Mr. Claro P. Ison

December 8, 1997 Mr. Claro P. Ison PentaCapital Investment Corporation 10/F, ACT Tower, 135 Sen. Gil Puyat Ave., Salcedo Village, Makati, Metro Manila S i r : This refers to your letter requesting the Commission for confirmation of its opinion stating that "certificates of participation" to be issued by commercial banks and finance companies with quasi-banking license acting as trustees under the scheme described hereunder is exempt from registration requirements under the Revised Securities Act. LibLex "Two (2) local "commercial banks" through their respective trust departments and a "finance company with quasi-banking license" will act as trustees of their clients (the "Trustors") and sell participation in the co-ownership interests of the Trustees in the parcels of land owned by the Trustors (the "Property") which have been contracted for development. The trustees will become co-owners of the Property through the conveyance by the Trustors of pro-indiviso and undivided portions of the Property to each of the Trustees. These conveyance will be annotated on the titles covering the Property. For the orderly sale of the said participation, the co-ownership interests of each of the Trustees in the property will be divided into units and each unit will be converted by a "Certificate of Participation" to be issued by the Trustee concerned and confirmed by the Trustors. Upon the sale of a Certificate of Participation the said sale will be registered in a register of beneficiaries to be maintained by the issuing Trustees." It is your contention that the "Certificates of Participation" to be issued under the scheme described above are "exempt" from the registration requirements pursuant to Section 5 of the Revised Securities Act, (RSA), quoted hereunder. "SECTION 5. Exempt Securities . (a) Except as expressly provided, the requirement of registration under subsection (a) of section four of this Act shall not apply to any of the following classes of securities. xxx xxx xxx (3) Any security issued or guaranteed by any banking institution authorized to do business in the Philippines, the business of which is substantially confined to banking or a financial institution licensed to engage in quasi-banking, and is supervised by the Central Bank ." (Emphasis supplied) Take note that the above provision uses the phrase " and is supervised by the Central Bank " as a condition for the securities to be considered as " exempt ". The philosophy behind the above exemption is that registration under the RSA is no longer necessary in the public interest or for the protection of the investors inasmuch as they are issued by institutions over which the Bangko Sentral already exercises regulatory and supervisory care, and therefore are presumed to be already adequately regulated by that Office. However, in the present case, the Bangko Sentral, in its letter-comment dated October 22, 1997, manifested that the certificates of participation to be issued under the proposed scheme do not appear to be related to banking business, and therefore, are not among those contemplated to be exempt from SEC registration (a xerox copy of the BSP letter is herewith attached for ready reference). Inasmuch as the Bangko Sentral itself recognizes the fact that the investment scheme is not regulated by that Agency, the securities above described do not fall within the exemption contemplated in the above-cited RSA, provision. Therefore, the issuance thereof requires registration under the RSA. Please be advised accordingly. cdlex Very truly yours, (SGD.) PERFECTO R. YASAY, JR. Chairman