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Mike Lubrano Managing Director, Cartica Capital Task Force Co-reporter

COSRA / OECD Joint Task Force Report on Privileged Information Russia Corporate Governance Roundtable Technical Seminar, Moscow, Russia, March 30, 2012. Mike Lubrano Managing Director, Cartica Capital Task Force Co-reporter. Genesis the Project.

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Mike Lubrano Managing Director, Cartica Capital Task Force Co-reporter

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  1. COSRA / OECD Joint Task Force Report on Privileged InformationRussia Corporate Governance Roundtable Technical Seminar,Moscow, Russia, March 30, 2012 Mike Lubrano Managing Director, Cartica Capital Task Force Co-reporter

  2. Genesis the Project • Discussions between OECD and Council of Securities Regulators of the Americas at December 2009 Latin America Corporate Governance Roundtable Meeting in Santiago • “Legal / Regulatory and Institutional Framework for Enforcement Issues in Latin America: A Comparison of Argentina, Chile, Colombia, Panama and Peru” identified as priority enforcement issues: • Abuse of Privileged Information and Insider Trading • Oversight of Related Party Transactions

  3. Why Focus on Privileged Information? • Informational asymmetries discourage investment and impede market development • OECD Principle of Equitable Treatment of Shareholders • IOSCO Principles and Objectives of Securities Regulation • Roundtable and COSRA bring different, but complementary perspectives • Roundtable’s White Paper (2003) Recommendations • IOSCO EMC Insider Trading; How Jurisdictions Regulate It

  4. Task Force • Supervisory Authorities of Argentina, Brazil, Colombia, Dominican Republic, Perú, Québec, Spain, Uruguay • OECD and IFC • Reporters: Jean Lorrain (Québec; COSRA/IARC) and Mike Lubrano (Consultant; OECD)

  5. Key Questions and Issues • What are the main areas of concern identified in the survey? • What are the main commonalities and differences? • What actions are needed to make enforcement more effective? • By the legislator • By the Supervisory Authority • By other institutions (exchanges, other public and private sector actors)

  6. Differences “Spotted” in the Survey Responses • Definition of “Privileged Information” – Broad vs. Narrow • Powers/Jurisdiction of the Supervisory Authority • Degree of “Corporate Guidance” • Private Rights of Action • Board Responsibility • Adequacy of Market Surveillance • Role of SROs and Exchanges (A dramatic difference is obviously the number of actual complaints, investigations and enforcement actions undertaken)

  7. Weaknesses and Gaps • Shortcomings in the legal/regulatory framework • e.g., tippee / tipper; jurisdiction over parties • Obstacles to more effective policing of the market • Access to / sufficiency of evidence • Difficulty in identifying related parties • Limitations on SROs playing a greater enforcement role Many respondents also noted a lack of a culture of sensitivity to misuse of PI among companies and their boards. Some noted a disconnect between controllers (who may misuse PI) and company Boards / management.

  8. General Recommendations • Responsibility for preventing misuse of PI should be a priority for Boards as well as Supervisors • Boards should strengthen corporate policies and practices on PI • Standards and codes need to provide more detailed guidance on handling privileged information • Supervisors should promote complementary company policies and practices • Trading by insiders should be as transparent as possible • Supervisors should share experiences with regulation and enforcement

  9. More Specific Suggestions • Current definitions of PI should be reviewed for adequacy • Supervisors should regularly review the adequacy of their investigatory toolkit • Disclosure of company policies and practices should be encouraged • Insiders should disclose entities over which they exercise or influence investment decisions*

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