Globalization of Disclosure Standards

1. OECD Principles of Corporate Governance

The introduction to this manual points out the importance of standardization to company behavior on the market, in conditions of globalization. The OECD Principles of Corporate Governance constitute an approach toward such standardization that alongside member countries starts to be implemented by the rest of the world as well.

Regarding disclosure issues, the OECD Principles suggest that

“…timely and accurate disclosure be made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company.”48

The key concept that underlies OECD’s recommendation is the concept of materiality. Material information is information, the omission or misstatement of which could affect economic decisions taken by the users of that information.

The implementation of the materiality concept allows companies avoid overly detailed disclosure that is ultimately irrelevant to shareholders. It should, however, be realized that materiality is a relative concept that depends on the context. For example, damage of MKD 250,000 (approximately U.S. $ 6,000) in a large publicly traded company is, clearly, of little importance to the investor. It may, on the other hand, be material to a small family-owned business. Therefore, materiality is often difficult to define with great precision in practice.

Best Practices: The OECD principles call for disclosure of all material information in the

following areas:

• Financial and operating results of the company; • Company objectives;

• Shareholdings and ownership structure;

• Directors and key executives, as well as their remuneration; • Material foreseeable risk factors;

• Material issues regarding employees and other stakeholders; and • Governance structure and policies.

48

OECD Principles, Principle IV on Disclosure and transparency. See also: www.oecd.org/ dataoecd/32/18/557724.pdf.

2. IOSCO Principles

On international level, securities commissions (national regulatory bodies in the field of securities) are organized in the International Organization of Securities Commissions (IOSCO). The objectives of this organization are: to promote high standards of regulation in order to maintain efficient securities markets, to exchange information, to establish an effective surveillance of international securities transactions, and to promote the integrity of the markets by a rigorous application of the standards. Macedonia is ordinary member of this organization, and is therefore obliged to respect its principles.

The document Objectives and Principles of Securities Regulation constitutes the foundation for development of the securities markets regulation. It sets out 30 principles of securities regulation, which are based upon three objectives of securities regulation. These are:

• Protection of investors;

• Ensuring that markets are fair, efficient, and transparent; and • Reduction of systemic risk.

The chapter of the document which discusses investor protection gives particular attention to disclosure, suggesting that:

“Full disclosure of information material to investors’ decisions is the most important means for ensuring investor protection. Investors are, thereby, better able to assess the potential risks and rewards of their investments and, thus, to protect their own interests. As key components of disclosure requirements, accounting and auditing standards should be in place and they should be of a high and internationally acceptable quality.”49

According to IOSCO principles for issuers:

• There should be full, accurate and timely disclosure of financial results and other information which is material to investors’ decisions;

• Holders of securities in a company should be treated in a fair and equitable manner; and

49

Objectives and Principles of Securities Regulation, OICU-IOSCO, May 2003. See also: http://www.iosco.org/library/pubdocs/pdf/IOSCOPD154.pdf. (p. 5)

• Accounting and auditing standards should be of a high and internationally acceptable quality.50

Best Practices: The Technical Committee of the International Organization of Securities

Commissions (IOSCO) has developed more detailed, high-level principles for ongoing disclosure and material development reporting for listed entities. These principles are: • Materiality of information for an investor’s investment decision;

• Disclosure on a timely basis — immediate or periodic;

• Simultaneous and identical disclosure in all jurisdictions in which the entity is listed; • Dissemination of information by using efficient, effective, and timely means;

• Disclosure criteria fairness, without misleading or deceptive content and containing no material omission;

• Equal treatment of disclosure — no selective disclosure to investors and others before public disclosure; and

• Compliance with disclosure obligations.

3. Transparency Directive

The Transparency Directive of the EU51 (Directive on the harmonization of

transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market) is aimed at

establishing fundamental principles on which the unique securities market of the Union should be based. The improved harmonization of Union’s national legislations regarding provisions relating to requirements for periodic and ongoing disclosure by securities’ issuers, should add to higher investor protection in the Union.

The disclosure information required by the Transparency Directive includes:

• Annual financial statements; • Semi-annual financial statements; • Information on major shareholders; and • Additional information.

50

Objectives and Principles of Securities Regulation, OICU-IOSCO, May 2003. See also: http://www.iosco.org/library/pubdocs/pdf/IOSCOPD154.pdf. (p. 22)

51

On December 15 2004 were enacted the amendments of the 2001 directive. Currently is in effect the Directive 2004/109/EC on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC.

The principles of this directive have been incorporated in Macedonia securities markets regulations.

4. Prospectus Directive

The aim of the Union’s Prospectus Directive52 (Directive on the prospectus

to be published when securities are offered to the public or admitted to trading) is to harmonize the requirements for preparing, approving, and

distributing the prospectus that needs to be published when securities are offered to the public or are admitted to trading on a regulated market which operates in an EU member country. It ensures both higher investor protection and market efficiency.

The principles of this directive have been incorporated in the Macedonia Securities Law and in the listing rules of the Macedonian Stock Exchange.

5. Disclosure Regulations in Macedonia

The main Macedonian statutes relevant to disclosure are the Company Law and the Securities Law, along with the by-laws related to them. In that respect, the Law on Takeovers is also worth of mentioning, as it stipulates the disclosure requirements relating to takeover procedures (see Table 5 in section E of this chapter).

Regarding the regulations in this area, of particular importance are, certainly, the regulations of the Macedonian Stock Exchange, as a self regulating institution: the listing rules and the corporate governance code.