Margin and Credit (Chapter XII): 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 48. Margin Requirements. – 48.1. For the purpose of preventing the excessive use of credit for the purchase or carrying of securities, the Commission, in accordance with the credit and monetary policies that may be promulgated from time to time by the Monetary Board of the Bangko Sentral ng Pilipinas, shall prescribed rules and regulations with respect to the amount of credit that may be extended on any security. For the extension of credit, such rules and regulations shall be based upon the following standard:

An amount not greater than the whichever is the higher of –

(a) Sixty-five per centum (65%) of the current market price of the security, or

(b) One hundred per centum (100%) of the lowest market price of the security during the preceding thirty-six (36) calendar months, but not more than seventy-five per centum (75%) of the current market price.

However, the Monetary Board may increase or decrease the above percentages, in order to achieve the objectives of the Government with due

regard for promotion of the economy and prevention of the use of excessive credit.

Such rules and regulations may make appropriate provision with respect to the carrying of undermargined accounts for limited periods and under specified conditions; the withdrawal of funds or securities; the transfer of accounts from one lender to another; special or different margin requirements for delayed deliveries, short sales, arbitrage transactions, and securities to which letter (b) of the second paragraph of this subsection does not apply; the methods to be used in calculating loans, and margins and market prices; and similar administrative adjustments and details.

48.2. No member of an Exchange or broker or dealer shall, directly or indirectly, extend or maintain credit is extended and maintain credit or arrange for the extension or maintenance of credit to or for any customer:

(a) On any security unless such credit is extended and maintained in accordance with the rules and regulations which the Commission shall prescribe under this Section including rules setting credit in relation to net capital of such member, broker or dealer; and

(b) Without collateral or any collateral other than securities, except (I) to maintain a credit initially extended in conformity with rules and regulations of the Commission and (ii) in cases where the extension or maintenance of credit is not for the purpose of purchasing or carrying securities or of evading or circumventing the provisions of paragraph (a) of this subsection.

48.3 Any person not subject to Subsection 48.2 hereof shall extend or maintain credit or arrange for the extension or maintenance of credit for the purpose of purchasing or carrying any security, only in accordance with such rules and regulations as the Commission shall prescribe to prevent the excessive use of credit for the purchasing or carrying of or trading in securities in circumvention of the other provisions of this Section.. Such rules and regulations may impose upon all loans made for the purpose of purchasing or carrying securities limitations similar to those imposed upon members, brokers, or dealers by Subsection 48.2 and the rules and regulations thereunder. This subsection and the rules and regulations thereunder shall not apply:

(a) To a credit extension made by a person not in the ordinary course of business; (b) to a loan to a dealer to aid in the financing of the

distribution of securities to customers not through the medium of an Exchange; or (c) To such other credit extension as the Commission shall exempt from the operation of this subsection and the rules and regulations thereunder upon specified terms and conditions for stated period.

Section 49. Restrictions on Borrowings by Members, Brokers, and Dealers. – It shall be unlawful for any registered broker or dealer, or member of an Exchange, directly or indirectly;

49.1. To permit in the ordinary course of business as a broker or dealer his aggregate indebtedness including customers’ credit balances, to exceed such percentage of the net capital (exclusive of fixed assets and value of Exchange membership) employed in the business, but not exceeding in any case to thousand percentum (2,000%), as the Commission may be rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors.

49.2. To pledge, mortgage, or otherwise encumber or arrange for the pledge, mortgage, or encumbrance of any security carried for the account of any customer under circumstances: (a) That will permit the commingling of his securities, without his written consent, with the securities of any customer; (b) That will permit such securities to be commingled with the securities of any person other than a bona fide customer; or (c) that will permit such securities to be pledged, mortgaged or encumbered, or subjected to any lien or claim of the pledgee, for a sum in excess of the aggregate indebtedness of such customers in respect of such securities. However, the Commission, having due regard to the protection of investors, may, by rules and regulations, allow certain transactions that may otherwise be prohibited under this subsection.

49.3. To lend or arrange for the lending of any security carried for the account of any customer without the written consent of such customer or in contravention of such rules and regulations as the Commission shall prescribe.

Section 50. Enforcement of Margin Requirement and Restrictions on Borrowing. – To prevent indirect violations of the margin requirements under Section 48, the broker or dealer shall require the customer in non-margin transactions to pay the price of the security purchased for his account within such period as the Commission may prescribe, which shall in no case exceed the prescribed settlement date. Otherwise, the broker shall sell the security purchased starting on the next trading day but not beyond ten (10) trading

days following the last day for the customer to pay such purchase price, unless such sale cannot be effected within said period for justifiable reasons. The sale shall be without prejudice to the right of the broker or dealer to recover any deficiency from the customer. To prevent indirect violation of the restrictions on borrowing under Section 49, the broker shall, unless otherwise directed by the customer, pay the net sales price of the securities sold for a customer within the same period as above prescribed by the Commission: Provided, That the customer shall be required to deliver the instruments evidencing the securities as a condition for such payment upon demand by the broker.

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