Argentina: New Securities Law

Last Updated: 11 December 2012
Article by Juan M. Diehl Moreno, Clara Vela and Maria Manuela Lava

On November 29, 2012, the Argentine Congress passed the new "Securities Law", which modifies the public offer regime set forth by Law No.17, 811, as amended.

Although the Securities Law was intended to make a comprehensive modification of the public offer regime established by Law No. 17,811, as amended; in general terms it does not introduce substantial changes, except for the applicable regime to Markets, Stock Exchange and Agents and the powers conferred to the Argentine Securities Commission (Comisión Nacional de Valores) ("CNV").

Likewise, the Securities Law reflects most of the reforms introduced in the Transparency Decree No. 677/2001 (the "Transparency Decree") which, once the law is sanctioned, will obtain law status.

This report briefly analyzes the main amendments introduced by the Securities Law, with no reference to the modifications already introduced by the Transparency Decree.

1. Powers of the CNV

One of the most significant amendments introduced by the Securities Law refers to the powers of the CNV. The incorporation of Section 20, which was not foreseen in the original draft submitted by the National Executive and was not discussed in the meetings of the Commissions of Finance and Budget, raises concern in the market, especially among listed companies, since it entitles the CNV to (i) appoint supervisors with powers of veto of the resolutions adopted by the board of directors and (ii) separate the board of directors for a period of 180 days when, as determined by the CNV, the interests of the minority shareholders and/or security holders are infringed.

In addition, the Securities Law eliminates the markets' self-regulation and empowers the CNV to authorize, supervise, monitor, act as disciplinary authority and regulate participation in the capital markets.

Moreover, the CNV has the power to suspend the activities of the agents and markets, without prior notice, when it observes any breach to the requirements, conditions and obligations established by the CNV.

2. Markets and Agents

One of the most important modifications established by the Securities Law refers to the authorization of markets and agents. The Securities Law states that the agents and markets shall comply with the requirements determined by the CNV to apply for an authorization to operate and their respective registration.

In addition, it introduces different categories of agents, in accordance with the activities each of them complies with, and establishes that the agents and the individual and legal entities that advise the investors shall be registered before the CNV and shall prove their capacity and credentials.

Finally, the Securities Law states that the markets shall be constituted as corporations admitted by the public offer regime.

The amendments that we have briefly summarized raise concern among the current agents and markets that will have to require authorization from the CNV to continue their activities. There is uncertainty about the requirements that the CNV will request to grant such authorization, about how many licenses each agent may request, taking into account the new classification of agents established by the Securities Law, and about the performance of the agents during the transition period. Also, one of the articles that is receiving severe criticism is the CNV's powers to establish the requirements to authorize markets and agents.

3. Stock Market Confidentiality

The Agents are exempted from the obligation to keep the information confidential on the transactions they make on behalf of third parties when this information is requested by the CNV, the Central Bank, the Financial Information Unit and the Superintendence of Insurance. The Agents are also exempted from the obligation to maintain secrecy when requested by the Federal Tax Authority.

Likewise, the CNV is exempted from keeping confidential the information obtained from the exercise of its duties when such information is required by the Central Bank, the Federal Tax Authority, the Financial Information Unit and the Superintendence of Insurance.

These provisions create mistrust among the listed companies and could result in a disincentive to enter into the public offering regime.

4. Rating Agencies

The Securities Law establishes that Public Universities may act as rating agencies. Although the original project included Private Universities, these were not included in the bill approved by the Congress.

5. Mandatory Tender Offer

The mandatory tender offer provided in the Securities Law, which is similar to the one established in the Transparency Decree, will apply to all listed companies, including those that had opted out of its application under the previous regime. This implies a modification to the existing regulations whereby the companies was able to opt out of the tender offer regime, as most of the companies did.

As from the effective date of the Securities Law, all the companies that trade their shares in Argentina will be subject to a mandatory tender offer regime in the event of change of control or acquisition of a significant shareholding, as defined by the CNV.

6. Other Corporate Issues

Supervisory Committee: As a novelty, the Securities Law provides that companies that make public offering of shares and that have set up an Audit Committee are not required to have a Supervisory Commission. The decision to eliminate the Supervisory Committee shall be taken at an Extraordinary Shareholders' Meeting, which should have the presence of the shareholders who represent at least 75% of the shares entitled to vote. The resolutions in all cases will be made by an affirmative vote of 75% of the shares entitled to vote, without applying the plurality of votes.

In the cases where the Supervisory Committee exists, the Securities Law requires that all of its members must be independent.

Shareholders' Agreements: As currently indicated by the Transparency Decree, any individual or legal entity that executes shareholders' agreements with the purpose of exercising voting rights in a company whose shares are admitted to the public offering or in the controlling company, in any form whatsoever, is required to inform the CNV. The novelty is that the Securities Law provides that, in case of infringement of the obligation to inform, covenants or agreements will be of no value.

7. Jurisdiction

Section 143 of the Securities Law establishes that the Court of Appeals in Federal Administrative Litigation, in the jurisdiction of the City of Buenos Aires, shall have jurisdiction to hear on the following matters: (i) review of sanctions imposed by the CNV, including statements of irregularity for administrative purposes, and the suspension or revocation of registrations or authorizations; and (ii) review of the rejections of applications and authorizations.

For the provinces, the jurisdiction shall be the Federal Courts of Appeals.

The amendments described above are not intended to cover all the amendments established in the Securities Law, but only some of the most relevant aspects.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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