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Uruguay

As part of an effort to encourage the development of the securities market, a key goal in the economic policy of the current administration, Congress approved an Investment Funds Act on September 17 1996. The aim of the Act is to establish the legal framework for investment funds, which thus far were not expressly contemplated within the Uruguayan legal system.

Under the Act, investment funds are defined as a group of assets delivered or paid-in by individuals or legal entities to be invested in securities. Participation in funds is to be recorded in quotas.

Administrators of funds must be previously authorized by the Central Bank. They must adopt the form of a bearer share corporation, whose sole purpose must be the administration of funds. Banks are entitled to incorporate or participate in the capital of funds administrators. Transfers of the ordinary stock of such companies requires the prior authorization of the Central Bank, which will lay down the minimum net liability of companies administering funds (the minimum capital must be based in Uruguay).

Monitoring and regulatory powers are vested in the Central Bank, which will establish the information to be prepared by the administering company. Companies administering funds and their Directors are precluded from acquiring or leasing any assets belonging to the funds.

Administering companies are required to disclose, promptly and fully, any 'material information', defined as any act or fact which might have a significant impact on: the quotation of the quotas; or the investors' decision to acquire or negotiate such quotas.

Applications to set up a funds must be filed with the Central Bank, following the corresponding Investment Fund Regulations governing the relationship between the administering company and the quota-holders. The Regulations will establish, among other things, the duration of the fund, investment plans etc. Fund portfolios may be composed of securities listed in the Registry of Securities carried by the Central Bank, national or foreign public bonds, on-sight or time deposits placed with financial intermediation institutions, securities listed on foreign stock exchanges, and other assets to be authorized by the Central Bank. The Act further provides that bank secrecy regulations will apply to funds.

Together with the Securities Markets Law already enacted by Congress in May 1996, the Act is expected to provide another boost to the development of Uruguay's capital market.

Jonás Bergstein

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