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On June 3 1997, as part of a comprehensive effort to encourage the development of the securities market, the Uruguayan Central Bank (BCU) issued Circular No. 1,549 implementing the Investment Funds Act passed by Congress on September 17 1996.

Investment funds are defined as an independent group of assets delivered or paid in by individuals or legal entities and to be invested in securities and other assets. Participation in investment funds is to be recorded in quotas. Investment funds do not have legal personality and must be administered by a managing entity which acts on behalf of the fund quotaholders.

Administrators of investment funds must be previously authorized by the Central Bank. They must take the form of a nominative share corporation. Banks are entitled to incorporate or participate in the capital of investment fund administrators. Transfer of the ordinary stock of such companies requires prior authorization from the Central Bank.

Administrators are required to disclose, accurately, sufficiently and in a timely manner, any material information regarding both the investment fund and the administrator, 'material information' being the facts which a diligent person would take into consideration to make an investment decision. The administrator, its directors and managers are precluded from acquiring securities which are part of the fund managed by the administrator.

The relationship between the investment fund and the quotaholders, as well as the relationships between the quotaholders, are to be governed by 'regulations' (reglamento). The reglamento must set forth, among other things, the nominal value of the quotas, the amount of quotas, requests for quotation in a local or foreign capital market, investment policy, issue and redemption proceedings, the commission and expenses regime, and so on.

The administrator must also issue a prospectus to be used for the placement of the quotas.

The assets of the investment fund may consist of:

  • securities registered at the Securities Registry of the Central Bank;
  • public national or foreign securities;
  • on-sight deposits and time-deposits placed with financial intermediation institutions;
  • securities issued and quoted on official markets of third countries, previously authorized by the competent agency of the foreign country; and
  • other assets and securities authorized by the Central Bank.

The Central Bank is authorized to lay down regulations governing the maximum percentage of the investment fund's assets which can be invested in securities of the same issuing entity, the maximum percentage to be placed in banking deposits, and so on.

Monitoring and regulatory powers are vested in the Central Bank, and the administrator is protected by bank secrecy regulations.

Jonás Bergstein

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