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CHAPTER IV
Regulation of Securities Market Professionals and Affiliated Persons
Sec. 25. Registration
Requirement for Investment Advisers, Principal Distributors and Mutual Fund
Dealers.–
(a) A person shall not serve as an investment adviser of a
registered investment company or enter into an investment advisory contract
unless registered with the Commission as an investment adviser. The Commission shall be the sole regulator of a registered investment
adviser, without prejudice to the authority of Bangko Sentral ng Pilipinas over
subsidiaries and affiliates of banks and quasi-banks as set out in the Central
Bank Act of 2000.
(b) A person shall not serve as a principal distributor
unless registered with the Commission as a principal distributor.
(c) A person shall not serve as a mutual fund dealer
unless registered with the Commission as a broker, dealer or mutual fund dealer.
(d) A person may register as an investment adviser,
principal distributor or mutual fund dealer by filing an application for
registration in such form and containing such information and documents as the
Commission may prescribe by rule. Within
30 days after the filing of the application, or such later date to which the
applicant has consented, the Commission shall by order (1) grant registration if
it determines that the requirements of this Section and the qualifications for
registration set forth in its rules and regulations have been satisfied, or (2)
institute proceedings to determine whether to deny registration.
(e) Every person registered under this section shall pay to the
Commission an annual fee at such time and in such reasonable amount as the
Commission prescribes. Upon notice
by the Commission that a person has not paid the required annual fee, the
registration of the person shall be suspended until payment is made.
(f) The Commission may by order, after hearing, deny an application
for registration by a person made under this section or suspend or revoke any
such registration, if it finds that:
1.
The person or any of its affiliated persons has a disability listed
in Subsection
29(a) and has not been exempted by the Commission under Subsection 29(b);
2.
The person is not organized in the form of a corporation or such
other form as the Commission by rule may prescribe;
3.
The person did not have at the time of filing its application for
registration, or subsequently maintain at all times, the minimum net capital
prescribed by the Commission;
4.
In the case of an applicant for
registration as an investment adviser, any of its officers, directors, partners
or employees who is engaged in advising a registered investment company as to
the investing in or the buying and selling of securities has not satisfied the
standards of training, experience, competence and other qualifications
prescribed by the Commission by rule in the public interest and for the
protection of investors; or
5.
If the person does not have an office in
the Philippines, it has failed to file a written consent to service of process
upon the Commission under Section 44.
Sec.
26. Investment
Advisory and Distribution Contracts. –
(a) An investment adviser shall not serve in that capacity
for a registered investment company except under a written investment advisory
contract that, without limitation, contains the following:
1.
A precise description of the services to be provided by the investment
adviser and the advisory fee and other compensation to be paid for those
services;
2.
The allocation of expenses between the investment company and the
investment adviser;
3.
A statement of the investment objectives of the investment company and
other investment policies (indicating which are fundamental), including
concentrations of investments in equity, debt and other instruments, and in
securities of issuers and industry sectors;
4.
Provision for termination of the contract at any time by the investment
company on not more than 60 days notice to the investment adviser;
5.
A prohibition on assignment of the contract, in whole or in part, except
to a registered investment adviser and only with the consent of the investment
company;
6.
The conditions, if any, under which the investment company may be
liquidated; and
7.
The period of the contract, which shall not be more than two years,
subject to renewal upon approval by the board of directors of the investment
company.
(b)
A principal distributor shall not serve in that capacity for a registered mutual
fund, except under a written contract with the mutual fund. The contract shall contain a prohibition on assignment, except to a
registered principal distributor and only with the consent of the company.
(c) A registered investment company shall not enter into or renew
an investment advisory contract or a contract with a principal distributor or
administrative manager, unless the contract is approved by a majority of the
directors of the investment company who are disinterested persons.
(d) A registered investment company shall not terminate an
investment advisory contract or a contract with a principal distributor or
administrative manager, except (1) with the approval of a majority of the
directors of the investment company who are disinterested persons, or (2) by the
vote of
two-thirds of its outstanding common stock.
(e) A registered
investment company shall not approve (1) an increase in the advisory fee or
other compensation payable under an investment advisory contract, (2) an
assignment of an investment advisory contract or a delegation of any advisory
functions, or (3) a new investment advisory contract following termination by
the company of an existing investment advisory contract, except by the vote of a majority of its outstanding common stock.
Sec. 27. Investment Company Association.
–
The Commission may prescribe rules as may be necessary or
appropriate in the public interest or for the protection of investors to govern
any association of registered investment companies and other persons who are
registered under this Act. Upon
application of any such association, the Commission may grant it registration as
an "investment company association" and, under rules issued by the
Commission, confer upon the association authority to act as a self-regulatory
organization for its members, including the power to provide training programs,
administer proficiency examinations, and discipline its members.
Sec. 28. Investor
Protection Fund. –
The Commission may establish or facilitate the establishment of an
investor protection fund, which shall be contributed to by registered investment
companies, their principal distributors, principal underwriters and investment
advisers, mutual fund dealers and other persons associated with their business
activities as the Commission may require, for the purpose of compensating
investors in registered investment companies for financial loss they may suffer
due to reasons prescribed by the Commission other than market decline in the
investment portfolio of the investment company. The Commission, having due regard for the public interest and the
protection of investors, shall regulate, supervise and examine the fund and
shall have the power to suspend or otherwise discontinue the fund under rules
prescribed by it.
Sec. 29. Ineligibility
of Certain Affiliated Persons and Underwriters. –
(a) It shall be unlawful for any of the following persons to serve
in the capacity of officer, employee, director, investment adviser, principal
distributor, principal underwriter, administrative manager or mutual fund dealer
of or for a registered investment company:
1.
Any person who has been convicted by a
competent judicial or administrative body of any crime involving the purchase or
sale of a security, proprietary or non-proprietary membership certificate,
commodity futures contract, or interest in a common trust fund, pre-need plan,
pension plan or life plan, or arising out of the person's conduct as an
underwriter, broker, dealer, investment company, investment adviser, principal
distributor, mutual fund dealer, futures commission merchant, commodity trading
advisor, floor broker, bank, quasi-bank, trust company, investment house,
insurance company or real estate broker or as an affiliated person of any of
them;
2.
Any
person who, by reason of any misconduct, after hearing or trial or upon consent,
is permanently or temporarily enjoined by order, judgment or decree of the
Commission or any court or other administrative body of competent jurisdiction
from acting as an underwriter, broker, dealer, investment company, investment
adviser, principal distributor, mutual fund dealer, futures commission merchant,
commodity trading advisor, floor broker, bank, quasi-bank, trust company,
investment house, insurance company or real estate broker or as an affiliated
person of any of them, or from engaging in or continuing any conduct or practice
in connection with any such activity or willfully violating laws governing
securities, commodities, banking, insurance or real estate activities; or is
currently subject to an effective order of the Commission or any court or other
administrative body refusing, revoking or suspending any registration, license
or permit under this Act or any other law administered by the Commission or
Bangko Sentral ng Pilipinas, or under any rule or regulation promulgated by the
Commission or Bangko Sentral ng Pilipinas, or otherwise required to engage in
any activity involving securities, commodities, banking, insurance or real
estate; or is currently subject to an effective order of a self-regulatory
organization suspending or expelling him from membership or participation or
from association with a member or participant of the organization;
3.
Any person convicted judicially or
administratively of an offense involving moral turpitude or involving fraud,
embezzlement, theft, estafa, counterfeiting, misappropriation, forgery, bribery,
false oath, perjury or other fraudulent act or transaction;
4.
Any person found by the Commission or a
court or other administrative body to have willfully violated, or willfully
aided, abetted, counseled, induced or procured the violation of, any provision
of this Act, the SRC, any other law administered by the Commission or Bangko
Sentral ng Pilipinas, or any rule, regulation or order of the Commission or
Bangko Sentral ng Pilipinas, or who has filed a materially false or misleading
application, report or registration statement required to be filed under this
Act, the SRC, any other law administered by the Commission, or any rule,
regulation or order of the Commission;
5.
Any person judicially declared to be
insolvent;
6.
Any person found guilty by a foreign
court or equivalent financial regulatory authority of acts, violations or
misconduct similar to any of the acts, violations or misconduct listed in
paragraphs (1) to (5); or
7.
A
company, any affiliated person of which is ineligible, by reason of paragraphs
(1) to (5), to serve or act in the capacities listed in those paragraphs.
(b) Any person who is ineligible, by reason of Subsection (a), to
serve in the capacities listed in that subsection may file an application for an
exemption from its provisions. The
Commission shall by order grant the application, either unconditionally or on an
appropriate temporary or permanent conditional basis, if it is established that
the prohibitions of the subsection, as applied to that person, are unduly or
disproportionately severe or that the conduct of that person has been such as
not to make it contrary to the public interest or protection of investors to
grant the application.
Sec.
30. Requirements
for Affiliated Persons. –
(a) An officer or employee of a
registered investment company who may singly, or jointly with others, have
access to securities or funds of a registered investment company, either
directly or through authority to draw upon the funds or to direct generally the
disposition of the securities, shall be bonded by a reputable fidelity insurance
company against larceny and embezzlement in such reasonable minimum amounts as
the Commission may prescribe.
(b) The charter, certificate or
articles of incorporation or by-laws of a registered investment company, or any
other instrument under which it is organized or administered, shall not contain
any provision that protects or purports to protect any of its directors or
officers against any liability to the investment company or to its security
holders to which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
(c) An agreement under which a
person undertakes to act as investment adviser, administrative manager,
principal distributor, underwriter or custodian for a registered investment
company shall not contain any provision that protects or purports to protect the
person against any liability to the company or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of his duties, or by reason of his reckless
disregard of his duties under the agreement.
(d) A person who is directly or indirectly the beneficial
owner of more than 10 percent of any class of outstanding securities (other than
short-term debt) issued by a registered closed-end fund, or who is an officer,
director, investment adviser, or affiliated person of an investment adviser of a
registered closed-end fund, shall be subject to the same duties and liabilities
as those imposed by Section 23 of the SRC and the rules and regulations under it
on certain beneficial owners, directors and officers in respect to their
transactions in equity securities.
Sec. 31. Prohibited Transactions of
Affiliated Persons. –
(a) An affiliated person or promoter of, or principal distributor
or principal underwriter for, a
registered investment company or any of their affiliated persons, acting as
principal, shall not:
1.
Knowingly sell any security or other property to the investment
company or to any company controlled by the investment company, unless the sale
involves solely (A) securities issued by the buyer, or (B) securities issued by
the seller and which are part of a general offering to the holders of a class of
its securities;
2.
Knowingly purchase from the investment
company, or from any company controlled by the investment company, any security
or other property except securities issued by the seller; or
3.
Borrow money or other property from the investment company or from
any company controlled by the investment company, unless the lender controls the borrower.
(b) Any person may file an
application for an order exempting a proposed transaction from Subsection (a).
The Commission shall issue an order granting the application if the
evidence establishes that:
1.
The terms of the proposed transaction,
including the consideration to be paid or received, are reasonable and fair and
do not involve one person taking unfair advantage of another;
2.
The proposed transaction is consistent with the policies of each
registered investment company concerned, as recited in its registration
statement and reports filed under this Act; and
3.
The proposed transaction is consistent with the general purposes of
this Act.
(c) An affiliated
person of, or principal distributor or principal underwriter for, a registered
investment company or an affiliated person of any of them, acting as principal,
shall not effect any transaction in which it participates with the investment
company or any company controlled by it in any joint enterprise or other joint
arrangement or profit-sharing plan, unless the Commission has granted an order
approving the enterprise, arrangement or plan or the Commission has exempted the
enterprise, arrangement or plan from the provisions of this subsection by rule.
In deciding whether to grant an order under this subsection, the
Commission shall consider the extent to which participation by the investment
company or company controlled by it in the enterprise, arrangement or plan is on
a basis different from or less advantageous than that of the other participants
and whether participation by the investment company or company controlled by it
is appropriate in the public interest or for the protection of investors.
(d) An affiliated person of a registered investment company or its
affiliated persons shall not:
1.
Acting as agent, accept from any source
compensation for the purchase or sale of any property to or for the investment
company or any company controlled by the investment company other than a regular
salary from the investment company or company controlled by it, except in the
course of its business as a principal distributor, mutual fund dealer,
underwriter or broker; or
2.
Acting as a broker, receive from any
source, in connection with a sale of securities to or by the investment company
or any company controlled by the investment company, a commission, fee, or other
remuneration which exceeds:
(A)
A customary broker's commission if the sale is effected on a securities
exchange;
(B)
Two percent of the sale price if the sale is effected in connection with
a secondary distribution; or
(C)
One percent of the sale price if the sale is effected otherwise, or such
larger commission as the Commission permits by rule, regulation or order in the
public interest and consistent with the protection of investors.
Sec. 32. Registration Requirement for
Investment Solicitors. –
(a) A
person shall not serve as an investment solicitor unless registered with the
Commission as an investment solicitor. A
registered investment company doing business in the Philippines or its agents
shall not pay any commission or other compensation to any individual for
services in obtaining investments in the investment company, unless the person
is registered by the Commission as an investment solicitor or as a salesman
under the SRC.
(b) A
person may register as an investment solicitor by filing an application for
registration in such form and containing such information and documents as the
Commission may prescribe by rule. The
application must be approved and certified by the principal distributor or
mutual fund dealer with which the investment solicitor is to become affiliated,
or by the investment company in the case of an investment solicitor employed,
appointed or authorized solely by the investment company.
(c) The Commission shall not register a person as an investment
solicitor unless he has passed a written examination approved for the purpose by
the Commission. The Commission may
refuse to issue and may revoke the registration of an investment solicitor at
its discretion.
(d) Every person registered as an investment solicitor shall pay to
the Commission an annual fee at such time and in such reasonable amount as the
Commission prescribes. Upon notice
by the Commission that a person has not paid the required annual fee, the
registration of the person shall be suspended until payment is made.
(e) Any person who holds a certificate of authority issued by the
Commission to act as an agent or investment solicitor of an investment company
on the date this Act takes effect shall be deemed to be registered as an
investment solicitor under Subsection (a) on that date.
Sec.
33.
Register and Changes in Information. –
(a)
The names and addresses of all persons approved for registration as investment
advisers, principal distributors, mutual fund dealers and investment solicitors
and all related orders of the
Commission shall be recorded in the Register of Securities Market Professionals
kept by the Commission under Subsection 28.9 of the SRC.
(b) Every person registered under this Act shall file, in
such form as the Commission shall prescribe, information necessary to keep the
application for registration current and accurate.
(c) The registration of an investment solicitor shall
automatically terminate upon the cessation of his affiliation with a principal
distributor or mutual fund dealer, or with an investment company in the case of
an investment solicitor employed, appointed or authorized by the investment
company. Promptly following any
such cessation of affiliation, the principal distributor, mutual fund dealer or
investment company shall file a notice of separation of the investment
solicitor.
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