Trading deferred payment checks

Decree No 386/03, dated July 10, 2003 (the “Decree”) amended the regime and transfer proceedings for deferred payment checks. The aim of this measure is to facilitate access to credit for small and medium sized businesses (“Pymes”).

The Decree authorized the trading of deferred payment checks, and established a framework for the Argentine Securities Commission (the “CNV”) to regulate aspects related to their trading and for the Central Bank of the Republic of Argentina (the “BCRA”) to regulate personal data and confidentiality protection.

Checks drawn to a specific person with the clause “NOT TO THE ORDER”, or equivalent expression, could only be transferred by means of an assignment of credit. Under the ruling of the new Decree, they may also be transferred by a simple endorsement to a financial company or deposited in the Caja de Valores S.A. (the “Caja”), with the following wording included in the endorsement: “FOR TRADING IN STOCK MARKETS”.

Deferred payment checks deposited in the Caja may be traded on the stock and securities market in Argentina, according to their respective regulations, and these entities must provide an electronic system to automatically match the price-time priority of the offers.

The initial placement and trading of these checks will not be considered a “public offering” and therefore will not require prior authorization by the CNV. Those that endorse or sign the documents will not be considered to be issuers or broker-dealers acting in trading in the securities market.

When the checks are traded, the general rules on obligations derived from the ordinary transfer of checks do not apply.

On October 1, 2003, the CNV issued the RG No 452/03 which provided the following methods of operation:

i) deferred payment checks issued by commercial companies, cooperatives, civil associations, mutual benefit societies and foundations (endorsed and deposited pursuant to the Decree and RG 452/02);

ii) deferred payment checks granted by reciprocal guaranty companies (or other guaranty companies referred to in Law No 25,300) in favor of their associate participants (i.e., Pymes); and

iii) certificates issued by financial companies that represent guaranteed deferred payment checks.

Endorsement to the Caja with the above mentioned wording will be considered to be instrumental. Namely, neither the property and/or use of the deposited checks shall be transferred, and the depository will only be obliged to preserve and guard them, and to perform the operations and accounting registries derived from their trading, but shall not be obliged to make any payment, because of the above mentioned wording in the endorsement. No additional registrations of the checks will be required.

The Caja must control everything concerned with the custody and preservation of the deferred payment checks, according to the rules regarding central depositories. Stock Exchanges must include in their regulations mechanisms for the validation of formal defects of checks, legitimacy of the signatories and the authenticity of the signatures written on the deferred payment checks. These obligations cannot be delegated to the Caja.

To date, the Buenos Aires Stock Exchange has submitted one regulation project to the CNV. The Caja and the Mercado de Valores S.A. (stock market) are both working on projects to control the operative aspects of trading and deposit. The CNV will evaluate the three projects together.