After reading “What is Option Trading?”, read also “How Can Money Laundering Be Prevented?”
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Options are contracts that give the buyer the right, but not the obligation, to buy or sell an underlying security at a predetermined price on or before a predetermined date.
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Stock options granted to directors and officers must be approved in a meeting of the stockholders representing at least two-thirds (2/3) of the outstanding voting and non-voting capital stock.
- No corporation shall grant or offer any Option to the public unless it is registered in accordance with Sections 8 and 12 of the Securities Regulations Code and its Implementing Rules and Regulations.
What are “options”?
“Options” are contracts that give the buyer the right, but not the obligation to buy or sell an underlying security at a predetermined price, called the exercise or strike price, on or before a predetermined date, called the expiry date.
Stock option granted to employees or officials who are not members of the board is allowed or may be approved by the SEC subject to a review of the scheme by the board and approval by the stockholders in order to widen the corporate base and distribute corporate profits more equitably.
Stock options may be granted to non-stock holders if the board has been authorized to grant the benefit by the:
- Corporations’ Articles of Incorporation,
- Bylaws, or
- By a Resolution of the stockholders representing at least two-thirds (2/3) of the outstanding voting and nonvoting capital stock.
Stock options granted to directors and officers must be approved in a meeting of the stockholders representing at least two-thirds (2/3) of the outstanding voting and non-voting capital stock.
The law says:
Section 25 of the R.A. No. 8799 or the Securities Regulations Code states that:
“Section 25. Regulation of Option Trading. – No member of an Exchange shall, directly or indirectly endorse or guarantee the performance of any put, call, straddle, option or privilege in relation to any security registered on a securities exchange. The terms “put”, “call”, “straddle”, “option”, or “privilege” shall not include any registered warrant, right or convertible security.”
What is meant by the terms “put”, “call” and “straddle” under R.A. 8799 or the Securities Regulations Code?
“Put” refers to a transferable option or offer to deliver a given number of shares of stock at a stated price at any given time during a stated period.
“Call” refers to a transferable option to buy a specified number of shares at a stated price.
“Straddle” refers to the combination of “put” and “call”.
The Securities Regulations Code prohibits members of an Exchange from directly or indirectly indorsing or guaranteeing the performance of a “put”, “call” or “straddle”.
The 2015 Implementing Rules and Regulations of the Securities Regulations Code further states that:
12.1.3.2.1. No corporation shall grant or offer any Option to the public unless it is registered in accordance with Sections 8 and 12 of the Code and Rules 8.1 and 12.1, except when the security is exempt from registration under Sections 9 and 10 of the Code or under these Rules.
12.1.3.2.2. A person proposing to offer any Option to the public shall file SEC Form 12-1. Notwithstanding that the Option has no issue value, it shall pay the filing fees in such amounts as the Commission may determine.
12.1.3.2.3. The Issuer shall disclose in its registration statement the terms and conditions of the Option plan, including its related computational data. The plan shall be submitted as an exhibit to the registration statement.
Where can one file a complaint for any violation of the Securities Regulations Code and its Implementing Rules and Regulations?
All criminal complaints for violations of this Code and the implementing rules and regulations enforced or administered by the Commission shall be referred to the Department of Justice for preliminary investigation and prosecution before the proper court. (Section 53.1, Securities Regulations Code)
Otherwise stated, where the complaint is criminal in nature, the Securities and Exchange Commission shall indorse the complaint with the DOJ for preliminary investigation. (Manuel Baviera v. Esperanza Paglinawan, et.al., G.R. No. 168380, 8 February 2007)
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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