Revised Rules on Commodity Futures

January 1, 1983 REVISED RULES ON COMMODITY FUTURES Pursuant to the provisions of Presidential Decree No. 902-A and of the Revised Securities Act (BP No. 178), the following revised rules and regulations governing Commodity Futures Exchanges, Futures Commission Merchants, Floor Brokers, Commodity Futures Associations, Commodity Pool Operators and Commodity Trading Advisors, are hereby promulgated. TITLE I Definitions RULE 1. For purposes of these rules, the following terms shall have their respective meanings: a) The word "Commission" shall mean the Securities and Exchange Commission. b) The word "person" shall be construed to include individuals, partnerships, corporation and trusts. c) The words "commodity future exchange" shall be held to include and mean any corporation authorized by law and by the Commission to operate as an exchange, the members of which are persons who are engaged in the business of purchasing and selling commodity futures contracts for the account of other persons. "This shall also refer to "contract market". d) The word "commodity" shall include agricultural and mineral products such as but not limited to copra, coconut oil, rice, corn, wheat, raw sugar, refined sugar, plywood, veneer, sawn lumber, abaca fiver, abaca pulp, raw cotton, cotton yarn, gold concentrates, bullions and coins, copper concentrates and ingots, livestock, and all other goods, articles, services, rights and interests in which contracts for future delivery are presently or in the future dealt in. Nothing in these rules shall be deemed to govern or in any way be applicable to transactions in security warrants, security rights, resales of installment loan contracts, repurchase options, government securities, or mortgages and mortgage purchase commitments, unless such transactions involve the sale thereof for future delivery conducted on a commodity, future exchange designated as a contract market. e) "Contract of sale or purchase" shall be held to include sales or purchases agreements of sale or purchase, and agreements to sell or purchase. f) The term "future delivery" as used herein shall not include any sale of any cash commodity or its equivalent for deferred shipment or delivery. g) The words "cooperative association of producers" shall mean a duly registered cooperative association, not less than 75 per centum of whose capital is in good faith, owned or controlled, directly or indirectly, by producers of agricultural and mineral products. h) The words "member of commodity future exchange" shall mean persons owning or holding membership in, or admitted to membership representation on a contract market. i) The words "futures commission merchant" shall mean any person engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on or subject to the rules of any contract market and that, in or in connection with such solicitation or acceptance of orders, accepts any money, securities or property (or extends credit in lieu thereof) to margin, guarantee or secure any trades or contracts that result or may result therefrom. j) The words "floor broker" shall mean any person who, in or surrounding any "pit", "ring", "post", or other place provided by a contract market for the meeting of persons similarly engaged, shall purchase or sell for any other person any commodity futures contract. k) The term "commodity trading advisor" shall mean any person who, for compensation or profit, (1) engages in the business of advising others, either directly or through circulars, reports, publications or writings, as to the value of commodities and as to the advisability of trading in any commodity for future delivery on or subject to the rules of any contract market, or (2) who for compensation or profit, and no part of a regular business, issues or promulgates analyses or reports concerning commodities, except (a) any bank or trust company, (b) any journalist, reporter, columnist or editor, lawyer, accountant or teacher, (c) any floor broker or futures commission merchant, (d) the publisher of any bonafide newspaper, news, business or financial publication of general and regular circulation, including their employees, (c) any contract market, and (f) such other persons not within the intent of this definition as the Commission may specify by rule, regulation or order. Provided that the furnishing of such service by the foregoing persons is solely incidental to the conduct of their business or profession. l) The term "commodity pool operator" shall mean any person engaged in a business which is of the nature of an investment trust, syndicate or similar form of enterprise, and who, in connection therewith, solicits, accepts or receives from others, funds, securities or property, either directly or through capital contributions, the sale of stock or other forms of securities or otherwise, for the purpose of trading in any commodity except those otherwise contemplated under special laws. m) The term "spread" shall refer to the simultaneous purchase and sale of futures contracts for the same commodity for delivery in different months. n) The term "straddle" shall refer to the simultaneous purchase and sale of futures in different but related commodities for delivery in the same or different months. o) The term "arbitrage" shall mean the buying or selling of a commodity in one market and transacting an opposite trade of an equal amount of the name commodity on a different market. p) The words "clearing house" shall mean the central agency through which transactions of members of a commodity futures exchange are cleared and settlements effected. q) The term "clearing member" shall refer to a company or individual who is a member of a commodity futures exchange and is authorized by such commodity futures exchange to have orders traded by him registered in his own name. r) The term "margin" shall mean the sum of money, normally related to the value of each lot, put up by the broker to the commodity futures exchange or clearing house or by a client to his broker. s) The term "futures association" shall mean an association composed of duly registered and licensed commodity futures merchants/brokers, commodity pool operators and commodity trading advisors in the Philippines, and other persons whom the Commission may designate as eligible for membership in such association. t) The term "foreign principal" shall mean a clearing member of foreign commodity futures exchange who (1) has a proprietary interest in a local broker, (2) signs a contract (in a form acceptable to the Commission) with said local broker regarding the transmittal of local orders for execution in foreign commodity futures exchanges, (3) guarantees contracts, if any, with clearing member of other foreign commodity futures exchanges or any agent thereof for the local broker to directly trade with much clearing, members, and (4) advances the margin requirements in the currency required by the foreign commodity futures exchanges on behalf of the local broker. u) The term "local broker" shall mean a person or firm duly registered and licensed by the Commission to operate a futures commission merchant/broker. v) The words "branch office" shall mean any office other than the principal office of any local broker, under separate management and keeping separate books of accounts (for the branch) established for the purpose of solicitation or acceptance of commodity futures contracts of sale or purchase. TITLE II Commodity Futures Exchanges RULE 2. Futures transactions prohibited except through designated contract markets . It shall be unlawful for any person to deliver personally or for transmission through the mails or by telegraph, telephone, wireless or other means of communication, any offer to make or execute, or any confirmation of the execution of, or any quotation or report of the price of, any contract of sale or purchase of any commodity, for future delivery on or subject to the rules of any commodity , futures exchange, or for any person to make or execute such contract of sale or purchase, which is or may be used for (a) hedging any transaction in any commodity or the products or by-products thereof, or (b) determining the price basis of any such transaction, or (c) delivering any commodity sold, shipped or received for the fulfillment thereof, except where such contract, in any of the foregoing. cases, is made by or through a member of a commodity futures exchange which has been designated by the Commission as a "contract market" as hereinafter provided. RULE 3. Solicitation and acceptance of futures orders prohibited except through designated contract markets . It shall be unlawful for any person (1) To establish any office or place of business anywhere in the Philippines for the purpose of soliciting or accepting any orders for the purchase or sale of any commodity for future delivery, or for making or offering to make any such contracts or for conducting any dealings in futures contracts if such orders, contracts or dealings are executed or consummated otherwise than by or through a member of a contract market, or (2) Falsely to represent such person to be a member of a contract market, or the representative or agent of such member, or to be a futures commission merchant or futures broker registered under these rules, or the agent of such registered futures commission merchant, in soliciting or handling any order or contract, or falsely to represent in connection with the handling of any such order or contract that the same is to be or has been executed on or by or through any member of any contract market. RULE 4. Designation of Contract Markets . The Commission shall designate any commodity futures exchange in the Philippines as a "contract market" when and only when such exchange complies with the following conditions and requirements. (1) When located at a place or in an area where any commodity of the kind specified in the futures contract to be executed on such exchange is traded in sufficient volumes and under such conditions as fairly to reflect the general value of the commodity and the difference in value between the various grades of such commodity, and where there is available to such exchange commodity inspection service approved by the Commission for the purpose. (2) When the governing board of the exchange provides for the making and filing by the exchange or any member thereof, as the Commission may direct, of reports in accordance with the rules and regulations, and in such manner and form and at such times, as may be prescribed by the Commission. Such record shall be required to be kept for a period of five (5) years from date thereof, or for a longer period if the Commission shall so direct, and shall at all times be open to the inspection of any representative of the Commission during business hours. (3) When the governing board thereof provides for the prevention of dissemination by the exchange or any member thereof of false or misleading or knowingly inaccurate reports concerning crop or market information or conditions that affect or tend to affect the price of any commodity traded therein, and for the prevention of manipulation of prices and of the cornering of any commodity by the brokers/merchants or commodity pool operators on such exchange; and (4) When such exchange demonstrates that transactions for future delivery in the commodity for which designation as a contract market is sought will promote public interest. If the commodity exchange is foreign based, the Commission may, in its discretion, authorize a futures commission merchant, locally based, to accept, transmit and/or execute orders on such exchange described in Rules 2 and 3. RULE 5. Responsibility of domestic contract markets . Each domestic contract market shall (1) Promptly furnish the Commission copies of all rules and regulations and resolutions made or issued by it or by the governing board thereof or any committee, and of all changes and proposed changes therein; (2) Keep all books, records, minutes and journals of proceedings of such contract market and its governing board, committees, subsidiaries and affiliates, in a manner that will clearly describe all matters discussed and reveal any action taken on such matters. Such books, records, minutes and journal of proceedings shall be kept for a period of five (5) years from date thereof, or for a longer period if the Commission so directs and shall at all times be open to the inspection of any representative of the Commission during business hours; (3) Require the operators of warehouses in which or out of which any commodity is deliverable on any future contract of such reports, keep such records, and permit such warehouse visitation as the Commission may prescribe. Such records, books and reports shall be required to be kept for a period of five (5) years from date thereof, or for a longer period if the Commission shall so direct, and such records, books, reports and warehouses shall be open at all times to inspection by any representative of the Commission during business hours; (4) Require the party making delivery of any commodity on any contract of sale or purchase of such commodity for future delivery to furnish the party obligated under the contract to accept delivery, written notice of the date of delivery at least one business day prior to such date of delivery. Whenever after due notice and opportunity for hearing, the Commission finds that the giving of longer notice of delivery is necessary to prevent or diminish unfair practices in trading in any one or more commodities or and markets, it shall require longer notice of delivery not exceeding, in any case, ten business days. (5) Require that all contracts of sale or purchase of any commodity for future delivery on such contract market shall provide for the delivery thereunder of commodities of grades conforming to standards promulgated by the contract market and approved by the Commission; (6) Require that receipts "issued under the Warehouse Receipts Law" shall be accepted in satisfaction of any futures contract, made on or subject to the rules of such contract market; (7) Enforce all by-laws, rules and regulations made or issued by it which (a) relate to terms and conditions in contracts of sale to be executed on or subject to the rules of such contract market or to other trading requirements which have been approved by the Commission; (b) provide minimum financial standards and related reporting requirements for futures commission merchants who are members of such contract market, and which have been approved by the Commission; (8) Permit the delivery of any commodity, or contracts of sale or purchase thereof for future delivery, of such grade or grades, at such point or points and at such quality and locational price differentials as will tend to prevent or diminish price manipulation, market congestion, or the abnormal movement of such commodity. If the Commission after investigation finds that the rules and regulations adopted by a contract market permitting delivery of any commodity on a futures contract do not accomplish the objectives of this subsection, then the Commission shall notify the contract market of its findings and afford the contract market an opportunity to make appropriate changes in such rules and regulations. If after making the appropriate notice and opportunity for hearing, the Commission determines that such contract market has not made the changes so requested, and that such changes are necessary or appropriate for the protection of investors or to insure fair dealing in futures contracts traded upon such exchange or to insure fair administration of such exchange, by rules and regulations or by orders, to alter or supplement the rules of such exchange (insofar as necessary or appropriate to effect such changes) in accordance with the applicable provisions of the Revised Securities Act; (9) Provide a fair and equitable procedure through arbitration or otherwise for the settlement of customers' claims and grievances against any member or employee of the exchange; and (10) Submit to the Commission for its approval all rules, resolutions and regulations made or issued by such contract market, or by the governing board or committee thereof which relate to terms and conditions in contracts of sale or purchase to be executed on or subject to the rules of such contract market or which relate to other trading requirements. RULE 6. Application for designation . Any domestic commodity futures exchange desiring to be designated as a "contract market" shall make application to the Commission for such designation and accompany the same with a showing that it complies with the above conditions and with a sufficient assurance that it will continue to comply with the above requirements. In the event of a refusal to designate as a "contract market" any commodity futures exchange that has made application therefor, such exchange shall be afforded an opportunity for a hearing before the Commission. RULE 7. Disciplinary Action . The failure or refusal of any commodity futures exchange to comply with any of these rules or any order of the Commission hereunder shall, after proper hearing. because of suspending for a period not to exceed twelve (12) months or revoking the designation of such exchange as a contract market. The Commission is also authorized to suspend for a period not to exceed twelve (12) months or to revoke the designation of any commodity futures exchange as a contract market upon a showing that such exchange is not enforcing or has not enforced its rules of government which were made a condition of its designation. And if the public interest so requires, summarily to suspend trading in any commodity futures on any domestic contract market for a period of not exceeding thirty (30) days or, with the approval of the President of the Philippines, summarily to suspend all trading on any commodity futures exchange for a period of more than thirty (30) days but not exceeding ninety (90) days. RULE 8. Membership of producers cooperative in contract market . No designated contract market shall exclude from membership in, and all privileges on such contract market any association or corporation engaged in cash commodity business. having adequate financial responsibility, which is duly recognized as a cooperative association of producers by the Philippine Government or any agency thereof, if such association or corporation complies with and agrees to comply with such terms and conditions as are or may be imposed lawfully upon other members of the contract market, and as are or may be imposed lawfully upon a cooperative association of producers engaged in cash commodity business, unless such contract market is authorized by the Commission to exclude such association or corporation from membership and privileges after hearing hold upon at least three days' notice from the filing of the complaint by the exchange concerned. RULE 9. Withdrawal of designation as a contract market . Any commodity futures exchange that has been designated as a contract market may have such designation vacated and put aside by giving notice in writing to the Commission requesting that its designation as a contract market be vacated, which notice shall be served at least ninety (90) days prior to the date named therein as the date when the vacation of designation shall take effect. The exchange concerned can thereafter be designated again as a contract market by making application to the Commission in the manner herein provided for an original application. RULE 10. Publication of data on operation of contract markets . The Commission may make such investigation as it may deem necessary to ascertain the facts regarding the operations of commodity futures exchanges and other persons subject to the provisions of Presidential Decree No. 902-A, the Revised Securities Act (BP No. 178) and of these rules, and may publish from time to time, in its discretion, the result of such investigation and such statistical information gathered therefrom as it may deem of interest to the public, except data and information which would separately disclose the business transactions of any persons and trade secrets or names of customers. TITLE III Registration Of Futures Association RULE 11. Qualification of Futures Association . No applicant association shall be registered as futures association unless the Commission finds, under standards established by it, that (1) The rules of the association are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to protect the public interest and to remove impediments to the mechanism of free and open futures trading; (2) The rules of the association provide that its members and persons associated with its members be appropriately disciplined, by expulsion, suspension, fine, censure, or being suspended or barred from being associated with all members, or any fitting penalty, for violation of its rules; (3) The rules of the association prove a fair and orderly procedure with respect to the disciplining of members and persons associated with members and the denial of membership to any person or the barring of any person from being associated with a member; and (4) Such association is in the public interest and that it will be able to comply with the rules and regulations of the Commission. Any duly licensed local futures brokers/futures commission merchants and their foreign principal or any other person whom the Commission may designate as eligible for membership, may become a member of such association except such as may be excluded pursuant to the provisions of paragraphs (a) and (b) of this rule. (a) Except with the approval or at the direction of the Commission in cases in which the Commission finds it appropriate in the public interest, no person shall be continued in membership if such person (1) has been and is suspended from being associated with all members of such contract market, for violations of any rules or for conduct inconsistent with just and equitable principles of trade; or (2) is subject to a disciplinary order of the Commission or (3) has associated with any person who is known to have been excluded from membership in the association. (b) Except with the approval or at the direction of the Commission, no person shall become a member nor shall become associated with a member unless such person is qualified to become a member or a person associated with a member unless he is qualified with respect to the training, experience and such other qualifications of such person as the association finds necessary or desirable, and in the case of a member, the financial responsibility of such member. RULE 12. Registration of futures association . Any association of persons may be registered with the Commission as a registered futures association by filing with the Commission for review and approval an articles of incorporation setting, forth the information and accompanied by the documents, below specified: (1) Copies of the articles of incorporation and by-laws with all amendments thereto, and its existing rules and regulations affecting the members; (2) A written undertaking to furnish the Commission copies of any amendments to the articles of incorporation, by-laws and the rules and regulations of the association forthwith upon their adoption; and (3) Other documents and/or information that the Commission may require for public interest. RULE 13. Disciplinary action against any member of a registered association subject to review . If any registered association takes any disciplinary action against any member thereof or any person associated with such member or denies admission to any person seeking membership therein, or bars any person from being associated with a member, such action shall be subject to .review by the Commission, on its own motion, or upon application by any person aggrieved thereby filed within thirty (30) days after such action has been taken or within such longer period as the Commission may determine. If after appropriate notice and opportunity for hearing, the Commission finds that any penalty imposed upon a member or person associated with a member is excessive, having due regard to public interest, the Commission shall, by an order, cancel, reduce or require the remission of such penalty. In any proceeding to review the denial of membership in registered futures association or the barring of any person from being associated with a member, if the Commission, after appropriate notice and hearing, determines that the specific grounds on which such denial or bar are based on fact and are valid, the Commission shall, by order, dismiss the proceedings otherwise, the Commission shall, by order, set aside the action of the association and require it to admit the applicant to membership therein or to permit such person to be associated with a member. RULE 14. Abrogation and Amendment of Rules of Registered Association . The Commission may, by rules and regulations or by order, abrogate, amend, alter or supplement any rule or regulation of a registered futures association if, after appropriate notice and hearing, it appears to the Commission that such abrogation, amendment, alteration or supplement is necessary or appropriate in the public interest. RULE 15. Revocation or suspension of registration of registered association; removal of officer . The Commission may, after appropriate notice and hearing, order the suspension for a period of not exceeding twelve (12) months or the revocation of the registration of a registered futures association, if the Commission finds that such association has violated any provision of this Title or any rule or regulation hereunder. or has failed to enforce compliance with its own rules. or has engaged in any other activity tending to defeat the purposes of these rules. The Commission may also, after appropriate notice and hearing suspend for a period not exceeding twelve (12) months or expel from a registered futures association any member thereof, or to suspend for a period not exceeding twelve (12) months or to bar any, person from being associated with a member thereof, if the Commission finds that such member or person has violated any provision of or rule under this Title, or effected any transaction for any other person who, he had reason to believe, was violating with respect to such transaction any provision of or rule under this Title; or the Commission may by order remove from office any officer or director of such association who, the Commission finds, has willfully failed to enforce the rules of the association or has willfully abused his authority. RULE 16. Withdrawal of a registered association . A registered futures association may, upon such reasonable notice as the Commission may deem necessary, withdraw from registration by filing with the Commission a written notice of withdrawal in the form prescribed by the Commission. TITLE IV Registration Of Futures Commission Merchants Or Futures Brokers, Floor Brokers, Pool Operators And Advisors RULE 17. Registration and Licensing of Futures Commission merchants and floor brokers . No person shall be allowed to engage as futures commission merchant or as futures brokers in soliciting, or as floor broker in executing any orders or accepting any orders or accepting orders of any contracts of purchase or sale of any commodity, for future delivery, on or subject to the rules of any contract market, unless such person or firm shall have been registered with and licensed by the Commission and such registration and license shall not have been suspended or revoked. Any person desiring to register as futures commission merchants, futures brokers or floor broker may do so by submitting an application, sworn to by the person authorized officer of the applicant firm, embodying the following information: (1) Name, business address and telephone numbers of the applicant; (2) The names and addresses of the directors or persons performing similar functions, and the chief executive, financial and accounting officers. chosen or to be chosen, if the applicant is a corporation, or of all the partners, if the applicant is a partnership; (3) The name and postal/business address of the applicant's foreign principal which must have a proprietary interest in the local broker to the extent allowed by law; (4) The name and postal/business address of the contract market or commodity futures exchange in which the applicant or his foreign principal is a member; (5) The futures contract or contracts the applicant proposes to deal in and a listing of the terms and conditions of the contract or contracts; (6) If the orders are to be executed through a foreign-based contract market, a brief description of how client's orders are or will be executed and the procedures for settling with the foreign principal on payments of margins, liquidations of contract and other claims of the foreign based exchange, clearing house and/or the applicant's foreign principal; (7) A statement of the experience and competence in commodity futures trading of the managing officer or officers of the applicant firm; and (8) The names, address and telephone numbers of three D3) references who are Filipino citizens of good standing in the respective communities in which they live. The application shall be submitted to the Commission with the following documents: (1) Contract between the applicant and its foreign principal regarding the handling of the transactions of the local broker in connection with the commodities trading in the foreign commodity exchange where the former does business with the following salient features; (a) Information as to the percentage of ownership of the foreign principal in the capital stock of the applicant, if any; (b) Names of directors, officers or persons performing similar functions, of the foreign principal working or intending to work for the applicant, if any; (c) Maximum amount the foreign principal will commit as advances for margin deposit and liquidation loss payments in the foreign commodity exchange concerned in behalf of the local broker; (d) Provision for the extension of credit facilities, business guidance and technical services to the local broker by the foreign principal; (e) Provision that all amounts due to the foreign principal may not be remitted or disposed of without the approval of the Commission; and that any transfer of/or any encumbrance and lien on the beneficial interest of the foreign principal in the local broker shall require prior approval of the Commission; (f) Guarantee on the part of the foreign principal that all orders concerning commodity futures received from the local broker shall be deemed cancelled and not executed unless the foreign principal informs the local broker by telex the confirmation of any orders executed not later than 7:00 p.m. for day trading orders and 7:00 a.m. for night trading orders; (g) The foreign principal shall give written authority to the local broker and the Securities and Exchange Commission, to verify from the foreign commodity exchange the execution of orders from the local broker; (h) The foreign principal shall guarantee that it will furnish the local broker duly signed list of executed orders monthly within the first fifteen (15) days of the following month, which could be subject to inspection by duly authorized representatives of the Commission and the customers of the local broker, during reasonable hours on any business day; (i) The foreign principal must guarantee that all outstanding positions of customers of the local broker must be serviced by or through the foreign principal inspite of the abrupt termination of contract between the foreign principal and local broker for any reason whatsoever; j) Provision empowering the Commission to amend, modify, or otherwise alter the trading agreement or contract in order to insure the protection of the investing public. (2) Board Resolution of the foreign principal and the local broker authorizing their respective representatives to sign said contract; (3) Proof of membership of the applicant or applicant's foreign principal in the commodity futures exchange or contract market where the applicant proposes to deal in, and contracts, if any, with clearing members of other commodity futures exchanges or any agent thereof acceptable to the Commission, for the applicant to directly trade with such clearing members.' (4) Bio-data and signed passport pictures of the principal officers of the applicant firm; (5) A copy of the rules and regulations of the contract market or commodity futures exchange which will govern the contracts which the applicant proposes to deal in, if such contract market is foreign based; (6) Board Resolution of the applicant designating a responsible Filipino officer and a resident to be one of the signatories in all checks and other instruments of similar nature, duly acknowledged by the banks concerned; (7) Copy of the pro-forma customer's agreement the applicant is using or proposes to use in the conduct of its business; (8) A pro-forma risk disclosure statement in English which the applicant is using or proposes to use in the conduct of its business; (9) A cash or continuing surety bond (with no automatic termination) in the amount of P2,000,000.00 executed by a duly authorized surety company acceptable to the Commission. Together with the bond, the bonding company should also furnish the following clearances from: Supreme Court, CFI where the company's principal office is located, OIC Form No. 1 of the bonding company, and authority (Adm. Order) to act as surety; (10) The latest audited financial statements of the applicant firm and its foreign principal and a bank certification of the cash balance of the applicant firm as of date of application, together with a copy of the monthly bank statement of the company for the preceding six (6) months; (11) Other documents and/or information that may be required depending on the necessity thereof for the protection of public investors, in the form acceptable to the Commission. Upon filing of the application for registration, the Commission shall issue a Notice and Order of the fact of such filing which shall be immediately published by the Commission at the expense of the applicant, in two (2) newspapers of general circulation in the Philippines, once a week for two consecutive weeks, reciting that an application for registration to operate as commodity futures merchant/broker has been filed with it, and that the aforesaid registration statement, as well as the, papers attached thereto, are open to inspection during business hours, on any business day, by interested parties and copies thereof, photostatic or otherwise, may be furnished upon request to any interested party at such reasonable charges as the Commission may prescribe. LexLib Any interested party may file an opposition to the registration within ten (10) days from the last day of publication thereof. RULE 18. Financial and Bond Requirements for Commission Merchants and Brokers . No person desiring to register and be licensed as commodity futures commission merchant, futures broker or floor broker operating independently of a futures commission merchant, shall be registered and licensed unless he has a minimum paid-up capital of Two Million Pesos (P2,000,000.00), of which at least One Million Pesos is the cash operating capital, and a cash or surety bond of Two Million Pesos (P2,000,000.00), in favor of the Commission, issued by a reputable bonding company acceptable to the Commission, to secure the payment of. any loans or damage suffered by the clients by reason of any failure on the part of the broker or of its agents to comply with any provision of existing laws, rules and regulations governing the same. Provided, however, that in the course of its operations as commission merchant/broker, it maintains an unimpaired paid-up capital of at least Two Million Pesos (P2,000,000.00) and cash operating capital of at least One Million Pesos (P1,000,000.00); and provided, further, that its net assets must not be less than twenty percentum (20%) of its total liabilities. For the purpose of this rule, the term "net assets" shall mean total assets but excluding: 1. fixed assets, nets of total accumulated depreciation; 2. any advances to or receivables from affiliates, officers and employees; and 3. value of exchange membership. Total liabilities shall include all liabilities. If the Commission finds it necessary or appropriate in the public interest or for the protection of investors, additional capital must be infused to comply with the requirements of this Rule. Provided, further, that the Commission may from time to time require the posting of "additional" bond by futures commission merchants, brokers and. the foreign principal/s in an amount sufficient to meet possible claims against them, taking into account the volume of margin deposits held by them. RULE 19. Issuance of License . If the Commission is satisfied that the applicant is qualified and competent to engage in the futures brokerage business, it shall allow the applicant to act as futures commission merchant or broker and issue the corresponding license. Every license issued hereunder shall expire on the thirty first of December in each year, but a new license for the succeeding year shall be issued upon written application and upon payment of filing fee as hereinafter provided, without filing of further statements or furnishing any further information unless specifically required by the Commission. Applications for renewal must be made not less than thirty (30) nor more than sixty (60) days before the first day of the ensuing year, otherwise they shall be treated as original applications. Any commodity futures merchant/broker who intends to open a branch office anywhere in the Philippines must file an application therefor. If the Commission finds that the applicant has complied with the requirements under these rules, including the payment of filing fee, the Commission shall approve the application to open branch office/s anywhere in the Philippines. RULE 20. Revocation of broker's/merchant's and trader's/salesmen's registration . Registration under these rules and regulations may be refused, or any registration/license granted may be revoked, by the Commission if, after reasonable notice and hearing, the applicant/registrant has been found to have committed any of the following: (1) Has violated any provision of these rules and regulations or of the Revised Securities Act; or (2) Has made any material false statement in the application for registration,. or (3) Has been guilty of fraudulent act in connection with any sale of commodity futures contract or has been or is engaged or is about to engage in making fictitious or pretended sale or purchases of any such contracts or has been or is engaged or is about to engage in any purchase or sale of contracts which is fraudulent or in violation of the existing laws, rules and regulations; or (4) Has demonstrated its unworthiness to transact the business of broker/merchant/trader/salesman. In case of charges against a salesman/trader, notice thereof shall also be given the broker/merchant employing such trader/salesman. Pending the hearing, the Commission shall have the power to order the. suspension of such broker's/merchant's or salesman/trader's license; Provided, that such order shall state the cause for such suspension. Until the entry of a final order, the suspension of license, though binding upon the persons notified thereof, shall be deemed confidential, and shall not be published, unless it shall appear that the order of suspension has been violated after such notice. The order of the Commission revoking the registration license as hereinabove provided, together with its findings, shall be entered in the Register of Brokers, Merchants and Salesmen/Traders. The suspension or revocation of the license of a merchant or broker shall also automatically suspend or revoke the license of all its traders/salesmen. cdasia It shall be sufficient cause for refusal to renew or cancel the registration/license in the case of a partnership or corporation, if any member of the partnership or any officer or director of the corporation has been guilty of any act or omission in violation of existing laws, rules and regulations which would be a sufficient cause for refusal to renew or revoke the license of an individual merchant/broker or trader/salesman. RULE 21. Licensing of persons associated with futures commission merchants . It shall be unlawful for any person to be associated with any futures commission merchant or with any agent of a futures commission merchant as a partner, officer or employees (or any person occupying a similar status or performing similar functions), in any capacity which involves (a) the solicitation or acceptance of customers' orders (other than in a clerical capacity) or (b) the supervision of any person or persons so engaged, unless such person shall have been registered/licensed by the Commission and such license shall not have expired nor been suspended or revoked, and it shall be unlawful for any futures commission merchant or any agent of a futures commission merchant to knowingly permit such person, to become or remain associated with him in any such capacity. Any person desiring to be registered/licensed under this rule may do so by submitting his application to the Commission stating his name and personal circumstances, his academic background or his competence and/or experience in commodity futures trading, together with the affidavit of two individuals of unimpeachable reputation in the communities where they reside attesting to the applicant's good moral character. No applicant may be registered/licensed under this rule unless the Commission is satisfied that he is qualified for the position for which he is seeking registration. Provided, however, that no person who is associated with a futures commission merchant or with an agent of a futures commission merchant as an associated person may be simultaneously associated with any other futures commission merchant or with any other agent of a futures commission merchant as an associated person. RULE 22. Licensing of commodity trading advisors and pool operators . It shall be unlawful for any commodity trading advisor or commodity pool operator, unless registered/licensed under this rule, to make use of the mails or any means of communication usual in commerce in connection with his business as such commodity trading advisor or commodity pool operator; Provided, That the provisions of this rule shall not apply to any commodity trading advisor who, during the course of the preceding twelve months, has not furnished commodity trading advice to more than fifteen persons and who does not hold himself out generally to the public as a commodity trading advisor. Any commodity trading advisor or commodity pool operator, or any person who contemplates becoming either one, may register under this rule by filing an application with the Commission, sworn to by the person or authorized officer of the applicant firm, embodying the following information: (1) Name, business address and telephone number/s of the applicant. (2) The names and postal/business address of each principal of the pool operator/trading advisor; (3). The name and postal/business address of the commission merchant through which the pool will execute its trade or with which the client will be required to maintain his accounts; (4) A statement of the experience and competence in commodity futures trading of the managing officer/partner/principal who will make trading decisions in the pool; (5) The names, addresses and telephone number/s of three (3) references who are Filipino citizens of good standing in the respective communities in which they live. The application shall be submitted to the Commission with the following supporting documents: (1) A brief description of the trading program or modus operandi on how the pool will be operated/advice will be given; (2) Biodata and signed passport pictures of the pool operator/trading advisor and other officers of the applicant for the past five years; (3) Copies of the pro-forma clients trading agreement that the applicant is using or proposes to use in the conduct of its business; (4) Copies of pro-forma risk disclosure statement in English and Filipino that the applicant is using or proposes to use in the conduct of its business; (5) A cash or surety bond in the amount of P500,000.00 executed by a duly authorized surety company acceptable to the Commission. Together with the bond, the bonding company should also furnish the Commission the following clearances from: Supreme Court/CFI where the company's principal office is located, OIC Form No. 1 of the Bonding Company, and authority (Adm. Order) to act as surety. (6) Other documents and/or information that may be required depending on the necessity thereof for the protection of public investors in the form acceptable to the Commission. Upon filing of the application for registration, the Commission shall issue a Notice of Order of the fact of such filing which shall be immediately published by the Commission at the expense of the registrant, in two (2) newspapers of general circulation in the Philippines, once a week for two consecutive weeks, reciting that an application for registration to operate as commodity trading advisor/commodity pool operator has been filed with it, and that the aforesaid registration statement as well as the papers attached thereto are open to inspection during business hours, on any business day, by interested parties and copies thereof, photostatic or otherwise, may be furnished, upon request to any interested party at such reasonable charges as the Commission may prescribe. Any interested party may file an opposition to the registration within ten (10) days from last day of publication thereof. Upon the payment of filing fee as hereinafter provided, and if the Commission is satisfied that the applicant is qualified and competent to engage in the futures brokerage business, it shall approve the application and issue the corresponding license to such applicant. Provided, however, that any time during its operation, its total clients' portfolio must not exceed P500,000.00. Every license issued hereunder shall expire on the thirsty first of December in each year, but new license for the succeeding year shall be issued upon written application and upon payment of filing fees. without filing of further statements unless specifically required by the Commission. Applications for renewal must be made in not less than thirty (30) days nor more than sixty (60) days before the first day of the ensuing year, otherwise. they shall be considered new applications. RULE 23. Qualifying examination . The Commission may, in its discretion, require an applicant for registration/licensing as futures solicitor or salesman, to pass a written or oral examination to be given by the Commission for the purpose. Upon the written application of a registered/licensed merchant or broker, and generally satisfactory showing of their good character, and having paid the fee prescribed herein, the Commission shall register/license them as traders salesmen of such merchant or broker. Such registration/license shall cease upon the termination of employment of such trader/salesman by such merchant or broker. RULE 24. Handling of money, securities and property by futures commission merchant . Any person registered and Licensed as a futures commission merchant or futures broker shall treat and deal with all money, securities and property received by such person to margin, guarantee or secure the trades or contracts of any customer of such person, or accruing to such customer as the result of such trades or contracts, as belonging to such customer. Such money shall be deposited in a bank account (denominated Customers' Account), and together with the securities and property shall be separately accounted for and shall not be commingled with the funds of such commission merchant or broker or be used to margin or guarantee the trades or contracts, or to secure or extend the credit, of any customer or person other than the one for whom the same are held. Provided, However, that such money of the customers of such futures commission merchant may, for convenience, be commingled and deposited in the same Customers' Account with any bank or trust company or with the clearing house of such contract market, and that such share thereof of the individual customer as in the normal course of business shall be necessary to margin, guarantee, secure, transfer, adjust or settle the contracts or trades of such customer or resulting market positions, with the clearing house of such contract market or with any member of such market, may be withdrawn and applied to such purposes, including the payment of commissions, brokerage, fees, interests, taxes, storage and other charges lawfully accruing in connection with such contracts and trades. Provided, further, that at all times, the total cash on hand and in bank of the commodity futures merchant/broker must not be less than the sum of the customers' free deposit, (including customers' gains) and a cash working capital of P1,000,000.00. Provided, finally, that withdrawals of customers fee deposits must be paid upon demand any time during banking hours. RULE 25. Records required to be maintained and reports to be submitted . (1) Every "contract market and clearing house" authorized to operate in the Philippines shall maintain daily records and submit daily "trading" reports in such form and manner as may be prescribed by the Commission. Before the beginning of trading each day, the exchange shall, insofar as is practicable, make public the volume of trading and the corresponding prices and values on each type of contract for the previous trading day. (2) "Brokers and futures commission merchants" shall maintain daily trading records for each customer; shall submit to the Commission daily reports regarding the transactions and positions of their customers; and shall keep books and records pertaining to such transactions and positions of their customers; and shall keep books and records pertaining to such transactions and positions. In case an order is executed on or under the rules of a foreign-based contract market, the broker or commission merchant concerned must have on hand proof of the execution of such order. The commission merchant concerned shall submit to the Commission a monthly report of such daily transactions, indicating how payment on the margin for each transaction was made or remitted to the foreign clearing house concerned. This monthly report shall also contain a summary of the liquidation and settlements of contracts affected during the month covered by the report. For each customer's account, the broker or commission merchant shall require the customer to execute a risk disclosure statement in English and Pilipino to be signed in the presence of the President and/or any responsible officer of the broker or merchant, to the effect that he is aware of the risk involved in commodity futures trading, a signed copy of which shall be kept in the principal office of the corporation subject to the inspection by duly authorized representatives of the Commission. (3) Commodity trading advisors and commodity pool operators registered/licensed under these rules shall maintain books and records and file such reports on their transactions containing substantially the same information contained in the reports required to be submitted by the brokers and commission merchants. They shall furnish the Commission the names and addresses of their clients, subscribers or participants and samples or copies of all reports, letters, circulars, memoranda, publications, writings or other literature or advice distributed to clients, subscribers or participants, actual or prospective. LexLib (4) Within sixty (60) days after the closing of his fiscal/calendar year and within sixty (60) days after the semi-annual closing of his books, every member of a commodity futures exchange and every broker or merchant who transact a business in commodity futures thru the medium of such member, shall file with the Commission a statement or report of his financial condition as of the last day of the next preceding period in the manner as prescribed by the Commission. The annual as well as the semi-annual financial reports or statements shall be certified by an independent certified public accountant. (5) All of the reports required to be maintained under this rule shall be kept for a period of at least five (5) years and shall be open to inspection by representatives of the Commission. RULE 26. Penalty for late filing of reports . Failure to submit the reports mentioned in Rule 25 on time will mean the imposition of fines in accordance with the following schedule of penalties: (1) For reports required to be submitted annually and semi-annually: Basic Penalty Daily Penalty per Report to be imposed 1st Violation P100.00 P 40.00 2nd Violation 200 80 3rd Violation and subsequent violations 400 120 (2) For reports to be submitted weekly and monthly P1,000.00 plus an amount not exceeding P200.00 for every day of delay. TITLE V Margin and Deposit Requirements RULE 27. Initial and Maintenance Deposit . There must be an initial deposit of not less than P100,000.00 to open an account before any customer can place an order. If the customer loans, he can be allowed to continue trading, provided that his remaining deposit is not less than P50,000.00; otherwise he must put in additional money to bring his deposit up to P50,000.00. RULE 28. Margin Requirements . The margin on each futures contract must not be less than the minimum margin set by the Commission in accordance with the rules hereinafter set forth. However, the futures commission merchant/broker may require a higher margin than what the Commission requires. All such increases in margin requirement must be reported to the Commission. The minimum margin to be required by the futures commission merchant/broker from customers should be at least 33-1/3% more than the minimum margin set by the commodity exchange on which the contract is traded. In case the market price of the futures contract moves adversely against the customer or buyer or seller of the contract, the brokerage firm shall require additional margin if the margin placed by the customer has been impaired by a floating loss so that such margin falls below the minimum exchange margin requirement. Such additional margin shall be in the amount necessary to restore the margin to that provided in the preceding paragraph. TITLE VI Prohibited Acts RULE 29. Excessive speculation . For the purpose of minimizing, eliminating or preventing excessive speculation in any commodity subject of futures transactions, which causes sudden or unreasonable fluctuations in the price of such commodity, the Commission, shall from time to time, after due notice and opportunity for hearing, by order "fix such limits on the amount of trading" which may be done or positions which may be held by any person under contracts of sale of such commodity for future delivery on or subject to the rules of any domestic or foreign-based contract market as the Commission finds necessary in the public interest. In determining whether any person has exceeded such limits, the positions held and trading done by any person directly or indirectly controlled by such person shall be included with the positions held and trading done by such person; and further, such limits upon positions and trading shall apply to positions held by, and trading done by, two or more persons acting pursuant to an expressed or implied agreement or understanding, the same as if the positions were held by, or the trading were done by, a single person. Nothing in this rule shall be construed to prohibit the Commission from fixing different trading or position limits for different commodities, markets, futures, or delivery months, or different trading limits for buying and selling operations, or from exempting transactions normally known as "spreads" or "straddles" or "arbitrage" or from fixing limits applying to such transactions or positions. The word "arbitrage" in domestic markets shall be defined to mean the same as a "spread" or "straddle." The Commission shall, in the order abovementioned, fix a reasonable time not to exceed ten days after the order's promulgation, after which it shall be unlawful for any person. (1) Directly or indirectly to buy or sell, or agree to buy or sell under contracts of sale of such commodity for future delivery on or subject to the rules of the contract market or markets to which the order applies, any amount of such commodity during any one business day in excess of any trading limit fixed for one business day by the Commission; or (2) Directly or indirectly to hold or control a net long or a net , short, position in any commodity for future delivery on or subject to the rules of any contract market in excess of any position limit fixed by the Commission for or with respect to the commodity: Provided, That such position limit shall not apply to a position acquired in good faith prior to the effective date of such order. No order issued under this section shall apply to transactions or positions which are shown to be bonafide hedging transactions or position. Hedging transactions under these rules shall be limited to futures contracts for the direct account of procedures/manufacturers, processors and end-users. cdll This rule shall apply to a person that is registered as a futures commission merchant or as a floor broker only to the extent that transactions made by such person are made on behalf of or for the account or benefit of such person. It shall not apply to transactions made by; or on behalf of, or at the direction of the Philippine Government or a duly authorized agency thereof. RULE 30. Report required to be made on transactions in excess of trading or position limits . It shall be unlawful for any person to make any contract for the purchase or sale of any commodity for future delivery on or subject to the rules of any contract market unless such person shall report or cause to be reported to the properly designated officer of the Commission (1) whenever such person shall directly or indirectly make such contracts with respect to any commodity, or any future of such commodity, during any one day in an amount equal to or in excess of such amount as shall be fixed from time to time by the Commission; and (2) whenever such persons shall directly or indirectly have or obtain a long or short position in any commodity or in any future of such commodity, equal to or in excess of such amount as shall be fixed from time to time by the Commission. Such person shall keep books and records of all futures transactions and positions coming within the provisions of (1) and (2) hereof, and shall keep books and records of such cash or spot transactions in such commodity entered into, and held, in any month in which such person is required to make any report under the provisions of (1) and (2), as the Commission may require. For purposes of this section, the futures and cash or spot transactions and positions of any person shall include such transactions and positions of any person directly or indirectly controlled by such person. RULE 31. Fraudulent transactions . It shall be unlawful for any member of a contract market, or for any correspondent, agent or employee of any member, or for any commission merchant, broker or person in connection with any order to make any contract market, for or on behalf of any other person, if such contract for future delivery is or may be used for (1) hedging any transactions in such commodity or the products or by-products thereof, or (2) determining the price basis of any transactions in such commodity; or (3) delivering any such commodity sold, shipped or received for the fulfillment thereof (a) to cheat or defraud or attempt to cheat or defraud such other persons; (b) willfully to make or cause to be made to such other person any false report or statement thereof, or willfully to enter or cause to be entered for such person any false record thereof; (c) willfully deceive or attempt to deceive such other person by any means whatsoever in regard to any such order or contract, or in regard to any act of agency performed with respect to such order or contract for such person; or (d) to bucket such order, or to fill such order by offset against the order or orders of any other person, or willfully and knowingly and without the prior consent of such person to become the buyer in respect to any selling order of such person or the seller in respect to any buying order of such person. Nothing in this rule shall be construed to prevent a futures commission merchant or floor broker who shall have in hand, simultaneously, buying and selling orders at the market for different principals for a like quantity of a commodity for future delivery in the same month, from executing such buying and selling orders at the market price; Provided, That any such execution shall take place on the floor of the exchange where such orders are to be executed at public outcry across the ring and shall be duly reported, recorded and cleared in the same manner as other orders executed on such exchange; And provided further, That such transactions shall be made in accordance with such rules and regulations as the Commission may promulgate. RULE 32. Prohibitions against commodity trading advisors and pool operators . It shall be unlawful for any commodity trading advisor or commodity pool operator registered under these rules, by use of the mails or any means of communication usually used in commerce, directly or indirectly (1) To employ any device, scheme or artifice to defraud any client or participant or prospective client or participant; (2) To engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or participant or prospective client or participant; or (3) To represent or imply in any manner whatsoever that he has been sponsored, recommended or approved, or that his abilities or qualifications have in any respect been passed upon by the Philippine Government or any agency or officer thereof; Provided, That this section shall not be construed to prohibit a statement that a person is registered under these rules as a commodity trading advisor or commodity pool operator if such statement is true in fact and if the effect of such registration is not misrepresented. RULE 33. Other prohibited transactions . It shall be unlawful for any person to offer to enter into, or confirm the execution of, any transaction involving any commodity, which is or may be used for (1), hedging any transaction in such commodity or the products or by-products thereof, or (2) determining the price basis of any such transaction in such commodity, or (3) delivering any such commodity sold, shipped or received for the fulfillment thereof (1) if such transaction is of the character of, or is commonly known to the trade as, a "wash sale", "cross trade", or "accommodation trade", or is a "fictitious sale"; (b) if such transaction is of the character of, or is commonly known to the trade as, an "option", "privilege", "indemnity", "bid", offer", "put"; "call", "advance guaranty" or "decline guaranty"; (c) if such transaction is used to cause any price to be reported, registered, or recorded which is not a true and bona fide price. RULE 34. Procedure and penalties in case of violations by persons other than contract markets . If the Commissioner has reason to believe that any person (other than a contract market) is manipulating or attempting to manipulate or has manipulated or attempted to manipulate the market price of any commodity for future delivery on or subject to the rules of any contract market, or has wilfully made any false or misleading statement of a material fact in any registration application or any report filed with the Commission under these rules, or willfully omitted to state in any such application or report any material fact required to be stated therein, or otherwise is violating or has violated any, of these rules. it may serve upon such person a complaint stating its charges in that respect, which complaint shall have attached or shall contain therein a notice of hearing specifying a day and place not less than ten (10) days after service thereof, requiring such person to show cause why an order should not be made prohibiting him from trading on or subject to the rules of any contract market and directing that all contract markets refuse trading privileges to such person. Upon evidence received, the Commission may prohibit such person from trading on or subject to the rules of any contract market and require all contract markets to refuse such person all trading privileges thereon for such period as may be specified in the order, and may assess such person a fine of not less than P200.00 nor more than fifty thousand pesos (P50,000.00) for each such violation plus not more than P500.00 or each day of continuing violation. The Commission may furthermore, without the necessity of a prior hearing, make and enter an order directing that such person shall cease and desist from the act or acts complained of. Such cease and desist order shall be confidential until after the fine mentioned in the preceding paragraph shall have been imposed. In determining the amount of the fine assessed hereunder, the Commission shall consider, in the case of a person whose primary business involves the use of the commodity futures market, the appropriateness of such penalty to the size of the business of the person charged, the extent of such person's liability to continue in business, and the gravity of the violation; and in the case of a person whose primary business does not involve the use of the commodity futures market, the appropriateness of such penalty to the net worth of the person charged and the gravity of the violation. RULE 35. Procedure and penalties in case of violations by a contract market . If any contract market is not enforcing or has not enforced its rules of government made a condition of its designation or if any contract market, or any director, officer, agent or employee of any contract market otherwise , is violating or has violated any of these rules, the Commission, upon notice and hearing., make and enter an order directing that such contract market. director, officer, agent or employee shall cease. and desist from such violation and assess a fine of not less than P200.00 or more than fifty thousand pesos (P50,000.00) for each violation plus not more than P500.00 for each day of continuing violation. RULE 36. Who may file actions against violators . Whenever it shall appear to the Commission that, any contract market or other person has engaged, is engaging, or is about to engage in any act or practice constituting a violation of any provision of any of these rules or any of its orders in connection therewith or in restraining trading in any commodity for future delivery, the Commission may enjoin such act or practice, or enforce compliance with the pertinent rule or order. TITLE VII Filing Fees RULE 37. Filing Fee . The following shall be the filing fee (1) For filing of application for registration or renewal thereof as commodity futures commission merchant/broker P2,000.00; (2) For filing of application to open branch office of commodity futures commission merchant/broker or renewal thereof P1,000.00; (3) For issuance of certificate of license as traders/salesmen P100.00; (4) Examination fee for commodity futures traders/salesmen and advisors P50.00; (5) For filing of petition to amend Order authorizing commodity futures merchant/broker to operate P500.00; (6) For filing of application for registration/renewal as commodity pool operator/commodity trading advisors P1,000.00. TITLE VIII Effectivity RULE 38. These Revised Rules and Regulations shall take effect on January 1, 1983 and shall be published in two (2) newspapers of general circulation in the Philippines. LexLib MANUEL G. ABELLO Acting Chairman Securities and Exchange Commission Approved: CESAR E.A. VIRATA Minister of Finance JAIME C. LAYA Chairman, Monetary Board Central Bank of the Philippines