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CHAPTER XI
Acquisition and Transfer of Securities
and Settlement of Transactions in Securities
SEC. 41. Prohibition on Use of Unregistered
Clearing Agency. - It shall be unlawful for any broker, dealer, salesman,
associated person of a broker or dealer, or clearing agency, directly or
indirectly, to make use of any facility of a clearing agency in the Philippines
to make deliveries in connection with transactions in securities or to reduce
the number of settlements of securities transactions or to allocate securities
settlement responsibilities or to provide for the central handling of
securities so that transfers, loans and pledges and similar transactions can be
made by bookkeeping entry or otherwise to facilitate the settlement of
securities transactions without physical delivery of securities certificates,
unless such clearing agency is registered as such under Section 42 of this Code
or is exempted from such registration upon application by the clearing agency
because, in the opinion of the Commission, by reason of the limited volume of
transactions which are settled using the clearing agency, it is not practicable
and not necessary or appropriate in the public interest or for the protection
of investors to require such registration.
SEC. 42. Registration
of Clearing Agencies.
42.1. Any clearing agency may be registered as
such with the Commission under the terms and conditions hereinafter provided in
this Section, by filing an application for registration in such form and
containing such information and supporting documents as the Commission by rule
shall prescribe, including the following:
a)
An undertaking to
comply and enforce compliance by its participants with the provisions of this
Code, and any amendment thereto, and the implementing rules or regulations made
or to be made thereunder, and the clearing agency’s rules;
b)
The organizational
charts of the Exchange, its rules of procedure, and a list of its officers and
participants;
c)
Copies of the
clearing agency’s rules.
42.2.
No registration
of a clearing agency shall be granted unless the rules of the clearing agency
include provision for:
a)
The expulsion,
suspension, or disciplining of a participant for violations of this Code, or
any other Act administered by the Commission, the rules, regulations, and
orders thereunder, or the clearing agency’s rules;
b)
A fair procedure
for the disciplining of participants, the denial of participation rights to any
person seeking to be a participant, and the prohibition or limitation of any
person from access to services offered by the clearing agency;
c)
The equitable
allocation of reasonable dues, fees, and other charges among participants;
d)
Prevention of
fraudulent and manipulative acts and practices, promotion of just and equitable
principles of trade, and, in general, protection of investors and the public interest;
and
e)
The transparent,
prompt and accurate clearance and settlement of transactions in securities
handled by the clearing agency.
f) The establishment and oversight of a fund to guarantee
the prompt and accurate clearance and settlement of transactions executed on an
exchange, including a requirement that members each contribute an amount based
on their volume and a relevant percentage of the daily exposure of the four (4)
largest trading brokers which adequately reflects trading risks undertaken or
pursuant to another formula set forth in Commission rules or regulations or
order, upon application: Provided, however, That a clearing
agency engaged in the business of a securities depository shall be exempt from
this requirement.
42.3.
In the case of
an application filed pursuant to this Section, the Commission shall grant
registration if it finds that the requirements of this Code and the rules and
regulations thereunder with respect to the applicant have been satisfied, and
shall deny registration if it does not make such finding.
42.4. Upon appropriate application in accordance
with the rules and regulations of the Commission and upon such terms as the
Commission may deem necessary for the protection of investors, a clearing
agency may withdraw its registration or suspend its operation or resume the
same.
42.5. Section 32 of this Code shall apply to every
registered clearing agency.
SEC. 43. Uncertificated
Securities. - Notwithstanding Section 63 of the Corporation Code of the
Philippines:
43.1.
A corporation
whose securities are registered pursuant to this Code or listed on a securities
Exchange may:
a)
If so resolved by
its Board of Directors and agreed by a shareholder, investor or securities
intermediary, issue shares to, or record the transfer of some or all of its
shares into the name of said shareholders, investors or, securities
intermediary in the form of uncertificated securities. The use of uncertificated securities in
these circumstances shall be without prejudice to the rights of the securities
intermediary subsequently to require the corporation to issue a certificate in
respect of any shares recorded in its name; and
b)
If so provided in
its articles of incorporation and by-laws, issue all of the shares of a
particular class in the form of uncertificated securities and subject to a
condition that investors may not require the corporation to issue a certificate
in respect of any shares recorded in their name.
43.2. The Commission by rule may allow other
corporations to provide in their articles of incorporation and by-laws for the
use of uncertificated securities.
43.3.
Transfers of
securities, including an uncertificated securities, may be validly made and
consummated by appropriate book-entries in the securities accounts maintained
by securities intermediaries, or in the stock and transfer book held by the
corporation or the stock transfer agent and such bookkeeping entries shall be
binding on the parties to the transfer. A transfer under this subsection has the effect of the delivery of a
security in bearer form or duly indorsed in blank representing the quantity or
amount of security or right transferred, including the unrestricted
negotiability of that security by reason of such delivery. However, transfer of uncertificated shares
shall only be valid, so far as the corporation is concerned, when a transfer is
recorded in the books of the corporation so as to show the names of the parties
to the transfer and the number of shares transferred.
However, nothing in
this Code shall preclude compliance by banking and other institutions under the
supervision of the Bangko Sentral ng
Pilipinas and their stockholders with the applicable ceilings on
shareholdings prescribed under pertinent banking laws and regulations.
SEC. 44. Evidentiary
Value of Clearing Agency Record. - The official records and book entries of
a clearing agency shall constitute the best evidence of such transactions
between clearing agency and its participants and members, without prejudice to
the right of participants’ or members’ clients to prove their rights, title and
entitlement with respect to the book-entry security holdings of the
participants or members held on behalf of the clients. However, the corporation
shall not be bound by the foregoing transactions unless the corporate secretary
is duly notified in such manner as the Commission may provide.
SEC. 45. Pledging a Security or Interest Therein. - In addition to other
methods recognized by law, a pledge of, or release of a pledge of, a security,
including an uncertificated security, is properly constituted and the
instrument proving the right pledged shall be considered delivered to the
creditor under Articles 2093 and 2095 of the Civil Code if a securities
intermediary indicates by book-entry that such security has been credited to a
specially designated pledge account in favor of the pledgee. A pledge under this subsection has the
effect of the delivery of a security in bearer form or duly indorsed in blank representing
the quantity or amount of such security or right pledged. In the case of a registered clearing agency,
the procedures by which, and the exact time at which, such book-entries are
created shall be governed by the registered clearing agency’s rules. However,
the corporation shall not be bound by the foregoing transactions unless the
corporate secretary is duly notified in such manner as the Commission may
provide.
SEC. 46. Issuer’s
Responsibility for Wrongful Transfer to Registered Clearing Agency.
- The registration of a transfer of a security into the name of and by a
registered clearing agency or its nominee shall be final and conclusive unless
the clearing agency had notice of an adverse claim before the registration was
made. The above provision shall be without prejudice to any rights which the
claimant may have against the issuer for wrongful registration in such
circumstances.
SEC. 47. Power
of the Commission With Respect to Securities Ownership. - The Commission is
authorized, having due regard to the public interest and the protection of
investors, to promulgate rules and regulations which:
47.1. Validate the transfer of securities by
book-entries rather than the delivery of physical certificates;
47.2.
Establish when a
person acquires a security or an interest therein and when delivery of a
security to a purchaser occurs;
47.3. Establish which records constitute the best
evidence of a person’s interests in a security and the effect of any errors in
electronic records of ownership;
47.4.
Codify the
rights of investors who choose to hold their securities indirectly through a
registered clearing agency and/or other securities intermediaries;
47.5.
Codify the
duties of securities intermediaries (including clearing agencies) who hold
securities on behalf of investors; and
47.6.
Give first
priority to any claims of a registered clearing agency against a participant
arising from a failure by the participant to meet its obligations under the
clearing agency’s rules in respect of the clearing and settlement of
transactions in securities, in a dissolution of the participant, and any such
rules and regulations shall bind the issuers of the securities, investors in
the securities, any third parties with interests in the securities, and the
creditors of a participant of a registered clearing agency.
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