For those investing in capital markets, immediate access to developments about issuers, the so-called material events, is very crucial. Alteration of this system to meet transparency demands of investors is inevitable. In parallel to reformation of the entire capital markets regime in Turkey, after the promulgation of the new Capital Markets Law, the Communiqué on Material Events ("Communiqué") was also renewed on January 23, 2014. However, the Guide that will shed light on the interpretation of the provisions laid down by the Communiqué was announced on June 27, 2014.
This article, reflecting the explanations in the Guide and the new rules set forth in the Communiqué, aims to be a guide for the investor relations departments. The article will elaborate on disclosure of inside and ongoing information, the obligations of the executives who have access to the inside information, the scope of insiders list, forward looking statements, the form, time and language of the disclosures, disclosure updates and the possible sanctions for not fulfilling the disclosure requirements.
The purpose of the obligation to disclose inside information is to ensure simultaneous and equal distribution of information for all market participants and thereby to prevent incorrect pricing that might have occurred in result of incomplete and inaccurate information in the market. No amendment in respect of the general characteristics of the inside information is made in the Communiqué. Just like the former guide, the new Guide also includes important examples to determine whether information should be considered as inside information.
Disclosure of the Inside Information
A clarification is made to address the ambiguous criteria for "significant shareholder" in the former communiqué. When the inside information is learned by shareholders other than issuer, such shareholders holding at least 10% of the voting rights or share-capital, or privileged shares which give the right to determine or to nominate board members will be deemed to have significant shareholding and thus be required to disclose inside information. However, if these shareholders have a confidentiality obligation not to disclose such information, there will be no need for disclosure. In this regard, it is noteworthy to consider making amendments in issuer's articles of association to include confidentiality obligation.
Those significant changes related to issuer's parent and affiliate companies' operations, financial structure and management/capital relations that were advised to be disclosed in the old guide are also incorporated in the Communiqué as material events to be disclosed.
Delaying Disclosure of Inside Information
In comparison to the former communiqué that only allowed the issuer to delay disclosing inside information, the Communiqué grants this right to the significant shareholders.
List of Persons with Access to Inside Information ("Insiders List")
Just like the former communiqué, the persons whose names are written on Insiders List are supposed to be warned about the obligation to keep insider information secret and a written notification as to the sanctions if the obligation is violated must be communicated.
The Guide regulates the new content of the Insiders List. The list shall contain information about each person if there are special reasons as to why should be reported in the list, the start and end dates of the employment, the last date such information was updated. In the event of a public offering, the information contained in the Insiders List has to be entered in the Central Registry Agency ("CRA") system before the capital markets instruments are traded on the exchange. Some examples of grounds for inclusion of a person on the list are: the registration and the announcement of the representative of a legal person in the Board of Directors member, appointment, change of position, promotion, consultancy/audits, work in the parent company, etc.
Different from the former communiqué, if there is an amendment to the Insiders List, the necessary updates have to be made within two days thereafter.
According to the former communiqué, the Insiders List had to be filed by the issuer for a period of eight years; whereas, the new Communiqué employs the CRA for record-keeping and in the event of a request, it shall be sent to the Capital Markets Board and the relevant stock exchange.
Confirmation of News or Rumors
Issuers are obliged to disclose regarding the accuracy of the news or rumors in the media should they relate to inside information. However, the popularity and circulation rate of the media, as well as the evaluation of the Board of Directors as to whether or not this information is inside information, are essential to decide whether a disclosure is needed.
Disclosure of Forward Looking Statements
Essential changes are made in the Communiqué to which the investor relations departments should pay close attention.
If the issuer wants to disclose forward looking statements, a resolution of the Board of Directors or a written approval of the competent persons to whom the Board of Directors has granted authority shall be obtained.
These disclosures can be made maximum four times a year. The disclosure can be announced separately in public disclosure platform ("PDP") or, it can be incorporated in the annual reports. Nevertheless, if any changes occur in respect of such disclosures, a new disclosure shall be made immediately.
Finally, the Communiqué also regulates that the disclosure policy of the issuer has to include the disclosure principles for forward looking statements.
Disclosure of Executives and Their Operations
According to the Guide, the executives encompass all the people who are on the Insider List. Furthermore, the authorized persons present in the signature circular, the legal persons that are controlled directly or indirectly by the executives, the Board of Directors members and the senior managers of the parent company are counted as examples for executives in the Guide.
The Communiqué also includes some new persons in addition to the persons considered as closely associated with executives. In this scope, the directors entitled to make executive decisions or the members of the Board of Directors of affiliate companies that contribute to 10% or more of the total assets in the last year's financial statement, are considered as the persons closely associated with executives.
The Communiqué regulates a new disclosure obligation in the event the transaction volume including purchase-sale of (i) shares or capital market instruments pertaining thereto exceed TRY 50,000 or (ii) capital market instruments other than those shares traded on the stock-exchange exceed TRY 100,000. As the latter disclosure obligation was not regulated in the former communiqué, special attention must be paid for compliance.
Pursuant to the Communiqué, a disclosure in respect of transactions in the stock exchange has to be made (i) at latest one work-day prior thereto without indicating the sale price, and (ii) also after the sale with the pertinent information. The Guide further indicates that if the sale does not occur, reasons for the cancellation shall be disclosed.
With the new Communiqué, the scope of the ongoing information is revised and the upper threshold regarding the disclosure obligation for shareholding changes is increased from 75% to 95%. For non-public companies, the disclosure thresholds are limited to 25%, 50% and 67% of shareholding. Furthermore, the scope of disclosure is also revised.
Pursuant to the Guide, those who have issued capital market instruments based on shares are not under the obligation of disclosure regarding the underlying assets if such underlying asset belongs to another issuer.
Another novelty is the immediate update ex-officio by the CRA of the shareholding chart in the issuer's form indicating those with 5% or more shareholding or voting rights should there be a change therein. However, CRA's update does not release the issuer from making such changes in its public disclosure form.
Notification Form for Inside and Ongoing Information
The disclosures concerning inside information shall be made by using the forms provided in the PDP. Pursuant to the Communiqué, uncertain facts may also be subject to disclosure. For such facts, the Guide provides that the form has to be filled in by writing "Uncertain" and when such facts become certain, the same form has to be filled in and disclosed.
Inside information shall be disclosed immediately whereas ongoing information disclosures regarding the shareholding and control structure shall be made at the latest by 08:00 AM on the third working day after the transaction causing such change by using the form attached to the Communiqué.
Furthermore, if any changes occur in the general issuer information form published in the PDP, the issuer has to update said information within two working days.
Inside information disclosures have to be published on the website of the issuer at latest the next working day thereafter and have to remain published on the website for a period of 5 years.
In the disclosure, a sentence summarizing the content of the disclosure and a title has to be included; if there are several issues to be disclosed, the disclosure must include different titles reflecting such issues.
Language Used in Material Event Disclosures
Pursuant to the Guide, the issuers in the first group determined by the corporate governance principles of Capital Markets Board have to disclose in English as well simultaneous with the Turkish disclosures, effective from January 1, 2015. With the English disclosure, a disclaimer can be attached stating that the Turkish disclosure shall prevail.
Update of Disclosure
With the new Communiqué, a very crucial provision is introduced which was not present in the former Communiqué. If there is no progress regarding certain disclosed event, the reasons as to why there has not been any development must be disclosed every 60 days from the last disclosure.
By all means, this provision will cause many problems for the issuers. For example, in an acquisition, no development may occur within 60 days. Even though we awaited a flexible approach in the Guide regarding this obligation, the explanation in the Guide is straightly in line with the Communiqué's wording.
In a situation where the conditions for delaying disclosure arise, it may be argued that the update disclosure may not be repeated every 60 days.
With the Communiqué, the minimum content of the issuer's disclosure policy is identified. Especially, the investor relations departments have to pay attention to comply with such content.
Further, the disclosure obligation has been introduced with the Communiqué for those capital market instruments offered to public other than the shares, and new disclosure principles are enacted for those issuers that offer non-listed shares to the qualified investors only.
The Capital Markets Law provides that those who violate the regulations, standards and forms will be subject to an administrative fine from TRY 20,000 to TRY 250,000. If a benefit is derived from this abuse, the amount of the administrative fine cannot be less than twice the amount of such benefit.
The disclosure obligation renewed with the Communiqué shall be performed to ensure rapid access to information and not to cause discrimination among the investors breaching the principle of equal treatment. The novelties introduced with the Communiqué and the Guide's explanations currently reshape the disclosure practice and especially during this period, the investor relations departments shall carefully work with these new standards to assure compliance.