Central Bank Regulations
The first securities to be listed in the Offshore Stock Exchange have been registered, under the rules of Title 24, a chapter recently added to the Securities Law (Law No 18,045). The legislation contains regulations applicable to the public offer in Chile of foreign securities. The main goal of the amendments is to promote and allow the creation of the Offshore Stock Exchange. This is in order to attract foreign issuers and foreign investors, and to permit and facilitate foreign investment for Chileans (both individuals and companies).
A public offer of foreign securities or depositary certificates representing foreign securities (CDVs) may only occur when they are registered in a special public registry called the Foreign Securities Registry, administered by the Superintendencia de Valores y Seguros (SVS). Foreign securities include shares issued by foreign companies, deposit certificates issued abroad that represent Chilean securities, shares issued by international investment funds and any other securities authorized by the SVS.
Operations carried out pursuant to the new rules are considered foreign exchange operations for the purposes of the provisions contained in the Central Bank Act. Therefore, the Central Bank is responsible for determining the rules applicable to foreign exchange operations that result from application of the provisions in Title 24. Foreign securities may only be expressed in authorized foreign currencies, must be traded in these currencies on the local market, and are considered foreign securities for all legal purposes.
Where foreign securities are traded in the Offshore Stock Exchange, any kind of income, capital gain or dividend paid or received by investors who are not domiciled or resident of Chile, is not affected by any Chilean tax. This is because the foreign securities are not considered Chilean assets under Chilean income law.
Trading operations may occur in the stock exchanges referred to in Title Seven of the Securities Law. These operations are regulated by a general rule issued by the SVS. Title 24 also contemplates that the SVS may authorize over-the-counter transactions of foreign securities.
Conditions and terms of registration
The SVS is empowered to establish the form, conditions and terms under which the registration and public offering of foreign securities shall be carried out, and determining the markets where they may be traded. Foreign securities or CDVs may only be registered when the issuer of the securities is listed with the supervisory entity or competent regulator in its country of origin, or with the supervisory entity of another country where its securities are traded.
Notwithstanding the issuer's listing, registered foreign securities can be offered publicly on the securities markets of the country of the respective issuer or on other international securities markets. Foreign securities that cannot be offered publicly on the securities markets of the country of the respective issuer or on other international securities markets, may also be registered when they meet the requirements established by the SVS.
The SVS has enacted various regulations referring to the registration of foreign securities, shares and certificates in the Foreign Securities Registry, the public offering thereof in Chile, and disclosure, distribution and information requirements. Each of the regulations establish which legal, economic, financial, accounting and administrative information about the issuer and its securities is to be filed with the SVS, in order to obtain registration of the foreign securities. They also describe the ongoing obligations of the issuer or depositary after registration. Information about the issuer and its securities must be provided to the SVS and stock exchanges in the language of the country of origin (or in the language of the country where the securities are traded) and in Spanish. A translation certified by the applicant will be sufficient and it will be considered an authentic document from the time it is delivered to the SVS.
In order to allow the investment of Chilean pension funds in foreign securities registered in the Offshore Stock Exchange, the Chilean Risk Classification Committee must approve shares before the pension funds may start their investments.
The public offering of foreign securities, issued by international or supranational agencies, or foreign states, shall be subject to rules to be enacted by the SVS. The offering may be made only when the securities are listed on the Foreign Securities Registry.
Foreign issuers, intermediaries, depositaries of foreign securities and any other persons participating in the registration, placement, deposit, trading, and other acts or agreements with foreign securities, that violate these provisions, shall be liable as indicated.
The Central Bank has determined, pursuant to Chapter 29 of Title One of the Compendium of Foreign Exchange Rules Compendium (Chapter 29), the conditions and terms that foreign exchange operations must adhere to, where the securities referred to in Title 24 are involved.
The bank has stated that operations involving foreign securities must be made in the Chilean stock exchanges, through stockbrokers who are members of the respective exchanges, and should be carried out in US dollars. Any individual or entity domiciled in Chile or overseas (ie, the investor), may purchase or sell foreign securities when in keeping with Chapter 29's regulations and those enacted by the SVS. The investor that is domiciled or resides overseas should use foreign currency to carry out the operations referred to in Chapter 29, whether it is his or her own foreign currency or currency acquired in a Chilean commercial bank.
In the case of investors domiciled in Chile who are administrators of pension funds, insurance companies, mutual funds, and international investment funds, transactions completed under Chapter 29 will be considered overseas investments and should be subject to regulations contained in the Chapter 28 of the compendium.
Money arising from profits, dividends or benefits that the issuers distribute and that have their origin in foreign securities, should be delivered directly overseas. Holders of foreign securities residing in Chile that intend to repatriate the money, should be subject to the regulations of Chapter 12 and Chapter 28 of the compendium.
For the purposes of the securities and stock market, it is understood that CDVs are transferable titles, registered or issued in Chile by a depositary of foreign stock, that represent similar transferable titles from a foreign issuer. CDVs can be converted into their equivalent of foreign stocks in accordance with the contract of foreign stock deposit executed by the issuer and the depository of foreign stock or, in its case, in accordance to the internal trade-off regulation.
The foreign securities depositary requesting registration of CDVs shall provide the information as long as the respective CDVs remain in circulation in the country. It must demonstrate to the SVS the commitment of the securities' issuer, the stock exchanges where the securities are traded, or the regulatory authority of the respective issuer to promptly disclose such information. Also, the depositary shall make information available to CDV holders about results and the exercise of rights arising from the foreign securities provided by the original issuer.
The depositary must keep a record of the holders, and must exercise their rights and represent their interests. The SVS is authorized to establish additional requirements, in accordance with the nature of the securities involved.
An applicant requiring the listing of a CDV may not request the cancellation of its registration in the Foreign Securities Registry until all CDVs have been redeemed or withdrawn from the market, or have been exchanged.
For further information on this topic please contact Gonzalo Delaveau at Guerrero, Olivos, Novoa y Errázuriz Ltda by telephone (+562 639 0169) or by fax (+562 639 0170) or by email ([email protected]).
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