Acquisition and Transfer of Securities and Settlement of Transactions in Securities (Chapter XI): Securities Regulation Code

[Full text of Securities Regulation Code (Republic Act No. 8799; Chapter I; Chapter II; Chapter III; Chapter IV; Chapter V; Chapter VI; Chapter VII; Chapter VIII; Chapter IX; Chapter X; Chapter XI; Chapter XII; Chapter XIII]


Section 41. Prohibition on Use of Unregistered Clearing Agency. – It shall be unlawful for any broker, dealer, salesman, associated person of a broker or dealer, or clearing agency, directly or indirectly, to make use of any facility of a clearing agency in Philippines to make deliveries in connection with transaction in securities or to reduce the number of settlements of securities transactions or to allocate securities settlement responsibilities or to provide for the central handling of securities so that transfers, loans and pledges and similar transaction can be made by bookkeeping entry or otherwise to facilitate the settlement of securities transactions without physical delivery of securities certificates, unless such clearing agency is registered as such under Section 42 of this Code or is exempted from such registration upon application by the clearing agency because, in the opinion of the Commission, by reason of the limited volume of transactions which are settled using the clearing agency, it is not practicable and not necessary or appropriate in the public interest or for the protection of investors to require such registration.

Section 42. Registration of Clearing Agencies. – 42.1. Any clearing agency may be registered as such with the Commission under the terms and conditions hereinafter provided in this Section, by filing an application for registration in such form and containing such information and supporting documents as the Commission by rule shall prescribe, including the following:

(a) An undertaking to comply and enforce compliance by its participants with the provisions of this Code, and any amendments thereto, and the implementing rules or regulations made or to be made thereunder, and the clearing agency’s rules;

(b) The organizational charts of the Exchange, its rules of procedure, and list of its officers and participants;

(c) Copies of the clearing agency’s rules.

42.2. No registration of a clearing agency shall be granted unless the rules of the clearing agency include provision for:

(a) The expulsions, suspension, or disciplining of a participant for violations of this Code, or any other Act administered by the Commission, the rules, regulations, and orders thereunder, or the clearing agency’s rules;

(b) A fair procedure for the disciplining of participants, the denial of participation rights to any person seeking to be a participant, and the prohibition or limitation of any person from access to services offered by the clearing agency;

(c) The equitable allocation of reasonable dues, fees, and other charges among participants;

(d) Prevention of fraudulent and manipulative acts and practices, promotion of just and equitable principles of trade, and, in general, protection of investors and the public interest;

(e) The transparent, prompt and accurate clearance and settlement of transactions in securities handled by the clearing agency; and

(f) The establishment and oversight of a fund to guarantee the prompt and accurate clearance and settlement of transaction executed on an exchange, including a requirement that members each contribute an amount based on their and a relevant percentage of the daily exposure of the (4) largest trading brokers which adequately reflects trading risks undertaken or pursuant to another formula set forth in Commission rules or regulations or order, upon application: Provided, however, That a clearing agency engaged in the business of securities depository shall be exempt from this requirement.

42.3. In the case of an application filed pursuant to this section, the Commission shall grant registration if it is finds That the requirements of this code and the rules and regulations thereunder with respect to the applicant have been satisfied, and shall deny registration if it does not make such finding.

42.4. Upon appropriate application in accordance with the rules and regulations of the Commission and upon such terms as the Commission may

deem necessary for the protection of investors, a clearing agency may withdraw its registration or suspend its operation or resume the same.

Section 43. Uncertificated Securities. – Notwithstanding Section 63 of the Corporation Code of the Philippines: 43.1. A corporation whose securities are registered pursuant to this Code or listed on securities exchange may:

(a) If so resolved by its Board of Directors and agreed by a shareholder, investor or securities intermediary, issue shares to, or record the transfer of some or all its shares into the name of said shareholders, investors or, securities intermediary in the form of uncertified securities. The use of uncertified securities in these circumstances shall be without prejudice to the rights of the securities intermediary subsequently to require the corporation to issue a certificate in respect of any shares recorded in its name; and

(b) If so provided in its articles of incorporation and by-laws, issue all of the shares of a particular class in the form of Uncertificated securities and subject to a condition that investors may not require the corporation to issue a certificate in respect of any shares recorded in their name.

43.2. The Commission by rule may allow other corporations to provide in their articles of incorporation and by-laws for the use of uncertificated securities.

43.3. Transfers of securities, including an uncertificated securities, may be validly made and consummated by appropriate book-entries in the securities intermediaries, or in the stock and transfer book held by the corporation or the stock transfer agent and such bookkeeping entries shall be binding on the parties to the transfer. A transfer under this subsection has the effect of the delivery of a security in bearer form or duly indorsed in blank representing the quantity or amount of security or right transferred, including the unrestricted negotiability of that security by reason of such delivery. However, transfer of uncertificated shares shall only be valid, so far as the corporation is concerned, when a transfer is recorded in the books of the corporation so as to show the names of the parties to the transfer and the number of shares transferred.

However, nothing in this Code shall compliance by banking and other institutions under the supervision of the Bangko Sentral ng Pilipinas and their stockholders with the applicable ceilings on shareholding prescribed under pertinent banking laws and regulations.

Section 44. Evidentiary Value of Clearing Agency Record. – The official records and book entries of a clearing agency shall constitute the best evidence of such transactions between clearing agency shall constitute the best between clearing agency and its participants’ or members’ clients to prove their rights, title and entitlement with respect to the book-entry security holdings of the participants or members held on behalf of the clients. However, the corporation shall not be bound by the foregoing transactions unless the corporate secretary is duly notified in such manner as the Commission may provide.

Section 45. Pledging a Security or Interest Therein. – In addition to other methods recognized by law, a pledge of, including an uncertificated security, is properly constituted and the instrument proving the right pledged shall be considered delivered to the creditor under Articles 2093 and 2095 of the Civil Code if a securities intermediary indicates by book entry that such security has been credited to a specially designated pledge account in favor of the pledgee. A pledge under this subsection has the effect of the delivery of a security in bearer form or duly indorsed in blank representing the quantity or amount of such security or right pledged. In the case of a registered clearing agency, the procedures by which, and the exact time at which, such book- entries are created shall be governed by the registered clearing agency’s rules. However, the corporation shall not be bound by the foregoing transactions unless the corporate secretary is duly notified in such manner as the Commission may provide.

Section 46. Issuer’s Responsibility for Wrongful Transfer to Registered Clearing Agency. – The registration of a transfer of a security into the name of and by a registered clearing agency or its name of or by a registered clearing agency or its nominee shall be final and conclusive unless the clearing agency had notice of an adverse claim before the registration was made. The above provisions which the claimant may have against the issuer for wrongful registration in such circumstances.

Section 47. Power of the Commission With Respect to Securities Ownership. – The Commission is authorize, having due regard to the public interest and the protection of investors, to promulgate rules and regulations which:

47.1. Validate the transfer of securities by book-entries rather than the delivery of physical certificates;

47.2. Establish when a person acquires a security or an interest therein and when delivery of a security to a purchaser occurs;

47.3. Establish which records constitute the best evidence of a person’s interests in a security and the effect of any errors in electronic records of ownership;

47.4. Codify the rights of investors who choose to hold their securities indirectly through a registered clearing agency and/ or other securities intermediaries;

47.5. Codify the duties of securities intermediaries (including clearing agencies) who hold securities on behalf of investors; and

47.6 Give first priority to any claims of a registered clearing agency against a participant arising from a failure by the participant to meet its obligations under the clearing agency’s rules in respect of the clearing and settlement of transactions in securities, in a dissolution of the participant, and any such rules and regulation shall bind the issuers of the securities, investors in the securities, any third parties with interests in the securities, and the creditors of a participant of a registered clearing agency.

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