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Argentina

Although there are still provincial stock exchanges, 90% of the turnover of the market takes place in Buenos Aires. The two markets in the capital are the Bolsa de Comercio de Buenos Aires, established in 1854 primarily as a commodities market, and the Mercado Abierto Electrónico (MAE), which handles bonds. There are almost no restrictions on foreign investment in Argentine equities and bonds. Purchases of more than 5% of the voting stock of any company have to be reported to the Comisión Nacional de Valores. Foreign ownership, however, of broadcasting companies is still prohibited. This restriction applies to cable TV as well as radio and TV. Government permission is also needed before an investor can buy more than 30% of a bank or a financial services company.

The Argentine equity market tends to move in line with Brazil. The daily turnover on the stock market is, however, dwindling for several reasons. One is that several of the blue-chip companies have been taken over or delisted.

A second reason is that domestic investors such as pension funds are switching their trading in blue chip equities to New York where transaction charges for Argentine companies’ American depositary receipts are lower than they are in Buenos Aires. The government made life more difficult for the stock market by extending VAT to financial transactions. Argentine VAT is levied at 21% and foreign investors using local brokers are liable for the tax.

At the other end of the corporate spectrum, small Argentine companies have been leaving the exchange because investors show little interest in them and the cost of maintaining a listing is not enhancing the companies’ access to capital. The exchange’s strict listing requirements, which include three years of accounts, mean that the market has lost out on the dot.com boom. These companies have tended to list in the US.

Tax
There is no withholding tax on dividends, though the government reserves the right to impose a 35% withholding tax if dividends exceed the company’s taxable income. There is no stamp duty. Interest on government and corporate bonds is not subject to withholding taxes, provided there is a double taxation treaty between Argentina and the domicile of the foreign investor. If there is no double taxation treaty, the withholding tax rate is 15.05%.

Currency
The Argentine peso is pegged at 1 to the US dollar through a convertibility law. Peso and dollar bills are used interchangeably, though there are differences in the rates at which dollars and pesos can be borrowed. The convertibility law can only be changed by amending the constitution; amending the constitution would take a two-thirds majority of congress and the support of the executive. The new government is committed to maintaining the convertibility law. There are no currency controls.

Trading
Trading is carried out on an auction basis through both open outcry and electronic systems. The market is open from 10am to 6pm. All trades, duly registered in ordinary sessions, are guaranteed by the Mercado de Valores (Merval), which is the brokers’ association. The electronic system automatically matches orders on a time-linked basis while the open outcry system is similar to open outcry procedures in other markets. In both the open outcry and electronic system, orders are filled at best prices.

There is also a Sesión Continua de Negociación during which stockbrokers and investment banks (which are members of the exchange) can trade for their own account. They can deal with other brokers or third parties. In these sessions orders are not necessarily filled at best prices. Such trades do have to be declared to the market but are not necessarily guaranteed by the Merval.

Central depositary
The central depositary, the Caja de Valores, was established in 1976. Its biggest shareholders are the Mercado de Valores and the Bolsa de Comercio. The Caja has links with Euroclear, Cedel and the Depositary Trust Company. The Caja settles all trades through a book entry system. Trades are settled in batches overnight and all certificates are immobilised. The Central de Registración y Liquidación de Instrumentos de Endeudamiento Público was set up in 1996 to clear, register and settle new issues of government bonds. It is part of Mercado Abierto Electrónico. The Caja allows participants to check that sellers have the shares they want to sell; it also allows both buyers and sellers to monitor their balances, through their subcustodians.

Settlement
Trades are confirmed on T+1. Trades are entered into the Caja system and a printed report is produced, which is used for settlement. Settlement day is T+3. On settlement day, securities are blocked in the Caja’s transient account, and appear as credits in the buyer’s sub-account at the Caja. This process is confirmed by a certificate, which the seller presents to the buyer as proof that the securities have been delivered. The buyer sends this certified transfer note on to the Caja, instructing it to debit the buyer’s account accordingly. Settlement actually occurs overnight. Effectively the market’s practice is to deliver securities before payment is received. The stock exchange, however, guarantees delivery versus payment (DVP) on behalf of both the buyer and the seller.

Settlement for equities is on a net basis: Payment can take three forms: certified cheque; internal transfer (if the broker also has an account with the subcustodian); or electronic transfer. The authorities introduced an electronic payment system, the Metodo Electrónico de Pagos in 1997. This eliminates the need for the physical exchange of central bank forms when payments are made between banks. The new system is designed to allow participants to have same-day availability of funds and monitor intra-day credits and debits.

The Merval’s electronic network allows all members to check real time on the state of their accounts; issue payment instructions and transfer securities. The authorities are working towards setting up a single entity to handle the clearing of all securities in Argentina, Argenclear. Argenclear is designed as a centralised system to handle the settlement and clearance of all securities on both the stock market and the Mercado Abierto Electrónico (MAE), the over-the-counter market for government securities. Most of the large banks in the country are involved in the project. Once Argenclear is in place, investors will be able to net their trades in both bonds and equities: currently Merval allows just netting in equities, though bond trades on the MAE can be cleared through the Merval system.

In the current MAE system, trades of government bills and bonds are cleared and settled through the Central de Registración y Liquidación de Instrumentos de Endeudamineto Público (CRYL). The CRYL operates as clearing house and registry for all bonds, both public and private, issued since April 16, 1996. The CRYL can handle both free-of-payment and DVP transactions. The practice is for the CRYL to transfer secondary market trading in bonds to the Caja. Some government bonds are still held in bearer form at the Caja.

Registration
Equities are held at the Caja de Valores in the subcustodian’s account.

Stock lending
The Merval runs a stock lending system. This is designed to prevent trades failing. Failed trades, however, are rare.

Corporate actions
Dividends and interest are paid either semi-annually or annually. Dividends are paid to the Caja, which then pays the subcustodian within three working days, usually by cheque, though electronic payments are becoming more common. The payment usually takes a further two days to be credited to the investor’s account. The Caja charges a 1% fee for collecting dividends. Government bonds pay interest monthly, quarterly or annually. All bonds accrue interest on a 30/360 day basis. The bonds usually start to trade ex-interest three days before payment is made. Other corporate actions are published in the stock exchange bulletins and in the daily newspapers such as La Nación, Clarín and Ambito Financiero.

Shareholders have pre-emption rights over all new issues. Subscription periods for rights issues are normally up to one month. Rights can be traded and generally settle on the usual terms of T+3. If shareholders have not issued instructions for the exercise or sale of the rights, the market practice is for subcustodians to sell the rights on a best efforts basis.

Regulators
The two main regulators are the Banco Central de la República Argentina, the central bank and the Comisión Nacional de Valores (CNV). The central bank’s main role is to supervise the banking industry. The central bank has all but surrendered its function as a lender of last resort: bank failures are comparatively frequent during times of economic crisis. All the big banks in Argentina are now either state-owned or controlled by foreign shareholders. The CNV has the right to investigate any aspect of the securities market. It can also impose fines. All companies have to register with the CNV, which is acting increasingly as a US-style Securities and Exchange Commission, before they can offer securities.

Caja de Valores
Sarmiento 299, Buenos Aires 1353
Tel: 54 1 317 8900
Fax: 54 1 317 8959