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The
rule is that if somebody wants to sell securities to the public, the
securities must be registered with the SEC. There are
exceptions:
- Securities
issued or guaranteed by the Government or any of its political
subdivision.
- Securities
issued or guaranteed by the Government of a country with which the
Philippines has diplomatic relations.
- Certificates
issued by a receiver or trustee in bankruptcy approved by the proper
court. When the trustee distributes the liquidating properties
to the creditors, it would be exempt.
- A security
under the supervision of the
§
Insurance Commission.
Like endowment plans.
§
Housing and Land Use Regulatory
Board. Real estate lots.
§
Bureau of Internal Revenue.
Pension or retirement plans.
They are exempted because
they are already regulated by another government agency.
- Securities
issued by a bank except its own shares of stock. Derivatives
offered by a bank. Because they are regulated by the Monetary
Board.
The Code mentions transactions which are exempt:
- Judicial sales,
like sale by a guardian, executor, administrator or receiver because
the perception is that the sale is regulated by the court so there
is no need for the SEC to intervene.
- When a pledgee
or mortgagee will foreclose the mortgage. That’s exempt.
- Isolated
transactions.
- Distribution by
corporation of stock dividends.
- Sale by the
corporation of its capital stock to its own stockholders. They
offer portions of the authorized but unissued shares because its own
stockholders are knowledgeable about its financial condition of the
corporation, that transaction is exempt.
- Issuance of
bonds, secured by a mortgage upon a real estate or personal property
where the entire mortgage and bonds are sold to a single buyer.
That is usual if Meralco will issue bonds and this is secured by
mortgage on all its properties. It will execute a mortgage
indenture agreement saying it is mortgaging all its properties to
secure its bond. And they will appoint a bank to handle all that and
be the underwriter. So the bank will buy all the bonds secured by
the mortgage indenture agreement and then they will turn around and
sell that to the public secondary market. So when the bank as
underwriter buys all those bonds, it is exempt because the one who
would buy those bonds is a financial institution. So it’s
knowledgeable, it need not be protected by requirement of
registration.
- The issue and
delivery of security in exchange for another security because of a
right of conversion. Suppose somebody bought bonds and the
bonds contain a provision that the holder can exchange that for
cover stock. That is exempt because when the bonds were floated,
they were already registered with the SEC.
- Broker’s
transactions executed upon customer’s orders.
- Subscription of
shares when you are incorporating. Or when you are increasing your
capitalization.
- Exchange of
securities with existing security holders like when a
corporation will merge with another corporation, the stockholders
will be asked to surrender their shares of stock in exchange for
shares of stock in the surviving corporation.
- Sale of
securities to less than 20 persons during a 12-month period.
- Sale of
securities to any of the following:
§
Bank
§
Investment houses
§
Insurance companies
§
Retirement or pension funds
maintained by the government or any political subdivision.
Like, SSS or GSIS or
§
Investment companies
The justification is these
institutions possess financial expertise so they don’t need protection
from the SEC.
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