1. INVESTMENT HOUSES
AND SECURITIES
BROKERS/DEALERS
Celica May Alvarez
Maureen Hermogeno
Marvin Santos

2. • In whole development scheme, investment in man is the most
important of all forms of investments. This refers:
– To his education and training – improving his values and skills.
– Another form of investment is also very important which refers
to financial investment which infuses the lifeblood into the
economy.
Investment House Law (Section 13 of Presidential Decree No. 129)
“An Investment House may engage in the business of a dealer or
a broker under the Securities Act without obtaining a separate
license for the purpose as required in Section 14 of the Securities
Act. (C.A. No. 83, as amended)

3. Investment Houses
• “Any enterprise which engages in the underwriting of
securities of other corporations” (Section 2, P.D. No.
129).
• Underwriting- is the act or process of guaranteeing the
distribution and sale of securities of any kind issued by
corporation.
• Securities- are written evidences of ownership, interest,
or participation, in an enterprise, or written evidences
indebtedness of a person or enterprise.
Form of business organization.
• Investment houses are to be organized in the form of
stock corporations.
• Before the S.E.C. acts favourably to register the articles
of incorporation of an investment house, or any
amendment thereto, the Commission must be satisfied
from the evidence submitted to it:
1. That all requirements of Presidential Degree No. 129,
as amended, and of existing laws or regulations to

4. engage in the business have been complied with.
2. That the proposed enterprise will not be in conflict with public interest
and economic growth.
3. That 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.
Capitalization
• The minimum initial paid-in capital of any investment house is P40
million. However, the majority of the voting stock of any investment
house is required to be owned by citizens of the Philippines.
Other activities
• Republic Act No. 337, as amended, authorizes the conversion of an
investment house into a Universal Bank or a Multi-Purpose Bank

5. through the issuance of a license by the Monetary Board of the Bangko
Sentral operating under an expanded commercial banking authority.
Regulatory powers of the Bangko Sentral
• Considering the fact that the investment houses are classified under the
Non-Bank Financial Intermediaries, it is only proper and logical that they
be subject to the regulatory powers of the Monetary Board of the BS.
• The regulatory powers may be manifested through the insurances of
rules and regulations aimed at, but not necessarily limited to, the
following:
1. Minimum size of fund acceptance or receipt.
2. Methods of marketing and distribution.
3. Terms of placement and maturities.
4. Use of funds.

6. • On the other hand, if an investment house is also engaged in performing
quasi-banking activities it may be subject to further regulations,
principally aimed at but not limited to the following:
1. Liquidity reserve requirements.
2. Capital-to-risk assets ratios.
3. Interest rate ceilings.
4. Such other consultants as the Board may deem necessary.
Securities Brokers/Dealers
• Investment houses function “as intermediaries in the marketing process,
as brokers, as dealers, or as underwriters”, the treatment of the topic will
be more or less as it is intended to be, that is, Securities Brokers/Dealers
as another Non-Bank Financial Intermediaries.
• Thus, the following terms must be clarified:

7. Securities Brokers/Dealers
• Investment houses function “as intermediaries in the marketing process,
as brokers, as dealers, or as underwriters”, the treatment of the topic will
be more or less as it is intended to be, that is, Securities Brokers/Dealers
as another Non-Bank Financial Intermediaries.
• Thus, the following terms must be clarified:
Broker - any person engaged in the business of effecting transactions in
securities for the account of others but does not include a bank.
Dealer - any person engaged in the business of buying and selling
securities for his own account, through a broker or otherwise, but does
not include any person insofar as he buys or sells securities for his own
account either individually or in some fiduciary capacity, but not as a part
of a regular business.
Stockbroker - as defined under N.I.R.C., “includes all persons whose
business it is, for themselves as such broker or for other brokers, to

8. negotiate purchases or sales of stock, bonds, exchange, bullion, coined,
money, bank notes, promissory notes or other securities; as defined in
the Investment Company Act; dealer in securities includes all persons
who for their own account are engaged in the sale of stock, bonds,
exchange, bullion, coined money, bank notes, promissory notes, or other
securities.”
Dealer in securities - as likewise defined under the N.I.R.C., “means a
merchant of stock or securities, whether an individual, partnership, or
corporation, with an established place of business regularly engaged in
the purchase of securities and their resale to customers; with a view to
the gains and profits that may be derived there form.”
Salesman - is to be construed as to “include every natural person, other
than a dealer, employed or appointed or authorized by a dealer, issuer
or broker to sell securities in any manner.

9. Exchange - The term “exchange” to “any organization, association, or group
of persons, whether incorporated or unincorporated which constitutes,
maintains, or provides a market place or facilities for bringing together
purchasers and sellers of securities or for otherwise performing with
respect to securities the functions commonly performed by a stock
exchange as that term is generally understood, and includes the market
place and the market facilities maintained by such exchange”
Facilities - is to be interpreted in relation to a “exchange” to include its
premises, tangible or intangible property, whether on the premises or
not, any right to the use of such premises or property or any service
thereof for the purpose of affecting or reporting a transactions on an
exchange including, among other things, any system of communication
to or from the exchange, by ticker or otherwise, maintained by or with the
consent of the exchange, and any right of the exchange to the use of
any property or service.

10. Member- is to be understood in relation to an exchange as:
1. Any natural person permitted to effect transactions on the floor of the
exchange without the services of another person acting as broker.
2. Any registered broker or dealer with which such a natural person is
associated.
3. Any registered broker or dealer permitted to designate as a
representative such a natural person’ and
4. Any registered broker or dealer which agrees to be regulated by such
exchange and with respect to which the exchange undertakes to enforce
compliance with the provisions of the Revised Securities Act, the rules
and regulations there under, and its own rules.
Registration of Brokers, Dealers and Salesmen
• Pursuant to the provisions of the Revised Securities Act, no broker,
dealer or salesman must engage in business in the Philippines as such

11. broker, dealer or salesman or sell ant securities, including securities
exempted under the said
1. An application for registration in writing is to be filed in the office of the
SEC in such form as the Commission may prescribe, duly verified under
oath; stating among other things the following:
a. Principal office of the applicant, wherever situated and its principal
office and all branch offices in the Philippines, if any.
b. Name or style of doing business.
c. Corporate or business names.
d. Residences and business addresses of all persons interested in the
business as principals, co-partners, officers and directors, specifying as
to each his capacity and title.
e. Character of the business and the length of time the applicant have been
engaged in said business.

12. 2. The application for registration must be accompanied by an irrevocable
written consent to the service of process upon the Commission in action
against such broker or dealer in the manner and form provided by law.
3. Upon compliance with items (1) and (2) the SEC duty bound to register
such applicant’ as a broker or dealer conditioned only upon his filing a
bond, or other security in lien thereof, in such sum as may be fixed by
the Commission which it may deem adequate for the protection of the
public, running to the Government of the Philippines, and conditioned
upon the faithful compliance with the provisions of the Revised Security
Act by said broker or dealer and by all salesman registered by the latter
while acting for him.
4. The broker or dealer registered as such by the SEC, my request the
commission to also registered as salesman of such dealer or broker
such natural person as the latter deems it necessary.
5. The names and addresses of all persons approved for registration as

13. brokers, dealers or salesman and all orders with respect thereto are
recorded in a register of brokers, dealers and salesman kept in the
office of the Commission but open public inspection.
6. Changes in registration occasioned by changes in the personal of a
partnership or in the principals, co-partners, officers or directors of any
broker or dealer may be made from time to time by written application
setting forth the facts with respect to such change.
7. Every registered broker or dealer who intends to offer any security for
sale is required to notify the Commission in writing of his intention to do
so.
Rules on Registered and Licensing of Stock Brokers, Dealer in Securities
and their Salesman
The following guidelines and rules on the registration and licensing
of stock brokers, dealers in securities, and their salesmen under Section

14. 19 of the Revised Securities Act, are hereby promulgated by this
Commission pursuant to the powers vested in it by existing laws:
I. REGISTRATION/LICENSING OF STOCK BROKERS AND DEALERS
IN SECURITIES
1. Every application for registration/licensing of stock broker or dealer is
securities shall be filed in SEC Form No. 3, which must be verified under
oath.
2. The application shall be submitted in two copies accompanied by the
following papers or documents:
a. Five testimonial letters attesting to the good repute of all the persons
named in the application as managing or administering the affairs of the
applicant.
b. Certification of a bank to the effect that the applicant has credit facility in
said bank

15. c. Surety bond in the amount of P200, 000 for a stock broker and P100, 000
in the case of a dealer in securities.
d. If the application is for the registration/licensing of a stock broker and the
applicant is a corporation, it should also submit:
d.1. Unlimited and joint liability undertaking executed by at least two stock
stockholders (including the member if applicant is a member- firm of a
stock exchange), owning not less than 95% of the company’s subscribed
capital stock.
d.2.Certification of the Corporate Secretary that the Board of Directors has
authorized, in a resolution, the President and Secretary to sign an
Irrevocable Consent to Service of Process upon the Securities and
Exchange Commission as service to the corporation.
d.3. A copy of the resolution of the stockholders authorizing the corporation
to engage in stock brokerage business or in the business of dealer in

16. securities if said business of dealer in securities, if said business
activities are not provided for in the primary purpose clause of the
Articles of Incorporation of the company, and
d.4.If the applicant shall operate as a member-firm of a stock exchange, it
shall submit a certification by the Secretary of the Exchange that all
stockholders thereof are acceptable to the Board of Governors of the
Exchange.
3. A minimum paid-up capital in the amount of P 1,000,000.00 is required of
every applicant for license as stock broker or dealer in securities.
4. Upon filing of the application the following fees shall be collected:
a) Stockbroker -P 1,000.00
b) Dealer in Securities -P 1,000.00
5. A Notice or an order shall be issued by the Commission upon filing of the
application.

17. Notice shall be published by the applicant giving notice to any
person or party having a valid reason to file an opposition to the
issuance of such license as a stockbroker and/or dealer in securities
within 10 days from date of publication.
II. REGISTRATION/ LICENSING OF SALESMEN
1. Only such natural person
2. Application for salesman shall be filed in SEC form No.4 in two copies
verified under oath by such stockbroker or dealer in securities as
principal of the salesman
3. Every application shall be accompanied by three (3) testimonial letters
vouching to the good moral character of applicant.
4. A filing fee of P100.00 shall be collected by the Commission upon filing of
the application.
5. If the applicant is applying for a salesman’s license for the first time, he

18. should pass a written examination to be given the BED.
III. Every registration issued under these rules shall expire on the 31 st
day of December of the year in which it is issued,
a. the new registration/license for the succeeding year may be issued
upon written application and upon payment of the fee without filing of
the further statements or furnishing any further information unless
specifically required by the Commission.
b. application for the renewals must be made not less than 30 days but
not more than 60 days before the first day of the ensuring year,
otherwise they shall be treated as original application
IV. All securities issuers, selling their own securities without the
intervention of duly licensed brokers or dealers in securities, are
deemed dealer pursuant to Sec.19 of the Revised Securities Act and
shall be licensed as such dealers in accordance with this rules.

19. V. Effectively – these rules shall take effect immediately.
Restriction on borrowings by members, brokers, and dealers
Sec. 24 of the Revised Securities Act considered it unlawful for any
registered brokers or dealer member of securities exchange, or any
broker or dealer who transacts a business in securities through the
medium of any member of a securities exchange, directly or indirectly:
1. To permit in the ordinary course of business as a broker his aggregate
indebtedness to all persons including customers’ credit balances, to
exceed such percentage such of the net capital in the business but not
exceeding in any case 2,000 %, as the commission may by rules and
regulations prescribe as necessary or appropriate in the .public interest
or for the protection of investors.
2. To pledge, mortgage or otherwise encumber or arrange for the pledge,
mortgage or encumbrance of any security carried for the account of
any customers under circumstances:

20. a. That will permit the comingling of his securities without his written
consent, with the securities of any customers
b. That will permit such 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 pledge, for a sum in
excess of the aggregate indebtedness of such customers in respect of
such securities
But regards to the protection of the investors may allow certain transactions
that may otherwise be prohibited under this paragraph.
3. To lend or arrange for the lending of any security carried for the account
of any customers without the written consent of such customers or in
contravention of such rules and regulation as the commission may
prescribe for the protection of investors.

21. Exempt securities
Sec.5 of the Revised Securities Act enumerates the different classes of
securities to as “exempt securities”.
1. Any security issued or guaranteed by the Government of the Philippines,
or by any political subdivision or agency thereof or by any of its public
instrumentalities, or by any person controlled or supervised by, and
acting as an instrumentality of said Government or any certificate of
deposit for any of the foregoing.
2. Any security issued or guaranteed by the government of any country with
which the Philippines is, at the time of the sale or offer of the sale
thereof, maintaining diplomatic relations, or by any state, province or
political subdivision thereof having the power of taxation or assessment,
which security is recognized at the time of the sale or the offer to sell in
the Philippines as a valid obligation by such foreign government or by
such state, province or political subdivision thereof using the same.

22. 3. Any security issued or guaranteed by any banking institution authorized
to do business in the Philippines, the business of which is substantially
confined to banking or financial institution licensed to engage in quasi-
banking, and supervised by the Bangko Sentral
4. Any security issued by a building and loan association, non-stock
savings and loan association, or similar institutions, substantially all the
business of which is confined to the making of loans to members but
does not include any such security where the issuer takes from the total
amount paid o deposited by the purchaser, by way of any fee, cash
value or other device whatsoever, either upon termination of the
investment at maturity or before maturity an aggregate amount in excess
of 3% of the face value of such security; or any security issued by rural
credit associations or by cooperative marketing associations which are
subject to regulations and supervision by the proper government agency
5. Certificates issued by a receiver or by a trustee in bankruptcy duly

23. approved by the court
6. Any insurance or endowment policy or annuity contract, or optional
annuity contract, issued by a corporation subject to the supervision of
the Insurance Commission.
7. Any security covering any right or interest in real property, including a
subdivision lot or a condominium unit, where the sale or transfer of such
security is subject to the supervision and regulation of the Housing and
Land Use Regulatory Board or any of its authorized constituents or,
attached agencies.
8. Pension plans subject to regulation and supervision by the Bureau of
Internal Revenue and/or the Insurance Commission.
Exempt Transactions
The sales of any security in any of the following transactions are
exempted from registration. To wit (Section 6, RSA):

24. 1. At any judicial sale, or sale by an executor, administrator, guardian or
receiver or trustee in insolvency or bankruptcy.
2. By or for the account of a pledge holder, or mortgagee, or any other
similar lien holder selling or offering for sale or delivery in ordinary
course of business and not for the purpose of avoiding the provision of
the Revised Securities Act, to liquidate a bona fide debt, a security
pledged in good faith as security for such debt.
3. An isolated transaction in which any security is sold, offered for sale,
subscription or delivery by the owner thereof, or by his representative for
the owner’s account, such sale or offer for sale, subscription or delivery
not being made in the course 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.
4. The distribution by a corporation, actively engaged in the business,

25. 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.
5. The transfer or exchange by one corporation to another of their own
securities in connection with a consolidation or merger of such
corporations.
6. The issuance of bonds or notes secured by mortgage upon real estate or
tangible personal property, where the entire mortgage together with all
the bonds or notes secured thereby are sold to a single purchaser at a
single sale.
7. The issuance 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 and permitted to be sold under the Revised Securities Act, or

26. was, when sold, exempt from the provisions of the said Act, 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 the said Act.
8. Broker’s transactions, executed upon customer’s orders on any
exchange or in the over-the-counter market but not those made upon the
solicitation by brokers of such orders.
9. Subscriptions for shares of the capital stock of a corporation prior to the
incorporation thereof 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
subscriptions is to comply with the requirements of such law as to the
percentage of the capital stock of a proposed corporation which should
be subscribed before it can be registered and duly incorporated.

27. 10. The exchange of securities by the issuer with its existing security
holders exclusively, where no commission or other remuneration is paid
or given directly or indirectly for soliciting such exchange.
11. Any issuance of any security by a public utility or service corporation
which, in compliance with or pursuant to law, regulation or decree, is
intended to broaden its equity base as well as to finance a part of the
capital investment thereof through the issuance and sale of stocks.

28. the end
thank you
