Ll reference capital markets 2013 - uruguay

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Capital Markets 2013 – Uruguay LatinLawyer Reference
Reference
Capital Markets 2013 – Uruguay
Juan Martín Olivera and Federico Rocca
Olivera Abogados
1 Which laws, regulations and administrative rulings govern the offering
and trading of securities and how are they proposed, adopted and
amended?
The offering and trading of securities is governed by three sets of regulations:
the Capital Markets Act No. 18.627 of 2 December 2009, and its Regulatory
Decree No. 322/011 of 16 September 2011; the Central Bank of Uruguay’s
Charter Act No. 16.696 of 30 March 1995 (as amended by Acts No. 18.401,
18.643 and 18.670); and the Consolidated Rules for Capital Markets passed by
the Central Bank of Uruguay (CBU).
The general regulation is contained in the Capital Markets Act and in the
CBU’s Charter, which are both formal laws passed by the Congress.Although
it is the Executive Power or the representatives at the Congress who have the
formal initiative for the enactment or amendment of these kind of regulations,
the inception of the bills can be usually found in the CBU,the stock exchanges,
bank associations or the Commission for the Promotion of Capital Markets, a
public office created by the Capital Markets Act to advise the Executive Power
in the development of capital markets in Uruguay.
The more specific aspects and requirements for the offering and trading of
securities are regulated by the CBU through the Consolidated Rules for Capital
Markets,which collect the rules approved by the CBU in its circulars.The CBU
may also approve communications, which are more specific resolutions for all
or some entities subject to the control of the CBU and which usually contain
criteria for the interpretation and compliance of the Consolidate Rules.All the
circulars and communications may be amended from time to time by a resolu-
tion of the board of directors of the CBU or a decision of the Superintendency
of Financial Services (Superintendencia de Servicios Financieros), the depart-
ment within the CBU entrusted with the control and regulation of the financial
sector, including banks, insurance companies and the capital market.
It is also worth mentioning that stock exchanges have their own internal
regulation and guidelines governing the operations and agents operating within
their markets, including procedures, requirements and penalties applicable to
them.These regulations and guidelines are passed by the competent authorities
of each stock exchange and require the approval by the CBU before coming
into force.There are currently two stock exchanges in Uruguay: the Montevi-
deo Stock Exchange (Bolsa deValores de Montevideo) and the Electronic Stock
Exchange of Uruguay (BEVSA).
2 What is the rationale behind this legislation?
The purpose of the regulation of capital markets is to watch over transparency,
competitiveness, the correct operation of the market, the mitigation of
systemic risk and the protection of investors through adequate information.
The public offering of securities requires the previous registration of the
issuer and the securities with the CBU.This information is open to the public.
Issuers are required to present truthful, sufficient and timely information about
themselves and the listed securities, and must disclose any material fact which
may affect the purchase or sale of such securities. Stock exchanges and rating
agencies must also comply with minimum information requirements and dis-
closure of material facts.
The Consolidated Rules of Capital Markets of the CBU contain several
administrative and pecuniary sanctions for those who fail to comply with infor-
mation requirements about material facts and for those who breach the rules of
ethics and commercial loyalty or who seek to manipulate or deceit the market.
The internal rules and guidelines applied by stock exchanges seek to protect
the transparency of the market, and to avoid conflict of interests or situations,
and to prioritise the interest of clients over the own interest and to prevent
to benefit some clients over others.According to the Capital Markets Act No.
18.627, the relation between investors and brokers and stock exchanges, are
defined as consumer relations protected by the Consumers Protection Act No.
17.250 of 11 August 2000.
3 Which regulatory authorities oversee capital markets and what is the
scope of their jurisdiction?
The Superintendency of Financial Services (Superintendencia de Servicios
Financieros) is the department within the Central Bank of Uruguay (CBU)
entrusted with the control and regulation of the capital markets.The Super-
intendency has jurisdiction over the public offer and trade of securities within
the Uruguayan territory.
4 How is financial fraud and price manipulation in capital markets
regulated?
The regulation prohibits and sanctions the following conducts: the use of
privileged information for personal benefit or the benefit of third parties; the
manipulation of the market;and failure to comply with ethical and commercial
loyalty standards and code of conducts applicable to the controlled entities.
Stock exchanges are required to articulate a code of commercial and ethical
practices – and sanctions applicable – to be followed by all brokers and other
agents operating in the exchanges,with the aim of preventing the manipulation
and alteration of the market.
Brokers are especially banned from participating in acts or operations which
are fake or have the purpose or the effect of affecting the free price of securities
in capital markets; manipulating the liquidity of a security; faking the offer or
demand of securities;manipulating or artificially fixing prices,offers or demands;
or obstructing the free participation of other agents. Failure to comply with
these rules can entail the severest administrative sanctions by the CBU, and
even civil and criminal actions against those responsible for the infringement.
5 What sanctions and remedies can the regulatory authorities impose?
According to the Capital Markets Act, the sanctions that the CBU may apply
will depend on the weight of the infringement and can consist on the follow-
ing: observation; fines which can be, in the case of banks, as high as 50 per cent
of the basic guarantee required to banks (approximately US$8,200,000) and, in
LATINLAWYERTHE BUSINESS LAW RESOURCE FOR LATIN AMERICA

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LatinLawyer Reference Capital Markets 2013 – Uruguay
the case of entities that do not qualify as banks, as high as 10 per cent of the
basic guarantee required to banks (approximately US$1,640,000); suspension
or cancellation of the quoting of the securities, or the authorisation to make
a public offer of securities, or the ability to operate in the capital market.The
regulation also contains special sanctions for conducts such as manipulation of
the market and failure to comply with ethical and commercial loyalty standards,
which can reach US$60,000 at current rates.
The CBU may fix the amount of the fines in relation to the benefit obtained
in the transgression of the rules.
In case of use of privileged information or disclosure of false information
by agents operating in the capital markets, those responsible may be subject to
civil and criminal actions.
6 What are the private remedies an investor may pursue?
Investors may seek recovery of damages by filing civil actions against the offend-
ers and are able to resort to the remedies and injunctions available in a civil
procedure.Investors may also present a claim against the offender for the viola-
tion of consumers’ rights.
In case of conflicts involving securities issued by financial trusts, the differ-
ences must necessarily be solved through arbitration.The arbitration proceeding
must be regulated in the terms and conditions for the creation of the financial
trust. Under Uruguayan Law, in order to start an arbitration the parties must
grant an special arbitration agreement in addition to the arbitral clause. If one
of the parties is not willing to grant the arbitration agreement, the other party
can judicially force its celebration to proceed with the arbitration.
7 Give details of the frequency and nature of enforcement actions or
private actions.
Private civil actions based on infringements to the capital market’s regulation
have not been common in Uruguay.The situation over the past ten years has
been that infringements do not usually get to a state of judicial claim or remedy,
but are strongly sanctioned by the CBU at an administrative level.
8 What is the legal definition of a ‘security’ and which types of securities
are commonly traded?
The Uruguayan Law has a broad concept of security.According to section 13
of the Capital Markets Act,a security is any kind of good or right incorporated
in a document,including shares,debentures,futures,options,certificates of par-
ticipation and,in general,any instrument containing a credit or investment right.
The most common securities publicly traded in the Uruguayan stock
exchanges are public bonds, private debentures and certificates of participation
issued by financial trusts.The public offer and trade of stock (equity) is practi-
cally non-existent in Uruguay.
9 How are securities offered and sold to the public?
Only the public offer of securities is subject to the Capital Markets Act and
complementary regulation.According to the Capital MarketsAct,there is a pub-
lic offer any time the purchase of security is offered to the public in general or to
an undetermined group of potential investors.Any offer and trade of securities
which is not comprised in this concept is considered a private offer. Privately
offered securities are not subject to the regulation of capital markets, must be
offered directly to the potential buyer and may not be publicised or quoted at a
stock exchange.The issuer of private securities must inform the purchasers that
the securities are not registered with the CBU.
Any public offer, negotiation and trading of securities requires the prior
registration of the issuer and of the security with the Capital Markets’ Regis-
try of the CBU. Before such registration is obtained, any kind of publicity or
transaction of the securities is forbidden. In order to obtain the registration of
the issuer and the securities with the CBU, the issuer must submit to the CBU
the following information:
• corporate information of the issuer
• terms and conditions of the issuance
• guarantees or security agreements
• risk rating
• agreements with representative entities, payment agents, custody agents,
registering entity, and any other agent participating in the issuance.
All this information must be consolidated and presented as a prospectus for
the issuance.
The process for the registration of the issuer and of the securities in the
CBU usually takes between three to 12 weeks. Once the registration is ready,
the issuer is free to make the public offer in the authorised stock exchanges.
After the issuance is completed, the issuer must still comply with the
requirements of information with the CBU, as established by the regulation,
and with the stock exchanges where the securities are listed, according to the
internal rules of each stock exchange.
10 What are the disclosure requirements for securities issuers for both
public and private offerings?
Private offerings are not subject to the capital markets’ regulation and the dis-
closure of information is not subject to any kind of general requirement, but
will depend on what the issuer and the purchasers agree.
In the case of public offerings,issuers must disclose any and all information
that is deemed essential about themselves and about the securities, so that the
potential investors have the necessary elements to judge whether to proceed
with the investment or not.
The misrepresentation or omission of essential information makes the issuer
liable, and may also entail the responsibility of the issuer’s directors involved in
such conduct,which is considered a breach of their duty of loyalty.The ultimate
beneficial owner and those exercising the control of the issuer may also be sub-
ject to the same responsibility, if they were somehow involved in the conduct.
11 Are there exemptions from securities registration?
The securities that are exempted from registration are those which are pri-
vately offered and those issued by the government,the CBU and the municipal
governments.
12 Do your accounting standards differ in significant ways from other
jurisdictions’ generally accepted accounting principles?
The accounting standards used by all entities controlled by the CBU to prepare
their financial reports are the International Financial Reporting Standards approved
by the InternationalAccounting Standards Board (IASB).Those rules are applicable
by Decree No. 124/011, which is mandatory for financial periods beginning on
or after 1 January 2012. For the remaining entities, the accounting standards to be
used when preparing their financial reports are the versions of IFRS approved by
the IASB on 31 July 2007.The latter abides to Decree No.266/007.
13 To the extent that the International Accounting Standards
Committee’s International Financial Reporting Standards have not
been fully implemented, is full convergence planned? What is the
expected timetable?
The IFRS are fully applicable to financial statements filed to the CBU.For those
companies which are not subject to the control of the CBU,there is an ongoing
process to convergence between national regulations and IFRS.
14 Does your jurisdiction offer policy and tax incentives to invest in the
capital markets?
Uruguay offers some tax incentives to invest in capital markets:
• The interests obtained from Public Bonds and the income obtained from
their transfer is exempted from Income Tax on Individuals (IRPF) and
IncomeTax on Non-Residents (IRNR).
• The dividends paid for the participation in the equity of public companies
is exempted from Income Tax on Individuals (IRPF) and Income Tax on
Non-Residents (IRNR).
• The interests obtained from debentures or bonds which have a maturity
period over three years and which are traded in a stock exchange,are levied
by Income Tax on Individuals (IRPF) or Income Tax on Non-Residents
(IRNR) at a preferential rate of 3 per cent.

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• The payments obtained from certificates of participation or interests from
bonds issued by financial trust funds,which are offered and traded in a stock
exchange,are levied by IncomeTax on Individuals (IRPF) and IncomeTax
on Non-Residents (IRNR) at a preferential rate of 3 per cent, provided
those securities have a duration or maturity date over three years.
• The sale of those certificates of participation or bonds issued by financial
trust funds is exempted from any kind of income tax.
• The holders of equity in public companies do not have to compute same
for the purpose of determining the taxable amount Regarding the Wealth
Tax (IPAT).
15 Please describe the applicable tax withholding regime, the customary
exceptions and the commonly used standard tax-planning devices.
IncomeTax of Non-Residents (IRNR) must be withheld by the local entities
which pay interests, dividends or royalties to non-residents which are subject
to that tax. It must be noted that Uruguay has signed treaties with many coun-
tries to avoid double taxation and limit the withholding rates imposed by the
Uruguayan tax system.
16 Where and how are securities traded?
Securities are primarily traded in the two stock exchanges authorised by the
CBU: the Montevideo Stock Exchange (Bolsa deValores de Montevideo) and
the Electronic Stock Exchange of Uruguay (BEVSA). In the Montevideo
Stock Exchange securities are traded both physically and electronically, while
in BEVSA operation is only electronic. In both cases the transactions may be
accomplished through different methods depending on the nature of the secu-
rity (ie, currency, bonds, stock).
There is no formal OTC network developed in Uruguay, notwithstanding
private transactions over securities outside stock exchanges.
17 Where and how do securities clear?
There is no formal environment for the clearing and settlement of securities.
All securities that are publicly traded must be registered and, therefore, the
issuer must designate a registering entity, which can be the stock exchange, a
financial intermediation entity (banks), brokers or even the issuer itself.There
is currently no entity that serves as a central securities depository or clearing
house.Therefore, the clearing of securities may only be accomplished outside
the stock exchange,by the parties involved.Sometimes the CBU acts as custody
of the securities for some of the operators such as banks, insurance companies
or pension funds.In those cases the settlement of securities is done by the CBU
in the accounts of those entities.
18 Please provide a general description of securities settlement systems in
your jurisdiction.
As expressed in question 17, there is no formal environment for the clearing
and settlement of securities.
19 What are the distinguishing characteristics of your debt and equity
capital markets?
The Uruguayan capital market is basically composed of the trading of Pub-
lic Bonds in the secondary market. In the year 2012 these transactions repre-
sented 94 per cent of the transactions in the stock exchange, for an amount of
US$1.996 million.
The rest of the operations on securities issued by the private sector consist
mostly on the offer and trading of bonds issued either directly by local compa-
nies or through special purpose vehicles, the most common of which are the
financial trust funds (fideicomisos financieros). From 2002 to 2012, the maximum
amount of public offers of fixed income bonds did not exceed 14 and an amount
of approximately US$403 million in one year (see chart).The great majority of
securities traded are plain vanilla bonds, most of them structured through the
securitisations of assets, credits or other flows of funds in financial trust funds.
Fixed income securities issued per year by
private companies or SPVs
Year No. of issuances Amount in US$
2002 2 1,297,000
2003 4 398,639
2004 6 36,394,941
2005 6 10,404,069
2006 6 30,800,000
2007 10 402,739,866
2008 5 43,199,369
2009 11 209,354,130
2010 12 135,115,202
2011 14 222,867,153
2012 12 282,048,736
Source: BEVSA and BVM
Given the reduced volume of securities listed, the secondary market presents
very few transactions.The unsatisfied demand of financial products and the
fact that most of the investment is held by institutional investors (most of them
pension funds), determine that once the securities are acquired, the investor
usually keeps its position instead of seeking liquidity to turn to other – scarce
– investment options.
As for the equity market,it is practically non-existent.There are currently only
four listed corporations which quote their shares in the local capital market, with
virtually no transactions in the secondary market (just under US$1.5 million in
2012). Most Uruguayan companies are family owned businesses or owned by a
pool of investors with a close common interest,with a financial culture of seeking
financing by increasing their debt,instead of sharing the participation in the capital.
International groups operating in Uruguay usually obtain their financing
for local branches from within the group, instead of participating in the local
capital market.
The particular characteristics explained above place the Uruguayan mar-
ket very far from other international markets, especially with regard to equity
transactions.
20 Where and how are derivatives traded?
Uruguay has no formal market for derivatives. However, the Electronic Stock
Exchange (BEVSA) offers the opportunity to trade on forwards over currency
for those authorised to operate with this kind of instruments (ie, commercial
banks).
21 Can you explain development of structured finance instruments in
your country?
The most common structured finance instruments developed in Uruguay are
the financial trust funds (fideicomisos financieros),which issue bonds or certificates
of participation, with the securitisation of future credits and flows of funds.
Nowadays the biggest and most usual securitisations include credits for the ren-
der of health services,credits deriving from financing to consumers,and flow of
funds coming from the collection of national or municipal taxes, contributions
or tariffs for the use of public services.
22 How are institutional investors defined and regulated?
There law and regulation applicable to capital markets do not contain a defini-
tion of institutional investors. However, according to the practice admitted by
the CBU, the entities included in the concept of institutional investors are the
financial intermediation entities (ie, banks), insurance companies, investment
funds’ management companies, pension funds’ management companies, and
para-statal pension funds.
These entities are under the control of the CBU according to the powers
granted over the operators of the capital market and the rules contained in the
laws that regulate each of the those entities.

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LatinLawyer Reference Capital Markets 2013 – Uruguay
23 Can foreign broker dealers offer and sell securities in the jurisdiction?
To which investors and under what circumstances?
Foreign broker dealers may offer and sell securities in Uruguay provided they do
so privately. In order to place a public offer the broker must previously register
itself and the securities with the CBU (see question 9).
24 What is the definition of ‘insider trading’? Outline the major
developments in insider trading law giving details of any recent cases.
Although the definition or concept of insider trading is not thoroughly regu-
lated, it is prohibited the use of privileged information for personal benefits or
for the benefit of third parties.The failure to comply with these rules can entail
severe administrative sanctions by the CBU (in case the offender is within the
scope of entities subject to its control) and even civil and criminal actions against
those responsible for the infringement (see question 5).
There has not been any relevant case of insider trading in Uruguay in the
recent years.
25 What are the roles of the authorities when a foreign issuer makes a
public offering? Who has jurisdiction over the public offering?
The CBU has the same powers of control over public offerings no matter if
it is a local or a foreign issuer.As explained in question 23, foreign issuers are
subject to the same control and duty of registration whenever their securities
are publicly offered or traded. In case a foreign issuer fails to comply with the
registration and additional requirements established by the CBU,the CBU may
ban the offer of those securities and place a penalty over the issuer.
26 Is there a formal understanding with other jurisdictions to share
information and provide reciprocal assistance in enforcement matters?
If so, which jurisdictions?
The CBU is a member of IOSCO (International Organization of Securities
Commissions) and COSRA (Council of Securities Regulators of theAmericas).
As an ordinary member of IOSCO, the CBU participates in the most
important international forum for securities regulators to cooperate in the
development and oversight of regulatory standards for the protection of inves-
tors and the market, and in the exchange of information, enforcement against
misconduct and supervision of controlled entities. IOSCO has currently 109
ordinary members from all over the world.
COSRA is international organisation created a forum for mutual coopera-
tion and communication to develop and foster the growth of sound securities
markets among its 31 members from the Americas and the Caribbean.The
principles of COSRA include the cooperation among the securities regulators
for effective market oversight and cross-border surveillance.
27 Please describe the framework for corporate governance.
Under the Capital Markets Act, the stock exchanges and the issuers of securi-
ties which are publicly offered must comply with corporate governance rules
established by the law and the regulation.A specific regulation has not yet been
approved by the CBU, although a draft has recently been made public which
allows foreseeing what the direction the regulation is going to take.
The issuers of securities will be required to have a board of directors and
an audit committee, as well as internal and external auditors.
Notwithstanding the general fiduciary duties required to any director of a
company, the members of the board of directors of a company which publicly
offers securities are subject to specific standards of loyalty which include the
obligation to prioritise the interest of the company and to refrain from obtaining
personal benefits from the company other than the compensation.Those stand-
ards also include the prohibition to disclose false information or hide relevant
information which must be disclosed;get loans or use assets or services from the
company for personal benefits or for the benefit of related parties;take advantage
of a corporate opportunity; use the position of director to obtain any undue
benefit for himself or for a related party; and prevent or obstruct the investiga-
tions to determine the responsibility of directors or employees of the company.
In order for a member of the board of directors to enter into a contract with
the company which is within the scope of usual business,the previous approval
of the board is required, together with the opinion of the audit committee. If
the contract refers to an activity which is off the usual business of the company,
then it requires the previous approval of a shareholders’ meeting.
The directors’ compensation needs to be approved by the shareholders’
meeting.Both the company and the directors must inform the Superintendency
of Financial Services of the CBU, as well as the corresponding stock exchange,
about the participation that the directors have in the stock of the company.The
same obligation applies to any individual or legal entity holding who directly or
indirectly holds over 10 per cent of the stock of a public company.
The board of directors must include in the Annual Report information
related to the Rules of Corporate Governance applied by the company,the poli-
cies and information regarding directors’ compensation and any other relevant
information which may affect the transparency of the offering of securities.
28 Which governing bodies must public companies have and what are
their main duties?
Public companies are required to have a board of directors, an audit committee
and an internal auditing body. According to a draft regulation which has not
yet been approved by the CBU, the board of directors will require a majority
of independent directors, at least some of them with financial and accounting
expertise.
The audit committee is dependent on the board of directors and will have
to be formed by a majority of non-executive members.The main duties of the
audit committee will be to control the compliance of corporate governance
rules,to suggest the appointment of members for the internal auditing body and
of the external auditor, and to work close to them in the suggestions, observa-
tions and advice that they provide.
The internal auditing body may be formed by an individual internal auditor
or by an internal auditing commission, which are appointed by the sharehold-
ers’ meeting.The main duties of the internal auditing body are to control the
governance of the company by the directors and the financial statements of the
company, and to render the advice and support to the shareholders’ meeting in
the cases the law requires so.
29 Are there any laws governing capital markets that are unique to your
jurisdiction?
Since the year 2000 Uruguay has followed a clear tendency towards adopting
international regulatory standards and the solutions implemented by countries
where the capital markets are more developed.
30 How do authorities and issuers resolve matters that are not expressly
provided for in the securities laws and regulations?
Those matters are primarily solved applying the rules contained in contractual
terms and conditions of the issuance. Issuers usually resort to arbitration as a
mechanism to solve any kind of dispute.The arbitrators or any other author-
ity called upon to resolve a matter not expressly provided for in the laws and
regulations,should apply the contractual rules governing the issuance and,if the
matter is not regulated, then they should apply the general principles for the
construction of the rule of law,and look for a solution in analogous laws,general
principles and in the opinion of the jurisprudence and scholars.
31 Which types of companies may make public offerings in your
jurisdiction?
Any company is entitled to make a public offering. In practice, companies usu-
ally use special purpose vehicles and securitise future flows of credits or funds
in order to enhance the risk rate.There are only four corporations that publicly
trade their shares.
32 Which economic activities or segments are the most active in the
capital markets in your jurisdiction?
The economic segments that have been most active in the capital market are:
• health;
• forestry;
• real estate;

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• consumer credit; and
• state-owned companies in the energy and oil sector.
33 Describe the main stock exchanges and OTC networks.
There are two authorised stock exchanges: the Montevideo Stock Exchange
(Bolsa deValores de Montevideo) and the Electronic Stock Exchange of Uru-
guay (BEVSA). In 2012, the offers of securities in the primary market was of
approximately US$282 million,of which 86 per cent was traded in BEVSA and
14 per cent was issued in the Montevideo Stock Exchange,while the operations
in the secondary market were of approximately US$2.400 million, of which
84 per cent were made in BEVSA and 16 per cent in the Montevideo Stock
Exchange.The vast majority of these operations involve fixed income securities.
There are only four companies which trade their shares in the Montevideo
Stock Exchange,with a total amount of market capitalisation of US$154 million.
34 Describe recent initiatives undertaken by the government to improve
the regulation and efficiency of its capital markets.
The CBU has made public a draft to amend the Consolidated Rules of the
Capital Markets.The most important guidelines of this project include a more
developed regulation of:
• corporate governance requirements;
• IPOs;
• the requirements of information which must be submitted by the issuers
and included in the prospectus of each offer; and
• the control over representative entities of the investors and over the rating
agencies.
In 2012 the Commission for the Promotion of Capital Markets started working
in strategies to increase the size and volume of the Uruguayan capital market.
35 Describe the main obstacles that a company may confront in your
jurisdiction when it is trying to become public. Describe any reform
that you feel should be a national priority to improve capital raising by
companies.
Practice shows that the most important obstacles for companies to become
public are the time it takes complete the procedure, the information require-
ments for public companies,but most of all the absence of a culture of resorting
to the public offering of shares. So far, there is little space for public companies
in a market like Uruguay, where companies are usually owned by families or a
group of investors with a close common interest,which are not used or willing
to lose control over the decision-making process. If state-owned companies
which provide public services became listed companies, that would help to
develop and deepen the market.
Olivera Abogados
Juan Martín Olivera
jolivera@olivera.com.uy
Misiones 1424 Piso 2º
11000 Montevideo
Uruguay
Tel: +598 2916 5859
Fax: +598 2916 5863
www.olivera.com.uy

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