On November 29, 2012 the Argentine Congress passed a new law regulating all the relevant aspects of capital markets and public offering, thus terminating former law 17,811 that regulated the same issue. The executive branch promulgated the law on December 28, 2012. We will briefly analyze the main aspects of such new law on capital markets and public offering.
The Law declares that it aims at promoting the access to the capital market by small and medium companies, the participation of small investors in the capital market, trade unions, associations, corporate associations, professional organizations, and public savings institutions.
The new law broadens the spectrum for participating in capital markets as it eliminates the requirement of being shareholder in any of the exchanges of Argentina in order to be a broker; with the demutualization promoted by the law, anyone who wants to be a broker shall request the enrollment in the registry of the National Securities Commission (“NSC”). In addition, the law provides for the possibility for universities to participate as rating agencies.
The law also declares it encourages the creation of a federally integrated market, through mechanisms for interconnecting computer systems in the several stages of negotiation.
The NSC is the only control organism of public offering of securities. The NSC, directly and immediately, regulates, supervises, inspects, monitors and punishes all natural and legal persons which perform public offering of securities and other instruments, and/or perform operations and activities under the scope of the Law. The NSC also keeps records of such persons, grants, suspends and revokes their authorization to operate, as well as the authorization of markets and enrolled agents.
All trading instruments comprising similar features to public offering as defined by the law, shall be considered as such, and shall be under the scope of the rules of the NSC as well.
Public offering of securities issued by foreign States must be authorized by the Executive Power, with the exception of countries members of the MERCOSUR, which shall perform public offering on condition of reciprocity.
The NSC will be headed by a board of directors composed by five members appointed by the Executive Power. The Executive Power designates the president and the vicepresident of the board. The board of directors may delegate functions in the respective holders of the regional headquarters, with the exception of those relating to the revocation of authorizations.
One of the main controversial features of the Law is the faculty of the NSC to declare null, void, irregular and with no effects legal acts of companies under the supervision of the NSC, without prior summary or the intervention of a court.
Moreover and in the same venue, when as a result of “surveys conducted”, interests of minority shareholders and/or holders of securities subject to public offering are affected, the NSC may appoint supervisors with the power to veto resolutions adopted by the administrative bodies of the relevant company subject to intervention by the NSC. The NSC resolutions may only be appealed in unique instance before the President of the NSC.
For the same reasons, the NSC may also separate the administrative bodies of the relevant company for a maximum term of one hundred eighty days until the deficiencies found are regularized. The latter measure may be appealed in unique instance before the Minister of Economy and Public Finance.
Because of the features mentioned above, it has been said that this new law on capital markets actually promotes legal uncertainty over potential companies that hich want to trade its securities in the capital markets of Argentina. Furthermore, some state the possible unconstitutionality of these intervention regulations, where the right of defense may be compromised by the lack of summaries for the application of sanctions, and the possibility the NSC may declare void private corporate acts.
Also, the Law permits the exchange of information protected by secrecy between the NSC, the Central Bank, and the Superintendent of Insurance of the Nation, executed by formal requirement to each other, provided they are made by the highest authority of each entity.
By terms of the Law, the NSC shall have an integral role in the control of the capital market, with an increased punitive capability, and the possibility of exchange of information with other entities of the State.
In relation with the legal regime of scriptural securities and book entry securities, the creation, issue, transfer, or establishment of real rights, precautionary measures, and any other affectation of real rights conferred by the securities, is held by annotation in special registers carried by the issuer, or designated agents, commercial banks or investments banks, and shall produce effects and will be effective against third parties from the date of registration.
The entity authorized to carry the registration of securities shall grant the holder proof of opening of the account and any movement registered in it. Each holder has the right to be given a record of the current state of the account, at any moment and at their expense. The issue of a proof implicates the blocking of the account to the effects of transmission of securities or constitution of real rights over them, for a period of ten business days.
If the issue of the proof was perform for the applicant to attend meetings or to exercise voting rights, the account shall be blocked until the day after the celebration of the corresponding meeting. If the meeting, which ever the cause may be, is held on a different date, the issue of a new proof is required.
In relation with the jurisdiction applicable for the resolution of conflicts, federal trial courts may hear in the claims of implementation of fines and audit fees, search warrants for the fulfillment of the supervisory functions of the NSC, and the designation of NSC of co-managers and supervisors. Within the City of Buenos Aires, courts of first instance in federal administrative litigation have jurisdiction to hear such disputes. The Federal Chambers of Appeal may resolve the revision of sanctions imposed by the NSC, as declarations of irregularity and inefficiency for administrative purposes.
With the same aims of the Law of encouraging the creation of a federally integrated market, on November 21, 2012 the Stock Exchange of Buenos Aires (BCBA) and the Stock Market of Buenos Aires (Merval) executed a Memorandum of Understanding for the creation of a new business entity in the form of a corporation –Sociedad Anónima- which in the future will function as Federal Stock Exchange or shall have a similar name. The intention is to create a new national market that can meet the needs of all the regions of the nation.
The Law was approved within the precincts of the Senate by forty three votes in favor and nineteen against of the dissenting UCR –Unión Cívica Radical- and PJ –Partido Justicialista- in the presence of the Economy Minister, Hernan Lorenzino, and the President of the NSC, Alejandro Vanoli.
The NSC shall issue the regulation of the Law within one hundred eighty days as from the date of the enactment of the Law, that is to say, before May 2013. Such regulation shall provide rules and schedules for the adequacy of entities, stock markets and brokers.
The NSC shall establish guidelines regarding (i) the offer of exchange of shares and similar processes; (ii) the vote exercised by entities which hold shares on behalf of third parties, in trusts, deposit, or other legal relations, when the respective agreements authorize such vote; and (iii) the public request of powers to ensure the right to full information of the investor.
The Law will come into force on January 27, 2013, with the exception of those provisions described above subject to regulation by the NSC.