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Public
Offerings in Argentina
SYNOPSIS
A.
CAPITAL MARKETS REGULATION. LAW Nº
17811
1.
Scope
17.101
2. Public Offering
2.1.
Concept 17.102
3.
The "Comisión Nacional de
Valores" (CNV)
3.1.
Functions 17.106
3.2.
Regulatory Functions 17.107
3.3.
Filings and Admission Procedures 17.111
3.4.
Abridged Applications Procedure 17.112
3.5.
Special Regime for PYMES 17.113
3.6.
Supervisory and Control Powers 17.114
3.7.
Board of Directors 17.115
3.8.
Self Regulation 17.116
4.
The Buenos Aires Stock Exchange
17.117
5. Mercado de Valores de Buenos Aires
(MVBA) 17.118
B. THE SECURITIES MARKET
1.
Types of Securities Available
1.1.
Equities 17.119
1.2.
Corporate Debt Securities: Negotiable
Obligations 17.120
1.3.
Other Instruments 17.121
1.4.
Government Securities 17.122
2.
BCBA and OTC Market
17.123
3. Banco de Valores S.A. 17.125
4. Caja de Valores S.A. 17.126
C. MUTUAL FUNDS AND TRUSTS
1.
Regulatory Framework
17.127
2. Investment Companies 17.128
3. Investment Funds Organized as
Trusts 17.129
4. Mutual Funds 17.130
4.1.
Open End Mutual Funds 17.134
4.2.
Closed End Mutual Funds 17.136
4.3.
The FIDES 17.137
A. CAPITAL MARKETS REGULATION. LAW Nº
17811
1.
Scope
17.101
In
1969, Law Nº 17.811 the Public Offering
Law, (-Ley de Oferta Pública-,
hereinafter LOP) regulated certain
aspects of the capital markets,
establishing a special regime for
persons who by any special procedure of
diffusion or publicity, offer to perform
certain legal acts related to securities
issued in Argentina. LOP subjects a
public offering to a special
administrative procedure of
authorization by the National Securities
Commission (-Comisión Nacional de
Valores-hereinafter the
"CNV"). Therefore, operations
with securities in the primary market,
(which is the market in which the
securities are originally subscribed)
and in the secondary market (typically,
the acquisitions and sales of shares,
negotiable obligations and other
securities in a stock exchange) are
ruled by this regime. Once a public
offering is approved by the CNV , the
securities may be offered in the market.
2.
Public Offering
2.1.
Concept
17.102
Article
80 of Decree Nº 2284/91 widened the
concept of Public Offering to include
future and option contracts of any
nature. It also established that an
authorized application before the CNV is
only required in the case of the public
offerings of shares or negotiable debt
instruments. With respect to the public
offering of future and option contracts
the CNV has the authority to (i)
authorize the operation of markets where
such deals are carried out, (ii)
determine the mechanism for obtaining
authorization to operate such contracts,
and (iii) oversee the actions of the
intermediaries, without prejudice of the
authority of the Central Bank in matters
related to monetary regulations,
credits, etc. In consequence, the
authorization for the public offerings
of future and option contracts is
replaced by the authorization for the
operation of a market where those assets
are negotiated.
17.103
For
example the MERFOX (a market where
future and option contracts on
live-stock are negotiated) dictated its
ethic, auditing and disciplinary
procedures, under the supervision of the
CNV.
17.104
However,
this does not apply to the situation of
futures, terms and options contracts
over agricultural products. Decree Nº
600/96 authorized the Buenos Aires
Future Market (MAT) to incorporate in
its operations the negotiations of
options over future contracts, and also
approved a special regulation for the
negotiation of "calls" and
"puts" over futures related to
the agricultural products authorized by
the Board of Directors of the MAT. The
above referred Decree also designated
the Secretary of Agriculture and Fishery
as the competent authority for approval.
17.105
The
CNV issued RG 194, containing the rules
under which the CNV will exercise the
control of the futures markets in
Argentina where future and options
contracts are negotiated. Regarding
section 1º, those markets, the statutes
of which, permits the negotiation of
terms, future and option contracts over
securities, products or subproducts
originated from the animal, vegetable
and mineral kingdom, financial assets,
currencies, precious metals, other
assets or indexes representing those
which are not excluded from CNV`s
fiscalization authority by any legal or
specific rule, must comply with the
organization and dealing requirements
established in such RG.
3.
The "Comisión Nacional de
Valores" (CNV)
3.1.
Functions
17.106
Organized
by the LOP, the CNV is an autharquic
entity, with jurisdiction throughout the
Republic of Argentina. The CNV (i)
authorizes publics offerings, (ii)
carries out the registration and
supervision of issuers; (iii) authorizes
and supervises stock exchanges markets ;
(iv) supervises the operation of Caja de
Valores S.A., which is the clearing
house for the transactions of securities
within Argentina (see below); and (v)
controls, authorizes and supervises
rating agencies.
3.2.
Regulatory Functions
17.107
When
the LOP established the "Public
Offering" regime , it also
delegated in the CNV certain
"direct and indirect functions
". Section 7 of the LOP, (which
describes the direct functions) permits
the CNV to issue regulations that apply
to individuals and legal entities that
participate in public offering of
securities in order to verify the
compliance of requirements established
by law.
17.108
Since
its creation, in 1968, the CNV has
issued ruling in the form of General
Resolutions (RG). Part of which were
systematized in 1971 in a code, called
National Securities Commission Rules
("Normas de la Comisión Nacional
de Valores") (or Normas). In 1987,
RG 110 introduced a new text which later
was modified by several
"Resoluciones Generales".
Finally RG 290 issued in 1997 a new
ordered text with a new systematization
of the several RGs.
17.109
The
CNV is empowered to establish the rules
that govern individuals or legal
entities (or those persons or legal
entities acting on their behalf)
authorized to perform public offerings
of securities.
17.110
Another
source of "direct function"
rules is set out by Section 41 of Law No
23.697 which empowers the Executive
Branch to dictate the necessary rules to
strengthen capital markets. Thus, the
Executive Branch issued Decree Nº
2284/91, Section 81 which establishes
the authority of the CNV to set all the
information requirements that an issuer
of securities must comply with and the
restrictions applicable to the
disclosure of such information. The CNV
also carries out the function of
supervision, inspection and enforcement.
The indirect functions consist of the
approval of regulations for stock
exchanges.
3.3.
Filings and Admission Procedures
17.111
For
the admission to public offering,
issuers must submit to the CNV an
application with certain information
such as, economic, financial and
corporate data; relevant facts that may
affect the business of the issuing
entity, its financial statements, the
quotation or valuation of its
securities, other relevant corporate
resolutions or documents related to the
issuance and listing of its securities.
Among other information, the issuers
must inform the CNV the following:
-
the
aggregate number of its
shareholders,
-
the
full names and addresses of all
shareholders holding 5 % or more of
its shares;
-
a
detailed break-down of its share
capital;
-
a
description of the rights and
preferences granted by the corporate
by-laws to the different classes of
shares;
-
a
list of loans the issuer expects to
capitalize in the future;
-
name
the markets where it expects to list
its securities;
-
provide
a detailed description of its
management organization so as to
show evidence that it has the
capability to reasonably comply the
reporting requirements established
by the CNV;
-
supply
personal data of the members of its
board of directors and supervisory
bodies;
-
file
before the CNV the audited financial
statements for the preceding three
years;
-
file
copies of the corporate resolution
seeking the public offering status,
the terms and conditions for the
securities to be offered.
-
file
an offering circular, or prospectus,
which has to be prepared in
accordance with CNV’s regulations.
It is a document intended to set out
certain information that must be
disclosed under applicable law,
focusing mostly on events that could
adversely affect the payment
obligations and other obligations of
the issuer under the securities.
According to Argentine legal
standards, the accuracy of all the
accounting, financial and economic
information and all other
information contained in the
offering circular is the sole
responsibility of the board of
directors of the issuer and, with
regard to matters within their
competence, of the supervisory
committee of the issuer and of the
auditors in relation to the reports
on the financial statements
contained in the offering circular.
3.4.
Abridged Applications Procedure
17.112
On
July 1 1992, the CNV and the Buenos
Aires Stock Exchange entered into an
agreement to streamline application
procedures. Accordingly, entities
willing both to be admitted to public
offering by the CNV and to list
securities on the Buenos Aires Stock
Exchange may directly submit
applications and the required
information to the latter. A copy of the
applications duly sealed as received by
the Buenos Aires Stock Exchange must
then be submitted to the CNV. The Buenos
Aires Stock Exchange will issue a
prequalification report on fulfillment
of requirements for both admission to
public offering and listing of the
securities on the Buenos Aires Stock
Exchange. Following review of the
records sent by the Buenos Aires Stock
Exchange, the CNV will decide the final
admission to public offering. The
application for securities listing is
reviewed independently by the Buenos
Aires Stock Exchange.
3.5.
Special Regime for PYMES
17.113
The
so-called PYMESs "small or mid
sized companies" were benefited by
the economic policy of the government,
which established a special regime,
allowing the PYMES the access to capital
markets. Decree No 1087/93 and RG No 235
simplified the information requirements
applicable to PYMES. This special regime
provides that issuance of debt
securities by PYMES must be traded on
the stock exchange or through a
self-regulatory organizations under CNV´s
control and may be acquired only by
qualified investors. The simplification
of the public authorization procedure,
the information requirements and a
special rating regime, are part of the
special regime for PYMES.
3.6.
Supervisory and Control Powers
17.114
Section
7 of the LOP authorizes the CNV to
require reports and perform
investigations or inspections that it
may deem appropriate for the compliance
of its supervisory functions. Section 10
empowers the CNV to penalize the
violation of the LOP. Consequently the
CNV may apply the following penalties
regardless of any other civil or
criminal procedures:
(i)
warnings; (ii) fines. In the case of
legal entities, these fines will be
applied to its directors, syndics and
managers; (iii) suspension; and (iv)
prohibition to offer securities. A final
resolution of the CNV establishing a
penalty may be appealed before the
Federal Court of Appeals (exception is
made with respect to warnings).
3.7.
Board of Directors
17.115
The
functions of the CNV are exercised by a
board of directors designated by the
Executive Branch. This board is
integrated by 5 members with mandates of
7 seven years.
3.8.
Self Regulation
17.116
The
LOP established the concept of self
regulation when it determines that
certain entities may establish their own
regulations in order to provide the
organization and development of the
transactions performed before same
entities. The LOP self regulation
permits the distribution of regulatory,
supervising and investigation faculties
between public and private entities,
such as the CNV and the Buenos Aires
Stock Exchange respectively.
4. The Buenos Aires Stock Exchange
17.117
Following
the American system of self regulated
entities subject to public supervision,
the Buenos Aires Stock Exchange (the
"Bolsa de Comercio de Buenos Aires
or BCBA") was created in 1954; it
is a non profit association, where
transactions with securities, already
authorized for public offering, are
performed. Among other functions, the
BCBA authorizes, suspends, and cancels
the listing of securities, establishes
the requirements to be complied by the
issuer for listing of their securities,
supervises the compliance of the
regulations by issuers, publishes the
relevant and accounting information
submitted by the issuers in the Daily
Gazette, as well as the prices of the
securities traded therein. The BCBA has
introduced stock watch procedures,
trading halts, and insider trading
regulations, as well as other similar
regulations.
5.
Mercado de Valores de Buenos Aires
(MVBA)
17.118
Under
the LOP, the different stock exchanges
may organize markets specialized in
certain financial products. MVBA is a
self regulated organization of brokerage
firms. It is corporation with its social
capital divided into 250 shares. The
MVBA´s shareholders may act as brokers,
even on behalf of third persons. The
MVBA guarantees the liquidation of the
transactions performed in the BCBA, and
among other functions, supervises the
activities of the brokers (agentes de
bolsa). The MVBA exercises
self-regulatory supervision and
enforcement over individual stockbrokers
and brokerage houses, prescribes rules
concerning contracts and trading, and
clears and settles transactions.
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B. THE SECURITIES MARKET
1.
Types of Securities Available
1.1.
Equities
17.119
Argentine
corporations (sociedades anonimas) and
foreign companies may publicly offer
their equity securities in Argentina. An
Argentine corporation may issue
different classes of common or preferred
stock, provided that shareholders within
each class are granted equal rights.
Both common and preferred stock may be
subject to the public offering regime.
Dividends and capital reimbursements
corresponding to common stock holdings
are always proportional to the common
shareholders’ interest in the capital
stock. Preferred shares are usually non
voting and grant their holders an
economic advantage which may include the
right to a fixed dividend, cumulative or
not, or a privileged right to capital
reimbursement on liquidation and
termination. RG 290/97 establishes
certain conditions to issue preferred
shares: (i) provide a privilege over
common shares of being repaid before
payment of ordinary shares in case of
liquidation; (ii) provide to their
holders economic rights in proportion to
their participation in the capital
stock; (iii) offer the possibility of
convertion into common shares (in this
case, the public offering authorization
will be extended, to any common shares
issued upon conversion) and (iv) in the
case of voluntarily withdrawal of the
issuer from the public offering regime,
include the appraisal right exercise by
non- voting shareholder.
1.2.
Corporate Debt Securities: Negotiable
Obligations
17.120
Law
Nº 23.697 introduced greater
flexibility in the issuing of securities
by allowing the issue of debt securities
of different types. The most common debt
securities traded in Argentina are
corporate bonds ( Negotiable
Obligations) regulated by Law Nº 23.576
(as amended, the Negotiable Obligations
Law). Negotiable obligations may be
issued by corporations, co-operative
entities, civil associations, and
branches of foreign companies with place
of payment in Argentina or abroad.
Negotiable Obligations are freely
transferable into or out of Argentina
and may be issued in local or foreign
currency. They may or may not be
convertible into common stock, and bear
interest at floating or fixed rate. Law
Nº 23.576 established a preferred tax
treatment for Negotiable Obligations the
placement of which satisfies certain
conditions: (i) a public offering
authorization rendered by the CNV; (ii)
the use of proceeds of the placement of
these securities should be applied to
(a) working capital in Argentina, (b)
investments in tangible assets located
in Argentina, (c) refinancing of the
issuers’ debt, and/or contributions to
the capital of a controlled or related
corporation, provided the latter uses
the proceeds of such contributions for
any of the above purposes. The issuer
must provide proper evidence to the CNV
as to the use of proceeds. Under Decree
No. 656/92 publicly offered corporate
bonds must be rated by two independent
Argentine rating agencies. Rating
agencies must submit to the CNV for
approval outlines concerning the
standards used in the establishment of
ratings. Decree No. 656/92 provides that
debt securities be rated in five
categories, A through E, within which
there may be sub-categories. Rating
categories are ranked in order of
decreasing quality and increasing risk.
Categories A through D correspond to
debt securities which fulfill all rating
information requirements. Category E,
applies to debt securities which fail to
fulfill information requirements.
1.3.
Other Instruments
17.121
Pursuant
to Law No 23.697, corporations may
create any security representing credit,
corporate capital, or goods provided
they comply with the general
requirements of Law No. 17.811 and
applicable regulations.
1.4.
Government Securities
17.122
Securities
issued by the federal or local
government or by state-owned companies
may be subject to the public offering
regime. The main debt securities issued
by the Argentine Government are Bonos
Externos de la Republica Argentina
(external bonds of Argentina or BONEX),
which are US dollar denominated bearer
bonds. There are no restrictions on the
ownership of BONEX outside Argentina.
There are no taxes on interest, capital
or capital gains with respect to BONEX.
The BOTE (treasury bonds), and the BOCON
(consolidation bonds) are also actively
traded government debt securities.
2.
BCBA and OTC Market
17.123
The
BCBA and the institutions affiliated
with it make up the Argentine Stock
market system. An agreement between the
such institution and organizations
representing market dealers has been in
place since may 1993. Under this
agreement, equity are publicly traded
only on the BCBA, while government and
cooperate security are both traded on
the BCBA and over-the-counter. Trading
systems and procedures have been adapted
to support a full-day, screen-based
dealer trading market, in addition to
the traditional floor trading.
Electronic order matching has been
available since April 1995 for selected
types of debt securities.
17.124
The
Mercado Abierto Electrónico (the
"MAE") is the over-the-counter
self regulated market organized by
Decree 2284/91 formed by agents of the
open market (financial entities) where
the transactions are made by telephone
among the agents having the obligation
to inform the public of such
transactions through special screens.
3.
Banco de Valores S.A.
17.125
Banco
de Valores is involved in the payment of
settled transactions and co-ordinates
and enhances the underwriting
capabilities of stockbrokers and
brokerage houses in primary
distributions.
4.
Caja de Valores S.A.
17.126
It
is a corporation which acts as the
securities central depository. Transfer
of securities is performed by Caja de
Valores. Securities are transferred via
inter-account entries. Moreover,
Argentine has come a long way in
dematerialization of securities, as most
shares and corporate and government
bonds issued in book-entry form.
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C. MUTUAL FUNDS AND TRUST
1.
Regulatory Framework
17.127
Law
No 24.083 amended by Law No 24.441 as
regulated by Decree No 174 governs the
mutual funds in Argentina. Section 3 of
RG 290/97 completes the framework for
mutual funds.
2.
Investment Companies
17.128
Investment
Companies are, basically, corporations
(sociedades anonimas) whose corporate
capital is represented by a fixed number
of shares (closed end companies). The
peculiarity of these companies is not
their legal form, but their corporate
purpose, which is to acquire financial
assets and shares in other corporations.
3.
Investment Funds Organized as Trusts
17.129
Due
to the lack of specific regulations, at
least until Law No. 24.441 the concept
of investments funds organized as trusts
was rarely adopted in Argentina.
4.
Mutual Funds
17.130
Basically,
a mutual fund creates a joint ownership
relationship among its members. They are
not legal entities but an undivided
equity owned by the fund’s unit
holders. The relationship between the
fund and its bodies, which are the
management company and the depository
company, is based on a contract.
17.131
The
management company is in charge of
directing the business and other
concerns of the fund, implementing the
fund’s policies as prescribed in the
Reglamento de Gestion, or Management
Rules. This task involves, among others,
the distribution of profits, creation of
allowances, acceptance of subscriptions,
suspensions of redemptions, daily unit
pricing, election of placement agent and
accounting records. Additionally, the
management company represents the
unit-holders before third parties. This
body, is under the permanent supervision
of the CNV.
17.132
The
depository company is in charge of the
custody of the assets in the fund’s
portfolio and of controlling and
supervising the performance of the
statutory rules and regulations by the
management company. Also, the depository
company is required to (i) receive the
amounts payable for the units issued
and, (ii) in the case of open end funds,
to pay redemptions and to make final
payments at the expiration of the
fund’s duration, (iii) to collect the
incomes that the fund may generate, (iv)
to keep a register of units and to issue
evidence of ownership of book entry
units, if so requested by unit-holders,
and (v) to enter into subscription
agreements with unit-holders. The
regulatory framework of mutual funds
establishes that the management company
and the depository company, their
administrators, managers and members of
the supervisory committee, are jointly
and severally liable, without
limitation, for any damages to
unitholders resulting from their failure
to meet the applicable laws and the
fund’s management rules.
17.133
As
a consequence of its indivisible nature,
a mutual fund cannot be discontinued at
the request of the unit holders, their
successors or creditors. Thus, the
assets of a mutual fund cannot be
directly seized by any creditor of the
unit-holders. The creditors, can only
pursue their claims through the seizure
and sale of the fund’s units.
4.1.
Open End Mutual Funds
17.134
This
type of mutual fund, continually issues
new units which can be redeemed at any
moment upon a holder’s demand, except
when the fund’s management sets
certain specific restraints for the
exercise of this right. These
restriction must be approved by the CNV.
Subscription and redemption prices are
fixed as a function of the fund’s net
worth, on the basis of the average
prices prevailing at the close of
business on the day on which unit
subscription or redemption is requested.
The number of units which open-end funds
are authorized to issue is not fixed,
but varies depending on the number of
purchases and redemption requested.
Investment liquidity in this type of
fund is given by the obligation to
redeem. There is no secondary market and
no market value for the units’ as
indicated above, the value market is
determined daily on the basis of the
fund’s net worth.
17.135
The
money market fund is a special type
within the category of open end funds,
governed by Law No. 24.083 and Section
3.1.4. of RG 290, the fund net worth can
only be applied in the acquisition of
debt securities, with their public
offering authorization already rendered;
exception is made with respect to
convertible bonds and variable rate
bonds. Section 3.1.4. also provides
certain restrictions with respect to the
debt securities to be acquired by the
fund. Such restrictions are as follows:
(i) the reimbursement of the principal
shall be made without any adjustments or
variations; and (ii) the maturity date
shall not exceed the term of two years
from the date of acquisition of such
bond. Section 3.1.4. also provides that
the fund may perform "repos"
and "equity collateral"
operations, subject to the regulations
established by the Central Bank of the
Republic of Argentina.
4.2.
Closed End Mutual Funds
17.136
These
funds, have a maximum number of units
which, once subscribed, cannot be
redeemed prior to their maturity or the
end of the investment plan described in
the management rules, and the prospectus
which means the dissolution of the fund.
The investment liquidity is obtained
from the secondary market negotiation of
the units. Thus, the value of the units
is not necessarily related to the
fund’s assets, and may fluctuate
depending on supply and demand. A closed
end fund has a limited duration. A
monthly status report of the amount of
capital and interest receivable from the
investments in the fund’s portfolio
and all problems relating to the
managing of the fund is required.
4.3.
The FIDES
17.137
Section
19 of Law No. 24.441 and Section 4 of RG
290/97 ruled the activities of the
called Fondos de Inversion Directa, or
Fideicomisos financieros, or Financial
Trust. A financial trust is a trust
where the trustee is a financial
institution or a business organization
specially authorized by the CNV to act
as financial trustee, and the
beneficiaries are the holders of
certificates of participation in the
trust estate or of instruments
evidencing a debt secured by the
properties so transferred. Those
certificates of participation and debt
instruments shall be deemed securities
and may be placed through public
offering. The certificates of
participation shall be issued by the
trustee. The instruments evidencing a
debt secured by the properties put in a
trust may be issued by the Trustee or by
third parties both may be issued in
bearer or registered form, may be
endorsable or not or indentured in the
terms provided by section 8 of Law No.
23.576. Certificates of participation
may be issued in classes giving
different rights.
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