Investing in stock market has now become wider because of the increasing number of investors engaging in the ups and downs of market stocks' prices for a certain publicly-listed companies in Philippine Stocks Exchange (PSE). However, we need to consider the unlawful acts that could be created from the stock market trading. These acts are being regulated by the Philippine government through its law, R.A. 8799 or The Securities Regulation Code also known as the Blue Sky Law.
The Securities Regulation Code
This law aims to protect the public against the imposition of unsubstantial schemes and the securities based thereon.
Engaging in Stock Market
When you buy stocks of a certain company, you are engaging into risk as to the unexpected fall down of the market price of that stock but at the same time speculating for a gain when its market price will go higher than the price you bought for it. As you buy stocks, you became an investor of that company. As an investor, you tend to be watchful for any news or information on the company you invested for. This is because you are waiting for your next step as to what you will do in your stocks (whether to buy more stocks or sell your existing stocks) the moment you receive a positive or negative information about the company. For example, if you receive an information that the company will be going down or has facing bankruptcy, you need to sell your stocks immediately to avoid further loss in your investment. Why is it loss? It's because many investors will be pulling down their investment in that company. They will sell their stocks. According to the Law on Demand, when a demand for that stock lowers down, its price also goes directly.
Insider defined
Insider means:
- the issuer
- a director or officer or a person controlling the issuer
- a person whose relationship or former relationship to the issuer gives or gave him access to material information about the issuer or the security that is not generally available to the public
- a government employee, director, or officer of an exchange, clearing agency and/or self-regulatory organization who has access to material information that is not generally available for public
- a person who learns such information by a communication from any forgoing insiders.
How Insider Trading Becomes Unlawful?
It shall be unlawful for an insider to sell or buy a stock of the issuer, while in possession of material information with respect to the issuer that is not generally available to the public. This simply means that when an insider is holding a material information about the company but the information is not known to public, he should not buy or sell stocks prior to the information publicity. What are these material information? For example, the company is planning for a large expansion in the future. When there is an expected expansion, many will invest and the demand becomes higher. This results to increase in the market price of that stock (as explained by the Law on Demand). When you are an insider, you will get that material information first before the public. If an insider happen to buy more stocks due to expected rising up of its prices and then sells it when stock price already rise up. This act became unlawful since the insider is being unfair to the public who knew the material information later. The Philippine government is prohibiting such unlawful acts.
However, the insider may sell or buy stocks when:
- The insider proves that the information was not gained from such relationship; or
- If the other party selling to or buying from the insider(or his agent) is identified, the insider proves:
* that he disclosed the information to the other party, or
* that he had reason to believe that the other party otherwise is also in possession of the information.
A purchase or sale of stocks of the issuer made by an insider, or such insider's spouse or relatives by affinity or consanguinity within the second degree, legitimate or common-law, shall be presumed to have been effected while in possession of material nonpublic information if transacted after such information came into existence but prior to dissemination of such information to the public and the lapse of a reasonable time for market to absorb such information. Provided, however, that this presumption shall be rebutted upon a showing by the purchaser or seller that he was aware of the material nonpublic information at the time of the purchase or sale.
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