Argentina’s New Securities Law
By Patricia S. López Aufranc & Beatriz F. Breccia
Posted: 2nd January 2014 08:51At the end of November 2012, the Argentine Congress passed Law 26,831 (the “Securities Law”), which abrogated Law 17,811, enacted in 1968. In July 2013, the Argentine Executive Branch issued implementing Decree 1023/2013, and in September 2013, the Argentine Securities Commission, which is the governmental agency that supervises the securities market (Comisión Nacional de Valores or “CNV”), issued a new set of rules further implementing and administering the requirements of the Securities Law (General Resolution 622/2013; the “CNV Rules”).
The Securities Law mentions, among its aims, the promotion of the participation in the securities market of small investors, including retail investors, trade unions, chambers of commerce, professional organisations, and small and medium size companies; the strengthening of the mechanisms to protect, and prevent abuses against such investors; and the simplification of the ways in which persons trade on the market.
As mentioned above, until the enactment of the Securities Law, the Argentine securities market was regulated by Law 17,811. Law 17,811 was amended in several occasions. In 2001, Decree 677/2001 introduced important changes to address aspects relating to transparency in the public offering regime, such as insider trading and market manipulation. Decree 677/2001 also broadened the supervisory powers of the CNV.
Although the Securities Law was intended as a complete change to the public offering regime established by Law 17,811, it did not introduce substantial changes in what it is a “public offering” of securities, nor did it introduce private placement exceptions, which still have to be defined by exclusion as placements of securities that are not considered a public offering.
However, the Securities Law brought about other important amendments. This article summarises the most important changes, including the end of the Argentine securities market’s self-regulation; the new categories of licenses for participants in the public offering regime; the new powers conferred on the CNV; and the mandatory tender offer.
End of Self-Regulation of the Securities Market
The Securities Law brought to an end the self-regulation of the securities market. Pursuant to Law 17,811 and ancillary legislation, in order to trade on a market, broker dealers had to be shareholders of the self-regulated organisation (SRO) that operated such market. Accordingly, in the city of Buenos Aires, the only persons authorised to trade securities listed on the Buenos Aires Stock Exchange (Bolsa de Comercio de Buenos Aires) were the shareholders of the Buenos Aires Stock Market (Mercado de Valores de Buenos Aires), the entity overseeing brokerage activities and transactions on the Buenos Aires Stock Market. Likewise, for persons to trade securities on Mercado Abierto Electrónico (“MAE”; basically an electronic system to which broker dealers are linked), they had to be shareholders of such entity. While these entities supervised their participants, the CNV, in turn, supervised the entities.
The Securities Law expressly provides that stock exchanges and other securities markets may no longer impose as a requirement for membership to be a shareholder of the relevant exchange or market. It also establishes that markets must be organised as public companies (i.e. with listed shares), excluding other types of companies or civil associations.
Moreover, the CNV now directly authorises, revokes the authorisation of, regulates and supervises the securities markets, as well as any individuals and companies that in any manner participate in the public offering of securities. Accordingly, the indirect regulation through SROs is abandoned.
New Licences for Participants in the Public Offering Regime
The Securities Law sets several types of licenses for persons and companies already engaged, or wishing to engage, in the public offering of securities. Regarding the former, such as stock brokers or MAE broker dealers that already hold a licence, the CNV Rules grant until March 2014 for them to choose among the new set of licenses and adjust to the requirements for each of them, with longer periods of time available to comply with certain specific requirements such as mandatory minimum capital requirements.
New types of licences include the following: Negotiating Agents (Agentes de Negociación–AN), for companies that wish to engage in the primary and secondary offer of securities; Liquidation and Compensation Agents (Agentes de Liquidación y Compensación–ALyC), for companies that, in addition to the primary and secondary offer of securities, wish to participate in the settlement of transactions; Soliciting Agents (Agentes Productores–AP), which allows individuals and companies to solicit clients for referral to either an AN or ALyC; Capital Market Advisors (Agentes Asesores de Mercados de Capitales–AA), for individuals or companies giving advise to the public relating to the capital markets; and Selling Agents (Agentes de Corretaje de Valores Negociables–ACVN), for ANs, ALyCs and other authorised participants to act as intermediaries among sellers and buyers through electronic platforms.
There are also specific licenses to act as central securities depositories Collective Deposit Agents (Agente de Depósito Colectivo–ADC); or perform certain of their related activities Custody and Payment Agents (Agente de Custodia, Registro y Pago–ACRyP).
Regarding rating agencies, the Securities Law introduces the possibility for public universities to act as such, and therefore there are two categories in this area: Rating Agents (Agentes de Calificación de Riesgo–ACR) and Public University Rating Agents (Agentes de Calificación de Riesgo–Universidades Públicas).
Regarding collective investments, including investment funds as well as trusts, the Securities Law maintains a similar scheme of licenses, extending the requirement imposed on other non-banking entities to register with the CNV on banks, to act as financial trustees.
Finally, the Securities Law requires that all employees of registered entities who deal with the public, whether due to the provision of advisory services or any services, must be registered in a special registry to be kept by the CNV (Registry of Competent Agents or Registro de Idóneos), and, among others, complete the training programmes mandated by the CNV.
New Powers Conferred on CNV
The CNV now directly regulates, supervises and disciplines individuals and companies that in any manner participate in the public offering of securities. The indirect regulations through SROs are abandoned.
As it was under Law 17,811, the CNV authorises the public offering of securities, and keeps record of companies authorised to publicly offer their securities. Also, the CNV will now keep a registry, and grant, suspend or revoke the authorisation to operate, of the markets (which governing rules will also approve), of licenced agents, and of any other persons or companies that because of their activities are under the CNV supervision.
The CNV, in addition to the power it already had of controlling the companies authorised to publicly offer their securities, assumes the power of controlling companies which hold the licenses described in the above section. The CNV must carry on the permanent supervision of such companies, approving any amendments to their by-laws, variations of their capital, and their dissolution and liquidation.
The CNV enforces the Securities Law, with the power to impose sanctions. The CNV may declare acts which are under its supervision null and void, without the need of prior administrative proceedings, when such acts were contrary to the Securities Law. The reviewing courts of the decisions of the CNV will be the administrative law courts instead of the commercial courts.
In carrying out its duties, the CNV may, inter alia, request information, conduct inspections and investigations, request the assistance of law enforcement authorities, and file judicial complaints.
In addition, the Securities Law confers on the CNV the power to appoint supervisors with
veto powers over the resolutions adopted by the board of directors of companies under CNV’s supervision (i.e. companies that offer securities publicly) when, as determined by the CNV, the interest of minority shareholders or securities holders are affected; the decisions of the supervisors may only be challenged before the chairman of the board of directors of the CNV. The CNV has also powers to withdraw the board of directors of a company for a period of 180-days, when the above same circumstances occur until the ending of the irregularities; this decision may only be challenged before the Ministry of Economy.
Mandatory Tender Offers
The mandatory tender offer for take of control is now applicable to all companies admitted to the public offering regime, with no possibility to opt out of the regime.
It is too early to assess the impact of the new regulation on the market. However, listed companies are concerned with the increased interventionist approach.