Commission Release Announcing Adoption of Clearing and Settlement Rules

January 22, 1997 COMMISSION RELEASE ANNOUNCING ADOPTION OF CLEARING AND SETTLEMENT RULES The Securities and Exchange Commission ("Commission") announces the adoption of new rules which set requirements for registration of clearing agencies and transfer agents and govern clearing and settlement of securities. Along with the adoption of these new rules which create a logical framework within which the SCCP and PCDI can function, the Commission is rescinding a significant number of existing rules which are no longer appropriate. Many of these old rules are procedural in nature and will be replaced by procedures to be established by the SCCP and PCDI. Old Rules Suspended which are no longer appropriate "Future Delivery," Rule A.24 of the 1938 Rules. "Customer Indorsement", Rule B.8 of the 1938 Rules "Qualifications", Rule 1 of the 1970 Rules Governing Transfer Agents, Brokers and Clearing Houses in Connection with the Issuance of Stock Certificates (As amended). "Duties of Transfer Agents", Rule 2 of the 1970 Rules Governing transfer Agents, Brokers and Clearing Houses in Connection with the Issuance of Stock Certificates (As amended). "Transfer Agent Not to Act as Registrar or Auditor of Same Company," Rule 3 of 1970 Rules Governing Transfer Agents, Brokers and Clearing Houses in Connection with the Issuance of Stock Certificates (As amended). "Deadlines for Delivery of Documents", Rule 4 of 1970 Rules Governing Transfer Agents, Brokers and Clearing Houses in Connection with the Issuance of Stock Certificates (As Amended). "Penalties", Rule 5 of the 1970 Rules Governing Transfer Agents, Brokers and Clearing Houses in Connection with the Issuance of Stock Certificates (As amended). SEC-BED Memorandum Circular #9, Series of 1987, entitled "Filing of Reports in Connection with Issuance of Stock Certificates; Deadlines for Delivery of Documents/Penalties" except for the rules on "Deadlines for Delivery of Documents". "There shall be Personnel Responsible for Securing Customers' Specimen Signature", Rule 1 of 1974 Rules to Avoid Delays in the Issuance of Stock Certificate. "Clearing House to Report to Stock Exchange Failure of Broker to Make Good Delivery", Rule 2 of 1974 Rules to Avoid Delays in the Issuance of Stock Certificate. "Clearing House to Make Daily Deliveries to Transfer Offices", Rule 3 of 1974 Rules to Avoid Delays in the Issuance of Stock Certificate. "To Indicate Always in Transfer Instructions Complete Name, Address and Citizenship of Buyers", Rule 4 of 1974 Rules to Avoid Delays in the Issuance of Stock Certificate. "Notice Necessary when Issuing Stock Certificate in Street Name", Rule 5 of 1974 Rules to Avoid Delay in the Issuance of Stock Certificate. "Broker to Index Breakdown of Several Certificates to be Issued", Rule 6 of 1974 Rules to Avoid Delay in the Issuance of Stock A Certificate. "DTI to Accompany Stock Power Acknowledged by Transfer Office", Rule 7 of 1974 Rules to Avoid Delay in the Issuance of Stock Certificate. "Prior Clearance of Stock Powers to Accompany DTL Necessary", Rule 8 of 1974 Rules to Avoid Delay in the Issuance of Stock Certificate. "Brokers Shall Endorse Stock Powers", Rule 9 of 1974 Rules to Avoid Delay in the Issuance of Stock Certificate. "Certificates Already Disposed of Under Stock Powers to be Returned", Rule 12 of 1974 Rules to Avoid Delay in the Issuance of Stock Certificate. "Penalties", Rule 14 of 1974 Rules to Avoid Delay in the Issuance of Stock Certificate "Repealing Clause", Rule 15 of 1974 Rules to Avoid Delay in the Issuance of Stock Certificate. Effective Date of the Rules These rules shall take effect fifteen (15) days after its publication in two (2) newspapers of general circulation in the Philippines. (SGD.) PERFECTO R. YASAY, JR. Chairman Securities and Exchange Commission (SGD.) FE ELOISA C. GLORIA Associate Commissioner (SGD.) ROSALINDA U. CASIGURAN Associate Commissioner (SGD.) EDIJER A. MARTINEZ Associate Commissioner (SGD.) DANILO L. CONCEPCION Associate Commissioner ATTACHMENT Text of Rules Adopted by the Commission RSA Rule 19-17 Brokers to Distribute Dividends to Customers Immediately After Receipt In the case of cash dividends, the beneficial owners of shares held by the broker as of the cash dividend record date and the amount of cash dividends to which each such beneficial owner is entitled shall be determined by the broker not later than thirty-one (31) trading days after the dividend record date. Within the same period the broker shall furnish the transfer agent with sworn statements specifying the number of shares that are not subject to withholding tax. The broker shall secure his dividend check from the transfer office on the dividend payment date and shall forthwith distribute the same to his customers, except where the customer has an unpaid account with the broker, in which case, a credit to the customer's account with the proper notice given to him shall constitute prompt delivery of his cash dividend. The stock and transfer books of the corporation which declared the dividend should be closed for not more than thirty-one trading days from the dividend record date. (Replaces Rule 11 of 1974 Rules to Avoid Delays in the Issuance of Stock Certificate). RSA Rule 39-1 Settlement and Delivery (a) Uniform Settlement No broker or dealer shall accept an order from a customer pursuant to an arrangement whereby payment of securities purchased or delivery of securities sold is to be made to or by a settlement agent of the customer unless all of the following procedures are followed: (1) The broker or dealer has received from the customer prior to or at the time of accepting the order, the name and address of the settlement agent and account number of the customer on file with the agent; (2) Each order accepted from the customer pursuant to such an arrangement is identified as either a delivery or receipt against payment trade; (3) The broker or dealer provides to the customer a confirmation by electronic, physical, facsimile or verbal means of all relevant data and information required to be contained in a confirmation made pursuant to RSA Rule 19-5(b) with respect to the execution of the trade, in whole or in part, as early as possible on the next business day following such execution, provided that the broker or dealer complies with the requirements of RSA Rule 19-5(b) to the extent it has not done so pursuant to this subparagraph (3). (4) The broker or dealer has obtained an agreement from the customer that the customer will furnish its settlement agent with instructions with respect to the receipt or delivery of the securities involved in the transaction promptly upon receipt by the customer of each such confirmation, or the relevant date and information as to each execution, relating to such order (even though such execution represents the purchase or sale of only a part of the order), and that in any event the customer will ensure that its settlement agent affirms the transaction no later than the second business day after the date of execution of the trade to which the confirmation relates. (5) The customer and its settlement agent utilize the facilities or system of a registered clearing agency for the affirmation and settlement of all depository eligible transactions through such facilities or system including record-entry or certificated settlement. (b) Settlement and delivery through registered clearing agency . Good delivery of securities eligible to the records-entry system operated by a registered clearing agency between broker and dealers who are participants in such system and any other such participants are made by entries in the records maintained by such registered clearing agency. All trades by brokers and dealers in securities which are eligible to the record-entry system operated by a registered clearing agency are settled through such system in accordance with this Rule and the rules of the registered clearing agency. (c) Definitions . For the purposes of this Rule (1) "Registered clearing agency" means a clearing agency registered with the Commission pursuant to Section 40 of the RSA. (2) "Depository eligible transactions" means trades in securities in respect of which affirmation and settlement can be performed through the facilities or services of a registered clearing agency. (3) "Settlement agent" means a financial institution acting as the custodian of securities or funds or both of a person who has instructed such institution to deliver or receive securities or funds or both in order to effect the settlement of securities transactions on behalf and for the account of such person. (d) Exemptions . The provisions of subparagraph (5) of paragraph (a) and paragraph (b) of this Rule do not apply to trades: (1) To be settled outside the Philippines; or (2) Where both broker or dealer and the settlement agent are not participant in the same registered clearing agency or the same facilities or system of such registered clearing agency required in respect of the trade. RSA Rule 39-2 Endorsement Guarantee To provide for the prompt clearing and settlement of transactions, the broker or dealer shall guarantee the signature of his customer by use of the term "endorsement of owner guaranteed" or simply "endorsement guaranteed" on the stock certificate or the stock power. The use of these terms shall mean the genuineness of the endorsement thereon and the guarantor shall be liable accordingly. (Replaces Rule 9 of 1974 Rules to Avoid Delays in the Issuance of Stock Certificate). RSA Rule 40-1 Registration of Clearing Agencies (a) An application for registration as a clearing agency, as defined in the Revised Securities ("Act"), or an amendment to any such application, shall be filed with the SEC ("Commission") on FORM 40-CA, in accordance with the instructions contained therein. One original and one conformed copy of the Form shall be filed. (b) A filing fee of P3,000.00 and other fees shall be collected by the Commission upon filing of the application. (c) After reviewing a filing of an application for registration as a clearing agency, or an amendment thereto, the Commission shall: 1) grant registration or approve the amendment; 2) require a change in the constituting documents, by-laws, contracts, rules or procedures to ensure their fair administration or to make them conform to the requirements of or otherwise further the purposes of the Act prior to further consideration of the application or amendment; or 3) deny registration or the amendment if: i) the clearing agency is not organized in a manner and would not have the capacity and resources to enforce compliance with its constituting documents, by-laws, rules, contracts and procedures as proposed or amended; or ii) the constituting documents, by-laws, contracts, rules and procedures or the amendment thereto would be inconsistent with provisions of the Act or with the development and operation of a prompt and accurate clearance and settlement system and the safeguarding of money and securities in its custody, within its control or for which it is responsible; or iii) the application for registration or an amendment thereto is incomplete or inaccurate in any material respect or includes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the application or amendment not misleading. 4) conditionally or unconditionally exempt registrant from the registration and other provisions of the Act or the rules or regulations thereunder. (d) If any of the information reported on SEC Form 40-CA becomes inaccurate, misleading or incomplete or requires updating for any reason, including changes to rules, operating procedures, and the list of directors and officers, the registrant shall correct the information by filing an amendment within 10 calendar days after the date on which the information contained in the application became inaccurate, misleading or incomplete. Amendments to SEC Form 40-CA which update the registrant's list of officers and directors shall be deemed to satisfy Section 26 of the Corporation Code of the Philippines. (e) On an annual basis, a registered clearing agency shall file with the Commission one signed original and four (4) copies of the audited balance sheet and statement of income and expenses, and all notes or schedules thereto within 105 days of the end of its fiscal year. Financial statements filed pursuant to this subsection shall be deemed to satisfy Section 141 of the Corporation Code of the Philippines. RSA Rule 40-2 Registration of Transfer Agents (a) No person shall act as a transfer agent for an issue which is listed on an exchange without being registered with the Commission in accordance with the provisions of this Rule. (b) To apply for registration under this Rule, a transfer agent must: (1) be a corporation or a partnership; (2) have paid-up capital of at least P500,000.00 or more; (3) have a partner or officer who is a certified public accountant; and (4) have a signed agreement with the Philippine Central Depository, Inc. (PCDI) (c) An application for registration as a transfer agent, or an amendment to any such application, shall be filed with the Commission on SEC Form 40-TA, in accordance with the instructions contained therein. One original and one conformed copy of the Form shall be filed. (d) A filing fee of P3,000.00 and other fees shall be collected by the Commission upon filing of the application. (e) If any of the information reported on SEC Form 40-TA becomes inaccurate, misleading, or incomplete or requires updating for any reason, such as changes in operating procedures and the list of directors and officers, the registrant shall file an amendment within ten calendar days after the date on which the information in the application became inaccurate, misleading, or incomplete. (f) The SEC shall, by order, deny registration, place limitations on the activities, functions or operations of, suspend for a period not exceeding twelve (12) months, or revoke the registration of a transfer agent if the SEC finds, after notice and opportunity for hearing, that such order is in the public interest, that the registrant does not meet applicable qualifications, or that the transfer agent, whether prior or subsequent to registration has been found to: (1) not be solvent or in sound financial condition, (2) have violated or not have complied with the applicable provisions of the Revised Securities Act or the rules promulgated pursuant thereto, or any order of the Commission; (3) have engaged in or be engaged in or about to engage in fraudulent transactions; (4) be in any other way dishonest or not of good repute; (5) not conduct its business in accordance with law or be engaged in a business that is illegal or contrary to government rules and regulations; (6) have an officer, member of the board of directors or principal shareholder who is disqualified to be such an officer, director or principal shareholder; (7) have a backlog of share certificate transfers which indicates an inability of the Registrant to fulfill its responsibilities as a transfer agent; (8) have repeatedly or materially failed to comply with its procedures or those of a registered clearing agency; or (9) have filed an application for registration or an amendment thereto which is incomplete or inaccurate in any material respect or which includes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the application or amendment not misleading. (g) A transfer agent must maintain in force an insurance policy known as a Financial Institution Bond in an amount and a coverage appropriate to the number and value of securities for which it acts as a transfer agent. A transfer agent must provide to the SEC upon request at any time a confirmation of the insurance evidencing such coverage and amounts. (h) A transfer agent cannot be the auditor of an issuer for whom it acts as transfer agent. (i) The provisions of the Corporation Code notwithstanding, an issuer whose securities are listed on an exchange which acts as its own transfer agent shall establish a separate subsidiary to carry out its transfer agent activities. (j) The procedures of a transfer agent are binding on and enforceable against issuers for which they act, registered securities holders and transferees who present securities for transfer. To minimize the issuance and movement of and to facilitate other dealings with those securities eligible to the operations of a registered clearing agency, a transfer agent and clearing agency shall jointly formulate and abide by written procedures addressing certificated and uncertificated securities issuance, transfers, cancellations, registration, confirmation and reconciliation of positions in securities, audit, replacement of lost securities, signature guarantees, delivery processes and turn around times. (k) Every transfer agent registered pursuant to this Rule shall file the appropriate registration renewal form within 30 calendar days of June 1 of every year and pay to the Commission an annual renewal fee of P3,000.00 and other fees. RSA Rule 40-3 Reports from Transfer Agents (a) Annual Report. Every registered transfer agent shall file with the SEC an annual report on SEC Form 40-AR in accordance with the instructions contained therein within 105 days after the end of its fiscal year. Reports filed on SEC Form 40-AR shall be deemed to satisfy Section 141 of the Corporation Code of the Philippines. One original and one conformed copy of the Form shall be filed. (b) Exception Report to SEC. For any security for which the transfer agent acts in that capacity, a transfer agent shall provide to the SEC within seven (7) days of the occurrence of any of the following events, a report detailing the reasons and circumstances for: (1) any delay in the turnaround or processing of an issue, transfer or replacement of a security; (2) any discrepancy between its records and those of the issuer and, if the securities are eligible to its operations, those of the registered clearing agency; (3) any loss of securities reported to it; and (4) its ceasing to perform transfer agent functions for any security. (c) Periodic Reporting to Issuer. At regular intervals within each and every year and upon request by the issuer, a transfer agent shall supply the issuer, for whom it acts in that capacity, with the list of holders of its securities, as shown by the register of holders of securities, and the changes to the register of transfers, showing the name and registered address of, and the number or face value of the securities held by each such holder and supply any other statements, lists, entries, information and material concerning issues, transfers and cancellations of securities or any other material undertaken by the transfer agent in that capacity. (d) Complaint Log. A record of all claims and complaints made to a transfer agent shall be kept by it at its principal office. The record shall contain: (1) the name of the security holder and a description of the security; (2) the date of the complaint or claim and a complete description thereof; and (3) the steps taken by the transfer agent, the manner in which the complaint or claim is resolved and any subsequent action taken or to be taken by the holder or the transfer agent. The record shall be open for inspection during normal business hours by the SEC and by any issuer with respect to securities issued by it. RSA Rule 40-4 Reports from Clearing Agencies If a registered clearing agency at any time becomes aware of any development relating to a Participant firm that leads such clearing agency to believe that 1) the firm has breached, is in breach or is about to breach the clearing agency's rules or procedures, or 2) the firm has experienced, is experiencing or is about to experience material operational or financial difficulties, which breach or difficulties may adversely affect the clearing agency's Participant firms, such registered clearing agency shall immediately notify the SEC and provide any documentation or evidence leading the clearing agency to such determination. (Replaces Old Rule 22 of the 1937 Provisional Rules). RSA Rule 40-5 Records Retention by Transfer Agents a) In addition to the records required to be maintained pursuant to Section 74 of the Corporation Code of the Philippines, every transfer agent shall make and retain for a period of five (5) years the following books and records relating to its transfer agent activities: (1) its rules and procedures; (2) policy of Financial Institution Bond coverage; (3) exception reports filed with the Commission pursuant to RSA Rule 40-3; (4) complaint log as required to be maintained under RSA Rule 40-3; (5) reports to the issuers for whom the firm acts as transfer agent as required under RSA Rule 40-3; (6) Annual report on SEC Form 40-AR. (b) Every transfer agent shall make available any or all of its books and records upon request of an authorized representative of the Securities and Exchange Commission. Failure to do so shall result in an immediate suspension of the transfer agent's registration. Such suspension shall continue until such time as the books and records are made available to the Commission. Registration and Reporting Forms for Rules 40-1, 40-2 and 40-3 SEC Form 40-CA Form for Registration of a Clearing Agency and for Exemption From or Amendment to Registration (Section 40 of the Revised Securities Act and RSA Rule 40-1 and Section 26 of the Corporation Code of the Philippines) SEC Form 40-TA Form for Registration of a Transfer Agent and for Amendment to Registration (Section 40 of the Revised Securities Act and RSA Rule 40-2 and Section 26 of the Corporation Code of the Philippines) SEC Form 40-AR Form for the Annual Reporting Requirement for Registered Transfer Agents (Section 40 of the Revised Code Act and RSA Rule 40-3 and Section 141 of the Corporation Code of the Philippines)