The Securities Regulation Code and its Implementing Rules and Regulations

Rule 33

2(C) Ownership of an Exchange 33.2(c).1. An Exchange organized as a stock corporation may be owned and controlled by another juridical person ("Exchange Controller"), based on the following terms and conditions, to ensure that such ownership will not negatively impact the Exchange's ability to effectively operate in the public interest. 33.2(c).1.1. The Exchange Controller shall become registered with the Commission as a Self-Regulatory Organization under Section 40 of the Code and comply with its duties regarding rulemaking under this section and rules adopted thereunder; Provided, however, that for purposes of Section 40 and SRC Rule 30.1.1, the enforcement responsibilities of an SRO shall be delegated to the Exchange which is being controlled by the Exchange Controller or to another entity which the Commission may order. 33.2(c).1.2. The Board of an Exchange Controller shall include in its composition the president of the Exchange Controller, and unless the Commission otherwise agrees to a different governance structure based on findings that the Exchange Controller can operate the Exchange in the public interest and that the Exchange can effectively operate as an SRO, no less than fifty one (51%) percent of the remaining members of the Board shall be comprised of three (3) independent directors and persons who represent the interest of issuers, investors and other market participants who are not associated with any Broker Dealer, participant of the Exchange controlled by the Exchange Controller, for a period of two (2) years prior to his appointment. No officer or employee of a Broker Dealer, its subsidiaries or affiliates or related interests may become an independent director. 33.2(c).1.3. Unless the Commission prescribes otherwise, no person shall beneficially own or control, directly or indirectly, more than five percent (5%) of the voting rights of the Exchange Controller and no industry or business group shall beneficially own or control, directly or indirectly, more than twenty percent (20%) of the voting rights of the Exchange Controller; Provided that pursuant to SRC Rule 33.2(c).2.3, the Exchange Controller shall disclose the names of its beneficial owners, their business or industry affiliation, and share ownership to the Commission and, no less than once a month, update such disclosure. 33.2(c).1.4. An Exchange Controller shall obtain prior Commission approval regarding share ownership or any other investment in any clearing agency, other securities related business, or any other non-related business. 33.2(c).2. For purposes of Section 33.2 (c) of the Code, the 2009 Philippine Standard Industrial Classification (PSIC) shall be the primary basis for the industry or business classification with the following sections: 33.2(c).2.1. Agriculture, Hunting, Forestry, Fishing 33.2(c).2.2. Mining and Quarrying 33.2(c).2.3. Manufacturing 33.2(c).2.4. Electricity, Gas, Steam and Air-Conditioning 33.2(c).2.5. Water Supply, Sewerage 33.2(c).2.6. Construction 33.2(c).2.7. Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles 33.2(c).2.8. Transportation and Storage 33.2(c).2.9. Accommodation and Food Service Activities 33.2(c).2.10. Information and Communication 33.2(c).2.11. Financial and Insurance Activities 33.2(c).2.12. Real Estate Activities 33.2(c).2.13. Professional, Scientific, Technical Services 33.2(c).2.14. Administrative and Support Service Activities 33.2(c).2.15. Public administration; compulsory social security 33.2(c).2.16. Education 33.2(c).2.17. Human health and social work activities 33.2(c).2.18. Arts, entertainment and recreation 33.2(c).2.19. Other service activities 33.2(c).2.20. Activities of private households 33.2(c).2.21. Activities of extraterritorial organizations The business grouping shall be by Industry Class as represented by four (4)-digit numeric codes under the 2009 PSIC provided that brokers and dealers shall be treated as belonging to one industry group. The Commission may, depending on attendant circumstances, make a reclassification of the business classification aforementioned. 33.2(c).2.3. * To ensure diversification of ownership of an Exchange or that of the Exchange Controller, the Commission may consolidate different industry or business groups into one group or divide one group into several groups or re-designate the industry classification chosen by a business group; Provided, however that where the shares of stock of the Exchange or Exchange Controller are not yet listed or traded in an exchange or any other trading market, prior to the sale of shares of an Exchange or Exchange Controller to any person, the Exchange or Exchange Controller shall disclose in writing to the Commission the proposed ownership to ensure compliance with ownership restrictions. No shares of an Exchange or Exchange Controller may be transferred without prior Commission approval. 33.2(c).2.4. Where any ownership restrictions set forth in this rule are exceeded and/or violated, the Commission may order divestment of such excess ownership. Until such ownership is divested, a person violating this restriction shall be barred from exercising his voting rights thereunder. 34.1. Segregation of Broker and Dealer Transactions, Affiliations and Practices An Exchange Trading Participant shall not effect any transaction on such Exchange for its own account, the account of an Associated Person, salesmen, or any other person associated with the Trading Participant, including its affiliates, or an account with respect to which an associated person exercises investment discretion, unless it complies with the "Customer First" Policy as prescribed below: 34.1.1. A trader or salesman of an Exchange Trading Participant shall execute a customer order in the Exchange trading terminal immediately upon the receipt thereof. 34.1.2. The Dealer-Broker shall give priority to the orders of its customers over trades for its own account. 34.1.3. The time the customer order was received shall be recorded either manually or electronically. 34.1.4. All orders whether customer or proprietary shall be executed in their assigned trading terminals and by the designated trader. 34.1.5. Orders of stockholders, officers, directors, Associated Persons and salesmen, or any other person associated with the Exchange Trading Participant, including affiliated persons, traded within the Trading Participant shall be treated as the proprietary account of the Trading Participant's account, in which case, the "Customer First" Policy shall apply. 34.2. A trader or salesman shall use and maintain only one (1) dealing account, and only with his employing broker, which shall be registered under his name or jointly with members of his family within the first degree of consanguinity and shall be treated as the Trading Participant's proprietary account only for the purpose of complying with the Customer First Policy. 34.3. Orders from a Done-through Account shall be executed in accordance with the "Customer First" policy. 34.3.1. Done-through transactions of the initiating Trading Participant shall be recorded in the executing Trading Participant's records under the name of the initiating Trading Participant. The initiating Trading Participant shall prepare and maintain a list of its done-through transactions. 34.3.2. Requests for Done-through order from the initiating Trading Participant shall include a disclosure to the executing Trading Participant of the beneficial owner/s for the said order. Orders for the account of a customer shall be executed by the executing Trading Participant in the Exchange trading terminal assigned for customers and orders of proprietary accounts shall be executed in the Exchange trading terminal for proprietary accounts. 34.4. Stockholders, directors, officers, Associated Persons, salesmen, and other employees cannot trade outside their employing Trading Participant unless they obtain the appropriate permission, and the Executing Trading Participant agrees to send duplicate account statements to the employing Trading Participant. 34.5. Non-Exchange Broker Dealers shall likewise observe the "Customer First" Policy whenever applicable. 34.6. For purposes of this Rule, "affiliated person" of a Trading Participant is any person who (a) exercises control, as defined in SRC Rule 3.1.8, is controlled by, or is under common control with the Trading Participant; (b) has stockholders, directors, officers (such as president, vice president, manager, treasurer, comptroller, secretary or others occupying positions of trust and responsibility), Associated Persons, salesmen, or authorized clerks of a Trading Participant or a relative of any of the foregoing within the first civil degree of consanguinity; or (c) directly or indirectly owns more than ten percent (10%) of the equity of the Trading Participant. 34.7. An Exchange Trading Participant and any other Broker or Investment House as defined in P.D. 129, as amended, with securities accounts of other Trading Participants, and/or their Associated Persons, other employees, owners, directors and/or officers, including discretionary accounts on behalf thereof, for transactions executed, shall, when receiving and executing such transactions, identify such accounts as that of the Exchange Trading Participant, its Associated Persons, other employees, affiliates or discretionary accounts on behalf thereof, and require the company's Associated Person or, in the case of an Investment House, a person responsible for compliance, to review such accounts on a daily basis. CcSTHI 34.8. A Broker Dealer shall adopt proper internal controls to prevent the commission of fraud and ensure that customers' cash and securities positions are intact and are properly accounted for by segregating trading, settlement, accounting and back-office functions including their respective physical facilities. 34.9. Access to computer files should be limited to authorized users and the appropriate security measures shall be adopted. 34.10. The Associated Person of a Broker Dealer shall supervise the functions of the employees and check all executed trades and other transactions of the company. 34.11. Segregation of Functions (Chinese Walls) 34.11.1. Any Broker Dealer that assumes more than one function whether as a dealer, adviser, or that engages in market making transactions, shall maintain proper segregation of those functions within the company to prevent the flow of information between the different units of the company that performs functions that may have potential conflict of interest. 34.11.2. For purposes of this rule, information means matter: 34.11.2.1. Of a specific nature which has not been made public; 34.11.2.2. Relating to one or more public companies or securities of a public company; and 34.11.2.3. Which, if it were made public, would likely affect the market price of the securities. 34.11.3. A Broker Dealer shall at all times ensure that its trading functions and back-office settlement functions and physical setup are properly segregated and shall establish written procedures to ensure compliance with this rule. 34.11.4. The Broker Dealer shall file an annual report on the measures it has taken to enforce these Chinese Wall rules. 34.11.5. Broker Dealers with other functions shall submit an undertaking under oath to comply with the rules and regulations, orders, memorandum circulars and policies promulgated by the Commission, and of other rules, procedures, standards and policies set by other Exchanges or SROs and duly approved by the Commission, and its own internal rules and procedures regarding Chinese Walls. 34.12. In all instances where the member-broker effects a transaction on an Exchange for its own account or the account of an associated person or an account with respect to which it exercises investment discretion, it shall disclose to such customer at or before the completion of the transaction it is acting for its own account: Provided, further, That this fact shall be reflected in the order ticket and the confirmation slip. 34.13. Any member-broker who violates the provisions of this Section shall be subject to the administrative sanctions provided in Section 54 of the Code. In addition to the registration fee prescribed in Section 33 of the Code, every Exchange shall pay to the Commission, on a semestral basis on or before the tenth day of the end of every semester of the calendar year, a fee in such an amount as the Commission shall prescribe, but not more than one-hundredth of one per centum (1%) of the aggregate amount of the sales of securities transacted on such Exchange during the preceding calendar year, for the privilege of doing business, during the preceding calendar year or any part thereof.

Rule 33

1(D) Protection of Customer Accounts in Case of Business Failure of an Exchange Trading Participant 33.1(d).1. When a Trading Participant has filed or is the subject of a petition for insolvency, suspension of payment and/or rehabilitation or when an Exchange or pertinent SRO determines that the Trading Participant's financial condition has so deteriorated that it cannot readily meet the demands of its customers for the delivery of securities and/or payment of sales proceeds, the Commission may issue ex parte an order compelling the insolvent or failed Trading Participant and the Exchange or pertinent SRO to take the necessary action to protect customer accounts including, but not limited to, the preservation of the failed Trading Participant's books and records. Said order shall remain in effect until lifted by the Commission motu proprio or upon petition of the failed Trading Participant. 33.1(d).2. Based on any of the grounds mentioned in the preceding SRC Rule, the Commission, after proper investigation or verification, motu proprio or upon verified complaint by any party, order an Exchange or pertinent SRO to take over the operation of the failed Trading Participant for the purpose of preserving and protecting the failed Trading Participant's books, records, customer accounts, trade-related assets and settling its liabilities to its customers. 33.1(d).3. Where the Commission has ordered an Exchange or pertinent SRO to take over the operations of a failed Trading Participant, an Exchange or pertinent SRO shall: 33.1(d).3.1. Suspend such failed Trading Participant and immediately arrange for another Trading Participant to take over the outstanding contracts relating to securities, and simultaneously notify the Commission of such suspension and takeover; 33.1(d).3.2. Promptly notify customers of the failed Trading Participant that their accounts have been transferred to another Trading Participant and provide such customers with the opportunity to transfer anew their accounts to another Trading Participant of their choice; 33.1(d).3.3. Settle the failed Trading Participant's liabilities to customers through the sale of the Trading Participant's trading rights and other trade-related assets as may be prescribed by the Commission; the liquidation of paid up capital; and/or the supervision of payment of claims against the surety bond. 33.1(d).3.4. Simultaneously inform the Accredited Trust Fund referred to in Section 36.5 of the Code, where such failed Trading Participant is a Participant, of such takeover and inform the customers that they may also claim compensation for losses from the Trust Fund, subject to the validation of their claims by the Exchange or pertinent SRO and the Trust Fund; SaIEcA 33.1(d).3.5. Where after such settlement and liquidation of the failed Trading Participant's trade-related assets, there are outstanding liabilities to customers of the failed Trading Participant, refer the same to the Accredited Trust Fund and inform the customers of the further steps necessary for claiming compensation for unsatisfied losses; and 33.1(d).3.6. The Accredited Trust Fund, based on its rules and regulations or upon order of the Commission, shall release payments to the failed Trading Participant's customers even before the Exchange or pertinent SRO has finalized the settlement of the failed Trading Participant's liabilities, subject to the validation as provided in SRC Rule 33.1(d)3.4 herein; Provided, however, that the Trust Fund shall be subrogated to the customers' rights to claim before the Exchange or pertinent SRO to the extent that it has paid the customers' claims before final settlement of the failed Trading Participant's liabilities. 33.1(d).4. In the determination of business failure, SRC Rule 36.5.1 on accredited trust funds for Broker Dealer customers shall be taken into account.