On September 11th, 2019, the House of Representatives passed the Entrepreneurship Bill, which contains in its Title III the modifications to the Law on the Securities Market. This law has not entered into force yet, since its enactment and publicity in the Official Journal are still pending. According to this bill, the possibility of issuing emissions through crowd funding platforms is created.
In the bill, the crowd funding platforms are defined as securities negotiation markets for public biddings, open to the direct participation of investors and reserved for small amount issues.
In the regulations to be drafted by the Central Bank of Uruguay (hereinafter BCU), the determination of the maximum amounts allowed for these types of financing is delegated. The category of “small investor” is also foreseen but not defined, as this is another concept to be determined by the regulation. Small investors will have maximum participation limits on these issues. The BCU will also establish a maximum annual sales limit for the issuing legal entities that intend to use these platforms. Once they exceed that limit, they will not be able to resort to this type of issue.
The processing of the authorization of the BCU for those institutions that administer crowd funding platforms is required. For such granting, the reasons of legality, opportunity and convenience will be assessed. These institutions must be limited companies with nominative shares, have as their sole purpose the activity of being a crowd funding platform and regulate their activity in order to ensure the existence of a competitive, orderly and transparent market, and also, their internal regulations must be approved by the BCU.
The administrator will register the securities and the issuer, in turn, will be a representative entity of the securities holders, payment agent and the registering entity that records the securities. They will also be responsible for publishing the periodic information of the issuer and of the issuance that is required by the stock market regulation.
The issuer of securities traded on collective trading platforms is not required to adopt corporate governance practices, which are required for issuers of offers of public securities, nor should they appoint external auditors, although the BCU is free to the possibility of requiring professional reports on their financial statements and establish some requirement regarding corporate governance.
As can be seen from the bill, a new vehicle is created to make public securities issues that simplify the demands required by the securities market regulation. All this is in order to achieve the authorization for public issues of traditional securities and to boost the market for securities values, finance small businesses and encourage entrepreneurship. A new actor is created in the stock market that will serve as a stock exchange in these issues, which is assigned the power to administer crowd funding platforms. The bill leaves much to determine to the regulations that will be drafted by the BCU, so we must follow the issue closely to see how it evolves.
Montevideo, September 2019