GOVERNING THE ESTABLISHMENT, OPERATION, AND REGULATION OF INVESTMENT HOUSES

WHEREAS, there were pending before Congress, prior to the
promulgation of Proclamation No. 1081, dated September 21, 1972, urgent
measures proposing the regulation of the so-called investment banks;

WHEREAS, an extensive survey and study of the Philippine
financial system had been undertaken in order to determine its adequacy
in Philippine economic development, and an integrated set of
recommendations were submitted; and

WHEREAS, the recommendations, as endorsed with
modifications by the monetary authorities and made the basis of this
Decree, advocated the enactment of the statutory framework within which
the underwriting of securities may be governed and, to the extent that
these entities perform quasi-banking functions, to harmonize their
operations with national monetary goals;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers in me vested by the Constitution as
Commander-in-Chief of the Armed Forces of the Philippines, and pursuant
to Proclamation No. 1081, dated September 21, 1972, and General Order
No. 1, dated September 22, 1972, as amended, and in order to effect the
desired changes and reforms in the social, economic, and political
structure of our society, do hereby order and decree and make part of
the law of the land the following:

SECTION 1. Title. — This Decree shall be known as
“The Investment Houses Law.”

SEC. 2. Scope. — Any enterprise which engages in the
underwriting of securities of other corporations shall be considered an
“Investment House” and shall be subject to the provisions of this Decree
and of other pertinent laws.

Nothing in this Decree shall be understood to preclude other
enterprises from engaging in the mere buying and selling of short-term
securities of other persons or enterprises.

SEC. 3. Definitions. — For the purpose of this
Decree, unless the context otherwise indicates, the following definition
of terms are hereby adopted:

(a) “Underwriting” is the act or process of guaranteeing the
distribution and sale of securities of any kind issued by another
corporation;
(b) “Securities” are written evidences of ownership, interest, or
participation, in an enterprise, or written evidences of indebtedness of
a person or enterprise. It includes, but is not limited to the
instruments enumerated in Section 2 of the Securities Act (Commonwealth
Act No. 83, as amended).

SEC. 4. Organization and registration. — Investment
Houses shall be organized in the form of stock corporations.

The
Securities and Exchange Commission shall not register the articles of
incorporation of any Investment House, or any amendment thereto, unless
it is satisfied from the evidence submitted to it:

(a) That all the requirements of this Decree and of existing
laws or regulations to engage in the business have been complied with;

(b) That the proposed enterprise will not be in conflict with
public interest and economic growth;

(c) That the amount of capital, the proposed organization,
direction and administration, as well as the integrity, experience and
expertise of the organizers and the proposed managerial staff, provide
reasonable assurance that the enterprise will be conducted with
financial prudence.

In determining compliance with the provisions of Subsections (b)
and (c) above, the Securities and Exchange Commission shall consult the
Monetary Board of the Central Bank of the Philippines.

All
applications for registration of the articles of incorporation of
Investment Houses shall be accompanied by:

(1) At least three copies of the proposed articles of
incorporation;

(2) A statement under oath of the educational background and
experience of the organizers, directors, and the proposed managerial
staff, as well as information on any position concurrently held by them
in other financial or banking institutions, if any;
(3) A projected statement of assets and liabilities of the
proposed Investment House;

(4) A tentative program of operation for one year, including its
investment direction and volume; and

(5) Such other information as the Securities and Exchange
Commission may require in support of the application and to enable the
Commission to determine the justifiability of establishing the proposed
enterprise.

Any enterprise already in operation and exercising the powers of
an Investment House prior to the effectivity of this Decree shall,
within six months therefrom, file an information sheet with the
Securities and Exchange Commission in such form and containing such data
as the Securities and Exchange Commission may, at its discretion,
require, to enable the Commission to determine, in consultation with the
Monetary Board, whether the enterprise meets the requirements of this
Decree.

SEC. 5. Citizenship requirements. — The
majority of the voting stock of any Investment House shall be owned by
citizens of the Philippines. In determining the percentage of
foreign-owned voting stocks in Investment Houses, the basis for the
computation shall be the citizenship of each stockholder, and, with
respect to corporate owners of voting stock, the citizenship of the
individual owners of voting stock in the corporation holding shares in
that Investment House.

The majority of the members of the Board
shall be citizens of the Philippines.

SEC. 6. Prohibitions.
— Except as may be authorized by the Monetary Board, no director or
officer of an Investment House shall concurrently be a director or
officer of a bank, as defined in Section 2 of Republic Act No. 337, as
amended; Provided, however, That in no event can a person be authorized
to be concurrently an officer of an Investment House and of a bank.

No Investment House shall engage in banking operations as defined in
Section 2 of Republic Act No. 337 as amended.

SEC. 7. Powers.
— In addition to the powers granted to corporations in general, an
Investment House is authorized to do the following:

(1) Arrange to distribute on a guaranteed basis securities of
other corporations and of the Government or its instrumentalities;
(2) Participate in a syndicate undertaking to purchase and
sell, distribute or arrange to distribute on a guaranteed basis
securities of other corporations and of the Government or its
instrumentalities;

(3) Arrange to distribute or participate in a syndicate
undertaking to purchase and sell on a best-efforts basis securities of
other corporations and of the Government or its instrumentalities;

(4) Participate as soliciting dealer or selling group member in
tender offers, block sales, or exchange offering or securities; deal in
options, rights or warrants relating to securities and such other powers
which a dealer may exercise under the Securities Act (C.A. No. 83, as
amended);

(5) Promote, sponsor, or otherwise assist and implement ventures,
projects and programs that contribute to the economy’s development;
(6) Act as financial consultant, investment adviser, or broker;

(7) Act as portfolio manager, and/or financial agent, but not as
trustee of a trust fund or trust property as provided for in Chapter VII
of Republic Act No. 337, as amended;
(8) Encourage companies to go public, and initiate and/or
‘promote, whenever warranted, the formation, merger, consolidation,
reorganization, or recapitalization of productive enterprises, by
providing assistance or participation in the form of debt or equity
financing or through the extension of financial or technical advice or
service;

(9) Undertake or contract for researches, studies and surveys on
such matters as business and economic conditions of various countries,
the structure of financial markets, the institutional arrangements for
mobilizing investments;

(10) Acquire, own, hold, lease or obtain an interest in real and/or
personal property as may be necessary or appropriate to carry on its
objectives and purposes;

(11) Design pension, profit-sharing and other employee benefits
plans; and
(12) Such other activities or business ventures as are directly or
indirectly related to the dealing in securities and other commercial
papers, unless otherwise governed or prohibited by special laws, in
which case the special law shall apply.

Nothing in this section shall preclude other enterprises not
covered by this Decree from engaging in the activities listed under
Subsections (3) to (11) of this section, except as may otherwise be
governed by special laws.

SEC. 8. Capital. — The
minimum initial paid-in capital of any Investment House shall be twenty
million (P20,000,000) pesos.

SEC. 9. Credit policies. — Investment Houses
shall coordinate their credit policies with the general credit policies
of the Monetary Board of the Central Bank.

SEC. 10. Reports. — Investment Houses shall
submit to the Securities and Exchange Commission and to the Central Bank
a semi annual report of operations and financial condition, signed
under oath by its chief accountant and verified by its president.

The Securities and Exchange Commission may, at its discretion,
require Investment Houses to include their underwriting commitments as
contingent accounts in their financial statements.

SEC. 11.
Regulations. — Within six months after the approval of this
Decree, the Securities and Exchange Commission, in coordination with the
Central Bank, shall promulgate the necessary rules and regulations
implementing the provisions of this Decree.

SEC. 12. Central Bank regulatory powers. —
Investment Houses shall be subject to such regulations of the Central
Bank on non-bank financial intermediaries as may be promulgated pursuant
to Section 2-B of Republic Act No. 337, as amended. The regulations
which may include, but need not be limited to (a) minimum size of fund
acceptance or receipt, (b) methods of marketing and distribution, (c)
terms of placement and maturities, and (d) uses of funds may be modified
by the Monetary Board insofar as they apply to Investment Houses.

The Monetary Board may, at its discretion, determine whether
Investment Houses may be permitted to perform quasi-banking functions as
defined in Section 2-D, subsection (b) of Republic Act No. 337, as
amended. The Monetary Board is hereby authorized, at its discretion, to
require any enterprise which is engaged or proposes to engage in
quasi-banking functions to incorporate as an Investment House. If the
Monetary Board decides to permit Investment Houses to engage in
quasi-banking functions, the Board may require as a condition precedent
the obtaining of a certificate, of authority for the purpose from the
Monetary Board.

Whenever the Monetary Board authorizes an
Investment House to engage in quasi-banking functions, in accordance
with the provisions of this section, the Board may subject Investment
Houses to further regulations, pursuant to Republic Act No. 337, as
amended, which may include but need not necessarily be limited to (a)
liquidity reserve requirements; (b) capital-to-risk assets ratios; (c)
interest rate ceilings; and (d) such other constraints as the Board may
deem necessary.

In the exercise of its authority in this section,
the Monetary Board may, whenever it determines that the circumstances
so warrant subject an Investment House to special examination.

Whenever on the basis of the reports submitted by, or upon examination
of the books and records of, an Investment House, the Central Bank finds
that the Investment House is not complying with the provisions of this
section, with the pertinent provisions of this Decree, of other laws, or
of orders, instructions, rules or regulations issued by the Monetary
Board pertaining to non-bank financial intermediaries and quasi-banking
activities, said Board shall forthwith issue a cease-and-desist order
upon the Investment House concerned. Failure on the part of an
Investment House to comply with the cease-and-desist order shall subject
such Investment House to a fine not exceeding two hundred (P200) pesos
for every day the order is violated, to be imposed by the Monetary
Board, without prejudice to the penalties provided in Section 16 of this
Decree.

SEC. 13. Applicability of Securities Act. —
An Investment House may engage in the business of a dealer or a broker
under the Securities Act without obtaining a separate license for the
purpose as required in Section 14 of the Securities Act (C.A. No. 83, as
amended).

SEC. 14. Applicability of Corporation Law. — The
provisions of the Corporation Law (Act No. 1459, as amended) insofar as
they are not in conflict or inconsistent with the provisions of this
Decree shall apply to Investment Houses.

SEC. 15. Transitory provisions. — Existing
enterprises which are .operating as Investment Houses shall, within one
year following the approval of this Decree, comply with the requirements
hereof, except with respect to the filing of an information sheet which
shall be complied with within six months as provided in the last
paragraph of Section 4 of this Decree.

SEC. 16. Penalties for violation. — Upon proof
that an Investment House is violating or not complying with the
provisions of this Decree, of other pertinent laws, of the terms or
conditions of its certificate of registration or charter, or of orders,
decisions, rulings or regulations issued by the Securities and Exchange
Commission or by the Central Bank of the Philippines, the Securities and
Exchange Commission shall impose upon the Investment House and collect a
fine of not exceeding two hundred (P200) pesos per day for every day
during which such violation or non-compliance continues, and/or suspend
its certificate of registration. The officer or director of the
Investment House who ordered or authorized the violation or
non-compliance shall be solidarily liable. The fine so imposed shall be
paid to the Government of the Philippines through the Securities and
Exchange Commission.

Without prejudice to the provisions of the preceding paragraph
any person, or any director or officer of an Investment House who
violates or does Hot comply with the provisions of this Decree, of other
pertinent laws, of the terms or conditions of its certificate of
registration or charter, or of orders, decisions, rulings or regulations
issued by the Securities and Exchange Commission or by the Central Bank
of the Philippines, shall be punished by a fine of not more than twenty
thousand (P20,000) pesos, or an imprisonment of not more than five
years or both, at the discretion of the Court.

SEC. 17. Separability
Clause. — The provisions of this Decree are hereby declared
separable, and if any clause, sentence, provision or section hereof, or
its application to any person or circumstance should be declared
invalid, such invalidity shall not affect the other provisions of this
Decree which can be given force and effect without the provisions which
have been declared invalid.

SEC. 18. Repeal. — All
acts and existing laws inconsistent with this Decree are hereby
repealed.

SEC. 19. Effectivity. — This Decree shall take
effect immediately.

Done in the City of Manila, this 15th day of February, in the
year of Our Lord, nineteen hundred and seventy-three.