SEC Prescribes Rules for the Qualifications of PERA Investment Products
On August 11, 2022, the Securities and Exchange Commission (SEC) issued Memorandum Circular (MC) No. 7 on the rules for qualified Personal Equity and Retirement Account (PERA) Investment Products pursuant to Republic Act No. 9505 or the PERA Act of 2008.
Section 2 of the MC states that the following securities which are “registered pursuant to the requirements of the Securities Regulation Code and Investment Company Act are deemed to be eligible PERA investment products[:]
- A newly formed mutual fund including any sub-fund of an umbrella fund and Exchange Traded Funds subject to the following requirements: (a) 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 (b) 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.
- REIT shares
- Corporate Bonds with an investable rating issued by an accredited Credit Rating Agency
- Equity Securities which form part of the PSE Dividend Yield Index[.]”
The same section also states that the following exempt securities are also eligible PERA Investment Products:
- Government Securities;
- Securities issued by the Bangko Sentral ng Pilipinas (BSP); and
- Corporate Bonds issued by Banks in compliance with BSP requirements.
According to Section 3 of the MC, equity securities which form part of the PSE Index may also be qualified as eligible PERA Investment Products subject to the provision that the PSE submit a certification that the securities meet the PERA requirements of being non-speculative, readily marketable, and with a track record of regular income payment to investors.
Furthermore, the MC stated that the SEC may qualify other securities to be eligible as PERA Investment Products as long as the security is: non-speculative, readily marketable, and with a track record of regular income payments to investors.
In order to satisfy the criteria of “non-speculative,” the issuer of the shares must show a history of positive income for at least 3 of its last 5 fiscal years and currently, the issuer is not in a deficit. With respect to debt securities, an investment is considered non-speculative if the issuer or issue has been given an investment grade of at least a Bb by a Credit Rating Agency accredited by the SEC or allowed by another acceptable regulatory authority under applicable rules.
As regards the criteria of “readily marketable,” the security must be traded in a registered security exchange. It shall also be considered as satisfying the requirements if it is traded in an organized market authorized or organized by the SEC. The security shall also be considered as readily marketable if it can be redeemed anytime at the option of the investors.
On a security’s “track record of regular income payment,” the debt security must be interest-bearing. The company issuing the security must also have adopted a specific dividend policy. Additionally, a company is considered to have a track record of regular income payment if in absence of a specific dividend policy has shown a history of dividend payment for 3 of the last 5 fiscal years.
Section 5 of the MC also outlines how an investment product may lose eligibility.
- When it is declared as ineligible by the SEC.
- “A registered equity security may lose its eligibility under the following circumstances: (a) The Registration Statement is suspended or revoked; (b) 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; (c) In the case of corporate bond, its credit rating is downgraded to a non-investible grade; (d) In the case of PSEi member security, it is removed from the PSEi.”
- “A corporate bond issued by banks shall lose its eligibility in case: (a) It is declared to be in default by a competent authority or person in accordance with the applicable laws, rules or contracts; (b) Its credit rating is downgraded to a non-investable grade.”
- After a security 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.
- 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.
The full Memorandum Circular can be accessed here.