The disclosure of accurate, comprehensive and timely information about issuers of public securities (i.e. securities that (i) have been placed through public offering and/or (ii) are admitted for trading to a stock exchange) is essential to allow an informed assessment of their business performance and assets and to build sustained investor confidence in capital markets.

Under the laws of Georgia issuers of public securities are obliged to disclose (subject to certain exemptions) the regulated information as well as to disseminate such information to the public.

The legal requirements concerning the disclosure of regulated information and its dissemination to the public are provided for by:

1. the Law of Georgia on Securities Market (the “Securities Market Law”);
2. the Decree No. 181/04 of the President of the National Bank of Georgia on Approval of the Rules on Transparency of Issuer related Information and Appointment of Securities’ Registrar for an Issuer, dated 7 October, 2020 (the “Decree No. 181/04”); and
3. the Decree No. 180/04 of the President of the National Bank of Georgia on Approval of Rules related to Insider Trading, Unlawful Disclosure of Inside Information and Market Manipulation, dated 7 October 2020 (the “Decree No. 180/04”).

In general, the regulated information consists of:

(i) yearly and half-yearly financial information;

(ii) on-going information on major holdings of voting rights; and

(iii) ad hoc information disclosed with respect to insider dealing and market manipulation.

All above referred information is discussed in more detail below.

Financial information

The Securities Market Law and the Decree No. 181/04 require an issuer of both public equity securities and public debt securities to publish periodic financial information on their income throughout the financial year. In particular, such issuers shall publish:

1. audited annual financial statements as well as management statements for a business year; and
2. semi-annual financial statements as well as management statements for the first six months of a business year.

Major holdings of voting rights

In addition to the above, the Securities Market Law and the Decree No. 181/04 oblige an issuer of public equity securities to publish continuous information concerning the possession of significant percentages of voting rights.

For purposes of disclosure of significant percentages of voting rights the issuer of public equity securities is an issuer whose voting equity securities:

1. have been placed through a public offering; and/or
2. have been admitted for trading to a stock exchange (the “Issuer”)

Furthermore, the above referred obligation of disclosure applies to holders of Issuer’s voting equity securities (the “Public Securities”). 

For purposes of disclosure of information on major holdings of voting rights, the holder of a Public Security is a person who holds (directly or indirectly):

1. a Public Security in its name and for its own benefit;
2. a Public Security in its name and for the benefit of a third party;
3. a depository receipt. In this case the holder of a depository receipt is deemed to be a holder of a Public Security represented by such depository receipt.

The Decree No. 181/04 requires the holder of the Public Securities to submit to both the regulator and the respective Issuer a notification (the “Notification Requirement”), should the proportion of voting rights attached to the Public Securities held by it reach, exceed or fall below 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%.

The Notification Requirement applies to the current as well as former holder of the Public Securities, in particular, when its share falls below any of the above-referred threshold.

The Notification Requirement shall also extend to:

1. a person or each member of a group of persons acting in concert who is entitled to acquire, to dispose of, or to exercise voting rights in any of the following cases or a combination of them:

1. a person has concluded an agreement with a third party, which obliges them to adopt, by concerted exercise of the voting rights they hold, a lasting common policy towards the management of the Issuer in question;
2. a person has an agreement with a third party providing for the temporary transfer of the voting rights in question;
3. the Public Securities are lodged as collateral in favour of a person whereby it disposes of the voting rights or declares its intension of exercising them;
4. the voting rights are held by a third party in its own name and for the benefit of a person (including the case when a person holds the Public Securities in a nominee holding whereby it can exercise the voting rights without specific instructions from the Public Securities’ holder);
5. a person, within the scope of its representative authority, can exercise the voting rights at its discretion without specific instructions from the Public Security holder.

2. a person holding (directly or indirectly):

1. financial instruments that, on maturity, give the holder, under a formal agreement, either the unconditional right to acquire or the discretion as to his right to acquire the Public Securities;

2. financial instruments that give the holder the right similar to that of the financial instruments referred to in Item (b)(1) above (whether or not they confer a right to a physical settlement).

Furthermore it should be stressed that the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% shall be calculated on the basis of all Public Securities to which voting rights are attached even if the exercise of the votes is suspended. However, the Pubic Securities, with respect to which the voting rights should be ignored, shall be disregarded.

The above information shall also be given in respect of all Public Securities which are in the same class and to which voting rights are attached.

It is noteworthy that the Decree No. 181/04 has extended the requirement to notify the threshold crossing to financial instruments which give entitlement or the ability to acquire the Public Securities with a comparable economic effect.

Broadening of the Notification Requirement to all financial instruments of similar economic effect to holdings of Public Securities and entitlements to acquire the Public Securities is another significant breakthrough to mention.

Moreover, to provide a sufficient level of transparency with regard to major holdings, holdings of financial instruments will be aggregated with holdings of Public Securities for the purpose of calculation of the thresholds that trigger the Notification Requirement.

However, to avoid any confusion as to the nature of holdings, the holder of Public Securities and financial instruments has to specify separately the amount of holdings of Public Securities and the amount of holdings of financial instruments in its notification.

In addition to the above, the Notification Requirement applies to:

(1) the holder of the Public Securities in the circumstances where any of the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% is reached, exceeded or fallen below:

1. as a result of the new distribution of voting rights; or
2. based on the information to be disclosed due to a change in the total number of the Public Securities or total voting rights on the first business day following a calendar month[1].

(2) the issuer of the Public Securities, should the proportion of voting securities held by it reach, exceed or fall below 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%.

Furthermore, the Decree No. 181/04 clarifies that the Notification Requirement does not extend to:

1. holder of Public Securities who holds such securities for the sole purpose of clearing and settling, and/or the nominee holder of Public Securities where such nominee holder can exercise the voting rights attached to such securities under instructions given in writing or by electronic means;

2. the Public Securities held by a commercial bank or a brokerage company for trading purposes, should the following conditions be met:

1.  the voting rights proportion with respect to the Public Securities held for trading purposes do not exceed 5%; and
2. the voting rights attached to the Public Securities held for trading purposes are not exercised or used.  

Inside Information

In addition to disclosure of financial information an issuer of both public equity securities and public debt securities shall also disclose inside information.

The prompt public disclosure of inside information by an issuer is essential to avoid insider trading and ensure that investors are not mislead.

The Securities Market Law as well as the Decree No. 180/04 requires that (among others) issuers of public securities inform the public as soon as possible of inside information, such as, for instance, significant changes in the value of issuer’s assets, undertaking of new obligations, merger or division or any other type of reorganization, changes related to an issuer’s investment policy, etc. subject to meeting other criteria of inside information.

The Securities Market Law provides for a lengthy definition of inside information. However, the most important elements of such definition to mention are: (i) the precise nature of such information and (ii) the significance of its potential effect on the prices of the public securities.

For instance, the state of contract negotiations or the possibility of the placement of public securities may be relevant information for investors, however, such information is not sufficiently precise to qualify as inside information. In such cases, the prohibition against insider dealing should apply, but the obligation on the issuer to disclose the information should not.

Same time issuers are allowed to delay the public disclosure under specific conditions. Allowing for such a delay is especially significant for issuers who are systemic financial institutions not to damage the wider public interest of maintaining the stability of the financial system.  

Managers’ transactions

The Securities Market Law as well as the Decree No. 180/04 requires persons discharging managerial responsibilities as well as parties related thereto to notify the issuer of public securities and the regulator of transactions conducted on their own account relating to the securities of that issuer and/or to other financial instruments linked to them (the “Notification”)).

Persons discharging managerial responsibilities are defined as follows:

1. a member of the Board of Directors and/or the Supervisory Board of an issuer; and
2. any other person discharging managerial responsibilities within an issuer (other than a person referred to in item (a) above) who has a regular access to the inside information directly or indirectly related to the issuer and who is entitles to make a managerial decision that may influence the development and the business perspective of an issuer.

As for a related party, it is:

1. a spouse, a minor child or a child receiving support;
2. a relative who lived in the same family for at least one year before the day on which the transaction occurred; and
3. a legal entity or organization without a legal personality whose managerial or representative function is imposed on a person discharging managerial responsibilities or on person referred to in items (a) or (b) above that is directly or indirectly subject to a control of such person, created in favor of such person or whose economic interests are mostly identical to the interest of such persons.

Issuers shall draw up a list of persons discharging managerial responsibilities and parties related thereto and shall inform persons discharging managerial responsibilities of the Notification requirement. Persons discharging managerial responsibilities shall, in their turn, inform the related parties of the same requirement.   

It should be underlined that the Notification requirement shall apply to persons discharging managerial responsibilities as well as parties related thereto, should the total value of all transactions made by each of them over the period of a calendar year reach GEL 20,000 or its equivalent in a foreign currency.

The issuer shall publish the Notifications in a due course, however, no later than three business days from the day on which the transaction has been made. 

It should also be stressed that transactions to be notified shall include:

1. the pledging or lending of securities by or on behalf of persons discharging managerial responsibilities and parties related thereto;
2. transactions undertaken on behalf of persons discharging managerial responsibilities as well as parties related thereto or transactions undertaken by a person who performs transactions within the scope of his professional activities (including transactions where discretion is exercised by the denoted persons).

It should be noted that transparency of transactions conducted by persons discharging managerial responsibilities at the issuer and thereto related persons, constitutes a preventive measure against market abuse.

The threshold of GEL 20,000 or its equivalent in a foreign currency (below which transactions shall not be notified) represents a reasonable balance between the level of transparency and the number of reports notified to the regulator and the public.