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Do publicly traded companies need a personal trading policy?

By: Karla Valdés

 

In this post we are going to discuss a topic that is particularly relevant for companies that are listed on the Stock Exchange (BMV or BIVA). I am specifically referring to the handling of privileged information and relevant events, which directly influence personal trading by managers and other employees who work for the organization. 

What are the requirements?

According to the Securities Market Law, companies that are listed on the stock exchange have responsibility over the market and they need to comply with the provisions and regulations applicable to companies issuing securities; within these obligations it is necessary that they impose a specific policy that explains the “dos” and “don’ts” regarding the use of privileged information, relevant events, and other situations that could arise where employees are faced with a conflict of interest.

What is Privileged Information?

In accordance with the regulations applicable to issuers of securities, privileged information consists of knowledge of relevant events that have not yet been disclosed to the public by the company or its subsidiaries, through the BMV.

Now, you might ask yourself, what is a relevant event? The answer is any action, fact, or event of any nature that influences or may influence the price of a security registered in the National Securities Registry.

The above is not only a theoretical issue. In 2018, Alfa’s CFO was fined by the CNBV for not correctly following the regulations on the use of privileged information, he subsequently left the firm. https://www.elfinanciero.com.mx/monterrey/cfo-de-alfa-renuncia-tras-multa-de-la-cnbv/ .

Naturally, events of this nature have a significant reputational impact. After the event, Alfa reported that they “will review their policies, promote disclosure, and reaffirm their commitment to the values of integrity and respect for their moral and legal responsibilities,” according to the article from El Financiero.

Let’s remember that if a person is aware of any relevant events that have not been disclosed to the public by the issuer through the Stock Exchange, said person is in possession of privileged information. It is important to clarify that it is not necessary for the person to know all the characteristics of the relevant event for them to have privileged information, provided that they have access to the part of the information that can affect the quotation or price of the issuer’s securities.

What are some examples of relevant events?

The examples are very broad and all assumptions are listed in the regulations, I will name a few that I consider to be the most important:

  • The development, creation, or cancellation of business lines, products or services.
  • The acquisition, sale, contracting, granting, modification, expiration, revocation or cancellation of patents, trademarks, licenses or franchises.
  • Expansion projects and their modification or cancellation, financing costs, and estimated execution periods.
  • Actions, facts, or events related to public offerings of securities.
  • The granting and obtaining of credits, loans or financing that represent a significant amount of the consolidated capital of the issuer.
  • The restructuring or depreciation of the issuer’s most important liabilities.

Why is it necessary to have a personal trading policy?

People who work in the company such as directors, advisors, and employees in specific areas such as finance, must adhere to a policy that governs their actions regarding personal trading and the purchase of shares of the company where they work. This obligation also applies to shareholders and members of employees’ immediate families.

To prevent staff from making use of privileged information, there must be clear restriction periods to carry out purchase and sale operations with company securities – periods in which staff cannot buy and/or sell these securities – since the knowledge of privileged information may constitute a violation that could bring financial fines or sanctions, such as disqualification, by the National Banking and Securities Commission, both for the company and for individuals.

At Miranda Compliance we are certified and specialized professionals with experience in Ethics, PLD, Compliance and Corporate Integrity, if you need advice, we would be happy to help you.

 

C O N T A C T 

Miranda – Compliance

 

Karla Valdés Posada

Partner

karla.valdes@miranda-partners.com

Ernesto Gómez Gallardo

Partner

ernesto.gomez@miranda-partners.com  



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