The Securities Regulation Code and its Implementing Rules and Regulations

Rule 48

2 Prohibitions on Extension of Credit No member of an Exchange or broker or dealer shall, directly or indirectly, extend or maintain credit or arrange for the extension or maintenance of credit to or for any customer: 48.2.1. On any security unless such credit is extended and maintained in accordance with the rules and regulations which the Commission shall prescribe under this Section including rules setting credit in relation to net capital of such member, broker or dealer; 48.2.2. Without collateral or on any collateral other than securities, except (i) to maintain a credit initially extended in conformity with the rules and regulations of the Commission and (ii) in cases where the extension or maintenance of credit is not for the purpose of purchasing or carrying securities or of evading or circumventing the provisions of SRC Rule 48.2.1.

Rule 48

1 Margin 48.1.1. A Broker Dealer shall not extend credit to a customer in an amount that exceeds fifty percent (50%) of the current market value of the security at the time of the transaction. In no event shall new or additional credit be extended to an account in which the equity is less than Fifty Thousand Pesos (PhP50,000.00). 48.1.2. The margin maintained in a margin account of a customer shall be no less than twenty five percent (25%) of the current market value of all securities "long" in the account and thirty percent (30%) of the current market value of securities "short" in the account. 48.1.3. When there is an insufficiency of margin, a call for additional margin shall be issued promptly by the Broker Dealer to the customer. A call for initial margin shall be satisfied within five (5) business days from receipt of the call. A call for maintenance margin shall be satisfied within twenty four (24) hours after the call is received. No purchase or sell order from the customer on the margin account shall be executed by the Broker Dealer from the time of insufficiency up to the satisfaction of the call. 48.1.4. If a margin call is not satisfied within the time prescribed in SRC Rule 48.1.3, the Broker Dealer shall liquidate securities sufficient to meet the margin call or eliminate the margin deficiency existing on the day such liquidation is required, whichever is less. The Broker Dealer shall liquidate the securities through the Exchange in which it is traded before the close the next trading day. 48.1.5. The required payment date for a call for initial margin may be extended by seven (7) days upon written application delivered by hand, facsimile transmission, email or equally prompt means by the Broker Dealer to an Exchange, in the case of members of that Exchange, or to the Commission, in the case of non-Exchange members. In granting such an extension, the Exchange or Commission will take into consideration whether the Broker Dealer and the customer are acting in good faith and whether exceptional circumstances warrant such extension. Application for the extension must be received and acted upon before the expiration of the original payment period or the expiration of any previous extension.

Rule 48

3 Coverage of Rules on Margin and Credit Any person not subject to Subsection 48.2 of the Code shall extend or maintain credit or arrange for the extension or maintenance of credit for the purpose of purchasing or carrying any security, only in accordance with such rules and regulations as the Commission shall prescribe to prevent the excessive use of credit for the purchasing or carrying of or trading in securities in circumvention of the other provisions of this Section. Such rules and regulations may impose upon all loans made for the purpose of purchasing or carrying securities limitations similar to those imposed upon members, brokers, or dealers by Subsection 48.2 of the Code and the rules and regulations thereunder. This subsection and the rules and regulations thereunder shall not apply: (a) To a credit extension made by a person not in the ordinary course of business; (b) To a loan to a dealer to aid in the financing of the distribution of securities to customers not through the medium of an Exchange; or (c) To such other credit extension as the Commission shall exempt from the operation of this subsection and the rules and regulations thereunder upon specified terms and conditions or for stated period. AHCETa

Rule 49

2 Customer Protection Reserves and Custody of Securities 49.2.1. Physical Possession or Control of Securities 49.2.1.1. Broker Dealer on a daily basis shall obtain and shall thereafter maintain the physical possession or control of all fully paid securities and excess margin securities carried by a Broker Dealer for the account of customers. EHaASD 49.2.1.2. A Broker Dealer shall not be deemed to be in violation of the provisions of SRC Rule 49.2.1.1 regarding physical possession or control of customers' securities if, solely as the result of normal business operations, temporary lags occur between the time when a security is required to be in the possession or control of the Broker Dealer and the time that it is placed in the firm's physical possession or under the firm's control; Provided, the Broker Dealer takes timely steps in good faith to establish prompt physical possession or control. The burden of proof shall be on the Broker Dealer to establish that the failure to obtain physical possession or control of securities carried for the account of customers is merely temporary and solely the result of normal business operations including same day receipt and redelivery (turnaround), and to establish that the Broker Dealer has taken timely steps in good faith to place them in the Broker Dealer's physical possession or control. 49.2.1.3. A Broker Dealer shall not be deemed to be in violation of the provisions of SRC Rule 49.2.1.1 regarding physical possession or control of fully-paid or excess margin securities borrowed from any person; Provided, that the Broker Dealer and the lender, at or before the time of the loan, enter into a written agreement that, at a minimum: 49.2.1.3.1. Sets forth in a separate schedule or schedules the basis of compensation for any loan and generally the rights and liabilities of the parties as to the borrowed securities; 49.2.1.3.2. Provides that the lender will be given a schedule of the securities actually borrowed at the time of the borrowing of the securities; 49.2.1.3.3. Specifies that the Broker Dealer shall: 49.2.1.3.3.1. Provide to the lender, upon the execution of the agreement or by the close of the business day of the loan if the loan occurs subsequent to the execution of the agreement, collateral consisting exclusively of cash or Republic of the Philippines Treasury bills and Treasury notes or an irrevocable letter of credit issued by a bank which fully secures the loan of securities, and; 49.2.1.3.3.2. Must mark the loan to the market not less than daily and, in the event the market value of all the outstanding securities loaned at the close of trading at the end of the business day exceeds 100 percent (100%) of the collateral then held by the lender, the borrowing Broker Dealer must provide additional collateral of the type described in SRC Rule 49.2.1.3.3.1 to the lender by the close of the next business day as necessary to equal, together with the collateral then held by the lender, not less than one hundred percent (100%) of the market value of the securities loaned. 49.2.2. Control of Securities Securities under the control of a Broker Dealer shall be deemed to be securities which: 49.2.2.1. Are represented by one or more certificates in the custody or control of a clearing agency registered with the Commission in accordance with Section 42 of the Code the delivery of which certificates to the Broker Dealer does not require the payment of money or value, and if the books or records of the Broker Dealer identify the customers entitled to receive specified number or units of the securities so held for such customers collectively; or 49.2.2.2. Are carried for the account of any customer by a Broker Dealer and are carried in a special omnibus account in the name of such Broker Dealer with another Broker Dealer, such securities being deemed to be under the control of such Broker Dealer to the extent that it has instructed such carrying Broker Dealer to maintain physical possession or control of them free of any charge, lien or claim of any kind in favor of such carrying Broker Dealer or any person claiming through such carrying Broker Dealer; or 49.2.2.3. Are the subject of bona fide items of transfer; provided that securities shall be deemed not to be the subject of bona fide items of transfer if, within forty (40) days after they have been transmitted for transfer by the Broker Dealer to the issuer or its transfer agent, new certificates conforming to the instructions of the Broker Dealer have not been received by him, he has not received a written statement by the issuer or its transfer agent acknowledging the transfer instructions and the possession of the securities or he has not obtained a revalidation of a window ticket from a transfer agent with respect to the certificate delivered for transfer; or 49.2.2.4. Are in the custody of a foreign depository, foreign clearing agency or foreign custodian bank which the Commission upon application from a Broker Dealer, an Exchange or upon its own motion, shall designate as a satisfactory control location for securities; or 49.2.2.5. Are in the custody or control of a bank, the delivery of which securities to the Broker Dealer does not require the payment of money or value and the bank having acknowledged in writing that the securities in its custody or control are not subject to any right, charge, security interest, lien or claim of any kind in favor of a bank or any person claiming through the bank; or 49.2.2.6. (i) Are held in or are in transit between offices of the Broker Dealer; or (ii) Are held by a corporate subsidiary if the Broker Dealer owns and exercises a majority of the voting rights of all of the voting securities of such subsidiary, assumes or guarantees all of the subsidiary's obligations and liabilities, operates the subsidiary as a branch office of the Broker Dealer, and assumes full responsibility for compliance by the subsidiary and all of its salesmen and other personnel with the provisions of the Code and rules and regulations adopted thereunder as well as for all of the other acts of the subsidiary and such persons; or 49.2.2.7. Are in transit to or from Broker Dealers, banks, custodians, registered transfer agents and registered clearing agencies which are otherwise good control locations pursuant to the term of this Rule; Provided, such items shall have been in transit from or to the Broker Dealer for a period of not more than five (5) business days from the day they are first put in transit; and Provided, further, the books and records of the Broker Dealer clearly account for such items. An "in transit" account may be used for this purpose; or 49.2.2.8. Are held in such other locations as the Commission shall upon application from a Broker Dealer or an Exchange to which a Broker Dealer is a member find and designate to be adequate for the protection of customer securities. 49.2.3. Requirement to Subject Securities to Possession or Control 49.2.3.1. Not later than the next business day, a Broker Dealer, as of the close of the preceding business day, shall determine from its books or records the quantity of fully paid securities and excess margin securities in its possession or control and the quantity of fully paid securities and excess margin securities not in its possession or control. In making this daily determination, inactive margin accounts (accounts having no activity by reason of purchase or sale of securities, receipt or delivery of cash or securities or similar type events) may be computed not less than once weekly. If such books or records indicate, as of the close of the business day, that the Broker Dealer has not obtained physical possession or control of all fully paid and excess margin securities as required by this SRC Rule and there are securities of the same issue and class in any of the following non-control locations: 49.2.3.1.1. Securities subject to a lien securing monies borrowed by the Broker Dealer or securities loaned to another Broker Dealer, then the Broker Dealer shall, not later than the business day following the day on which such determination is made, issue instructions for the release of such securities from the lien or return such loaned securities and obtain physical possession or control of such securities within two (2) business days following the date of issuance of the instructions in the case of securities subject to lien securing borrowed monies and within five (5) business days following the date of issuance of instructions in the case of securities loaned; or, 49.2.3.1.2. Securities included on his books or records as failed to receive more than thirty (30) days, then the Broker Dealer shall, not later than the business day following the day on which such determination is made, take prompt steps to obtain physical possession or control of securities so failed to receive through a buy-in procedure or otherwise; or, 49.2.3.1.3. Securities receivable by the Broker Dealer as a stock dividend receivable, stock split, or similar distribution for more than forty five (45) days, then the Broker Dealer shall, not later than the business day following the day on which such determination is made, take prompt steps to obtain physical possession or control of securities so receivable through a buy-in procedure or otherwise. 49.2.3.2. A Broker Dealer which is subject to the requirements of this rule with respect to physical possession or control of fully paid and excess margin securities shall prepare and maintain a current and detailed written description of the procedures which it utilizes to comply with the possession or control requirements set forth in this rule. 49.2.3.3. A Broker Dealer which is subject to this rule shall record information relating to physical possession and control of fully paid and excess margin securities on a quarterly basis and submit such record to an Exchange, in the case of a member of that Exchange, or to the Commission, in the case of a non-member, in accordance with the format set forth in "Annex 49.2-A." 49.2.4. Special Reserve Bank Account for the Exclusive Benefit of Customers 49.2.4.1. Every Broker Dealer shall maintain with a bank/s at all times when deposits are required or hereinafter specified as "Special Reserve Bank Account for the Exclusive Benefit of Customers" (hereinafter referred to as the "Reserve Bank Account"), and it shall be separate from any other bank account of the Broker Dealer. Such Broker Dealer shall at all times maintain in the Reserve Bank Account, through deposits made therein, cash (by maintaining separate bank deposit account) and/or qualified securities (by opening a custody account) in amounts computed in accordance with the formula attached hereto as "Annex 49.2-B." DaIAcC A Broker Dealer, in addition to or in lieu of maintaining a Reserve Bank Account, may, upon proper application with and approval by the Commission, deposit qualified securities with duly accredited or recognized entities exercising custodianship functions. For this purpose, the Commission may prescribe other conditions that shall govern deposits of cash and/or qualified securities outside the banking system and with affiliated companies. 49.2.4.2. It shall be unlawful for any Broker Dealer to accept or use any of the amounts under items comprising Total Credits under "Annex 49.2-B" except for the specified purposes indicated under items comprising Total Debits under the formula, and, to the extent Total Credits exceed Total Debits, the net amount thereof shall be maintained in the Reserve Bank Account required by "Annex 49.2-B". 49.2.4.3. (i) Computations necessary to determine the amount required to be deposited pursuant to "Annex 49.2-B" above shall be made weekly, as of the close of the last business day of the week and the deposit so computed shall be made no later than one (1) hour after the opening of banking business on the second following business day; Provided, however, a Broker Dealer which has aggregate indebtedness not exceeding eight hundred percent (800%) of net capital as defined in SRC Rule 49.1 and which carries aggregate customer funds as computed at the last required computation pursuant to this rule, not exceeding Twenty Five Million Pesos (PhP25,000,000.00), may, in the alternative, make the computation monthly, as of the close of the last business day of the month, and in such event, shall deposit not less than one hundred five percent (105%) amount so computed no later than one (1) hour after the opening of banking business on the second following business day. (ii) If a Broker Dealer, computing on a monthly basis, has, at the time of any required computation, aggregate indebtedness in excess of eight hundred percent (800%) of net capital, such Broker Dealer shall thereafter compute weekly as aforesaid until four successive weekly computations are made, none of which were made at a time when his aggregate indebtedness exceeded eight hundred percent (800%) of his net capital. (iii) Computations in addition to the computations required in this SRC Rule 49.2.4.3, may be made as of the close of any other business day, and the deposits so computed shall be made no later than one (1) hour after the opening of banking business on the second following business day. (iv) The Broker Dealer shall make and maintain a record of each such computation made pursuant to SRC Rule 49.2.4.3 and submit such computation quarterly to an Exchange, in the case of a member of that Exchange, or to the Commission in the case of a non-member. 49.2.5. Notifications of Banks and Entities with custodianship arrangements A Broker Dealer required to maintain the Reserve Bank Account prescribed by SRC Rule 49.2.4 shall obtain and preserve in accordance with Rule 52.1.2 a written notification from each bank in which the firm has its Reserve Bank Account that the bank and/or entity with custodianship arrangements ("custodian") was informed that all cash and/or qualified securities deposited therein are being held by the bank and/or custodian for the exclusive benefit of customers of the Broker Dealer in accordance with the rules and regulations of the Commission, and are being kept separate from any other accounts maintained by the Broker Dealer with the bank and/or custodian, and the Broker Dealer shall have a written contract with the bank and/or custodian which provides that the cash and/or qualified securities shall at no time be used directly or indirectly as security for a loan to the Broker Dealer by the bank and/or custodian and shall be subject to no right, charge, security interest, lien or claim of any kind in favor of the bank, and/or custodian, or any person claiming through the bank and/or custodian. The Broker Dealer shall at all times file with the Commission and the Exchange a copy of the notifications duly received by the bank and/or custodian. 49.2.6. Withdrawals from the Reserve Bank Account A Broker Dealer may make withdrawals from the firm's Reserve Bank Account if and to the extent that at the time of the withdrawal the amount remaining in the Reserve Bank Account is not less than the amount then required by SRC Rule 49.2.4. A bank and/or custodian may presume that any request for withdrawal from a Reserve Bank Account is in conformity and compliance with this SRC Rule. On any business day on which a withdrawal is made, the Broker Dealer shall make a record of the computation on the basis of which the firm makes such withdrawal and the Broker Dealer shall preserve such computation in accordance with Rule 52.1.2. 49.2.7. Buy-In of Short Security Differences A Broker Dealer shall within ten (10) days after the date of the examination, count, verification and comparison of securities pursuant to Rule 52.1.10, preparation of the annual report of financial condition in accordance with SRC Rule 52.1.5, or for any other purpose, buy-in all short security differences which are not resolved during the ten (10) day period. This requirement is without prejudice to the independent determination by the Commission or the Exchange of the Broker Dealer's liability pursuant to the other provisions of the Code and the Rules. 49.2.8. Notification in the Event of Failure to Make a Required Deposit If a Broker Dealer shall fail to make in its Reserve Bank Account a deposit, as required by this rule, the Broker Dealer shall by fax, telegram, email or other equally prompt means, immediately notify the Commission and an Exchange, and shall promptly thereafter confirm such notification in writing, including the reasons for such failure. 49.2.9. Exemptions 49.2.9.1. The provisions of this rule shall not be applicable to a Broker Dealer who carries no margin accounts, promptly transmits all customer funds and delivers all securities received in connection with its activities as a Broker Dealer and does not otherwise hold funds or securities for, or owe money or securities to, customers. 49.2.9.2. Upon written application by a Broker Dealer, the Commission, may exempt such Broker Dealer from the provisions of this rule, either unconditionally or on specified terms and conditions, if the Commission or the Exchange finds that the Broker Dealer has established safeguards for the protection of funds and securities of customers comparable with those provided for by this rule and that it is not necessary in the public interest or for the protection of investors to subject the particular Broker Dealer to the provisions of this rule. 49.2.10. Delivery of Securities Nothing in this rule shall be construed as affecting the absolute right of a customer of a Broker Dealer to receive in the course of normal business operations following demand made on the Broker Dealer, the physical delivery of certificates for: 49.2.10.1. Fully paid securities to which he is entitled, and 49.2.10.2. Margin securities upon full payment by such customer to the Broker Dealer of his indebtedness to the Broker Dealer and, subject to the right of the Broker Dealer to retain collateral for the firm's own protection beyond the requirements of Rule 48.1, excess margin securities not reasonably required to collateralize such customer's indebtedness to the Broker Dealer. 49.2.11. Extensions of Time If an appropriate committee of the Exchange is satisfied that a Broker Dealer which is a member of that Exchange is acting in good faith in making the application and that exceptional circumstances warrant such action, such committee, on application of the Broker Dealer, may extend any period specified in SRC Rules 49.2.3.1.1 and 49.2.3.1.3, SRC Rule 49.2.7 and SRC Rule 49.2.11, relating to the requirement that such Broker Dealer take action within a designated period of time to buy-in in a security, for one or more limited periods commensurate with the circumstances. Each such committee shall make and preserve for a period of not less than five (5) years a record of each such extension granted which shall contain a summary of the justification for the granting of the extension. 49.2.12. Definitions For the purpose of this rule: 49.2.12.1. Customer shall mean any person from whom or on whose behalf a Broker Dealer has received or acquired or holds funds or securities for the account of that person. The term shall not include a Broker Dealer nor shall it include general partners or directors or principal officers of the Broker Dealer or any other person to the extent that the person has a claim for property or funds which by contract, agreement or understanding, or by operation of law, is part of the capital of the Broker Dealer or is subordinated to the claims of creditors of the Broker Dealer. The term "customer", however, shall include another Broker Dealer (the initiating Trading Participant as defined in SRC Rule 34.1 hereof) wherein the latter maintains separately a Dealer account and a special omnibus account in behalf of his customer with the former. 49.2.12.2. Securities carried for the account of the customer (also "customer securities") shall mean: 49.2.12.2.1. Securities received by or on behalf of a Broker Dealer for the account of any customer and securities carried long by a Broker Dealer for the account of any customer; and 49.2.12.2.2. Securities sold to, or bought for, a customer by a Broker Dealer. 49.2.12.3. Fully paid securities shall include all securities carried for the account of a customer in a cash account or a margin account if they have been fully paid for; Provided, however, that the term "fully paid securities" shall not apply to any securities which are purchased in transactions for which the customer has not made full payment. DHIcET 49.2.12.4. Margin securities shall mean those securities which have been purchased by a customer on the basis of credit extended by a Broker Dealer pursuant to the provisions of Section 48 of the Code and SRC Rule 48.1. 49.2.12.5. Excess margin securities shall mean margin securities having a market value in excess of one hundred forty percent (140%) of the total of the debit balances in the customer's account/s encompassed by SRC Rule 49.2.12.4 which the Broker Dealer identifies as not constituting margin securities. 49.2.12.6. Qualified security shall mean a security issued by the Republic of the Philippines or a security in respect of which the principal and interest are guaranteed by the Government of the Philippines. 49.2.12.7. Free credit balances shall mean liabilities of a Broker Dealer to customers which are subject to immediate cash payment to customers on demand, whether resulting from sales of securities, dividends, interest, deposits, or otherwise. 49.2.12.8. Other credit balances shall mean cash liabilities of a Broker Dealer to customers other than free credit balances. 49.2.12.9. Funds carried for the account of any customer (also "customer funds") shall mean all free credit and other credit balances carried for the account of the customer. 49.2.12.10. Principal officer shall mean the president, executive vice president, treasurer, secretary or any other person performing a similar function with the Broker Dealer. 49.2.12.11. Household members and other persons related to principals include husbands or wives, children, sons-in-law or daughters-in-law and any household relative to whose support a principal contributes directly or indirectly. For purpose of this SRC Rule, a principal shall be deemed to be a director, general partner or principal officer of the Broker Dealer. 49.2.12.12. Affiliated person includes any person who directly or indirectly controls a Broker Dealer or any person who is directly or indirectly controlled by or under common control with the Broker Dealer. Ownership of ten percent (10%) or more of the common stock of the relevant entity will be deemed prima facie control of that entity for purposes of this SRC Rule. 49.2.12.13. Omnibus account shall mean an account in which a Broker Dealer effects transactions for its customer through another Broker Dealer. 49.2.13. Information relating to Possession and Control Requirements and the Formula for Determination of Reserve Requirements of Broker Dealers under SRC Rule 49.2 are set forth as Annexes 49.2-A and 49.2-B, respectively.

Rule 49

1 Restrictions on Borrowings by Trading Participants, Brokers, and Dealers 49.1.1. Risk Based Capital Adequacy Requirement Risk Based Capital Adequacy ("RBCA") Requirement shall refer to the ratios and other financial requirements set by the Commission after taking into account the Broker Dealer's total risk exposure. 49.1.1.1. Every Broker Dealer shall at all times comply with the RBCA Requirements set by the Commission. 49.1.1.2. Every Broker Dealer shall make a computation of RBCA requirements on a daily basis. Such computations, upon request, shall immediately be provided in written form to the Commission and/or SRO if such Broker Dealer is a Trading Participant. 49.1.1.3. Every Broker Dealer covered by the RBCA Requirements shall prepare its RBCA Report and file the same with Commission and the SRO (if such Broker Dealer is a Trading Participant) on or before the 20th of the month, for RBCA Report covering the period 1st to 15th day of the month and on the 5th of the following month, for RBCA Report covering the period 16th to 30th/end of the month. The RBCA Report shall be certified by the firm's Associated Person and president/nominee director and a copy submitted to the Broker Dealer's Audit Committee or in lieu thereof, its Board of Directors. 49.1.1.4. Every Broker Dealer shall take all necessary action to increase its Net Liquid Capital or immediately reduce its total risk exposure if any of the RBCA Requirement set by the Commission is breached. 49.1.1.5. Net Liquid Capital Rule 49.1.1.5.1. Every Broker Dealer shall at all times have and maintain a Net Liquid Capital (NLC) amounting to whichever is the higher of the following: 49.1.1.5.1.1. NLC of at least Five Million Pesos (PhP5,000,000.00) sufficient to maintain Risk-Based Capital Adequacy Requirement/Ratio of 1.1 pursuant to the RBCA Rules, including any amendments thereto, if any, or Two Million Five Hundred Thousand Pesos (PhP2,500,000.00) for Broker Dealers dealing only with proprietary shares and who do not keep shares under its custody; or 49.1.1.5.1.2. Five percent (5%) of its aggregate indebtedness, or only two and one-half percent (2.5%) of its aggregate indebtedness for Broker Dealers dealing only with proprietary shares and who do not keep shares under its custody. In computing NLC, all non-allowable assets/equities, and collateralized liabilities will be deducted and allowable liabilities and equities are added to Equity per Books. 49.1.1.5.2. Equity Eligible for Net Liquid Capital shall be the sum of the following: 49.1.1.5.2.1. Equity as per Books; 49.1.1.5.2.2. Liabilities of the Broker Dealer which are subordinated to the claims of creditors pursuant to a satisfactory subordination agreement in conformity with SRC Rule 49.1.2 and in accordance with the following schedule: Period remaining from RCBA Allowable Computation date to maturity date Inclusion 3 years 1 day to 4 years 100% 2 years 1 day to 3 years 75% 1 year 1 day to 2 years 50% 1 year or less 0% 49.1.1.5.2.3. In the case of a Broker Dealer who is a sole proprietor, the excess of liabilities which have not been incurred in the course of business as a Broker Dealer over assets not used in the business. 49.1.1.5.2.4. Deposit for Futures Stock Subscription for which an application for increase in capital stock or request for exemption for registration has been filed with the Commission and the subscription, which is in the form of Allowable Assets, shall not be withdrawn prior to SEC approval of the application/request. For net capital purposes, the same shall be considered part of aggregate indebtedness unless there is evidence that such amount is a deposit but an irrevocable subscription or a subordinated loan agreement has been entered into with the subscriber. Provided, further, that deferred income tax, revaluation reserves, and minority interest and any outside investment in affiliates and associates shall be excluded from Eligible Equity for Net Liquid Capital. 49.1.1.5.3. Computation of Net Liquid Capital (NLC) In computing NLC, the Equity Eligible for Net Liquid Capital of a Broker Dealer is adjusted by the following, provided, however, that in determining net worth, all long and all short securities position shall be marked to their market value: 49.1.1.5.3.1. Adding unrealized profits (or deducting unrealized losses) in the accounts of the Broker Dealer. 49.1.1.5.3.2. Deducting fixed assets and assets which cannot be readily converted into cash [less any indebtedness excluded in accordance with SRC Rule 49.1.1.5.2.4 of the Definition of the term Aggregate Indebtedness] including, among other things: 49.1.1.5.3.2.1. Real estate; furniture and fixtures; Exchange memberships/trading rights; prepaid rent, insurance and other expenses; goodwill, organization expenses; 49.1.1.5.3.2.2. All unsecured advances and loans; deficits in customers' and non-customers' unsecured and partly secured notes; deficits in special omnibus accounts or similar accounts carried on behalf of another Broker Dealer, after application of calls for margin, marks to the market or other required deposits that are outstanding three (3) business days or less; deficits in customers' and non-customers' unsecured and partly secured accounts after application of calls for margin, marks to the market or other required deposits that are outstanding three (3) business days or less, except deficits in cash accounts for which not more than one extension respecting a specified securities transaction has been requested and granted; the market value of stock loaned in excess of the value of any collateral received therefore; and any collateral deficiencies in secured demand notes in conformity with SRC Rule 49.1.2 above. For the purpose of the above, a loan or any other form of receivables shall be considered "unsecured" unless the following conditions exist: 49.1.1.5.3.2.2.1. the receivable is secured by collateral which is otherwise unencumbered provided, however, that such receivable will be considered secured only to the extent of the market value of such collateral after application of such percentage deductions as may be prescribed by the Commission; 49.1.1.5.3.2.2.2. the collateral is in the possession or control of the Trading Member; and 49.1.1.5.3.2.2.3. the Broker Dealer has a legally enforceable written security agreement executed by the debtor in its favor under which the Trading Member shall have the power to readily sell or otherwise convert the collateral into cash. 49.1.1.5.3.2.2.4. the collateral is liquid in nature and in any of the following forms: Cash deposit in Philippine peso; Cash deposit in foreign currency acceptable to the Commission; Securities listed in the Exchange or other recognized stock exchanges unless specified by the Commission as not having a ready market; Government bonds or other debt instruments which have a ready market; and any other collaterals which may be specified by the Commission as having a ready market; 49.1.1.5.3.2.3. Interest receivable, floor brokerage receivable, commissions receivable from other Broker Dealers, and management fees receivable from registered investment companies, all of which receivables are outstanding longer than thirty (30) days from the date they arose; dividends receivable outstanding longer than thirty (30) days from the payable date; ScHADI 49.1.1.5.3.2.4. Insurance claims which, after fifteen (15) business days from the date the loss giving rise to the claim is discovered, are not covered by an opinion of an outside counsel that the claim is valid and is covered by insurance policies presently in effect; insurance claims which after thirty (30) business days from the date the loss giving rise to the claim is discovered and which are accompanied by an opinion of outside counsel described above, have not been acknowledged in writing by the insurance carrier as due and payable; and insurance claims acknowledged in writing by the carrier as due and payable outstanding longer than twenty (20) business days from the date they are so acknowledged by the carrier; 49.1.1.5.3.2.5. All other unsecured receivables; all assets doubtful of collection less any reserves established therefore; the amount by which the market value of securities failed to receive outstanding longer than thirty (30) days exceeds the contract value of such fails to receive; 49.1.1.5.3.2.6. Any receivable from an affiliate of the Broker Dealer (not otherwise deducted from net worth) and the market value of any collateral given to an affiliate (not otherwise deducted from net worth) to secure a liability over the amount of the liability of the Broker Dealer unless the books and records of the affiliate are made available for examination when requested by the Commission or the Exchange, where the Broker Dealer is a member for the Broker Dealer, in order to demonstrate the validity of the receivable or payable, or when the affiliate is an financial intermediary or entity duly registered and regulated by another government agency and that the receivable arises from an arms length transaction. The provisions of this subsection shall not apply where the affiliate is a Broker Dealer; 49.1.1.5.3.2.7. A future income tax benefit (Deferred Income Tax) 49.1.1.5.3.2.8. Any deposit with or loan to a person other than: 49.1.1.5.3.2.8.1. A deposit or loan with a deposit taking institution duly authorized and registered with the Bangko Sentral ng Pilipinas (BSP); 49.1.1.5.3.2.8.2. A deposit or loan to the extent the balance is secured by collateral which is Liquid, evidenced in writing and valued at the Marked to Market value or another valued approved by the Commission; 49.1.1.5.3.2.8.3. A deposit of funds as a margin to the extent that those funds relate to an open position; 49.1.1.5.3.2.9. A deposit with a third party clearing organization, unless approved by the Commission; 49.1.1.5.3.2.10. A Related Party/Associated Person Balance to the extent that the balance is not secured by collateral which is Liquid, evidenced in writing and valued at the Marked to Market value or to another value approved by the Commission; 49.1.1.5.3.2.11. A debt which was reported or created more than 30 days previously other than a debt: 49.1.1.5.3.2.11.1. from another Broker Dealer that is not a Related Party or Associated Person; or 49.1.1.5.3.2.11.2. which is secured by collateral which is Liquid, evidenced in writing and valued at the Marked to Market value or to another valued approved by the Commission; 49.1.1.5.3.2.12. Any prepayment which is not Liquid; 49.1.1.5.3.2.13. A Liquid Asset which has been restricted for the purpose of obtaining or creating a non-allowable or illiquid asset or set aside for use outside the ordinary course of the Broker Dealer's securities business; 49.1.1.5.3.2.14. All other assets which are not Liquid and those prescribed by the Commission as such; 49.1.1.5.3.3. Deducting general guarantees and indemnities for loans and indebtedness other than those incurred by the Broker Dealer, unless otherwise permitted by the Exchange and Commission. Provided, however, that where the Broker Dealer guarantee is given to a company within the Broker Dealer's group of companies, that company's assets and liabilities (to the extent that they are covered by the Broker Dealer's guarantee) shall be taken into account as being part of the Broker Dealer's assets and liabilities for purposes of computing NLC, and in such case the guarantee shall not be deducted from the computation unless the Exchange or Commission provides otherwise. 49.1.1.5.3.4. Deducting long and short securities differences as follows: 49.1.1.5.3.4.1. Deducting the market value of all short securities differences (which shall include securities positions reflected on the securities record which are not susceptible to either count or confirmation) unresolved after discovery. 49.1.1.5.3.4.2. Deducting the market value of any long securities differences, where such securities have been sold by the Broker Dealer before they are adequately resolved, less any reserves established therefore; 49.1.1.5.3.4.3. For an Exchange member, the Exchange, and in the case of a Broker Dealer that is not a member of an Exchange, the Commission may extend the periods in SRC Rule 49.1.1.5.3.2.2 for up to ten (10) business days if it finds that exceptional circumstances warrant an extension. 49.1.2. Satisfactory Subordination Agreements 49.1.2.1. This rule sets forth minimum and non-exclusive requirements for satisfactory subordination agreements ("subordination agreement"). The Commission, Exchange or Broker Dealer may require or include such other provisions as may be deemed necessary to the extent that such provisions do not cause the subordination agreement to fail to meet the minimum requirements of this Rule. 49.1.2.2. The subordination agreement shall be approved by the Exchange, if affecting an Exchange Broker Dealer, or by the Commission, if affecting a non-Exchange Broker Dealer. Said agreement shall take effect upon approval. 49.1.2.3. A subordination agreement may be either a subordinated loan agreement or a secured demand note agreement. 49.1.2.3.1. "Subordinated loan agreement" shall mean a notarized agreement evidencing or governing a subordinated borrowing of cash. 49.1.2.3.2. "Secured demand note agreement" shall mean a notarized agreement (including the related secured demand note) evidencing or governing the contribution of a secured demand note to a Broker Dealer and the pledge of securities and/or cash with the Broker Dealer as collateral to secure payment of such secured demand note. The secured demand note agreement may provide that neither the lender, his heirs, executors, administrators or assigns shall be personally liable on such note and that, in the event of default, the Broker Dealer shall look for payment of such note solely to the collateral then pledged to secure the same. The secured demand note shall be a promissory note executed by the lender and shall be payable on the demand of the Broker Dealer to which it is contributed; Provided, however, that the making of such demand may be conditioned upon the occurrence of any of certain events which are acceptable to the Commission in the case of non-Exchange Broker Dealer and to an Exchange for an Exchange Broker Dealer. aICcHA 49.1.2.3.3. If such note is not paid upon presentment and demand as provided for therein, the Broker Dealer shall have the right to liquidate all or any part of the securities then pledged as collateral to secure payment of the same and to apply the net proceeds of such liquidation, together with any cash then included in the collateral, in payment of such note. Subject to the prior rights of the Broker Dealer as pledgee, the lender, as defined herein, may retain ownership of the collateral and have the benefit of any increases and bear the risks of any decreases in the value of the collateral and may retain the right to vote securities contained within the collateral and any right to income therefrom or distributions thereon, except, the Broker Dealer shall have the right to receive and hold as pledgee all dividends payable in securities and all partial and complete liquidating dividends. 49.1.2.3.4. Subject to the prior rights of the Broker Dealer as pledgee, the lender may have the right to direct the sale of any securities included in the collateral, to direct the purchase of securities with any cash included therein, to withdraw excess collateral or to substitute cash to other securities as collateral, provided that the net proceeds of any such sale and the cash so substituted and the securities so purchased or substituted are held by the Broker Dealer, as pledgee, and are included within the collateral to secure payment of the secured demand note, and provided further that no such transaction shall be permitted if, after: giving effect thereto, the sum of the amount of any cash, plus the collateral value of the securities, then pledged as collateral to secure the secured demand note would be less than the unpaid principal amount of the secured demand note. 49.1.2.3.5. Upon payment by the lender, as distinguished from a reduction by the lender or reduction by the Broker Dealer as provided for in "Annex 49.1-2" of this rule, of all or any part of the unpaid principal amount of the secured demand note, a Broker Dealer shall issue to the lender a subordinated loan agreement in the amount of such payment (or in the case of a Broker Dealer that is a partnership, credit a capital account of the lender) or preferred or common stock(s) of the Broker Dealer in the amount of such payment, or any combination of the foregoing, as provided for in the secured demand note agreement. Lender shall mean the person who lends cash to a Broker Dealer pursuant to a subordinated loan agreement and the person who contributes a secured demand note to a Broker Dealer pursuant to a secured demand note agreement. 49.1.2.4. Recourse to the Subordination Agreements is viewed as a temporary relief to address net capital requirements of Broker Dealers and is not intended to replace the permanent infusion of capital by stockholders. Thus, subordinated loans shall be for a period of one (1) year and is renewable annually but for a period not exceeding two (2) years or for such shorter period as the Commission deems appropriate; Provided, however, that a capital buildup plan shall be a requirement for the renewal of the subordinated loan. Advances or Agreements that have been outstanding for more than three (3) years would require conversion to capital. 49.1.2.5. In order to ensure financial viability of the Broker Dealer, the Exchange, for Exchange Broker Dealers, or the Commission, for non-Exchange Broker Dealers, may impose additional requirements to regulate the resort to financing by way of subordination agreements and may exercise discretion in the approval of such agreements. 49.1.2.6. The Minimum requirements for Subordination Agreements and Miscellaneous Provisions are set forth in Annex 49.1-2.

Rule 49

3 Lending and Voting Customers Securities A Broker Dealer shall not, without the written consent of the customer, lend the latter's securities to itself or to anyone else, or vote them as if they were his own. 50.1. Purchases by a customer in a cash account shall be paid in full within three (3) business days after the trade date. 50.2. If full payment is not received within the required time period, the Broker Dealer shall cancel or otherwise liquidate the transaction, or the unsettled portion thereof, starting on the next business day but not beyond ten (10) business days following the last day for the customer to pay, unless such sale cannot be effected within said period for justifiable reasons in which case, notification in writing shall be made with the Exchange and the Commission. 50.3. If a transaction is cancelled or otherwise liquidated as a result of non-payment by the customer, prior to any subsequent purchase during the next ninety (90) days, the customer shall be required to deposit sufficient funds in the account to cover each purchase transaction prior to execution. 50.4. If the amount of money due from a customer in a cash account is less than Ten Thousand Pesos (PhP10,000.00) the Broker Dealer may choose not to take the action required by SRC Rule 50.2. 50.5. Exceptions to SRC Rules 50.1, 50.2, and 50.3 include when the security purchased is unissued or where the purchase is made by the customer with the understanding that payment is to be made upon delivery. 50.6. Written application for an extension of the period of time required for payment under SRC Rule 50.1 may be made by the Broker Dealer to the Exchange in the case of a member of that Exchange or to the Commission, in the case of a non-member of the Exchange. Applications for the extension must be based upon exceptional circumstances and must be filed and acted upon before the expiration of the original payment period or the expiration of any subsequent extension. 50.7. If a Broker Dealer executes a sell order of a customer (other than an order to execute a sale of securities which the seller does not own) and if for any reason whatsoever the Broker Dealer has not obtained possession of the securities from the customer on the next business day after settlement date but not beyond ten (10) business days for the customer to deliver the securities, the Broker Dealer shall immediately thereafter close the transaction with the customer by purchasing securities of like kind and quantity, unless such purchase cannot be effected within said period for justifiable reasons in which case, notification in writing shall be made with the Exchange and the Commission 50.8. If the Broker Dealer is required to take the action required by SRC Rule 50.7, prior to any subsequent sale during the next ninety (90) days, the customer will be required to place the securities on deposit in the account prior to execution of the transaction. 51.1. Every person who, by or through stock ownership, agency, or otherwise, or in connection with an agreement or understanding with one or more other persons, controls any person liable under the Code or the rules or regulations of the Commission thereunder, shall also be liable jointly and severally with and to the same extent as such controlled persons to any person to whom such controlled person is liable, unless the controlling person proves that, despite the exercise of due diligence on his part, he has no knowledge of the existence of the facts by reason of which the liability of the controlled person is alleged to exist. 51.2. It shall be unlawful for any person, directly or indirectly, to do any act or thing which it would be unlawful for such person to do under the provisions of the Code or any rule or regulation thereunder. 51.3. It shall be unlawful for any director or officer of, or any owner of any securities issued by, any issuer required to file any document, report or other information under the Code or any rule or regulation of the Commission thereunder, without just cause, to hinder, delay or obstruct the making or filing of any such document, report, or information. 51.4. It shall be unlawful for any person to aid, abet, counsel, command, induce or procure any violation of the Code, or any rule, regulation or order of the Commission thereunder. 51.5. Every person who substantially assists the act or omission of any person primarily liable under Sections 57, 58, 59 and 60 of the Code, with knowledge or in reckless disregard that such act or omission is wrongful, shall be jointly and severally liable as an aider and abettor for damages resulting from the conduct of the person primarily liable; Provided, however, That an aider and abettor shall be liable only to the extent of his relative contribution in causing such damages in comparison to that of the person primarily liable, or the extent to which the aider and abettor was unjustly enriched thereby, whichever is greater.