5.

3 Outside Forces: Regulators and Government Enforcement (Civil and Criminal) Regulators Regulator can be defined as public aut orit! or government agenc! responsible for e"ercising autonomous aut orit! over some area of uman activit! in a regulator! or supervisor! capacit!. # e! deal in t e area of administrative la$%regulation or rulema&ing (codif!ing and enforcing rules and regulations and imposing supervision or oversig t for t e benefit of t e public at large). On t e ot er and' Regulation is t e controlling of uman or societal be avior t roug rules or restrictions. (t ma! include controls on mar&et entries' prices' $ages' pollution effects' emplo!ment for certain people in certain industries' standards of production for certain goods' t e militar! forces and services. Regulators in Corporations Securities and Exchange Commission SEC

# e )EC $as establis ed in *+3,. (n *+-, t e )EC $as reorgani.ed and $as vested absolute /urisdiction' supervision' and controlling po$ers over corporations' partners ips' and associations t at are t e grantees of primar! franc ise and 0 or license or permit issued b! t e government to operate in t e 1 ilippines t roug 1residential 2ecree 3o. +4567. # e reorgani.ation also placed t e )EC under t e administrative supervision of t e Office of t e 1resident. # en' in *+84' t e Corporation Code $as signed into la$' naming )EC as t e governing bod! $it t e po$er to implement t e Code. (n 5444' t e )ecurities Regulation Code' $ ic full! empo$ered )EC' $as signed. # e )EC is t e securities regulator. (t as t e responsibilit! for overall supervision of all corporations' partners ips' and associations t at are t e grantees of primar! franc ises and 0 or licenses or permits issued b! t e Government. 7s t e securities regulator' t e )EC regulates ever! activit! relating to t e securities business' including t e activities of listed companies' securities offerings' bro&er 0 dealer companies' investment advisor! companies' asset management companies' custodians (in case t e securities compan! is t e service provider)' registrars' credit rating agencies' and associations relating to t e securities business. # e )EC can e"ercise its statutor! po$er in t e preventive manner to deal $it an!one $ o commits violations under t e Corporation Code. # e )EC is a centrali.ed institution t at generall! administers and supervises all corporate acts' including t ose of listed companies. (t focuses on compan! registration' for $ ic it &eeps records of registration and ot er relevant documents including

compan!9s articles of incorporation' b!6la$s' and general information s eets (G())' $ ic contain information on capital stoc&' stoc& olders $it t eir stoc& oldings' directors' officers' dates of meetings' and financial statements. Companies are re:uired to notif! t e Commission in case t ere are material c anges t at ave occurred during stoc& olders9 or board of directors9 meeting. (n principle' t e )EC as t e aut orit! to enforce la$s and regulations ((t does not ave t e aut orit! to initiate criminal prosecution.) (t does not' o$ever' ave ade:uate resources' in terms of bot tec nical e"pertise and number of professionals. (t as independence in rule ma&ing. (n ta&ing legal enforcement' it does not re:uire approval of t e Office of t e 1resident. # e )EC is mainl! empo$ered and regulated under t e )RC. (ts role is to curb fraud' manipulation' and e"cesses in t e stoc& mar&et' and protect t e investing public from e"ploitation. Cogni.ant of t e &e! role t at )EC assumes in t e national econom!' t e government as progressivel! vested it $it additional po$ers and functions' as $ell as greater responsibilities. 7t present' it administers and enforces 55 ot er la$s and presidential decrees' among $ ic are CC' 1artners ip ;a$' (nvestment Compan! 7ct' Financing Compan! 7ct' and F(7. (n ta&ing legal enforcement' it does not re:uire approval of 2epartment of Finance' but it is dependent on 2epartment of <ustice (/udiciar! s!stem) to prosecute cases. # e )EC is an independent administrative agenc! mentioned above to perform as t erein prescribed $it departments of t e government. # e )EC' li&e an! ot o$ever' report to a ig er aut orit! on t e results of its Office of t e 1resident. Philippine Stock exchange (PSE) empo$ered b! all t e la$s out prior approval from ot er er government agenc!' must' operation= in t is case' it is t e

(n <une *++8' t e )EC granted )RO status to 1)E' allo$ing it to impose rules as $ell as implement penalties on erring trading participants and listed companies. #itle > of t e )RC details t e responsibilities and oversig t functions of )ROs. 7 !ear after t e enactment of t e )RC' 1)E $as transformed from a non6stoc&' member6governed organi.ation into a s are older6based' revenue6earning compan!' $ ic subse:uentl! $as listed. # e 1)E' o$ever' despite its aving been demutuali.ed and itself a listed corporation' is still perceived to be dominated b! bro&ers' an image it as been striving to c ange' t roug t e appointment of independent directors and a more transparent election process. ? ile )RC re:uires t at bro&ers o$n no more t an 54 percent of t e e"c ange' t e current o$ners ip of 1)E remains at appro"imatel! @+ percent. # e amended )RO agreement is currentl! $it t e )EC for approval. (ssues suc as t e o$ners ip of t e 1)E' t e conflict of interests in o$ners ip' its )RO structure' and its monitoring responsibilities are e"pected to be addressed in t ese amendments.

Philippine Depository Trust Corporation (PDTC)

12#C is a private institution establis ed in Aarc *++5 to provide a fast and efficient s!stem for securities settlement' regulated b! t e )EC. Bsing a boo& entr! s!stem54= it as created a script6less trading environment. 12#C is o$ned b! ma/or capital mar&et pla!ers in t e 1 ilippines.5* 12#C uses t e boo&6entr! s!stem (CE))55 to record o$ners ip of s ares of securities and to facilitate t e movement of s ares among its participants. 7s a $ oll! o$ned subsidiar! of 12#C' 3ominee Corporations9 sole purpose is to old legal title to immobili.ed s ares lodged in t e s!stem. 12#C also provides registr! and clearing and settlement infrastructure services to issuers of fi"ed6income securities suc as bonds' commercial paper' negotiable certificates of deposits' and ot er negotiable instruments. ?it t e creation of a script6 less trading environment' participants and mar&et pla!ers can no$ reap t e benefits of CE). # ese include minimi.ed paper$or&' reduced investment ris&s' increased investor confidence' and en anced li:uidit! of t e e:uities mar&et. # e 12#C uses t e prevailing term for transactions' # D3. Cro&ers are re:uired to transfer t e stoc&s to t e 12C# $it in t e allotted terms of # D3. Bangko Sentral ng Pilipinas (BSP)

# e C)1 $as establis ed in *++3 pursuant to t e provisions of t e *+8- 1 ilippine Constitution and t e 3e$ Central Can& 7ct of *++3. # e C)1 too& over from t e Central Can& of 1 ilippines' $ ic $as establis ed in *+@+' as t e countr!9s central monetar! aut orit!. # e C)1 en/o!s fiscal and administrative autonom! from t e 3ational Government in t e pursuit of its mandated responsibilities. (t provides polic! direction in t e areas of mone!' ban&ing' and credit. (t supervises operations of ban&s and e"ercises regulator! po$ers over non6ban& financial institutions $it :uasi6ban&ing functions. )ome 1 ilippine ban&s are publicl! listed. # ese publicl! listed ban&s are also re:uired to compl! $it t e )EC and 1)E rules and regulations' in addition to t e regulations administered b! t e C)1. # ere are also a number of ot er la$s governing ban&s and ot er financial institutions' as $ell as non6ban& financial intermediaries' as mentioned earlier. Department of Trade and ndustry (DT )

# e 2epartment of #rade and (ndustr! (2#() is t e primar! government agenc! $it t e dual mission of facilitating t e creation of a business environment $ erein participants

could compete' flouris ' and succeed and' at t e same time' ensuring consumer $elfare. (ts main role is to contribute to t e countr!9s goal of ac ieving economic gro$t to$ards povert! reduction. (ts mandate calls for t e e"pansion of 1 ilippine e"ports' increase in investments' and t e development and promotion of t e countr!9s micro' small' and medium enterprises (A)AEs). (t ensure t at consumers9 rig ts are protected and t at t e! are entitled to value for mone!. # e 2epartment of #rade and (ndustr! (E2#(9) brings t e cases to court. Onl! t e 2#( as po$er to ma&e applications to t e court for dis:ualification of directors. # e 2#( acts on information received from ot ers. (ts primar! source of information is from li:uidators appointed $ en a compan! becomes insolvent. 7ll li:uidators are obliged $it in , mont s of t eir appointment to file a report $it t e 2#( indicating $ et er t e! are a$are of an! unfit conduct b! t e directors of t e compan!. # e li:uidator ma! t en be called upon to provide an affidavit or oral evidence in support of t e 2#(9s case against t e director. Courts

?it t e passage of t e )RC' )EC9s /urisdiction over all cases involving corporate disputes $as transferred to t e designated R#Cs. #itle >((( of t e )RC provides for t e investigation' prosecution' and penalties for violations of t e )RC. Courts of general /urisdiction or t e designated R#C ave /urisdiction over all cases involving corporate disputes. # e )upreme Court as designated certain R#Cs in all /udicial districts to andle cases involving corporate disputes. Recent assessment of t e private and financial sectors as indicated t at t e functioning of t e /udiciar! is a constraint to t e development of t e private and financial sectors. Court efficienc! and cost (t oug not specificall! revie$ed for t is assessment) are considered to be $ea&er compared $it OEC2 countries. One indirect $a! to e"amine court efficienc! is to compare court procedures' time re:uired' and t e cost to enforce a standard contract.