This week we take another look at some key legal and compliance issues facing Investor Relations teams in Mexican companies, and focus on the definitions of Insider Information and Relevant Events, and the implications for communication strategy.
RELEVANT EVENTS
A relevant event is considered any act, fact, or event of any nature that influences or may influence the price of a value registered in the National Register of Securities.
The Single Corporate Circular provides that in order to determine whether an act, fact or event influences or may influence the price of a value (i.e. if it constitutes a relevant event), the company shall consider whether such act, fact or event represents at least 5% of the assets, liabilities or consolidated total capital, or 3% of the total consolidated sales of the company’s previous financial year.
According to the CNBV, these are some examples of cases when a quoted company should publish a relevant event:
I) With regard to the corporate structure of the company.
a) Changes in the organizational structure of the company.
b) Changes of the members of the corporate entities or their relevant managers, as well as the reasons.
c) Modifications to social statutes.
b) The celebration, breach, rescission or termination of contracts or agreements with suppliers, clients or with governments of any level that are decisive for the realization of the corporate purpose of the issuer or of the legal entities that it controls or in which it has a significant influence.
c) Participation in contests or tenders by the issuer or the legal entities that it controls or in which it has significant influence, as well as the respective result.]
d) The substitution of important suppliers and clients of the issuer or of the legal entities that it controls or over which it has significant influence
e) The development, creation or cancellation of business lines, products or services by the issuer or the legal entities that it controls or in which it has significant influence, as well as changes in the form of distribution thereof.
f) The acquisition, sale, contracting, granting, modification, expiration, revocation or cancellation of patents, trademarks, licenses or franchises of the issuer or of the legal entities that it controls or in which it has significant influence.
g) Events that constitute acts of God or force majeure that hinder the performance of the activities of the station or of the legal entities that it controls or in which it has significant influence.
h) The penetration or exit of markets in which the issuer or the legal entities that it controls or in which it has significant influence intervenes.
III) Regarding the financial situation of the corporate entity
a) Deviations in the performance of the issuer or of the legal entities it controls or over which it has significant influence, with respect to the forecasts or projections that had previously been made public.
b) The granting and obtaining of credits, loans or financing that represent a significant share of the consolidated capital of the issuer. Likewise, the sum of credits, loans or financing that have been contracted by the issuer, as of the publication of the last quarterly report that they must present in accordance with these provisions, when said sum represents 5% or more of the total assets, liabilities or consolidated capital of the issuer.
c) The information disclosed by the issuer to investors or analysts, national or foreign, through conference calls, emails, reports or any other means of communication.
INSIDER INFORMATION
Information that by its nature may affect the value of one or more securities, or the market as a whole, and which has not yet been advertised or broadcasted.
CNBV articles on definitions and sanctions considering inside information
Article 364. In no event shall any person with inside information
- Carry out or instruct the holding of operations, directly or indirectly, on any kind of security issued by an issuing station or securities representing them, the value or price of which may be influenced by such information as long as it is privileged.
- Provide or transmit the information to another or other persons, unless, because of your employment, position, or commission, the person to whom it is transmitted or provided must know it.
- Issue recommendations on any kind of securities issued by an issuer or credit securities representing them.
Article 368. The dissemination of false or misleading information about securities, or about the financial, administrative, economic, or legal situation of a broadcaster, is prohibited through placement leaflets, supplements, brochures, reports and other information documents and, in general, any mass media
– Any abuse of insider information is considered a crime
Article 380. Anyone who is legally or contractually obliged to maintain confidentiality, reservation, or secretion, provided by any means or transmits inside information to another person or others shall be punished with imprisonment for up to two to six years.
Article 381. Persons who make use of inside information carry out or instruct the holding of transactions, by themselves or through a third party on securities or financial derivative instruments that have as underlying securities whose price or quotation may be influenced by such information, and that by the result of such operation they obtain a benefit for themselves or a third party, they shall be punished according to the following:
- Imprisonment of two to six years, when the amount of the benefit is up to 100,000 days of daily minimum wage enforced by the Federal District at the time of the operation in question.
- Imprisonment of four to twelve years, when the amount of the benefit exceeds 100,000 days of daily minimum wage enforced by the Federal District at the time of the operation in question.
