Regulation of the Securities Law

On August 1, 2013 Decree No. 1023/2013 (hereinafter the “Decree”) was published inthe Official Gazette. The Decree regulates Securities Law No. 26,831 (hereinafter “Securities Law”) (please see “New Securities Law” published in Marval News # 123 on November 30, 2012).

The Decree emphasizes the power given to the Argentine Securities Commission (Comisión Nacional de Valores) (“CNV”) as supervisory authority of the capital markets. Although the Decree does not make considerable contributions and many of the sections of the mentioned law have not been regulated, we describe below the main issues included in the Decree.

1. Powers of the CNV

Regarding the most questioned section of the Securities Law, the Decree empowers the CNV and/or shareholders and/or holders of securities of 2% of the corporate capital or the outstanding amount of the securities, to inform about any infringement of their rights. Within this scope, the CNV is empowered to appoint a supervisor (veedor) with veto rights or to suspend the board of directors. The Decree requires a duly grounded administrative act, which should expressly indicate which regulations have been breached or are at risk of being breached. A legal opinion issued by the permanent legal service and an opinion from the accounting department shall be required and, if necessary, an opinion from other technical areas of the CNV.

According to the Decree, the appointment of supervisors has the aim of controlling and monitoring the company’s board of directors. The supervisor may not exercise management or co-management powers. The decisions made by the supervisor, with veto rights can be appealed only before the Chairman of the CNV.

For the cases in which the CNV considers that the rights of minority shareholders and/or security holders are seriously threatened, the CNV may order that the board of directors be suspended for a maximum term of 180 days, in order to normalize any shortcomings that may have been found. According to the Decree, the administrative order providing for the measure can only be appealed before the Ministry of Economy and Public Finance.

It will be interesting to see how the courts will rule with respect to these provisions that would not be subject to appeal, vis à vis traditional precedents that mandate judicial review of administrative acts.

The supervisor, as well as the manager or co-manager that may be appointed must be officers of the CNV or a third party, who must be able to provide evidence of their knowledge and experience in corporate matters and capital markets. In both cases, the appointee should act in person and within the framework imposed by the administrative act.

2. Agents. Conflicts of interest
In the first place, the CNV was given the power to determine personal and technical requirements for the people who are interested in obtaining an authorization to carry out activities in the capital markets.

The Decree accepts as new participants, trade union associations, business associations and chambers, professional organizations, notaries, professionals registered at the Professional Council of Economic Sciences, lawyers and other people who meet the requirements that the CNV may impose, who will be allowed to carry out the activities provided by the Securities Law. It is not clear yet what the activities assigned to these groups will be.

The Decree further states that the CNV will establish the requirements that must be fulfilled in order to avoid conflicts of interest during the placement of securities, including in connection with the activities of the participants, the related documentation, primary negotiation and the dissemination of the terms and conditions among investors, which leads us to believe that regulations similar to the ones existing in other jurisdictions, may be passed.

The Decree empowers the CNV to impose the suspension of the authorization to operate when the interest of investors or the normal development of the markets are threatened, as a preventive measure and based on its own criteria.

3. Agents. Guarantees

In connection with the activities of the agents, the Decree requires that in addition to the guarantee fund that must be set up by markets and clearing agencies, agents must set up another fund to guarantee claims from the clients. Until such fund is set up, the agents must have an insurance.

4. Risk Rating Agencies

With respect to risk rating agencies, the Decree states certain incompatibilities that arise from acting as risk rating agencies and delegates the CNV with the power to establish the maximum term of the risk rating contract. The Decree also states that ratings should not take into account the policies of the relevant country.

Public universities have been appointed to act as risk rating agencies. The Decree empowers the CNV to determine the requirements that they must comply with and to determine the cases when such ratings shall be mandatory.

The Decree has not provided complete regulations on several aspects of the Securities Law. The analysis will be completed once the CNV issues the new regulations.