Republic of the Philippines
Department of Finance
Securities and Exchange Commission
OFFICE OF THE GENERAL COUNSEL
23 May 2019
SEC-OGC Opinion No. 19-19
Re: Section 23.2 of the Securities
and Regulation Code
Custodio Acorda Sicam & de Castro Law Office
15t Floor, Citibank Tower
8741 Paseo de Roxas corner Villar Street
Salcedo Village
Makati City
Attention: Atty. Zenaida Ongkiko-Acorda
This refers to your letter dated 27 March 2018 requesting an opinion
on the interpretation and application of Section 23.2 of the Securities Regulation
Code (SRC).
You averred that a director, by himself or through a company or
companies beneficially owned by him, buys and sells shares of stock of the
issuer during a six-month period. The director earned profits from the
purchase and sale transactions. It appears to you that the director
committed a short-swing transaction in violation of Section 23.2 of the SRC.
You request an opinion on whether it is necessary to prove that the director
took advantage of or used material non-public information in buying and
selling the shares during the sixth-month period before the director can be
held liable under Section 23.2 of the SRC.
‘The pertinent portion of Section 23.2 of the SRC provides:
"23.2. For the purpose of preventing the unfair use of
information which may have been obtained by such beneficial
‘owner, director or officer by reason of his relationship to the
issuer, any profit realized by him from any purchase or sale,
or any sale or purchase, of any equity security of such issuerPage 2 of 3
within any period of less than (6) months unless such
security was acquired in good faith in connection with a debt
previously contracted, shall inure to and be recoverable by
the issuer, irrespective of any intention of holding the
security purchased or of not repurchasing the security
sold for a period exceeding six (6) months.” (Emphasis
supplied)
This pertains to the “short-swing profit” rule which provides that any
profit made by a director, an officer, or a 10% beneficial owner of a reporting
company, in the purchase and sale, or sale and purchase, of an equity security
of such company, within any period of less than six months, belongs to such
company, as the issuer. *
The issue actually presented is whether it is necessary to prove that
the director took advantage of or used material non-public information in
buying and selling the shares during the six-month period before the director
can be held liable under Section 23.2 of the SRC.
It is not required that there be “insider trading” as contemplated by
SRC Section 27. It is sufficient that there be a purchase and sale, or sale and
purchase, of an equity security within a period of less than six months. It is
immaterial that there be an intention to hold the security purchased for more
than six months, or not to repurchase the security sold for a period exceeding
six months. ?
The following elements must be present to sustain an SRC Subsection
23.2 action against a director, an officer, or a 10% beneficial owner, of a
reporting company: (a) the transaction must involve an “equity security” of
such company, and (b) there must be a matching purchase and sale, or sale
and purchase. The defendant must have either purchased at a low price or
bought back at a lower price.
The U.S. Supreme Court! explained the strict liability of the short-
swing profit rule, to wit:
“The statute requires the insider, short-swing trader to
disgorge all profits realized on all ‘purchases’ and ‘sales’
within the’ specified time period, without proof of actual
abuse of inside information, and without proof of intent to
profit on the basis of such information.”
* The Philippine Securities Regulation Code (Annotated), Rafael A. Morales (2005 Ed), p. 177
? Ibid, p17
2 Ibid, 178
“Kern County Land Co,, 411 US., at 595Page 3 of 3
Based on the foregoing, neither intent nor actual use of inside
information is required. All that is required is that profit was made from a
matching purchase and sale of equity securities within a period of six months
by the director, officer or beneficial owner in question,
It shall be understood that the foregoing opinion is rendered based
solely on the facts disclosed in the query and relevant solely to the particular
issues raised therein and shall not be used in the nature of a standing rule
binding upon the courts, or upon the Commission in other cases of similar or
dissimilar circumstances. If upon investigation, it will be disclosed that the
facts relied upon are different, this opinion shall be rendered null and void.
tithe scohned
General Counsel
5 SEC Memorandum Circular 2003-15, No.7.