Rules and Regulations Governing Securities Exchanges and Their Members, Brokers, Dealers, Salesmen and Customers (As Amended)

October 17, 1983 RULES AND REGULATIONS GOVERNING SECURITIES EXCHANGES AND THEIR MEMBERS, BROKERS, DEALERS, SALESMEN AND CUSTOMERS (AS AMENDED) Pursuant to the provisions of Commonwealth Act No. 83, otherwise known as the Securities Act, the following rules and regulations governing securities exchanges and their members, brokers, dealers, salesmen, and customers are hereby promulgated for the information and guidance of all concerned: A. Securities Exchanges And Their Dealers 1. Trading hours; transactions outside of trading hours . A securities exchange shall fix and enforce definite official trading hour, on its floor and no transactions under its rules shall be permitted thereon outside its trading hours. Transactions made by members during official trading hours but off the floor and those made outside of official trading hours, if permitted by a securities exchange, shall be reported to the authorities of the exchange as over-the-counter transactions and shall be recorded separate from those made on the floor and under its rules. The prices agreed upon in such transactions shall not be posted on the board of the exchange nor included in its official quotation list. 2. Keeping of exchange records . A securities exchange shall keep complete and accurate records of all its proceedings. transactions and decisions and such records shall be made available for inspection of the Securities and Exchange Commissioner or his duly authorized representatives. 3. Exchange not to trade on its own floor . A securities exchange or a corporation or association controlling such exchange shall not use any part of its capital or surplus funds or any other fund within its control in trading on its own floor. 4. Exchange's investigation of members . It shall be the duty of the authorities administering a securities exchange to investigate all complaints and disputes between the members, arising out of transactions between them on securities registered or listed on the exchange promptly look into all charges of fraud and misrepresentation affecting any member, make and record its findings and decisions. Decisions on reckless or unethical business conduct of members or charges of fraud or misrepresentation against any member shall be reported by the exchange to the Commission within ten (10) days after the rendering of such decision. 5. Member limited to one seat . No person shall be permitted to be a member of more than one securities exchange dealing in the same security or securities or to own more than one seat or membership in any securities exchange. 6. Odd-lot dealers . A securities exchange may permit a member to be registered as an odd-lot dealer and, as such, to buy and sell for his own account, so far as may be reasonably necessary to carry on odd-lot transactions, provided (1) that he carried the account of his odd-lot transactions separate from the account of his other transactions made under the rules (2) that his odd-lot transactions are reported and recorded at the office of the exchange and (3) that these odd-lot transactions are not placed on the board and are not included in the quotation list of the exchange. 7. Specialist . A securities exchange may permit a member to be registered as a specialist, provided that his dealings as such, so far as practicable, are restricted to those reasonably necessary to permit him to act as a specialist and if he acts as an odd-lot dealer, his dealings shall be restricted to those reasonably necessary to permit him to maintain a fair and orderly market. 8. Reports of members and brokers or dealers trading through members . Every member of a securities exchange and every broker or leader who transacts a business in securities thru the medium of any such member shall, in the manner and form to be prescribed by the Commission, make such periodic, special or other reports as the Commission may by order require from time to time. 9. Semi-annual financial reports of members, brokers and dealers . For the purposes of those sales, unless a member of a securities exchange or a broker or dealer who transacts a business in securities thru the medium of such member, otherwise notifies the Commission, December 31st of each year shall be considered as the closing day of his fiscal year. Within 60 days after the closing of his fiscal year and within a period of 15 days after the semi-annual closing of his books, every member of a securities exchange and every broker or dealer, who transact a business in securities thru the medium of such member shall file with the Commission a statement or report signed by him, of his financial condition as of the last day of the next preceding month in the manner and of the nature and character hereafter mentioned. The annual report or statement shall be certified to by a certified public accountant. All his supporting papers pertaining to such report or statement must be kept in his possession thereafter for at least one year and shall be made available for examination by the Commissioner or his representative. It shall include money balances of all accounts in the books of the member, broker or dealer submitting the report or statement, as well as the market value of all the securities under his control, excepting securities in a customer's account that are fully paid for and those otherwise held in trust, all of which shall be reported in a separate schedule. For the purposes of this rule, the term "market value" shall be understood to mean the last sale price of the security on the date of the report or statement; if no sale of the corresponding security is made on that date, it shall be understood to mean the buyer's price and, in the absence of any buyer, it shall be taken to mean the last sale price which is below the seller's price on the date of the report or statement. Such report or statement shall consist of four columns, the first two of which shall be used for debit and credit ledger balances and the last two for the valuation of long and short security positions at current market prices. The entries in said columns shall give accurate information on the following items: cdlex (1) Bank balances cash on hand (2) Accounts with other brokers, correspondents, money borrowed, etc. a. Accounts with other brokers in the Philippines. b. Accounts with correspondents. c. Securities borrowed. d. Securities loaned. e. Securities due from other brokers (failed to receive). f. Securities to other brokers (failed to deliver). g. Stock Exchange clearings. h. Money borrowed and loaned. (3) Market valuation of securities held in the box, transfer and in transit. a. Securities held in the box. b. Transfer. c. Transit. (4) Customers' accounts with debit balances and market value of securities classified as follows: a. Customers' accounts having a security value of 25 per cent or more of the debit balance. b. Customers' accounts having a security value between 200 per cent and 250 per cent of the debit balance. c. Customers' accounts having a security value between 150 per cent and 200 per cent of the debit balance. d. Customers' accounts having a security value between 100 per cent and 150 per cent of the debit balance. e. Customers' accounts having a security value of less than 100 per cent of the debit balance. (partly accounts) f. Unsecured accounts. g. Guaranteed accounts. LibLex h. Guarantor accounts. (5) Customers' accounts with credit balances and market value of securities classified as follows: a. Customers' accounts having short positions in which the security value is less than 50 per cent of the credit balance. b. Customers' accounts having short positions in which the security value is less than 50 per cent of the credit balance. c. Customers' accounts having short positions in which the security value is greater than the credit balance. (Partly secured accounts) (6) Capital accounts and partners individual accounts. a. Capital account. b. Partners individual accounts. c. Accounts guaranteed by partners or officers. d. Accounts in which a partner or officer of the firm has an interest. (Submit schedule in detail). e. Profit and loss. f. Firms' accounts including errors, investments and training accounts. g. Underwriting and syndicate participation accounts. (7) Other accounts. Under this heading all accounts other than Customers' Accounts which are not classified above are to be shown for example, membership accounts, furniture and fixtures, dividend accounts, deferred charges, accounts payable, accrued taxes, etc. To said report there shall be attached the following: 1. Schedule of securities showing the names and numbers of shares in transit to branches, correspondents or others. 2. Schedule of drafts showing the dates, the names and addresses of the drawees and the amounts drawn on Europe or United States during a period of thirty (30) days prior to the date of the report. 3. Schedule of drafts drawn on places other than Europe and United States during fifteen (15) days prior to date of report. 4. Schedule in detail of all money personally borrowed by partners of a partnership or officers of a corporation which are not included in the books of accounts of the firm. 5. Schedule in detail of all notes or loans guaranteed or endorsed by partners or partnership or officers of corporation which are not included in the books of accounts. llcd 6. Schedule in detail of all contingent liabilities such as underwriting or participation in any company or corporation that are not included in the ledger account. 7. Detailed schedule of any account carried by a bank or other broker in which partner of a partnership or an officer of a corporation submitting the report may have a financial interest; and adequate and accurate answers in writing to the following questions: 1. Are you carrying any securities for your firm or for your customers' accounts or both which is 20 per cent or more of the aggregate total value of the securities earned on your books, if so, state the name of the securities. 2. (a) Do you maintain a separate box securities in Customers Accounts which are fully paid for or which are in excess of marginal requirement or otherwise held in trust and when these securities earmarked for the owner and so entered in your stock record? (b) Were the securities checked, verified and accounted for, and were they in your possession as of the report? 10. Insolvency of members . Insolvent members of a securities exchange must be immediately suspended by the latter until they have settled with their creditors. A securities exchange shall take the necessary measures and precautions to guard against the insolvency of its members. 11. Unjustified failure to pay cash or deliver securities . Any member, broker or dealer who fails to deliver securities or make payments in a accordance with these rules shall be considered insolvent within the meaning of Rule A-10 hereof and as having committed an act inconsistent with just and equitable principles of fair trade, unless such failure is due to erroneous transaction or to other sufficient reasons. 12. Extreme Quotations . Any member, who shall attempt to sell securities below, or buy them above, the market, with the manifest purpose of recording an extreme quotation, shall be punished by the securities exchange for conduct unbecoming a member. 13. Fictitious transactions . A securities exchange shall impose no penalty less than suspension or expulsion for members who have made fictitious sales or fictitious bids or offers on the floor of the exchange. 14. Wash Sales . A member of a securities exchange or a partner or representative for a member of such exchange who gives or executes an order for the purchase or sale of securities which would involve no change of ownership, shall be immediately expelled by the Exchange. 15. Application for reinstatement . An application for reinstatement by any member suspended for inability or failure to comply with any contract or for insolvency shall be accompanied by a list of creditors with statement of amounts owning to each at the date of suspension and the date of settlement made with each. 16. Proxies . No member of a securities exchange and no broker or dealer, whether or not he transacts business in securities thru the medium of any such member, shall give any proxy, consent or authorization, in respect of any security carried for the account of a customer, to a person other than the customer, without the express written authorization of such customer. 17. Trading limited to listed securities . No member, broker or dealer shall effect any transaction in any security (other than an exempted security) on the floor of a securities exchange, unless registration and/or licensing under the Securities Act or the Blue Sky Law and registration or listing on such securities exchange are effective as to such security. 18. Listing requirements . No security, except an exempt and/or exempted security, shall be registered or listed on a securities exchange unless it is duly registered with the Commission, or in the case of a speculative security, duly licensed by the Insular Treasurer or by the Commission. Nor shall a security listed in any securities exchange be listed anew in any other securities exchange unless in the discretion of the Commission, such listing in other securities exchange is warranted by special circumstances. A security may only be registered or listed on a securities exchange by the issuer filing the application with exchange and fulfilling the listing requirements of said exchange. A securities exchange shall not register or list on its main board the security of an enterprise engaged in the business of promoting, exploring, developing, exploiting or operating mineral properties and/or right unless, in the opinion of the Commission, after and upon consultation with the Bureau of Mines, adequate development work thereon has been done for at least six (6) months. Nor shall such security be registered or listed on the main board when the records show that ores of commercial value have not been discovered on the mining properties of the applicant. Two duplicate originals of application for registration or listing on a securities exchange shall be filed with the Commission. If the exchange authorities certify to the Commission that a security has been approved by the exchange for listing or registration, the registration or listing shall become effective ten (10) days after it is noted and made of record by the Commission or within such shorter period of time as the Commission may determine. In all cases of application for listing or registration of a security on a securities exchange there shall be filed by the applicant with the exchange a sworn statement giving at least the following: (a) The corporate name of the issuing corporation and the authority under which it exists, with a certified copy of its articles of incorporation and by laws; (b) the amount of its capital stock and the number of its shareholders; (c) the number and description of shares into which the said capital is divided, and the par value thereof; (d) whether the same is fully paid and non-assessable; (e) a list of officers and directors of said corporation; (f) The location of its offices; (g) its transfer office and registration office; (h) a certified copy of its assets and liabilities; (i) if there be outstanding bonds or debentures, the amount and character thereof; and (j) if it is a mining corporation, the status and progress made in the exploration, development and exploitation work on its properties, and its last financial report. 19. Withdrawal or striking from listing . No security registered or listed with a securities exchange may be withdrawn from listing or registration or stricken from its trading board without the consent of the Commission. An application for withdrawal or striking from registration or listing, if made by the issuer, shall be made to the Commission in triplicate copies of which shall be furnished the exchange, setting forth the reasons for the application; and if made by the exchange shall be made to the Commission in triplicate, copies of which shall be furnished the issuer, setting forth the reasons for the application. 20. Suspension of trading . The provisions of the preceding rule notwithstanding, trading on a registered or listed security may be temporarily suspended by a securities exchange, provided it is immediately reported to the Commission, stating the reasons for such action. If the Commission should disagree with such action, trading on the affected security shall be resumed immediately. 21. Suspension of trading by Commission . The provisions of the two preceding rules are without prejudice to the right of the Commission under the Securities Act to suspend trading on any security on its motion. 22. Minimum units of trading . Minimum units of trading shall be set and defined by the authorities of a securities exchange and such units of trading (or board lost), shall be immediately reported to the Commission for approval. 23. Different kinds of contracts or deliveries . Bids and offers may be made on the floor of a securities exchange only as follows: (a) "CASH", i.e., for delivery upon the date of contract. (b) "regular way", i.e., for delivery upon the business day following the contract; (c) "at six days", i.e., for delivery upon the sixth day following the contract; (d) "delayed delivery", i.e., for delivery within the period expressly agreed upon in the contract. Bids and offers made without stated conditions shall be considered to be made "regular way". 24. Future delivery . In sales of securities for delivery other than upon the date of the contract or upon the other than contract slips shall be executed not later than the days following the transaction and such contracts shall show, among others, the kinds and the amount of securities sold, the date or period of delivery, and the price or prices of the contract. A sale involving "delayed delivery" (DD) must be so announced and the selling broker or dealer must be prove at the time of the sale the existence of the certificate or certificates covering the securities which he is selling. 25. All-or-none offers . All-or-none offers shall be prohibited on the floor or a securities exchange. 26. Cross-sales by members . A member of a securities exchange may effect a cross-sale only on the floor of the exchange. Before effecting a cross-sale, he shall post himself for a sufficiently reasonable length of time, either on the floor or board of an exchange, as a seller of the security involved in the cross-sale at one minimum fluctuation below his buying unit. The confirmation given to the customer shall in case of a cross-sale indicate that the order was executed by means of a cross-sale. 27.a. Short Sale . There is a short sale when the seller does not own the security he is selling or when the sale is consummated by the delivery of a security borrowed by or for the account of the seller, or where the seller purchased the shares later either to offset what has been earlier sold or to return the shares purchased to the lender. 27.b. Order for short sale . Upon receiving an order to sell short, the term 'short' should be indicated on the selling order and throughout all the records pertinent to the sale. 27.c. Execution of short sale . No member broker or dealer shall use any facility of a securities exchange to effect a short sale of any security unless (1) at a price higher than the last sale or (2) at the price of the last sale if and only if that price is above the next preceding different sale price or such day. 27.d. Exempt Transactions . Rule 27.c shall not apply to any short sale (1) by an odd-lot dealer to offset the odd-lot orders of customers and (2) by an odd-lot dealer to liquidate a long position which is less than the unit of trading; Provided however that the net change in the position of such odd-lot dealer after any such short-sale is not more than the unit of trading in such security. 27.e. Failure to deliver . No person shall directly or indirectly by the use of any facility of a securities exchange effect a short-sale on a security registered or listed on any securities exchange, where the seller does not intend to make delivery of the securities within the period specified in the contract. Failure on the part of seller to make delivery on such date will be taken by the Commission on prima facie evidence of the lack of intention on his part to make such delivery. 27.f. Directors, Officers or Principal Stockholders . No director officer or principal stockholder of a corporation shall make a short-sale on securities of the corporation in which he is a director officer or principal stockholder. 27.g. Prohibition of Short Sale . This rule notwithstanding, a securities exchange may prohibit short selling in the exchange indefinitely or for such period of time as it may deem necessary, convenient or advisable for the protection of investors, and the Commission may also prohibit short selling in any exchange as an emergency measure or whenever the same is necessary or appropriate in the public interest or for the protection of the investors. 27.h. Penalties for Violations . Any person found giving any order, and/or any broker or dealer executing any transaction in violation of this rule shall be penalized by a fine of not less than One Thousand (P1,000.00) Pesos but not more than Five Thousand (P5,000 00) Pesos for each order or transaction; Provided, that where a broker or dealer has been found to have violated this rule in at least three instances in any one calendar year, his license as broker or dealer may, at the discretion of the Commission, be suspended for not less than five (5) but not more than fifteen (15) trading days in addition to any fine imposed by the Commission. 28. Contract Slips . Contract slips shall be promptly exchanged between the members after the transactions are made showing the number and kind of security bought or sold and the prices agreed upon. 29. Disclosure by broker acting as dealer . Whenever a broker, who is a member of a securities exchange, acts also as a dealer in the same security, which is not an exempt security, and he uses the facility of such exchange, he shall disclose in writing to his customer, at or before the completion of the transaction, whether he is acting as a dealer for his own account, as broker for the customer or as a broker for some other person. 30. Prohibition to buy and sell security while member holds customers unexecuted market order . No member broker dealer shall (1) personally buy or initiate the purchase of any security registered or listed on a securities exchange, for his own account or for the account in which he, or the firm of which he is a partner, or the partner or any official or employee of such firm, is directly or indirectly financially interested while such member, broker or dealer personally holds, or has knowledge that his firm or any partner thereof holds an unexecuted market order to buy such security for a customer or (2) personally sell or initiate the sale of any security on such exchange for any such account, while he personally holds or has knowledge that his firm or any partner thereof holds an unexecuted market order to sell such security for a customer. These rules shall not apply (1) to any purchase or sale of any security in an amount less than the unit of trading made by an odd-lot dealer on a securities exchange to offset odd-lot orders of customers or (2) to any purchase or sale of any security upon terms for delivery other than those specified in such unexecuted market or limited price order. 31. Price quotations . In its official quotation sheet, a securities exchange shall separate and distinguish the quotations for outright spot cash and "regular way" transactions, quotations for contracts for delivery at six days, delayed delivery and futures, and quotations for short contracts. All quotations, otherwise than by ticker, of transactions in securities listed or registered in a securities exchange, shall be grouped separately under headings indicating whether they concern regularly listed securities in the main board of securities listed in the small board. B. Brokers, Dealers and Salesmen 1. Broker's and dealer's forms to be furnished to Commission . A broker or dealer, before starting business, shall furnish the Commission with three copies of every form of instrument which he intends to use in dealing with his customers and with other brokers, and thereafter, no form shall be used by him until three copies thereof shall have been furnished to the Commission. 2. Broker's and dealer's officials and employees to be reported to Commission . A broker or dealer shall report to the Commission within ten (10) days after the promulgation of these rules or his registration with the Commission the names and addresses of the manager or managers of his central and branch offices, his representative or representatives on the floor of the exchange of which he is a member, his salesmen, agents, sub-agents, contract-men and other personnel authorized by him to solicit business, bring about sales or purchases, or otherwise deal with his customers and the public in his name 3. Separation and changes of officials and employees to be reported to Commission . A broker or dealer shall notify the Commission of the changes, dismissal, suspension or resignation of any of his managers, floor representatives, agents, sub-agents, contract-men and salesmen, immediately after such changes, dismissal, suspension or resignation, and the Commission may, at the expense of the broker or dealer, publish the fact of such separation. 4. Customer's reference card . A broker, in opening an account for a customer shall require the latter to sign and fill out a reference card showing among other information, the following: customer's name, business address, residence address, business telephone, residence telephone, if any, occupation nationality, civil status bank and other references. If the broker intends to bind the customer to any contract, agreement clause or condition appearing on the back of the reference card he shall require the customer also to sign on said side of the card. cdll 5. Account books or records to be kept . A broker or dealer shall keep an individual ledger account for each customer showing at the close of each business day the latter's position in cash and securities. A record of the customer's stock and cash position as of the end of each month shall be made on or before the tenth (10th) day of the next succeeding month and a certified copy thereof shall be furnished the customer within five (5) days thereafter. In cases of securities that are fully paid for, and those that are in any other manner held in trust such record shall show the serial numbers of all the certificates held by the broker for the customer unless such securities have been loaned, pledged, commingled or disposed of by the broker with the customer's authorization. A broker or dealer shall likewise keep a separate ledger sheet (stock control record) for each and every security held or traded in by him, which shall be kept in alphabetical order by the securities. The upper portion of the sheet shall show the securities for which the broker is accountable so as to reflect the customer's long or short position at the close of each business day and the lower portion shall show the location of such securities. Such sheet shall be in the following form: __________________________________________ Held for account of Name of Security __________________________________________ Total __________________________________________ Held in trust, including securities fully paid for Clearing house Transfer Officer (Name of Bank) __________________________________________ Total __________________________________________ 6. Broker's or dealer's report . Every broker or dealer who is not a member of a securities exchange and does not transact a business in securities thru the medium of any such member shall, in the manner and form to be prescribed by the Commission, make such periodic, special or other reports as the Commission may, by order, require from time to time. 7. Timing of orders and their execution . Verbal and telephone order received by a member shall be entered on the forms used by him for his customer's buying and selling orders. All buying and selling orders received by him, including the firms on which verbal and telephone orders are entered, shall be coursed thru his office and shall be time-stamped upon their receipt and also upon their execution, withdrawal or cancellation so as to indicate the date and time on which they were received, executed, withdrawn or cancelled. All brokers, who deal for their own account or trade for discretionary account, as well as their partners, floor traders, officials and employees, shall place their orders on the same forms used by such broker for their customers, and such forms shall also be time-stamped with other buying and selling orders received, as herein required in the case of other buying and selling orders. All buying and selling orders referring to the same security and under the same terms and conditions, including those placed by the broker for his own account or for discretionary accounts and those placed by his partners, floor traders, officials and employees, shall be executed by him in the order which they were received. 8. Customer's indorsement . A broker shall not in the execution of an order to sell, accept a customer's indorsement of any security, unless such indorsement is on the back thereof; or, if the indorsement is on a separate instrument, unless such indorsement is attached to by at least two witnesses and specifies the number of certificates and their serial numbers, if available, and the number and kind of shares the sale of which is being authorized. Such witnesses shall be persons who are not, directly or indirectly, financially interested in the broker's business and are not his or its officers or employees. 9. Discretionary Accounts . A broker, who trades on his own account, shall not accept any discretionary account; nor shall any broker accept or carry more than one discretionary account at any one time without the expressed written consent of all customers who grant him discretionary accounts. 10. Transactions opposite customer's orders . Except as herein otherwise provided, and except further, as may be necessary in odd-lot transactions, or in transactions for adjustment of errors committed in good faith, a broker shall not make any transaction opposite or against that which he makes for his customer. 11. Daily reports of sales and purchases . A broker shall make a daily report to the Commission of the sales and purchases executed by him. The report shall be made in the following form: Name of Exchange (If member of an exchange) ___________________ __________________ (Name of Broker) (Date) Nature of Name of Qty. Price Transactions With Whom Sessions Remarks Security Transacted (per) (Whether (Whe share purchase (P) ther Sale (S) A M. Cross-pur or chase (CP) P.M.) Cross-sale (CS) delivery (DD) future delivery (F) or odd-lot (Odd) etc. 12. Confirmation to customer . A broker shall report to the customer all transactions entered into for the customer's account, and to this end, he shall send the customer written confirmation of purchases and sales as promptly as possible on the very same day on which they are made. The confirmation must be sent direct to the customer at his residence or business address or at any other address given by him. An employee or salesman of a broker shall not be authorized to accept confirmation for or in behalf of a customer. 13. Brokers fee . A broker is an agent for his customer and, for his services, is entitled to a commission only. 14. Transfer fee . A broker shall not charge his customer any amount as payment for transfer fee except upon actual transfer of the certificate to the purchaser. 15. Delivery of customers securities . Except as herein otherwise provided, a broker shall on demand deliver to his customers the securities to which they are entitled unless he is prevented by circumstances beyond his control. 16. Loaning, pledging, commingling and disposal of customer's free securities . Securities on which a broker has not extended any credit to a customer, including those securities which are in excess of the margin requirements, shall be kept separate for the particular customer who owns them and shall not be loaned, pledged or commingled with other securities owned by the broker himself or by other customers, or otherwise disposed of as his own, unless he shall have first obtained a separate authorization in writing from such customer permitting the lending pledging, commingling, or disposal of such securities. No general form of customer's agreement with the broker, even though it includes specifically the right to lend or otherwise dispose of said securities shall be deemed sufficient compliance with this rule, but such right shall and must be evidenced by a separate authorization in writing. In case such securities should be loaned, pledged or otherwise disposed of as his own by the broker shall report to the latter within five (5) days after the loan, pledge disposal, stating the name or names of the person or persons to whom they were loaned or pledged or disposed of and the amount for which they were loaned or at which they were disposed of and the date of maturity of the loan. 17. Loaning and voting customer's securities placed as guaranty . A broker who extends credit to a customer shall not without the written consent of the customer, lend the latter's securities to himself or to any one else, or vote them as if they were his own. 18. Pledging customer's securities placed as guaranty . A broker shall not without the written consent of the customer, pledge or hypothecate the securities of his customer, which have been deposited or pledged to guaranty an account, for a loan greater than the customer's outstanding debit account and in no case shall aggregate loans made by him thru a pledge, hypothecation or guaranty of such securities of his customer at any time be in excess of the indebtedness to him of such customer in respect of such securities. 20. Erroneous transactions to be reported . Erroneous transactions must be entered in the proper books of account and reported to the Commission immediately upon the discovery of the error, stating the cause or causes that led to the commission of the error. 21. Broker acting as agent of buyer and seller on over-the-counter market . No broker shall act as agent of both buyer and seller in any security transaction on an over-the-counter market unless (1) he procures the written or telegraphic consent of both such buyer and seller at or before be completion of the transaction, or (2) he makes written disclosure to both such buyer and seller before the completion of the transaction that he is so acting. prcd 22. Disclosure by broker or dealer in over-the-counter transaction . No broker or dealer shall effect any transaction in any security for or which a customer on an over-the-counter market, unless such broker or dealer at or before the completion of such transaction clearly discloses to such customer in writing (1) whether he is acting as a dealer for his own accounts, as a broker for some other person; (2) if he acts as broker for such customer, either the name of the person from whom such security was purchased or to whom it was sold for such customer and the day and time when such transaction took place, or the fact that such information will be furnished upon request of such customer; (3) if he acts as broker for such customer the amount of the commission or service fee charged by him to such customer, and the amount of commission paid by him to any other broker employed by him in such transaction; and (4) that he is controlled by, or controls, or under common control with the issuer of such security if such be the fact. 23. Conditions under which broker of dealer vested with discretion may effect over-the-counter transactions . A registered broker or dealer, who is vested by a customer with discretion as to the choice or the total amount of security to be bought or sold or as to whether the transaction shall be one of purchase or sale, may on an over-the-counter market. (1) effect a transaction for or which such customer in any security in which in the course of his business as a broker or dealer he has a long or short position or in the distribution of accumulation of which he has any direct financial interest, or in which he holds, or as granted or has knowledge that any principal for whom he is acting holds or has granted any option, provided that he clearly discloses to such customer the fact of such position, interest, or option and obtains the written or telegraphic consent of such customer to each such transaction; or (2) buy from or sell to such customer any security for any account in which he or any principal from whom he is acting is interested, provided that he obtains the written or telegraphic consent of such customer to each such purchase or sale. 24. Dissolution of partnership engaged in stock brokerage . In case a partnership, which is engaged in the brokerage business, decides to dissolve itself, notification of this fact shall be given to the Securities and Exchange Commission, the exchange of which it is a member, and all its clients thirty (30) days prior to the date of its actual dissolution. In case it is not a member of any exchange, such notification shall be given only to the Commission and all its customers. Should any, some or all of the member of the dissolving partnership, join another partnership likewise engaged in the brokerage business, or form an entirely new partnership also to engage in a like business, such member or members shall not take along with him or them, as the case may be, and transfer to the new firm the business and accounts of the customers of the dissolving partnership, without the knowledge and consent of the said customers. In case the customer agree to such transfer, the successor firm must, before making any transaction for the account of such customers, deliver to them a complete statement of the accounts so transferred, and give a notice of said transfer to the Commission. If, however, a customer does not consent to such transfer and prefers to liquidate his account, the dissolving firm must make the liquidation, and share the settlement results in favor of the former, the latter the payment of money or both, as the case may be, upon demand and in no case later than forty- eight (48) hours for such demand, unless the customer agrees expressly in writing to receive them at a later date. C. Miscellaneous 1. Reports to be filed by directors, officers and principal stockholders . Every person who is directly or indirectly the beneficial owner of more than ten (10) per centum of any class of security (other than an exempted security) which is listed and/or registered on a securities exchange, or who is a director or an officer of the issuer of such security, shall file, at the time of the registration or listing of such security or within ten (10) days after he becomes such beneficial owner, director or officer, a statement with the exchange (and a duplicate original thereof with the Commission) of the amount of all securities of such issuer, whether listed and/or registered or not, of which he is the beneficial owner and within ten (10) days after the close of each calendar month thereafter, if there has been any change in such ownership during such month, shall file with the exchange a statement (and a duplicate original thereof with the Commission) indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month. These statements shall be accomplished and filed on forms to be issued by the Commission and may contain any relevant explanatory matter. With respect to any officer, director, or beneficial owner of more than ten (10) per cent of any class of registered security, who is not resident within the Philippines or is physically absent therefrom at the time when reports are required, reports shall, for the purpose of the other provisions of this rule be considered to have been properly made when they are placed in the mails. Any issuer which has securities listed and/or registered on more than one securities exchange may designate one such exchange as the only exchange with which reports pursuant to this rule need be filed. Such designation may be made by filing a written statement of designation with the Commission and with each securities exchange on which any security of the issuer is listed and/or registered. After the filing of such statement the securities of such issuer shall be exempted with respect to the filing of reports pursuant to this rule with any exchange other than the designated exchange. In determining, for the purpose of this rule whether a person is the beneficial owner, directly or indirectly, of more than ten (10) per cent of any class of any listed and/or registered security, such class shall be deemed to consist of the amount of such class which has been issued, regardless of whether any part of such amount is not listed or registered or is held by or for the account of the issuer; except that for the purpose of determining the percentage of ownership of voting trust certificate or certificates of deposit for securities, the class of voting trust certificates or certificates of deposit shall be deemed to consist of the entire amount of voting trust certificates or certificates of deposit issuable in respect of the class of securities which may be deposited under the voting trust agreement or deposit agreement in question, whether or not all of such class has been so deposited. A person filing a report pursuant to this rule otherwise than as the direct beneficial owner of any security shall specify the nature of his beneficial ownership in such security. A partner who is required under this rule to report in respect to any security owned by the partnership may include in his report the entire amount of such security owned by the partnership and state that he has an interest in such security by reason of his membership in the partnership, without disclosing the extent of such interest; or such partner may file a report only as to that amount of such security which represent his proportionate interest in the partnership, indicating that the report covers only such interests. 2. Construction of terms . The word "buy" or "sell", when used in an order given to a broker, who is a member of a stock exchange, shall be taken to mean "an order to buy" or "an order to sell" on the floor of the exchange of which he is a member, according to its rules and customs. The words "for me" or "for my account", when used in an order, shall be taken to mean that the contract the broker is directed to make is to be made for and on behalf of the customer. When an order in the regular form of a broker does not state a particular date of delivery of the securities ordered to be bought or sold it shall be taken to mean that they shall be bought or sold the "regular way". When any of the abbreviations of the full names of corporations or securities is used in an order in the regular form of a broker, it shall be taken for what it stands for in the market. Where a particular price is stated in an order in the regular form of a broker and the words "or better" appear after it, it shall mean that the price stated is the price at which the securities shall be bought or sold, unless a better price i.e., a lower, in case of a purchase, a higher, in case of a sale is obtainable, in which case they shall be bought and sold at such better price. Where no price is stated in an order made in the regular form of a broker, but the securities are ordered to be bought or sold at the best price obtainable i.e., the lowest in case of a purchase, the highest in case of a sale. When an order in the regular form of a broker does not state anything at all about the price for which securities are to be bought or sold, the order shall be taken to mean that the securities shall be bought or sold at the "market price" or this term is interpreted in the preceding paragraph. 3. The provisional rules and regulations of the Commission issued on March 3, 1937, as amended, and all rules, regulations and orders of the Bureau of Commerce respecting brokers, dealers, salesmen, and securities Act or any of these rules and regulations are hereby adopted and made part hereof. 4. Any provision of any of these rules may be suspended upon order of the Commission when its enforcement will result in undue hardship of injustice to any party or parties. 5. The foregoing rules shall take effect on October 17, 1938 and November 1, 1938. (SGD.) RICARDO NEPOMUCENO Commissioner APPROVED: (SGD.) JOSE P. MELENCIO Undersecretary of Justice The following sections of the provisional Rules and Regulations of the Securities and Exchange Commission promulgated on March 3, 1937 are in force and made part of the foregoing permanent Rules and Regulations: 12. In trading on margin a broker shall not extend credit to his customers beyond the following maximum: (a) On securities which are duly registered and/or licensed by the Insular Treasurer or by the Commission, but not listed on any exchange, 30 per centum of the current market value of the securities; llcd (b) On securities duly registered and/or licensed by the Insular Treasurer or by the Commission and listed on an Exchange, an amount whichever is the higher of: (1) 40 per centum of the current market price of the securities; or (2) 100 per centum of the lowest market price of the securities during the preceding 36 months but not more than 50 per centum of the current market price. 13. In trading on margin, a broker shall not charge his customers interest on their debit balances except for the period of time during which credit is actually used. 14. In the absence of any written agreement or authorization to the contrary, a broker who extends credit to a customer shall not sell the customer's securities for insufficiency of margin, until after the broker, by written demand and notice or demands and notices, has given his customer at least forty-eight (48) hours within which to maintain the margin, and the customer has failed to maintain it; and if there is a written agreement or authorization to sell the customer's securities for insufficiency of margin without notice and demand, the broker shall, upon the execution of such agreement or authorization, furnish the customer with a copy thereof. Delivery of such copy of the agreement or authorization shall not be considered as made in the absence or written acknowledgment under the signature of the customer. In making a demand for additional margin, a broker shall specify the amount of additional margin required of the customer, and shall give notice that if such margin is not furnish, the broker will sell the customer's securities. The notice shall also specify the date and the approximate hour of the execution of the sale and the particular place or securities exchange at which the sale will be made. 15. Notice and demand for additional margin shall be delivered to the customer in person or sent by mail, if the customer resides in the City of Manila or its suburbs, or by telegram or radiogram, if the customer resides elsewhere. If not delivered personally, the 48-hour notice shall be computed from the time the letter, telegram or radiogram is deposited for transmission to the customer. 16. In all trading on margin, the sale of the securities shall, in case of failure of the customer to maintain the margin, be made only thru a securities exchange or at public auction, unless the customer authorizes broker in writing to sell his securities at private sale. 22. Aside from other reports which may be required by the Commission from time to time, each exchange shall furnish the Commission daily with all reports received by it from its Clearing House on the preceding day on the trading activities of its members. 23. The provisions of Rule A-12 shall not apply to loan or extension of credit made prior to January 1, 1973, but beginning March 8, 1937, they shall apply to loans or extensions of credit made on and after said date and beginning July 15, 1937, they shall apply to loans and extensions of credit made on and after January 1, 1937, but prior to March 8, 1937. All other rules shall take effect on March 8, 1937. llcd (SGD.) RICARDO NEPOMUCENO Commissioner