Investor Protection Code

1.    More protection for the “financial consumer”

The General Resolution No 529/2008 (the “Resolution”) principally focuses on the duty of loyalty, transparency and ethics of the stock exchanges and securities markets, broker dealers and other entities who act in the capital markets. The Resolution increases the obligations provided under the already existing “Code of Ethics”, which hereinafter changes its name to “Investor Protection Code” (the “Code”).

The Resolution reinforces the “transparency” and “full disclosure” principles that must prevail in the securities markets –as required by the Transparency Decree No 677/2001-, and increases the protection of the “financial consumer” whose rights are included under Section 42 of the Argentine Constitution.

The Resolution does not alter the obligations applicable to the corporations that are authorized to publicly offer their shares in Argentina, whose obligations in relation to these matters are already covered by the Corporate Governance Code, among other regulations (for more information, please see article in Marval News No. 66 of October 31, 2007).

2.    Implementation of the Code and its Explanatory Report

2.1 Scope, date of effectiveness and public disclosure obligation

The obligation to implement and publicly disclose the Code and the report which explains the provisions contained in the Code will apply to all entities which are under the supervision of the Argentine Securities Commission (the “CNV” or “Comisión Nacional de Valores”), including stock exchanges, securities markets, rating agencies, managers and depositaries of mutual funds, financial trustees, clearing agencies (cajas de valores) and other entities within the scope of jurisdiction of the CNV.

No later than October 1, 2008, the obliged entities shall: (i) submit the Code and the Explanatory Report to the CNV through its online information system (the “AIF” or “Autopista de la Información Financiera”); and (ii) publicly disclose such documents in their own web page, with permanent and free access for the public.

2.2 “Investor Protection Code” replaced the former “Code of Ethics”

The Resolution changed the name of the “Code of Ethics” (which was already provided in CNV regulations) for “Investor Protection Code” so that it is clear to the public that the purpose of these regulations is to protect investors’ rights. However, the content of the new Code is the same as the one which was already provided by CNV regulations in force prior to the Resolution.

The Code shall contain regulations aimed at the prevention, supervision and punishment of acts incurred in violation of the duty of loyalty which could derive in the market’s manipulation to the detriment of its transparency and the public investors.

2.3 Explanatory Report

Additionally to the Code, the obliged entities shall prepare a report explaining the regulations included in such Code (the “Explanatory Report”), in a language that may be easily understood by the public in general.

The Explanatory Report shall describe, at minimum, the following matters:

(i)           general moral principles related to the loyalty, diligence, equity and transparency in the performance of the respective entity’s acts;

(ii)           conducts to be complied with specifically to (a) assure the duty of loyalty and (b) avoid the manipulation of the market;

(iii)          forbidden conducts and procedures to prevent them;

(iv)          provisions regarding the penalties applicable in the event of non-fulfillment of the applicable laws and regulations; and

(v)           investors’ rights.

3.    New obligations for brokers

3.1 Questionnaire to determine the potential investor’s risk profile

In order to reinforce the investors’ protection against disloyal acts carried out by the brokers, the Resolution provides that brokers shall prepare and give a questionnaire to every potential client (the “Questionnaire”). The Questionnaire shall consider aspects such as the client’s experience in the securities market, the investor’s expectations, their financial situation and the percentage of their earnings destined to invest in the securities market.

Once the broker obtains the Questionnaire’s information, it may implement a client classification policy according to the knowledge and experience of the potential investor in the securities market, in order to detect the client’s needs and determine its risk profile. If the broker considers that a certain investment is not adequate for the relevant client based on its profile, the broker shall register it in the client’s file.

The broker shall give the Questionnaire to the potential clients at the moment of their account opening, for free, and it shall be annually renewed while their account is active.

3.2 Minimum requirements of the account opening agreements and general authorizations

The Resolution provides the minimum requirements of the account opening agreements and the general authorizations the client may grant to the brokers or to a third party to act on its behalf. These documents shall detail the broker’s obligations, client’s rights, term, possibility of early termination, costs for the client, authorized operations, securities market risk, etc.

4.    Conclusion

The Resolution reinforces the investor protection obligations that the CNV regulations already provided, focusing on the small non-professional investor.