The International

CapitalMarkets Review

Law Business Research

Sixth Edition

Editor

Jeffrey Golden

The International

Capitalmarkets Review

Sixth Edition

EditorJeffrey Golden

Law Business Research Ltd

PUBLISHER Gideon Roberton

SENIOR BUSINESS DEVELOPMENT MANAGER Nick Barette

BUSINESS DEVELOPMENT MANAGER Thomas Lee

SENIOR ACCOUNT MANAGERS Felicity Bown, Joel Woods

ACCOUNT MANAGER Jessica Parsons

MARKETING COORDINATOR Rebecca Mogridge

EDITORIAL ASSISTANT Gavin Jordan

HEAD OF PRODUCTION Adam Myers

PRODUCTION EDITOR Anne Borthwick

SUBEDITOR Gina Mete

CHIEF EXECUTIVE OFFICER Paul Howarth

Published in the United Kingdom by Law Business Research Ltd, London

87 Lancaster Road, London, W11 1QQ, UK© 2016 Law Business Research Ltd

www.TheLawReviews.co.uk No photocopying: copyright licences do not apply.

The information provided in this publication is general and may not apply in a specific situation, nor does it necessarily represent the views of authors’ firms or their clients. Legal

advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or omissions contained

herein. Although the information provided is accurate as of November 2016, be advised that this is a developing area.

Enquiries concerning reproduction should be sent to Law Business Research, at the address above. Enquiries concerning editorial content should be directed

to the Publisher – gideon.roberton@lbresearch.com

ISBN 978-1-910813-35-5

Printed in Great Britain by Encompass Print Solutions, Derbyshire

Tel: 0844 2480 112

THE MERGERS AND ACQUISITIONS REVIEW

THE RESTRUCTURING REVIEW

THE PRIVATE COMPETITION ENFORCEMENT REVIEW

THE DISPUTE RESOLUTION REVIEW

THE EMPLOYMENT LAW REVIEW

THE PUBLIC COMPETITION ENFORCEMENT REVIEW

THE BANKING REGULATION REVIEW

THE INTERNATIONAL ARBITRATION REVIEW

THE MERGER CONTROL REVIEW

THE TECHNOLOGY, MEDIA AND TELECOMMUNICATIONS REVIEW

THE INWARD INVESTMENT AND INTERNATIONAL TAXATION REVIEW

THE CORPORATE GOVERNANCE REVIEW

THE CORPORATE IMMIGRATION REVIEW

THE INTERNATIONAL INVESTIGATIONS REVIEW

THE PROJECTS AND CONSTRUCTION REVIEW

THE INTERNATIONAL CAPITAL MARKETS REVIEW

THE REAL ESTATE LAW REVIEW

THE PRIVATE EQUITY REVIEW

THE ENERGY REGULATION AND MARKETS REVIEW

THE INTELLECTUAL PROPERTY REVIEW

THE ASSET MANAGEMENT REVIEW

THE PRIVATE WEALTH AND PRIVATE CLIENT REVIEW

THE MINING LAW REVIEW

THE EXECUTIVE REMUNERATION REVIEW

THE ANTI-BRIBERY AND ANTI-CORRUPTION REVIEW

THE LAW REVIEWS

www.TheLawReviews.co.uk

THE CARTELS AND LENIENCY REVIEW

THE TAX DISPUTES AND LITIGATION REVIEW

THE LIFE SCIENCES LAW REVIEW

THE INSURANCE AND REINSURANCE LAW REVIEW

THE GOVERNMENT PROCUREMENT REVIEW

THE DOMINANCE AND MONOPOLIES REVIEW

THE AVIATION LAW REVIEW

THE FOREIGN INVESTMENT REGULATION REVIEW

THE ASSET TRACING AND RECOVERY REVIEW

THE INSOLVENCY REVIEW

THE OIL AND GAS LAW REVIEW

THE FRANCHISE LAW REVIEW

THE PRODUCT REGULATION AND LIABILITY REVIEW

THE SHIPPING LAW REVIEW

THE ACQUISITION AND LEVERAGED FINANCE REVIEW

THE PRIVACY, DATA PROTECTION AND CYBERSECURITY LAW REVIEW

THE PUBLIC-PRIVATE PARTNERSHIP LAW REVIEW

THE TRANSPORT FINANCE LAW REVIEW

THE SECURITIES LITIGATION REVIEW

THE LENDING AND SECURED FINANCE REVIEW

THE INTERNATIONAL TRADE LAW REVIEW

THE SPORTS LAW REVIEW

THE INVESTMENT TREATY ARBITRATION REVIEW

THE GAMBLING LAW REVIEW

THE INTELLECTUAL PROPERTY AND ANTITRUST REVIEW

THE REAL ESTATE, M&A AND PRIVATE EQUITY REVIEW

THE SHAREHOLDER RIGHTS AND ACTIVISM REVIEW

THE ISLAMIC FINANCE AND MARKETS LAW REVIEW

i

The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book:

ACKNOWLEDGEMENTS

AFRIDI & ANGELL LEGAL CONSULTANTS

ALLEN & OVERY

BHARUCHA & PARTNERS

BORENIUS ATTORNEYS LTD

DE PARDIEU BROCAS MAFFEI

DLA PIPER MARTÍNEZ BELTRÁN

FENXUN PARTNERS

G ELIAS & CO

HOGAN LOVELLS BSTL, SC

INTERNATIONAL COUNSEL BUREAU

KING & WOOD MALLESONS

KOLCUOĞLU DEMİRKAN KOÇAKLI ATTORNEYS AT LAW

MAPLES AND CALDER

MIRANDA & AMADO ABOGADOS

MKONO & CO ADVOCATES

MONASTYRSKY, ZYUBA, STEPANOV & PARTNERS

MORRISON & FOERSTER LLP / ITO & MITOMI

NIELSEN NØRAGER LAW FIRM LLP

PETER YUEN & ASSOCIATES IN ASSOCIATION WITH FANGDA PARTNERS

Acknowledgements

ii

PINHEIRO NETO ADVOGADOS

P.R.I.M.E. FINANCE FOUNDATION

REED SMITH

RUSSELL MCVEAGH

SIDLEY AUSTIN LLP

SYCIP SALAZAR HERNANDEZ & GATMAITAN

TOKUSHEV AND PARTNERS

URÍA MENÉNDEZ ABOGADOS, SLP

VIEIRA DE ALMEIDA & ASSOCIADOS, SOCIEDADE DE ADVOGADOS, SP RL

iii

Editor’s Prefaces ..................................................................................................vii Jeffrey Golden

Chapter 1 AUSTRALIA ............................................................................... 1Ian Paterson

Chapter 2 BRAZIL .................................................................................... 22Ricardo Simões Russo, Gustavo Ferrari Chauffaille and Luiz Felipe Fleury Vaz Guimarães

Chapter 3 BULGARIA ............................................................................... 30Viktor Tokushev and Nataliya Petrova

Chapter 4 CHINA ..................................................................................... 40Xusheng Yang

Chapter 5 COLOMBIA ............................................................................. 56Camilo Martínez Beltrán and Sebastian Celis Rodríguez

Chapter 6 DENMARK .............................................................................. 66Thomas Weisbjerg and Peter Lyck

Chapter 7 FINLAND ................................................................................ 77Juha Koponen, Janni Hiltunen, Mark Falcon and Matias Keso

Chapter 8 FRANCE .................................................................................. 87Antoine Maffei and Olivier Hubert

Chapter 9 GERMANY ............................................................................. 115Kai A Schaffelhuber

Chapter 10 HONG KONG ....................................................................... 126Vanessa Cheung

CONTENTS

iv

Chapter 11 INDIA .................................................................................... 139Vishnu Dutt U

Chapter 12 IRELAND ............................................................................... 150Nollaig Murphy

Chapter 13 JAPAN .................................................................................... 173Akihiro Wani and Reiko Omachi

Chapter 14 KUWAIT ................................................................................ 187Abdullah Al Kharafi and Abdullah Alharoun

Chapter 15 LUXEMBOURG ..................................................................... 198Frank Mausen and Henri Wagner

Chapter 16 MEXICO ................................................................................ 220René Arce Lozano, Mayuca Salazar Canales and Elías Muñoz García

Chapter 17 NEW ZEALAND .................................................................... 231Deemple Budhia and John-Paul Rice

Chapter 18 NIGERIA ................................................................................ 240Fred Onuobia and Bibitayo Mimiko

Chapter 19 PERU ...................................................................................... 249Nydia Guevara V and Álvaro del Valle R

Chapter 20 PHILIPPINES ......................................................................... 256Maria Teresa D Mercado-Ferrer, Joan Mae S To and Jo Marianni P Ocampo

Chapter 21 PORTUGAL ........................................................................... 274José Pedro Fazenda Martins, Orlando Vogler Guiné and Sandra Cardoso

Chapter 22 RUSSIA ................................................................................... 286Vladimir Khrenov

Contents

v

Chapter 23 SPAIN ..................................................................................... 301David García-Ochoa Mayor and José María Eguía Moreno

Chapter 24 TANZANIA ............................................................................ 312Kenneth Mwasi Nzagi

Chapter 25 TURKEY ................................................................................ 317Umut Kolcuoğlu, Damla Doğancalı and Aslı Tamer

Chapter 26 UNITED ARAB EMIRATES ................................................... 327Gregory J Mayew and Silvia A Pretorius

Chapter 27 UNITED KINGDOM ............................................................ 341Tamara Box, Ranajoy Basu, Claude Brown, Nick Stainthorpe, Caspar Fox, James Wilkinson, Jacqui Hatfield, Winston Penhall and Daniel Winterfeldt

Chapter 28 UNITED STATES................................................................... 370Mark Walsh and Michael Hyatte

Appendix 1 ABOUT THE AUTHORS ...................................................... 387

Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS ........ 405

Contents

vii

EDITOR’S PREFACE TOTHE SIXTH EDITION

There is a lesson from the international capital markets that took me, as a young ICM lawyer, a measure of time to both comprehend and appreciate. It was namely this: in matters legal, market participants have a marked preference for certainty above almost anything else. Even sometimes ahead of justice!

Market participants need to know where they stand.You see, you can trade or structure around a position that you know to be certain,

however undesirable that position may be, and whether or not you believe it to be fair. What is abhorred is not knowing what your position is. Eventually being told by a court after months or years of litigation, for example, that you were correct in your earlier view does not give a lot of comfort if, waiting on that answer, you stood ‘naked’ to a market that has moved on and significantly against you while you remained uncertain whether, when and to what extent to hedge your exposure or otherwise move in reliance on the position you had previously assumed.

Let me give you an extreme example of this preference for certainty over justice as it is reflected in the terms widely used by the derivatives markets when structuring a trade under my favourite contract form, the ISDA Master Agreement. There, a library of product-specific definitional booklets provide various terms tied to particular product markets, including details of pricing sources, relevant market conventions, and fallbacks and adjustments for when a given source may not be available and for other market disruptions. Relevant booklets can be incorporated into the parties’ trade confirmations and thus added to the parties’ contract on an ‘as and when needed’ basis.

Many of these booklets include a provision that is widely embraced for trades that base their prices on published and displayed screen rates. It provides, for example, that where a relevant rate for a pricing date is based on information from certain sources such as a Reuters screen page the rate is, as you might expect, subject to corrections made by that source – but only if the correction is made within one hour of the time when the

relevant rate is first displayed.1 After that, even if the displayed rate has an extra zero in it, and even if it is later corrected, the rate as it stood one hour out becomes the irrevocable basis for the relevant pricing of the transaction. That is the potentially harsh but, in order to ensure certainty, market-preferred position.

This desire for timely and reliable answers can also be seen by the considerable contractual privilege and discretion afforded, for example, to a non-defaulting party by allowing it to self-determine a close-out amount following its counterparty’s default. That determination is subject to good faith and reasonableness. However, a conscious decision was taken that the number of issues subject to referral to court for determination, and the evidentiary basis on which those issues should be decided, would, in each case, be narrow. It was intended that it should be of no consequence if, perhaps with the benefit of hindsight, a better answer could be determined by the court. It was thought more important by the markets that an answer honestly derived by a party could be relied upon as final so that the party could move on.

Whether it is the measure of their claims following a default, the scope of their exposure to market risk, or the strength of their collateral credit support, market participants hate surprises. They need to know where they stand. They seek authoritative answers that can be relied upon. And they trust in the rule of law.

My former law partner, Philip Wood CBE, QC (Hon) recently published a fascinating book.2 In it, Philip argues that the challenge set for our planet is survival, that the rule of law has supplanted religion in providing the basis for a morality that will be necessary to ensure that survival, and that it falls to lawyers to form a ‘priesthood’ capable of providing relevant answers, as well as preserving the certainty and order, that can contribute to that quest for survival.

And yet we look out at a marketplace with more than a little uncertainty at the moment (Brexit, a worrying US presidential election looming, equally worrying ongoing world political tensions and even conflict, a systemically relevant global financial institution facing crippling fines and a crisis of confidence, cyber insecurity, etc.). Perhaps not surprisingly then, the press reports that the value of initial public offerings has fallen by about a third this year when compared with last year in this period of market volatility and political uncertainty.

That is where this book comes in (with a new jurisdiction, Hong Kong, having been added). Our legal experts who have contributed have been tasked with promoting legal certainty through guidance about where matters relevant to the international capital markets stand in their home jurisdictions. They are our priests!

Join them, and take up Philip Wood’s challenge. If you are reading this book, it is almost certainly because someone is looking to you for answers – looking to you to provide the legal certainty the capital markets seek.

1 See, e.g., 2006 ISDA Definitions, Section 7.6.2 Philip R Wood, The Fall of the Priests and the Rise of the Lawyers, (Hart Publishing Ltd, 2016).

viii

Editor’s Preface to the Sixth Edition

My admiration for our contributing experts continues, and of course I shall be glad if their collective effort proves helpful to our readers when facing the important challenge of framing the correct answers.3

Jeffrey GoldenP.R.I.M.E. Finance FoundationThe HagueNovember 2016

3 Did I finally make it through a preface without mentioning the Global Financial Crisis?

Editor’s Preface to the Sixth Edition

ix

56

Chapter 5

COLOMBIA

Camilo Martínez Beltrán and Sebastian Celis Rodríguez1

I INTRODUCTION

i Legal structure

Pursuant to the Colombian Constitution, Congress has the power to prescribe the general legal framework within which the government and other authorities regulate the Colombian capital markets. The Constitution also permits Congress to authorise government intervention in the economy by statute. The agencies vested with the authority to regulate the financial system are the board of directors of the Colombian Central Bank, the Ministry of Finance, the Superintendency of Finance, the Superintendency of Industry and Commerce, and the Securities Market Self-Regulatory Organisation (SRO).

Consistent with the Colombian civil law system, laws, decrees and judicial decisions are organised as a subordinated set of rules. As such, at the top of the legal system in terms of hierarchy and applicability is the Constitution, and below are the laws enacted by Congress. Directly below the laws are decrees issued by the national government, which often regulate specific fields within the range of the provision of the law that authorises their issuance. Not as important as they are in a common law system, the decisions of judges are subordinated to the laws and decrees on the grounds of which their positions are defined regarding specific issues.

This basic and general description of the Colombian legal system explains the features of the regulation of the capital markets on the basis of the active role of the government along with numerous interactions arising among participants, also taking into account the importance that has been constitutionally ascribed to the stability of the Colombian financial system. Colombia’s capital markets are mainly governed by Law 964, issued by Congress in 2005, which provides the framework for the government’s intervention. Following the legal general principles of Law 964, the government issued Decree 2555 in 2010, which

1 Camilo Martínez Beltrán is a partner and Sebastian Celis Rodríguez is an associate at DLA Piper Martínez Beltrán.

Colombia

57

consolidates the various regulations that were issued prior to 2010 to regulate the capital markets, and which – more importantly – automatically embraces any decrees issued afterwards in an effective attempt by the government to modernise the regulation and match it to international standards.

Law 964 provides the fundamental relevant concepts, but Decree 2555 became the most important source of rules for the participants of the financial, securities and insurance activities described therein; in fact, each supervised financial entity (banks, insurance companies, credit rating agencies, etc.) will find the corresponding rules that govern its activities within Decree 2555. Likewise, every procedure before the Superintendency of Finance regarding authorisations or supervised matters of financial entities will have to take place under Decree 2555.

Colombian securities markets are subject to the supervision and regulation of the Superintendency of Finance, which was created in 2005 following the merger of the Superintendency of Banking and the Superintendency of Securities. All of the powers and responsibilities of the former Superintendency of Banking and Superintendency of Securities were assigned to the newly created Superintendency of Finance. The Superintendency of Finance is an independent technical regulatory entity ascribed to the Ministry of Finance. It has the authority to inspect, supervise and control the financial, insurance and securities exchange sectors and any other activities related to the use, investment and management of resources collected from the public. Accordingly, issuers of securities and their subsidiaries are subject to the control, supervision and regulation of the Superintendency of Finance as financial institutions as well as issuers of securities. In general terms, the Superintendency of Finance has the responsibility to supervise the Colombian financial system with the main purpose of preserving its stability, as well as protecting the users of financial and insurance services and investors in general.

The Colombian Stock Exchange is the sole trading market for common and preferred shares. There are no official market makers or independent specialists on the Colombian Stock Exchange to ensure market liquidity; therefore, orders to buy or sell in excess of corresponding orders to sell or buy will not be executed. The aggregate equity market capitalisation of the 75 companies listed on the Colombian Stock Exchange as of 30 June 2016 was 308 trillion pesos.

Self regulation in the capital markets was formally introduced in Colombia by Law 964 of 2005, and the SRO was created in June 2006. The SRO is a private entity that has the power to supervise, sanction and regulate those entities subject to self regulation (i.e., including securities intermediaries and any entities that voluntarily submit themselves to self regulation). The SRO’s supervisory powers entitle it to review compliance with the applicable laws and regulations and to impose sanctions in the event of violations. The SRO may also propose regulations aimed at various matters, including conflicts of interest and improving the integrity and quality of the capital markets.

ii Specific issues

Minimum requirements of capitalDecree 2555 is a technical compendium of rules regarding the Colombian financial system that aims to set out a comprehensive set of measures protecting the market’s transparency and customers’ security. The first issue that has broadly concerned the government is the minimum solvency indicators required by financial entities to legally undertake activities in Colombia. The capital structures of different financial entities must comply with minimum requirements

Colombia

58

that are calculated under precise rules specifically described in the above-mentioned Decree. These rules are very strict when a new local or foreign financial entity plans to undertake a supervised activity in Colombia, but previously established financial entities must also periodically demonstrate their compliance with such capital minimums.

Control over investmentsAnother issue that has been extensively regulated is the investment limits of financial entities, particularly regarding the shares of other corporations. As a result of such regulation, affiliates of a financial entity may only be those expressly permitted under the corresponding rules according to the nature of each financial entity, and the transactions by the financial entity may not stray outside the principal purpose of the financial entity, in order to avoid the risk of the entity entering non-core business area.

In recent years, the Superintendency of Finance has assumed the duty of protecting the market from illegal financial activities that are mainly carried out by unauthorised parties or companies. In that regard, financial institutions must obtain the authorisation of the Superintendency of Finance before commencing operations. Any such authorisation given by the Superintendency of Finance to a financial entity is usually limited to the activities requested, fulfilling specific requirements, but may exclude other activities that might be considered illegal if they are undertaken, and may include authorisations for different financial activities.

Material informationSecurities issuers must comply with the regulations regarding public information disclosure, which have been integrated into the Decree 2555 rules. According to the group of articles regarding public information disclosure, events that should have been taken into account by a prudent and diligent expert when buying, selling or keeping a security must be disclosed to the market. In addition, under Decree 2555, the aforesaid general rule is supplemented by specific situations that warrant disclosing information without completing a subjective analysis regarding the materiality of the event. The Superintendency of Finance has arranged an online system, SIMEV, through which such information must be disclosed to the market.

Investment fundsUnder Decree 2555, investment funds have been subject to more extended regulation for the important reason that these instruments have garnered more attention from local and foreign investors. Investment fund administration is a task that only brokers, investment administration corporations and trusts companies can perform. Moreover, in Colombia, securities of investment funds are not negotiated on the same platform used to negotiate stocks, as a specific negotiation platform has been developed for listed investment fund securities. There is also regulation of specific types of investment fund, such as currency market, real estate, speculation and margin.

Public tender offer rulesPursuant to Colombian law, the acquisition of the following should be made pursuant to the public tender offer rules:a the beneficial ownership of 25 per cent or more of the outstanding shares with voting

rights of a listed company; or

Colombia

59

b the purchase of 5 per cent or more of the outstanding shares with voting rights by a shareholder or group of shareholders beneficially owning 25 per cent or more of such outstanding shares of a listed company.

Moreover, any beneficial owner included under (b) may only make such acquisition by making a tender offer directed at all the holders of such company’s shares, following the procedures established by the government. These requirements do not need to be met under certain circumstances described in Decree 2555 of 2010.

II THE YEAR IN REVIEW

From January 2016 up to August 2016, the Colombian capital markets have witnessed seven equity and debt public offerings for 2.9 trillion pesos. In the context of sustained economic growth and the recent collapse in 2012 of the largest broker-dealer of the market, the government has faced multiple challenges. As a consequence, for the past few years there have been many developments affecting debt and equity offerings, as described below.

i Developments affecting debt and equity offerings

The past year has been difficult for the international market. Amid the international market conditions, Colombia has been able to sustain economic growth, representing multiple challenges for the government and its agencies. Regardless of the surprising economic conditions, Colombian capital markets have been impacted and have not been as active as previously.

So far this year, the Colombian capital markets have witnessed only seven equity and debt public offerings equivalent to US$1. billion. At the same date a year ago, the Colombian market had already seen 15 equity and debt public offerings for US$4.1 billion.

During the year in review (September 2015 to September 2016), there have not been many developments affecting debt and equity offerings, as will be seen below.

The fund management company investment regimeIn 2012,2 Congress adopted the use of public-private partnerships (PPPs), mainly in public infrastructure contracts. Since then, the government has put its best efforts into promoting this framework.

In this vein, Decree 816 of 2014 modifies the investment regime for fund management companies. According to Articles 2, 3 and 4, funds with ‘moderate’, ‘major’ and ‘long-term’ risk profiles are able to invest 5, 7 and 5 per cent, respectively of their assets in private equity funds in the event that these funds allocate 66 per cent of their resources to PPP infrastructure projects.

The same permission, mutatis mutandis, is given to private equity funds managed by stockbrokers registered in the public market, and to trust and life insurance companies.3

2 Law 1508 of 2012.3 Articles 5 and 6.

Colombia

60

The government has elaborated and established a plan to develop infrastructure known as ‘4G’ (fourth generation roads). To date, there have already been 30 projects, which, according to the ANI (the national agency for infrastructure) will invest 36.5 billion Colombian pesos.

Inscription of securities in the secondary marketInspired by Rule 144A in the United States, some years ago the government adopted a secondary market as a way of facilitating and encouraging distribution to ‘authorised’ investors of securities inscribed in a certain way in the National Registry of Securities and Issuers (RNVE).

Nevertheless, there has been a poor response in the market to this institution. Accordingly, Decree 1019 of 2014 introduced the following changes to the registration and operation of the secondary market: securities do not have to be graded by a ratings agency to register in the RNVE; securities registration in the RNVE is automatic provided the issuers submit some basic information to the Superintendency of Finance; and with certain minor restrictions, the promotion of issuances directly or through professional brokers is allowed. Finally, disclosure duties, after issuance, are limited to the requests of the holders.

Regulation on leveraged operations in collective portfolio managementAccording to Decree 2555 of 2010, joint portfolios can only be managed by stockbroker companies, trust companies or investment management companies. Before Decree 1068 of 2014, these collective funds were able to carry out leveraged operations up to the value of 100 per cent of their assets.

The new rule allows collective portfolio managers to make leveraged operations above this amount provided that they are accepted by a central counterparty (CCP) clearing house, and are encompassed by the by-laws of the clearing house.

Decree 1068 also sets out a revised term (until 14 December 2014) for managers of joint funds to accomplish the requirements established in Decree 1242 of 2013.4

Price stabilisation for IPOs The government issued Decree 2510 on 4 December 2014, updating Decree 2555 of 2010 by introducing some modifications and new chapters. With these amendments, it intends to establish a price-stabilisation mechanism for IPOs of bonds and shares. As defined, the main purpose is that of preventing or slowing any price fall in the market value of the security issued.

Only a previously contracted brokerage firm is allowed to act as a ‘price stabiliser’. There are two mechanisms under which brokers can operate as stabilisers in the Colombian markets: through the temporal transfer of the securities or by adjudication of the securities with the possibility of reacquiring them.

This same legal disposition provides a definition of ‘short sale’ and prescribes that the principles of the International Organization of Securities Commission determined for this kind of operation shall be observed. Even though this legal provision is vague on the terms

4 Relating to the entities authorised to manage the joint funds (i.e., only stockbroker companies, trust companies and investment companies) and their denomination as ‘mutual investment management companies’.

Colombia

61

and conditions applicable for the execution of a short sale operation, as it delegates this responsibility to the Superintendency of Finance, it does propose that the Colombian stock market regulation determine which securities can be considered as short sale operations and that those operations will always have to be indicated as such.

ii Developments affecting derivatives, securitisations and other structured products

The derivatives market was officially established in 2008. Since then, it has experienced accelerated growth, and the trading volume is now, on average, US$200 million per day. This dynamic growth has also been observed in securitisations and other structured products. The recent collapse of a large stockbroker in the market involved several ‘repo’ operations.5

External Circular DODM-144On 27 March 2014, the Central Bank released External Circular DODM-144 regarding derivatives operations. The changes introduced basically consist of the modification of the requirements for external agents authorised to carry out derivatives operations with Colombian residents; a new format for reporting derivatives operations related to basic products and made between residents and external agents; and the variation of the term to report the derivatives operations to the Central Bank.

Under this regulation, such agents are those that have previously completed agreements with currency exchange market intermediaries, and those that have completed transactions on derivatives in the past year with net values over US$1 billion.

Simultaneous or temporary transfer of securities operationsDecree 2878 of 2013, which came into force on 11 May 2013, introduced two major changes to the regulation of the temporary purchase of assets or ‘repos’.

The first consists of the creation of a guarantee scheme to the benefit of the stock market, the trading system or the clearing houses depending on the mechanism used for the transaction. The guarantees admissible to back up these transactions are treasury securities, certain stocks quoted on the public market, cash or fixed-income securities.

The second is the limitation on the number of shares on which repo transactions can be made. In fact, according to Article 7 of Decree 2878, the maximum percentage of shares allowed to be the object of repo operations is 25 per cent of the total available in the market.

iii Cases and dispute settlement

There are no recent disputes relating to cross-border financial market activity. Nevertheless, this situation is likely to change as a result of the recent establishment of the Latin American Integrated Market (MILA). In view of the foregoing, there are four issues that should be taken into account.

Limits on share purchasesIn Article 88 of the Organic Statue of the Financial System, the Superintendency of Finance consolidated its position on the quantitative and substantial limits to the purchase of shares in the public market. According to this article, any transaction by foreign or national investors

5 Operations for the simultaneous or temporary transfer of securities.

Colombia

62

purchasing 10 per cent or more of the shares issued by a financial institution under the surveillance of the Superintendency must have the prior approval of the Superintendent of Finance.6

Requirements for advertising financial products or servicesThe Concept of 28 March 2014 issued by the Superintendency of Finance contains the official interpretation of the rules governing the promotion and issuance of financial products and services by foreign nationals in Colombia. In this vein, it sets out that all financial institutions and stock markets located outside the country must establish a representative office or undertake a correspondent agreement with a national broker-dealer to promote or advertise financial products and services within Colombia.7 This general rule does not, however, apply in the event that the interest in establishing a commercial relationship with a foreign institution comes from a Colombian resident, and this relationship is not a consequence of promotional activity in Colombia or targeted at its residents.

Offerings outside Colombian territoryArticle 6.12.1.1.1 of Decree 2555 of 2010 specifically establishes that securities offerings made abroad will be submitted to foreign law. In recent years, many Colombian companies have successfully entered foreign markets seeking fresh resources for their activities.

Protection for security holders in the insolvency processesNotwithstanding the foregoing, Colombian law gives special protection to Colombian investors in the national market or abroad, as was proven in the insolvency process of a national company that issued bonds in Luxembourg.8 Article 50 of Law 1116 of 2006 excludes any acts or contracts related to the issuance of securities in Colombia or abroad from the insolvency regime.

Colombia’s interest in joining the OECD and this entity’s recommendationsFollowing the recommendations made by the OECD, the government intends to reinforce some of its legal dispositions, such as the independence of the financial supervisor (the Superintendency of Finance), to grant more protection to authority or supervisor, and to provide the supervisor with the appropriate tools so that he or she would be able to control conglomerates if necessary.

This innovation regimen has already started. On 15 September 2015, the government passed Decree 1817, regarding the appointment and removal of the Superintendent of Finance, Superintendent of Corporations and Superintendent of Industry and Commerce, who are the maximum authorities of each of these Superintendencies.

6 The Concept of 5 February 2014 issued by the Superintendency of Finance.7 https://webcache.googleusercontent.com/search?q=cache:5Xsn1PcLuW4J:https://www.

superfinanciera.gov.co/descargas%3Fcom%3Dinstitucional%26name%3DpubFile1007626%26downloadname%3D2014021548_001.docx+&cd=1&hl=es&ct=clnk&gl=co.

8 Superintendency of Corporations Act No. 405-001770, 2 September 2014.

Colombia

63

The government also intends to enhance the protection of the consumer, reducing any asymmetry in the information, financial, education and habeas data protection, and update some legal provisions, in particular those related to financial institutions and its obligations (inter alia, Basel II and III).

To develop this new regulatory framework, the government contracted with the Inter-American Development Bank for a loan of US$500 million.9

Código País (corporate governance code)The Superintendency of Finance, in an alliance with the Latin American Development Bank, has presented a new corporate governance code recommended to be implemented by companies from 2016, which some of the most important Colombian issuers such as Bancolombia, Porvenir, Nutresa have already implemented.

The corporate governance code seeks to create sustainability to stimulate growth in the capital market and access to more resources. This corporate guideline consists of 33 measures that group 148 recommendations related to the rights and equitable treatment of shareholders, the general meeting of shareholders, the board of directors, control architecture, conflicts of interest, and the transparency of financial and non-financial information.

iv Relevant tax and insolvency law

Law 1739 of 2014 established a temporary surcharge for ‘income tax for equity’ or CREE, which taxes domestic corporations and legal entities. The surcharge rates are 6 per cent in 2016, 8 per cent in 2017 and 9 per cent in 2018, resulting in a statutory income tax rate for corporations of up to 40, 42 and 43 per cent in each of those years.

Law 1739 introduced an exception to the tax rules regarding the ‘place of effective management’, under which a foreign entity would not be deemed as a domestic entity for income tax purposes. Under this new exception, foreign entities that have issued stock or bonds on the Colombian public market (or a foreign public market recognised by the Colombian Tax Administration) would not be considered as having their place of effective management in Colombia. This rule, which also covers entities subordinated to the bonds or stock issuer, can be voluntarily waived by the subordinated entities, which in such a case will be treated as a domestic entity for income tax purposes.

A temporary net worth tax for corporations was put into force and will have to be paid in 2016 and 2017. This tax, however, is based on the situation of the taxpayer on 1 January 2015, and will not affect new investors or net worth increases occurring after that date.

Insolvency law has not undergone any substantial change since 2006, when Law 1116 was enacted, regarding which the following should be noted. Under Law 1116, cross-border insolvency procedures are recognised in Colombia in four situations:a a foreign tribunal or a foreign representative requests the assistance of Colombia in an

insolvency procedure undertaken abroad;b assistance is requested in a foreign country regarding an insolvency procedure that is

being undertaken according to Colombian law;c insolvency procedures of the same debtor are being undertaken simultaneously in

Colombia and in a foreign country; and

9 www.iadb.org/es/proyectos/project-information-page,1303.html?id=CO-L1144.

Colombia

64

d creditors or any other interested parties abroad have the intention of requesting a new insolvency procedure or participating in an ongoing insolvency procedure under Colombian law.

v Role of exchanges, CCPs and rating agencies

A Latin American exchange is the most significant recent project to enhance the local capital markets. MILA is a project to unify the stock exchanges markets of Colombia, Chile, Mexico and Peru to create a single stock market that will allow the negotiation of stocks of the most representative companies in the region. It is the result of an agreement signed among the aforesaid exchanges that is more of an alliance than a merger, and its most important feature is that none of the entering exchanges compromises its autonomy or independence in regulatory or administrative issues as a result of the agreement. Instead, investors may benefit from MILA through an intermediary by using the local platform in local currency, but reaching the companies listed on any of the exchanges involved.

As infrastructure suppliers to the securities market, CCPs are regulated under Decree 2555 and supervised by the Superintendency of Finance. CCPs are companies exclusively performing activities regarding transactions among investors, intermediaries and issuers. They are, however, authorised to supply their services to exchange transactions as well as to off-exchange transactions. Whenever a CCP undertakes an operation, the regulation automatically assigns a zero credit risk exposure value to the operation, and the same occurs when security over the operation is granted by the CCP.

Credit rating agencies also have a specific regulation chapter under Decree 2555. Such regulation has been made as an attempt to protect the market from non-independent ratings that might lead to investors being misled into taking such ratings into account in their decision-making. As a result, Decree 2555 includes a complete set of rules applying to credit rating agencies in terms of the professionalism of their analysts, isolated structures of personnel from the issuers and the intermediaries, and codes of ethics and conduct that must be implemented within the credit rating agencies towards the conservation of very high standards of independence. Rating procedures must follow the internal regulations issued by each credit rating agency, but previously approved by the Superintendency of Finance. Credit rating committees must also be created within each credit rating agency, and the decisions are rigorously supervised by the Superintendency of Finance.

vi Other strategic considerations

Consistent with recent experience, since the Interbolsa case,10 the Superintendency of Finance has been reluctant to authorise the issuance of derivatives and other structured products.

10 Until November 2012, Interbolsa was the largest operator in the local capital markets; in fact, prior to its liquidation, the company was involved in approximately 30 per cent (by volume) of the brokerage activities in the Colombian capital markets. Nevertheless, in the three years prior to the forced intervention of the government in its operations, the company carved out temporary transfer operations over specific stock that affected its solvency indicators in a major and unexpected way. As a result, in November 2012, Interbolsa was unable to pay a short-term loan of US$10 million.

Colombia

65

Given this position, it is important that the issuer be a renowned participant in the market and show the authorities enough guarantees and experience in order to obtain approval for these operations.

It is also important to highlight that MILA represents an important and unprecedented opportunity to make successful issuances of securities, as has recently been demonstrated by several Peruvian companies.11

III OUTLOOK AND CONCLUSIONS

As previously stated, MILA presents an unprecedented opportunity for participants in the Colombian capital markets. In that regard, the government issued Decree 2241 of 24 November 2015, by means of which it establishes the list of securities that may be quoted on foreign trading systems and sets forth the rules that modify the current exchange regime to promote its operation in an integrated market.

As recently stated by the Superintendency of Finance, the outlook for Colombia’s market regulation is a strengthening of the ‘risk-based’ supervision model. This model focuses on activities that pose major risks for each entity and its management.

From this perspective, and inspired by the Canadian model, the authorities periodically produce a risk profile for each entity and, based on their outlook, establish a set of prompt corrective actions. There are seven risks evaluated periodically by the Superintendency of Finance: debt risk, market risk, liquidity risk, operational risk, laundering risk, insurance risk and reputational risk.

Even if the main advantage of this regulatory model is that it takes into account the special characteristics of each regulated entity, and permits the development of new products in the market, the recent declaration of the Superintendency of Finance, paraphrasing Thomas Paine, still remains pertinent: regulation is but a necessary evil for the market.

11 Vg ICBC Peru Bank SA, Aseguradora Magallanes, Financiera Nueva Visión, Compañía de Seguros de Vida Cámara and Rigel Perú SA.

387

Appendix 1

ABOUT THE AUTHORS

CAMILO MARTÍNEZ BELTRÁNDLA Piper Martínez BeltránPartner Camilo Martínez focuses his professional practice in areas including corporate, capital markets, financial services and regulation. In recent years he has been involved in major transactions in the local capital markets.

Mr Martínez received his law degree from the Pontificia Universidad Javeriana in Bogotá and an LLM from Georgetown University. Who’s Who Legal recognises him as a leading lawyer in capital markets in Colombia. He is admitted as an advocate in Colombia and in the State of New York, and is fluent in Spanish and English.

SEBASTIAN CELIS RODRÍGUEZDLA Piper Martínez BeltránAssociate Sebastian Celis focuses his professional practice on the areas of capital markets and mergers and acquisitions. Sebastian received his law degree from the Rosario University in Bogotá and he has completed a postgraduate programme in administrative law at the Rosario University in Bogotá. He is fluent in Spanish and English.

DLA PIPER MARTÍNEZ BELTRÁNCarrera 7 No. 71-21 Torre B Oficina 602BogotáColombiaTel: +57 1 317 4720Fax: +57 1 317 3032ncmartinez@dlapipermb.comscelis@dlapipermb.comwww.mna.com.co