The CNV Updated the Asset-Valuation Rules for Mutual Funds

The Argentine Securities and Exchange Commission (the “CNV” after its Spanish acronym) issued General Resolution No. 771 (the “Resolution”) on November 16, 2018, which updated the rules applicable to valuation of the assets of Mutual Funds (Fondos Comunes de Inversion or “Mutual Funds”).

The main valuation criteria are described below.
 

1. Exchange Rate

The Resolution states that the applicable exchange rate for the valuation of assets is the closing exchange rate in the spot (T+0) wholesale market of the Electronic Operations System (the “SIOPEL” after its acronym in Spanish) run by the Mercado Abierto Electrónico (the “MAE” after its acronym in Spanish) (the “Market Exchange Rate”). If, in the future, the Argentine Central Bank operates in a different market, then that market will be used for this purpose. If the spot market exchange rate is unavailable, then the exchange rate in the T+1 market will be used.

The Resolution also provides that an implicit exchange rate will be calculated by dividing: (a) the price, in Argentine Pesos, of a certain basket of financial assets, by (b) the price in dollars of that same basket of financial assets (“Implicit Exchange Rate”). The Resolution establishes a mechanism to determine the composition of that basket of financial assets and the prices applicable to these calculations.

If the difference between the Market Exchange Rate and the Implicit Exchange Rate is more than 1%, then the Implicit Exchange Rate will be used.
 

2. Equity

Regarding equity assets, as long as they are authorized for trading in CNV approved markets, the following criterion is applicable:

a) For equity, equity underwriting coupons and GDP-linked securities, the price at closing of the CNV authorized market with the largest transactions volume in the spot market, or the closing price of the foreign market with the largest transactions (applying the exchange rate mentioned in the paragraph above). If this is not possible, the price must be estimated according to reasonable business judgement;

b) For the Argentine Deposit Certificates (“CEDEARs”, after its acronym in Spanish), the underlying asset’s price in the foreign market with the largest volume, after deducting conversion costs, and adjusted by the relation between number of ordinary shares for each CEDEAR, applying the aforementioned exchange rate. Alternatively, the closing price of the CNV authorized market with the largest volume of transactions in the spot market with operated volume, or, if not, the price must be estimated using reasonable business judgment; and

c)Regarding financial trust participation certificates, the Resolution states that the expected cashflow must be adjusted applying a market rate reflecting the time value of money, amongst other factors, following a reasonable business judgement.
 

3. Fixed income

As to fixed-income assets traded in markets authorized by the CNV, the general rule is that public debt bonds, Treasury and provincial Bills and similar instruments will be valued at the Relevant Price in the Relevant Transactions, if available. “Relevant Transaction” means those transactions carried out in markets authorized by the CNV: (a) with an aggregate traded volume at the end of the day of, at least, 100,000 UVAs (a unit of value published by the Argentine Central Bank which is adjusted by inflation); or, (b) with an aggregate face value traded at closing of at least 5% of the total issued face value of such security. “Relevant Price” means the average closing price for all settlement tenors in all markets authorized by the CNV, weighted by the total volume traded in each market.

If no Relevant Transactions were registered, the price will be estimated using the parameters set by the Resolution. In all cases, for public debt bonds issued under a foreign jurisdiction, the price of the foreign markets will be used, according to information published by reputable broadcast companies in the market.
 

4. Foreign Assets

As to assets trading only abroad (equity, debt, ETFs, investment funds, and other), the value will be the foreign-market price that better reflects the realisation value of said asset and converted at the exchange rate described in (i) above. The Resolution provides that when there are no available representative prices for a depositary certificate (such as ADRs, GDRs and EDRs, amongst others), the valuation will be made based on the representative price of the underlying assets, discounting conversion costs. In addition, the valuation has to consider the tax and commercial costs related to the security, following a reasonable business judgment, so that the value reasonably reflects the realization value of the asset.
 

5. Reasonable Business Judgment

In the application, the reasonable business judgement criteria, a prudence criterion must be followed to determine the values that better reflect the realization price of the assets.

The valuation of those assets which are not expressly regulated in the Resolution, or the valuation in those extraordinary or unforeseen cases, reasonable business judgement criteria should be followed.