Philippines - New Interpretation of Section 10.2 Securities Law Exemption Applicable to Equity Awards - Baker & McKenzie

The Finance Department of the Philippines Securities and Exchange Commission ("PSEC") recently informally adopted a new interpretation of one of the exemptions that may be used to avoid a registration requirement for equity awards granted to Philippine residents. Under the Finance Department's new interpretation, issuers relying on a Section 10.2 exemption from registration must notify the PSEC prior to each equity grant to new employees. In the past, issuers typically filed a report at year end including a list of any new equity grantees.

By way of background, an issuer offering securities to individuals in the Philippines generally must register the securities with the PSEC. However, an issuer granting equity awards to 19 or more employees within a 12-month period may rely on a Section 10.2 exemption from the registration requirement. To rely on this exemption, the issuer must obtain confirmation from the PSEC that a registration is not in the public interest or necessary for the protection of investors, due to the small amount involved or the limited character of the offering.

The PSEC has not issued any written guidance on the new interpretation, but there are risks to issuers who do not comply with the new requirement. An issuer who does not notify the PSEC prior to making a grant may be deemed to be issuing securities without an exemption (since the exemption previously obtained under Section 10.2 is specific to the names disclosed in the original request). The issuer may be subject to administrative fines and penalties for issuing securities without an exemption.

If you are currently granting awards in the Philippines and relying on the Section 10.2 exemption, please contact your GES attorney for more information.