Amendments to the Capital Markets Act and other financial regulations

On May 9, 2018, the Low House passed a law (the “Law”) to boost financing and development of the local capital market, including a package of reforms and updates of the law on capital markets, law on mutual funds, law on negotiable obligations, law on system of tax relief for the purchase of private securities, regulations on money laundering prevention, law on house financing and construction, law on insurance companies and their control, together with the adaptation of some tax provisions and the incorporation of regulations regarding derivatives. The Law still needs to be published and promulgated by the Executive Power. 

We detail below the most relevant changes resulting from the Law:

The Law creates a financing system through a new billing instrument called “Electronic Credit Invoice”  (the “Electronic Credit Invoice”) to substitute the credit invoice provided by Law 24,760, with the features described below:
1. The Electronic Credit Invoice shall be mandatory in all commercial transactions between a micro-, small- and medium-sized companies (“MiPyMEs”) and a “large company” , and subject to the fulfillment of certain conditions, shall be an executory instrument created before a notary public that may be enforced through an executory process to claim its payment  .The omission of any of the requirements causes the Electronic Credit Invoice to be ineffectual, both as an enforceable instrument, and as a commercial paper.
2. The Electronic Credit Invoices that have not been duly cancelled or accepted and that shall not have been registered in the “Registry of Electronic Invoices” within the period of 30 calendar days following their receipt shall be considered to have been tacitly accepted. 
3. The recipient (purchaser of the asset or recipient of the service) shall be obliged to accept the Electronic Credit Invoice, save in case of default, damage or other expressly established divergences. Acceptance of the Electronic Credit Invoices shall be unconditional and irrevocable, and no protest shall be accepted.
4. The Electronic Credit Invoices may be traded (primary offering and secondary trading) on  the markets authorized by the Argentina Securities Commission, without being considered a public offering, and therefore no prior authorization shall be required.  Upon acceptance and credit with a Depository Agent, the Electronic Credit Invoice shall circulate as an independent and autonomous security.  Any prohibition to endorse, assign, negotiate and/or transfer the Electronic Credit Invoices is null. 
5. Any tax and/or social security withholdings and/or collections must be made by the debtor of the invoice, who for purposes of this specific system shall have the status of a withholding agent.
The implementation of this new structure will be subject to Argentine Tax Bureau Office’s prior    regulation.

The Law amends the procedure for notices to be served upon assigned debtors under the system of mortgage-backed bills in order to permit the assignment or the discount of mortgage credits in the capital markets, minimizing any transfer or discount costs.  
The outstanding amendments proposed by the Law as to this item are:
1. Simplification of the procedure to serve notice upon the debtors of assigned credits: Even when the instruments representing the assigned credits do not provide that it is not necessary to serve notice upon the assigned debtor, the publication of the assignment on the electronic site of the Argentina Securities Commission shall be admitted as a reliable means of notice, in accordance with the regulations that this body may issue to such end: and
2. It permits the issue of mortgage-backed securities with the capital adjustment clause.  Besides, the Law admits for the mortgage-backed bills to be assets of mutual funds or financial trusts.

The Law on Insurance Companies is amended to permit expressly, by exception to the general principle, the local insurance companies to insure mortgage financial credit transactions, in the terms of the regulations that may be issued for such purpose by the Insurance Regulator. Before the introduction of this exception, the Insurance Law prohibited the coverage of risks arising from pure financial credit transactions, with no exceptions.
Furthermore, death insurance policies, regardless of the funded modalities they may include, and retirement insurance in all their ways, may have capital adjustment.

The amendments made to Law No. No. 26831 on Capital Markets (“Capital Markets Law”) are focused on the modernization and development of the local capital markets and their adaptation to the recommendations of international bodies specialized in the matter. The main changes made to the Capital Markets Law are:
a. CNV’s new powers. The Argentina Securities Commission (“CNV”) is vested with the following new powers:
(i) To establish the requirements of suitability, moral integrity, probity and solvency to be met by those who seek to obtain authorization to operate as markets, clearing houses and registered agents;
(ii) To create and amend categories of registered agents, as well as to eliminate those categories created by a regulation. It is worth mentioning that under section 2 of Executive Order No. 1023/13 (Executive Order regulating the Capital Markets Law), the CNV was already empowered to create and amend the categories of registered agents;
(iii) To fix maximum fees to be received by the markets, clearing houses, registers of derivatives transactions and registered agents;
(iv) To issue rules tending to the promotion of the transparency and integrity of capital markets and to avoid any situation of conflicts of interests; and
(v) To evaluate and issue regulations tending to mitigate systemic risk situations.
b. Abrogation of correcting powers. The correcting powers of the CNV, set forth in section 20 of the Capital Markets Law, which had been mostly considered excessive and unconstitutional are corrected . Then, the Law repeals the faculties to (i) appoint overseers having right of veto upon the resolutions adopted by the governing bodies of the issuer, (ii) separate its governing bodies, and (iii) request directly police assistance. According to the new wording the obtainment of police assistance is subject to the prior involvement of a judge.
c. Maximum holdings limit. The CNV may determine the maximum holdings each shareholder may have and the nominal value and the number of votes that each share of the authorized markets confers, so as to avoid the existence of controlling shareholders or the formation of controlling groups. Furthermore, a shareholder of an authorized market is prohibited to have, directly or indirectly, individually or jointly, an interest in the capital stock conferring upon him the votes necessary to constitute majority at the shareholders meeting or to elect or to remove the majority of the members of the governing and/or supervisory bodies.
d. Restriction to the right of first refusal. The exercise of the right of first refusal in the public offering is limited, and shall be exercised solely through the placement procedure that may be set out in the relevant public offering prospectus, without the application of the time period provided by the General Companies Law . The holders of shares and convertible corporate notes, beneficiaries of the preferential right, shall have priority in the allocation up to the amount of the shares they are entitled to because of their holding percentages, on condition the purchase orders of the aforementioned holders are (i) at the price that may result from the placement procedure or at a determined price that is equal to or higher than such subscription price determined in the public offering; and/or (ii) at the placement price that may be determined following the placement procedure employed.
e. Amendments to the Public Tender Offer of Shares Regime (OPA, as per its abbreviation in Spanish) and to the residual interests regime: 
(i) Public tender offers of shares may not be subject to any condition.
(ii) Takeover events are redefined to determine the mandatory nature of a public tender offer. The prior wording of the Capital Markets Law established that it was mandatory to carry out a public tender offer in the case of purchasing shares of a company authorized to go public entitling to, or that upon exercise, may entitle to a substantial interest . 
Under the new wording, a controlling interest shall exist when a person (i) reaches a percentage of voting rights equal to or higher than fifty per cent (50%) of the company; or (ii) when such person shall have reached an interest lower than fifty per cent (50%) of voting rights of a company but is acting as a controlling one.
(iii) Public tender offers must be filed as soon as possible and no later than one month after reaching the controlling interest.
(iv) Provides revised valuation criteria for the determination of the “fair price” of mandatory public tender offers in case of takeover and the mandatory public tender offer for almost complete control (squeeze out) and by voluntary delisting from public offering system.
In mandatory public tender offers, the “fair price” shall be the higher price between (i) the highest price that the offeror may have paid or agreed to pay for the marketable securities subject to the offer during the 12 months prior to the date of commencement of the period during which the public tender offer must be made; and (ii) the average price of the marketable securities underlying the offer during the semester immediately prior to the date of the announcement of the transaction whereby the change in the controlling interest is agreed.
In turn, in the events of mandatory public tender offers because of almost complete take over and because of voluntary delisting, the following criteria shall be taken into account to fix the fair price: (i) the highest price that the offeror may have paid or agreed to pay for the marketable securities underlying the offer during the 12 months prior to the request from any minority shareholder upon the controlling person to make an offer to purchase from all the minority shareholders, or prior to the unilateral declaration by the controlling person of its intent to purchase all of the remaining equity; (ii) the average price of the marketable securities underlying the offer during the semester immediately prior to the demand or unilateral declaration described in the foregoing paragraph; (iii) the equity value of the shares; (iv) the value of the company assessed according to discounted cash flows and/or indicators applicable to companies or similar business; and (v) the liquidation value of the company.
f. Increase of applicable penalties. The minimum amount of penalty is increased to ARS 100,000 from AR$5,000 and to AR$100,000,000 the maximum amount of AR$20,000,000 in case of breach, which penalties may be paid within 5 days following the date in which the resolution imposing such penalties becomes final at the administrative and/or judicial stage. Any proceeds derived from penalties shall be transferred to the Public Treasury.
g. Jurisdiction. The federal courts having jurisdiction on commercial matters shall substitute for the federal first instance courts, which are those having jurisdiction so far, to deal with (i) the enforcement of supervision fees, authorization fees and penalties imposed by the CNV; (ii) the requests for entry orders; (iii) any other requests for judicial assistance; and (iv) the requests for the appointment of trustees.

The Law provides substantial changes in Law No. 24083 on Mutual Investment Funds – Fondos Comunes de Inversión (“Mutual Investment Funds Law”). The most outstanding item of the amendment is the regulation of the Closed-End Mutual Investment Funds which seeks to eliminate the regulatory imbalance currently existing among such Closed-End Mutual Investment Funds and Open-End Mutual Investment Funds.
The most relevant amendments proposed to be made to the Mutual Investment Funds Law are the following:
a. Closed-End Mutual Investment Funds regulations. The Closed-End Mutual Investment Funds (“Closed-end Mutual Funds”) are regulated as an alternative to the Open-End Mutual Investment Funds (“Open-end Mutual Funds”). 
In the Open-end Mutual Funds, the number of units may be continuously increased or reduced according to the redemptions carried out while the Closed-end Mutual Funds must be organized with a maximum number of units and shall have a specified term of duration. The units of such funds may not be redeemed, save some exceptions, and they may go public with the authorization of the CNV. 
The assets eligible to become the property of a Closed-end Mutual Fund are expanded. In addition to the possibility of including also the assets authorized for the Open-end Mutual Funds, the Open-end Mutual Funds may be composed of personal or real property, securities not subject to public offering, any kind of credit rights; and such other assets, contracts and investments the CNV may determine.
A material item of the bill of law is that it amends Law 24083, giving both the Closed-end Mutual Fund and the Open-end Mutual Fund the same tax treatment.  
b. The responsibilities and obligations of the parties are delimited:
(i) Under no circumstances shall the unit holders, the Management Company and the Depositary be personally liable for the obligations of the Mutual Investment Funds.
(ii) The standard of diligence and responsibility of the Management Companies in the management of the Mutual Investment Funds is fixed as that of a prudent business man, giving in all cases priority to the collective interest of the unit holders.
(iii) The Management Companies must operate completely independently from any other company and may act in (i) the management of the Mutual Investment Fund; (ii) investment management; and (iii) placement and distribution of units of the Mutual Investment Fund they manage and/or managed by other Management Companies. 
(iv) The joint and several liability of both the Management Company and the Depositary is eliminated. Under the Law, they shall be individually and separately liable from any damage that the breach of their obligation may cause to the unit holders.
(v) The obligation imposed on the Management Companies to increase the property by 25% for each additional fund they may manage is eliminated. The new wording proposes that the net minimum equity be increased by the percentage that the CNV may determine.
(vi) The Open-end Mutual Funds must invest at least 75% of their property in assets issued and traded in the country, and accordingly –subject to the regulation- such open-end mutual investment funds shall be able to place up to 25% of their property in foreign assets.  The Closed-end Mutual Funds must invest only in assets located, created, originated, issued and/or located abroad.
c. The CNV is empowered with the authority to determine the limits and restrictions as to the investments of the assets of the fund, with authority to establish:
(vii) Any exceptions to the prohibition to invest in marketable securities issued by the Management Company and/or the Depositary, or in units of other Mutual Investment Funds.
(viii) The limit to exercise the voting right in one sole issuer (it was previously fixed by the Mutual Investment Funds Law at 5%).
(ix) The maximum limit to be invested in one single security issued by the Government with the same issue conditions. 
d. The prohibition to invest in marketable securities pertaining to financial trusts in which the Depositary may act as trustee is repealed.
e. The prohibition to purchase marketable securities by a portion in excess of 2% of the capital of the controlling entity of a Management Company is extended to those marketable securities issued by affiliated and related companies of the former.
f. Mutual Investment Funds designed solely to qualified investors may be organized, which shall be exempt from the foregoing limits and restrictions on investment.
g. The requirement of double approval of the Management Rules imposed by the prior wording is eliminated. Then, it shall not be any longer necessary to have the approval of the Office of Corporations, and the Management Rules shall become effective upon compliance with the approval procedure established by the CNV.
h. The amounts of money not invested must be deposited in financial institutions authorized by the Central Bank of the Republic of Argentina other than the Depositary of the Mutual Investment Fund, or from abroad.
i. The Management Companies that are no financial institutions shall be considered to fall under the provisions of section 299 of the General Companies Law and, accordingly, they shall be subject to permanent supervision.

The Law regulates the security agents for collective or syndicated financing, a wide-spread entity both in the Argentine and in the international market. Specifically, the amendments permit security agents to act as record owners of the mortgage or pledge, for the benefit of the creditors and pro rata their credits. This relaxes the principle of the accessory nature of the security rights , and their beneficiaries are allowed to transfer the credit, without a need to record the transfer of the security right.
Furthermore, the Law simplifies the process to serve notice of the pledges on current and future credits in the course of business of the debtor or a guarantor, by making them effectual against third parties with the mere publication of a notice of assignment in the newspaper of legal publications in the jurisdiction of the company and in one of the largest circulation newspapers within Argentina, without any need to serve notice upon the assigned debtor. 

The following amendments have been introduced to the current system of the Corporate Notes (Obligaciones Negociables):
1. Simplification of the notice of pledges on present and future credits in the ordinary course of business of the debtor or a guarantor, by making them effectual against third parties, with the mere publication of a notice of assignment in the Official Gazette, without any need to serve notice upon the assigned debtor.
2. The issue of Corporate Notes with limited and exclusive recourse to some assets of the issuer but not to all its property is allowed;
3. The Corporate Notes issued in a foreign currency, for which the payment of income or capital is fixed only in foreign currency, the power to settle payment in Argentine currency shall not be applicable ;
4. The possibility for the government body of the company to approve the issue of Corporate Notes is incorporated, to the extent it is so laid down in the corporate bylaws and such Corporate Notes are not subject to Public Offering;
5. The incorporation of collective action clauses into the conditions of issue is permitted so as to obtain amendments to the essential conditions of issue, with the consent of the required majority (through conclusive means assuring the right of the bondholders to information and to express their opinion, even without the requirement of holding a meeting), so avoiding the unanimity requirement established so far;
6. Certificates evidencing registration of Corporate Notes in book-entry accounts are given the nature of an executory instrument, and not only the certificates representing such Corporate Notes like it happens under the current law; and
7. The requirement of the minimum period of two-year repayment to be eligible for the statutory tax exemption is eliminated.

The Law creates the registry of derivative transactions so as to record this kind of contracts entered into bilaterally, outside the sphere of negotiation on the markets authorized by the CNV. 
Likewise, express regulations are incorporated regarding derivatives by defining them as contracts in which their terms and conditions result from an asset or underlying product that may be entered into and/or traded on markets authorized by the CNV or outside such markets, and that include forward contracts, futures, option contracts, exchange contracts and the credit derivative contracts, among others.
The purpose is to cause the legal framework of derivatives to conform to international standards, providing for the non-application of some sections of the bankruptcy law, the law on insurance institutions, the law on financial institutions and the charter of the Central Bank of the Republic of Argentina, which prevented the exercise of some essential rights set out in the derivative contracts. This lifts the restrictions imposed on the use of the contractual mechanisms for early termination, cancellation, liquidation, setoff and enforcement of guaranties.

The following are incorporated as liable parties within the sphere of capital markets (i) intermediaries in authorized markets, (ii) underwriters of Mutual Funds or of other collective investment products, (iii) legal entities authorized to act in the sphere of collective financial systems through the use of web sites or other similar means; and (iv) further legal entities having charge of the opening of the file and identification of the profile of the client to invest in the field of capital markets. 

Trusts and Mutual Funds settled in the country shall be levied with the income tax to the extent that the participation certificates and/or debt instruments or the units that they issued had not been placed through a public offering with the authorization of the CNV. In case they were placed by public offering and with the authorization of the CNV, they shall only pay pro rata the investments made abroad. This new regime is only applicable to the utilities generated since January 1st, 2018 onwards.   
The income received by the investors in trusts and Mutual Funds must be shown in their tax returns, and the general rules of the Income Tax Law for the kind of income at issue must be applicable.

So that a promissory note may be used as a financing instrument for the MiPyMEs, the Law amends Law No. 27264 on Program of Productive Recovery to make it possible for promissory notes to be subject to public offering under the Capital Markets Law and, in turn, such promissory notes may be traded on markets registered with the CNV. For such purpose, a promissory note must meet the requirements that the CNV, as the control authority, may establish, and the tax exemptions applicable to marketable securities eligible for public offering shall be applied to them.
As the public works acceptance certificates are concerned, the Law also establishes the possibility for such instruments to be subject to public offering in terms of the Capital Markets Law and may be trade on markets authorized by CNV, in accordance with the regulations that may be issued from time to time.

This briefing shall not be deemed as legal or any other type of advice by Allende&Brea or as including all topics of the matters described herein. For additional information on any matter related with Capital Markets in Argentina please contact Carlos María Melhem ( or Jorge I. Mayora ( at (+54 11) 4318-9900. 

For further information on this topic please contact Carlos M. Melhem and Jorge I. Mayora