On 23 September 2026, the Securities and Exchange Commission (SEC) issued Memorandum Circular No. 27, Series of 2026 (Circular), establishing a regulatory framework for structured warrants in the Philippine capital market. The Circular governs issuer qualifications, eligible underlying financial instruments, issue sizes, investor suitability, registration and listing, market making, and continuing compliance. It seeks to broaden investment choices while requiring issuers and trading participants to address the risks associated with these products.
The copy of the Circular may be accessed here.
Understanding Structured Warrants
A structured warrant is a financial product issued by a third-party financial institution that gives its holder the right, but not the obligation, to buy (call) or sell (put) an underlying financial instrument at a predetermined price, or to receive a cash settlement calculated by reference to its price or level. Exercise may occur on or before the expiry date, depending on the warrant’s exercise style. A structured warrant differs from a company warrant, which is issued by a corporation over its own shares.
Eligible underlying instruments include listed equities and debt securities, securities indices, exchange-traded funds, and baskets of listed equities or debt securities, whether local or foreign, subject to the Circular and applicable Exchange requirements. The minimum issue size is PhP20,000,000.00.
Eligible Issuers
Only licensed broker-dealers and licensed investment houses may qualify as issuers. These entities must be incorporated in the Philippines or, if foreign corporations, duly licensed to transact business in the Philippines, and must satisfy the Circular’s eligibility requirements.
The issuer, or its guarantor where applicable, must maintain a minimum unimpaired paid-up capital of PhP400,000,000.00 while any structured warrants remain outstanding. A shortfall requires immediate notification to the SEC and the relevant Exchange. Issuers must also maintain adequate risk management infrastructure, internal controls, and written risk policies approved by the board of directors or senior management. Information barriers and disclosures in the prospectus, to investors, and through SEC Form 17-C are required to address conflicts of interest.
Investor Safeguards
Structured warrants must be registered under the Securities Regulation Code (SRC) and the Circular before they may be offered, sold, or distributed. Issuers must file SEC Form 12-1-SW and provide the required prospectus. Listing and trading must also comply with the SEC-approved rules of the relevant Exchange.
Before distributing or selling structured warrants, Exchange trading participants must conduct a Client Suitability Assessment. They may not accept or execute an order unless the investor has signed a Risk Disclosure Statement before commencing trading. The prospectus must disclose risks relating to the issuer, the warrants, and the underlying instruments, and warn that holders may sustain a total loss of their investment. Registration does not constitute an SEC recommendation of the offering.
Where an issuer intends to provide liquidity through market making, it must appoint only one market maker and disclose the applicable arrangements, including circumstances in which liquidity may not be provided. Issuers and trading participants must maintain continuing investor education programs explaining the products, their risks, and the mechanics and limitations of market making. Issuers may release publicity materials only after the SEC issues the Order of Registration and Permit to Sell, subject to applicable laws and regulations.
Collateral and Settlement
For fully collateralized call structured warrants, the issuer owns all the underlying instruments and grants a charge over them in favor of a custodian for the benefit of warrant holders throughout the issue’s term. The issuer must appoint a qualified Bangko Sentral ng Pilipinas (BSP)-accredited custodian with custody and control of the instruments. The security arrangements must satisfy the SEC and secure the issuer’s performance, including delivery by the custodian upon valid exercise if the issuer cannot discharge its obligations.
Physical settlement is permitted only for fully collateralized warrants. Cash settlement remains mandatory for warrants linked to securities indices, instruments listed or traded on foreign exchanges, or baskets of securities, and where physical delivery would breach applicable laws or regulations. The settlement mode and exercise style must be specified at issuance and cannot be changed at the issuer’s or holder’s option upon exercise.
Non-collateralized structured warrants are restricted to cash settlement. Investors rely on the creditworthiness of the issuer or guarantor, where applicable, and have no recourse against the underlying corporation. The issuer must have at least an investment-grade credit rating from an SEC-accredited or recognized rating agency. If it lacks the required rating, the SEC may accept an unconditional and irrevocable guarantee, or another security arrangement satisfactory to it, from an eligible holding company or financial institution. The guarantor must meet the prescribed rating and capital requirements, maintain a local presence, and be duly licensed to do business in the Philippines.
Continuing Compliance and Sanctions
Issuers must submit quarterly compliance reports within 45 calendar days after each quarter and notify the SEC in writing within five calendar days of an event causing failure to meet eligibility requirements. Relevant documents and registry books must remain available for inspection for at least five years from submission of final documents, with longer retention for records relating to an ongoing investigation. Suspension or cessation of eligibility does not extinguish obligations on outstanding warrants.
Under Section 17, the SEC may impose additional sanctions provided by law, aside from those under existing regulations, for violations of the Circular or applicable SRC rules, material misstatements or omissions in required filings, or refusal to permit a lawful examination of corporate affairs.
The framework gives issuers a route to introduce structured warrants while imposing continuing duties on product design, disclosure, and distribution.
For further information, please contact:
Christianne Grace F. Salonga, Partner, Cruz Marcelo & Tenefrancia
