Repos and Derivatives Transactions in the Capital Markets Reform Bill

The Bill to Reform the Capital Markets Law (the “Capital Markets Bill”) –see “Bill to Reform the Capital Markets Law” in this edition of Marval News- expressly regulates derivative and repurchase transactions and includes provisions which would make close out netting provisions and collateral agreements enforceable in insolvency scenarios if certain conditions are met.

The Capital Markets Bill defines derivative agreement and repurchase transaction. While the definitions of derivate transactions and repurchase agreements have certain ambiguities, the Capital Markets Bill expressly provides that: (i) the definition of derivatives includes, but is not limited to forward, futures, options, swaps and credit default swaps and/or a combination of them or any of them; and (ii) the definition of repurchase agreement includes, but is not limited to, repurchase agreements. The name of the contracts included in the definition is also in English in the Spanish original version. Therefore, it is clear that the most widely used derivative transactions and repurchase agreements are covered by the definition.

The Capital Markets Bill includes insolvency regulations for derivative transactions and repurchase agreements that are:

1. executed and/or registered in a markets authorized by the Comisión Nacional de Valores (“CNV”, the Argentine Securities Exchange Commission) if the settlement of those transactions is carried out through the market, clearing house or central counterparty;
2. executed and registered in a market authorized by the CNV, if the settlement of those transactions is not carried out through a market, clearinghouse or central counterparty; and
3. executed between local or foreign counterparties outside a market authorized by the CNV if registered according to the formalities to be set forth by the CNV.

A party to these derivative or repurchase transactions, in the event its counterparty enters into an insolvency procedure under the Bankruptcy Law, will be entitled to exercise its rights under the contract regarding early termination, liquidation,  set-off and the enforcement of margin for the net amount owed. Therefore, the close out netting provisions would be enforceable in insolvency scenarios for this derivative and repurchase agreements.

The Capital Markets Bill also includes certain provisions which would allow the counterparties of derivative and repurchase transactions with financial institutions to enforce their contractual rights, if certain conditions are met, in the event the financial institution is suspended or is subject to reorganization by the Argentine Central Bank.

The CNV will have the authority to regulate these provisions.

For more information regarding (i) other amendments proposed by the Capital Markets Bill please see “Bill to Reform the Capital Markets Law”, and (ii) amendments to the tax relief regime for private securities and adequacy of other tax provisions please see “Bill to Amend the Capital Markets’ Law - Tax Aspects”, in this edition of Marval News.