Opinion No. 19-19 Re: Section 23.2 of the Securities and Regulation Code.

Securities and Exchange Commission Republic of the Philippines Department of Finance

OFFICE OF THE GENERAL COUnSEL

23 May 2019

SEC-OGC Opinion No. 19-19 Re: Section 23.2 of the Securities and Regulation Code

Makati City 8741 Paseo de Roxas corner Villar Street Salcedo Village 15 th Floor, Citibank Tower Custodio Acorda Sicam & de Castro Law Office

Attention: Atty. Zenaida Ongkiko-Acorda

on the interpretation and application of Section 23.2 of the Securities Regulation This refers to your letter dated 27 March 2018 requesting an opinion

Code (SRC)

companies beneficially owned by him, buys and sells shares of stock of the You averred that a director, by himself or through a company or

issuer during a six-month period. The director earned profits from the committed a short-swing transaction in violation of Section 23.2 of the SRC. purchase and sale transactions. It appears to you that the director You request an opinion on whether it is necessary to prove that the director took advantage of or used material non-public information in buying and selling the shares during the sixth-month period before the director can be held liable under Section 23.2 of the SRC.

The pertinent portion of Section 23.2 of the SRC provides:

or any sale or purchase, of any equity security of such issuer information which may have been obtained by such beneficial issuer, any profit realized by him from any purchase or sale, "23.2. For the purpose of preventing the unfair use of owner, director or officer by reason of his relationship to the

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security was acquired in good faith in connection with a debt within any period of less than (6) months unless such

the issuer,irrespective of any intention of holding the previously contracted, shall inure to and be recoverable by

security purchased or of not repurchasing the security sold for a period exceeding six (6) months." (Emphasis supplied)

This pertains to the "short-swing profit" rule which provides that any profit made by a director, an officer, or a 10% beneficial owner of a reporting company, in the purchase and sale, or sale and purchase, of an equity security

company, as the issuer. 1 of such company, within any period of less than six months, belongs to such

the director took advantage of or used material non-public information in can be held liable under Section 23.2 of the SRC. buying and selling the shares during the six-month period before the director The issue actually presented is whether it is necessary to prove that

SRC Section 27. It is sufficient that there be a purchase and sale, or sale and It is not required that there be "insider trading" as contemplated by.

than six months, or not to repurchase the security sold for a period exceeding six months. 2 immaterial that there be an intention to hold the security purchased for more purchase, of an equity security within a period of less than six months. It is

reporting company: (a) the transaction must involve an "equity security" of 23.2 action against a director, an officer, or a 10% beneficial owner, of a The following elements must be present to sustain an SRC Subsection

and purchase. The defendant must have either purchased at a low price or such company, and (b) there must be a matching purchase and sale, or sale bought back at a lower price.3

swing profit rule, to wit: The U.S. Supreme Court4 explained the strict liability of the short.

abuse of inside information, and without proof of intent to within the' specified time period, without proof of actual profit on the basis of such information." disgorge all profits realized on all 'purchases' and 'sales "The statute requires the insider, short-swing trader to

1 The Philippine Securities Regulation Code (Annotated), Rafael A. Morales (2005 Ed.), p. 177 2 Ibid,p.177 3 ibid, p.178 4 Kern County Land Co., 411 U.S., at 595

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matching purchase and sale of equity securities within a period of six months information is required. All that is required is that profit was made from a by the director, officer or beneficial owner in question. Based on the foregoing, neither intent nor actual use of inside

solely on the facts disclosed in the query and relevant solely to the particular issues raised therein and shall not be used in the nature of a standing rule binding upon the courts, or upon the Commission in other cases of similar or dissimilar circumstances.5 If upon investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered null and void. It shall be understood that the foregoing opinion is rendered based

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General Counsel

5 SEC Memorandum Circular 2003-15, No. 7.