It went into effect on September 1st a change in the rules of the Brazilian Securities and Exchange Commission (CVM) on the disclosure and use of privileged information prior to its publication. That was when CVM Resolution 44 came into force, nine days after its publication, and revoking CVM Instructions No. 358, No. 369, and No. 449, the “regulatory framework” used by publicly-held companies to base their Trading Policies on Securities issued by it and Disclosure of Material Act and Fact.
In practice, the main change is in the presumption of access to insider information (“insider information”) for trading securities for one’s own benefit (“insider trading”), that is, to gain money or advantage.
Before, it was not assumed, automatically, that managers of publicly-held companies – direct and indirect controlling shareholders, directors and members of the board of directors and fiscal – thad access to privileged information and could use it to trade in the market for their own benefit, before it became public.
In accusations about insider information – use of privileged information – proof was required that he had access to this information and used it. Now, however, proof is no longer required and it is assumed that these professionals already have access to privileged information (presumed knowledge). In this way, whoever is accused needs to argue and overturn the presumptions.
“The change formalized the understanding that the CVM was already adopting in its judgments”, comment Renato Vetere, partner at VDV Advogados e Clóvis Pereira, coordinator of audit committees and member of fiscal councils. “It is clear that she extends to third parties who may have knowledge of the information, regardless of whether he is a company administrator or not”, they clarify.
They comment that, in practice, it becomes more difficult for the accused to prove that he had no knowledge or that he did not use privileged information, because it is now clear that this is a presumption that requires no evidence to assert.
The new rule also takes into account trades made with real estate assets before the information is published, as is the case of material facts and notices to the market, which publicly traded companies are required to disclose when there is something important to be shared with the shareholder.
In this case, in addition to the direct and indirect administrators and board members, the new rule also applies to negotiations made by people who left the company within a period of up to three months before leaving.
“Furthermore, there is a new presumption, regarding third parties who have a commercial, professional or trusting relationship with the company, who, having had access to material information not yet disclosed, know that it is privileged information”, explain Vetere and Pereira.
In article 13, the resolution expresses that “the use of relevant information not yet disclosed is prohibited, by any person who has had access to it, with the purpose of obtaining an advantage, for themselves or for others, through trading in securities. ”
Another important point that what has changed is the period in which these people are prevented from using the information they have access to in advance.
In the text of the new Resolution (article 14), “They are prevented from carrying out any negotiation with the securities issued by the company, or related to them, controlling shareholders, directors, members of the board of directors and the fiscal council, within 15 days prior to the disclosure date of the company’s quarterly accounting information and annual financial statements”, explain Vetere and Pereira, citing what is in article 14. Before, a deadline was not clear. And trading on the market is only allowed again after the disclosure of financial information.
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CVM Resolution 44 it does not, however, include the prohibition of trading securities on the market for members of technical and advisory committees. On the other hand, it leaves it up to the company to include or not in its Trading Policy if the impediment is extended to these members, since, in many cases, committees such as the audit committee, for example, may have access to privileged information even before the members of the board of directors, as in the case of the company’s financial statements.
For the retail investor, nothing changes, since, with the exception of the controllers, it will hardly have the same access to information before its publication. However, it is important to keep an eye on and research the company’s policy for its managers to trade shares and other assets in the market and which processes ensure good corporate governance.