4.1. Rules
The capital markets in Argentina are regulated by the Public Offering Law No 17,811 of 1968, as subsequently amended (“LOP”). Also, the Decree 677 of May 22, 2001 is the other regulation governing the capital markets, which provides for a system to achieve transparency in the public offering of the different negotiable securities, conducts inconsistent with such system (insider trading, fraud and market manipulation), and penalties that the controlling authority can determine in the event of its violation.
The Comisión Nacional de Valores (“CNV”) is the agency (self-regulatory, with competent jurisdiction throughout Argentina) that sees to the proper operation of the public offering system, by managing, controlling and supervising such system. In order to achieve such objective, the CNV makes resolutions (the CNV Rules) that enforce such rules among the different participants in the market.
4.2. Joining the Public Offering System. Main Institutions in our Capital Markets
Now, the CNV is the agency responsible for granting “public offering” authorization for the securities that may be traded, i.e. an issuer or a dealer (duly registered with the CNV) may offer such securities to the general public or to specified sectors or groups, with the purpose of any act, by personal offering, media advertising, radio, telephone or TV transmissions, movies, placement of billboards or signs, brochures, printed circulars or communications, or any other dissemination procedure. The public offering system requires prior approval by the CNV to issue negotiable securities, to avoid misleading the investor by providing distorted information about the issuer, and also about the instrument itself.
Upon reviewing the definition of ‘public offering’ in the above paragraph, we should note that:
• The phrase “any act” with the securities, in its wider meaning, includes original or primary transfer of medium and long-term resources, and likewise any subsequent trading of such securities in over-the-counter markets.
• Only the public offering of negotiable securities is subject to control by the CNV and the LOP, which excludes their private placement.
• The fact that the CNV grants an issuer a public offering authorization simply means that the issuer has fulfilled the requirements in the different provisions that concern public offering, which means that it only reviews the formalities, without analyzing the performance the security may have as a way of investment.
• Once an issuer has a public offering authorization by the CNV, it must observe and fulfill certain duties (e.g. reporting information relevant to the market, submitting quarterly balance sheets), during the time it is subject to the public offering system.
• The CNV may require a negotiable security to have a risk rating issued by a rating agency, which must be registered with and licensed by the CNV. However, the issuer itself may engage a rating service to have its securities offerings rated.
Also, a negotiable security is traded and listed on self-regulatory institutions such as stock exchanges, primarily the Buenos Aires Stock Exchange (“BCBA”). Different stock exchanges have their own bylaws and regulations for the listing of securities. The primary duties of a stock exchange are the following:
• Authorizing, suspending and discontinuing the listing of negotiable securities under its own regulations.
• Providing requirements that must be fulfilled to list negotiable securities during the term of authorization.
• Controlling observance of legal and regulatory provisions by entities listing securities.
• Providing rules and steps as necessary to ensure the accuracy of any balance sheets and other documents to be submitted or published by an entity authorized to list its negotiable securities.
• Providing regulations to ensure accuracy in the listings registry and publishing such information and the current prices.
Within the environment of the BCBA, a transaction with negotiable securities may only be made by a shareholder in Mercado de Valores S.A. (“MERVAL”). The MERVAL is a corporation with a listing license. Its shareholders equity is evidenced by shares entitling their holder to operate as a Stockbroker or Stock Exchange Entity, on the shareholder’s own behalf or on behalf of third parties. Its main duties are:
• Providing requirements for the trading of negotiable securities, under the public offering system.
• Settling and guaranteeing transactions with negotiable securities; it may also determine which types of transactions have a performance guarantee, and which do not.
• Determining and regulating transactions made by Stockbrokers and Stock Exchange Entities; and likewise to determine rules for such participants.
In addition to stock exchanges, certain negotiable securities (except shares) may be traded on the Mercado Abierto Electrónico (“MAE”). The MAE is an electronic market where only MAE agents (Argentine or foreign-capital Commercial Banks or Financial Institutions), duly registered with the CNV, may trade in government or private securities (except shares), both in cash and term transactions.
It is important to note that the settlement, custody and deposit of negotiable securities traded on the BCBA is done by Caja de Valores S.A., a corporation whose main shareholders are the BCBA and the MERVAL, which has the following primary functions:
• Serving as depositary and custodian of government and private securities.
• Settling dividends, adjustments, interest and capital.
• Serving as a registrar of shareholders in issuers and government securities.
Finally, there are several institutions participating in our capital market. Each has its own duties and functions, under permanent control by the CNV, which is finally the agency responsible for maintaining transparency in the capital market, by providing principles both for an issuer (good corporate management practices) and also for an investor.
We should also note that business financing in Argentina’s capital market may also be done in different ways. The main ways include:
• Capitalization. Capital contribution (IPOs). Placement of shares and/or convertible negotiable obligations by the public offering system;
• Debt. Issuance of Negotiable Obligations, Negotiable Obligations for Small and Medium-sized Businesses, or Short-term Commercial Paper;
• Use of investment methods. Asset Securitization, by issuing trust debt, interest certificates or investment fund certificates; and
• Other ways such as CEDEARs (deposit certificates involving shares in foreign listed companies), trading in deferred-payment checks, futures and options.
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