Opinion No. 16-26 Re: Arrangement between bank and depositor-investor for investment and payment of securities.

Securities and Exchange Commission Republic of the Philippines Department of Finance

OFFICE OF THE GENERAL COUNSEL

23 November 2016

SEC-0GC 0pinion No.16-26 RE: Arrangement between bank and depositor-investors for investment and payment of securities

ANGARA ABELLO CONCEPCION REGALA AND CRUZ LAW OFFICES

0399 Taguig, Metro Manila 22/F ACCRA LAW ToWer 2nd Avenue Corner 30th Street Crescent Park West, Bonifacio Global City

Attention: Atty Joselito M. Bautista, Atty. Benedict C. Velasco

and Atty. Gino Angelo P. Batallones

Gentiemen:

This is in reply to your letter dated 9 May 2013 requesting, on behalf of your client, Metropolitan Bank and Trust Company ("MBTC"), for our opinion as to the legality of the proposed arrangements between MBTC and the depositor-investors for purposes of investment and purchase of securities.

As a background, MBTC is a domestic corporation granted authority by the Bangko Sentral ng Pilipinas ("BSP") to operate as a universal bank under Republic Act No. 8791 or the General Banking Law of 2000 ("GBL") and the rules and regulations of the BSP. MBTC is also a listed company in the Philippine Stock Exchange.

Under the arrangements concerned as presented in your letter, the depositor- investor will be allowed to:

1. Open a bank account with MBTC which will function, among others, as the

2 Direct MBTC to remit a portion of the funds maintained in such bank account to a settlement account;

payee from whom the securities and investments, such as fixed income instruments and/or equity investments, are purchased upon confirmation of the

3 Designate a deposit account maintained with MBTC as the settlement account for the purpose of receiving the interest earned by the depositor-investor from the delivery of the securities to the depositor;

4. Upon the sale of such offshore securities and investments in the future, designate a deposit account maintained with MBTC as the settlement account for the offshore securities; and

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purpose of receiving funds, whether from here or from abroad, constituting the proceeds of the sale of such securities and investors due to the depositor-investor.

On the other hand, MBTC, acting as settlement bank of depositor-investors engaged in the purchase and sale of securities, intends to accept:

1. Application of such depositors-investors to open bank account with MBTC; 2 Instructions of such depositors-investors to remit the funds maintained in their

bank accounts to the accounts of individuals/entities selling such securities to the

3. Any and all funds remitted to the bank account of its depositors-investors depositors-investors; and

representing the interests accruing to, and proceeds from the sale of such securities.

broker or seller of any security outside of the Philippines which intends to sell any securities, whether registered, unregistered or exempt from registration, to investors in the Philippines. In said letter, you also made an assurance that MBTc is not acting on behalf of any

depositor-investors is in accordance with law. You now seek confirmation that the proposed arrangement between MBTC and the

GBL,1 the government agency exercising supervision over the operations and activities of banks is the BSP. In a previous Opinion, the Commission stated that in cases where a government agency regulates the operation of certain type of corporation by virtue of a special law, that agency has the primary jurisdiction over the same.2 Further, since MBTC is Circular No. 15, Series of 2003, the Commission refrains from rendering opinions on governed by relevant BSP issuances, it is worthy to mention that, under SEC Memorandum As aforementioned, MBTC is operating as a duly licensed universal bank. Under the

government agencies.3 questions involving interpretation of administrative rules and issuances of other

to the securities regulation aspect of the query and should not be interpreted as a ruling on the permissibility of the proposed arrangements under banking laws and other laws that may be applicable to the proposed arrangements administered by the BSP and other government agencies. In this regard, it is important to clarify that the Commission's opinion will be limited

it is charged with the regulation of Securities Market Professionals such as Brokers, Dealers and [r]egulate, investigate or supervise the activities of persons to ensure compliance. Specifically Under the Securities Regulation Code (SRC), the Commission has the power to

4Sec. 'S (d), Chapter II, Republic Act No. 8799 (SRC). 2sEC Opinion dated 8 January 1996 addressed to Mr. Dialoson A. Amil. 'Section 4, Chapter II, GBL. Paragraph No. 5.7.

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Associated persons, and their transactions or dealings in securities. Furthermore, it registers and regulates activities of other entities involved in securities transactions such as clearing agencies and exchanges.

depositors, will remit the same to any third party bank account for any legitimate purpose, (c) the depositor may use such bank account to receive interest accruing to, and proceeds of the sale of such investments or securities. applications from depositors to open a bank account, (b) MBTC, upon the instruction of such as to pay for any investment or purchase of securities effected by the depositor, and In the proposed arrangements stated in your letter, (a) MBTC will accept

latter. Particularly, MBTC would not be acting as a clearing agency which is defined as any securities purchased and receive proceeds of securities sold upon order or action by the sale of securities, it would not be acting as Securities Market Professional or performing directly involved in the purchase and sale of the securities of its client but will only pay for person who acts as intermediary in making deliveries upon payment to effect settlement in securities transactions. This is because MBTC does not, at any point of the transactions, hold securities purchased or sold, nor act in behalf of any broker or dealer. To reiterate, it merely pays for the securities upon order of the clients. Since MBTC would not be directly involved in the activities that are governed by SEC-administered laws, rules and regulations which require SEc licenses or registration. Upon examination of the proposed arrangements, it is apparent that MBTC will not be

Securities Clearing Corporation of the Philippines9 and Philippine Dealing Exchange It must be pointed out, however, that MBTC must comply with specific rules of the

SSec. 28 to 31, Chapter VIII, Id.; Sec. 3, Chapter I, Id. defines SEC regulated persons such as Brokers, Dealers and 6 Sec. 30 Transactions and Responsibility of Brokers and Dealers; Section 32. Prohibition on Use of Unregistered 8. Sec. 3.6, Chapter I, Id. Cash Settlement Account means the cash account opened and maintained by the Clearing Member with the Sec 33, Chapter IX and Sec. 42, Chapter XI, Id. Sec. 3, Chapter I defines said entities, viz: 3.4 "Dealer" means many person who buys sells securities for his/her own account in the ordinary course 3.5. "Associated person of a broker or dealer" is an employee thereof whom, directly exercises control of 3.3. "Broker" is a person engaged in the business of buying and selling securities for the account of others. Exchange; and Regulation of Over-the-Counter Markets. (Id.) 3.6. "Clearing Agency" is any person who acts as intermediary in making deliveries upon payment to effect 3.7. "Exchange" is an organized marketplace or facility that brings together buyers and sellers and executes trades Associated persons, viz Settlement Bank for the deposit of cash for payment of Due Clearing obligations and for the credit of Due Broker Trades. (Rule 1.1., rules of the Securities Clearing Corporation of the Philippines.) entitlements. The bank account maintained with the Settlement Bank for the purpose of settling the Cash Element of SCCP-Eligible Trades. In relation to said definition, Settlement Bank means a duly licensed commercial banking institution accredited by SCCP for the Clearing and Settlement of the Cash Element of SCCP-Eligible supervisory authority, but does not include a salesman, or an agent or a person whose functions are solely clerical or ministerial settlement in securities transactions. (Sec. 3, Id.) of business of securities and/or commodities.

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Platform,1o if the accounts opened by the clients of MBTC are to be used as settlement accounts as defined by the rules of the aforementioned entities.

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 will be disclosed that the facts relied upon are different, this opinion shall be rendered null Commission in other cases of similar or dissimilar circumstances.11 If upon investigation, it and void. It shall be understood that the foregoing opinion is rendered based solely on the

Please be guided accordingly.

CAMILO S EA

General Qounsel

104. Cash Settlement Account shall refer to an account with a Cash Settlement Bank which may be debited or TsEC Memorandum Circular 2003-15, No. 7. a Cash Settlement Account for Settlement Participants and which undertakes to perform the necessary actions Fixed Income Securities Market, as amended). credited in accordance with these Rules. In relation to said definition, Cash Settlement Bank shall refer to the BSP or any bank registered by [Philippine Dealing Exchange Platform]PDEx as a Cash Settlement Bank that maintains specified in these Rules to effect the Settlement of Trades.([5] in relation to [4] of Rule 8.3, PDEx Rules for the

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