security registration there under may work or tend to work a fraud;
3. Pending investigation of the security registered to ascertain whether the registration of such security should be revoked on any ground specified the SRC; and
4. Refusal to furnish information required by the Commission. (Sec. 15)
Q: Who are the securities market professionals as classified by the SRC? A: They are the broker, dealer, associated person of a broker or dealer, and a salesman. Q: Who is a broker?
A: A person engaged in the business of buying
and selling securities for the account of others.
Q: Who is a dealer?
A: Any person who buys and sells securities for
his/her own account in the ordinary course of business.
Q: Who is an associated person of a broker or dealer?
A: He is an employee of a broker or dealer who
directly exercises control of supervisory authority but does not include a salesman, or an agent, or a person, whose functions are solely clerical or ministerial. Q: Who is a salesman? A: He is a natural person, employed as such, or as an agent, by a dealer, issuer or broker to buy and sell securities; but for the purpose of registration, shall not include any employee of an issuer whose compensation is not determined directly or indirectly on sales of securities of the issuer.
Q: What is the obligation of the broker to his client?
A: The primary obligation of the broker is to
ensure his account’s compliance with the law. (Abacus Securities Corp. v. Ampil, G.R. No.
160922, Feb. 27, 2006)
Note: Since a brokerage relationship is essentially a contract for the employments of an agent, the law on contracts govern the broker‐principal relationship
Q: Are security market professionals required to be registered?
A: Yes. No broker shall sell any securities unless
he is registered with the SEC (Sec. 19, Revised
Securities Act) (Nicolas vs. CA, et al., G.R. No. 12285, Mar. 27, 1998)
Q: Can a stockbroker without license from the SEC, recover management fees allegedly earned from handling the securities transactions of a client?
A: No. An unlicensed person may not recover
compensation for services as a broker where a statute or ordinance is applicable and such is of a regulatory nature.
Q: What is margin trading?
A: A kind of trading that allows a broker to
advance for the customer/investor part of the purchase price of the security and to keep it as collateral for such advance.
Q: What is the margin allowance standard?
A: The credit extended must be for an amount
not greater than, whichever is higher of:
1. 65% of the current market price of the security; or
2. 100% of the lowest market price during the preceding 36 months, but not more than 75% of the current market price.
Q: What are the purposes of the margin requirements?
A: They are primarily intended to achieve a
macroeconomic purpose – the protection of the overall economy from excessive speculation in securities. Their recognized secondary purpose is to protect small investors.
Q: Who has the burden of compliance with margin requirements?
A: The brokers and dealers.
Note: In securities trading, the brokers are essentially the counterparties to the stock transactions at the Exchange. Since the principals of the broker are generally undisclosed, the broker is personally liable for the contracts thus made. Brokers have a right to be reimbursed for sums advanced by them with the express or implied authorization of the principal. (Abacus Securities Corporation v. Ampil, G.R. No. 160016, Feb. 27, 2006)
V. PROHIBITIONS ON FRAUD, MANIPULATIONS AND INSIDER TRADING
A. MANIPULATION OF SECURITY PRICES
Q: What acts are considered manipulation of security prices?
A:
1. Transactions intended to create active trading:
a. Wash Sale – engaging in transaction in which there is no genuine change in the actual ownership of a security b. Matched Sale – There is a change of ownership in the securities by entering an order for the purchase/sale of security with the knowledge that a simultaneous order 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 parties.
c. Similar transactions where there is no change of beneficial ownership.
2. Engaging in transactions which induce price to increase or decrease:
a. Marking the close – buying and selling securities at the close of the market to alter the closing price of the security.
b. Painting the tape – engaging in a series of transactions in securities that are reported publicly to give the impression of activity or price movement in a security.
c. Squeezing the float – refers to taking advantage of a shortage of securities in the market by controlling the demand side and exploiting market congestion during such shortages in a way to create artificial prices.
d. Hype and dump – engaging in buying activity at increasingly higher prices and then selling securities in the market at the higher prices.
e. Boiler room operations – the use of high pressure sale tactics to promote purchase and sale of securities
f. Daisy chain – it refers to a series of purchase and sales of the same issue at successively higher prices by the same group of people with
the purpose of manipulating prices are drawing unsuspecting investors into the market leaving them defrauded of their money and securities.
Q: Suppose A is the owner of several inactive securities. To create an appearance of active trading for such securities, A connives with B by which A will offer for sale some of his securities and B will buy them at a certain fixed price, with the understanding that although there would be an apparent sale, A will retain the beneficial ownership thereof.
1. Is the arrangement lawful?
2. If the sale materializes, what is it called?
A:
1. No. The arrangement is not lawful. It is an artificial manipulation of the price of securities. This is prohibited by the Securities Regulation Code.
2. If the sale materializes, it is called a wash sale or simulated sale. (2001 Bar
Question) B. SHORT SALES Q: What is Short Selling? A: It is the selling of shares which the seller does
not actually own or possess and therefore he cannot, himself, supply the delivery. C. FRAUDULENT TRANSACTIONS Q: What are considered fraudulent transactions? A: 1. Obtaining money or property by means of any untrue statement of a material fact
2. Engaging in any act, transaction, practice or course of business, which operates as a fraud or deceit upon any person. D. INSIDER TRADING Q: What is insider trading?
A: A purchase or sale made by an insider or his
relative within the second degree shall be presumed to be effected while in possession of material non‐public information if transacted