Interpretation of RSA Rule 22(a)-6 Fictitious Transactions and RSA Rule 22(a)-7 Wash Sales

May 30, 1996 SEC-BED * MEMORANDUM CIRCULAR NO. 04-96 TO : The Philippine Stock Exchange SUBJECT : Interpretation of RSA Rule 22(a)-6 Fictitious Transactions and RSA Rule 22(a)-7 Wash Sales The Commission is issuing this Memorandum Circular to provide guidance with regard to the application of two existing business conduct rules which have been recently published under new numbers. The two rules in question, RSA Rule 22(a)-6 Fictitious Transactions and RSA Rule 22(a)-7 Wash Sales, were first adopted by the Commission in 1938. The original wording of the old rules was retained in its entirety but assigned new rule numbers based on the relevant section of the Revised Securities Act (RSA). Rule 22(a)-6 (Fictitious Transactions) and Rule 22(a)-7 (Wash Sales) prescribe the penalties that shall be assessed by the Philippine Stock Exchange against a member which enters into a manipulative scheme or undertakes a course of action which involves the use of fictitious transactions or wash sales for the purpose of creating actual or apparent activity in a stock in order to induce purchases or sales. These penalties are not intended to be applied to errors, but rather to a scheme or course of action involving transactions of the type prohibited. The use of fictitious transactions and wash sales as manipulative devices can injure investors and undermine the integrity of the Philippine Stock Exchange. Accordingly, the Commission believes that the sanctions imposed for this type of behavior are commensurate to the seriousness of the violations. (SGD.) PERFECTO R. YASAY, JR. Acting Chairman