Amendments to regulations governing the Argentine foreign exchangemarket and transactions with securities denominated in foreign currency

1.    Foreign Exchange Market - Central Bank Communication "A" 3722

On September 6, 2002, the Central Bank issued Communication "A" 3722, which established several restrictions to the acquisition, either by individuals or legal entities, of foreign currency (cash and bank deposits) for treasuring, either abroad or in Argentina.

Pursuant to this regulation, individuals and legal entities require the Central Bank's prior consent in order to acquire foreign currency in the unified free Foreign exchange market for the following purposes: (i) portfolio investments abroad of individuals; (ii) other investments abroad of residents; (iii) investments abroad of legal entities; and (iv) purchase of foreign currency in Argentina for treasuring.

Communication "A" 3722 establishes an exception to the rule. The Central Bank's prior authorization will not be necessary when the monthly purchases of foreign currency -in the aforementioned established conditions-, and taking into account all entities authorized to operate in exchange transactions, do not exceed per person and per month the equivalent of US$100,000 according to an affidavit the interested party must submit.

Accordingly, the acquisition of foreign currency for "treasuring" will require the Central Bank's prior consent in order to acquire either, at any time amounts in excess US$100,000 or when during one same month the amounts acquired exceed that limit. Documentation for the sale of dollars, affidavits filed by the interested parties as well as information that entities authorized to operate in foreign exchange transactions regularly send to the Central Bank, will be taken into account in order to verify compliance with this restriction.

As this regulation is recent and innovative, it would be rather adventurous to forecast if the referred authorization will be easy to obtain; notwithstanding, considering the experience accumulated since January, 2002, in connection with authorizations of the Central Bank, we expect that they will not be easy to obtain.

2.    Exchange and Stock Markets. Central Bank Communications "A" 3723 and "A" 3727.

Simultaneously with Communication "A" 3722, the Central Bank issued Communication "A" 3723, which provided that sale transactions involving securities or underlying assets denominated in foreign currency, negotiated within self-regulated entities or exchange markets in Argentina, must be paid exclusively in foreign currency. As an exception, Communication "A" 3723 would not apply when, according to their terms and conditions, interest, principal or the redemption of the securities was to take place exclusively in pesos and in Argentina.

In short, the aforementioned regulation restricted transactions with public bonds denominated in dollars against pesos. Transactions with CEDEARs (Certificates of Argentine Deposits representing stocks of companies established abroad) against pesos were also restricted since they are securities with underlying assets denominated in foreign currency. It is important to bear in mind that, until Communication "A" 3723, transactions with such securities were allowed either against pesos or dollars. It is also important to mention that the acquisition of certificated public bond had already been restrained to non-restricted pesos.

Communication "A" 3723 did not include either securities denominated in Argentine pesos (e.g., certain public bonds) nor securities traded over-the-counter (such as United States treasury bills).

The Central Bank further clarified that transactions settled until September 6, 2002 inclusive, could be liquidated according to the terms agreed, thereby confirming the validity of transactions against pesos settled until that date (Central Bank Communication "C" 35467, dated September 9, 2002).

In another proof of the legal precariousness which characterizes this period in Argentina, and due to the adverse reaction of the market, on September 9, 2002 the Central Bank issued Communication "A" 3727 suspending the enforcement of Communication "A" 3723. Additionally, the Central Bank established that all securities transactions traded within self-regulated entities and stock exchanges must be settled exclusively in Argentine pesos. This requirement translates into a prohibition for trading securities in foreign currency.

Also, the Central Bank suspended transactions of securities where payment took place with foreign currency delivered abroad when traded within self-regulated entities and stock exchanges.

Consequently, in addition to certain transactions that were not forbidden during the brief period of time the Communication "A" 3723 was in force, presently securities denominated in foreign currency can be still negotiated against pesos (either non-restricted pesos or pesos subject to restrictions). Transactions involving securities denominated in Argentine pesos payable with foreign currency, as well as the payment of transactions with foreign exchange delivered abroad, are currently restricted.

Communication "A" 3727 does not apply to either over-the-counter transactions or to transactions in self-regulated entities and stock exchange located abroad.

This article is based on Argentine law as currently in force. Given the dynamics of regulations governing these issues we suggest verifying the legal framework from time to time, as the amendment of such regulations is a probable event.