APP. Q-18 96.12.31

indicated in the Articles of Incorporation as the incorporators and the incorporating directors.

k) Managerial staff are the officers of an Investment House. Where an Investment House is under a management contract the terms shall be understood to include the officers of the management firm.

1) Unimpaired capital and surplus means the total of the unimpaired paid-in capital, surplus, and undivided profits net of such valuation reserves as may be required by the Commission provided that the Commission may include such other items as it may deem appropriate.

m) Quasi-banking functions shall refer to the functions defined as such by law and appropriate implementing rules and regulations.

n) Commission shall mean the Securities and Exchange Commission.

Sec. 3. Organization and Registration A. Investment Houses shall be organized in the form of stock corporations in accordance with the provisions of the Corporation Law, subject to the following requirements:

1) At least a majority of the voting stock of the corporation shall be owned by citizens of the Philippines. In determining the percentage of foreign-owned voting stocks in an Investment House, the basis of the computation shall be the citizenship of each stockholder, and, with respect to corporate owners of voting stock, the citizenship of the individual owners of voting stock in the corporation holding shares in the Investment House;

2) The majority of the members of the Board shall be citizens of the Philippines;

3) Foreign equity participation shall be registered or reported with the Board of Investment in accordance with the rules and regulations of that Office, prior to or

simultaneous with the registration with the Commission;

4) The corporation shall have a minimum initial paid-in capital of P20,000,000 at the time of incorporation;

5) Resident foreign directors or technicians of an Investment House, if any, shall register with the Bureau of Immigration and Deportation;

6) In no event shall an officer of an Investment House be at the same time an officer of a bank, as defined in Section 2 of R.A. 337, as amended;

7) No director or officer of an Investment House shall at the same time be a director of a bank, and no director of an Investment House shall at the same time be an officer of a bank, except as may be authorized as an exception by the Monetary Board of the BSP.

B.

Procedure - The organizers shall file with the Commission, a sworn application for registration in accordance with the prescribed form, together with the following documents:

(1) All documents required for registration as a stock corporation;

(2) An information sheet of the registrant corporation; [SEC Form 129-2].

(3) A statement under oath by the organizers and the proposed managerial staff, of their educational background and work experience, as well as information on any position currently held by them in banking and other financial institutions, if any (SEC Form 129-3);

(4) A one-year projected statement of assets and liabilities of the proposed Investment House;

(5) A tentative program of operation for one year, including its investment direction and volume, its expected sources and intended uses of funds and its quasi-banking functions, if any.

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APP. Q-18 96.12.31

C. Hearing on Application The Securities and Exchange Commission shall conduct a hearing to determine whether the establishment of the proposed Investment House will promote public interest and economic growth. The BSP shall be officially notified. The SEC Commissioner shall not register any articles of incorporation unless his Office shall have consulted the BSP and is satisfied on the basis of the evidence submitted that:

(1) All the requirements of Presidential Decree No. 129 and of existing laws relative to the organization of an Investment House have been complied with;

(2) Public interest and economic growth are promoted;

(3) The amount of capital, the proposed organization, direction and administration, as well as the integrity, experience and expertise of the organizers and the proposed managerial staff, provide reasonable assurance that the enterprise will be conducted with financial prudence.

D. Issuance of Certificate of Incorporation - Upon compliance with all the requirements of law and implementing rules, and the Commission is satisfied that the formation of the Investment House will promote public interest and economic growth, a Certificate of Incorporation will be issued to it. A license to operate shall also be granted after it shall have adopted its bylaws, elected its directors and appointed its officers.

E. Annual Fees - On or before the fifteenth day of January of each year, and for as long as its license to operate remains in effect, each Investment House shall pay a fee of P200. At the time of payment, the Commission may require the icensee to appear and inform the Commission of the results of its operations.

the Commission a license to operate a branch in a particular locality. All applications for a license to operate a branch shall be acted upon by the Commission within ninety (90) days after submission of such documents as may be required by the Commission in support of such application.

G. Use of the Term "Investment House" - No person, association, partnership or corporation other than those duly licensed as an Investment House in accordance with these rules and regulations, shall advertise or hold itself out as being engaged in the business of an Investment House.

Sec. 4. Underwriting Requirements Underwriting agreements entered into by an Investment House, with respect to public distribution of securities, including the fees to be charged in connection therewith, shall be subject to the approval of the Commission, it being understood that no public distribution of securities shall be made without such approval. The Commission may impose such terms and conditions as may be necessary in the public interest and for the protection of investors; and it may require the submission of such documents as may be necessary to ascertain compliance with such standards of operation as it may establish. Transactions which constitute quasi-banking functions shall be subject to BSP regulation.

As a gesture of faith in the issue, an Investment House may take for its own account a portion of the securities it underwrites but shall sell such securities to the public.

Sec. 5. Management of Funds. The Commission, by circular, shall provide limitations on investments of discretionary accounts under the management of an Investment House.

Should the Investment House engage in the management of funds, it must at all times

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APP. Q-18 96.12.31

adhere to the prudent man's rule. The Investment House shall ensure that the interest of the funds managed is promoted and that the operation of the funds is undertaken on an arms' length basis.

The Commission may require such documents and reports as may be necessary, in order to determine if prudence and safety of the principal have been paramount in the decision of the Investment House.

Sec. 6. Underwriting Fees. Except in highly meritorious cases, as approved by the Commission, an Investment House shall not collect underwriting fees in excess of five percent (5%) of the amount generated by the underwriter for the issuer.

Sec. 7. Contingency Reserves. An Investment House shall provide annually a reserve for contingencies in such reasonable amount as may be required by the Commission.

Sec. 8. Prohibitions

(1) No Investment House shall undertake underwriting commitments for its own account in an aggregate outstanding amount exceeding twenty (20) times its unimpaired capital and surplus.

(2) An Investment House shall not at any time allow its unimpaired capital and surplus to fall below twenty million (P20,000,000) pesos; otherwise, it shall be prohibited from underwriting securities for so long as such deficiency remains.

(3) Whenever an Investment House is engaged in the management of funds, its officers and other personnel directly involved in the management of funds are prohibited from simultaneously concurrently buying or selling the shares of stock of the same firm that the funds are buying or selling.

or

(4) No advance to directors, officers and stockholders owning at least 10% of the

outstanding capital of an Investment House shall be allowed, unless sufficiently collateralized.

Sec. 9. Reporting Requirements. Every registered Investment House shall file with the Commission the following periodic reports in triplicate:

A. Progress Reports - a quarterly report of the results of its underwriting operations and activities of funds managed on all commitments entered into in such form as may be provided for the purpose, within fifteen (15) days from the end of each quarter.

B. Semi-Annual Financial Statement signed under oath by its chief accountant and verified by the president, within a period of sixty (60) days after the end of each semester containing such data, and in such form as the Commission shall require. A copy shall be filed with the BSP.

C. Annual Report concerning its operational activities for the year just ended, signed by its president (SEC Form 129-1) within the month of March of each year. A copy shall be filed with the BSP.

D. A Report on the composition of the board of directors or any resignation, dismissal, suspension, or filling of vacancies therein, or of any officers or managerial staff, signed under oath by the secretary, within fifteen days after occurrence of the event.

Every registered Investment House shall maintain and preserve such records and documents as the Commission may prescribe by way of circulars. Such circulars shall provide for a reasonable degree of uniformity in accounting policies and principles to be followed by Investment Houses in maintaining their accounting records and in preparing statements as required by these rules.

Sec. 10. Transitory Provisions

A. All existing enterprises which have

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been operating as Investment Houses, prior to February 15, 1973, shall:

(1) Within six (6) months from February 15, 1973 file an information sheet with the Commission in such form and containing such data as may be required, pay the required fee under Sec. 3-E of these rules, and the Commission in consultation with the Monetary Board, after determining compliance with the requirements of Presidential Decree No. 129 and of these Rules, shall issue a License to Operate an Investment House.

(2) Within one (1) Year from February 15, 1973 comply with the requirement of a minimum paid-in capital of Twenty Million Pesos (P20,000,000), citizenship requirements, and the prohibition on interlocking directorate or officership.

Sec. 11. Stockbrokerage or Dealership Functions - If an Investment House engages in the business of a stockbroker or dealer pursuant to Presidential Decree No. 129, it shall comply with the provisions of C.A. No. 83, otherwise known as the Securities Act, and the rules and regulations of the Commission promulgated pursuant thereto: Provided, however, that an Investment House need not obtain a separate license under Section 14 of the Securities Act.

Sec. 12. Bangko Sentral Rules - Investment Houses shall also be subject to the rules and regulations promulgated by the BSP for non-bank financial intermediaries as provided by law.

Sec. 13. Visitorial Power The Commission may, at its discretion, make such investigations as it deems necessary to determine whether or not an Investment House is complying with any of the

APP. Q-18 96.12.31

provisions of Presidential Decree No. 129 or of any applicable laws, rules and regulations. It shall determine all the facts and circumstances concerning the matter to be investigated for the imposition of sanctions/penalties or remedial or preventive measures.

Sec. 14. General Exemption Power The Commission may, upon proper petition and payment of a fee of P100, grant an exemption from compliance with any requirements of these rules as may be consistent with public interest and the protection of investors.

Sec. 15. Penalties Any violation of Presidential Decree No. 129 or of these rules and regulations, shall be penalized by suspension or revocation of the License to Operate, after proper notice and hearing. In appropriate cases, a fine not exceeding P200 per day for every day during which such violation continues, shall be imposed upon the Investment House and the officer or director who ordered or authorized the violation, without prejudice to the criminal liabilities provided in the second paragraph of Section 16 of Presidential Decree No. 129.

In the exercise of its regulatory powers under Section 12 of Presidential Decree No. 129, the Monetary Board may issue a ceaseand-desist order upon an Investment House which is not complying with BSP rules and regulations pertaining to non-bank financial intermediaries or, in appropriate cases, rules governing quasi-banking functions of Investment Houses. Failure to comply with the cease-and-desist order shall subject an Investment House to a fine to be imposed by the Monetary Board.

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