The Securities Regulation Code (SRC, RA 8799) protects the investing public by regulating the offer and sale of securities. As a general rule, securities may not be sold or offered for sale to the public within the Philippines unless they are registered with the Securities and Exchange Commission (SEC) and a registration statement has been declared effective, accompanied by proper disclosure through a prospectus. 'Securities' is broadly defined and includes shares of stock, bonds, and, importantly, investment contracts. Whether an arrangement is an investment contract (and thus a security) is determined by the Howey test: an investment of money in a common enterprise with the expectation of profits primarily from the efforts of others. This is why many pyramid, Ponzi, and unlicensed investment schemes are prosecuted as unregistered securities. There are exemptions: exempt securities (such as government securities) and exempt transactions (such as certain private placements to a limited number of qualified buyers) do not require registration. Selling unregistered securities that are not exempt, or acting as an unlicensed broker/dealer, violates the SRC and carries penalties.
The General Rule
Under the SRC (RA 8799), securities may not be sold to the public unless registered with the SEC and the registration statement is effective, with disclosure via a prospectus.
What Is a Security (the Howey Test)
“Securities” includes shares, bonds, and investment contracts. An investment contract exists under the Howey test: an investment of money in a common enterprise with the expectation of profits primarily from the efforts of others — capturing many pyramid/Ponzi schemes.
Exemptions
Exempt securities (e.g., government securities) and exempt transactions (e.g., certain private placements to a few qualified buyers) do not require registration.
Practical Takeaways
- Public securities must be registered with the SEC;
- The Howey test makes many investment schemes securities;
- Selling unregistered non-exempt securities violates the SRC.
Frequently Asked Questions
Do securities have to be registered? Generally yes. Under the SRC, securities may not be sold to the public in the Philippines unless registered with the SEC and the registration statement is effective, with disclosure through a prospectus.
What is an investment contract? Under the Howey test, an investment of money in a common enterprise with the expectation of profits primarily from the efforts of others. It is a security, which is why many pyramid and Ponzi schemes are prosecuted as unregistered securities.
Are there exemptions from registration? Yes. Exempt securities such as government securities, and exempt transactions such as certain private placements to a limited number of qualified buyers, do not require registration.
What happens if unregistered securities are sold? Selling unregistered securities that are not exempt, or acting as an unlicensed broker or dealer, violates the SRC and carries penalties.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
If you have questions about your rights or options under Philippine law, our firm is available to assist. You may reach us via Viber or WhatsApp, call us at 0995 433 5550, or send an email to vivasnobles@gmail.com. We look forward to hearing from you.