Avoiding common mistakes: Know the legal and financial prohibitions for brokerage companies in Argentina

For a broker wishing to expand his/her operations, it is important to know the market situation in other countries, concerning various aspects, such as economic activity, political situation, and legal framework.

In Latin America, there are territories where you can operate freely with some assets; but in others there are restrictions. In particular, in this article we will learn about the legal and financial prohibitions for brokerage companies in Argentina, to avoid making common mistakes, and even in irregular situations.

Regulation of brokers in Argentina

Argentina is the second largest economy in South America and the third in Latin America, behind Brazil and Mexico. Therefore, it is not surprising that it is an attractive market and that many brokers want to operate in the country of Mar del Plata, offering the possibility of investing in a wide variety of assets.

However, it is necessary to know that to open operations in this territory, brokers must be approved by the Argentine Chamber of Financial Services (CAF) and regulated by the National Securities Commission (NVC), which is the entity in charge of supervising or overseeing the local capital market.

The investment brokerage firms that meet all the requirements and conditions set can be verified on the portal of the latter body, specifically in the section of search for Agents, where at the same time their respective financial and administrative information is known.

Legal and financial prohibitions

It is important to note that in Argentina there are no restricted markets or assets per se. That is, you can trade with various securities, such as stocks, mutual funds, debt securities, futures contracts, options contracts, and derivatives.

Also, according to the Capital market law, “Any legal entity may create and issue negotiable securities for trading on markets of the types and under the conditions it chooses” (art. 3).

However, there are regulations regarding the conditions under which the investment takes place. Below, we will know what are the legal and financial prohibitions for brokerage companies in Argentina, taking into account what various instruments establish in this regard.

Operating without authorization or permission

In the cited Capital market law, it is established that the use of the denominations of Brokerage House or similar may only be authorized by the National Securities Commission. Likewise, the companies or people interested must have the approval of the aforementioned Commission.

This will be possible after registration and compliance with the formalities and requirements established for each category. It goes without saying that it cannot be operated without the corresponding permission.

On the other hand, there are some cases in which registration as an agent is prohibited. This is what happens with public officials and employees, as well as people whose previous permits have been revoked, including those convicted of crimes committed for profit, among others.

Offer or misleading advertising and manipulation

One of the legal and financial prohibitions for brokerage companies in Argentina, which also applies to investment funds, is that they must avoid propagating or disseminating, by any means, offers and statements that may cause confusion or mislead investors.

This may have to do either with the nature of the assets and their price, or even the profitability they generate. For example, a potential investor cannot be assured that he/she will earn a certain amount in a certain period if he/she invests in foreign exchange since this is a very volatile and unpredictable market.

Additionally, the issuers of the security or any other agent participating in the process, nor can they engage in “practices or behaviors that intend or allow the manipulation of prices or volumes of marketable securities, disrupting the normal development of supply and demand” (Capital market law, Art. 117, Lit. a).

In the event of such an offense, the National Securities Commission may order the company to cease advertising or the use of misleading names, as well as establish the corresponding sanctions, including the suspension or revocation of the company’s license to operate.

Register of operations and investors

Another of the legal conditions for brokerage companies established in the laws of Argentina has to do with the registration of transactions. Firstly, the marketable securities brokerage agent (the person registered to act as a broker), apart from formalizing registration, must provide details of the system used for his/her activity.

Additionally, in the General Resolution 731 of the NVC, it is established that to carry out the activities, this brokerage agent must register daily in a special book and inform the market of which he/she is a member about the volume traded.

It must also submit annual financial statements, a list of the entities with which it has established an agreement (either in the country or abroad), as well as a list of users authorized to submit bids. It goes without saying that, in general, the law prohibits anonymous investors.

In this regard, in the Law on Concealment and Laundering of Assets of criminal origin, it is added that those authorized by the CNV to operate in the capital market, as well as those dedicated to the purchase and sale of metals or precious stones, mutual associations or entities linked to trusts, are obliged to collect documents from their clients that prove their identity and address, as well as to determine the origin of the funds.

Other prohibitions

  • The Central Bank of the Republic may limit the public offering of negotiable securities, public or private, for the time deemed necessary. During this period, companies must refrain from making new emissions.
  • The brokers of marketable securities cannot perform operations themselves through their systems, nor receive or hold securities from their clients.
  • This last restriction is also established for the Common Investment Funds, whose integral assets or titles will be guarded by an authorized financial institution.

Sticking to the law

As we have mentioned in other moments, the situations in which the activity of a broker takes place are delicate, since they involve both the handling of third-party money and the establishment of contracts with investors.

Therefore, there should always be clarity in the knowledge of the laws, as well as the prohibitions that exist, in order to act attached to legality, avoiding making mistakes or even illicit acts.Of course, to make sure that this happens, you must have good legal advice. And if you do not have this department in the company, there is the option of looking for a third party, that is, hiring a firm, preferably local, with experience in the regulations that exist regarding trading.

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