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Guatemala

Published on Wednesday 16th March 2016

    • Guatemala

      The main piece of legislation concerning the offering and trading of securities is the Securities and Commodities Markets Act of 1996 as amended (the LMVM) and its regulations. Article 24 thereof regulates the exchanges as self-regulatory organisations. As such, the organised exchanges have the legal powers and faculties to regulate their administration, organisation, operations and markets within the framework of the LMVM. The only existing exchange, Bolsa de Valores Nacional SA (the BVN), has promulgated a general statute, one statute for the registration of securities offerings, and several other statutes concerning the disclosure and updating of information.

      Last verified on Friday 3rd March 2017

    • Guatemala

      The rationale behind this legislation is:

      1. to provide individual investors, regulators, institutional traders and investors, and the market in general with relevant and reliable information concerning the securities that are offered publicly and the issuers of such securities;
      2. the regulation of the several kinds of transactions concerning the exchange of securities over the counter or within the framework of organised exchanges or both, in order to avoid conflicts of interest and to generate transparency.

      Last verified on Friday 3rd March 2017

    • Guatemala

      The main public authority for the capital markets is the Securities and Commodities Registry (the SCR). The SCR is more than a registry, as it has the power to regulate, within the framework of the LMVM, the offering and trading of securities outside organised institutional markets.  Also, since the LMVM conceives the exchanges as self-regulatory organisations, the SCR has the main responsibility to supervise that the exchanges do comply with their responsibilities under the LMVM to issue adequate regulations and to enforce them efficiently and fairly. Additionally, the SCR registers every securities issue and also investment funds, mutual funds, investment trusts and other like vehicles.  

      Last verified on Friday 3rd March 2017

    • Guatemala

      The Penal Code, the LMVM and the Code of Criminal Procedure contain the main provisions in order to prosecute and convict individuals or corporations involved in financial fraud, unregistered securities offerings and/or dealings with them, deliberate manipulation of accounting records and other similar criminal offences.

      Last verified on Friday 3rd March 2017

    • Guatemala

      There are basically three levels for the application of sanctions and remedies:

      • at the level of the exchange, mainly concerning brokers and dealers and securities issuers, consisting mostly of fines and/or the suspension or termination of their licences to operate in the exchange;
      • at the SCR level, concerning the compliance with the LMVM and its regulations or the regulations issued by the exchanges, or both, consisting of fines, the suspension and/or termination of the registration of securities, securities dealers/brokers and issuers. The SCR may also petition the competent courts to appoint receivers, to enjoin operations and/or dealings in the securities or commodities markets; and
      • at the criminal justice level, where any individual or organisation that offers or trades in unregistered securities, and/or takes money from the public to deal in unregistered securities or commodities, and/or appears to be a registered broker without the corresponding licence are subject to fines and/or imprisonment.

      Last verified on Friday 3rd March 2017

    • Guatemala

      Private remedies include the possibility of investors to:

      In general:

      • sue in civil courts to seek payment or the compliance, or both, by the issuer with any of its obligations concerned with the securities held by the investor;
      • promote, through its broker, the instauration of arbitration proceedings within the exchange, in case the other party’s broker might have violated rules of the exchange’s statutes;
      • request the administration of the exchange to pursue any disciplinary proceedings against brokers and/or issuers that might have infringed the exchange’s rules or statutes; and
      • petition the SCR and/or the competent courts to enforce at the administrative, civil, or criminal law levels the applicable legal provisions.

      Specifically:

      • rights created and existing on the basis of the securities purchased by the investor, are usually enforced through civil and commercial courts;
      • rights concerning the application of the rules of the exchange to the offering or dealing in securities, are enforced either through arbitration proceedings before panels organised by the exchange or before the SCR; and
      • rights concerned with the protection against fraud, theft, usurpations, etc, are generally enforced through the Prosecutor’s Office before the criminal courts.

      Last verified on Friday 3rd March 2017

    • Guatemala

      Since a financial crisis that took place in 1998, after which there have been no other major infringements, fraud, or defaults, there have been about six criminal investigations and three or four prosecutions. Two arbitrations and five private civil actions have also been instituted and most of them refer to the 1998 crisis.

      Neither the LMVM nor the Criminal Law provide for “whistle-blower” proceedings.

      Last verified on Friday 3rd March 2017

    • Guatemala

      Article 2(a) of the LMVM provides for a very ample definition of 'security', which may incorporate or represent any property, credit and/or equity rights and can be devised and defined by the issuer to circulate as desired within (subject to rules of the LMVM and the Code of Commerce). For example, securities may grant, at the same time, a right to participate in pooled accounts receivables and the proceeds thereof and the ability to swap them for other types of securities.

      Securities may be issued through physical certificates or through electronic book entries, a mechanism that has become the preferable way to handle the offerings and dealings with securities because of the lower costs and greater security.

      Last verified on Friday 3rd March 2017

    • Guatemala

      In general terms, securities are offered to the public through registered IPOs. The registration may take place:

      • through a filing only with the SCR, where the offering does not take place within an organised exchange but over the counter; or
      • through a filing with the BVN and subsequently with the SCR, where the offering of and subsequent dealing in the securities takes place within the framework of an organised exchange.

      The process requires the submission of several documents the most important of which are the draft instruments for the issue of securities (such as, for example, the indenture agreement), the draft securities (if physical) or the contents of the terms and conditions (if through electronic book-entries), and the draft prospectus. Provided all of the documents and forms are submitted in adequate form and complete, the review process may take three to five weeks at the level of the exchange. With the BVN’s approval in principle (in case of offerings through or listings in the exchange) the application and file are remitted to the SCR for final review and registration. This may take an additional two to three weeks provided everything is in order.

      In all cases regarding offerings and negotiations through the exchange, it is necessary that a registered broker be retained to take the process to completion. Once the securities are definitely registered with the SCR, the exchange will proceed with the official listing of the securities and the offering and/or trading may begin. This should not take more than a few days.

      Last verified on Friday 3rd March 2017

    • Guatemala

      Disclosure requirements for public or private issuers generally cover two different aspects:

      • the legal and financial status or situation of the issuer in general; and
      • the nature of the risks specific to the particular issue (including, where applicable, whether there are any collateral, security interests, etc).

      Financial information has to be certified by an independent CPA at least once a year and, additionally, debt securities issues require the opinion of an independent rating agency. (This is not applicable to the central government’s or the Central Bank’s securities issues).

      The LMVM limits the publication of promotional information of any securities offered on the market without previous review and approval by the SCR and requires that reference be made to the technical sources backing any claims in such advertisements.

      Failure to disclose relevant information with intent to commit fraud is a criminal offence.

      Last verified on Friday 3rd March 2017

    • Guatemala

      There are subjective and objective exemptions. The former include the cases of offerings made only to those who are already shareholders of the issuer and to institutional investors. The latter refer to the number of people to whom the offering is directed, making it a public offering for both debt and equity securities once the offer is addressed to more than 35 people.

      Last verified on Friday 3rd March 2017

    • Guatemala

      The Guatemalan Institute of Certified Public Accountants has adopted international accounting and reporting standards for almost every type of activity or line of business. There are some cases, as in the banking business, for example, where the law requires that books are kept on the basis of actually perceived income (rather than only accrued).

      The offerings of the government, the central bank, licensed banks and other regulated financial institutions, are subject to their specific legislation.

      Last verified on Friday 3rd March 2017

    • Guatemala

      There is no planned convergence to the International Accounting Standards Committee’s International Financial Reporting Standards, therefore there is no timetable in that regard; however the Guatemalan Institute of Certified Public Accountants has, in fact, followed those standards substantially.

      Since 2011 there is a policy on behalf of the Auditors Board to try to follow and adapt, where necessary, International Financial Reporting Standards. It is known that local fiscal authorities apply those standards in their audit procedures.

      Last verified on Friday 3rd March 2017

    • Guatemala

      In general, there are no specific tax incentives to invest in the capital markets. However, there are a few aspects concerning the investment in publicly registered debt securities that are advantageous from a tax point of view. These include that interest paid to issuers of securities (as well as to supervised financial institutions) is deductible for income tax purposes.

      However, the Income Tax Act of 2012 allows for a maximum deduction equal to: (a) the rate of interest published by the Monetary Board for taxing purposes, (b) times the net assets declared by the taxpayer for its last fiscal year, (c) times three.

      Last verified on Friday 3rd March 2017

    • Guatemala

      As mentioned above, the tax regime for the issuance, trading of, investing in, or dealing in securities registered with the SCR does not provide for any exceptions or exemptions not applicable to non-registered securities, the most notable exception being the one mentioned above.

      Dividends paid to shareholders are not deductible for the company (as is usually the case) but interest paid to debt securities holders is deductible, within the limits of thin capitalisation rules and provided the debt incurred directly generates taxable income for the company.

      Dividends are considered as income for income tax purposes. According to the Income Tax Act dividends are taxed with a 5 per cent withholding tax rate. This charge is levied on the dividends paid to both resident and non-resident shareholders, as well as on the remittances made to parent corporations of local branches.

      The payment of interest is subject to a 10 per cent withholding tax, where the beneficiary is not a licensed financial institution in our jurisdiction. The withholding tax applies equally to resident and to non-resident beneficiaries (except for the licensed financial institutions).

      However, if the beneficiary trades with securities on a current basis, income derived from interest payments would be subject to either (a) a 5 per cent charge on gross revenues; or (b) a 25 per cent charge on net income (depending on the system, in general, chosen by the taxpayer). 

      Neither debt securities nor stock are subject to value added tax charges or to stamp tax.

      Last verified on Friday 3rd March 2017

    • Guatemala

      Securities are traded mainly on the BVN’s various electronic systems and on an electronic closed system where only the banking institutions can participate. There are some registered securities traded over the counter by a few issuers, but their volume is rather modest in comparison with the former.

      The most important types of transactions for their volume are repurchase transactions (collateralised REPOs) and open market operations by the Bank of Guatemala (for up to date information as to the trading volumes on the exchange please refer to www.bvnsa.com.gt). The Central Bank uses the electronic facilities of the exchange extensively, but deals directly with the banking system member banks as well.

      Last verified on Friday 3rd March 2017

    • Guatemala

      Securities traded on the exchange are cleared, generally, through the Central de Valores SA (CDC). This is a related entity of the BVN but it is functionally independent and has developed its clearing mechanisms and procedures on a delivery versus payment basis.

      Securities can be denominated in a foreign currency and some are cleared through CLEARSTREAM under an agreement with the BVN. 

      Last verified on Friday 3rd March 2017

    • Guatemala

      The settlement of securities takes place, mostly, through CDC. The CDC holds, in deposit, the vast majority of physical securities certificates and is in charge of the most important and largest issues of securities represented by electronic book entry. This has allowed for most of the transactions to be settled on ‘delivery versus payment’ terms.

      Generally, brokerage houses transfer readily available funds to their CDC accounts and from those accounts the funds are transferred by CDC to the accounts of the seller brokerage house by close of business on the same day against the transfer of the securities from the account of the seller brokerage house, within the CDC system, to the account of the buyer broker. This is done by simple credit and debit electronic entries, as provided for by the LMVM.

      In the future, all transactions among banks, including repurchase transactions, will be settled by the real time gross settlement facility that the central bank has implemented. Banks, at their turn, will be in position to offer their services to third parties using this facility.

      Last verified on Friday 3rd March 2017

    • Guatemala

      Organised securities markets in Guatemala are only about three decades old (the first exchange was founded in 1986). Just as in any other developing market and economy, the Guatemalan securities market has developed initially as a debt securities market rather than an equity one. There are issues of private debt securities among which, those of credit card companies and investment banks are the most liquid and important. Concerning public debt securities, that is, those issued by the Republic of Guatemala or by the Bank of Guatemala, a very important part of the initial offerings takes place within or through the exchange itself. In terms of a secondary market, there is a very liquid short-term repurchase market mostly, but not exclusively, among commercial banks (mainly to handle their reserves requirements).

      There are a few stocks publicly traded in the BVN, mostly issued by local commercial banks.

      Last verified on Friday 3rd March 2017

    • Guatemala

      The BVN has issued regulations and organised futures markets for foreign exchange and for interest rates uniform contracts, however neither are liquid markets mostly due to the generalised perception that monetary conditions may vary substantially due more to political reasons than to market forces and long term trends. Apart from this type of derivative products, no others have become developed, although local banks frequently enter into interest rates swaps or currency exchange rates swaps with foreign banks. This is done through direct contracting.

      Last verified on Friday 3rd March 2017

    • Guatemala

      Concerning structured finance instruments, by far the most important and widely used is the mortgage-backed note. This instrument, usually insured by the Institute for the Promotion of Insured Mortgage-Backed Notes, is widely demanded by banks and other supervised institutions because the banking regulations rank them very highly as financial assets and because there are also some income tax benefits (regardless of whether the notes are created and/or traded in the capital markets or not). Additionally, there are some other structured financial instruments which use the "trust" as a special purpose vehicle. However, tax rules remain a high transaction cost for this type of instruments for which reason there is a bill pending in Congress in order to lower the costs and in order to provide a wider and more detailed legal regulation of structured financial instruments and securitisation processes.

      Last verified on Friday 3rd March 2017

    • Guatemala

      Institutional investors are scarcely regulated in the Guatemalan legislation. They are defined as institutions or corporations whose corporate purpose is principally directed with the financial industry. More specifically, the LMVM provides that supervised financial institutions, the Social Security Institute, other entities related with social security financing, and collective investment vehicles (such as mutual and investment funds) are deemed institutional investors and thus securities offered solely to them need not be registered with the SCR.

      As a self regulatory organisation, the BVN, has also issued some regulations concerning institutional investors who, for example, can be direct customers of the CDC (and do not have to go through a brokerage house).

      Last verified on Friday 3rd March 2017

    • Guatemala

      Foreign brokers duly organised and authorised to act as such in their countries of origin may conduct their business by the establishment of a branch in Guatemala and once registered before the SCR. In order to obtain said registration they must: submit evidence of their creation and authorisation in accordance with the laws of their country of origin; present their by-laws and charter documents as well as the amendments to those; and appoint an agent to represent the broker in the country and allocate capital for the operations to be carried out in Guatemala. These are among other requirements. All the assets of the broker (those in its country of origin, in any other jurisdiction, as well as those in Guatemala) will be liable for the business carried out in Guatemala.

      Foreign brokers must meet the same requirements of Guatemalan brokers. One of these requirements is to evidence professional knowledge and experience in financial matters as well as in dealing with securities.

      There is no specific type of investor to which the offer and sale of securities can be made; the key is to comply with the requirements of the law depending on the type of offer to be made.

      Last verified on Friday 3rd March 2017

    • Guatemala

      The issue of insider trading is dealt with in the LMVM under the heading of ‘privileged information’. Privileged information means concrete information concerning securities, commodities or standard traded contracts that has not yet been disclosed but that if disclosed would have an impact on the investment choices of the investors. Board members, officers, management or any insider with access to privileged information is forbidden to trade on its basis under the penalty of a fine of up to US$5 million. This does not exclude civil liability or criminal liability, where applicable.

      There are no recent cases concerning insider trading.

      Last verified on Friday 3rd March 2017

    • Guatemala

      The authorities more directly concerned with public offerings of a foreign issuer are the SCR and the BVN, the latter as a self-regulatory organisation. The SCR is mainly responsible for ensuring that public offerings over the counter or through means other than organised markets, comply with disclosure and reporting requirements. Concerning securities issues within the exchanges (the BVN for practical purposes) it is their competent administrative corporate bodies who are responsible for enforcing the rules of the LMVM and the regulations of the exchange to the offering of and trading in securities listed in the exchange.

      Last verified on Friday 3rd March 2017

    • Guatemala

      Corporate governance is regulated by the Code of Commerce as it is the main source of corporate law. There has been no major updating of the main corporate law of Guatemala since the early 1970s, and, therefore, the rules applicable to stock companies not publicly traded are equally applicable to those few that are publicly traded. Whether the issuer of debt securities or of stocks, corporations are required to appoint independent auditors, but there are no legal regulations as to executive compensation, a code of conduct or internal control systems. Transparency and duties of care and loyalty are dealt with in terms of disclosing conflicts of interest and corporations must abstain from participating in deliberations or decisions where the director may have any personal interest. Transactions with related companies are regulated only in terms of the general prohibition to enter into transactions in fraud of third parties, and more specifically and in much greater detail, concerning transactions with banks and other financial institutions.

      Last verified on Friday 3rd March 2017

    • Guatemala

      As a matter of a general principle of law, legal issues can only arise out of some source of legal obligation (law, statute, contract, regulation, etc). Therefore, strictly speaking, there should be no issues arising between issuers and authorities that are not related to some legal source of obligation. On a level of issues that may not be strictly legal or regulatory, but administrative or akin to the smooth and uninterrupted functioning of the markets, the BVN maintains a constant and very open rapport with issuers and its member brokers.

      Last verified on Friday 3rd March 2017

    • Guatemala

      In our jurisdiction the most active economic activities in the capital markets remain the financial industry and other related activities. It has been mostly the banking system, the credit card issuers, insurance companies and the central bank itself that have been the most active in the Guatemalan capital markets. With the introduction of amendments to the LMVM concerning the types of investments that investment funds are allowed to make and if the securitisation bill is approved by Congress in the near future, it is very probable that the real estate industry and sectors such as energy may become more dynamic.

      Last verified on Friday 3rd March 2017

    • Guatemala

      As mentioned above, there are only the Bolsa de Valores Nacional, SA, a full securities and commodities exchange and a trading network among the members of the banking system. This latter network has been organised in order to trade bank reserves mainly through repurchase operations. There are some companies who have listed securities and some who have listed stocks.

      Last verified on Friday 3rd March 2017

    • Guatemala

      In practical terms, the present administration has done very little to improve the Guatemalan capital markets; however, there are several bills pending in Congress aimed at regulating the securitisation processes, factoring through public offerings of securities, and providing a better framework for issuing and handling securities represented through electronic book entries. There is additionally a task force at the Central Bank that has completed a new securities act draft which the industry has been consulted on and it might be submitted to Congress in the course of 2016.

      Last verified on Friday 3rd March 2017

    • Guatemala

      There are two kinds of considerations made by companies who wish to become public; one has to do with the nature and level of disclosure requirements and the other with tax implications. However, these are not, strictly speaking, "obstacles" but natural implications of the changes in corporate and financial culture that usually take place when a company becomes public.

      At this time no reform is deemed necessary to improve capital raising by companies in Guatemala. It is our opinion that more importantly, a change in the corporate culture is needed to pass from family-owned companies to publicly traded companies.

      Last verified on Friday 3rd March 2017

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