SEC Issues Rules on Qualified And/ Or Eligible Personal Equity and Retirement Account Investment Products

On 11 August 2022, the Securities and Exchange Commission (“SEC”) issued Memorandum Circular (“MC”) No. 7 which prescribes rules on qualified and/ or eligible personal equity and retirement account (“PERA”) investment products. Some of the pertinent sections are as follows:

List of PERA Qualified and/or eligible investment products

1. The following securities that are registered pursuant to the requirements of the Securities Regulation Code and Investment Company Act are deemed to be eligible PERA investment products.
   
   
   1. A newly formed mutual fund including any sub-fund of an umbrella fund and Exchange Traded Funds subject to the following requirements:
      
      
      1. The Fund Manager should have a track record that for the past 5 years prior to its application it has been responsible for the operation and management of a registered mutual fund which has been offered to the general public; and
      2. The name shall contain the words “Personal Equity and Retirement Account” or “PERA”.
         
         
      In the case of a newly formed mutual fund including any sub-fund of an umbrella fund and Exchange Traded Funds, the existing approval process for investment companies shall be observed in the qualification or accreditation as PERA Investment Product subject to the requirements mentioned above.
      
      
   2. REIT shares;
   3. Corporate Bonds with an investible rating issued by an accredited Credit Rating Agency; and
   4. Equity Securities which form part of the PSE Dividend Yield Index.
      
      
2. The following exempt securities are also considered as eligible PERA Investment Products:
   
   
   1. Government Securities;
   2. Securities issued by Bangko Sentral ng Pilipinas (“BSP”); and
   3. Corporate Bonds issued by Banks in compliance with the requirements of BSP.

Other Securities that may be qualified as eligible PERA Investment Products. 

The SEC may qualify other securities to be eligible as PERA Investment products provided that, the product  is  demonstrated  to  be  non-speculative,  readily  marketable,  and  with  a  track  record  of regular income payment to investors. 

1. Non-speculative
   
   
   1. The issuer of said shares has shown a history of positive income for at least three (3) of its last five (5) fiscal years and currently, the issuer is not in a deficit; or
   2. The issuer or the issue has been given an investment grade of at least a Bb rating by a Credit Rating Agency accredited by the SEC or allowed by another acceptable regulatory authority under applicable rules.
   
   
2. Readily Marketable
   
   
   1. The security is traded in a registered security exchange;
   2. The security is traded in an organized market authorized or recognized by the SEC; or
   3. The security can be redeemed anytime at the option of the investors.
   
   
3. Track record of regular income payment
   
   
   1. The security issued is an interest-bearing debt security;
   2. The company has adopted a specific dividend policy; or
   3. The company, even in the absence of a specific dividend policy, is able to show a history of dividend payment for at least three (3) of the last five (5) fiscal years.

Losing Eligibility as a PERA Investment Product

1. A security loses its eligibility as a PERA investment product when it is declared as ineligible by the SEC.
   
   
2. A registered equity security may lose its eligibility under the following circumstances:
   
   
   1. The Registration Statement pertinent to the security is suspended or revoked.
   2. In the case of corporate bond, it is declared to be in default by a competent authority or person in accordance with the applicable laws, rules, and contracts.
   3. In the case of corporate bond, its credit rating is downgraded to a non-investible grade.
   4. In the case of PSEi member security, it is removed from the PSEi.
   
   
3. A corporate bond issued by banks shall lose its eligibility in case:
   
   
   1. It is declared to be in default by a competent authority or person in accordance with the applicable laws, rules or contracts.
   2. Its credit rating is downgraded to a non-investible grade.
   
   
4. An equity security which forms part of the PSE Index shall lose its eligibility after it has been found to have lost one or all of the required characteristics to be eligible as PERA investment Products such as being non-speculative,  readily marketable and provider of regular income payment.
   
   
5. An investment in a security that is later declared to be ineligible as such  PERA  investment Product shall continue to be authorized to be part of the PERA portfolio, provided that, any subsequent investments by a contributor in said security after being declared as ineligible, shall not qualify to be made part of the PERA portfolio.