Norm on Securities Trading in the Secondary Market

RESOLUCIÓN CD-SIBOIF-692-2-SEP7-2011
Of date September 7, 2011
NORM ON SECURITIES TRADING IN THE SECONDARY MARKET The Board of Directors of the Superintendence of Banks and Other Financial Institutions, CONSIDERING I That Article 4 of Law No. 587, "Capital Market Law," published in La Gaceta, Official Diary No. 222, of November 15, 2006, establishes that the Superintendence of Banks and Other Financial Institutions, in compliance with said Law, shall ensure the transparency of securities markets and the protection of investors, regulating, supervising, and auditing said markets, as well as the activities of natural and legal persons who intervene directly or indirectly in them. II That Title III of the aforementioned Law empowers the Board of Directors of the Superintendence to regulate general aspects related to the trading of securities, both national and foreign, in the secondary market; the securities that may be traded in said market; and the periodic information disclosure duties that issuers must disseminate, among others. In exercise of its powers, HAS ISSUED The following:

NORM ON SECURITIES TRADING IN THE SECONDARY MARKET RESOLUTION CD-SIBOIF-692-2-SEP7-2011
CHAPTER I
OBJECT, SCOPE, AND CONCEPTS
Article 1. Objective.- The purpose of this norm is to regulate aspects aimed at the trading of securities, both national and foreign, in the secondary market; the securities that may be traded in said market; the periodic information disclosure duties that issuers must disseminate, among others.

Article 2. Scope.- The provisions of this norm are applicable to issuers, intermediaries, and other participants in the placement of securities subject to public offering in the secondary market.
Article 3. Concepts.- For the purposes of this norm, the terms indicated in this article, whether in uppercase or lowercase, singular or plural, shall have the following meanings:
a. Group of economic interest: Related parties, significant linkages, and indirect manifestations of the issuer, as referred to in Article 55 of Law 561, General Law of Banks, Non-Banking Financial Institutions, and Financial Groups, and the regulations governing the matter on concentration limits. b. Capital Market Law: Law No. 587, Capital Market Law, published in the Gaceta, Official Diary, No. 222 of November 15, 2006.
c. Normal negotiation mechanisms: Refers to those mechanisms used for the trading of the securities indicated in Article 4 of this norm.
d. Secondary Market: Set of stock transactions whose objective is the transfer of ownership of securities previously placed through the primary market, in order to provide liquidity to security holders through their trading. e. Superintendence: Superintendence of Banks and Other Financial Institutions. f. Superintendent: Superintendent of Banks and Other Financial Institutions.
CHAPTER II
AUTHORIZATION REQUIREMENTS FOR TRADING IN THE SECONDARY MARKET
Article 4. Prior authorization regime.- The following shall be subject to public offering in the secondary market:
a. Securities of private issuers that have previously been placed in public offering in the primary market. b. Debt securities issued by the Ministry of Finance and Public Credit and the Central Bank of Nicaragua that have previously been placed in public offering in the primary market.
c. Debt securities issued by the Ministry of Finance and Public Credit and the Central Bank of Nicaragua placed directly outside of public offering that meet the requirements on securities subject to public offering and registration for this type of security provided for in the regulations governing the matter on public offering of securities in the primary market.
d. Debt securities issued by other State entities that have previously been placed in public offering in the primary market. e. Foreign securities previously placed in the primary market of another country and that have been authorized for trading through stock exchanges, in accordance with what is established in Chapter VI of this norm. f. Securities arising from a restricted public offering, which may only be traded between institutional or sophisticated investors. g. Unregistered securities arising from a private placement in the primary market as established in letter a) of Article 9 of this norm, which meet the registration requirements established in the regulations governing the matter of public offering of securities in the primary market, except for the prospectus. The provision in this letter also applies to shares granted to workers or employees of a company in accordance with labor incentive programs.

FORMS OF TRADING OF SECURITIES
CHAPTER III
Article 5. Intermediation in the secondary market.- Trades with securities subject to public offering that take place in the local secondary market must be carried out through authorized stock exchange positions and through the normal negotiation mechanisms of the stock exchange. Failure to comply with this provision will result in the annulment of the respective transaction, without prejudice to the administrative sanctions that may apply.
Stock exchanges shall establish in their regulations the negotiation mechanisms in the secondary market.
Article 6. Purchase and sale contracts of securities and repo operations.- The operations of purchase and sale of serial securities and repo operations, including optional repo operations, shall be traded in the normal mechanisms of the stock exchanges through the stock exchange positions. These trades shall be governed by what is established in the internal regulations of the stock exchanges.
Article 7. Acquisition by value other than purchase and sale and repo.- The acquisition of securities that takes place through non-onerous transfer shall not be carried out on the stock exchange. For such purposes, these transactions must be carried out through the respective stock exchange position acting as the custodian entity of the securities subject to the transfer. For such purposes, the custodian entity must maintain a register for these operations containing as a minimum: identification of the parties involved, identification of the securities, reason or cause of acquisition, and date of transfer.
Article 8. Trading of derivative products.- The trading of futures contracts, options (hedging instruments), swaps, and other derivative products shall be carried out by the stock exchange positions through the mechanisms organized by the stock exchanges, which must regulate these operations and the negotiation mechanisms in which they will be carried out. These regulations must be approved by the Superintendent prior to the trading of said operations.
Article 9. Trading of unregistered securities derived from private placements.- Unregistered securities derived from private placements in the primary market may be traded in the secondary market in the following manner:
a) In public offering, through the normal negotiation mechanisms:

1. At the option of the issuer, at any time after being placed in the primary market, or at the option of a holder of the securities, provided that two (2) years have elapsed since the date of issuance. For such purposes, the issuer shall proceed to register them in the Securities Registry of the Superintendence as established in the regulations governing the matter of public offering in the primary market and must comply with the periodic information and communication of material events requirements established in this norm.
2. Of an obligatory nature, when it concerns securities representing capital instruments, in the following cases:
   i. When on the date of the last closing of the fiscal year, the capital of the entity is distributed among a number greater than fifty (50) investors. The foregoing is excepted when a number of investors with representation of more than eighty percent (80%) of the share capital approve continuing as an unregistered entity; or
   ii. When on the date of the last closing of the fiscal year, the capital of the entity is distributed among a number greater than one hundred (100) investors. The foregoing is excepted when one hundred percent (100%) of the investors approve continuing as an unregistered entity.
   In both cases, the certification of the minutes of the general shareholders' meeting in which the approval to continue as an unregistered entity is recorded must be sent to the Superintendent; otherwise, the issuer shall proceed to register them in the Securities Registry of the Superintendence as established in the regulations governing the matter of public offering in the primary market and must comply with the periodic information and communication of material events requirements established in this norm.

b) In private negotiation in the secondary market, stock exchanges may authorize the trading of unregistered securities. These securities cannot be subject to public offering, and may only be traded in transactions separate from the market for public offering negotiation and directed to sophisticated and institutional investors. For such purposes, the provisions on private trading of unregistered securities contained in Annex 1 of this norm, which is an integral part of it, must be complied with. Entities that participate in the intermediation of these securities must conserve the documentation that verifies that they do not require registration because they do not fall within the conditions of public offering established in the regulations governing the matter of public offering in the primary market and that they have been offered only to sophisticated and institutional investors. The statistics of the stock exchanges on the trading in the secondary market of unregistered securities must be segregated from the statistics of public offering securities and will not be publicly accessible. The aforementioned information must be sent to the Superintendent within the timeframes and format that it establishes.
CHAPTER IV
PERIODIC INFORMATION
Article 10. Information to be disclosed by issuers.- Issuers of local securities traded in the secondary market must present the following minimum information to the Superintendent:
a. Annual:

1. Financial statements of the last accounting period audited by an audit firm registered in the External Auditors Registry of the Superintendence. The required statements will be: balance sheet, income statement, statements of changes in net equity, and statement of sources and application of funds.

2. Report of external auditors.

3. Annual report of the Board of Directors to the General Assembly of Shareholders.

4. Certification of minutes of the General Assembly of Shareholders where the approval of dividend distribution is recorded, if any.

5. Annual Report.

6. Any other that the Superintendent determines.
   b. Quarterly:

7. Accumulated Balance Sheet and Income Statement for the period.

8. Variations in the financial statements during the quarter.
   Annual reports must be presented to the Superintendence within three (3) months following the closing date. Quarterly reports on the last day of the month following the last quarter.
   Likewise, the aforementioned information must be available to the public by physical or electronic means, at the respective stock exchange, at the stock exchange positions that intermediated them, and at the offices of the issuer. However, if investors require physical information, it must be provided at their own expense. National issuers must publish once a year, in at least one newspaper of national circulation, the audited Balance Sheet and Income Statement of the issuer. The foregoing requirements do not prevent stock exchanges from establishing, by regulatory means, additional information requirements.
   CHAPTER V
   MATERIAL EVENTS
   Article 11. Material Events.- Material events are considered all essential information regarding issuers that may positively or negatively affect their legal, economic, and financial situation or their position or that of their securities in the Market. An essential fact or information is understood to be that which a prudent person would consider important for their investment decisions. Material events include, among others, situations or facts related to:
   a. The economic efficiency of the issuer, such as:

9. Significant decrease in the value of the company's assets due to deterioration of the situation of important debtors or companies in which it has investments.

10. Partial or total suspension of operations.

11. Significant variations in the conditions of its assets and liabilities (interest rates, terms, etc.).

12. Sale or acquisition of productive assets of the company that represent twenty percent (20%) or more of the total.

13. Any extraordinary investment that may have an important impact on the financial situation of the issuer, or modify it, that affects by more than twenty percent (20%) the total value of the assets.

14. Revaluation of fixed assets, provided that the impact on equity is greater than ten percent (10%).

15. New guarantees constituted on the issuer's assets or the granting of guarantees and sureties that affect by more than twenty percent (20%) the total value of the assets.

16. Distribution of profits, either by payment of cash dividends or shares.
    b. The legal structure of the issuing entity, the organization of the business, and its administration or negotiation bodies:

17. Modification to the Deed of Incorporation, such as:
    i) Increase or decrease in capital; ii) Change in denomination; iii) Change of domicile of the company; iv) Duration of the company; among others.

18. Acquisitions or sales of shares of the company by shareholders who directly or indirectly have a participation equal to or greater than ten percent (10%).

19. Repurchase of shares of the own company explaining the intention of the operation.

20. Changes in the composition of the Board of Directors and the main executive.

21. Mergers, acquisitions, strategic alliances, transformations, spin-offs, or any other type of corporate operation that implies changes in the company.

22. Participation in subsidiaries or significant investment in other companies.
    c. Other events considered material events that must be reported:

23. Judicial actions of any nature initiated by or against the issuer, for an amount equal to or greater than 10% of the issuer's net equity or that may otherwise affect the company's performance prospects, as well as the development of said process.

24. Administrative sanctions imposed on the issuer.

25. Initiation of new activities or businesses.

26. Important changes in market conditions.

27. The announcement to exercise in advance the right of redemption when the same has been included in the characteristics of the emission registered in the Superintendence.

28. Changes in the accounting closing policies of the issuing company.

29. Subscription, modification, or termination for any cause of contracts or conventions that are important for the company.

30. Variations of 20% of the annual financial projections of the company presented in the informative prospectus. Reference variable: Cash flow from operating activities.

31. Deterioration of assets given as guarantee of the emission or of the financial situation of the guaranteeing companies.
    It is expressly understood that the aforementioned list has illustrative purposes only, and does not constitute a taxative or exclusive list of events or occurrences that are considered material events.

Article 12. Form and content of communication.- Material events must be communicated in writing to the Superintendent in a clear, complete, and objective manner, indicating at the same time their respective effect or influence. Such communication must contain, as a minimum, the following data:
a. Identification of the issuer. b. Place and date of issuance of the communication.
c. The date of occurrence of the material event.
d. Background or circumstances that gave rise to the material event. e. Clear and complete description of the material event.
The communication on material events must be signed by the person who legally represents the issuer or who is duly authorized for this purpose by its Board of Directors. A copy of the same must be delivered to the stock exchanges in which the issuer is registered.
Article 13. Publication.- The issuer must, within three (3) calendar days subsequent to the occurrence of the material event, make it known to the public in the following manner:
a. Physically in the offices of the issuer and of the stock exchange positions that have intermediated the corresponding securities. b. Through the issuer's Web page, the respective stock exchanges' Web pages, and the stock exchange positions that have intermediated the corresponding securities. This same applies to the case of foreign securities issuers. Stock exchange positions must inform investors of the respective Web pages or the places where they can have access to this information. Additionally, the respective issuers may communicate material events by any of the following means:

1. Paid announcements in newspapers of national circulation.

2. National broadcast television media.

3. Electronic networks for the dissemination of financial information.
   The foregoing is without prejudice to the communication that must be addressed to the Superintendent within the aforementioned same timeframe.
   Article 14. Publication of other facts or circumstances of interest to the investor or general public.- The Superintendent may order the issuer to publish, within a peremptory timeframe, in at least one newspaper of national circulation, any material event mentioned in Article 11 of this norm, or any other fact or circumstance that it considers should be known by the investor and the general public.
   Such publications will be at the expense of the issuer and must contain, as a minimum, the requirements indicated in Article 12 of this norm. Likewise, these publications must be legible, requiring for this purpose a font type and size equal to or greater than "Arial 11".
   Article 15. Reserved Information.- All acts prior to the adoption of decisions that have the consideration of material are excluded from the duty of information to the public under the terms established in this norm.
   However, when the issuer considers that the disclosure of the material event subject to information will significantly harm it, it must request authorization from the Superintendent for the fact not to be published, fully justifying the reasons for it.
   CHAPTER VI
   FOREIGN SECURITIES
   Article 16. Requirements for the registration of securities of issuers of a public nature and international organizations.- Securities issued by foreign States and Central Banks and by Regional or International Financial Organizations of which the State of Nicaragua is a member, placed in the primary market of foreign markets, may be subject to public offering and traded through stock exchanges in the secondary market; provided that the issuer or a specially authorized stock exchange position requests their registration and complies with the following minimum requirements set forth below:
   a. Request for authorization of Public Offering of Securities. b. Description of the characteristics of the emission.
   c. Authenticated copy of the certification of registration of the securities in the supervisory institution of the country of origin, if applicable.

d. Certification of the registration of the foreign securities in a national stock exchange, if applicable. e. Copy of the agreement or resolution of the higher instance of the entity that authorizes the issuance of said security or of the respective Legislative Decree. Likewise, if applicable, a copy of the informative prospectus or document that describes the main characteristics of the securities. The prospectus or, if applicable, the annex, must be presented in Spanish, but additionally may be presented in English. f. Mechanisms that will be used for the placement, clearing, and settlement of the securities to be traded. g. Country risk rating issued by a recognized international risk rating firm, for the case of sovereign emissions. For the case of emissions by international organizations, the risk rating of the issuer by an internationally recognized risk rating firm will be required. The authenticity of the documents mentioned in letters b) and c) of this article must be demonstrated through the corresponding consular procedure.
Article 17. Requirements for the registration of other securities of foreign issuers.- Securities issued by foreign private companies may be subject to public offering and traded through stock exchanges in the secondary market, provided that the issuer, through a specially authorized stock exchange position, manages its registration, complies with the minimum requirements set forth below, and presents to the Superintendence, at least, the following documents:
a) Certification of Minutes of the Board of Directors or the competent body of the issuer where the request for registration for trading in the secondary market is agreed. It will be necessary that the respective agreement expresses that such request is to place securities in Nicaragua, in the secondary market. b) Power of representation granted by the foreign issuer to the specially authorized stock exchange position. c) Authenticated copy of the certification of registration of the securities in the supervisory institution of the country of origin. d) Copy of the informative prospectus of the emission or document that serves as its substitute. e) For debt securities, the risk rating of the securities issued by a recognized international risk rating firm.

f) Annual audited financial statements, as well as the quarterly financial statements presented to the supervisory entity of the country of origin.

g) That they originate from a country where an organized securities market operates, which contains supervision requirements similar to or superior to those of Nicaragua. It shall be presumed that countries represented in the International Organization of Securities Commissions, known by its English acronym as “IOSCO,” and the members of the Association of Central American, Panamanian, and Dominican Republic Stock Exchanges, known as “BOLCEN,” meet this condition.

Article 18. Purchase and sale of unregistered foreign securities.- Stock exchanges specially authorized may receive buy or sell orders for unregistered foreign securities and transmit them to authorized intermediaries in foreign markets, provided that the effective trading of the securities takes place in a foreign market and the Nicaraguan stock exchange has not made any type of offering to investors regarding the securities subject to the trade. For these purposes, specially authorized stock exchanges must keep a record of these operations and disclose in the execution confirmation of investment orders that the stock exchange did not make any type of offering.

Investors who are institutional or sophisticated, and operations carried out under the umbrella of an individual portfolio management contract, are exempt from the aforementioned scenario, provided that the investor expressly authorizes investment in this type of unregistered securities in the aforementioned contract.

The securities referred to in this article cannot be subject to a public offering.

Article 19. Contract for the purchase and sale of foreign securities.- Operations carried out by specially authorized stock exchanges on behalf of third parties, under the provisions of this Chapter, must be backed by a service contract containing at least what is established in the regulations governing the matter on the functioning of stock exchanges and their agents.

Article 20. Information Duties of Issuers.- Issuers, through the stock exchanges specially authorized to trade foreign securities, must make available, physically or electronically, to clients offered this type of security the following updated information:

a. Periodic information about the issuer required in articles 10 and 11 of this norm (only applies to private issuers).

b. Characteristics of the securities such as: maturity term, nominal value of the securities, interest rate, method of payment of interest and principal, guarantees, and settlement method.

c. Copy of the offering memorandum of the issuance or document that serves as its equivalent, which meets, at least, the characteristics required for prospectuses for local issuers according to the regulations on the matter.

d. Rating of the issuance in the case of debt securities, and of the issuer in the case of equity securities. In both cases, the rating must be issued by an internationally recognized rating agency, and must include country risk. For this purpose, only the following are considered internationally recognized risk rating agencies: Fitch IBCA; Standard & Poor’s; Moody’s Investor Services; and Dominion Bond Ratings.

All information referred to in this article must be presented in Spanish and will be of a public nature and must be available to the investor.

Article 21. Authorization Process.- Only those Stock Exchanges specially authorized by the Superintendence may trade foreign securities, for which they must submit an authorization request and meet the requirements detailed below:

a. Have contracts that allow direct access, to at least, one international system of information on investments in foreign securities and, in particular, on the securities that will be traded (such as Bloomberg, Reuters). This system must provide real-time information on the quotation prices of such securities.

b. Have a computer system that meets the minimum technological characteristics contained in the following article of this norm.

c. Have trained personnel for the analysis of investments in foreign securities, who must meet the requirements established in article 24 of this norm.

d. Any other requirement determined by the Superintendent to safeguard the interests of investors.

The authorization granted by the Superintendence will have a maximum duration of one year, and its renewal will be subject to a prior evaluation by said entity regarding compliance with the requirements considered for its initial authorization. If the evaluation results in the stock exchange lacking the capacity or necessary means to execute such operations, the renewal will not be granted.

Similarly, the authorization will be revoked if, within the year of authorization, the requirements considered for its authorization deteriorate.

Article 22. Technological Characteristics to Carry Out Operations with Foreign Securities.- Without prejudice to what is established in the regulations governing the matter of technological risk and stock exchanges, to carry out operations with foreign securities, Stock Exchanges must meet, at a minimum, the following characteristics:

a. Incorporate client information into a database, which must be kept updated.

b. Have the following security and fault tolerance policies duly documented:

1. Information backup policy.
2. Physical security and access policy to computer systems.
3. Continuity and contingency plan in case of failures in technological infrastructure.

c. Any other characteristic determined by the Superintendent.

Article 23. Procedures Manual.- Stock Exchanges must have a Procedures Manual to carry out the trading of foreign securities, which must be sent to the respective stock exchanges and must include, at a minimum, a description of the following procedures:

a. The receipt and delivery of client funds to acquire foreign securities;

b. The purchase of securities;

c. Accounting;

d. The documentation filing system that supports the accounting records of transactions carried out;

e. The client contract or order to carry out the operation and;

f. Information disclosure policies.

Article 24. Authorized Personnel to Carry Out Operations with Foreign Securities.- Specially authorized stock exchanges must have the necessary and qualified personnel to carry out operations with foreign securities. To this effect, such personnel must meet the following minimum requirements:

a. Be authorized as a stock agent by a stock exchange.

b. Be registered with the Superintendence as a stock agent.

c. Be certified by the stock exchanges to carry out stock market operations with foreign securities.

d. Any other requirement determined by the Superintendent.

Article 25. Certification by the Stock Exchange.- The stock exchange must train and evaluate the personnel of the stock exchanges that will carry out stock market operations with foreign securities, administering an exam that accredits general knowledge and mastery of, at least, the following topics:

a. Operations in international markets.

b. Investment instruments in international stock markets.

c. Financial terminology of international markets.

d. Portfolio management, risks, fixed income, variable income, derivatives, and other instruments.

e. English language in those cases where the nature of the securities to be traded requires it.

The content of the training program and the question matrix that will serve as the basis for the corresponding exams must be reported to the Superintendent, who may make observations and issue instructions deemed necessary.

The stock exchange will certify those stock agents who pass the corresponding exam.

Article 26. Custody of Foreign Securities.- The custody of foreign securities registered in accordance with articles 16 and 17 of this norm will be the responsibility of a national custody entity, authorized by the Superintendence; however, it may sign contracts with foreign custody entities, in which physical custody or book entry of the securities may be delegated. In all cases, the national custody entity will be responsible for verifying the existence, veracity, accuracy, and efficient handling of the book entry system or the corresponding deposit and physical custody of the securities, and in the latter case, it will at all times be responsible to the holder for ensuring the integrity of the securities.

Article 27. Payment Obligations.- Stock exchanges will be responsible to the investor for the fulfillment of payment obligations corresponding to the issuer, provided that the issuer has made the corresponding payment to its international paying agents and these have made the corresponding transfer to the exchange.

Article 28. Duty of Periodic Information to the Superintendence.- Stock exchanges must report weekly to the Superintendence on the operations they carry out with foreign securities, indicating, at least, the nature of the operation, the type of security traded, the issuer, and the amount of the operation.

CHAPTER VII
FINAL PROVISIONS

Art. 29. Repeals.- The Norm on Securities Trading in the Secondary Market, contained in Resolution CD-SIBOIF-488-1-JUL6-2007, dated July 6, 2007, published in La Gaceta, Official Diary No. 161, of August 23, 2007, is hereby repealed.

Art. 30. Validity.- This norm will enter into force from its publication in La Gaceta, Official Diary.

ANNEX 1
TRADING OF SECURITIES NOT REGISTERED IN THE SECONDARY MARKET

I. Authorization Requirements.- The trading of securities not registered in the secondary market that were previously placed in a private offering in the primary market as established in the regulations governing the matter on public offering of securities in the primary market, will be subject to prior authorization by the respective stock exchange. This authorization will be conditioned on the presentation by the issuer, through the representative stock exchange, of the following minimum information:

a. Legal name of the issuer and characteristics of the security to be traded.

b. Deed of incorporation and bylaws.

c. Resolution of the competent body authorizing the issuance.

d. Tax aspects.

e. Competent jurisdiction for investor claims.

f. Copy of the issuer's audited financial statements for the last fiscal period.

g. Settlement mechanism for transactions.

II. Requirements for Trading.- For the carrying out of the trades referred to in these provisions, stock exchanges and stock exchanges must meet the following requirements:

a. Operations must be carried out in transactions separate from the market for public offering securities.

b. These securities can only be traded between institutional or sophisticated investors;

c. These securities cannot be part of investment fund portfolios.

d. In investment confirmations, as well as in the contracts signed with clients, the client's acceptance and knowledge of the nature of these operations and that the operation was made under the responsibility of the parties must be expressly stated.

III. Internal Regulations.- Stock exchanges must incorporate into their internal regulations within a period of three months the necessary procedures to ensure compliance with the provisions established in this annex.

(f) J. Rojas R. (f) V. Hurtado (f) Gabriel Pasos Lacayo (f) illegible (Silvio Moisés Casco Marenco) (f) Fausto Reyes B. (f) A. Morgan Pérez. Ad hoc Secretary”

URIEL CERNA BARQUERO

Secretary of the Board of Directors SIBOIF