Panama: Capital market amendment

Author: | Published: 26 Jan 2017
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Galindo Arias & López

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Andrés Sanjur

In the past decade, the Republic of Panama has evolved substantially in every single aspect, from the expansion of the Panama Canal to the enactment of laws fostering investment and the establishment of multinationals; and certainly, the Panamanian capital market is not an exception.

Panama has enacted a law that amends the Panamanian securities regime with the purpose of bolstering the local securities market, and therefore the economy.

Law 66 of December 9 2016 (Law 66) amends the Panamanian securities legal framework. The amendment vests the Superintendence of Capital Markets of Panama (Superintendence), with the flexibility to dispose of the funds received from fines imposed on regulated entities; and bestows the board of directors of the Superintendence with the authority to review and modify the fees charged (originally limited to the evaluation of the fees), so long as the modifications are strictly consistent with costs incurred by the Superintendence.

Law 66 also serves to develop the regime that regulates the systems of clearing and settlement, which are systems exclusively managed by the central counterparty clearing houses (CCPs), central security depositories and the National Bank of Panama. The new law comprises an extensive array of principles and provisions that grant a condition of irrevocability to the obligations deriving from compensation orders, hence providing legal protection to securities that guarantee the compliance of undertakings previously agreed.

Besides the increase in the registration fees and the modifications to the Panamanian securities regime, Law 66 also adds two new elements into the Panamanian capital markets, which are the CCPs and the providers of infrastructure (PoI).

CCPs are known as entities that provide stability and efficiency to financial markets. Under Panamanian legislation, these are the entities that carry out as their main activity the clearing and settlement of operations consisting of securities and other financial instruments traded on formal stock exchanges, or in over-the-counter exchanges (OTC).

Furthermore, CCPs interpose themselves between counterparties in operations that have been previously accepted for clearing and settlement. In this way, they become the buyer to every seller and the seller to every buyer, thereby mitigating potential risks of default.

As for the PoIs, deemed self-regulated entities, their activity revolves around OTC trading, which includes the negotiation, registration, payment, and the undertaking of other financial activities through the offering of services, infrastructure and systems.

These recent amendments represent another attempt by Panama to remain at the forefront of the international financial markets.

Andrés Sanjur