All Asia Capital and Trust Corporation

July 17, 1992 All Asia Capital and Trust Corporation c/o Joycelyn K. Tanada and Maria Alegria R. Legaspi 105 Paseo de Roxas, Makati Metro Manila Gentlemen: This refers to your letter of July 1, 1992 requesting confirmation on the following view relative to dealership of government securities: prcd 1. That government securities dealership function is an inherent power or authority granted to an Investment House under P.D. No. 129, hence, its inclusion in the purpose clause of All Asia Capital's articles of incorporation is not necessary. 2. That the inclusion of said business activity in the primary purpose of said Corporation which is "financing business" is not legally feasible taking into consideration the requirements under the Rules and Regulations implementing the provisions of R.A. No. 5980 and Section 14 (2) of the Corporation Code. P.D. 129, otherwise known as the Investment Houses Law provides: "SECTION 2. Scope . Any enterprise which engages in the underwriting of securities of other corporations shall be considered an Investment House ,..." (Emphasis supplied) The terms "underwriting" and "securities" in the above provision is defined under said Law as follows: (a) " Underwriting " is the act or process of guaranteeing the distribution and sale of securities of any kind issued by another corporation. (b) " Securities " are written evidences of ownership, interest, or participation in an enterprise, or written evidences of indebtedness of a person or enterprise. ...(Emphasis supplied) Corollary thereto and in order to settle doubts as to what constitute securities to be included in the "underwriting" activities of Investment Houses, the SEC Implementing Rules and Regulations of P.D. 129 provides: "SECTION 2. ... (b) Underwriting of securities is the act or process of guaranteeing the distribution and sale within the Philippines of securities issued by another person or enterprise, including securities of the Government or its instrumentalities .The distribution and sale may be on a public or private placement basis. (Emphasis supplied) xxx xxx xxx" Section 7 & 13 of P.D. 129, further provide: SECTION 7. Powers . In addition to the powers granted to corporations in general ,an Investment House is authorized to do the following: (1) Arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities ; (2) Participate in a syndicate undertaking to purchase and sell, distribute or arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities ; (3) Arrange to distribute or participate in a syndicate undertaking to purchase and sell on a best efforts basis securities of other corporations and of the Government or its instrumentalities ; ..." (Emphasis supplied) SECTION 13. Applicability of Securities Act . An Investment House may engage in the business of a dealer or a broker under the Securities Act without obtaining a separate license for the purpose as required in Section 14 of the Securities Act (now Section 19 of the Revised Securities Act)." (Emphasis supplied) From the above-cited provisions, it is clear that "government securities dealership" function is an inherent power of an "investment house".Being inherent, such function need not be expressly stated in the articles of incorporation of a duly licensed investment house. Take note further that P.D. 129 does not require that the business of investment house must be a "primary purpose" of a corporation. Hence, such business activity may be allowed under the secondary purpose(s). As to the alleged requirement of the Central Bank that it should be included in the primary purpose of the Corporation, the same cannot be done since the present primary purpose, of subject corporation is "financing business". Under R.A. 5980, otherwise known as Financing Act, financing business must be a primary purpose of a corporation and since Section 14(2) of the Corporation Code requires that there can only be one "primary purpose" of a corporation, other businesses to be stated in the secondary purpose(s), the investment house business of subject corporation cannot be included in its present primary purpose which is financing business. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman