Trusts: Application of mandatory deposit and minimum waiting period requirements

On November 16, 2005 the Ministry of Economy and Production issued Resolution No 637/2005, published in the Official Gazette on the next day, by which mandatory deposit and minimum waiting period requirements, set forth by Decree No 616/2005, will be applicable to investments on securities issued by trusts, which up to the moment were excepted from those requirements.

1. Precedents

Decree No 616/2005 issued on June, 2005 set forth the following requirements applicable to certain non-Argentine residents’ investments: (a) a minimum waiting period of 365 days, and (b) the constitution of a mandatory no-return deposit equal to 30% of the amount of the transaction in a local financial entity for a 365 days period.

According to Decree No 616/2005, section 3, b) ii), investments in initial public offerings of debt securities listed on self regulated markets were originally excepted from the requirements above mentioned. Until the new Resolution No 637/2005 became effective, this exception included the issue of debt issued by trusts which was publicly offered and listed on self-regulated markets.

2. Resolution No 637/2005

The new Resolution establishes that every transfer of funds into the local exchange market for the purpose of subscribing initial issuances of securities, bonds or certificates of participation by the trustee of a trust is subject to the mandatory deposit and minimum waiting period requirements established by Decree No 616/2005, when such requirements are applicable to the transfer of funds into the local exchange market for the purpose of acquiring any of the underlying assets of the trust.

The Resolution expressly establishes that such requirements are applicable regardless of whether the securities are publicly offered and listed in self-regulated markets or not.

Therefore, after the effectiveness of this new Resolution, the exception granted for the initial subscription of debt securities which are publicly offered and listed on self–regulated markets is not applicable to investments of residents of foreign countries in debt issued by trusts. In order to determine if this investment is subject to the requirements set forth by Decree No 616/2005, it will be necessary to analyze if an investment in the trust’s underlying assets would be subject to such requirements. We suggest reading the articles: “New restrictions for the transfer of funds into and from Argentina”, published in Marval News # 40 and “Clarifications on the controls to the transfer of funds into and from Argentina and other foreign exchange news”, published in Marval News # 42, where investments subject to the mandatory deposit and minimum waiting period are detailed.