In our July 2016 Client & Friends Newsletter, we reported that the Philippines Securities and Exchange Commission (SEC) issued Amended Implementing Rules and Regulations of the Securities Regulation Code (SRC) which eliminated the requirement for issuers to submit a Notice of Exemption (via Form 10.1) for share-settled equity award grants to less than 20 employees in the Philippines within a 12 month period.  By contrast, grants to more than 20 employees within a 12-month period continue to require a confirmation of exemption filing under Section 10.2 of the SRC.

However, based on a conference with the Director of the Markets and Securities Regulation Department (“MSRD”) on 2 February 2017, the SEC en banc has adopted a new policy requiring all foreign companies issuing shares pursuant to an employee share plan to obtain a confirmation of exemption under Section 10.2 of the SRC.  This means that issuances of shares pursuant to an employee share plan will no longer be considered as an exempt transaction under Section 10.1 of the SRC, even if there are fewer than 20 offerees in the Philippines within a 12-month period.  According to the Director of the MSRD, the rationale for this new policy is that the SEC wants to review the implementation of all plans in the Philippines, in order protect the interest of the employees in the Philippines.

The Director of the MSRD mentioned that the SEC will implement this new policy immediately, pending issuance of a memorandum circular.  However, there is no requirement that the SEC publish any formal guidance to effectuate their policy.  Therefore, under a conservative approach, companies should assume that the new policy is now in effect and grant equity awards to employees in the Philippines only if a confirmation of exemption has been obtained from the SEC.

We continue to take the position that the grant of cash-settled awards is not considered a securities offering in the Philippines and, hence, does not require an exemption.