On the 23rd, the Brazilian Securities Commission published Resolution No. 44, which aimed to provide for the disclosure of information on a material act or fact, on the trading of securities pending an undisclosed material act or fact, and on the disclosure information regarding securities trading. This is the main scope of the new rule, effective from September 1, 2021 and revoked CVM Instruction No. 358, of January 3, 2002, CVM Instruction No. 369, of June 11, 2002 and CVM Instruction No. 449, of March 15, 2007.
Objective characterization of relevant fact or act
One of the main changes is set out in art. 2 of the Resolution, which intended to more clearly characterize the relevant acts or facts, facilitating their application in specific cases. Based on it, it was established that any and all decisions by the controlling shareholder, resolution of a general meeting or of the management bodies of the publicly-held company or any other act or fact of a political-administrative, technical, business or economic-financial nature occurred or related to the your business is considered material fact.
The Commission’s care can be seen in expanding the criterion of relevance to those attitudes taken in the company’s interest, as long as they have been taken by agents or collegiate bodies invested in the function.
Also on this path, CVM Resolution No. 44 was concerned with linking the relevance of the act or fact to its ability to affect investors’ decisions. That is, it is not enough for them to be relevant, they have to have a considerable influence on the quotation of securities issued by the publicly-held company or referenced to them, on the decision of investors to buy, sell or hold those securities, or on the decision of the investors to exercise any rights inherent to the condition of holder of securities issued by the company or referenced to them.
The sole paragraph of art. 2nd listed a list of attitudes suitable for the application of the rule, which aims, in a succinct manner, to avoid the improper use of privileged information, the so-called ‘insider trading’. It is important to emphasize that the list is illustrative and classifies as potentially relevant actions such as: (I) signing of an agreement or contract transferring the shareholding control of the company, even if under a condition precedent or resolution; (II) change in the control of the company, including through the execution, amendment or termination of a shareholder agreement; (III) execution, amendment or termination of a shareholders’ agreement to which the company is a party or intervener, or which has been registered in the company’s proper book; (IV) entry or exit of a partner who maintains, with the company, an operational, financial, technological or administrative contract or collaboration; (V) authorization for trading the securities issued by the company in any market, domestic or foreign; (VI) decision to deregister as a publicly-held company; (VII) incorporation, merger or spin-off involving the related company or companies; (VIII) transformation or dissolution of the company, etc.
Insider trading: ways for the market to protect itself
Present within the dynamics of the market, insider trading exerts a significant influence in securities trading, with consequent weight on the image of companies. The practice, in addition to being unethical, is typified by Law No. 13.506/2017 as illegal.
There are many efforts by companies to curb the presence of this figure. As can be seen in the article Insider Trading: the practice and its characteristics (clik here), combating this practice has been increasingly highlighted within the compliance of companies. This set of disciplines, therefore, also aim to link the company’s actions to the commitment to prevent people with privileged information from using them to harm the natural flow of the securities market. Therefore, within the internal organization, deviations, leaks or any non-compliance with the use of information are insistently verified by those who move the market, and the Brazilian Securities Commission is responsible for stepping up the legal apparatus to contribute to combating the practice.
Effects of the new resolution on insider trading
What can be seen is that CVM Resolution 44 had the main effect of promoting an alignment between the rule and the jurisprudence of the CVM Collegiate, based on the analysis of cases involving accusations of improper use of privileged information. In addition to specifying reprehensible attitudes and their respective consequences, the commission was also concerned with adding preventive mechanisms that contribute to good practice in the market.
As of the effectiveness of the resolution, the “Banking Period”, during which controllers, directors, members of the board of directors and fiscal council are prevented from trading securities, will have even more objective criteria, in accordance with the presumptions imposed by the article 13.
Presumption of illegality in the negotiation of papers
As said, during the Prohibition Period, controllers, directors, members of the board of directors and fiscal council are prohibited from trading securities prior to the disclosure of quarterly or annual information to the market, regardless of their content. If they fail to comply with the order, they will be subject to sanctions imposed by the municipality.
Now, the resolution also introduced, in art. 13, a list of presumptions of acts that, if practiced, are presumed to be illegal and with the potential to unbalance the securities market, which makes the identification of illegal conduct more objective.
Thus, if a person uses this ruse when having contact with anyone who has access to the information, in order to gain an advantage, for themselves or others, through the negotiation of these roles, they will be violating the resolution and will be liable to punishments of the commission.
It is important to highlight that the presumed behaviors can be observed concomitantly and the presumption is not absolute, but relative, as evidence to the contrary is admitted.
From the reading of the first paragraph of said article 13, for the purpose of characterizing the tort, it is assumed that:
I – the person who traded securities with material information not yet disclosed made use of such information in said trade;
II – direct or indirect controlling shareholders, directors, members of the board of directors and the fiscal council, and the company itself, in relation to its own issue of securities, have access to all relevant information not yet disclosed;
III – the persons listed in item II, as well as those who have a commercial, professional or trusting relationship with the company, when they have had access to material information that has not yet been disclosed, know that it is privileged information;
IV – the manager who leaves the company with relevant and yet undisclosed information relies on such information if he trades securities issued by the company within a period of 3 (three) months after his resignation;
V – information about merger operations, total or partial spin-off, merger, transformation, or any form of corporate reorganization or business combination, change in control is relevant from the moment studies or analyzes related to the matter are initiated of the company, including through the execution, amendment or termination of a shareholders’ agreement, decision to promote the deregistration of the publicly-held company or change in the environment or trading segment of its shares; and
VI – information about a request for judicial or extrajudicial recovery and bankruptcy made by the company itself is relevant, as from the moment studies or analyzes related to such request are initiated.
The third paragraph, along two items, makes two reservations regarding the application of the presumption, excluding from it the following cases: (I) in cases of acquisition, through private negotiation, of shares that are in treasury, resulting from the exercise stock option plan pursuant to a stock option plan approved at the general meeting, or when it concerns the granting of shares to managers, employees or service providers as part of remuneration previously approved at the general meeting; and (II) trades involving fixed-income securities, when carried out through operations with combined commitments of repurchase by the seller and resale by the buyer, for settlement on a pre-established date, before or equal to the maturity of the securities object of the operation, carried out with predefined profitability or remuneration parameters.
Disclosure Policy
Another relevant change was the specification of the type of companies that would be subject to the obligation of the Disclosure Policy, specified in art. 17. According to the provision, the publicly-held company must, by resolution of the board of directors, adopt this policy in relation to a material act or fact, already characterized at the beginning of this article. However, the major innovation of the resolution was to make this adoption mandatory only for companies that are registered in category A. In addition to this characteristic, authorization by a market management entity to trade securities on the stock exchange is also required by the rule. that the company has outstanding shares. In this last point, the exception is those owned by the controller, the persons related to him, the company’s administrators and those held in treasury.
Basis of resolution
The changes carried out by the Brazilian Securities Commission were based on the results collected by Public Hearing 06/20, as highlighted by the autarchy itself, demonstrating the importance of the participation of those interested in the operation of the market in matters of this order.
