Listing Guidelines and Trading Procedures for Debt Securities

March 15, 1999 LISTING GUIDELINES AND TRADING PROCEDURES FOR DEBT SECURITIES Market Development Department Business Development and Information Group Philippine Stock Exchange, Inc . * 9. Default Failure to make timely debt service when due or failure to comply with any other covenants pertinent to the issue. 10. Guarantor The party that takes responsibility for the payment of a debt or performance of an obligation if the person primarily liable fails to perform. LibLex 11. Issuer A legal entity authorized to issue a security. Issuers include the national government, private or government-owned and/or controlled corporations, local government units and special purpose vehicles. 12. Local Government Securities Debt securities issued by local government units (LGUs). 13. Material Information (1) Information that would likely affect the market price of the security after being disseminated to the public and the lapse of a reasonable time for the market to absorb the information, or (2) Information that would be considered by a reasonable person as important under the circumstances in determining his course of action whether to buy, sell or hold a security in the light of such factors as the degree of its specificity, the extent of its difference from information generally available previously, and its nature and reliability. 14. Mortgage-Backed Securities Debt securities backed by pools of mortgages as collateral for the issuance of a security. 15. Mortgage Pass-Through Securities Debt security representing an interest in a pool of mortgages that require periodic, regular payments consisting of partial payments of principal and interest on unpaid principal. These payments are passed through from debtor to investor. 16. Multiple-Tranche Issue Issues of debt securities where only part of the maximum principal amount or aggregate number of securities is issued initially and a further tranche or tranches may be issued subsequently. 17. National Government Securities Debt securities directly issued or fully guaranteed by the Republic of the Philippines. Also referred to as government securities or GS. 18. Originator An entity that has assumed or initially made the loan or receivable. 19. Paying Agent Representative. preferably a bank, designated to pay principal and interest for the issuer. LexLib 20. SEC The Securities and Exchange Commission. 21. Special Purpose Vehicle An entity, preferably a trust constituted in accordance with the SEC regulation on Asset-Backed Securities for the purpose of purchasing assets, owning and holding the asset pool for a definite period, the trustee of which must be the Trust Department of a commercial bank. 22. Transfer Agent The party appointed by an issuer to maintain records, cancel and issue certificates, and address problems arising from lost, destroyed, or stolen certificates. 23. Trustee A firm, usually a bank, designated to act in a fiduciary capacity for the benefit of security holders in enforcing the terms of a debt security. C. Requirement for a Rating Except for national government securities, every issue that will be listed on the PSE shall be rated periodically as long as it remains outstanding, regardless of the fact that the issuer and guarantor, in the case of guaranteed issues, may have already been rated. The applicant issuer shall engage the services of a reputable credit rating agency to rate the issue. D. Requirement for an Underwriter 1. The applicant issuer shall engage the services of a duly licensed underwriter, who among others, may act as the applicant's lead underwriter and/or issue manager. 2. The lead underwriter and/or issue manager shall warrant that it has exercised due diligence in ascertaining that all material representations contained in the applicant's prospectus or offering memorandum, their amendments or supplements are true and correct, and that no material information was omitted, which was necessary in order to make the statements contained in the applicant's prospectus or offering memorandum not misleading. LibLex E. Requirement for a Transfer Agent and a Paying Agent 1. The applicant issuer shall engage the services of a duly-licensed transfer agent acceptable to the PSE until the date on which no debt security remains outstanding, which shall perform the following functions: a) Maintain an accurate registry for recording initial and subsequent transfers; and b) Maintain an electronic link with PSE to facilitate the clearing and settlement of trades. LexLib 2. The applicant issuer shall engage the services of a paying agent acceptable to the PSE until the date on which no debt security remains outstanding, which shall perform the following functions: a) Receive funds from an issuer and in turn pay principal and interest to holders of debt securities; and b) Maintain an electronic link with the transfer agent, to continually update its records on which interest and principal payments to security holders are based. LexLib 3. A copy of the license of the transfer agent should be provided to the PSE every year. 4. The applicant issuer shall take full responsibility for all the acts of its transfer agent and paying agent and shall execute and submit an undertaking holding itself jointly and severally liable for all the acts of its transfer and paying agents in relation to the issue. II. LISTING REQUIREMENTS A. Suitability of the issue 1. The debt securities for which listing is sought must be transferable. 2. The minimum size for an issue shall be One Hundred Million Pesos (PhP100M). 3. Each issue must be distributed to at least 100 beneficial holders at any given time. 4. All issuers and guarantors, where the issue is guaranteed, shall enter into a Listing Agreement with the PSE by which they undertake to comply with the continuing obligations to which they will be subject as a condition for the listing of their debt securities. Failure to comply with the terms of the Listing Agreement may lead to the suspension of secondary market trading or cancellation of the listing of their debt securities. LexLib 5. Debt securities to which options, warrants or similar rights to subscribe or purchase equity securities or debt securities are attached, must also comply with the requirements for listing applicable to such options, warrants or similar rights. 6. Convertible debt securities may only be listed if their underlying equity securities are already listed at the PSE. B. Documentary Requirements The application for listing must cover the maximum amount of securities which may be issued and listed at any one time. The applicant issuer may either apply for listing a single-tranche issue or a multiple- tranche issue. The procedure for listing an issue will be similar to that of listing equity securities on the PSE. In addition, if the PSE approves the application for a multiple-tranche issue, it will admit to listing all securities under said multiple-tranche issue as long as the registration with the SEC and other requirements pertinent to the program remain valid, subject to the PSE: 1. being informed of the final terms of the issue; 2. receiving and approving for publication any supplementary listing document as may be applicable; and 3. receiving confirmation from the issuer that the subject securities have been issued. llcd The applicant issuer shall submit one (1) original or certified true copy and eleven (11) photocopies of the following documents together with a sworn corporate secretary's certificate stating that all photocopies are true copies of said document: 1. A Listing Application which contains the following: (All applicable blanks in the application form must be filled up) a) Indicative terms and conditions of the debt security; b) Authorizations required by law for the issuance and listing of debt securities. c) Full description of guarantees, credit enhancements, debt servicing arrangements, and other transaction details and copies of draft undertakings with the various parties involved, (to be finalized as the debt securities are issued); d) Registration Statement filed with the SEC; (For Exempt Securities, Rule II-D shall apply) e) Credit rating report; f) Audited financial statements for the last three (3) full years of both the applicant issuer and the guarantor, in the case of guaranteed issues, and their subsidiaries, prepared by an independent auditor in accordance with generally accepted accounting principles; g) Projected annual Cash flow Statement of both the applicant issuer and the guarantor as of the approximate date of issuance covering the lifetime of the securities or the next three (3) years whichever is shorter, indicating the basic assumptions thereto and supported by schedules on actual maturity patterns of outstanding receivables and liabilities and inventory turn over, reviewed and signed by an independent auditor. Pertaining to f) and g), if the application is filed during the first three quarters of the applicant issuer's fiscal year, the issuer shall submit projected financial statements for its current fiscal year. On the other hand, if the application is filed during the last quarter of the applicant issuer's fiscal year, the company shall submit together with projected financial statements for the current fiscal year, unaudited actual financial statements for the past quarters of the fiscal year. h) Full description of the method of distribution of the issue; i) Pending civil, criminal or administrative cases or claims filed by or against the applicant or any of its subsidiaries/subdivisions, or any of its officials/ officers/ directors in any local or foreign jurisdiction; j) Affidavit of the newspaper publisher on the fact of publication as required under the Revised Securities Act and pertinent laws. 2. A Prospectus prepared in compliance with both the SEC and the PSE rules which shall include the following information: a) Parties to the transaction, including the applicant issuer, guarantor, trustee/fiduciary for security holders, trustee in charge of the issuer's assets, lead underwriter/ issue manager, transfer agent and paying agent, accountants and lawyers; b) Detailed description of the securities, its terms and conditions, including issue amount, tranche details, payment date, maturity date, credit rating, financial covenants of the issuer, legal and tax framework, events of default, call and convertibility features, risks attached to the issue, and credit rating; c) Detailed description of the nature of underlying assets, if any, including a description of the asset portfolio, material risks together with any method whereby they are sought to be addressed, structure of the transaction and flow of funds, description of the originator and trustee; d) Credit enhancements, if any, including an outline of the primary and secondary forms of credit enhancement, any mechanism to protect the yield on the assets, amount and form of liquidity support in the structure; e) Cash flow allocation, including use of proceeds, dates at which the paying agent will perform calculations and allocations of cash receipts, order in which cash will be allocated in the structure, amount and frequency of fees paid on the servicing and guarantee, all expected costs of the issuer and frequency of payment; f) For Local Government Issues, the following are also required: 1. Details of the authorization/s granted in connection with the issuance. 2. A detailed description of the applicant's economic situation for the past three (3) years, with reference to the underlying demographic, socio-political, environmental, and other relevant factors affecting production, income, spending, prices, wages, and employment during the period. prcd 3. Detailed income and expenditure record of the LGU for the past three (3) years and budgetary forecasts covering the lifetime of the securities or the next three (3) years, whichever is shorter; 4. Debt outstanding and record of new borrowings, principal and interest payments and early retirement of debt for the past three (3) years; and 5. Pending civil, criminal or administrative cases filed in any local or foreign jurisdiction by or against the applicant or any of its officers or officials, subdivisions or instrumentalities. The Prospectus may include illustrations of pictorial or graphic nature provided such illustrations are not misleading or likely to mislead in the form and context in which they are included. 3. A Trust Agreement, if any. 4. A Mortgage Trust Indenture, if any. 5. A Listing Agreement through which the applicant issuer and the guarantor, in the case of guaranteed issues/ shall enter into an agreement with the PSE manifesting its conformity to comply with and be bound by all the listing rules, requirements and policies of the PSE. 6. An Underwriting Agreement whereby the lead underwriter and/or issue manager and the applicant issuer undertake to be jointly responsible for complying with all reportorial requirements of the SEC, the BSP, the PSE and other underwriters of the issue. The PSE may require additional information required for a proper consideration of the application. 7. The favorable Opinions of the experts, independent counsel/s and auditor/s who have passed upon the application. C. Requirements from Guarantors 1. Where listing is sought for debt securities of an issuer or secured by another legal person not being its holding company, the guarantor will be required to comply with the PSE Listing Rules to the same extent as if such guarantor were the issuer of the relevant debt securities. In particular: a) The Prospectus issued in relation to a guaranteed issue must contain the same information regarding the guarantor as that regarding the applicant issuer, so that, where appropriate, references to the "applicant issuer" should be read as equally applying to the guarantor; and b) A guarantor will be required to sign a Listing Agreement in the form prescribed and provided by the PSE. 2. The relevant guarantee must be issued in conformity with existing laws and regulations and in conformity with the guarantor's articles of incorporation or equivalent documents and all authorizations needed for its issue under such law or documents must have been duly given. D. Requirements from Issuers and Guarantors of Exempt Securities In addition to the aforementioned documents as appropriate, the following must be submitted by an applicant issuer whose debt securities are exempt from registration with the SEC: 1. Certificate of exemption from registration with the SEC; and 2. Copies of authorizations needed for the creation and issue of the debt securities such as: a) a certified copy of the resolution of the applicant issuer's stockholders, board of directors, authorized officers, and/or other governing body, authorizing the issue of such bonded indebtedness; and b) in the case of a guaranteed issue, a certified copy of the resolution of the board of directors, authorized officers, and/or other governing body of the guarantor approving and authorizing the giving and signing of the guarantee. If the Government of the Philippines is the guarantor, the guarantee of the Secretary of Finance on behalf of the national government, or such guarantor authorized by law, shall be required. E. Full Disclosure Policy 1. The applicant issuer shall fully disclose any and all material information relative to the issue. The PSE may require disclosure of additional or alternative items of information as it considers appropriate and material in any particular case. 2. The applicant issuer must show its willingness to comply with the full disclosure requirement. If during the application, the applicant issuer fails to make a timely disclosure of material information or deliberately misrepresents material facts to the PSE, then the PSE may consider said actions as evidence of the applicant issuer's refusal to comply with the full disclosure policy of the PSE and on the basis thereof reject the application. F. Prospectus, Press Releases and Other Similar Documents All prospectus, primers, subscription agreement forms, newspaper prints, advertisements, press releases and the like in connection with the issuance shall, first be submitted to the PSE for review and approval before they are printed or disseminated to the public. The newspaper prints, advertisements, press releases and the like shall contain all facts which are material. If the newspaper prints, advertisements, press releases and the like came from an unauthorized source, the PSE reserves the right to require the applicant issuer to publish its own advertisement or press statements either confirming, disclaiming or rectifying the same. G. Responsibilities of Directors and Officers of the Applicant Issuer and Lead Underwriter Directors and officers of the applicant issuer are responsible for the information which the listing application and all documents submitted to the PSE contain, including its prospectus. A statement to that effect shall be incorporated in the prospectus. Moreover, the last page of the prospectus or offering memorandum shall contain the following: a) A statement that the applicant issuer and the lead underwriter(s) have exercised due diligence in ascertaining that all material representations contained in the prospectus or offering memorandum, their amendments and supplements are true and correct and that no material information was omitted, which was necessary in order to make the statements contained in said documents not misleading as of the date of the document. b) The name and signature of a majority of the members of the Board of Directors of the applicant issuer and the chief executive officer chief operating officer of the applicant issuer and the lead underwriter(s). H. Disqualification from Listing Notwithstanding the provisions of these rules and other rules and regulations of the PSE, any of the following may be grounds for disqualification from listing of debt securities in the PSE: 1. No applicant issuer whose director, trustee, officer or official has been convicted by a competent court of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of any commercial law in any local or foreign jurisdiction committed within five (5) years prior to the date of his election or appointment, may be qualified for listing. 2. The applicant issuer or any of its subsidiaries, affiliates, subdivisions or instrumentalities is insolvent or bankrupt or under receivership or has applied for suspension of payment of debts or voluntary insolvency or bankruptcy within the past five (5) years and said insolvency, bankruptcy or receivership or application for voluntary insolvency, bankruptcy or suspension of payment has not been withdrawn, revoked, discharged or otherwise superseded; 3. The applicant issuer or any of its officers and directors with significant ownership have been party to instances of failure to pay debt service obligations when due at any time within the past five (5) years; and 4. The applicant issuer is engaged in a line of business which is contrary to law, morals, good customs, public order or public policy. III. LISTING PROCEDURES A. Processing of the Application 1. Filing of Application for Listing The applicant issuer together with the guarantor, issue manager and underwriter, shall secure the necessary forms from the PSE and file an application for listing with the Listing Department. An application shall not be considered complete and thus cannot be processed unless all documentary and other requirements shall have been submitted to the Listing Department of the PSE and the processing fee is paid. 2. The Listing Department shall review the application and prepare its recommendation to the Listing Committee. 3. Upon presentation to the Listing Committee, the Listing Committee, in turn, shall review the application and the recommendation of the Listing Department. 4. If the application is found to be in order, the Listing Committee shall recommend to the Board of Governors the approval of the application. 5. The Board shall take action on the application and shall accordingly notify the applicant issuer in writing on the status of the application. 6. Red Herring Prospectus a) The applicant issuer shall submit its red herring prospectus to the Listings Department at least seven (7) calendar days prior to its presentation to the Listing Committee. b) Within seven (7) calendar days from the receipt of the Notice of Approval from the Board of Governors of the application, the applicant issuer shall furnish all the member-brokers of the PSE a copy of its Red Herring Prospectus. B. Listing 1. Target Listing Date The PSE shall expeditiously act on every listing application and shall queue issuances with due regard to the timing and order of submission of complete application requirements by issuers. 2. Listing Date and Failure to Offer and/or List The offering period and formal listing of debt securities shall be conducted within sixty (60) calendar days from receipt of the Notice of Approval of the listing application. If no listing was conducted within the prescribed period, the listing application shall be deemed abandoned. On the other hand, if an offering was conducted, formal listing shall be made within twenty-one (21) calendar days from the end of the offering period. If formal listing could not be made possible within the prescribed period, the applicant issuer shall be required to refund all subscription payments within ten (10) banking days from the lapse of the prescribed period. In both instances, the applicant issuer may file another application for listing. LexLib Except for justifiable reasons as determined by the Board, no requests for extensions shall be allowed. C. Appeals 1. Decision of the Listing Department If the applicant issuer is found to be in violation of the Listing Rules and of the policies set forth by the PSE, the application shall be denied and the Listing Department shall inform the applicant of its decision as soon as practicable. The applicant issuer may file a request for reconsideration to the Listing Committee within ten (10) calendar days from receipt of the notice. If the applicant issuer is not satisfied with the decision of the Listing Committee, it may file a request for reconsideration to the Board of Governors within ten (10) calendar days from receipt of notice to the applicant issuer of the Committee's decision. 2. Recommendation of Listing Committee If the application is found not to be in order, the Listing Committee may defer its decision to recommend its approval to the Board of Governors. The applicant issuer shall be notified of the Committee's decision, stating the reason thereof. Within ten (10) calendar days from receipt of the Committee's decision, the applicant issuer may file a request for reconsideration to the Listing Committee. If the request for reconsideration is denied, the applicant issuer may file an appeal to the Board of Governors within ten (10) calendar days from receipt of notice. On the other hand, in case the Committee decides to deny or reject the application outright, the applicant issuer, within ten (10) calendar days from receipt of the notice of rejection, may file a request for reconsideration to the Board of Governors, specifying the reason(s) for its request. Only one request for reconsideration shall be allowed. LibLex 3. Decision of the Board of Governors If the Board reverses the recommendation of the Listing Committee, the applicant issuer may file a request for reconsideration to the Board within ten (10) calendar days from receipt of notice, specifying the reason(s) for its request. Only one request for reconsideration shall be allowed. IV. CONTINUING LISTING REQUIREMENTS A. Without in any way limiting the applicability of the Rules on Continuing Listing and all the rules and regulations set forth by the PSE, the following rules shall be observed at all times: 1. The minimum number of beneficial holders at any given time shall be one hundred (100) or such other number as the SEC may from time to time prescribe; 2. The issuer shall pay the annual maintenance fee assessed by the PSE for all-debt securities; 3. As long as a debt security remains outstanding, the issuer must inform the PSE of the following as soon as possible: a) Any change in the rating of a debt security; b) Any change in the rights attaching to any class of listed debt securities (including any change in the rate of interest carried) and any change in the rights attaching to any share into which any listed debt securities are convertible or exchangeable; prcd c) Any plan to postpone any interest payment on listed debt securities; d) Any purchase, redemption, cancellation or conversion by the issuer of its listed debt securities. The amount of relevant debt securities outstanding shall also be stated. In the event of any redemption, cancellation or conversion of the debt securities, the issuer must provide the PSE with the respective notice(s) for public release; e) Any proposed change in capital structure; f) Any new loans or issues of debt securities and, in particular, any guaranty or security in respect thereof; and g) Any decision to change a corporation's articles of incorporation and by-laws. 4. Simultaneously as required by the SEC, the issuer shall furnish the Exchange certified true copies of information, documents and reports submitted to SEC relating to the issues listed. In the case of exempt securities, the issuer shall furnish the Exchange updated information in the form and frequency that PSE shall prescribe, particularly with respect to II.B.1 (e), (f), and (g) of these rules. 5. An event of default on the part of the issuer and the guarantor shall be considered as a violation of the continuing listing requirements. B. The issuer must ensure that all necessary facilities and information are available to enable holders of its listed debt securities to exercise their rights. In particular, it must inform holders of the holding of meetings which they are entitled to attend, enable them to exercise their right to vote, where applicable and publish in the newspapers notices or distribute circulars giving details of the allocation and payment of interest in respect of such securities, the issue of new debt securities (including arrangements for the allotment, subscription, renunciation, conversion or exchange of such debt securities) and repayment of debt securities. C. Cancellation of Listing 1. An event of default on the part of the issuer and guarantor or failure to comply with other continuing listing obligations shall be grounds for suspension or delisting of securities on the PSE, notwithstanding the provisions provided in these rules and the other rules and regulations of the PSE. 2. The PSE shall ensure that upon maturity or full conversion, debt securities shall automatically be delisted. LibLex V. FEES AND PENALTIES A. Applications of First-Time Issuers 1. Processing Fee Upon application, the applicant issuer shall pay a non-refundable processing fee of Fifty Thousand Pesos (PhP50,000.00) plus other incidental expenses. 2. Listing Fees a) First PhP500M PhP500,000 b) PhP500M-PhP5B 1/10 of 1% c) Second PhP5B PhP5M + 1/20 of 1% of excess over PhP5B d) Third PhP5B PhP7.5M + 1/30 of 1% of excess over PhP10B e) Fourth PhP5B PhP9.166666M + 1/40 of 1% of excess over PhP15B f) Excess of PhP20B PhP10.416666M + 1/50 of 1% of excess over PhP20B of face value of securities applied for listing based on offer price. The total listing fees shall be based on the face value of debt securities at listing date(s). In the case of debt issuance programs, Five Hundred Thousand Pesos (PhP500,000) shall be remitted upfront to cover the first Five Hundred Million Pesos (PhP500M) face value of securities to be issued and listed. Payments on succeeding issues beyond Five Hundred Million Pesos (PhP500M) are to be based on the face value of the issues to be listed. The applicant issuer shall pay the listing fee as soon as practicable which in no case shall be later than fifteen (15) days from receipt of the Notice of Approval for listing from the PSE. If the applicant issuer fails to pay within the prescribed period, the applicant issuer shall incur a surcharge of twenty five per cent (25%) plus 1% interest (based on the listing fee) for every day of delay. B. Applications for Additional Listing 1. Processing Fee Upon application to list a new debt issuance program or an extension of an existing line, the issuer shall pay a non-refundable processing fee of Fifty Thousand Pesos (PhP50,000.00). 2. Additional Listing Fees Applications from the same issuer to list a new debt issuance program or extend an existing line shall be subject to the following schedule: a) First PhP5B 1/10 of 1% b) Second PhP5B PhP5M + 1/20 of 1% of excess over PhP5B c) Third PhP5B PhP7.5M + 1/30 of 1% of excess over PhP10B d) Fourth PhP5B PhP9.166666M + 1/40 of 1% of excess over PhP15B e) Excess of PhP20B PhP10.416666M + 1/50 of 1% of excess over PhP20B of face value of securities applied for listing based on offer-price. C. Applications of Listed Companies Companies whose securities are already listed on the PSE shall be subject to the fee schedule for Additional Listings. Listing fees payable on convertible debt securities shall be whichever is higher between the fees assessed on the issuance of debt securities based on these Listing Rules, and the fees assessed based on the Listing Rules for Equity Securities. D. Annual Listing Maintenance Fee 1. The issuer shall pay an annual listing maintenance fee of One Hundred Pesos (PhP100.00) for every One Million Pesos (PhP1M) face value of outstanding debt securities as of the last trading day of the immediately preceding year, but in no case shall it be less than One Hundred Thousand Pesos (PhP100,000.00) nor more than Five Hundred Thousand Pesos (PhP500,000.00). If the outstanding balance of the issue declines as a result of amortizations on the principal, the basis for determining the annual listing maintenance fee shall be the face value at issue multiplied by the outstanding balance factor of the listed securities. 2. The annual listing maintenance fee shall be paid on or before January 15 of each year, with an allowable grace period of one week. 3. The issuer shall be assessed a fine of One Thousand Pesos (PhP1,000.00) for every calendar day of delay. If such issuer fails to remit the maintenance fee by 15 February of that same year, the PSE shall discontinue assessing the issuer the fine but it shall automatically suspend the particular issue for which fees have not been paid from trading for two months or until 15 April. If the issuer still fails to pay the required fees after 15 April, the relevant issue shall be delisted without prejudice to the payment of the proportionate maintenance fees to the PSE. prcd E. Mode of Payment Payment for all the fees shall either be in 1. A local clearing check issued by the company; or 2. A manager's check. F. Penalties Except as otherwise provided in these Rules, the PSE in its discretion shall, after proper notice and after granting an issuer the opportunity to be heard, impose any or some of the following sanctions if it finds that there is violation of these Rules: 1. A denial of the application or revocation of the approval of the listing. 2. A fine of not less than Fifty Thousand Pesos (PhP50,000.00) for the first infraction. 3. A fine of not less than One Hundred Thousand Pesos (PhP100,000.00) and a reprimand to be made public for the second infraction. 4. A fine of not less than Three Hundred Thousand Pesos (PhP300,000.00) and a reprimand to be made public for the third infraction. The imposition of the foregoing sanctions shall be without prejudice to the filing of any action in the courts of law. VI. LISTING OF NATIONAL GOVERNMENT SECURITIES Except for BTr-issued debt securities and debt securities directly issued by the Republic of the Philippines, the General Listing Requirements and Procedures of the PSE shall apply. 1. RoSS will act as the registry for BTr-issued debt securities and will: a. Maintain a duly approved registry for recording initial and subsequent transfers; b. Ensure that all transfers are executed only through the PSE trading system; and c. Pay principal and interest to holders of the listed securities through designated settlement banks. 2. The listing of BTr-issued debt securities on the PSE shall be subject to the execution of a Listing Agreement between the PSE and the BTr that will govern the terms and conditions and the rights and obligations of the parties. RULES ON THE TRADING OF DEBT SECURITIES Unless inconsistent with these rules, trading of debt securities shall follow the PSE Trading and Settlement Rules for Equities. Trading of Securities issued by the Bureau of the Treasury shall not be governed by these rules. 1. TRADING CONVENTIONS A. Minimum Denomination The minimum denomination for listed debt securities shall be that prescribed by the SEC or, in the absence of a SEC-prescribed minimum, jointly determined by the issuer and the PSE B. Quoting Conventions Debt securities shall be traded at a price, quoted as a percentage of the face value up to the second decimal points. C. Ex-date and record date for coupon payments 1. For commercial papers, no reference to the holding period is required, since the ex date and record date are already built into the price. 2. For bonds and collateralized mortgage obligations (CMOs), the price shall include accrued income from date of transaction up to the next coupon date. This amount goes to the Buyer. The accrued income of yield from last coupon date to date of transaction goes to the Seller. 3. For mortgage pass-through securities, no reference to the holding period is required. The coupon payment shall be paid to the investor on record as of the record date, so that when units are bought and sold, the price will include the accrued but unpaid income of the Seller. D. Trading Hours Trading hours for debt securities shall follow the PSE's daily trading schedule. E. Purchase with sell-back The purchase of a security with sell-back shall be considered as a special cross sale. The purchase price may follow the market price. However, on a pre-agreed sell-back date, there shall be an agreed sell-back price which may be independent of the market price. The sell-back shall not be posted as part of the market price of the day. F. Contracts, order slips, and other required documents As to design, these documents shall be similar to that of equities, allowing for differences in taxes, fees and charges. G. Entering and prioritizing bid and offer quotes Except for cross transactions, orders shall be entered into the Maktrade System by the brokers in the order in which they were received and shall be prioritized by the trading system first by price and then by time. H. Revisions in Order Reduction in the volume of a posted order shall not lose its priority in the queue. However, an increase in the number of securities of a posted order shall lose its priority and shall be queued at the last position for the stated price. I. Cross Transactions Crosses shall be made in accordance with the following requirements: 1. Where there are no Bid or Ask postings, a broker who wishes to make a cross transaction shall post either the buying and selling side before executing a cross; 2. There shall be an automatic cross when a broker has a posted order, either a buying or a selling, and then posts-another order at the same price at the other side. In such a case, the subject broker shall have the priority among the brokers who posted earlier in the queue. His newly posted order shall be matched with his earlier posted contra order regardless of his position in the queue. II. SETTLEMENT CONVENTIONS A. Record Date The record date shall be based on the Final Maturity Date and shall be determined date to date. For example, if the Final Maturity date of a semi-annual coupon bond is December 10, then the record dates shall be June 10 and December 10. The coupon distribution date shall be a date after the record date as determined by the issuer. B. Enrollment for Scripless Trading The securities must be immediately enrollable for scripless trading at the Philippine Central Depository (PCD) C. Clearing with the Securities Clearing Corporation of the Philippines (SCCP) Transactions that may be cleared with the SCCP shall be strictly limited to purchases and sales by and between member-brokers. D. Transaction Reports At the end of each trading day, brokers shall print their daily transaction reports. The Automated Trading Group of the PSE shall send data on daily transactions to the SCCP. LexLi b E. Deliveries to the SCCP All required documents shall be submitted to the Clearing House not later than 1:00 p.m. on the trading day after the transaction date. III. DELIVERY A. Confirmation Advice Transactions through the electronic book entry system shall be contained in the standard Confirmation Advice. B. Physical Delivery of Certificates As applicable, physical delivery shall be notified to the broker and the PCD shall notify the Transfer Agent who will produce the certificates. C. Pledged securities The PCD and the Transfer Agent shall, upon request, electronically flag or earmark securities as pledged to a creditor. Under this status, the securities cannot be sold by the investor unless and until the flag is lifted. RULES ON TRADING BTR-ISSUED SECURITIES (TREASURY BONDS) This section shall govern the trading of securities issued by the Bureau of the Treasury. Unless inconsistent with these rules, trading of Treasury Bonds shall follow the PSE Trading and Settlement Rules for Equities. 1. Definition of Terms For the purpose of these Trading Rules, the following terms shall have the following meaning: 1. Autodebit/ Autocredit Authorization An instruction in writing by investors to waive his right to exclusivity of information on his Securities/ Settlement accounts as may be provided by taw and to effect actual securities/ cash transfer between his Securities/ Settlement Account to the Securities/ Settlement Account of another. 2. Book-entry delivery A method of delivering securities which is constructive, not physical that permits trades to settle by debiting or crediting securities accounts by book entry. 3. Delivery-Versus-Payment or DVP method of executing transactions in which the buyer receives trade securities from the seller only against the buyer's full payment of the securities; conversely, the seller delivers trade securities to the buyer only against receipt of buyer's full payment. LibLex 4. Real-Time-Gross-Settlement or RTGS An immediate settlement of the transactions in Treasury Bonds through electronic processing without netting. 5. Registry of Scripless Securities or RoSS The official registry of ownership of or interest in scripless securities floated by the Republic of the Philippines, maintained by the Bureau of the Treasury. 6. Securities Account Each Principal Securities Account or Client Securities Account allocated to and administered by PSE member-brokers in which Treasury Bonds owned by such brokers of their clients are credited; conversely, from which Treasury Bonds sold by such dealers or their clients are debited. 7. Settlement Account The cash account maintained with the Settlement Bank for the purpose of paying Treasury Bonds transactions. 8. Settlement Bank The bank designated and approved by RoSS for the money payment purposes of Treasury Bonds transactions, and for receipt of credit for matured Treasury Bonds or coupons. 9. Treasury Bond Government Securities which mature beyond one year. II. Persons Authorized to Trade A. Institutions All PSE member-brokers may engage in the regular business of buying, selling, and trading of Treasury Bonds on behalf of a seller/ buyer provided they meet the following: 1. Undertaking to comply with any law, regulation, order, or convention and any requirement pursuant thereto, applicable to them who deal and trade in Treasury Bonds; and 2. Execution of Autodebit and Autocredit Authorization to/ from a Cash/ Securities Account to/from another. B. Trading Personnel The personnel assigned to trade Treasury Bonds in the trading booth in either trading floor (PSE Plaza Ayala or PSE Center Tektite) must be capable of and actually doing trades in such securities. The staff assigned to operate the computer terminal(s) must be certified by the Exchange as a MakTrade user. In case buying and selling orders of Treasury Bonds are received on the trading floor directly from the clients themselves, the staff receiving the orders must be duly licensed by the SEC. If the client's orders are simply relayed from the broker's offices, the receiving staff need not be SEC-licensed. To be able to trade in Treasury Bonds, at least one of the authorized trading floor personnel must be a Maktrade certified user. If brokers will have to assign only one staff who will do both the order entry and receiving orders of Treasury Bonds directly from the clients themselves, then the staff must be both a certified Maktrade user and SEC-licensed. LibLex III. Procedures for Trading and Settlement A. Securities Account Each PSE member-broker dealing in Treasury Bonds shall open and maintain a Principal Securities Account and Client Securities Account/s with RoSS for official recordkeeping of inventory and trades of their Treasury Bonds, and that of their clients. B. Settlement Account Each PSE member-broker shall cause each investor to open and maintain a Settlement Account with a Settlement Bank which shall agree to service their settlement of scripless securities trade immediately upon notice of a transaction concluded. C. Autodebit/Autocredit Authorization Before purchasing a Treasury Bond belonging to such series that will be tradeable through the PSE, each investor will be required to sign a waiver of his right to secrecy of deposits which will in effect authorize any broker he designates to execute his trade instructions, to verify and debit/credit his Securities Account with RoSS, and verify and credit/debit his Settlement Account with the Settlement Bank. To trade, an investor will necessarily disclose his RoSS Account Number and matching Settlement Account Number with a designated PSE member-broker to enable that broker to execute the transaction. D. Trading Hours Treasury Bonds trading shall follow the PSE's daily trading schedule. E. Trading Lot and Multiple Trading through the PSE shall be at a minimum trading lot of P5,000 in multiples of P5,000. There shall be no maximum trading lot. LexLib F. Ordering The following ordering procedures will be followed: For "Buy" orders. 1. The PSE member-broker shall post an order to buy a treasury bond through the PSE and key in the buyer's settlement account number and RoSS account number. 2. PSE shall verify (a) the adequacy of cash in the buyer's account with the settlement bank and (b) whether the RoSS account number matches the settlement account number currently being used by the investor. 3. The settlement bank will inquire from the buyer's account, earmark the cash, and duly inform the PSE on the adequacy of cash. 4. PSE shall queue the "buy" order until it matches a "sell" order. Verified orders shall be prioritized by the trading system first by price and then by time. cdlex 5. Upon matching, the PSE shall: a. Request the settlement bank to debit the buyer's settlement account and credit the seller's, buying and selling brokers', and BTr's, PSE's, and the settlement bank's settlement accounts for the payment of securities, commissions' and transaction fees, respectively. b. Request the RoSS to debit the seller's and credit the buyer's RoSS accounts to transfer ownership of securities. 6. Earmarking of securities will be lifted at the end of the day if order remains unfilled, unless the order is a good-till-cancelled (GTC) order in which case, shall remain earmarked for 7 calendar days starting from the day of posting. For "Sell" orders: 1. The PSE member-broker shall post an order to sell a treasury bond through the PSE and key in the seller's RoSS account number and settlement account number. 2. PSE shall verify (a) the adequacy of securities in the seller's account with the RoSS and (b) whether the settlement account number matches the RoSS account number currently being used by the investor. 3. RoSS will inquire from the seller's account, earmark the securities, and duly inform the PSE on the adequacy of securities. 4. PSE shall queue the "sell" order until it matches a "buy" order. Verified orders shall be prioritized by the trading system first by price and then by time. LibLex 5. Upon matching, the PSE shall: a. Request the settlement bank to debit the buyer's settlement account and credit the seller's, selling and buying brokers', and BTr's, PSE's and the settlement bank's settlement accounts for the payment of securities, commissions, and transaction fees, respectively. b. Request the RoSS to debit the seller's and credit the buyer's RoSS accounts to transfer ownership of securities. 6. Earmarking of securities will be lifted at the end of the day if order remains unfilled, unless the order is a good-till-cancelled (GTC) order in which case, shall remain earmarked for 7 calendar days starting from the day of posting. To cancel or revise "Buy" orders: 1. The PS member-broker shall cancel the "Buy" order through the PSE. 2. The PSE shall take the "Buy" order out of the queue and duly notify the settlement bank on the cancellation of the "Buy" order. 3. The settlement bank shall free the cash previously earmarked in the buyer's settlement account and duly notify the PSE on the freeing of such cash balances. 4. The PSE shall notify the member-broker on the freeing of subject cash balances. 5. The member-broker shall post another "Buy" order as desired following the normal buying procedure. To cancel or revise "Sell" orders: 1. The PSE member-broker shall cancel the "Sell" order through the PSE. 2. The PSWE shall take the "Sell" order out of the queue and duly notify the RoSS on the cancellation of the "Sell" order. 3. The RoSS shall free the securities previously earmarked in the seller's RoSS account and duly notify the PSE on the freeing of such securities. 4. The PSE shall notify the member-broker on the freeing of subject securities. 5. The member-broker shall post another "Sell" order as desired following the normal selling procedure. G. Revisions in Order If the amount of securities for selling or cash for buying has to be reduced but has already been verified, the order need not be re-verified and shall not lose its priority in the queue provided the order is at the same price . However, if the amount of securities to sell or cash to buy has to be increased, the broker will have to cancel his previous order and key in a new order, to be verified anew. If the price has been revised as well, prioritization of verified orders shall be first by price, then by time. H. Guaranteed Verification of Cash The Settlement Bank shall be liable for any errors in its verifications on the availability of sufficient cash in the Settlement Account of the buyer of securities. I. No Cancellation of Matched Trades There shall be no cancellation of matched trades. J. No Trading of Matured Treasury Bonds PSE member-brokers shall not trade Treasury Bonds on its maturity date. K. Proof of Transfer Book-entry transfer of ownership in Treasury Bonds by RoSS shall be binding on the parties to the transfer and shall be final, conclusive and irrevocable unless RoSS had acknowledged receipt of a contrary notice before the entry was made. L. Settlement Settlement of all Treasury Bonds transactions will always be on a Delivery-Versus-Payment (DVP) basis, i.e., delivery will be simultaneous with payment, and on a Real-Time-Gross-Settlement (RTGS) basis, i.e., trade for trade and not netting. IV. Statement of Securities Account RoSS shall provide the PSE with a daily transaction report which it will duly transmit to its member-brokers who in turn shall assume the responsibility of informing their clients on the status of their respective accounts. V. Service and Redemption A. The Bureau of the Treasury shall make payment in accordance with RoSS which, in turn, shall pay the investor whose name appears in the registry. B. On coupon due date/ maturity date, the Bureau shall advise the Settlement Bank to credit the Settlement Account of each securities account holder with the amount of coupon payment, net of tax/ redemption value of Treasury Bonds. VI. Accounting Requirements A. Duty to keep records It shall be the responsibility of each member-broker to keep and maintain at all times a proper system of books and records necessary to record properly its business transactions in accordance with the prescribed accounting system of the Bureau of the Treasury and the Securities and Exchange Commission. B. Duty to check accuracy of statement of accounts and reports It shall be the responsibility of each member-broker to check and reconcile with its own records/ books the statement of securities accounts and reports Generated by RoSS in relation to the registration, clearing and settlement of Treasury Bonds, and to properly notify RoSS in writing of any error or omission contained therein within two (2) business days from receipt of the statement of accounts/ reports. Transaction Flow of Debt Securities Trading at the PSE Transaction Flow of Treasury Bond * Trading at the PSE PROPOSED METHOD OF DETERMINING PRICE AND YIELD * where P = Price in % C = Coupon payment at Period k Coupon rate in % / m M = Face Value of the Bond (Since Price is expressed in % of Face Value, Face Value has to be set at 100%) Y = Annual yield to maturity in decimal m = No. of coupon payment periods per year If annual, m = 1 Semi-annual, m = 2 Quarterly, m = 4 n = No. of coupon payments remaining x = No. of days in the coupon period bracketing the settlement date d = No. of days from the settlement date to the next coupon date a = No. of days from beginning of the coupon period to the settlement date Note : The buyer compensates the seller at the full price of the bond, which includes accrued interest. Quotations on the trading floor shall include accrued interest, i.e., given by the above formula. TAX TREATMENT OF GOVERNMENT SECURITIES On the issuance Subject to documentary stamp tax (DST) of Php0.30 on each two hundred pesos or fractional part thereof, of the face value. DST is paid by the Bureau of the Treasury who does not pass on the burden to the investor. 1 On the interest earned by the holders Interest income is generally subject to a final withholding tax of 20% on deposit substitutes. Interest on Treasury Bonds is credited by the Bureau of the Treasury to each registered investor's settlement account periodically in arrears. The 20% final withholding tax is netted out from the periodic interest payments. 1 Subject to the preferential rates provided under the applicable tax treaty, the interest on the Bonds will be subject to a final withholding tax at the rate of 25% if the holder is a nonresident alien individual not engaged in trade or business in the Philippines or a nonresident foreign corporation. On secondary sales Not subject to DST Not subject to stock transaction tax Any capital gain realized from the sale of bonds will form part of the taxable gross income of the sellers which will be subject to the normal income tax rates. Any capital loss incurred from sale will be deductible from gross income only to the extent of capital gains. Under Section 32(b)(7)(g) of the Tax Code, gains from the sale of Bonds, Debentures or other Certificate of Indebtedness with a maturity of more than five years are exempt from income tax. If the term of the Bond is only five years. the exemption will not apply. Footnotes 1. Bureau of the Treasury * Copied verbatim from documents obtained directly from the Philippine Stock Exchange .