The Securities and Exchange Commission (SEC) has finally clarified the last category of qualified buyers (QBs) under Subsection 10.1(l) of the Securities Regulation Code (SRC), which refers to persons that the SEC "may by rule determine as qualified buyers, on the basis of such factors as financial sophistication, net worth, knowledge, and experience in financial and business matters, or amount of assets under management". The clarification is set out in SEC Memorandum Circulars 6 (2007) and 3 (2008).
Sales of securities to QBs are considered as "exempt transactions" and, therefore, the securities concerned are not required to be registered under the SRC. The only obligation of the issuer or seller is to file with the SEC a notice of exemption (using SEC Form 10.1), within 10 days after the sale. There is no fee for this filing.
The traditional QBs are local banks, investment houses, insurance companies, investment companies or mutual funds, and pension funds or retirement plans maintained by the Philippine government or its political subdivisions or managed by licensed trust entities. Under the above SEC circulars, the last category of QBs is classified into qualified individual buyers and qualified institutional buyers. Each of them has to be registered as such with SEC-authorised registrars.
A qualified individual buyer is a natural person who has (a) a minimum annual gross income of P25 million ($537,000) for at least two years prior to his registration, or (b) a total portfolio investment in SEC-registered securities of at least P10 million, or (c) a personal net worth of not less than P30 million.
Further, he must have been engaged in securities trading, in his personal capacity or through a fund manager, for at least one year; or held a position of responsibility in any professional or business entity that requires knowledge or expertise in securities trading, for at least two years.
A qualified institutional buyer is a juridical person that has (i) a minimum annual gross income of at least P100 million for at least two years prior to registration, or (ii) a total portfolio investment in SEC-registered securities of at least P60 million, or (iii) a net worth of at least P100 million.
Each of the qualified individual or institutional buyers (as defined above) must be registered with any of the following entities: securities brokers or dealers (including banks registered as such), investment houses (including universal banks registered as underwriters of securities), investment company advisers, and issuer companies with regard to the offering of their own securities. The registration is valid for two years, and may be renewed.
Securities purchased by qualified individual or institutional buyers cannot be sold or transferred to non-qualified investors.
Rafael A Morales