Strong steps in the internationalisation of the Colombian securities market
Daniel Londoño-Pinzón
Gómez-Pinzón Zuleta
Bogotá
Daniel Londoño-Pinzón (Bio)
During the past year Colombian securities market operators and financial regulators have taken strong steps towards the internationalisation of the Colombian securities market. 2010 and the first quarter of 2011 has been a period where the securities market has seen a great deal of international activity after the integration of the Colombian, Peruvian and Chilean exchanges and the fact that foreign issuers are now listing their securities to be traded in the Colombian local market. In addition, the possibility for foreign issuers to conduct public offers of their securities in the Colombian market by registering their securities in the Colombian national registry of securities and issuers (RNVE) has now been further regulated with the intention of allowing more foreign issuers to conduct public offerings in Colombia.
The Latin American Integrated Market
On May 30 2011 the Colombian, Peruvian and Chilean exchanges initiated integrated trading operations for equity securities (including stock indices, participations in mutual funds that invest in equity and similar instruments) through the Mercado Integrado Latinoamericano or MILA. MILA intends to develop in two basic phases. The first phase will allow the purchase of securities listed in any of the three exchanges through a local broker that has signed an intermediary routing agreement with a broker located in the country where the securities were originally issued. The second phase will allow broker dealers from any of the three member countries to directly initiate trades of securities issued outside their home country.
The first phase will work under the following basic rules: (i) each exchange will manage its own market; (ii) trading, clearing and settlement, will be conducted pursuant to the rules of that particular market; (ii) investors allowed to participate in the local market will be allowed to participate in the integrated market; (iii) brokers of the different countries will have to manage risks and quotas; (iv) brokers will be governed by the rules of the local exchanges, local regulatory authorities and local securities deposits; (v) initial public offerings will be allowed simultaneously in the three markets; (vi) issuers will subject to the supervision of the authorities were the securities are registered; (vii) disclosure of relevant information must be available to participants of all three integrated markets; and (viii) securities will be deposited in the securities deposits of the jurisdiction were the security is listed.
According to MILA itself, the integrated market will be the first in the region in terms of issuers, the second largest in market capitalisation and third in terms of trading volume after Brazil and Mexico. However it has been recently reported that the Mexican stock exchange will eventually also become a part of MILA, which will probably make this market the largest one in the region.
The Colombian Global Market
Although it was pursuant to Decree 3886 of 2009 issued by the national government, that foreign issuers were allowed to list their securities to be traded in the Colombian local market – allowing for the creation of a secondary market in Colombia for foreign issuances of securities – it has been during the last semester that this market has seen real action. Currently there are approximately 28 listed issuers.
The securities that may be listed in local trading systems must be issued abroad pursuant to foreign regulations. The issuers may be multilateral financial institutions, foreign governments, foreign central banks or any other issuer, domiciled in Colombia or abroad, whose securities are registered or listed in a foreign exchange or foreign trading system of securities that is internationally recognised in the opinion of the Superintendence of Finance of Colombia (SFC).
The listing request must be performed by a local stock broker dealer (Patrocinador), without having to obtain a prior registration or approval from the SFC. The clearance and settlement of the trades over the securities must be performed through local securities depository institutions, which must enter into an agreement with the foreign clearance and settlement institutions established abroad.
Only local professional investors are authorised to invest in foreign securities listed in a local trading system. Professional investors include, among others, all the entities subject to the surveillance of the SFC, such as the administrators of pension and severance payment funds, banks, insurance companies, trust companies, financial corporations and stock broker dealers.
The investments made by local investors are characterised as investments in foreign financial assets and, therefore, the investments need to be channelled and registered with local foreign exchange authorities, in accordance with the applicable foreign exchange regulations.
Public offerings by foreign issuers in the Colombian Market
In addition to the possibility if participating in the Colombian Global Market, foreign issuers also have the possibility of registering their securities in the Colombian market in order to conduct public offerings. This possibility has existed for some time, however the national government, by issuing Decree 4804 on December 2010, strengthened this possibility even further. Originally, the regulation on public offerings by foreign issuers required the issuer to be registered in a foreign internationally recognised stock exchange.
With the amendment introduced by Decree 4804, this requirement may now be substituted if the issuer complies with a series of requirements that include principally that the parent company, and affiliate or a subsidiary of the foreign issuer be domiciled in Colombia, conducts economic activities in the country and has securities registered in the Colombian RNVE. In such cases, and for all material purposes, the foreign issuer and the parent company, affiliate of subsidiary are jointly liable for the compliance of the legal and regulatory duties of the foreign issuer in its condition as issuer of securities in the local market. The foregoing must be evidenced by resolutions of the competent corporate bodies of both the foreign issuer and the company with local domicile whereby they accept the jurisdiction of the Colombian authorities and agree to be subject to the Colombian legislation in connection the foreign issuer's condition as issuer of securities in the local market. Additionally, the parent company, affiliate or subsidiary, has to receive a power of attorney granted by the foreign issuer to represent it in all administrative and judicial proceedings that make take place in Colombia, in connection with the foreign issuer's condition of issuer of securities in the local market. Finally all directors and officers of the foreign issuer have to sign a document whereby they accept the jurisdiction of the Colombian authorities and agree to be subject to the Colombian legislation in connection the foreign issuer's condition as issuer of securities in the local market.