SEC En Banc Case No. 02-20-471Bernad Securities, Inc. vs Capital Markets Integrity Corporation

Republic of the Philippines Department of Finance Securities and Exchange Commission COMMISSION EN BANC BERNAD SECURITIES, INC., Appellant, -versus- SEC En Banc Case No. 02-20-471 Promulgated: 18 March 2025 CAPITAL MARKETS AND INTEGRITY CORPORATION, Appellee. x- DECISION Before this Commission is the Appeal Memorandum dated 17 February 2020 (the "Appeal") filed by Appellant Bernad Securities, Inc. on 18 February 2024 assailing the Resolution dated 21 January 2020 (the "Assailed Resolution") issued by the Board of Directors of the Capital Markets Integrity Corporation, which affirmed its earlier Resolution dated 07 November 2019. The dispositive portion of the Assailed Resolution reads: RESOLVED FINALLY, That the Board of Directors of the Corporation affirm, as it hereby affirms the imposition of the following penalties on Bernad Securities for the following violations: Rule Violated Penalty Bernad Securities' second violation of Ten Thousand Pesos (Php Article II, Section 2 of the CMIC Rules 10,000.00) Bernad Securities' first violation of Written Reprimand Rule 30.2.9.2.7 of the 2015 SRC-IRR Bernad Securities' second to one One Million Five Hundred hundred fifty-first violation of Rule Thousand 30.2.9.2.7 of the 2015 SRC-IRR (Php 1,500,000.00) Bernad Securities' seventieth Ten Thousand Pesos (Php violation of Rule 30.2.5.2 of the 2015 10,000.00) SRC-IRR in relation to PSE Memo No. 2008-0467 Bernad Securities' third to fifth Thirty Thousand Pesos (Php violation of Article IX, Section 1 of the 30,000.00) CMIC Rules Bernad Securities' third violation of Fifty Thousand Pesos (Php Article VI, Section 2 of the CMIC Rules 50,000.00) with a directive to the Associated Person to henceforth comply with the cited provision."

Bernad Securities, Inc. v. Capital Markets Integrity Corporation SEC En Banc Case No. 02-20-471 DECISION The Appeal prays for the reversal and setting aside of the Assailed Resolution, specifically directing the Capital Markets Integrity Corporation to return the fine in the amount of Pesos: One Million Six Hundred Thousand (Php 1,600,000.00), which was paid by Bernad Securities, Inc. under protest. THE PARTIES Appellant Bernad Securities, Inc. (Bernad Securities) is a domestic corporation duly organized and existing under the laws of the Philippines having been issued a Certificate of Incorporation with SEC Registration No. AS93006463 on 23 August 1993, and a duly registered broker/dealer of securities. Appellee, the Capital Markets Integrity Corporation (CMIC), is a domestic corporation duly organized and existing under Philippine laws having been issued a Certificate of Incorporation with SEC Registration No. CS201104274. CMIC is licensed to act as a Self-Regulatory Organization whose mandate is to maintain the integrity of the capital market and minimize the risk of the investing public by ensuring that trading participants comply with applicable rules and regulations. Its principal office is located at the 10/F PSE Tower, 5th Avenue corner 28th Street, Bonifacio Global City, Taguig City. THE RELEVANT FACTS In 2018, the Audit and Compliance Department of the CМІС (СМІС- Audit) conducted an Annual Regulatory Examination (the "Examination") of the books and records of Bernad Securities covering the period 01 July 2017 up to 30 June 20181, where it requested for relevant documents to facilitate the same, which Bernad Securities failed to submit on time. After the conclusion of the Examination, the CMIC-Audit found that the following acts/omissions of Bernad Securities violated the relevant rules and regulations, to wit: (1) Bernad Securities did not submit done through transaction reports covering the one hundred eighty-three (183) Appeal Memorandum dated 17 February 2020.

Bernad Securities, Inc. v. Capital Markets Integrity Corporation SEC En Banc Case No. 02-20-471 DECISION x-- transactions with Tower Securities, Inc. (TC11101400747287), Aurora Securities, Inc. (TC111015001354997), and Lucky Securities, Inc. (TC21101501354973), which is required under Rule 30.2.9.2.7 of the 2015 Implementing Rules and Regulations of the Securities Regulation Code (the "2015 SRC-IRR");2 (2) The sale transaction of Account 90882 (under the name of Bernad Securities' nominee, Mr. Elphege Wong) on 15 January 2018 involving 10,000 MAC shares at PhP21.12, was charged with a commission fee of PhP200.00, or 0.0946%, which is below the minimum required commission rate of 0.25%, in violation of Rule 30.2.5.2 of the 2015 SRC-IRR, in relation to PSE Memo No. 2008-0467;3 (3) There were discrepancies in the recorded money balances of three (3) client accounts which was shown in the customer account ledgers, received statement of accounts and Aging of Receivables, in violation of Article IX Section 1 of the CMIC Rules;4 (4) Bernad Securities used eight (8) different trading codes to execute its dealer account with backroom code 98, in violation of Article XV (1) of the Implementing Guidelines of the Revised PSE Trading Rules (the "Trading Rules");5 and (5) Bernard Securities' associated person failed to perform the required compliance functions, in violation of Article VI Section 2 of the CMIC Rules.6 On the basis thereof, the CMIC-Audit issued Show Cause Letters on 06 February 2019 and 05 August 2019 (the "Show Cause Letters"), directing Bernad Securities to explain in writing why it should not be held liable for violating the foregoing rules and regulations. August 2019, Bernad Securities submitted its written On 07 explanation7 on the findings of the CMIC-Audit. Bernad Securities provided the following justifications for its failure to comply with the 2 Appeal Memorandum. Page 2 (See Annex "B"). 3 Ibid. 4 Ibid. 5 Ibid. 6 Ibid. 7 Ibid. See Annex "C".

Bernad Securities, Inc. v. Capital Markets Integrity Corporation SEC En Banc Case No. 02-20-471 DECISION x- relevant rules and regulations: (a) the non-reporting of the done through transactions was admitted, but the same was occasioned by the fact that this requirement was new to its staff; (b) the charging of the commission that was below the prescribed rate was overlooked, and was brought about by the fact that the account of Mr. Elphege Wong has been allegedl y inactive for more than ten (10) years where the commission rate was still set at the minimum; and (c) the transactions of its dealer account were executed by different traders.8 During the exit conference held on 16 August 2019 conducted by the CMIC-Audit, Bernad Securities reiterated its allegations and justification in its written explanation. After the proceedings, the CMIC issued its Resolution dated 07 November 2019, finding the justifications proffered by Bernad Securities to be without merit, and imposed upon it an aggregate fine of Pesos: One Million Six Hundred Thousand (PhP1,600,000.00) [the "Monetary Penalties"] for violating the relevant rules and regulations, the details of which are as follows: (1) Ten Thousand Pesos (PhP10,000.00) for Bernad Securities' second violation of Section 2, Article II of the CMIC Rules; (2) One Million Five Hundred Pesos (PhP1,500,000.00) for Bernad Securities' second to one hundred fifty-first violation of Rule30.2.9.2.7 of the 2015 SRC-IRR;9 (3) Ten Thousand Pesos (PhP10,000.00) for Bernad Securit ies' seventieth violation of Rule 30.2.5.2 of the 2015 SRC-IRR, in relation to PSE Memo No. 2008-0467; (4) Thirty Thousand Pesos (PhP30,000.00) for Bernad Securities' third to fifth violation of Article IX, Section 1 of the CMIC Rules; and (5) Fifty Thousand Pesos (PhP50,000.00) for Bernad Securities' third violation of Article VI, Section 2 of the CMIC Rules.10 In its letter dated 19 November 201911 (the "Request for Reconsideration"), Bernad Securities sought the reconsideration of the foregoing Resolution, specifically the imposition of the Monetary 81bid. 9 The first violation of Rule30.2.9.2.7 of the 2015 SRC-IRR was meted with the penalty of "Reprimand". 10 Id. See Annex "D". 11 Id. See Annex "E".

Bernad Securities, Inc. v. Capital Markets Integrity Corporation SEC En Banc Case No. 02-20-471 DECISION Penalties. Bernad Securities argued that the Monetary Penalties is not commensurate with the offenses charged against it, and is allegedly punitive in nature. The imposition upon it of the Monetary Penalties is contrary to the principle under the CMIC Rules that sanctions are remedial in nature which are designed to ensure compliance, especially that fraud, manipulation and misconduct were not attendant in its failure to submit the done-thru transactions. Bernad Securities further argued that the immediate imposition of the Monetary Penalties without a prior reprimand and without giving it the opportunity to rectify the violation, constituted a violation of its right to due process. The CMIC found the arguments in the Request for Reconsideration of Bernad to be without merit, and forthwith issued the Assailed Resolution affirming the findings in its earlier Resolution, and the imposition of Monetary Penalties. On 5 February 2020, Bernad Securities paid the Monetary Penalties under protest, considering the absence of a stay order issued by the Commission. The filing of the instant Appeal then followed, which essentially reiterated the allegations and arguments presented in the Request for Reconsideration. On 23 June 2020, the CMIC filed its Comment (on Appellant's Appeal Memorandum), therein praying for the denial of the Appeal, and the affirmation of the Assailed Resolution. The CMIC maintained that the sanctions imposed in the Assailed Resolution are remedial in nature, and in accordance with the CMIC Rules.12 The CMIC equally maintained that it observed due process in the instant case i.e. Bernad Securities was informed of its violations13 and was given the opportunity to explain its side,14 Lastly, the CMIC argued that the failure of Bernad Securities to comply with the reportorial requirements cannot be simply remedied by a belated submission of the necessary information as there is no provision under the CMIC Rules that allows the CMIC to dispense with the penalties imposed on the basis that there is belated compliance with the requirements under law.15 12 Comment. Pars. 26, 27 and 54. 13 Ibid. Pars. 37 and 45. 14 Ibid. Par. 57. 15 Ibid. Pars. 63 and 68.