This content is from: Local Insights

Chile

Under Law No19,601 enacted on January 18 1999, a public offering of offshore securities or securities deposit receipts (SDRs) can only take place in Chile if they have been previously registered in the Special Registry of Offshore Securities (ROS) kept by the Superintendency of Securities and Insurance (the SVS).

Both the offshore securities (concept which includes ADRs issued abroad representing Chilean securities) and the SDRs need be expressed and traded in the domestic market in those foreign currencies expressly authorized by the Central Bank of Chile.

SDRs are defined as transferable and registered instruments issued in Chile by a custodian of foreign securities, that are representative of transferable securities of a foreign issuer, which are deposited with the custodian of foreign securities that issues the SDRs.

The SDRs may be exchanged or converted into foreign securities, and vice versa, in accordance with the terms of the custody agreement executed between the issuer and the custodian or, if applicable, pursuant to the relevant internal regulations. It falls within the powers of the SVS to determine the minimum requirements to be met by the custodian agreement or internal regulations, as applicable.

Only banks, branches of foreign banks authorized to operate in Chile and other legal entities expressly authorized by the SVS may act as custodians of foreign securities, provided they meet the following requirements:

  • that their main line of business be the making of financial investments or investments in financial assets with third-party funds; and
  • that from the volume of their transactions, the nature of their assets and other available characteristics they may be considered as relevant players in the relevant market.

The registration of the foreign securities and SDRs can only be possible when the original issuer of such securities is registered with the applicable regulatory entity in its country of origin or of such other country where its securities are effectively traded.

In addition to the issuer's registration abroad, the foreign securities to be registered or those underlying assets giving rise to the SDRs need be capable of being publicly offered in the securities market of the country of the relevant issuer or in other international securities market. Foreign securities that cannot be publicly offered in the securities market of the relevant issuer or in other international securities market can also be registered with the SVS, provided they comply with the requirements set out by the SVS through a general regulation. The SVS may cancel or suspend the registration of any given foreign security if they do not comply with the foregoing requirements.

The registration of the foreign securities with the SVS will be requested by the issuer thereof. In the case of the SDRs, however, the registration can also be requested by a custodian of foreign securities. An issuer can always choose between registering the foreign securities themselves or the applicable SDRs.

Once an issuer has requested the registration of a foreign security or of the SDRs, custodians of foreign securities are prevented from requesting a subsequent registration related to that same foreign security. If, however, a custodian of foreign securities has already requested the registration of SDRs, another custodian of foreign securities would be allowed to register another issue of SDRs related to the same foreign security, provided the latter issue is adequately identified to distinguish it from the first.

The party requesting the registration of the foreign securities or the SDRs must provide the SVS and the stock exchanges in which they will be traded in Chile with the legal, economic, financial, accounting and managerial information regarding the issuer and its securities in the time and manner determined by the SVS through a general rule.

The SVS will have the power to restrict the transaction of certain foreign securities or SDRs to specific markets if it considers the information provided on them as insufficient. Also, the SVS, with the Central Bank of Chile's prior approval, may authorize the trading of foreign securities or SDRs over-the-counter.

The SVS may reject the registration of foreign securities or SDRs if it determines that they are related to any act, conduct, or practice penalized under Law No 19,366 that punishes drug trafficking and money laundering.

General Rules No 82 and 88 of the SVS contain the registration requirements for offshore shares of stock and SDRs. On its part, General Rule No 87 of the SVS - as amended on August 16 2001 - contemplates the registration requirements for quotas of offshore international investment funds, open funds and closed funds in the ROS.

Should the quotas of offshore open funds or closed funds registered in the ROS be offered to the general domestic market, the issuer thereof must comply with full and extensive disclosure requirements as set forth in subsections II and III of General Rule 87 (requirements which are similar to those applicable when listing Chilean securities for their public offering in the domestic stock market).

But if such quotas registered in the ROS are to be offered only to certain specific qualified investors as defined by the SVS in its General Rule No 119, dated August 16 2001 (each defined as a "qualified investor"), such an offer can be made in the so-called "special market for qualified investors". In this event the disclosure requirements imposed on the issuer are much simpler.

For these purposes, qualified investors are the following:

  • institutional investors: banks; financial institutions; insurance companies; domestic reinsurance entities; funds administrators authorized by law, and those entities considered as such by the SVS provided they comply with the following two requirements: (a) that their main line of business consists of making financial investments or investments in financial assets with third-party funds; and (b) that the volume of their transactions, nature of their assets and other characteristics, allow their participation in the market to be considered relevant;
  • stockbrokers and broker-dealers;
  • individuals, companies and entities, whether domestic or foreign, that declare and may show that they hold financial investments not lower to the amount in Chilean pesos equivalent to approximately $46,572; and
  • companies or entities whose partners, shareholders, members or participants are any of those referred to in (i) to (iii) above.

These simplified disclosure requirements impose on the issuer basically the same information requirements that it must comply with in its country of origin or in such other country where its quotas are effectively traded.

Under no circumstances may a stockbroker or broker-dealer registered with the SVS, or a locally established bank, engage in the public offering of unlisted foreign securities in Chile (securities which are not registered in the ROS).

Cristián Eyzaguirre

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