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 News

28/11/2017 0:00 - Agricultural Commodities Market
NICOLÁS FERRER
CNV announced a public consult on new products and short selling

This November 23, the National Securities Commission (CNV) left open a process of public consultation, that will end on December 15, regarding three new regulatory projects: a) the authorization for the issuance of securities denominated in UVA / UVI; 2) the implementation of changes in securities lending regulations that would allow short selling; and 3) the redefinition of the concept of Independent Director in accordance with internationally accepted criteria. Next, an analysis is made on the first two proposals.

Through General Dispositions N° 711 to N° 713, in November 16, the National Securities Commission (CNV, by its Spanish acronym) resolved to submit regulatory proposals regarding various objects under its jurisdiction, which are being submitted to a process of non-binding public consultation. The presentation of opinions and / or proposals can be made between November 23 and December 15 for two of the projects, while for the one that refers to the redefinition of the Independent Director the opening and closing date are one day delayed / postponed.

The General Disposition N ° 711, in view of the new diffusion of savings and credit instruments based on "real" units such as Housing Units (UVI, by its Spanish acronym) and Purchasing Value Units (UVA, by its Spanish acronym), proposes to regulate the issuance of securities denominated in said units. It should be remembered that the value of the UVI is updated according to a chapter of the Construction Cost Index published by The National Institute of Statistics and Censuses (INDEC, by its Spanish acronym), while the UVA is updated by the Reference Stabilization Coefficient, (CER, by its Spanish acronym) which, in turn, is adjusted based on the variation of the Consumer Price Index (CPI) published by INDEC.

The development of products based on these units has been a central axis in the credit policy of the national government. According to statistics of the Central Bank of the Argentine Republic, (BCRA) the totals of mortgage and pledge loans in national currency have grown by 71.7% and 70.9% year-on-year, respectively, at the end of September.

 

Among the titles denominated in UVA and / or UVI that provides the proposed standard included in the General Disposition No. 711 are the Negotiable Obligations (private debt instruments), the Fiduciary Debt Securities and Fixed income Mutual Funds Shares.

The development of securities nominated in these units could satisfy the demand of savers and investors interested in placing funds in inflation adjusted assets, a segment that has not shown dynamism in the banking system (according to BCRA statistics, only 0.26 % of time deposits have a CER clause) and that in the capital market is only served by some placements of public debt.

In turn, this would allow transferring the risk from the writers of the assets (credits) to institutional investors, thus lowering the cost of financing with inflation adjusted products. However, the risks inherent to debt securitization mechanisms must be taken into account in scenarios where the risk of the underlying assets is not adequately appreciated and conflicts of interest may arise. Although this risk is not exclusive to loans with adjusted capital in real terms, the fact that the latter have greater access between sectors with lower income may be a relevant factor.

On the other hand, General Disposition No. 712 of the CNV proposes changes to the regulations that govern the lending of securities to enable short selling. This transaction consists of the sale of securities that are not in the seller's power (usually borrowed in a "covered" short sale), which is done with the purpose of obtaining a gain through a buyback to a minor price. In the G.D. No. 712, the CNV argues that an adequate regulation of short selling could "provide the Argentine capital market with greater dynamism, liquidity and depth".

In the case of the purchase of a security (one share for example), the holder is not contractually obligated to make future payments on account of potential losses. If they exist, they will correspond to a sale price lower than that originally acquired by the asset. In contrast, whoever makes a short sale of negotiable securities faces the risk of having to make a future payment to be able to repurchase the loaned title in case it has risen in price. For this reason, authorizing the realization of this type of transactions requires the establishment of a system that guarantees risk management in the spirit of those that are used for trading in futures markets. Emphasis should be placed on this aspect, since if this aspect is not adequately regulated, the risks to the investor, both in individual and systemic terms, can be high.

 

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