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The Securities Act of Chile prohibits insider trading and the misuse of privileged information. It states that all people who have access to privileged information, resulting from their office, position, activity or relationship, must keep it confidential and may not use it for their own benefit or that of a third party. Nor may they acquire securities for themselves or for a third party, directly or indirectly, based on such privileged information. Tipping privileged information is also prohibited, and those who handle privileged information have the obligation to control and supervise that their employees and related third parties abide by this rule.

Privileged information is defined as any information which: (i) is related to one or more issuers, their businesses or one or more securities issued by them; (ii) has not been disclosed to the market: and (iii) is sufficiently relevant to influence the price of issued securities. Also included in the definition of privileged information is essential information which a board of directors has agreed to keep confidential pursuant to the Securities Act and the Corporations Act. Any information regarding the purchase or sale of securities carried out in the market by institutional investors also falls within that definition.

Any person who handles privileged information will be deemed an "insider". The Securities Act lists those people to whom a presumption of access to privileged information attaches. These include directors, managers and administrators. They also include the liquidators of issuers and institutional investors or of certain of their affiliates, brokers, auditors, rating agencies and their controllers, partners and administrators. Individuals who have family relationships with directors, managers, administrators and liquidators of issuers or institutional investors are also considered insiders. Resignation from a position giving insider status does not release a person from the obligations imposed on it by these provisions.

Brokers and dealers are not exempt from the insider trading rules. They are permitted, however, to trade securities related to privileged information they possess if they comply with the following requirements: (i) trading must be on behalf of third parties; (ii) the purchase or sale order must be given by that third party; and (iii) that third party must not have received any advice or recommendation from the broker or dealer relating to the securities traded.

The Securities Act provides a number of mechanisms for the control and enforcement of insider trading provisions. It requires auditors to give their opinion in respect of the mechanisms that a company has implemented to enforce prohibitions on insider trading. The Act also states that any person who participates in decisions and transactions related to securities carried out by institutional investors and intermediaries of securities (including people who, due to their office or position, have access to privileged information relating to the transactions carried out by such entities) must inform the company's management about any and all purchases or sales of securities to which that person was party, no later than 24 hours after the transaction was made.

The Securities Act states that corporations whose shares are registered in the Securities Registry must inform the Superintendent of Securities and Insurance (SVS) and the stock exchanges of all transactions involving their shares carried out by "related entities". The criteria used to determine which people or entities are related to each other are: (i) whether there is an ownership relationship between them (ownership of 10% of the voting stock of a corporation or the right to appoint at least one member of its board of directors is enough to deem entities and or individuals as related to each other); (ii) whether they share a controlling entity; (iii) whether one person or entity has a material influence on the management of the other, and (iv) whether two people or entities have an express or implied agreement to manage a third entity jointly.

Any person or entity adversely affected by violations of insider trading restrictions and rules is entitled to claim damages. Even if there are no actual damages that stem from insider trading, the law provides that any benefit received by the violator(s) from such insider trading must be forfeited to the state treasury. The law makes it a crime for any person or entity to whom a presumptive access to privileged information attaches to use that privileged information for its own benefit or for the benefit of a third party, through transactions involving publicly-offered securities, either in the securities market or in private transactions.

Cristián Eyzaguirre

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