the cited rules. Introduce Fixed Income Exchange Introduce WESM August 22, 2009 Investment House Law and the Omnibus Rules and Regulations for Investment Houses and Universal Banks Registered as Underwriters of Securities (2002) Republic Act No. 2629 (Investment Companies Act) and ICA Rule 35-1 (Investment Company Rule) Republic Act No. 9182, as amended (SPAV Law) and Implementing Rules and Regulations Republic Act No. 9267 (Securitization Act) and Implementing Rules and Regulations Proposed legislation August 29, 2009 Midterms 10