BANKING.docx

98 chanrobleslaw on the other hand petitioners

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98 chanrobleslaw On the other hand, petitioners-intervenors RCBC and RCBC Capital insist that the phrase "at any one time" only refers to transactions made in the primary market. According to them, the PEACe Bonds are not deposit substitutes since CODE-NGO, through petitioner-intervenor RCBC, is the sole lender in the primary market, and all subsequent transactions in the secondary market merely pertain to a sale and/or assignment of credit and not borrowings from the public. 99 chanrobleslaw Similarly, petitioners contend that for a government security, such as the PEACe Bonds, to be considered as deposit substitutes, it is an indispensable requirement that there is "borrowing" between the issuer and the lender/investor in the primary market and between the transferee and the transferor in the secondary market. Petitioners submit that in the secondary market, the transferee/buyer must have recourse to the selling investor as required by Section 22(Y) of the National Internal Revenue Code so that a borrowing "for the borrower's (transferor's) own account" is created between the buyer and the seller. Should the transferees in the secondary market who have recourse to the transferor reach 20 or more, the transaction will be subjected to a final withholding tax. 100 chanrobleslaw Petitioners and petitioners-intervenors RCBC and RCBC Capital contend that respondents' proposed application of Section 10.1(kl) of the Securities Regulation Code and its Implementing Rules is misplaced because: (1) the National Internal Revenue Code clearly provides the conditions when a security issuance should qualify as a deposit substitute subject to the 20% final withholding tax; and (2) the two laws govern different matters.
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III.A Generally, a corporation may obtain funds for capital expenditures by floating either shares of stock (equity) or bonds (debt) in the capital market. Shares of stock or equity securities represent ownership, interest, or participation in the issuer-corporation. On the other hand, bonds or debt securities are evidences of indebtedness of the issuer-corporation. New securities are issued and sold to the investing public for the first time in the primary market. Transactions in the primary market involve an actual transfer of funds from the investor to the issuer of the new security. The transfer of funds is evidenced by a security, which becomes a financial asset in the hands of the buyer/investor. New issues are usually sold through a registered underwriter, which may be an investment house or a bank registered as an underwriter of securities. 101 An underwriter helps the issuer find buyers for its securities. In some cases, the underwriter buys the whole issue from the issuer and resells this to other security dealers and the public. 102 When a group of underwriters pool together their resources to underwrite an issue, they are called the "underwriting syndicate." 103 chanrobleslaw On the other hand, secondary markets refer to the trading of outstanding or already-issued securities. In any secondary market trade, the cash proceeds normally go to the selling
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