GROUP 1 PRESENTATION
CHAPTER 4
Lesson 8: The Security
Regulation, Semantics on
Portfolio Management and
Portfolio Management
Aspects
HIGHLIGHTS:
WHAT • The Securities and Exchange
WE'LL
Commission (SEC)
• Powers and Functions of the SEC
• Notable Enacted Laws Affecting
DISCUSS
Lesson 8: The security Regulation,
the SEC
• Portfolio Management Overview
• Importance of Portfolio
Semantics on Portfolio Management Management
• Four (4) Main Elements of
and Portfolio Management Aspects
Portfolio Management
• Key Contributors to Portfolio
Management
THE SECURITIES AND EXCHANGE COMMISSION (SEC)
The Commission is the national government regulatory agency charged
with supervision over the corporate sector, capital market participants; the
securities and investment instruments market and the protection of the
investing public. It was created on October 26, 1 936 by Commonwealth Act
(CA) 83 also known as “The Securities Act.” It was tasked to regulate the sale
and registration of securities, exchanges, brokers, dealers and salesmen.
Subsequent laws were enacted to encourage investments and more active
public participation in the affairs of private corporations and enterprises,
and to broaden the Commission’s mandates. There were enacted laws
which gave greater focus on the Commission’s role to develop and regulate
the corporate and capital market toward good corporate governance,
protection of investors, widest participation of ownership and
democratization of wealth.
POWERS
AND
FUNCTION
There are fifteen (15) listed powers
S:
and function under section 5 of the
Securities Regulation Code or the
RA No. 8799 states that: the SEC,
a) Have jurisdiction and supervision over all corporations,
partnerships or associations who are the grantees of primary
franchises and/or a license or permit issued by the Government;
b) Formulate policies and recommendations on issues
concerning the securities market, advise Congress and other
government agencies on all aspects of the securities market and
propose legislation and amendments thereto;
c) Approve, reject, suspend, revoke or require amendments to
registration statements, and registration and licensing
applications;
d) Regulate, investigate or supervise the activities of persons to
ensure compliance;
e) Supervise, monitor, suspend or take over the activities of
exchanges, clearing agencies and other SROs;
f) Impose sanctions for the violation of laws and the rules,
regulations and orders issued pursuant thereto;
g) Prepare, approve, amend or repeal rules, regulations and orders,
and issue opinions and provide guidance on and supervise
compliance with such rules, regulations and orders;
h) Enlist the aid and support of and/or deputize any and all
enforcement agencies of the Government, civil or military as well as any
private institution, corporation, firm, association or person in the
implementation of its powers and functions under this Code;
i) Issue cease and desist orders to prevent fraud or injury to the
investing public;
j) Punish for contempt of the Commission, both direct and indirect, in
accordance with the pertinent provisions of and penalties prescribed by
the Rules of Court;
k) Compel the officers of any registered corporation or association to
call meetings of stockholders or members thereof under its supervision;
l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings
of the Commission and in appropriate cases, order the examination, search and
seizure of all documents, papers, files and records, tax returns, and books of accounts
of any entity or person under investigation as may be necessary for the proper
disposition of the cases before it, subject to the provisions of existing laws;
m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of
registration of corporations, partnerships or associations, upon any of the grounds
provided by law; and
n) Exercise such other powers as may be provided by law as well as those which may
be implied from, or which are necessary or incidental to the carrying out of, the
express powers granted the Commission to achieve the objectives and purposes of
these laws. To broaden the Commission’s mandates, powers, and functions; listed
below are some of the subsequent enacted laws:
1) CORPORAT I ON CODE OF THE PHILIPPI NE S .
Or the Batas Pambansa (BP) 68 in 1980 gave SEC the mandate to register
corporations, collect fees from registering corporations, and prescribe
reportorial requirements. Along with the granting of authority to register
corporations, it empowered SEC to reject articles of incorporation or
Subsequent disapprove any amendment thereto if the same is not in compliance with the
requirements of BP 68.
Enacted 2) THE REVISED CORPORAT IO N CODE (RCC) OR RA
Laws 11232
It is signed into law by President Rodrigo R. Duterte on 20 February 2019 and
took effect on 23 February 2019. This amended the almost four-decade-old BP
68. It aligns with the 10-point socio-economic agenda of the President,
specifically in increasing the Philippine economy’s competitiveness and
improving the ease of doing business in the country. The RCC aims for a more
competitive corporate sector, as it adopts international best practices and
standards tailored to address the needs and realities of the Philippine
corporate setting, and introduces new concepts and mechanisms to help the
Philippines keep up with the changing times.
Following are some of the notable changes made in the Revised Corporation Code:
a) INCORPORATORS: Removal of the minimum number of incorporators.
b) MINIMUM CAPITAL STOCK: Imposition of a Php1,000,000.00 minimum capital stock on stock corporations. This effectively increases the
minimum paid-up capital to
Php62,500.00
c) CORPORATE TERM: Removal of the fifty (50)-year corporate term. This means that unless there is a provision in the Articles of
Incorporation with regard to the term of corporate existence, the corporation will exist perpetually unless sooner dissolved.
d) ONE-PERSON CORPORATION: Allowance for a single person – whether natural or judicial, to organize and put up a corporation. However,
this is subject to the requirement of a minimum capital stock of Php1,000,000.00 to b paid up in a lump sum at the time of incorporation.
e) CORPORATE OFFICERS: Chief Executive Officer is made the alternative title to President and Chief Financial Officer is made the
alternative title to Treasurer. Also, the inclusion of Compliance Officer as a mandatory corporate officer on top of the President/CEO,
Treasurer/CFO, and Corporate Secretary.
f) BOARD MEETINGS: Allowance of remote communication methods in attending board meetings subject to provisions of corporate by-laws.
g) NATIONALITY OF A CORPORATION: Formalization of the test in determining the nationality of a corporation, i.e. the control test.
h) REMOVAL OF A MEMBER OF THE BOARD OF DIRECTORS OR TRUSTEES: Empowering the Securities and Exchange Commission (SEC)
to remove disqualified members of the Board of Directors or Trustees.
i) DIGITAL MEANS: The new code introduces provisions that permit the electronic filing of reportorial requirements and attendance in
meetings via remote communication or in absentia, among others – practices that were not recognized in the old law
3) THE REVISED SECURI TI E S ACT OR BP 178
In 1982 repealed CA 83 in its entirety to give way to a new statute that would enable the SEC to keep pace with new and more complex
securities instruments, trading vehicles and strategies. BP 178 provided, among others, for a more sophisticated disclosure mechanism of
securities to be offered to investors
4) THE SECURI T IE S REGULATI ON CODE (SRC) OR REPUBLIC ACT (RA) 8799 IN 2000
Provided for the SEC reorganization to give greater focus on the Commission’s role in capital market development, fostering good corporate
governance (CG) and enhancing investor protection. The SRC also defined in clear terms fraud and criminal offenses related to securities
transactions, and strengthened SEC regulatory functions over all entities dealing in securities such as Self-Regulatory Organizations (SROs) or
the Philippine Stock Exchange (PSE), Philippine Dealing and Exchange Corporation (PDEx) and Capital Market Integrity Corporation; as well as
market professionals such as brokers and dealers, among others.
5) CREDIT INFORMA T IO N SYSTEM ACT (CISA) OR RA 9510 IN 2008
Mandated the SEC to receive and consolidate basic credit data; to act as a central registry or central repository of credit information; and, to
provide access to reliable, standardized information on credit history and financial condition of borrowers.
6) MICROF INA N CE NONGOVERN ME N T ORGANIZATI O N S (NGOS) ACT OR RA 10693 IN
2015
Mandated SEC to establish an accrediting body to be known as the Microfinance NGO Regulatory Council which shall institute and
operationalize a system of accreditation for Microfinance NGOs; issue certificate of accreditation, among others
The Commission also implements and acts either as
lead or support agency in administering and enforcing
special laws, the more significant of which are:
a) Anti-Money Laundering Act of 2001 (RA 10365), as h) Omnibus Investments Code of 1987 (E.O. 226, Book
amended III)
b) Lending Company Regulation Act (LCRA) of 2007 i) Anti-Dummy Law (Commonwealth Act 108), as
(RA 9474) amended
c) Financing Company Act (FCA) (RA 8556), as j) Civil Code of the Philippines (RA 386, Title IX –
amended Partnership)
d) Investment Company Act (RA 2629), as amended, k) Securitization Act of 2004 (RA 9267)
and its IRR l) Real Estate Investment Trust Act of 2009 (RA 9856)
e) Investment Houses Law (PD 129) m) Personal Equity and Retirement Account Act of
f) Retail Trade Liberalization Act of 2000 (RA 8762) 2008 (RA 9505)
g) Foreign Investments Act of 1991 (RA 7402), as n) Ease of Doing Business and Efficient Government
amended Service Delivery Act of 2018 (RA 11032)
1. ANTI-
MONEY
LAUNDERIN
G ACT OF
Otherwise known as RA #9160. It was SALIENT FEATURES OF AMLA:
✔ Criminalizes money laundering
enacted on September 29, 2001 and
2001.
became effective on October 17, 2001
during the Presidency of Joseph E. Estrada.
✔ Creates a financial intelligence unit
✔ Imposes requirements on customer identification,
record keeping and reporting of covered and
It’s implementing Rules and Regulations
suspicious transactions
took effect on April 2, 2002. RA #9194 – act
✔ Relaxes strict bank deposits secrecy laws
amending RA #9160, took effect on March ✔ Provides for bank inquiry and freeze ex parte
23, 2003, revised implementing rules and petition/seizure/forfeiture/recovery of dirty
regulations took effect on August 6, 2003. money/property
✔ Provides for international cooperation
2. Investment
Company Act (RA #
The law that regulates investment companies. These companies
pool money from various investors in exchange for their shares.
2629)
PRIMARY PURPOSE (SECTIO N 4):
As stated under Section 4, the primary purpose of these companies
is to: engage in the business of investing, reinvesting or trading in
securities.
4.1 Section 5 explicitl y differentiate s:
OPEN-END COMPANY (MUTUAL FUND).
Continuously sells its securities & is ready to redeem them at
prevailing net asset value per share as stipulated in Section 10
of the Act. e.g. Sun Life Prosperity Fund.
CLOSED -END COMPANY.
Issues non-redeemable, finite number of shares & has them
listed in an exchange to provide its shareholders liquidity. e.g.
Filipino Fund, Inc.
1 . 2 SE C T ION 1 1 OF R A 2629.
States certain restrictions in the functions & activities of
investment companies.
1 . 3 SE C T IO N 1 2 O F R A 2629 .
Stipulates that no changes in investment policies
without the approval of the majority of its outstanding
voting securities.
1 . 4 Secti o n 1 7 o f R A 2629 .
States conditions & restrictions on the capital structure
of both closed-end & open-ended investment
companies.
1 . 5 Secti o n 21 o f R A 2629.
Prohibits a guarantee of obligations of whatever nature.
Regulation on the Creation/Offering of Securities:
1. This is covered by the Corporation Code & Securities Regulation Code.
2. This is under the jurisdiction of the Securities & Exchange Commission.
3. Section 8 of SRC:
a) Provide that no securities may be sold or offered for sale or distributed to the public unless
such shares have been registered with the SEC & declared effective;
b) Requires the originators/creators of securities to disclose relevant information which
include its track record, its financials & relevant corporate development.
c) Enables investors to access the risks & opportunities & derived their perceived appropriate
price
4. Section 9 of SRC. Enumerates the securities that are exempt from registration.
5. Section 1 0 of SRC. States that the requirements of registration do not apply to the sale of
any security in certain transaction.
PORTFOLIO
= it is a combination of financial and physical investments like stocks, bonds,
commodities, cash and cash equivalents including closed-end funds and exchange
traded funds (ETF’s). A portfolio contains a wide range of assets like real estate, art, gold,
silver, rare collections and the like. It is noted that the essence of having a portfolio is
that assets are held for investment purposes and not for consumption services.
= coming up with a portfolio, it can be managed personally or it can be managed by a
money manager, financial advisor or another finance professional to manage your
portfolio.
= regardless of the portfolio’s asset mix, all portfolios should contain a degree of
diversification. This reflects the investor’s risk tolerance, return objectives, time horizon.
IMPORTANCE OF
PORTFOLIO
PORTFOLIO
MANAGEMENT
This focuses on the selection of assets and
MANAGEMENT
1. It presents the best investment plan as per
allocation of investment funds with the end-in- individual’s income, budget, age and risk
view of satisfying the investor’s objectives. tolerance.
Portfolio management requires the ability to 2. It minimizes the risks involved and increases
weight strengths and weaknesses, the chance or earning profits.
opportunities and threats. 3. It enables portfolio managers to provide
customized investment solutions.
In layman’s term, it is the art of managing an 4. It gives the best investment strategy to
individual’s investment with help of portfolio investors.
managers expertise. 5. It can be customized based on the individuals
needs, choices, expectations and investment
period.
FOUR MAIN ELEMENTS OF
PORTFOLIO MANAGEMENT:
TIME/INVE S T ME N T DIVERSIFIC A TI O N OF
H ORIZON INVE STME N T
RISK PROFILE /TOLE R A NC E ASSE T ALLOCATI ON
PEOPLE BEHIND
PORTFOLIO
MANAGEMENT:
HARRY MARKOWITZ
He is the pioneer of the modern portfolio theory (MPT), which earned him a
Nobel Prize in Economics. Markowitz's theories emphasized the
importance of portfolios, risk, the correlations between securities, and
diversification.
MPT is a popular investment strategy and a management tool. Markowitz
created a formula that allows an investor to mathematically trade off risk
tolerance and reward expectations, resulting in the ideal
portfolio.
This theory was based on two main concepts:
1. Every investor’s goal is to maximize return for any level of risk
2. Risk can be reduced by diversifying a portfolio through individual,
unrelated securities
MPT works under the assumption that investors are risk-averse,
preferring a portfolio with less risk for a given level of return. Under this
assumption, investors will only take on high-risk investments if they can
expect a larger reward.
This theory also has two components of risk of individual stock returns:
1 . Systemic Risk: This refers to market risks that cannot be reduced through diversification, or the
possibility that the entire market and economy will show losses that negatively affect investments. It’s
important to note that MPT does not claim to be able to moderate this type of risk, as it is inherent to an
entire market or market segment.
2 . Unsystematic Risk: Also called specific risk, unsystematic risk is specific to individual stocks, meaning
it can be diversified as you increase the number of stocks in your portfolio.
Harry Markowitz introduced the efficient frontier as part of the MPT. This is all about diversification as it
shall help investors determine the level of diversification that best suits them. Efficient frontier is a
graphical representation of all possible combinations of risky securities for an optimal level of return given
a particular level of risk.
☞ At every level of return, investors can create a portfolio that offers the lowest possible risk.
☞ For every level of risk, investors can create a portfolio that offers the highest return.
Any portfolio that falls outside the Efficient Frontier is considered sub-optimal for one of two
reasons: it carries too much risk relative to its return, or too little return relative to its risk. A portfolio that
lies below the Efficient Frontier doesn’t provide enough return when compared to the level of risk.
Portfolios found to the right of the Efficient Frontier have a higher level of risk for the defined rate of
return.
The Efficient Frontier offers a
clear demonstration of the
power behind diversification.
There’s no
singular Efficient Frontier,
because investors can alter the
number and characteristics of
the assets to
conform to their needs.
Figure 1. Harry Markowitz Efficient Frontier
RAY DALIO
He is the Founder of the Worlds biggest hedge fund
firm and the Co-Chief Investment Officer of
Bridgewater Associates. Mr. Dalio is a self-made
14billionaire with real time net worth of $20B as of
December 16, 2021 making him in Forbes.
He created the “All Weather Portfolio” and was
popularized by Tony Robbins. The “All Weather
Portfolio” is using different types of assets that perform
differently during market recession. AWP maximizes
diversification using variety of asset classes based on
the seasonality of the assets interest, limiting volatility
and investment risk.
Dalio propose factors that
affect asset value:
1. Inflation
2. Deflation
3. rising economic growth
4. declining economic growth.
Figure 2. Ray Dalio All Weather Portfolio Asset
Allocation
END OF
PRESENATION
Group 1
Reporters
Agdeppa, Dan Gerald Purugganan, Julliet
Aquinde, Evelyn Ramos, Erlhene M.
Azurin, Tamaralyn D. Ramos, Jannah Nicole R.
Bernabe, Melanie Claire Rapanut, George B.
Dalire, Requilman, Nathalee T.
Felismenia, Cherry Mae Sabado, Lael Kassiane B.
Guillermo, Sheena Samson, Francis Nathaniel
Hadloc, Jeremiah A. Saraos, Irish Erich
Labrador, Allyza Joy Tabon, Angela A.
Monsale, Christian B. Ubaldo, Marinette A.
Poderoso, Jobelle Ullero, Lady Mae
Pula, Kristine
