Mr. Cayetano W. Paderanga, Jr.

May 18, 1990 Mr. Cayetano W. Paderanga, Jr. Acting Director-General National Economic and Development Authority Amber Avenue, Pasig Metro Manila S i r : This refers to your letter, dated March 30, 1990, requesting clarification on the functions of investment houses, investment companies and financing companies; the minimum Filipino ownership requirement for said companies, and whether it would be advisable to liberalized the foreign equity restrictions for the aforementioned financial institutions. LibLex As to functions : Investment House is any enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the underwriting of securities of another person or enterprise, including securities of the Government and its instrumentalities. (Sec. 2, PD 129, Sec. 2(a) Basic Rules and Regulations to Implement the Provisions of Presidential Decree No. 129, otherwise known as the Investment Houses Law). Investment Companies refers to any issuer which is or holds itself out as being engaged primarily or proposes to engage primarily, in the business of investing, reinvesting and trading in securities. (Sec. 4 of Republic Act No. 2629). Financing Companies are corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commissioner and the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property. (Section 3(a), RA 5980). As to Filipino Equity Ownership Requirement : Investment House Majority of the voting stock shall be owned by citizens of the Philippines. In determining the percentage of foreign-owned voting stock in Investment House, the basis for the computation shall be the citizenship of each stockholder, and with respect to corporate owners of voting stock, the citizenship of the individual owners of voting stock in the corporation holding shares in that Investment House. (Sec. 5 PD No. 129). llcd Investment Companies All members of the Board of Directors must be Filipino citizens. (Section 15, RA 2629). Financing Companies At least 60% of the capital shall be owned by citizens of the Philippines. (Sec. 6 RA 5980). As to whether it is advisable to liberalize the foreign equity restrictions for the aforementioned financial institutions, it is worth mentioning that the present state policy on the matter is aimed at encouraging foreign investments which would bring about significant improvement to the nation and its people. The state acknowledges that foreign capital has a role to play in the development of Philippine economy, that it is the task of government to determine this role and provide the much needed climate for their entry and growth. In line with the foregoing policy, a need to adopt more liberal statutes seems to emerge. In other words our own statutes and policies on the matter should be liberalized and streamlined to encourage foreign investors. However, legislation changes with respect to the above Filipino ownership requirement should be guided by the following declared state policy mandated by the Philippine Constitution: "The state shall develop a self-reliant and independent national economy effectively controlled by Filipinos. (Sec. 19, Article II). The Committee therefore should take into consideration the intent of the above-constitutional provision enunciating the nationalistic concern and fundamental principle of economic independence and the necessity of protecting this economic freedom. We do not interpose objection to the proposal to lower the required Filipino participation to at least 51% Filipino ownership of the stocks or interest as well as the voting power of the above-mentioned financial institution. A 51% minimum requirement is already sufficient to ensure effective Filipino control. Relative to the request of NEDA to review the opinion of the Department of Justice on the interpretation of "Filipino Citizens"/as used in Section 2 Article XII of the Philippine Constitution, we feel it is beyond the jurisdiction of the Commission to review the same or make clarification thereon. If the Committee finds the DOJ opinion quite vague, the request for review or clarification thereon should be directed to the Department of Justice. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman