n A. NATIONAL SECURITIES COMMISSION
The Law-Decree No. 1 dated July 8, 19991, mainly rules the Panamanian securities industry. The mentioned Decree creates the National Securities Commission ("Comision Nacional de Valores", hereinafter "CNV" or "Commission"), as an autonomous State entity and the official institution in charge of the authorization and supervision of the public offering of securities, securities trading and the constitution and management of mutual funds, as well as the granting of licenses to the different financial market agents or participants2. The Commission is composed of three members (a Chairman, a Vice-president and the other Commissioner acts as spokesman for the CNV) and has the authority to appoint staff (i.e., attorneys, accountants, economists) and retain experts in order to fulfill its duties.
The Commission has broad powers to supervise the industry participants for the protection of investors, including its right (standing) to file class actions to enforce the provisions of the new securities law.
n B. FINANCIAL MARKET PARTICIPANTS
The Law-Decree rules the granting of licenses to the different participants of the capital markets, to wit: brokerage firms, investment advisors, investment managers, stock exchanges, clearing houses, sales agents, brokers, dealers, stock exchange seats, and mutual funds3. We now summarize each:
1. Brokerage Firms and Investment Advisors
Broker-dealer firms are organizations dedicated to the purchase/sale of securities, on their own or in the name of third parties (customers). Investment advisors, for their part, are persons who in exchange for consideration, advise others in regards to the determination of the securities prices, the convenience to invest, the purchase and sale of securities or prepare market reports.
Securities brokerage firms and investment advisors must have a mandatory license granted by the CVN. The license for brokerage firms allows the exercise of activities as investment advisors.
Both are obliged to file at the CNV periodical reports, as well as audited and internal financial statements.
1.1. Securities Brokerage Firms
Securities Brokerage firms may be dedicated to incidental businesses such as the management of custodian accounts, investment advisory, asset management for investment funds, the grant of securities and cash loans for the acquisition of securities and are subject to net capital and liquidity requirements, as determined by the CNV.
The shares of a securities brokerage firm must be exclusively in registered form and the CNV must be advised on any changes in the share composition thereof.
Foreign securities brokerage firms (organizations constituted or domiciled abroad or that have a license to operate, which was granted by another State) may be exempted from compliance with certain legal provisions, as determined by the CNV, provided investors are not affected.
In order to manage customers funds and securities, brokerage firms must open investment accounts4.
1.2. Investment Advisors
Investment advisors, for their part, may manage custodian accounts, securities and monies at their discretion or not, but they are not authorized to offer investment accounts.
2. Securities Brokers and Analysts
The functions of the senior executive, broker/dealer and securities brokerage firm analyst or investment advisory company will only be held by persons that have the respective license granted by the CNV. In order to obtain a license, the interested parties should approve exams on the content of the securities law and its regulations, on the practice and customs of the securities industry, stock exchanges and securities firms rules and on general accounting and financing principles.
3. Stock Exchanges and Clearing Houses
In order to exercise a stock exchange or clearing house business, the interested party must obtain the respective license from the CNV, which shall be granted provided that the technical, administrative and financial capacity to provide the service is proven.
As "self-regulated organizations" ("SROs") they are obliged to protect the interests of investors, to promote the cooperation of the market agents, report on any violations to the securities law, not to unreasonably limit or discriminate regarding membership, nor affect free competition, to avoid deceitful and manipulating actions that may affect the markets transparency and investors.
Likewise, stock exchanges shall monitor their members compliance with the internal rules and the securities law.
As well as securities brokerage firms, both are in the obligation to file at the CNV periodical reports, as well as audited and internal financial statements.
A previous version of this material was first published at Patton
Moreno & Asvat's website www.pmalawyers.com