Rules and Regulations Governing Commodity Futures Exchanges, Futures Commission Merchants, Floor Brokers, Commodity Futures Associations, Commodity Pool Operators and Commodity Advisors

June 30, 1980 RULES AND REGULATIONS GOVERNING COMMODITY FUTURES EXCHANGES, FUTURES COMMISSION MERCHANTS, FLOOR BROKERS, COMMODITY FUTURES ASSOCIATIONS, COMMODITY POOL OPERATORS AND COMMODITY ADVISORS Pursuant to the provisions of Presidential Decree No. 902-A, the following rules and regulations governing commodity futures exchanges, futures commission merchants, floor brokers, commodity futures associations, commodity pool operators and commodity advisors are hereby promulgated, effective immediately, for the information and guidance of all concerned: TITLE I Commodity Futures Exchange RULE 1. 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 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, 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 commodity futures exchange which has been designated by the Securities and Exchange Commission as a "contract market" as hereinafter provided. LibLex RULE 2. Solicitation and acceptance of futures orders prohibited except through designated contract markets . It shall be unlawful for any person (1) To conduct 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, goods, articles, rights, interests and services 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 future 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 for the purchase or for sale of any commodity, for future delivery, 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 3. Designation of contract markets . The Commission is hereby authorized and directed to 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 cash commodity of the kind specified in the futures contract to be executed on such exchange is sold 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; (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 nationally, and for the prevention of manipulation of prices and the cornering of any commodity by the dealers or 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 or is to the public interest. If the commodity exchange is foreign-based, the Commission may; in its discretion, authorize a futures commission merchant, locally based, to transmit, accept and/or execute orders on such exchange described in Rules and 2. RULE 4. Responsibility of domestic contract markets . Each domestic contract market shall (1) Promptly furnish the Commission copies of all by-laws, rules, 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, and allow their inspection at all times by any authorized representative of the Commission; (3) Require the operators of warehouse in which or out of which any commodity is deliverable on any futures contract of such contract market to make such reports, keep such records and permit such warehouse visitation as the Commission may prescribe; (4) Require the party making delivery of any commodity on any contract of sale 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 markets, it shall require longer notice of delivery not exceeding, in any case, ten business days; (5) Require that all contracts of sales of any commodity for future delivery on such contract market shall provide for the delivery thereunder of commodities of grades conforming to Philippine or international standards, if such standards are officially promulgated and adopted by the Commission; (6) Require that receipts issued under the Warehouse Receipt Law shall be accepted in satisfaction of any futures contract, made on or subject to the rules of such contract; (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 and 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, on contracts of sale 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 future contract do not accomplish the objectives of this subsection, then the Commission shall notify the contract market of its finding and afford the contract market an opportunity to make appropriate changes in such rules and regulations; (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) Except as otherwise provided herein, submit to the Commission for its approval all by-laws, 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 to be executed on or subject to the rules of such contract markets or which relate to other trading requirements. RULE 5. Application for designation . Any domestic commodity futures exchange desiring to be designated 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. prcd RULE 6. Disciplinary action . The failure or refusal of any commodity futures exchange to comply with any of these rules or any order of the Commission thereunder, shall, after proper hearing, because for suspending for a period not to exceed six months or revoking the designation of such exchange as a contract market. The Commission is also authorized to suspend for a period of not exceed six 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. RULE 7. Membership of producer cooperatives in contract markets . 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 and agrees to comply which 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 held upon at least three days' notice from the filing of the complaint by the exchange concerned. RULE 8. Withdrawal of designation as a contract market . Any commodity futures exchange that has been designated a contract market may have such designation vacated and set 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 a contract market by making application to the Commission in the manner herein provided for an original application. RULE 9. Publication of data on operations of contract markets . The Commission may make such investigations 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 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 transaction of any person and trade secrets or names of customers. TITLE II Registration of Futures Associations RULE 10. Application . Any association of persons may be registered with the Commission as a registered futures association by filing with the Commission for review and approval a registration statement in the form prescribed by the Commission. An applicant association shall not be registered as a futures association unless the Commission finds, under standards established by it, that (1) Such association is in the public interest and that it will be able to comply with the rules and regulations of the Commission; (2) The rules of the association provide that any person registered under these rules, a contract market 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 (3) and (4) of this rule. (3) The rules of the association provide that, except with the approval or at the direction of the Commission in cases in which the Commission finds it appropriate in the public interest to so approve or direct, no person shall be admitted to or continued in membership in such association if such person (a) has been and is suspended or expelled from a registered futures association or from a contract market or has been, and is barred or suspended from being associated with all members of such association or from being associated with all members of such contract market, for violations of any rule or for conduct inconsistent with just and equitable principles of trade; or (b) is subject to a disciplinary order of the Commission; or (c) has associated with any person who is known to him to be a person who would be ineligible for admission to or for continuance in membership in the association; (4) The rules of the association provide that, except with the approval or at the direction of the Commission, no person shall with become a member and no natural person shall become associated with a member unless such person is qualified to become a member or a person associated with a member in conformity with specified and appropriate standards 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 a member; (5) 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; (6) The rules of the association provide that its members and persons associated with its members shall be appropriately disciplined for any violation of its rules; and (7) The rules of the association provide 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. RULE 11. 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 a 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 the public interest, the Commission shall by order cancel, reduce or require the remission of such penalty. In any proceeding to review the denial of membership in a 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 is based exist in fact and are valid, the Commission shall by order dismiss the proceeding; 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 12. Abrogation and amendment of rules of registered association . The Commission may 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 13. 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 not exceeding twelve 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 thereunder, 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 affected 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 be 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 14. Withdrawal of a registered association from registration . 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 III Registration of Futures Commission Merchants or Futures Brokers, Floor Brokers, Pool Operators and Advisors RULE 15. Registration and licensing of futures commission merchants and floor brokers . No person shall be allowed to engage as futures commission merchant or as futures broker in soliciting, or as floor broker in executing 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 Securities and Exchange Commission and such registration and license shall not have expired nor been suspended nor revoked. Any person desiring to register as futures commission merchant, futures broker or floor broker may do so by submitting an application, 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 addresses of the principal officers of the applicant firm, and the names and addresses of the directors if the applicant is a corporation, and if a partnership, the names and addresses of the partners; (3) The name and postal/business address of the applicant's foreign principal if the former is a subsidiary or affiliate of the latter; (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 orders are to be executed through a foreign-based contract market, a brief description of how clients' orders are or will be executed and the procedure for settling with the foreign principal payments on margins, liquidations of contracts and other claims of the foreign-based exchange, clearing house and/or the applicant's 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, addresses and telephone numbers of three 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) The latest audited financial statement of the applicant firm its principal, if any and a bank certification of the cash balance of the applicant firm as of date of application; (2) Proof of membership of the applicant firm in the futures exchange or contract market the rules of which will govern the contract or contracts the applicant proposes to deal in; or if the applicant is not a member of any contract market; proof that it is affiliated with a person who is a member of good standing of a commodity exchange, the rules of which will govern the contract or contracts the applicant proposes to deal in; as well as proof of membership in the commodity exchange of said person; (3) The resumes and 2-1/2" x 2-1/2" photographs of the principal officers of the applicant firm; and (4) A copy of the rules and regulations of the contract market or commodity exchange which will govern the contracts which the applicant proposes to deal in, if such contract market is foreign-based. RULE 16. Minimum financial and bond requirements for commission merchants and brokers . No person desiring to register and be licensed as futures commission merchant, futures broker or floor broker operating independently of a futures commission merchant, shall be registered and licensed unless the applicant can show proof that he has exclusively for the business he is seeking registration a minimum paid-up capital of one million (P1,000,000.00) pesos and a minimum cash operating capital of eight hundred thousand (P800,000.00) pesos and unless, furthermore, such person or firm has put up in favor of the Commission, either a cash or surety bond of one million (P1,000,000.00) pesos issued by a reputable bonding firm acceptable to the Commission, to secure the payment to any person of any loss or damage suffered by such person by reason of any failure on the part of the broker or any of its agents to comply with any of these rules and regulations, or by reason of any violation thereof. RULE 17. Issuance of License . If the Commission is satisfied that the applicant is qualified and competent to engage in the futures brokerage business it shall register the applicant as a futures commission merchant or broker and issue the corresponding license within a reasonable time. RULE 18. Deadline for persons or firms already operating as futures commission merchants . No firm or person already operating and doing business as futures commission merchant or futures broker shall be allowed to operate and do business as such sixty (60) days after the date of effectivity of these rules unless he/it is registered and licensed as futures commission merchant or broker under these rules. RULE 19. Registration of persons associated with 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 employee (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 registered with the Commission and such registration 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 a person to become or remain associated with him in any such capacity. Any person desiring to register under this rule may do so by submitting his application to the Commission stating his name and personal circumstances, his academic background and his competence and/or experience in commodity futures trading, together with the affidavits 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 under this rule unless the Commission is satisfied that he is qualified for the position for which he is seeking registration. LibLex RULE 20. Registration of commodity trading advisors and pool operators . It shall be unlawful for any commodity trading advisor or commodity pool operator, unless registered under this rule, to make use of the mails or any means of communication usually used in commerce in connection with his business as such commodity trading adviser 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 in the manner prescribed in Rule 19. The criteria for registration prescribed in said rule shall likewise apply to registration under this rule. RULE 21. Qualifying examinations . The Commission may, in its discretion, require an applicant for registration as futures solicitor or salesman, commodity trading advisor or commodity pool operator to pass a written or oral examination to be given by the Commission for the purpose. TITLE IV Handling of Customer's Funds; Reports and Records RULE 22. Handling of money, securities and property by futures commission merchants . 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 as contracts, as belonging to such customer. Such money, 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, securities and property of the customers of such futures commission merchant may, for convenience, be commingled and deposited in the same account or accounts with any bank or trust company or with the clearing house of such contract market, and that such share thereof 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 such money may be invested in obligations of the Central Bank of the Philippines or the Philippine Government, such investments to be made in accordance with such rules and regulations as the Commission may prescribe. RULE 23. 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 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, as well as transactions for their own account, specifying whether each transaction is a bona fide hedge or not; 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 weekly report of such transactions, confirming which transactions have actually been executed and indicating how payment on the margin for each transaction is or will be made or remitted to the foreign clearing house concerned. The weekly report shall also contain a summary of the liquidations and settlements of contracts effected during the week covered by the report, with indication of how settlement with the foreign clearing house has been or will be made in each case. For each customer account, the broker or commission merchant shall require the customer to execute a statement to the effect that he is aware of the risks involved in commodity futures trading a signed copy of which shall be furnished the Commission together with the weekly report mentioned in the next preceding paragraph. (3) Commodity trading advisors and commodity pool operators registered 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 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. All the reports required to be maintained under this rule shall be kept for a period of at least three (3) years and shall be open to inspection by a representative of the Commission. TITLE V Margin Requirements RULE 24. Initial and Additional Margins . The initial margin on each futures contract must not be less than the minimum initial margin set by the commodity exchange on which the contract is traded. At times of prices volatility, when the exchange increases the initial margin, the commodity futures commission merchant or brokerage firm may retroactively increase its initial margin requirement at a rate consistent with previous practice of the brokerage firm concerned and in reasonable proportion to the increase required by the exchange. All such increase in margin must be reported to the Commission. In case the market price of the futures contract moves adversely against the client or buyer or seller of the contract the brokerage firm may require additional margin in an amount corresponding to the difference between the price when the initial margin was set and the price at the time the call for additional margin was made. TITLE VI Prohibited Acts RULE 25. 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 persons 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. Bona fide hedging transactions include hedging of a person's anticipated production of seed quantities of a commodity and hedging by the users of products of traded commodities as well as users of such commodities. 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 26. 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 person 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 persons directly or indirectly controlled by such person. RULE 27. 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 of sale of any commodity on or subject to the rules of 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 transaction in such commodity or the products or by-products thereof, or (2) determining the price basis of any transaction 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 person; (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 to 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 28. 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 29. 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 (a) 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 30. Procedure and penalties in case of violations by persons other than contract markets . If the Commission 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 willfully 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, and to show cause why the registration of such person, if registered as a futures commission merchant or any person associated therewith, floor broker, commodity trading advisor, or commodity pool operator, should not be suspended or revoked. 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, if such person is registered as futures commission merchant or any person associated therewith, floor broker, commodity trading advisor or commodity pool operator, may suspend for a period not exceeding six (6) months, or revoke, the registration of such person and may assess such person a civil penalty of not more than twenty thousand (P20,000.00) pesos for each such violation. The Commission may furthermore make and enter an order directing that such person shall cease and desist from the act or acts complained of, and if such person shall fail to comply with the order within a period of thirty (30) days, such person shall be fined not more than twenty thousand (P20,000.00) pesos. In determining the amount of the money penalty assessed hereunder, the Commission shall consider, in the case of 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 ability 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 31. 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 may, 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 civil penalty of not more than twenty thousand (P20,000.00) pesos for each violation. If such contract market, director, officer, agent or employee, thirty (30) days after the lapse of such a cease and desist order or after the affirmance of such order, shall fail or refuse to obey or comply with such order, such contract market, director, officer, agent or employee shall be fined not more than twenty thousand (P20,000.00) pesos each day during which such failure or refusal to obey such cease and desist order continues shall be deemed a separate offense. RULE 32. 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 provisions of any of these rules or any of its orders in connection therewith, or is 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 Definitions RULE 33. For purposes of these rules, "contract of sale" shall be held to include sales, agreements of sale, and agreements to sell. The word "person" shall be construed to import the plural or singular, and shall include individuals, associations, partnerships, corporations, and trusts. The word "commodity" shall mean copra, coconut oil, rice, corn, wheat, raw sugar, refined sugar, plywood, veneer, sawn lumber, abaca fiber, abaca pulp, raw cotton, cotton yarn, and other agricultural products, gold concentrates, bullion and coins, copper concentrates and ingots and other metal products, livestock products, and all other goods and articles, and all 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 foreign currency, 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 futures exchange designated as a contract market. The term "future delivery" as used herein shall not include any sale of any cash commodity for deferred shipment or delivery. The words "commodity futures exchange" shall be held to include and mean any association authorized by law or by the Securities and Exchange Commission to operate as an exchange, of persons who are engaged in the business of buying and selling commodity futures contracts for the account of other persons. The words "cooperative association of producers" shall mean a registered cooperative association, corporate or otherwise, not less than 75 per centum in good faith owned or controlled, directly or indirectly, by producers of agricultural products. The words "member of a contract market" shall mean and include individuals, associations, partnerships, corporations and trusts owning or holding membership in, or admitted to membership representation on, a contract market or given members' trading privileges thereon. The words "futures commission merchant" shall mean and include individuals, associations, partnerships, corporations and trusts 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. 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 futures contract. The term "commodity trading advisor" shall mean any person who, for compensation or profit, engages in the business of advising others, either directly or through publications or writings, as to the value of commodities or as to the advisability of trading in any commodity for future delivery on or subject to the rules of any contract market, or who for compensation or profit, and as part of a regular business, issues or promulgates analyses or reports concerning commodities; but does not include (a) any bank or trust company, (b) any newspaper reporter columnist or editor, lawyer, accountant or teacher, (c) any floor broker or futures commission merchant, (d) the publisher of any bona fide newspaper, news, business or financial publication of general and regular circulation including their employees (e) 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 services by the foregoing persons is solely incidental to the conduct of their business or profession. llcd 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 but does not include such persons not within the intent of this definition as the Commission may specify by rule, regulation or order. Done in Metro Manila, this 30th day of June in the year of our Lord, Nineteen Hundred and Eighty. (SGD.) ANGEL L. LIMJOCO, JR. Chairman