This content is from: Local Insights

Colombia facilitates proxy voting rules

The growing interest of foreign investors in the Colombian capital markets has increased portfolio investments in local securities to year records. This has led the Superintendence of Finance (SFC) to regulate proxy voting on local listed securities by foreign investors.

External Circular 022 of 2012 details proxy voting for foreign investors through local securities depositaries and adds new duties in connection with their interaction with foreign depositaries.

This new regulation adds to existing foreign exchange rules which require that foreign investors engage a local administrator to act on their behalf for compliance with registry requirements before the Central Bank (commonly, foreign investors or their custodians engage local stock brokers as their administrators for these purposes).

Carlos Fradique Me´ndezLuis Gabriel MorcilloRocio del Pilar Trujillo

When such foreign investors, where acting through global accounts held in the local securities, deposit without disaggregating ultimate beneficiary owners, it was not certain how the ultimate owner may exercise its rights in shareholders meetings. Therefore the SFC issued External Circular 022 to coordinate the exercise of foreign shareholders' rights in the general meetings of Colombian issuers.

Pursuant to the regulation, based on the information sent by the local issuer, the local depositary must notify to the foreign depositary information about the shareholders meeting, including all the relevant information for decision making and two forms: the voting form and the form of the power of attorney to be granted to a local representative (usually the same local administrator appointed for foreign exchange purposes). The local depositary should also indicate exact timing to consolidate the votes of foreign investors.

With respect to those securities which are not disaggregated in the global account at the local depositary, the foreign depositary must issue a certificate addressed to the local depositary indicating valid title to vote within at least three business days before the date of the shareholders meeting. This certificate may be collective or individual, and will be sent by the local depositary to the Colombian issuer to allow the foreign investor's participation in the shareholders meeting.

After this coordination process takes place between the depositaries, foreign investors may participate in the meeting either directly if the foreign investor wants to be physically present at the meeting, or indirectly using proxy voting as explained above. In this case, the representative of each foreign investor has to inform to the local depositary of the meeting's decisions and, in turn, the latter will inform the foreign depositary who will update the ultimate owners.

This new regime intends to coordinate proxy voting between the different entities involved in portfolio investments in Colombia, facilitating the role of both the issuer and the local depositary to collect voting intentions of foreign investors when their interests where held through disaggregated global accounts.

Luis Gabriel Morcillo, Carlos Fradique-Méndez and Rocio del Pilar Trujillo

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