Financial intermediation in simultaneous transactions involving securities

By means of Press Release No 48,496 (the “Communication”) of March 21, 2006 (complemented by Press Release No 48,498 of March 22, 2006) the Argentine Central Bank (“BCRA”) addressed a warning to financial intermediaries (whether authorized or not) with respect to simultaneous purchase and sale transactions (or vice versa) of securities. According to the BCRA, these transactions would constitute an “indivisible unit” for purposes of transferring funds to and from other countries, in violation of the Criminal Exchange Regime and the regulations governing the Argentine Foreign Exchange Market. These communications have a direct impact on a securities transaction called “contado con liquidación” which has been used regularly by the market since 2002.

The BCRA further states that “the only possible channel to exchange Argentine Pesos for foreign currency complying with legal requirements in force in Argentina is to access the local foreign exchange market and comply with the applicable regulations.”

Even if the Communication does not clearly establish the parameters which would determine, according to the criteria of the BCRA, the existence of an illegal transaction, the BCRA understands that those parameters would consist of (i) the “simultaneous” purchase and sale of securities (whether or not performed by more than one financial intermediary), and (ii) the absence of variation in the holding of securities of the buyer and the seller.    

The BCRA made clear that the above mentioned transactions do not include initial offerings of securities or their negotiation in secondary markets through transactions related to the variations in the holding of securities. Besides, the BCRA informed that it has instructed the relevant areas of the BCRA to start inspection proceedings and verify transactions in order to detect violations of the relevant regulations and, as the case may be, file the corresponding proceedings.

Consequently, according to the Communication, the purchases and sales of securities that would not infringe the exchange regulations would be those (i) whose liquidation is not made simultaneously (i.e. some time elapses between the purchase and the sale of the securities, or vice versa), and (ii) that imply the variation in the holding of securities (i.e. a reduction in the effective position of the securities of the seller and the correlative increase in the effective position of the securities of the buyer, with due registration with Caja de Valores S.A. or the relevant clearing house).

Regarding these communications, it must be noted that according to the rules established by the BCRA in its regulations, press releases are not regulations and, therefore, lack enforceability; however, they reflect the position that the BCRA has established on this subject, as well as its intention to maintain a greater control on capital flows.

Notwithstanding, the interpretation of the BCRA on the conditions that a purchase and sale of securities must fulfil in order to qualify as an exchange transaction or not challenges important precedents on this subject. 

Finally, some newspapers articles note that the BCRA would be questioning only those transactions consisting of a simultaneous purchase and sale of securities without (i) effective transfer of the securities or (ii) registration with Caja de Valores S.A. or the relevant clearing agency and without supporting documentation. However, it is important to bear in mind that this distinction is not made in the Communication.