Sycip Salazar Hernandez & Gatmaitan

November 9, 1995 Sycip Salazar Hernandez & Gatmaitan 105 Paseo De Roxas, 1200 Makati, Metro Manila Attention : Atty . Mia G . Gentugaya S i r : This refers to your letter dated September 20, 1995 seeking opinion on whether or not a dealer's license is required if your foreign client engages in the business of investing in Philippine securities. As stated, your client, a foreign corporation, is engaged in the business of investing worldwide in a wide range of financial investments, including treasury securities, money market papers, bonds and equities. It has now investments in the Philippines in these kinds of instruments. The company enjoys from offshore unrestricted access to these securities in the Philippines, utilizing international and domestic banks, brokers and dealers to buy and sell these securities on behalf of the company. The company desires to increase its investments in Philippine securities and feels that a local office will give the Company better knowledge of the Philippine market and opportunities. This will improve results and increase its confidence in the Philippines thereby allowing the company to continually increase its investment activities. It is to this end that the company desires to establish a wholly-owned legal entity, either a subsidiary or a branch, in the Philippines to perform the foregoing activities. It is your contention that the company need not secure a dealer's license ,except the SEC certificate of incorporation if organized as a subsidiary or license to operate if it will be organized as a branch office, for the following reasons : 1. Philco will invest only its own funds and will not obtain funds from the public. 2. Philco will not perform any market making or market intermediary roles. It will use stock brokers, the banks or other financial institutions to access the market to buy and sell securities. 3. If currently, the foreign company can perform all these activities from offshore without regulation, there is no reason why it should be subjected to regulation if it moves its base of operations to the Philippines while doing exactly the same investment activities and benefiting the Philippine economy in the process through the generation of employment for Filipinos and increasing foreign investments. 4. That the above investment activity is not covered by the term "dealer in securities" as defined under the National Internal Revenue Code. Under Section 20 of NIRC the term "dealer of securities" is defined as follows: "The term " dealer in securities " means a merchant of stocks or securities, whether an individual, partnership or corporation, with an established place of business, regularly engaged in the purchase of securities and their resale to customers ,that is one who as a merchant buys securities and sells them to customers with a view to the gains and profits that may be derived therefrom." You contend that since Philco will not have and will not be selling to customers but will only be buying and selling securities for investment or speculation through the services of brokers in the stock market, it will not fall under the definition of a dealer in securities. The Revised Securities Act defines the term "dealer" as follows: "(f) " Dealer " means any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise, but does not include any person insofar as he buys or sells securities for his own account, either individually or in some fiduciary capacity, but not as a part of a regular business ".(Emphasis supplied) Under the aforecited definition, it is quite clear that any one who is engaged in the regular business of buying and selling securities for his own account is considered a dealer. What are excluded or exempted are those who buy and sell securities not on a regular basis .The exception refers only to those who invest in securities without necessarily having a place of business for that particular purpose. But once the activity is to be put up as a regular business, like in the present case ,it will no longer fall under the exception. Thus, the first two justifications are of no moment. For purposes of coverage, the above definition does not require that the funds should come from the public, nor does it require that it should act as market intermediary, or have customers who will buy the shares as the definition itself provides that the sale may be done through a broker or otherwise. The third justification, also does not deserve consideration. Section 129 of the Corporation Code is explicit that "Any foreign corporation lawfully doing business in the Philippines shall be bound by all laws, rules and regulations applicable to domestic corporations of the same class, save and except such only as provided for the creation, formation, organization or dissolution of corporations or such as fix the relations, liabilities, responsibilities, or duties of stockholders, members, or officers of corporations to each other or to the corporation." Anent the fourth justification, the definition cited in the letter is only for taxation purposes . Hence, it cannot prevail over the provision of the Revised Securities Act which defines the term "dealer" for purposes of registration or licensing under the Act. Accordingly, since the company intends to undertake the investment activity of buying and selling securities as its " regular business ",the Commission En Banc, in its meeting of November 9, 1995, resolved to require your client to be registered as a " securities dealer " pursuant to the provisions of the Revised Securities Act. LexLib Very truly yours, (SGD.) PERFECTO R. YASAY, JR. Acting Chairman