Believe it or not, the most number of securities now,

internationally, are derivatives. In fact, there is an

estimate as of 2 years ago, the most number of
securities is valued at 60 trillion US dollars. Only one
kind of derivative, the so-called credit default swap.

February 26, 2015

Have you gone through the definition of a security?

As I told you there is really no definition of a security.

What they have in the law is an enumeration of what is a
security is.

ARTICLES FROM FR. GUS

Credit Default Swaps For Dummies
September 20, 2008
PoliticsRoosh
If it doesnt pass, then heaven help us all.

Now, explicit in the interpretation of a security is the preneed plans are now included as part of securities, even
if part of its essential features is an insurance. So in a
sense, there is a divided jurisdiction over a pre-need
plans. Part of it is covered by the insurance
commissioner insofar as the insurance portion of it is
concerned. Another part of it is under the SEC because
it is classified as a security.

Allow me to teach you what a credit default

swap is and why its so important to what is
happening to the economy today.
Virgle Kent borrows $50 from me. I want to
get insurance on his debt in case he goes
broke. I go to Roissy and say, Hey, Virgle
Kent owes me $50. Can you insure that
debt?

The definition is in 3.9:

3.9. "Pre-need plans" are contracts which provide
for the performance of future services of or the
payment of future monetary considerations at the
time actual need, for which plan holders pay in cash
or installment at stated prices, with or without
interest or insurance coverage and includes life,
pension, education, interment, and other plans
which the Commission may from time to time
approve.

Ill insure it if you pay me $4 a year, Roissy

says.
Done!
Roissy is betting that VK will pay me back,
especially since he did his homework by
looking at VKs credit rating and saw it was
superb. Roissy wrote me a credit default
swap, an unregulated derivative invented in
1995 by JP Morgan.

So, the insurance part here must pass the insurance

commissioner but the final approval of its release to the
public is by the SEC because its classification is that it is
a security. There is this troublesome class of securities
which is called a derivative.

Unfortunately Roissy has some problems with

his business, and he no longer even has $50
to pay me in case VK goes broke. The
premiums I gave him are long gone. Credit
agencies notice this and tell Roissy to find
some cash or his credit rating goes down.
Roissy is fucked because if his credit rating
goes down then he wont be able to raise
cash at good rates to keep his business open
(todays large businesses need a constant
flow of credit to maintain operations). Sure
enough his rating gets killed and Roissy goes

It is in 3.1 (d)
(d) Derivatives like option and warrants;

bankrupt.

Actually that was the good news. Heres

the real bad news:

Now Im in trouble. The debt I had on my

books that was insured is now uninsured. The
agencies look at my books and see I have
this exposed debt and they downgrade my
ass. I have no choice but to enter bankruptcy
as well. But I happened to be knee deep in
the CDS game too. I wrote a ton of them
for Arjewtino, insuring the debt owed to him
by other parties. When I go down it puts
pressure on him. Like dominoes we fall.

The Bank for International Settlements

recently reported that total derivatives trades
exceeded one quadrillion dollars thats
1,000 trillion dollars. How is that figure even
possible? The gross domestic product of all
the countries in the world is only about 60
trillion dollars. The answer is that gamblers
can bet as much as they want.
The quote up top was said by Henry Paulson.

In the carnage it turned out that the ratings we

used to judge each others debt worthiness
was bogus from the start. Essentially we all
gambled like we would at a blackjack table,
but we did it while drunk. And blind.

JP Morgan loss: what is a credit default

swap?
CDSs may have caused the $2bn loss at JP
Morgan no wonder Warren Buffet called
them a 'weapon of mass destruction'

The insurance company AIG wrote $78 billion

worth of swaps.
Ivy League MBAs turned the CDS into an
even more insidious device. In ways that I will
not begin to understand, swaps were used not
just to insure against debt but to speculate if
companies would fail or not. It turned out that
while VK only owed me $50, there were
swaps written worth $500 between parties
that VK didnt even know about! The swaps
became a means to make money instead of a
simple insurance policy. This was enabled by
a government run by politicians whose
treasure chests were stocked full of
kind donations from the big bankers. They did
not hesitate to look the other way.

In 2003 Warren Buffet called credit defaults

swaps a 'weapon of mass destruction'
Photograph:
Thomas
Lohnes/AFP/Getty
Images
Rupert Neate
@RupertNeate
Monday
14
May
2012 12.27 BSTLast
modified
on
Wednesday
21
May
201402.31 BST

A lot of swaps were written by banks and

businesses that are now very sick from
making bad bets and possibly outright fraud in
the housing boom. (Who would have thought
that giving no money down / no-doc loans
was a bad idea?)

Credit default swaps (CDSs) are a form of

insurance on bonds issued by companies and
countries that investors can buy and sell. If it
looks like an issuer may have trouble paying
such as Greece, for example the CDS
price rises because the bond is more risky
and it will cost more to insure.

Heres the bad news:

there are $45 trillion of credit default swaps
out there. A default on a mere 10% would
cause an economic disaster. Unfortunately,
its guaranteed to happen.

CDSs were dreamed up in the late 1990s and

became very popular, very quickly. In 2000,

What is an example?
the market was worth $900bn (560bn). By
2008, it was more than $30 trillion.

This is an example which gave way to the financial crisis

of the year 2000. They are almost 5 years (basig 2010
ang ginamean ni father) to that crisis which shook the
world. And the financial crisis was signaled by the failure
of the credit default swaps. The financial crisis was
triggered by a very common kind of security, what is
that? An aggregated mortgage. What is that? If you are
a bank, specially if you are a loan or savings association,
your purpose is to lend to your members-depositors
money so that they can build their own home. Part of
that money is subsidized by the government, directly or
indirectly. Indirectly in that you can deduct from your
gross income, whether be a paycheck or profits from
business, the interest with which you pay your mortgage
because the state supports the universality of the dream
that one owns his own home. You have these kind of
mortgages. You applied for a mortgage, you are
basically judged as to your income stream. Do you have
a stream of income coming to you that can support the
payment of your mortgage? Naa kay sweldo. Maka
utang ka para makatukod ug balay. In the US, the lowest
kind of interest is from a mortgage, 2% or 2.5%.
Mangutang ka aron maka build ka sa imung balay and
then bayran nimo ug binulan.

They can be used by bond investors as a

hedge against potential defaults or traded
separately when they are called naked CDSs.
The case against CDS contracts is usually
explained using house insurance as an
example: it is not possible to take out an
insurance policy on someone else's house
because you would then have a financial
interest in burning it down. Investors with no
interest in the underlying bond can buy and
sell CDSs and profit from its demise.
Greece has blamed speculators trading in
CDS contracts on Greek bonds for pushing
up government fundraising costs.
Regulators have blamed speculators and their
trades in naked CDSs for exacerbating the
problems faced by Greece and increasing its
borrowing costs. The European commission
president, Jos Manuel Barroso, believes
speculative CDS trading has been an
"aggravating factor" in the Greek debt crisis.

Here, you are a bank. You are a sworn savings bank.

You are serving a suburban community, all of them are
your members. Naka loan na silang tanan nimo. Naa na
kay mortgage nimo tanang balay diha. Hurot na ang
capital nimo. So sa ato pa, manira nalang ka, maghulat
nalang ka na bayran naka. Dili naka kapautang.

They also have been blamed for triggering the

2008 financial crisis. In 2003Warren Buffett
called them "weapons of mass destruction".
CDS trades also reportedly led to the $2bn
loss at JP Morgan.

Now, here comes the financial crisis. You aggregate your

mortgage, ipunon nimo tanan imung mortgage out of
that mortgage, we will sell a security: aggregated
mortgage security. Ibaligya na nato. Kinsa may mupalit
ana? kadtong mga dagkong bangko, Citibank. Daghan
mana sila ug kwarta. Diin mana gikan ilang kwarta? It
could come from Saudi Arabia because they have
excess money from oil. You discount the mortgage,
payable in 25 years. I-discount na nimo, kuhaon nimo
ang cash.

Source:
http://www.theguardian.com/business/2012/m
ay/14/jp-morgan-loss-credit-default-swap

If you have time, look it up and read about it. It is not

transacted in the stock market. It is transacted in
the over the counter market. It is unregulated. It is
considered a security because the underlying value of
which is also another security. Credit default swap.

Let's say the whole aggregated mortgage is worth one

billion dollars. It is payable in 25 years but you will get
the money now. Let us say, moingon ka na "sige sugot
nalang ko". Kuhaon na nimo ang kwarta at 200 million
instead of 1 billion. Saloon na nila ang entire aggregated
mortgage. What will make them accept the whole

aggregated mortgage? CDS credit default swap. There

will be an insurance company who will undertake to buy
the risk that this mortgage may collapse. Why will they
do that? They will receive a premium. CDS is a form of
insurance. Mo-default gani ning credit, kami ang mupuli.
Bayran ka namo. Ikaw man nag pahuwam ani sa bangko
na nag-aggregate ana, bayran ka namo. Di naka
kailangan mo foreclose aning mortgage. Kami ang
musalo ana. Diin mana sila gikan sa ilang kwarta? Gikan
sad na sa mga dagkong pools of money like hedge
funds or mutual funds or retirement funds nga nangita ug
earnings more than interest in the bank. 100% of the
premiums paid goes to the CDS. Sige kag dawat pero
kung mahagbong na gani ning mortgages, diha na ang
problema nimo. Pero daghan man kag CDS sa uban, dili
mana mahagbong mana dayon. What are tha chances
that all these aggregated mortgages will fail? That is in
fact actuarially proven. Actuarial datum: gicompute na na
sa mga mathematician and they base their premiums on
the likelihood that the mortgage aggregate will fail.
Kana!

2000 up to 2014. Kani si Yelen, first female federal

reserve chairman in US history (reprezzzeeent!)

Janet Yellen
Chair, Federal Reserve, Washington,
United States
on Forbes Lists
#6 Powerful People
#72 in 2013
#2 Power Women
(just thought we should know this. Haha)
Why is it so important? Kaning federal reserve?
Because internationally, most debts in the world is
denominated in US dollars. Musugot kag dili, its
denominated in US dollars, the most acceptable
currency in the world. Sa pagka karon wa pay makapuli
ni-ana. Kanang singgit sa Insik na ilang currency ang
pinaka acceptable, diha pa ko mutuo ana kung naa nay
mudawat ug yuan sa claro m. recto. Kana! Wa pa gani
mudawat ana. "Mudawat ba ka ug Yuan? Unsay Yuan?
Yuan it, I don't" (haha waley.)

Possible ba na mahagbong na 100%? Ahhh dili jud na

mahitabo. Unya kay nahagbong man jud tanan. Mao nay
dakong dimalas! Because the improbable actually
happened. That's why huge banks, American Insurance
Group (AIG), pagkadako ana, that is the biggest
insurance company in the world--hagbong. Leeman
brothers. Hagbong. Unsa pa man? Wa tabanga.
Hagbong sa. Why? because all of this went down
together. (with feelings kaayo si father. super affected)
Kinsa may insurer aning tanan? The entire central bank
system of the world. Each country has its own central
bank. They acted together to save the world. (wow.
super hero) That is another story how they acted
together. After 5 years, they were going to start easing
money supply. Ang gibuhat sa mga central banks, they
just intervene into the financial markets of the world and
started inducing cash. Unsaon mana nila? Naay CDS
nga nag fail? Paliton nako tanan. (again, with
feelings) Nganong makabuhat man sila ana? Kay sila
may naga printa sa kwarta. So intervene. Karon, niingon sila na 5 years naman. Ni-improve naman ang
some of the economies that were affected. So they will
ease in putting their money. Pagsugod sa easing kay
kagidlay naman sad. Greece, Spain, sugod naman sad
ug kadiglay. So sugod na sad sila. O, gahapon sa
testimony ni "Yellen". Ms. Yellen is the federal reserve
chairperson who took over from Ben Bernanke, the one
who wrestled with the financial meltdown of the world in

So, this CDS is not traded in the stock market. It is

traded in the over the counter market. Mu-ingon ang
AIG, are you amenable to aggregated mortgages of
wells fargo going at 2 tenths of 1%, annually?

Mo ingon dayon ang CalPers California Public

Employees' Retirement System): O! Paliton na namo!
Butang sila ug kwarta! Pirma sila ug kontrata. Dawat
dayon ang insurance. Pista dayon ang bahin sa
CalPERs, lipay sila. Pagkabagsak ato. Anha na sad sila
mubayad. Anha na sad sila mo-declare og bankruptcy.

Most of those who took CDS did not reinsure. Kuha ka

ug insurance unya sa actual computations nimo dili ka

kabayad ana kung mahitabo kanang contingency

insured against, unsa man imung buhaton? Reinsure ka!
Mangita kag reinsurer. Kung ikaw na ang kina-dak-an,
unsaon man nimo? The ultimate insurer is federal
reserve. That is the problem when it is not just the failure
of just one security but it becomes a systemic failure.
When it is a failure itself of a notion or idea of securities.
That in concept is what happened in 2000. Because
everyone from the bottom to the highest cooperated in
bringing about the system because of excesses. Number
1, bisag dili ka afford nangutang. Nag mortgage aron
makabalay sila.

Education is so important that even if you do it poorly,

you have to do it because the price of ignorance is so
much higher than faulty education.

This is it. Securities regulation is like that. It cannot be

perfect. It will always be catching up with the ingenuity of
the G drive. And the G drive is very creative.

Now, one of the most prolific securities are investment

contracts. 65 years ago, the SC of US came up with a
decided case of what are the elements that make an
investment contract a security and not an ordinary
contract. That declaration was placed in the
decision SEC v. Huawei Company. I am giving you a
copy of that decision.

Diba mao man pud nay idea sa low cost housing? bisag
kinsa maka afford. Bisag way bayad bayad sa
amortization pero nag padugang ug kwarto ug
kasilyas. (yawyaw sa low cost housing)

In each level it is the letter G. And that does not mean

"Jigo Silang". (hahaha) G stands for greed which is as
universal as gravity.

U.S. Supreme Court

SEC v. Howey Co., 328 U.S. 293 (1946)
Securities and Exchange Commission v.
Howey Co.

In hindsight, it is not really a financial problem. It is a

moral problem. Kasing kasing na sa tawo. (in a low and
fading voice...para dramatic)

No. 843
Argued May 2, 1946
Decided May 27, 1946

The idea also of "too big to fail". So di jud ta matumba

kay pirti mang dauka nato.

328 U.S. 293

This is called the Howey Test. When is an investment

contract a security?

Securities. Even with regulated, the world failed, you do

not by that token conclude the risk the ___. It is not ___.
To have no regulation, comparatively relatively will be
worse of than we had faulty regulation. Sometimes you
have to arrive at a conclusion that a particular task is so
important that even if you do not do it well or you mess it
up, you still have do it. A task that is so important, even if
you do it badly, there is need for doing it.

Howey and company used to own an orchard of

oranges. It's around a hundred acres in Florida and then
it decided to subdivide the orchard. Certain number of
acres. 3 or 4 man ata. Then it said, we are offering this
for sale. If you buy it, there are markers there. You
fertilize your own orange shrubs. You can do it. Or you
can lease it back to us and we will pay you in produce.
Kami bahala sa tanan. Paliton ra nimo. Sa ubos sa deed
of sale, naa nasad contract nga abangan namo unya
bayran ka namo kada tuig a fraction of the profits. Kung

di ka gusto ana, ikaw na ang mutrabaho. Katunga ra sa

papeles imung pirmahan, papeles ra!

The transactions in this case clearly involve

investment contracts, as so defined. The
respondent companies are offering something
more than fee simple interests in land,
something different from a farm or orchard
coupled with management services. They are
offering an opportunity to contribute money
and to share in the profits of a large citrus fruit
enterprise managed and partly owned by
respondents.
They
are
offering
this
opportunity to persons who reside in distant
localities and who lack the equipment and
experience requisite to the cultivation,
harvesting, and marketing of the citrus
products. Such persons have no desire to
occupy the land, or to develop it themselves;
they are attracted solely by the prospects of a
return on their investment. Indeed, individual
development of the plots of land that are
offered and sold would seldom be
economically feasible, due to their small size.
Such tracts gain utility as citrus groves only
when cultivated and developed as component
parts of a larger area. A common enterprise
managed by respondents or third parties with
adequate personnel and equipment is
therefore essential if the investors are to
achieve their paramount aim of a return on
their investments. Their respective shares in
this enterprise are evidenced by land sales
contracts and warranty deeds, which serve as
a convenient method of determining the
investors' allocable shares of the profits. The
resulting transfer of rights in land is purely
incidental.

The next thing happened was that Howey was sued.

Why are you selling securities without registering it with
the SEC? Is this a security? This is not a security, they
have a choice. They can work it themselves or leave it to
us. So they contested it. It went to the SC.

The SC said, that is a security. There are 4 elements.

Unsa mana? Basaha ninyo.

By including an investment contract within the

scope of 2(1) of the Securities Act,
Congress was using a term the meaning of
which had been crystalized by this prior
judicial interpretation.
It
is therefore
reasonable to attach that meaning to the term
as used by Congress, especially since such a
definition is consistent with the statutory aims.
In other words, an investment contract, for
purposes of the Securities Act, means a
contract, transaction or scheme whereby a
person invests his money in a common
enterprise and is led to expect profits
solely from the efforts of the promoter or a
third party, it being immaterial whether the
shares in the enterprise are evidenced by
formal certificates or by nominal interests
in the physical assets employed in the
enterprise. Such a definition necessarily
underlies this Court's decision in SEC v.
Joiner Corp., and has been enunciated and
applied many times by lower federal courts.
[Footnote 5] It permits the fulfillment of the
statutory purpose of compelling full and fair
disclosure relative to the issuance of "the
many types of instruments that, in our
commercial world, fall within the ordinary
concept of a security." H.Rep. No.85, 73rd
Cong., 1st Sess., p. 11. It embodies a flexible,
rather than a static, principle, one that is
capable of adaptation to meet the countless
and variable schemes devised by those who
seek the use of the money of others on the
promise of profits.

Thus, all the elements of a profit-seeking

business venture are present here. The
investors provide the capital and share in the
earnings and profits; the promoters manage,
control, and operate the enterprise. It follows
that the arrangements whereby the investors'
interests are made manifest involve
investment contracts, regardless of the legal
terminology in which such contracts are
clothed. The investment contracts in this
instance take the form of land sales contracts,
warranty deeds, and service contracts which
respondents offer to prospective investors.
And respondents' failure to abide by the
statutory and administrative rules in making

What is a treasury bill? It is basically an IOU, a

promissory note that matures within one year.

such offerings, even though the failure result

from a bona fide mistake as to the law, cannot
be sanctioned under the Act.

Does it have to be registered? NO. It's the government

itself that issues it.

This conclusion is unaffected by the fact that

some purchasers choose not to accept the full
offer of an investment contract by declining to
enter into a service contract with

Ikaw tag iya ka sa sinehan unya mutan-aw kag sine,

mubayad pa ba diay ka ug ticket aron makasulod ka sa
imung kaugalingon nga sinehan? Dili!

So, every time you issue a security, you have to register.

Now if you don't want to register, you apply for an
exemption. There are 2 kinds of securities that need not
be
registered: exempt
securities and securities
belonging to an exempt transaction.

That goes to the old principle in taxation that "the crown

does not tax itself". You erase crown and you put,
sovereign. The sovereign does not tax itself. It is not only
impractical, it is also illogical. Likewise, government does
not need to register its own security because the security
itself is exempt.

Section 9. Exempt Securities. 9.1. The

requirement
of
registration
under
Subsection 8.1 shall not as a general rule
apply to any of the following classes of
securities:

(b) Any security issued or guaranteed by the

government of any country with which the
Philippines maintains diplomatic relations, or
by any state, province or political subdivision
thereof on the basis of reciprocity: Provided,
That the Commission may require compliance
with the form and content for disclosures the
Commission may prescribe.

(a) Any security issued or

guaranteed by the Government of
the Philippines, or by any political
subdivision or agency thereof, or
by any person controlled or
supervised by, and acting as an
instrumentality
of
said
Government.

Reciprocity. The basis here is international law.

Example: treasury shares issued by the government of

the Philippines.

And so on... Read up on the other enumerated

securities.

Every Monday, the BSP as an instrumentality or agent of

the RP, most specifically the treasury of the RP, they
auction treasury bills. If you must bid for it, you must be
a licensed dealer or broker.

(c) Certificates issued by a receiver or by a

trustee in bankruptcy duly approved by the
proper adjudicatory body.
(d) Any security or its derivatives the sale or
transfer of which, by law, is under the
supervision and regulation of the Office of the
Insurance Commission, Housing and Land
Use Rule Regulatory Board, or the Bureau of
Internal Revenue.
(e) Any security issued by a bank except its
own shares of stock.

Who is issuing this treasury bills? The republic itself.

Who is its agent? BSP

exclusively, where no commission or

other remuneration is paid or given
directly or indirectly in connection with
the sale of such capital stock.

Then you have exempt transactions. It is the transaction

itself which is exempt.

(e) Most common exempt transaction.

Section 10. Exempt Transactions. 10.1.

The requirement of registration under
Subsection 8.1 shall not apply to the sale
of any security in any of the following
transactions:

What is an example of this? Have you heard of the

term rights offering?

(a) At any judicial sale, or sale by an

executor, administrator, guardian or
receiver or trustee in insolvency or
bankruptcy.

Andrew Tan. Have you heard of Andrew Tan? Nobody

has heard of Andrew Tan but everybody has heard of
megaworld. (YES) He is the man behind megaworld and
the man behind emperor brandy. That's where he began.
Selling this spirits the content of which nobody knows.
Wa kahibawo unsay giinom nimo diha. Hilo? Prutas?
Unsa mana? It's called brandy but compared to a
branded brandy, it tastes like a laxative. He is now
asking for additional capital. He is declaring rights
issued. Each stock holder is entitled to buy as much
shares of his newly issued shares to maintain his
proportionate shares of outstanding capital stock. That is
pre-emptive right. He is selling that. Why? He's going to
buy a vineyard of that famous James Bond guy. A very
famous whiskey that is featured in a James Bond movie.
Not a drop should fall into the ground because it is
soooo good. Filipino pa gani na kay isagol na ug coke.
But its supposed to be the smoothest kind of whiskey.
That men are willing to die for.

(b) By or for the account of a pledge

holder, or mortgagee or any of a pledge
lien holder selling of offering for sale or
delivery in the ordinary course of
business and not for the purpose of
avoiding the provision of this Code, to
liquidate a bonafide debt, a security
pledged in good faith as security for
such debt.
(c) An isolated transaction in which any
security is sold, offered for sale,
subscription or delivery by the owner
therefore, or by his representative for
the owners account, such sale or offer
for sale or offer for sale, subscription or
delivery not being made in the course of
repeated and successive transaction of
a like character by such owner, or on his
account by such representative and
such owner or representative not being
the underwriter of such security.

Gipalit ni Andrew Tan for half a billion dollars. He is

asking for rights offering.

(d) The distribution by a corporation

actively engaged in the business
authorized
by
its
articles
of
incorporation, of securities to its
stockholders or other security holders
as a stock dividend or other distribution
out of surplus.

Kinsa ba iyang baligyaan? Ang public ba? Dili. Ang mga

stock holders ra sa company. His issuing a security but
since the public is not involved, it falls under Sec. 10 (e)
of the SEC code.

(e) The sale of capital stock of a

corporation to its own stockholders

(f) The issuance of bonds or notes secured

by mortgage upon real estate or tangible

personal property, when the entire
mortgage together with all the bonds or
notes secured thereby are sold to a single
purchaser at a single sale.

remuneration is paid or given directly or

indirectly for soliciting such exchange.
(k) The sale of securities by an issuer to
fewer than twenty (20) persons in the
Philippines during any twelve-month
period.

(g) The issue and delivery of any security

in exchange for any other security of the
same issuer pursuant to a right of
conversion entitling the holder of the
security surrendered in exchange to make
such conversion:Provided,
That the
security so surrendered has been
registered under this Code or was, when
sold, exempt from the provision of this
Code, and that the security issued and
delivered in exchange, if sold at the
conversion price, would at the time of such
conversion fall within the class of
securities entitled to registration under this
Code. Upon such conversion the par value
of the security surrendered in such
exchange shall be deemed the price at
which the securities issued and delivered
in such exchange are sold.

(l) The sale of securities to any number of

the following qualified buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement plan
maintained by the Government of the
Philippines or any political subdivision
thereof or manage by a bank or other
persons authorized by the Bangko Sentral
to engage in trust functions;
(v) Investment company or;

(h) Brokers transaction, executed upon

customers orders, on any registered
Exchange or other trading market.

(vi) Such other person as the Commission

may rule by determine as qualified buyers,
on the basis of such factors as financial
sophistication, net worth, knowledge, and
experience in financial and business
matters, or amount of assets under
management.

(i) Subscriptions for shares of the capitals

stocks of a corporation prior to the
incorporation thereof or in pursuance of an
increase in its authorized capital stocks
under the Corporation Code, when no
expense is incurred, or no commission,
compensation or remuneration is paid or
given in connection with the sale or
disposition of such securities, and only
when the purpose for soliciting, giving or
taking of such subscription is to comply
with the requirements of such law as to the
percentage of the capital stock of a
corporation which should be subscribed
before it can be registered and duly
incorporated, or its authorized, capital
increase.

So when you declare stock dividend that is exempt from

sec. 10. It does not include the public. When you
declare. When you sell bonds and you sell it only to one
buyer. One retirement fund and the public is not involved
and that retirement fund is government financial
corporation, that is also exempt (f).

Basaha na ang mga examples diha. Pagpili mo ug upat

kabuok ibalon ninyo sa bar exams. Mangutana ug give
an example of an exempt transaction.

(j) The exchange of securities by the issuer

with the existing security holders
exclusively, where no commission or other

Now, very important! A bank when it issues securities,

they are exempt transactions. Why? Because all the
securities issued by a bank is pre-examined by the BSP.
The only exception to that exception is banks own share
of stock. That is not an exempt transaction, because a
bank shares of stock, according to our rules now, part of
it must be sold to the public. So therefore, the sale of
securities of a bank is considered an exempt
transaction except the banks own shares.

contain such information or documents as it

may, by rule, prescribe. It may dispense with
any such requirements, or may require
additional
information
or
documents,
including written information from an expert,
depending on the necessity thereof or their
applicability to the class of securities sought
to be registered.
12.3. The information required for the
registration of any kind, and all securities,
shall include, among others, the effect of the
securities issue on ownership, on the mix of
ownership, especially foreign and local
ownership.
12.4. The registration statement shall be
signed by the issuers executive officer, its
principal operating officer, its principal
financial officer, its comptroller, its principal
accounting officer, its corporate secretary, or
persons
performing
similar
functions
accompanied by a duly verified resolution of
the board of directors of the issuer
corporation. The written consent of the
expert named as having certified any part of
the registration statement or any document
used in connection therewith shall also be
filed. Where the registration statement
shares to be sold by selling shareholders, a
written certification by such selling
shareholders as to the accuracy of any part
of the registration statement contributed to
by such selling shareholders shall be filed.
12.5. (a) Upon filing of the registration
statement, the issuer shall pay to the
Commission a fee of not more than one-tenth
(1/10) of one per centum (1%) of the
maximum aggregate price at which such
securities are proposed to be offered. The
Commission shall prescribe by the rule
diminishing fees in inverse proportion the
value of the aggregate price of the offering.
(b) Notice of the filing of the
registration statement shall be
immediately published by the issuer,
at its own expense, in two (2)
newspapers of general circulation in
the Philippines, once a week for two
(2) consecutive weeks, or in such
other manner as the Commission by
the rule shall prescribe, reciting that
a registration statement for the sale
of such securities has been filed, and

Sec. 11. Commodity Future contracts.

This is a type of security to prevent or minimize risk. It's

described in sec. 11

Section 11. Commodity Futures Contracts. No person shall offer, sell or enter into
commodity futures contracts except in
accordance with the rules, regulations and
orders the Commission may prescribe in the
public interest. The Commission shall
promulgate rules and regulations involving
commodity futures contracts to protect
investors to ensure the development of a fair
and transparent commodities market.

Sec. 12 procedure for registration

Section 12. Procedure
of Registration
Securities. - 12.1. All securities required to be
registered under Subsection 8. I shall be
registered through the filing by the issuer in
the main office of the Commission, of a
sworn registration statement with the
respect to such securities, in such form and
containing such information and document
as
the
Commission
prescribe.
The
registration statement shall include any
prospectus required or permitted to be
delivered under Subsections 8.2, 8.3, and 8.4.
12.2. In promulgating rules governing the
content of any registration statement
(including any prospectus made a part
thereof or annex thereto), the Commission
may require the registration statement to

10

that aforesaid registration statement,

as well as the papers attached
thereto are open to inspection at the
Commission during business hours,
and copies thereof, photostatic or
otherwise, shall be furnished to
interested parties at such reasonable
charge as the Commission may
prescribe.
12.6. Within forty-five (45) days after the date
of filing of the registration statement, or by
such later date to which the issuer has
consented, the Commission shall declare the
registration statement effective or rejected,
unless the applicant is allowed to amend the
registration statement as provided in Section
14 hereof. The Commission shall enter an
order declaring the registration statement to
be effective if it finds that the registration
statement together with all the other papers
and documents attached thereto, is on its
face complete and that the requirements
have been complied with. The Commission
may impose such terms and conditions as
may be necessary or appropriate for the
protection of the investors.
12.7. Upon affectivity of the registration
statement, the issuer shall state under oath
in every prospectus that all registration
requirements have been met and that all
information are true and correct as
represented by the issuer or the one making
the statement. Any untrue statement of fact
or omission to state a material fact required
to be stated herein or necessary to make the
statement therein not misleading shall
constitute fraud.

If you go through the SEC code for the registration of

securities, it is more complicated than incorporating a
corporation. (Huhuhu) Asta ang biography sa tanan
board of directors of all the corporations involved in the
issuance must be documented and described. If you fail
to accurately disclose or you withhold any material
information about a particular board of director, that is
considered as culpable non disclosure. That will be
considered as culpable non disclosure.

So for popular consumption, you need a brochure.

Because the registration statement might be so thick that
not even the SEC will read it properly. Only one guy will
read it. So you translate it to popular literature. That is a
brochure. It must be included in the registration
statement. The brochure must not contain any material
fact that is not reflected in the registration statement. It
must be faithful to the registration statement. If it is not,
then that is another violation that may be a ground for
nullifying the registration statement.

The registration statement is NOT approved by the SEC,

because if the SEC approves it, it might be considered
as an endorsement but the SEC is not a salesman. It is
a regulator. What the SEC does is it issues a notice of
effectivity. It is now effective, you can now sell it.

But, at any time, it is appraise and it verifies that there is

a material non disclosure then it can recall the sale. It
can issue a restraining order and then it will conduct its
investigation. The investigation that it will conduct is
confidential in nature. Only the final results will be open
to the public. So please remember that.

The procedure, you must understand, what do you file?

You file a registration statement.
xxx

Once a particular security is put under a cloud of doubt,

it can be very difficult for that security to recover and
there are so many livelihood involved there: investor,
issuer, employees. So the SEC is advised to be very
careful in investigating a registration statement.

The registration statement shall include any

prospectus required or permitted to be delivered
under Subsections 8.2, 8.3, and 8.4.
xxx

11

When should the RS

says within 45 days...

be

approved?

Sec.

12.6
have been complied with. The Commission
may impose such terms and conditions as
may be necessary or appropriate for the
protection of the investors.

12.6. Within forty-five (45) days after the date

of filing of the registration statement, or by
such later date to which the issuer has
consented, the Commission shall declare the
registration statement effective or rejected,
unless the applicant is allowed to amend the
registration statement as provided in Section
14 hereof. The Commission shall enter an
order declaring the registration statement to
be effective if it finds that the registration
statement together with all the other papers
and documents attached thereto, is on its
face complete and that the requirements

45 days as long as the requirements have been

complied with.

We will continue...

12