Securities Law

The Dominican Republic’s securities exchange, Bolsa de Valores de la República Dominicana (www.bolsard.com), created in 1989, is one of the most active in the Caribbean. Most large national companies are registered in the exchange, and in the first half of 2011, US$1.3 billion was traded, more than doubling the amount traded the year before.

There are several incentives to invest in the Bolsa de Valores (BVRD). Interest and dividends on approved securities traded on the exchange are exempt from all taxes, and securities placed on the BVRD by the Ministry of Treasury are afforded special exemptions under the laws governing their issuance. Paperless or electronic securities are also available reducing the risk of loss, theft, or forgery, and improving the speed of transfers, liquidation, and compensation. Finally, the law expressly permits the sale of approved securities in foreign currency and the payment of dividends in the currency consigned in the certificate.

Stock Market Law No. 19-00, dated May 8, 2000 and accompanied by Decree No. 729-04 dated August 3, 2004, regulates all activities relating to the stock exchange and promotes fair and full disclosure of material information to attract investors and accelerate national development. The law establishes the agencies responsible for supervising the market, and governs who can offer securities, the public offering procedure, and the roles of all market participants involved in the exchange of securities.

DEFINITIONS

The law defines a security (valor) as a right or amalgamation of rights having economic value, and that is freely negotiable on a securities market. The definition includes stock shares, stock options, bonds, warehouse receipts and other documents representing present or future commodities, certificates, debentures, securitized forms of debt, and any other type of negotiable commercial document.

A public offering is an invitation delivered to the public via some form of mass communication to sell, purchase, or trade securities.

MARKET OVERSIGHT

Two agencies are responsible for monitoring market activities: the Superintendent of Securities (Superintendencia de Valores) and the National Securities Council. The Superintendent of Securities is an autonomous institution subordinate to the Monetary Board, and the agency constitutionally vested with the authority to regulate the nation’s monetary and financial systems. The Superintendent of Securities regulates the BVRD and classifies and approves offerings and the companies that issue them, and publishes complete information to promote market transparency. A listing of issues and the issuing companies is maintained at. The agency also imposes administrative penalties specified by law.

The National Securities Council is a seven-member body comprising a representative of the Central Bank, a representative appointed by the Ministry of Treasury, the Chair of the Superintendent of Securities, and four private-sector members. It issues monthly securities market reports, imposes administrative penalties for infractions not specified by law, mediates market participant disputes, and hears appeals from the Superintendent of Securities’ decisions.

SECURITY ISSUERS

A company or individual wishing to offer securities on the stock market must first be structured as a corporation (sociedad anónima or S.A.), as defined by Company Law No. 479-08, and show a sufficient degree of capitalization. Once properly structured, capitalized, and approved by the Superintendent of Securities, a company can offer equity shares or other financial instruments on the BVRD through a public offering.

Privileged issuers such as government agencies, international organizations to which the Dominican Republic is a member, certain foreign governments, and certain foreign central banks may also offer securities on the market subject to the Superintendent of Securities’ approval through an abbreviated process.

THE PUBLIC OFFERING PROCEDURE

All security offerings must be public. The Superintendent of Securities authorizes all issuers and securities before placement on the market. The procedure for security placement is a three-step process: (1) file an application for approval to offer securities on the exchange with the Superintendent of Securities, (2) register the approved offering and other details with the Securities Exchange Registry, which then publishes the information, and finally, (3) place the securities on the primary or secondary market.

The Application

The application requirements differ for a foreign applicant and a domestic applicant. A foreign applicant must apply through a securities broker who provides the Superintendent of Securities with a registration certificate from the regulatory agency in the country from which the security originated. If the offering is a first-time offering, a foreign applicant must first be recognized by the Superintendent of Securities as a legally domiciled and registered entity in the Dominican Republic with a tax identification number, and submit additional legal and financial information, including a list of directors and their backgrounds, the issuer’s risk rating, and the terms of issue.

A Dominican applicant must attach a prospectus including (i) financial statements for the last three years audited by an external auditor that is registered with the Securities Exchange Registry, (ii) proof of the legal status of the issuer, and (iii) a description of the securities to be offered including any applicable risk rating.

The Superintendent of Securities must respond to the application within thirty days from the date of application. The Superintendent’s office simply verifies that information about the public offering is complete and truthful; it does not evaluate or guarantee the quality of the securities or the issuers.

Registration

Once the offering is approved, the securities and issuer must be registered with the Securities Exchange Registry, which will publish for public notice the name of the issuer, the types of securities and their ratings, and the broker handling placement of the securities on the exchange.

Placement

Securities are placed on either the primary or secondary market, and can be issued either in paper form as a stock certificate or in electronic form (Art. 304-1 of Company Law No. 479-08).

Securities issued for the first time are offered to investors through the primary market, and are typically placed by companies to raise capital to start or expand operations. Subsequent trading of issued securities is done on the secondary market, providing liquidity to the security holders. Primary market placement may be managed directly by the issuer or by a registered securities broker. Secondary market placement must be managed by a registered securities broker.

MARKET PARTICIPANTS

Many participants organize and coordinate market transactions to promote efficiency and transparency. All must be approved by the Superintendent of Securities or the National Securities Council.

The BSRD, supervised by the Superintendent of Securities, comprises self-regulated companies with registered seats on the stock exchange for the purpose of exchanging securities in an orderly manner.

The commodities exchange, agribusiness Exchange of the Dominican Republic, S.A. (BARD), manages trading activities related to agricultural, agro-industry, and mining products including commodity and futures contracts and commodity derivatives.

Securities brokers are registered at http://www.siv.gov.do/app/do_2011/merca.aspx. A broker can be any Dominican or foreign individual or company that is regularly engaged in broker activities either on or off the stock market.

Risk rating firms such as Fitch República Dominicana and Feller Rate evaluate and classify the risks associated with the securities offered on the stock market. All information obtained about an issuer for risk analysis is kept confidential.

Clearing House manages the purchase and sale of futures contracts, security options, and other similar instruments, and administers client and broker stock market accounts.

The centralized securities depository, negotiates and records cash transactions, maintains custody of securities, and offers transfer, compensation, and liquidation services to market participants. A security exchange, individual, or company may function as a depository upon approval by the National Securities Council.

Pension Fund Administrator (Administradora de Fondos de Pensiones) manages funds invested in the stocks and bonds of national companies that have been appraised by the Risk Classification Committee and approved by the National Council of Social Security. A company seeking working capital can put its securities into one of these pension funds.

Fund managers such as Excel Administrator de Fonds Madhouse de Inversing, S.A., Abrase Adminstradora de Fondos, and the Banco Nacional de Fomento de la Vivienda y la Producción (BNV) administer open or closed mutual funds. Closed funds involve investments in securities and commodities that are designated by law to have a fixed expiration or maturity date.

Securitization companies such as Titularizadora León, S.A. and the Banco Nacional de Fomento de la Vivienda y la Producción (BNV) issue asset-backed securities derived from an originating company’s pool of cash-flow producing assets such as mortgage obligations, leasing obligations, account receivables, and consumer credit. The types of assets that can be securitized may vary in nature, but they share the common trait of restricted liquidity. These securities are collateralized by the value reflected in the individual assets being securitized and receive a credit rating that is separate from and typically higher than that of the originating company because the securitization relies solely on the cash flow created by the pool of assets and not on the payment promise of the issuer. A separate accounting of the pool of asset-backed securities is kept, and is considered distinct from the accounting of the originating company. These companies must be approved by the National Securities Council.

External auditing firms, incorporated under the guidelines of the Accounting Institute and Dominican law, offer external auditing services to market participants and are listed atwww.siv.gov.do/mercado/registros/auditoresexternos.

TRADING ON PRIVILEGED INFORMATION

Those with access to non-public market information that has market relevance to the price of publicly offered securities (privileged information) may not legally trade using this information for their own benefit or the benefit of third parties. This is also sometimes referred to as “insider trading.” Persons in positions or functioning in roles that put them in direct contact with non-public information in the stock market are presumed to have privileged market information. Their trading activities are scrutinized by the Superintendent of Securities who is charged with maintaining the integrity of the market. Trading based on privileged information is considered a felony, and a person found guilty of insider trading faces a fine, imprisonment, or both.

PENALTIES FOR VIOLATIONS OF THE LAW

Any individual or company that violates the law is subject to administrative, civil, and criminal penalties. Moreover, charges made to a company are extended to members of the board and other decision makers in the company in a position to know of the violation.

Administrative penalties are imposed by the Superintendent of Securities and include verbal or written warnings, suspension from the market, cancellation of market activities, and monetary fines. Administrative fines ranging from 50,000 to 1,000,000 pesos (approx. US$1,400 to $28,000) are payable within fifteen days from notice, and are separate from any additional civil and criminal penalties that may be imposed. Repeated offenses may result in double the last fine and permanent disqualification from market participation.

A request for reconsideration of an administrative decision can be made to the Superintendent of Securities within ten days following notice of the decision, and the Superintendent’s office must respond with an official ruling within thirty days, which can be appealed to the National Securities Council.

Civil and criminal penalties are imposed by the courts and consist of a monetary fine between a half million and five million Dominican pesos (approx. US$14,000 to US$139,000), imprisonment (six months to two years), or both, depending on the seriousness of the violation. More stringent sanctions are imposed for violations expressly listed in the law covering acts of fraud and misrepresentation that substantially affect market decisions, and carry an enhanced fine of one million to ten million Dominican pesos (approx. US$28,000 to $278,000), longer imprisonment (two to ten years), or both. Where a grave violation not expressly listed in the law is committed, a court will determine the applicable penalties.

GUZMÁN ARIZA ON SECURITIES LAW

Guzman Ariza is well versed in the areas of law that complement the registration and public offering of equity and debt securities on the Dominican Republic stock market. Our attorneys can properly structure your business to meet stock market requirements, assist and represent you in regulatory, reporting, compliance and enforcement issues, manage your relationships with market participants, and provide advisory services in general corporate matters related to the Dominican stock market and its regulations.The Dominican Republic’s securities exchange, Bolsa de Valores de la República Dominicana (www.bolsard.com), created in 1989, is one of the most active in the Caribbean. Most large national companies are registered in the exchange, and in the first half of 2011, US$1.3 billion was traded, more than doubling the amount traded the year before.

There are several incentives to invest in the Bolsa de Valores (BVRD). Interest and dividends on approved securities traded on the exchange are exempt from all taxes, and securities placed on the BVRD by the Ministry of Treasury are afforded special exemptions under the laws governing their issuance. Paperless or electronic securities are also available reducing the risk of loss, theft, or forgery, and improving the speed of transfers, liquidation, and compensation. Finally, the law expressly permits the sale of approved securities in foreign currency and the payment of dividends in the currency consigned in the certificate.

Stock Market Law No. 19-00, dated May 8, 2000 and accompanied by Decree No. 729-04 dated August 3, 2004, regulates all activities relating to the stock exchange and promotes fair and full disclosure of material information to attract investors and accelerate national development. The law establishes the agencies responsible for supervising the market, and governs who can offer securities, the public offering procedure, and the roles of all market participants involved in the exchange of securities.