GOVERNING THE ESTABLISHMENT, OPERATION, AND REGULATION OF INVESTMENT HOUSES

• Number: Presidential Decree No. 129
• Sections: 21

Preamble

WHEREAS, there were pending before Congress, prior to the

promulgation of Proclamation No. 1081, dated September 21, 1972, urgent

measures proposing the regulation of the so-called investment banks;

WHEREAS, an extensive survey and study of the Philippine

financial system had been undertaken in order to determine its adequacy

in Philippine economic development, and an integrated set of

recommendations were submitted; and

WHEREAS, the recommendations, as endorsed with

modifications by the monetary authorities and made the basis of this

Decree, advocated the enactment of the statutory framework within which

the underwriting of securities may be governed and, to the extent that

these entities perform quasi-banking functions, to harmonize their

operations with national monetary goals;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers in me vested by the Constitution as

Commander-in-Chief of the Armed Forces of the Philippines, and pursuant

to Proclamation No. 1081, dated September 21, 1972, and General Order

No. 1, dated September 22, 1972, as amended, and in order to effect the

desired changes and reforms in the social, economic, and political

structure of our society, do hereby order and decree and make part of

the law of the land the following:

Section 1 Title.

SECTION 1. Title. — This Decree shall be known as

"The Investment Houses Law."

Section 2 Scope.

SEC. 2. Scope. — Any enterprise which engages in the

underwriting of securities of other corporations shall be considered an

"Investment House" and shall be subject to the provisions of this Decree

and of other pertinent laws.

Nothing in this Decree shall be understood to preclude other

enterprises from engaging in the mere buying and selling of short-term

securities of other persons or enterprises.

Section 3 Definitions.

SEC. 3. Definitions. — For the purpose of this

Decree, unless the context otherwise indicates, the following definition

of terms are hereby adopted:

(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. It includes, but is not limited to the

instruments enumerated in Section 2 of the Securities Act (Commonwealth

Act No. 83, as amended).

Section 4 Organization and registration.

SEC. 4. Organization and registration. — Investment

Houses shall be organized in the form of stock corporations.

The

Securities and Exchange Commission shall not register the articles of

incorporation of any Investment House, or any amendment thereto, unless

it is satisfied from the evidence submitted to it:

(a) That all the requirements of this Decree and of existing

laws or regulations to engage in the business have been complied with;

(b) That the proposed enterprise will not be in conflict with

public interest and economic growth;

(c) That the amount of capital, the proposed organization,

direction and administration, as well as the integrity, experience and

expertise of the organizers and the proposed managerial staff, provide

reasonable assurance that the enterprise will be conducted with

financial prudence.

In determining compliance with the provisions of Subsections (b)

and (c) above, the Securities and Exchange Commission shall consult the

Monetary Board of the Central Bank of the Philippines.

All

applications for registration of the articles of incorporation of

Investment Houses shall be accompanied by:

(1) At least three copies of the proposed articles of

incorporation;

(2) A statement under oath of the educational background and

experience of the organizers, directors, and the proposed managerial

staff, as well as information on any position concurrently held by them

in other financial or banking institutions, if any;

(3) A projected statement of assets and liabilities of the

proposed Investment House;

(4) A tentative program of operation for one year, including its

investment direction and volume; and

(5) Such other information as the Securities and Exchange

Commission may require in support of the application and to enable the

Commission to determine the justifiability of establishing the proposed

enterprise.

Any enterprise already in operation and exercising the powers of

an Investment House prior to the effectivity of this Decree shall,

within six months therefrom, file an information sheet with the

Securities and Exchange Commission in such form and containing such data

as the Securities and Exchange Commission may, at its discretion,

require, to enable the Commission to determine, in consultation with the

Monetary Board, whether the enterprise meets the requirements of this

Decree.

Section 5 Citizenship requirements.

SEC. 5. Citizenship requirements. — The

majority of the voting stock of any Investment House shall be owned by

citizens of the Philippines. In determining the percentage of

foreign-owned voting stocks in Investment Houses, 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.

The majority of the members of the Board

shall be citizens of the Philippines.

Section 6 Prohibitions.

SEC. 6. Prohibitions.

— Except as may be authorized by the Monetary Board, no director or

officer of an Investment House shall concurrently be a director or

officer of a bank, as defined in Section 2 of Republic Act No. 337, as

amended; Provided, however, That in no event can a person be authorized

to be concurrently an officer of an Investment House and of a bank.

No Investment House shall engage in banking operations as defined in

Section 7 Powers.

SEC. 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;

(4) Participate as soliciting dealer or selling group member in

tender offers, block sales, or exchange offering or securities; deal in

options, rights or warrants relating to securities and such other powers

which a dealer may exercise under the Securities Act (C.A. No. 83, as

amended);

(5) Promote, sponsor, or otherwise assist and implement ventures,

projects and programs that contribute to the economy's development;

(6) Act as financial consultant, investment adviser, or broker;

(7) Act as portfolio manager, and/or financial agent, but not as

trustee of a trust fund or trust property as provided for in Chapter VII

of Republic Act No. 337, as amended;

(8) Encourage companies to go public, and initiate and/or

'promote, whenever warranted, the formation, merger, consolidation,

reorganization, or recapitalization of productive enterprises, by

providing assistance or participation in the form of debt or equity

financing or through the extension of financial or technical advice or

service;

(9) Undertake or contract for researches, studies and surveys on

such matters as business and economic conditions of various countries,

the structure of financial markets, the institutional arrangements for

mobilizing investments;

(10) Acquire, own, hold, lease or obtain an interest in real and/or

personal property as may be necessary or appropriate to carry on its

objectives and purposes;

(11) Design pension, profit-sharing and other employee benefits

plans; and

(12) Such other activities or business ventures as are directly or

indirectly related to the dealing in securities and other commercial

papers, unless otherwise governed or prohibited by special laws, in

which case the special law shall apply.

Nothing in this section shall preclude other enterprises not

covered by this Decree from engaging in the activities listed under

Subsections (3) to (11) of this section, except as may otherwise be

governed by special laws.

Section 8 Capital.

SEC. 8. Capital. — The

minimum initial paid-in capital of any Investment House shall be twenty

million (P20,000,000) pesos.

Section 9 Credit policies.

SEC. 9. Credit policies. — Investment Houses

shall coordinate their credit policies with the general credit policies

of the Monetary Board of the Central Bank.

Section 10 Reports.

SEC. 10. Reports. — Investment Houses shall

submit to the Securities and Exchange Commission and to the Central Bank

a semi annual report of operations and financial condition, signed

under oath by its chief accountant and verified by its president.

The Securities and Exchange Commission may, at its discretion,

require Investment Houses to include their underwriting commitments as

contingent accounts in their financial statements.

Section 11

SEC. 11.

Regulations. — Within six months after the approval of this

Decree, the Securities and Exchange Commission, in coordination with the

Central Bank, shall promulgate the necessary rules and regulations

implementing the provisions of this Decree.

Section 12 Central Bank regulatory powers.

SEC. 12. Central Bank regulatory powers. —

Investment Houses shall be subject to such regulations of the Central

Bank on non-bank financial intermediaries as may be promulgated pursuant

to Section 2-B of Republic Act No. 337, as amended. The regulations

which may include, but need not be limited to (a) minimum size of fund

acceptance or receipt, (b) methods of marketing and distribution, (c)

terms of placement and maturities, and (d) uses of funds may be modified

by the Monetary Board insofar as they apply to Investment Houses.

The Monetary Board may, at its discretion, determine whether

Investment Houses may be permitted to perform quasi-banking functions as

defined in Section 2-D, subsection (b) of Republic Act No. 337, as

amended. The Monetary Board is hereby authorized, at its discretion, to

require any enterprise which is engaged or proposes to engage in

quasi-banking functions to incorporate as an Investment House. If the

Monetary Board decides to permit Investment Houses to engage in

quasi-banking functions, the Board may require as a condition precedent

the obtaining of a certificate, of authority for the purpose from the

Monetary Board.

Whenever the Monetary Board authorizes an

Investment House to engage in quasi-banking functions, in accordance

with the provisions of this section, the Board may subject Investment

Houses to further regulations, pursuant to Republic Act No. 337, as

amended, which may include but need not necessarily be limited to (a)

liquidity reserve requirements; (b) capital-to-risk assets ratios; (c)

interest rate ceilings; and (d) such other constraints as the Board may

deem necessary.

In the exercise of its authority in this section,

the Monetary Board may, whenever it determines that the circumstances

so warrant subject an Investment House to special examination.

Whenever on the basis of the reports submitted by, or upon examination

of the books and records of, an Investment House, the Central Bank finds

that the Investment House is not complying with the provisions of this

section, with the pertinent provisions of this Decree, of other laws, or

of orders, instructions, rules or regulations issued by the Monetary

Board pertaining to non-bank financial intermediaries and quasi-banking

activities, said Board shall forthwith issue a cease-and-desist order

upon the Investment House concerned. Failure on the part of an

Investment House to comply with the cease-and-desist order shall subject

such Investment House to a fine not exceeding two hundred (P200) pesos

for every day the order is violated, to be imposed by the Monetary

Board, without prejudice to the penalties provided in Section 16 of this

Decree.

Section 13 Applicability of Securities Act.

SEC. 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 (C.A. No. 83, as

amended).

Section 14 Applicability of Corporation Law.

SEC. 14. Applicability of Corporation Law. — The

provisions of the Corporation Law (Act No. 1459, as amended) insofar as

they are not in conflict or inconsistent with the provisions of this

Decree shall apply to Investment Houses.

Section 15 Transitory provisions.

SEC. 15. Transitory provisions. — Existing

enterprises which are .operating as Investment Houses shall, within one

year following the approval of this Decree, comply with the requirements

hereof, except with respect to the filing of an information sheet which

shall be complied with within six months as provided in the last

paragraph of Section 4 of this Decree.

Section 16 Penalties for violation.

SEC. 16. Penalties for violation. — Upon proof

that an Investment House is violating or not complying with the

provisions of this Decree, of other pertinent laws, of the terms or

conditions of its certificate of registration or charter, or of orders,

decisions, rulings or regulations issued by the Securities and Exchange

Commission or by the Central Bank of the Philippines, the Securities and

Exchange Commission shall impose upon the Investment House and collect a

fine of not exceeding two hundred (P200) pesos per day for every day

during which such violation or non-compliance continues, and/or suspend

its certificate of registration. The officer or director of the

Investment House who ordered or authorized the violation or

non-compliance shall be solidarily liable. The fine so imposed shall be

paid to the Government of the Philippines through the Securities and

Exchange Commission.

Without prejudice to the provisions of the preceding paragraph

any person, or any director or officer of an Investment House who

violates or does Hot comply with the provisions of this Decree, of other

pertinent laws, of the terms or conditions of its certificate of

registration or charter, or of orders, decisions, rulings or regulations

issued by the Securities and Exchange Commission or by the Central Bank

of the Philippines, shall be punished by a fine of not more than twenty

thousand (P20,000) pesos, or an imprisonment of not more than five

years or both, at the discretion of the Court.

Section 17 Separability Clause.

SEC. 17. Separability

Clause. — The provisions of this Decree are hereby declared

separable, and if any clause, sentence, provision or section hereof, or

its application to any person or circumstance should be declared

invalid, such invalidity shall not affect the other provisions of this

Decree which can be given force and effect without the provisions which

have been declared invalid.

Section 18 Repeal.

SEC. 18. Repeal. — All

acts and existing laws inconsistent with this Decree are hereby

repealed.

Section 19 Effectivity.

SEC. 19. Effectivity. — This Decree shall take

effect immediately.

Done in the City of Manila, this 15th day of February, in the

year of Our Lord, nineteen hundred and seventy-three.

(Sgd.) FERDINAND E. MARCOS

President

Republic of the Philippines

By the President:

(Sgd.) ALEJANDRO MELCHOR

Executive Secretary

In order to facilitate the implementation of

this Presidential Decree No. 129, the following were issued:

By the Central Bank — Circular No. 378, dated August 15, 1973,

prescribing the policy guidelines;

and By the Securities and Exchange Commission — Rules and

Regulations, dated July 9, 1973.

Section 2

Section 2 of Republic Act No. 337 as amended.