SUPERINTENDENCIA DE VALORES Y SEGUROS (SVS) · PDF fileSUPERINTENDENCIA DE VALORES Y SEGUROS...

SUPERINTENDENCIA DE VALORES Y SEGUROS (SVS) OF CHILE Response to Survey on Implementation of IOSCO Objectives and Principles of Securities Regulation Principles Relating to General Survey1 Information presented is as of February 20, 2001 Contact Person Salvador J. Seda, International Relations Research and International Relations Division Superintendencia de Valores y Seguros Teatinos 120, Piso 7 Santiago 6500692

Chile Tel (56 2) 549 5840 Fax (56 2) 549 5937 E-mail: [email protected]

1 The responses to this survey were prepared by the staff of the Research & International Relations Division of the SVS and do not necessarily reflect the views of the SVS.

Principles relating to the Regulator Principle 1: The responsibilities of the regulator should be clear and objectively stated. 1. What is your assessment of the current status of your jurisdiction regarding

implementation of this Principle?

Implemented Partially implemented

Not Implemented

1.1 If implemented: 1. Please describe how this principle has been implemented. The responsibilities of the SVS are clearly and objectively stated in the following laws and regulations, and in the rules that the SVS has adopted under these laws. DL Nº3,538 of 1980, SVS Basic Law Law Nº 18,045 of 1981, Securities Market Law Law Nº 18,046 of 1981, Corporations Law DS Nº587 of 1982, Regulation on Corporation DL Nº1,328 of 1976, Mutual Fund Administration Law DS Nº249 of 1982, Regulation on Mutual Funds Law Nº18,657 of 1987, Foreign Capital Investment Funds Law Law Nº18,815 of 1989, Investment Funds Law Law Nº18,876 of 1989, Deposit and Custody of Securities Law DS Nº734 of 1991, Regulation on Deposit and Custody of Securities There are other laws that are included in the Chilean securities market, such as Law Nº19,281 related to rent and leasing and Law Nº19,220 related to farm and agriculture stock exchange that confers responsibilities upon the SVS. 2. Are further improvements or changes proposed? If so, please describe.

On December of 2000 was approved the “OPAs Law”, which introduce changes to the Securities Market Law in subjects such as public offering, corporate governance, tender offer, etc. Principle 2: The regulator should be operationally independent and accountable in the exercise of its functions and powers 2. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?

Implemented Partially implemented Not Implemented 2.1 If implemented:

1. Please describe how this principle has been implemented:

DL Nº3,538 defines the SVS as an autonomous and financially independent institution, chartered as a corporation under the law of Chile. it is linked to the government through the ministry of Finance and falls under the oversight of the Comptroller General solely for the purpose of examination of its revenues and expense records. DL Nº3,551 of 1980 defines the SVS within the public sector as a supervisory entity. The President of Chile appoints the Chairman of the SVS. He is responsible for the legal, judicial and extra-judicial representation of the SVS.

2. Are further improvements or changes proposed? If so, please describe.

None is proposed at this time. Principle 3: The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers. 3. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?

Implemented Partially implemented Not Implemented 3.1. If implemented:


SVS Basic Law and the securities market law provide the SVS with broad registration, rulemaking and adjudicatory powers with respect to oversight and regulation of the Chilean securities market. The SVS has the general powers:

a) To administratively interpret, in materials of its competence, the laws, regulations and other rules that govern supervised persons or entities and to set rules, give instructions and issue orders for their implementation and adherence. The Supreme Court will settle any contests of competence with other administrative authorities arising from the exercise of these interpretation and implementation powers; b) To resolve inquiries and petitions and investigate charges or complaints formulated by shareholders, investors or other legitimate parties, in areas of its competence, determining any requirements or conditions that must be fulfilled prior to examination;

c) To provide reports required by courts that are conducting criminal proceedings when such information corresponds to material within the SVS’ competence and that is available within its records; d) To examine all of the transactions, goods, books, accounts, archives and documents of supervised subjects or activities and demand of them or their administrators, advisors or personnel the information and explanations that it deems necessary for its information. It may request the formulation and submission of financial balance sheets and statements when it considers such actions to be appropriate in order to ascertain the exactness and investments of capitals and funds. It may also request the presentation of any document, book or piece of information that is necessary for supervision purposes, without altering the affected party’s normal operations. Except when authorized by the SVS, all books, files and documents of supervised entities or persons must be made permanently available for examination at the affected party’s main place of business; e) To set rules for the formulation and presentation of annual reports, balance sheets, statements and other financial reports of persons and entities subject to supervision and to determine guidelines for accounting activities. For these purposes it may also issue instructions and adopt measures to correct deficiencies it observes and, in general, measures it deems necessary for the protection of shareholders, investors, insurance policy holders and the public interest. Specifically, it may order the rectification or correction of the value at which a given accounting item is recorded when it establishes that said value does not correspond to the real value. The resolutions issued by virtue of this point may be appealed before the Appellate Court of Santiago within 10 working days from the time of notification. The Court will forward the case to the SVS for 6 working days and, with said process completed, will hand down a decision without further appeal. The cases originating from these appeals will be especially added to the next day’s agenda. Notification of appeals will suspend the effects of the measures ordered by the SVS. f) To audit, using their own employees or external auditors, the persons or entities subject to supervision. g) To require that supervised persons or entities provide the public, through the channels indicated by the SVS, with accurate, sufficient and timely information on their legal, economic and financial situations.

The SVS may publish directly any documents that are necessary for the purposes indicated in the previous point, charging expenses to the supervised parties, with the stipulations of articles 5 and 6 of the current statutory law applicable in such cases. a) To summon representatives, administrators, advisors and employees of supervised entities or persons, or any other person that may have conducted or celebrated any kind of acts or conventions with them, to make declarations to provide information the SVS deems necessary for the fulfillment of its duties. Those persons indicated in article 361 of the Civil Procedures Code will not be obliged to appear to declare; the SVS, for the purposes expressed in the above point, may request written declarations from said persons. b) To issue rules that ensure the accuracy of the records, books and documents that the SVS indicates and to require, as the case may be, that communications be fully or partially recorded or attached to said documents . j) To order the designation of external auditors to supervised persons or entities decided upon by the SVS; these auditors will report on general account statements and, as the case may be, replace account inspectors and be invested with said inspectors’ powers and duties. The SVS may set the requisites that said auditors and inspectors must meet for the fulfillment of their duties, in accordance with the characteristics of the supervised persons or entities; k) To oversee the activities of all external auditors and account inspectors designated by persons or entities subject to supervision; issue rules concerning the content of their reports and request any information relating to the fulfillment of their tasks. l) To designate external auditors for entities or persons subject to supervision to conduct the tasks it specifically assigns them, with the powers it deems necessary. The external auditors assigned by the SVS will be bound by the requisite of confidentiality established and sanctioned in article 23 of this legal body and will be remunerated by the supervised party. The remuneration will posses the privilege established in article 2472, number 4 of the Civil Code. m) To maintain public records on professionals and information as dictated by law. n) To request reports from the State’s technical bodies as it deems necessary and hire the services of experts or technicians; and

To exercise any other powers expressly conferred upon it by other laws or regulations.


None is proposed at this time. Principle 4: The regulator should adopt clear and consistent regulatory processes. 4. What is your assessment of the current status of your jurisdiction regarding

implementation of this Principle?

Implemented Partially implemented Not Implemented 4.2 If partially implemented:

1. Please describe what has been done with regard to implementation and what remains to be done:

Nowadays the Ministry of Finance studies the implementation of an administrative procedure law. Chile does not have this kind of law, however exist constitutionals and legal rules which must be adopted in the regulatory processes such as: due process, dignity and honor of persons, reserve in investigations.

However, the SVS uses transparent procedures when proposing and adopting rules and when providing exemptive and other types of relief from the application of the securities market laws.

The SVS meets periodically with groups of industry representatives to discuss rulemaking and other issues of concern.

2. Do needed improvements or amendments relate primarily to:

Public disclosure and transparency of regulatory processes

Procedures for policy formulation

Others (Please describe)

3. Please describe the major impediments that exist with regard to implementation. Are there areas in which you would welcome assistance in order to achieve full implementation?

To implement this principle, the major impediment is legal requirements such as amendments. These amendments take a lot of time.

4. Please describe your current plans for implementation and the timetable for giving effect to those plans.

Principle 5: The staff of the regulator should observe the highest professional standards including appropriate standards of confidentiality.

5. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?

Implemented Partially implemented Not Implemented 5.1 If implemented: 1. Please describe how this principle has been implemented:

SVS officers and staff are subject to standards profile established in the Constitution (Art. 38) for public employees. Also, they are subject to SVS Basic Law which mentions the employees or persons that under any title lend services to the SVS will be bound to confidentiality regarding the documents and information of persons or entities subject to the SVS’ supervision when said documents or information are not public. The breaking of this obligation will be sanctioned in the manner established in the first point of article 247 of the Penal Code; and SVS personnel may not lend professional services to the persons or entities subjected to the SVS’ supervision. The Corporations Law established that public employees can not be director of any regulated corporation or their branches. In relation to inside information, the securities law establishes that the staff is also presumed to have inside information, to the extent they may have direct access to matters related to the information and will suffer pena lties of medium-term rigorous imprisonment in any of its degrees who deliberately use inside information in trading or carrying out operations of publicly offered securities of any nature in the securities market or in private negotiations, for themselves or for third parties, directly or indirectly. 2. Are further improvements or changes proposed? If so, please describe.

None is proposed at this time. Principles for Self-Regulation

Principle 6: The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, and to the extent appropriate to the size and complexity of the markets. 6. Please briefly describe the role of SROs in your jurisdiction and explain, with respect to each SRO:

a. what functions it is required to perform;

b. the source of its powers to perform those functions; and

c. what general limitations, if any, exist on the scope of the powers of SROs.

Currently 4 organizations are considered SRO in Chile , including 3 securities exchange and 1 depository agency: Santiago Stock Exchange, Electronic Stock Exchange, Valparaiso Stock Exchange and the Central Securities Depository (DCV). Stock exchanges regulate their exchange activities and the ones of their stockbrokers by monitoring the strict compliance to ensure the existence of a fair, competitive, orderly, and transparent market. Notwithstanding the SVS has the authority to provide the exchanges and their members with the instructions and rules it deems necessary for compliance with their objectives. In the regulation of their own activities and the activities of their members, the stock exchanges must include rules on matters indicated below:

a) Rules that establish the rights and obligations of stockbrokers regarding the

operations they carry out and, especially:

1. In cases where there is no legal rule on the matter, stockbrokers shall take the orders they receive directly to the floor of the stock exchange, so to guarantee matching therein, in an active market and continuous auction, of all purchase and sale interests so that all trades are carried out in an open market and the investor may obtain the most advantageous execution of his/her orders;

2. To establish the priority, parity, and precedence of orders, to guarantee fair

and orderly markets and adequate fulfillment of all the orders received; 3. To establish the cases where stockbrokers may trade on their own behalf,

to ensure the stock exchange functions as an open and informed market to the benefit of investors in general;

4. To establish exchange and transfer procedures for trades in a rapid and

orderly fashion, both of current and future operating volumes.

5. To establish stockbrokers’ obligations to their clients, including the obligations resulting from investment recommendations made by stockbrokers, and

6. To establish the internal administrative organization of their members necessary to ensure the purposes set forth herein.

b) Rules designed to promote just and fair principles in trading on exchanges and to

protect investors from fraud and other illegal practices.

c) Fair and uniform rules and procedures by which the members of a stock exchange and their partners and employees may be penalized, suspended or expelled therefrom should they violate this law and its complementary rules or the statues or internal rules thereof.

d) Rules establishing that a registration system shall be maintained for complaints filed against stockbrokers, and the measures taken and penalties applied by the exchange against its members, when appropriate.

e) Rules establishing general and uniform requirements for the registration and

trading of securities on the exchange, and for their suspension, cancellation and withdrawal.

f) Rules that clearly establish the rights and obligations of issuers of securities

registered or traded on the exchange, particularly, regarding information they shall provide to the market about their legal, economic and financial situation, and other facts that may be relevant in the trading of their securities.

g) Rules that regulate securities trading systems in order to determine accurately

whether trades carried out by stockbrokers correspond to operations on their own account or on behalf of third parties. This information shall be public. The respective exchange shall also establish similar systems for operations or trading that is done by stockbrokers on behalf of the fund manager or for the funds they administer. The source and the holder of the respective order shall be considered confidential information by the stockbroker and the respective stock exchange.

The DCV must regulate their own activities and the activities of their depositors regarding the operations that they accomplish through an internal code. As well, the DCV must contemplate in the internal code fair and uniform rules and procedures by which the depositors system may be penalized, suspended or expelled therefrom should they violate the Law Nº18,876 (Law on the Deposit and Custody of Securities) and its complementary rules or the statues or internal rules. All internal rules adopted by SROs about their operations as such they must be approved in advance by the SVS before going into use. Any modification or elimination must be authorized by the SVS. When the SROs do not execute their functions, they could be by the SVS. Principle 7: SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities. 7. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?

Implemented Partially implemented Not Implemented

7.1 If implemented: 1. Please describe how this principle has been implemented:

Under the Securities Market Law, the SVS has the responsibility to ensure that SROs require their member to comply with the laws and their own rules. The SVS plays an active role in the SROs registration and rulemaking process: the authority can censure and impose sanctions on SROs and their members for failure to comply with the securities market laws, including the rules of the SRO. It can review SRO disciplinary actions and denials of membership or access; and conducts periodic routine oversight inspections of programs administered by the SROs. The SROs must fulfil certain statutory requirements which are generally intended to ensure that the SROs accept qualified persons as members, have fair membership standards and representation (Law Nº 18.045, Art. 26, 33, 44 and 49). 2. Are further improvements or changes proposed? If so, please describe.

None is proposed at this time. Principles for the Enforcement of Securities Regulation

Principle 8: The regulator should have comprehensive inspection, investigation and surveillance powers. 8. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?


The SVS is responsible for the highest supervision of the persons that issue or act as brokers of publicly offered securities; stock exchanges and brokerage transactions; securities dealers associations and the securities transactions they conduct; mutual funds and the companies that manage them; corporations and partnership companies limited by shares that the law subjects to its surveillance; companies that insure or reinsure, regardless of their nature or the nature of their operations, and any other entity or individual or corporate entity that this or other laws so indicate.

The SVS is responsible for overseeing that the persons or institutions it inspects, from their initiation until the completion of their liquidation, comply with the laws, regulations, statutes and other ordinances that govern them.

Examinations of these regulated entities may be conducted whenever the SVS considers necessary or appropriate in the public interest or for the protection of investors. In exercising its examination authority, SVS staff reviews data, information, documents, and records maintained by the regulated entity being examined or other regulated entities that may have information relevant to the examination.

The SVS shall apply the penalties and legal proceedings for collection established in its organizational law and the administrative penalties established in the securities market law, its complementary rules, the statutes and internal regulations that rule them, and the resolutions dictated in accordance with its powers. Also can administrate oaths and affirmations; subpoenaing witnesses, compelling the attendance of a witness; taking evidence; and requiring the production of any books, papers, correspondence, memoranda, or any other records relevant to an investigation. In the event of opposition to the exercising of the powers, the SVS may directly ask the corresponding Regional Governor for assistance from the police with search and entry powers.


None is proposed at this time. Principle 9: The regulator should have comprehensive enforcement powers. 9. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?


The SVS is responsible for administrative responsibility enforcement of the securities law. The regulated entities subject to enforcement by the SVS that commit infractions of the laws, regulations, statutes or other rules that govern them, or do not comply with the instructions and orders given to them by the SVS, may be subjected by the SVS to one or more of the following sanctions (without prejudice to penalties specifically established in other legal or regulatory bodies): censure; fines to be paid to the treasury, cancellation of the corporation’s operating authorization, when appropriate, suspension of their post for up to one year and the cancellation of their authorization or assignment, when appropriate. They may be applied to the corporation, directors, managers, employees or account inspectors or liquidators as is deemed appropriate by the SVS. When the sanctions are applied, the SVS may inform stockholders meetings of the infractions, acts of non-compliance or acts which directors, managers, account inspectors or liquidators have committed so that they may remove said persons from

their positions if it is deemed appropriate, without prejudice to carrying out the legal actions the SVS deems pertinent. The affected party can appeal to a sanction or a fine before the corresponding Civil Judge. The appeal will be resolved in summary proceedings and the decision may be appealed and take it to the Court Supreme. First and second decisions that reject appeals will make claimants liable for legal fees. Regarding to civil and criminal responsibility, the court is responsible for enforcement them. However, if it come to the attention of the SVS, it has statutory authority to compel testimony and to produce documents for the ordinary justice.


None is proposed at this time. Principle 10: The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program. 10. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?



The SVS carry out its investigative and enforcement powers through conducting investigations and bringing enforcement actions where appropriate.

In Chile only exist formal investigations and at the end of them, the staff may keep documents that are confidential or apply administrative sanctions.

SVS staff conducts several types of examinations: periodical examinations of stock brokers, broker – dealers, mutual funds, investment funds and foreign capital investment funds; and specific examinations for an investigation. The SVS will share certain non-public examination information, where appropriate, with other regulators. 2. Are further improvements or changes proposed? If so, please describe.

None is proposed at this time.

Principles for Cooperation in Regulation Principle 11: The regulator should have authority to share both public and non-public information with domestic and foreign counterparts. 11. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?


The SVS maintains non-public information in its files and adheres to strict rules of confidentiality to ensure that the information remains non-public. The breaking of this obligation will be sanctioned in the manner established in the Penal Code. However, the Chairman from publishing or making public through the persons or means he deems appropriate, information or documentation regarding supervised sub jects in order to protect the public trust and the interests of shareholders, investors and the insured. SVS staff may not lend professional services to the persons or entities subjected to the SVS’ supervision.

Under the SVS Basic Law (Art. 4º), the SVS has to give technical assistance and collaborate in investigations of breach in the securities and insurance laws when foreign entities ask, under a MOU treaty. Also, it can convene with other government entities the exchange of electronic information to facilitate its duties. In special circumstances, and with a resolution by the SVS’ Chairman, the elctronic exchange could be done with the private sector.


None is proposed at this time. Principle 12: Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts. 12. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?



The SVS has entered into information sharing arrangements, known as Memoranda of Understanding or “MOUs”, that focus no the mechanics of assistance and information sharing between the SVS and foreign securities authority. MOUs outline the confidentiality and use of information shared between the SVS and the foreign counterparts. Each MOU is designed to fit the particular circumstances of the foreign market and the powers of the foreign securities authority.


None is proposed at this time. Principle 13: The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers. 13. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?



As noted before (SVS Basic Law, Art. 4º), the SVS under a signed MOU can provide assistance to a foreign securities authority conducting an investigation which it deems necessary to determine whether any person has breached, is breaching, or is about to breach any laws or rules relating to securities market. This stipulation also provides that the SVS may provide assistance without regard to whether the matter under investigation by the foreign securities authority would constitute a violation of the Chilean securities laws.


None is proposed at this time. Principles for Issuers

Principle 14: There should be full, accurate and timely disclosure of financial results and other information which is material to investors’ decisions. 14. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?



The Chilean securities regulatory system is based on the principle of full, accurate and timely disclosure to investors. Issuers offering securities to the public are required to file a registration statement that it must be approved by the SVS before any offers of securities are done to the public. A copy of the final prospectus must be delivered to investors at or before the time they receive confirmation of their purchase.

The registration statement contains information on specific topics, including a description of the issuer and securities, audited financial statements, a description of the issuer’s business, identification of and information about directors and management, and the identity of substantial shareholders, amount others. In addition, the issuer must add any additional material information necessary to make the required statements, in the light of the circumstances under which they are made, not misleading. Registration statements, including any amendments are publicly available as soon as they are validated with the SVS. (General Norm Nº 30, section III)

In addition to the registration statement requirements, public companies are required to make periodic financial statements (annual and quarterly reports) with the SVS. The annual financial statement describes the issuer’s business operations, its management and its financial condition and results of operations for the preceding fiscal year, and includes audited consolidated financial statements. The annual report is due within 90 days after the end of the issuer’s fiscal year and is public immediately upon filing with the SVS. The quarterly financial statement describes the issuer’s financial condition and results of operations for the preceding fiscal quarter and the corresponding period from the prior fiscal year (it must have a report by external auditors for the June 30th statement). The quarterly report, individuals and consolidated, corresponding to March and September are due within 45 days after the end this periods. Finally the quarterly report corresponding to June is due after 60 days of the end of this month. The financial statements are public immediately upon filing with the SVS. Public filings with the SVS by issuers are available free of charge on the Internet through the SVS web site (http://www.svs.cl). 2. Are further improvements or changes proposed? If so, please describe.

None is proposed at this time. Principle 15: Holders of securities in a company should be treated in a fair and equitable manner. 15. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?

Implemented Partially implemented Not Implemented

15.1 If implemented: 1. Please describe how this principle has been implemented:

The Corporations Law (Law Nº18,046) contains provisions protecting minority shareholders from unfair treatment. Amount other things, the law establishes shareholder rights to call for extraordinary shareholders’ meeting and rights to petition for appointment of a trustee or auditor to protect minority shareholder rights. Also the law allows shareholders to file a class action lawsuit on behalf of the company (these are legal lawsuit brought in the name of the corporation to recover damages from officers and director who breached their duties to the corporation and its shareholders). Board members with conflicts of interest must abstain from voting, on a transaction among affiliated parties. Any company with a market capitalization of US$45 million or more will be required to have an audit committee. A majority of three committee members must be independent directors. Shareholders are given withdrawal rights if more than 50% of a company's total assets are sold or collateralized. Additionally, shareholders are given withdrawal rights if the controlling shareholder acquires voluntarily more 2/3 of the shares outstanding.


None is proposed at this time. Principle 16: Accounting and auditing standards should be of a high and internationally acceptable quality. 16. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?



This principle has been implemented by requiring use of a comprehensive body of accounting principles by all issuers. The Generally Accepted Accounting Principles (PCGA) and the rules established by the SVS are the accounting standards generally required to be used in preparing financial statements included in filings with the SVS. PCGA are based on a written general framework. The companies that are required to file financial statements with the SVS must apply the PCGA, which is an accrual basis of accounting. However, the SVS accounting rules prevails over PCGA.

The SVS usually has looked to the Auditing Board of the Chilean School of Accountants ("CCCh", their Spanish abbreviation by initials), an independent private sector organization operating in the public interest to establish accounting standards. The

CCCh’s activities are required to be open to public participation and comments. The CCCh also publishes reports of its principles , rules and deliberations. The CCCh follows certain precepts in the conduct of its activities, including: (i) to be objective in its decision making; (ii) to weigh carefully the views of its constituents; (iii) to promulgate standards only when the expected benefits exceed the perceived costs; (iv) to bring about needed changes in ways that minimize disruption to the continuity of reporting practice; and (v) to review the effects of past decisions. The work of the CCCh is not oversaw by the SVS, but they have working meetings.

All audited financial statements included in filings with the SEC must be audited in accordance with the Generally Accepted Accounting Principles and Generally Accepted Accounting Rules (NAGA, it is promulgated by the CCCh). The SVS regulates auditing firm, which they must be registered, and they are under auditing independence requirements, which are designed to ensure independence in fact and appearance of the individual auditor and the audit firm.


None is proposed at this time.

Principles for Collective Investment Schemes

Principle 17: The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme. 17. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?


Collective investment schemes generally operate in Chile through mutual fund (open-end fund), investment fund (close-end fund) and foreign capital investment fund. They must register with the SVS. It imposes detailed duties of disclosure, regulatory requirements, on their activities (CIS are regulated by laws, decrees law, supreme decrees and rules, see response 1). These regulations also grant the SVS authority to, among other things, deny the registration of a fund if the fund or its management have engaged in certain misconduct.

Mutual funds were first created in the 1960s. Their legal framework was comprehensively reformed in 1976 through Decree Law Nº 1,328 and it a mutual fund is a pool of funds contributed by natural persons or entities for the purpose of investment in publicly traded securities. A corporation on behalf of and at the risk of the contributors manages these funds. An investor is legally considered to become a participant in a mutual fund at the moment that the fund receives his or her contribution. Contributions to mutual funds are expressed in shares, which are all of equal value and characteristics, and are considered high-liquidity securities for all legal purposes. Participants may redeem some or all of their shares at any time, and the fund is given a maximum of ten days to pay these redemption in cash, starting from the date on which the redemption request was made. It should be noted that there are currently three types of mutual funds in operation: mutual funds investing in short-term, fixed-income securities; mutual funds investing in medium- and long-term, fixed-income instruments; and mutual funds investing in variable-income securities. Only the last type of mutual fund may hold corporate stocks and similar investments. As of December 1998, 102 mutual funds were chartered in Chile, of which 41 were of the short-term fixed-income type; 26 of the medium- and long-term fixed-income type; and 35 of the variable-income type. The Foreign Capital Investment Funds (FICEs) were created under the Law Nº18,657 of 1987; however, these funds did not begin actual operation until two years later. This type of fund is defined as a pool of assets that it is contributed by investors outside Chilean territory, whether natural persons, corporations, or collective entities in general, for the purpose of investment in publicly-offered securities in Chile, and that is managed by a Chilean corporation, on behalf of and at the risk of the contributors. With respect to the entry of foreign capital into the country, the FICEs are governed by the Foreign Investor Statute (Decree Law Nº 600) and by Article 47 of the Law of the Chilean Central Bank. In September 1995, Law Nº19,415 introduced changes to Law Nº18,657, allowing the creation of Foreign Venture Capital Investment Funds (FICERs). These funds are permitted to invest in securities not registered with the SVS, with the provision that the financial condition of each issuer be regularly audited. Law Nº18,815 of 1989 provided the legal framework governing the establishment and operation of investment funds. These funds and the companies, which manage them, are supervised by the SVS and regulated by the above law and by Decree Law Nº 864 of 1990, as well as by the internal regulations established by each fund. 2. Are further improvements or changes proposed? If so, please describe.

Recently was approved the Law Nº19,705 which introduced significant changes to the funds regulation, especially related to investment alternatives. Principle 18: The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

18. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?



According to Law Nº 1,328, specialized corporations that maintain this activity as their sole line of business carry out the administration of mutual funds. They are required to maintain a minimum financial reserve and are subject to the SVS for authorization to operate as well as for ongoing supervision. The SVS may revoke the charter of a fund management corporation in the case of a serious infraction of applicable legal standards, or if it concludes that administration of a mutual fund has been carried out in a fraudulent or manifestly negligent manner. If a mutual fund manager is dissolved, through revocation of its charter or for any other reason, the SVS is responsible for initiating proceedings for its liquidation and that of the fund or funds it administers. The liquidation of the corporation may be carried out by the SVS directly, or the SVS may authorize the corporation to undertake its own liquidation or that of the funds it administers. To obtain a charter, a mutual fund manager must certify its possession of capital paid in cash of not less than 18,000 U.F. (equivalent to approximately U.S.$510,000). For each fund administered, the company must maintain either the amount indicated above or 1% of the average value of the fund during the previous six months, whichever is greater. Fund managers may not commence operation until the SVS has approved the internal regulations of each proposed fund as well as the text of all contracts to be signed by participants. This Decree Law contains standards governing investments made by mutual funds, such as requirements for the diversification of investments, as well as limits and restrictions, such as a maximum percentage which may be invested in any one corporation. Investment in securities issued abroad is authorized, with the provision that the foreign issuers must meet certain conditions specified by the Law, as well as others that the SVS may determine. In addition, mutual funds are authorized to enter into futures contracts and acquire or sell call or put options for stocks, securities and indexes, as long as these transactions are undertaken within stock exchanges. Finally, establish the method for valuation of mutual fund shares in this Law, along with procedures for the redemption of these shares. Law Nº18,815 establishes that an investment fund is a pool of funds formed by contributions from natural persons and/or entities for the purpose of investment in securities and assets permitted by this Law; a corporation on behalf of and at the risk of the contributors administers the funds. Contributions to the fund are expressed in non-redeemable shares. Investment funds and the corporations that manage them are supervised by the SVS, which must approve their internal regulations and any modifications, as well as the standard text of contracts to be signed by participants. An investor becomes a participant in an investment fund at the moment when the fund receives his or her contribution. Contributions are expressed in shares of the fund, which

are nominative and unitary, of equal value and characteristics, and cannot be redeemed until the fund is liquidated. However, capital reductions may be carried out under the conditions established by the supporting regulations of this Law. Shares of investment funds are considered publicly traded securities; they must be registered with the Securities Registry and with at least one Chilean stock exchange, in order to ensure shareholders' access to an effective and permanent secondary market. The administration of these funds is carried out by specialized corporations, which maintain this activity as their exclusive line of business and must maintain a minimum financial reserve. They must be previously authorized by the SVS in order to operate. To obtain a charter, a fund manager must certify the possession of capital paid in cash of at least the equivalent of 10,000 U.F. (approximately US$ 290,000). In addition, the company must maintain a constant reserve for each fund administered of the above amount or 1% of the average value of the fund during the previous six-month period, whichever is greater. In addition, at the end of a one-year period after the commencement of a fund's operation, its value must be at least 10,000 U.F. If these conditions are not met, a deadline of 180 days is set, extendible by another 180 days. If the conditions still have not been met by that time, proceedings are initiated to liquidate the fund. The law also provides for the assembly of investment fund shareholders in ordinary and extraordinary meetings. It describes the procedures for calling a meeting, the subject matter to be covered at each session, and those persons who are authorized to participate. The law also mandates the creation of an Oversight Committee, a control body consisting of three shareholder representatives, which is responsible for ensuring compliance with the fund's internal regulations; verifying that the information provided to shareholders is complete, accurate and timely; overseeing compliance with investment-related standards; and selecting independent auditors to examine the fund's records. In the case of dissolution of the fund manager, the Oversight Committee assumes provisional administration of the investment fund or funds. The Law provides that funds must distribute at least 30% of their net profits annually in the form of dividends. Further details regarding dividend policies must be established in the fund's internal bylaws. Law Nº18,657 establishes that entities wishing to constitute themselves as a Foreign Capital Investment Fund (FICE) or a Foreign Venture Capital Investment Fund (FICER) under the law, they must seek previous authorization in accordance with Decree Law Nº600 (Foreign Investor Statute) or Article 47 of the Constitutive Law of the Chilean Central Bank, and must be registered with the SVS. Once duly chartered, these funds are authorized to solicit contributions outside of Chile through offerings of participatory shares, or to bring resources into the country which are contributed by foreign institutional investors for the purpose of investment in publicly -traded securities in Chile. The law defines a FICE as a pool of funds formed by contributions made outside Chilean territory by natural persons, corporations, or collective entities in general, for the purpose of investment in publicly traded securities in Chile. A FICER is defined as a pool of funds formed with contributions made outside Chilean territory by natural persons, corporations, or collective entities in general, for the purpose of investment in stocks, bonds, commercial papers and other debt certificates whose issuance has not been registered with the SVS,

with the provision that the financial statement of each issuing company is examined annually by independent auditors. The Law specifically requires participatory shares issued by these funds to be non-redeemable. A Chilean corporation, on behalf of and at the risk of the participants undertakes administration of both categories of funds. Fund managers must be specialized corporations for which this activity is their exclusive line of business, and which must maintain continuous capital reserves of not less than 6,000 U.F. (approximately U.S. $ 170,000) for each fund managed. These corporations must receive previous approval from the SVS to begin operations. Documentation required by the SVS includes the fund's charter; the charter and legal authorization of the corporation administering the investments; a statement of the amount of capital the fund will bring into the country, which must be at least US$1,000,000; the term of duration of the fund; and the fund's internal regulations. Both the fund itself and the corporation that manages it are subject to the oversight of the SVS in matters pertaining to their operations and the investment of their resources in the country. These funds' domestic investments may include shares of public stock companies; securities issued or fully guaranteed by the State; securities issued by the Central Bank of Chile; securities issued or fully guaranteed by banks or financial institutions; letters of credit issued by banks or financial institutions, or by other authorized entities; bonds and commercial paper registered in the Securities Registry; and other securities authorized by the SVS. The investment portfolios of the funds must meet certain diversification criteria, which in the case of FICEs are described in Article 7 of Law Nº 18,657, and in the case of FICERs consist of the standards applicable to Venture Capital Investment Funds. The capital contributions making up the funds regulated by this Law must be made in accordance with Decree Law Nº 600 or Article 47 of the Law of the Chilean Central Bank, with the following additional provisions:

i. The investment must enter the country in freely-convertible foreign currency, which may be held for purposes of conversion by a banking institution or by other persons or entities authorized by the Central Bank of Chile to participate in the formal exchange market; and ii. Capital contributions must not be repatriated during a period of five years starting from the date on which the contribution entered the country.

Any repatriated amount over and above the original capital contribution invested is subject to a single tax at a rate of 10%. Foreign institutional investors authorized by the Chilean Central Bank or by the Foreign Investment Committee may make use of the provisions of this Law that are applicable to them, in regard to the collection of capital contributions. In this case, they are not

obligated to organize a corporation to administer the fund; they need only to designate a legal representative domiciled in Chile with sufficient authority to manage the investments. 2. Are further improvements or changes proposed? If so, please describe.

None is proposed t this time. Principle 19: Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme. 19. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?



Mutual funds, investment funds and FICE, under their respective laws, must disclosure information to help investors determine whether an investment in a fund will be suitable for their investment needs. For example, they disclose their registration statement, the fund’s investment objectives and principal investment strategies, and the principal risks of investing securities portfolio, its investment schemes, yield, the fees and expenses that an investor may pay if the investor buys and holds shares of the securities issued by the fund, among others things. This information must be outlined in their internal rule, which must be previously approved by the SVS. However the fund’s investment are going to be made under specific norms and rules emitted by the SVS. Also, the fund administrator must disclosure the financial statements fund of all funds in the way that SVS establishes. The administrator must permanently maintain information about the funds (investment schedule) in the offices, in the way that the SVS establishes. 2. Are further improvements or changes proposed? If so, please describe.

None is proposed at this time. Principle 20: Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme. 20. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?



DL Nº1,328, Mutual Fund Regulation, prescribes the methods by which a mutual fund values its securities portfolio to determine the fund’s net asset value. Portfolio securities for which market quotation are readily available must be priced according to market value, all other securities must be priced to fair value, similar to the market. Regarding the pricing of the redeemable securities issued by a mutual fund, the decree appoints if the investor that redeems, he must send a written note to administrator. Then, the fund will redeem according to the value of the share has the previous day the notice has been presented.

DS Nº864, Investment Fund Regulation, prescribes the methods by which an investment fund value its portfolio securities to determine to determine the fund’s net asset value. Portfolio securities for which market quotation are readily available must be priced according to market value, all other securities must be priced to fair value, similar to the market. 2. Are further improvements or changes proposed? If so, please describe.

None is proposed at this time. Principles for Market Intermediaries

Principle 21: Regulation should provide for minimum entry standards for market intermediaries. 21. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?


The Securities Market Law appoints individuals or corporate entities that are dedicated to securities brokerage operations are securities intermediaries. After meeting the technical and solvency demands established in this law and the demands the SVS determines by general norms, the intermediaries may also engage in the purchase or sale of securities on their own account with the intention of transferring the rights thereto.

Intermediaries who act as members of a stock exchange are called stockbrokers and those who operate outside of an exchange are called securities broker/dealers. Notwithstanding the provisions established in special laws, no one may act as a stockbroker or securities broker/dealer without being previously registered in the registries the SVS maintain for this purpose. Banks and finance companies shall not be obliged to register in the Stockbrokers and Securities Broker/Dealers Registry in order to carry out trading functions in accordance with the powers conferred upon them by the General Banking Law. Nevertheless, they shall be subject to all the other provisions of the Securities Market Law with regard to their activities as such.

To be eligible for registration in the Stockbrokers and Securities Broker/Dealers Registry, the interested parties shall demonstrate the following to the SVS’ satisfaction: that they are adults; they are high school graduates, or have completed equivalent accredited studies; they have an office that has been instituted to engage in the activities of a securities broker; they permanently maintain a net capital requirement of 6,000 U.F.4 to perform the function of a stockbroker or securities broker/dealer. However, in order to carry out the operations on their own account , they shall maintain a net capital requirement of 14,000 U.F.; they establish guarantees in the form and in the amounts established in the securities Market Law, their registration in the Stockbrokers and Securities Broker/Dealers Registry has not been cancelled, they have not been declared bankrupt, and any other requirement determined by the SVS by general norms.

If a stockbroker want to apply for membership of a stock exchange, it must buy a stock exchange’s share and it will be regulated by the stock exchange’s internal rules. In connection with stockbroker registration, a stockbroker generally must: (i) become a member of a stock exchange, (ii) make and maintain certain books and records and file required periodic financial reports; (iii) maintain a minimum amount of net capital in the form of liquid assets pursuant to SVS rules, which will vary depending on the type of business it conducts; and (iv) be subject to periodic SVS and stock exchange inspections of financial responsibility and other regulatory requirements. Stockbroker also must comply with stock exchange rules governing sales practices, trading and business practices, and member financial responsibility, as well as antifraud and other provisions of the Securities Market Law. Firms and firm employees that violate the securities market regulations may be subject to SEC disciplinary action. (Art. 59 and 60, Law Nº18,045). Persons not admitted or suspended, expelled, or subjected to any other penalty as a stockbroker, as well as issuers whose registration of securities on the exchange is denied, may petition the SVS for review within fifteen days of the notification of the respective resolution, and that body shall rule on the matter after a hearing with the respective exchange. Said parties shall be equally entitled should the

4 U.F. is an abbreviation for unidad de fomento, a monetary index used in Chile for business purposes that is tied to a basket of leading prices. At January 31, 2001, 1 U.F. equals $15,794.84 Chilean pesos or US$28.02 approx.

stock exchange fail to rule on their applications in the time periods established in the internal rules. 2. Are further improvements or changes proposed? If so, please describe.

None is proposed at this time. Principle 22: There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake. 22. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?

Implemented Partially implemented Not Implemented 22.1 If implemented: 1. Please describe ho w this principle has been implemented:

Stockbrokers and securities broker/dealers shall comply with and maintain margins of indebtedness, placements and other conditions of liquidity and financial solvency established by the SVS by general norms it shall dictate especially related to the nature of the operations, their amount, the type of instruments traded, and the kind of intermediaries the rules shall apply to. Stockbrokers and securities broker/dealers shall establish a guarantee, before performing their duties, to ensure correct and full compliance with all their obligations as securities intermediaries, for the benefit of present or future creditors they have or may have as a result of their brokerage operations. The guarantee shall be for an initial amount equivalent to 4,000 U.F. The SVS may demand higher guarantees because of the volume and nature of the intermediary’s operations, the total commissions earned the year before the requirement is formulated, debts affecting the securities broker/dealer or stockbroker, or other similar circumstances. The guarantee may be established in cash, performance bond, insurance policy or pledge of shares in listed corporations or other publicly offered securities, and it shall be adjusted in the same proportion as the variation in the amount of U.F. The guarantee shall be maintained for six months after the securities broker/dealer or stockbroker has ceased to be qualified as such or until the legal actions filed against him/her within such period of time by the beneficiary creditors referred to in this provision have been ruled on by a sentence that may be appealed to the Executive but not to a higher court. If these claimants do not obtain a favorable ruling, they shall be charged with payment of the costs. Stockbrokers or securities broker/dealers shall appoint a stock exchange or a bank respectively as representatives of the creditors that shall benefit from the guarantee. Stockbrokers and securities broker/dealers are required to promote accountability of funds and securities of investors; require the maintenance of accurate books and

records; and require the broker-dealer to maintain sufficient liquid assets so that it can, if necessary, be liquidated in an orderly manner without the need for a formal proceeding. The net capital rule under the Exchange Act prescribes minimum liquidity standards for broker-dealers. Its purpose is to ensure that broker-dealers maintain sufficient liquid assets to satisfy promptly the claims of customers in the event the broker-dealer fails, plus a cushion of liquid assets in excess of liabilities to cover potential market and credit risks. The customer protection rule protects customer funds and securities held by the broker-dealer. It requires a broker-dealer to have possession or control of all fully paid and excess margin securities of customers, and to make a daily determination to ensure that it is complying with this aspect of the rule. SVS rules under the Securities Market Law require a broker-dealer to file periodic reports containing financial and operational data with the stock exchange. Broker-dealers must also file with the SVS and the stock exchange an annual audited report containing a statement of financial condition, a statement of income or loss, a statement of changes in financial position, a statement of changes in shareholders' equity and a statement of changes in subordinated liabilities. As noted, the stock exchanges are responsible for establishing, reviewing, and enforcing standards of conduct for their members and, accordingly, make rules governing sales practices, trading and business practices, member financial responsibility and enforcement of those rules and the relevant SVS laws and rules. (See response 7.1) 2. Are further improvements or changes proposed? If so, please describe.

None is proposed at this time. Principle 23: Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters. 23. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?



The broker-dealer financial responsibility rules discussed above provide safeguards with respect to customer funds and securities, promote accountability of those funds and securities, require the maintenance of accurate books and records and the filing of periodic financial and operational reports, and require a broker-dealer to maintain

sufficient liquid assets such that it can, if necessary, be liquidated in an orderly manner. Implicit in these requirements is the assumption that firms have adequate internal controls to fulfill these obligations. For example, the securities transactions in which stockbrokers or securities broker/dealers engage shall comply with the rules and procedures established in the law, with the rules determined by the SVS in its general instructions, and if applicable, with the provisions in the statutes and internal regulations of the stock exchanges or securities broker/dealers associations to which they belong.

From the client’s point of view, every order to carry out a stock exchange operation shall be understood to be carried out on the basis that it is subject to the regulations of the respective stock exchange approved by the SVS.

Stockbrokers and securities broker/dealers who act in the purchase and sale of securities are personally liable for the payment of the price of the purchase and for delivering the securities sold; a lack of provisioning shall in no case be admissible. Those intermediaries may not offset funds received to buy securities, or the amounts delivered to them for securities they have sold, with the amounts owed them by their client, purchaser or seller.

Stockbrokers and securities broker/dealers shall be responsible for the identity and legal capacity of the persons they hire, for the authenticity and integrity of the securities they trade, for the registration of the latest holder in the issuer’s registries when necessary, and for the authenticity of the last endorsement, when in order. 2. Are further improvements or changes proposed? If so, please describe.

None is proposed at this time. Principle 24: There should be a procedure for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk. 24. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?


The financial responsibility rules provide for regulators to receive early warning from a broker-dealer if it experiences operational or financial difficulties, and require broker-dealers to maintain sufficient liquid assets to liquidate in an orderly manner without the need for a formal proceeding.

When a broker-dealer fails , it is regulated by the Bankruptcy Law (Law Nº18,175), notwithstanding it has to comply with the specific rules of stock exchange which it is member.


None is proposed at this time. Principles for the Secondary Market

Principle 25: The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight. 25. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?



The Securities Market Law makes it unlawful for a broker-dealer to effect a transaction on an exchange that is not registered with the SVS or exempted from registration by the SVS.

Shares registered in the Securities Registry may only be traded by stockbrokers. Those trades shall be made at a session of the exc hange where they are members. Banks and financial institutions that, pursuant to their authorization, receive orders from their clients to buy or sell this kind of share shall execute such orders through a stockbroker. Other non-share securities registered in the Registry may be traded by any stockbroker or securities broker/dealer registered with the SVS, or by banks and finance companies, in accordance with their legal authorizations. Trades of those securities may be made on stock exchanges by stockbrokers only if they have been accepted for trading by the respective stock exchange.

The Securities Market Law also provides procedures and requirements for registration as a national securities exchange. Under the Law, an exchange must: have advanced authorization by the SVS in order to establish a stock exchange, and in order to operate, every stock exchange shall demonstrate, to the satisfaction of the SVS, that:

a) It is organized and has the necessary capacity to carry out the functions of a stock exchange in accordance with the provisions of the Securities Market Law;

b) It has adopted the internal regulations required by the law;

c) It has the necessary capacity to enforce and to ensure compliance by members of the provisions of this law, its complementary rules , and its statutes and other internal rules;

d) It has the necessary means and the appropriate procedures to ensure a unified market that permits investors the best execution of their orders, and

e) It keeps the books and registries and maintains all other information required by the SVS, which shall be available to the SVS for its examination and verification.

Also, In order to develop their purpose, the stock exchanges shall at a minimum:

a) Establish facilities and systems that permit the orderly matching of options to buy and options to sell for securities and the execution of the corresponding trades;

b) Provide, and make available to the public, information about the securities quoted and traded on the exchange, issuers, brokers and stock exchange operations;

c) Ensure strict compliance by members of the highest principles of business ethics and all the legal and regulatory provisions applicable thereto;

d) Report and certify quotes and trades on the exchange and provide ample daily information on such quotes and trades, including trades involving securities traded on more than one exchange, and

e) Carry out the other activities authorized by the SVS, or activities said entity may require of them pursuant to its supervision and enforcement powers.

In the regulation of their own activities and the activities of their members, the stock exchanges shall include rules on the matters indicated below: h) Rules that establish the rights and obligations of stockbrokers regarding the

operations they carry out and, especially: 1. That establish when, in cases where there is no legal rule on the matter,

stockbrokers shall take the orders they receive directly to the floor of the stock exchange, to guarantee matching therein, in an active market and continuous auction, of all purchase and sale interests so that all trades are carried out in an open market and the investor may obtain the most advantageous execution of his/her orders;

2. That establish the priority, parity, and precedence of orders, to guarantee fair and orderly markets and adequate fulfillment of all the orders received;

3. That establish the cases where stockbrokers may trade on their own behalf, to ensure the stock exchange functions as an open and informed market to the benefit of investors in general;

4. That establish exchange and transfer procedures for trades in a rapid and orderly fashion, both of current and future operating volumes.

5. That establish stockbrokers’ obligations to their clients, including the obligations resulting from investment recommendations made by stockbrokers, and

6. That establish the internal administrative organization of their members necessary to ensure the purposes set forth herein.

i) Rules designed to promote just and fair principles in trading on exchanges and to protect investors from fraud and other illegal practices.

j) Fair and uniform rules and procedures by which the members of a stock exchange and their partners and employees may be penalized, suspended or expelled therefrom should they violate this law and its complementary rules or the statues or internal rules thereof.

k) Rules establishing that a registration system shall be maintained for complaints filed against stockbrokers, and the measures taken and penalties applied by the exchange against its members, when appropriate.

l) Rules establishing general and uniform requirements for the registration and trading of securities on the exchange, and for their suspension, cancellation and withdrawal.

m) Rules that clearly establish the rights and obligations of issuers of securities registered or traded on the exchange, particularly, regarding information they shall provide to the market about their legal, economic and financial situation, and other facts that may be relevant in the trading of their securities.

n) Rules that regulate securities trading systems in order to determine accurately whether trades carried out by stockbrokers correspond to operations on their own account or on behalf of third parties. This information shall be public. The respective exchange shall also establish similar systems for operations or trading that is done by stockbrokers on behalf of the manager or for the funds they administer. The origin and the holder of the respective order shall be considered confidential information by the stockbroker and the respective stock exchange.

All internal rules adopted by stock exchanges about their operations as such shall be approved, as noted before, in advance by the SVS, which shall be authorized to reject them, modify them, or eliminate them, by means of a well-founded resolution.

As well, the stock exchanges shall establish among themselves expeditious communication and information systems in real time regarding the securities trading that is effected at each, and may not sell or reproduce this information without specific authorization from the stock exchange where the trades originated. The stock exchanges shall agree on communication, information, cash and certificate delivery systems, uniform procedures, and other subjects that are appropriate to facilitate the closing of operations between brokers at different exchanges, providing the investing public with the best execution of their orders and promoting the existence of a fair, competitive, orderly and transparent market.

In order to enforce compliance, an exchange must also have a surveillance plan detailing how it will monitor trading by its members, and a compliance plan detailing how it will conduct examinations of the offices of its members. In order to accommodate traditional market structure and provide sufficient flexibility to ensure that new markets promote fairness, efficiency and transparency, the SVS adopted the Law Nº19,705 of December 20 of 2000 establishing that the SVS, as a general rule, will be able in accordance to the issuer, volume of its operations and other

characteristics, required less disclosure and create specific market where they could operate their securities. 2. Are further improvements or changes proposed? If so, please describe.

None is proposed at this time. Principle 26: There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants. 26. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?




See response to Question 25. Principle 27: Regulation should promote transparency of trading. 27. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?


Public quotation reporting for equity securities is governed by the Securities Market Law and SVS rules. The stock exchanges must provide, and make available to the public, information about the securities quoted and traded on the exchange, issuers, brokers and stock exchange operations; ensure strict compliance by members of the highest principles of business ethics and all the legal and regulatory provisions applicable thereto and report and certify quotes and trades on the exchange and provide ample daily information on such quotes and trades, including trades involving securities traded on more than one exchange.

Public transaction reporting for equity securities is also governed by the Securities Market Law. The SVS has endeavored to ensure that data concerning trading interest, volume, and prices are available to investors, analysts, and other participants in the Chilean equity markets so that they may have a full picture of trading activity. This information includes not only the best quotations of market makers, but also the price and size of customer limit orders that improve a market center's quotations. Market centers provide quote and trade information through central processors that are responsible for collecting and disseminating market information for different types of securities. The processors consolidate the information of individual market centers, determine the national best bid and best offer for each security, and disseminate the information to broker-dealers and information vendors.


None is proposed at this time. Principle 28: Regulation should be designed to detect and deter manipulation and other unfair trading practices. 28. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?



A principal purpose of the Securities Market Law is to prevent the manipulation of the securities markets, and in particular, the manipulation of a security's price. Several sections of the Securities Market Law set the framework for manipulative behavior which is prohibited and against which the SVS and stock exchanges will take action.

The law establishes that is a violation of this law to trade securities in order to stabilize, fix, or make prices vary artificially. However, price stabilization activities may be carried out in securities in accordance with general norms provided by the SVS solely for the purpose of effecting a public offering of new securities or an offering of securities issued previously that has not been the subject of a public offering.

Also is a violation of the Securities Market Law to provide fictitious quotes or make fictitious trades of any security, whether the trading is done in the securities market or through private negotiations. No one may make trades or influence or attempt to influence the purchase or sale of securities, governed or not by this law, by means of any misleading or fraudulent act, practice, mechanism or artifice.

The entity o people who transgress this law shall suffer penalties of medium-term rigorous imprisonment in the medium degree to long-term rigorous imprisonment in the minimum degree: SVS has outlined general norms in order to determine those conducts that are against the Securities Market Law and against healthy market conducts .


None is proposed at this time. Principle 29: Regulation should aim to ensure the proper management of large exposures, default risk and market disruption. 29. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?



The financial responsibility rules provide safeguards with respect to customer funds and securities held at registered broker-dealers. The rules promote accountability of those funds and securities and require the maintenance of accurate books and records. The rules also require broker-dealers to maintain sufficient liquid assets so that it can, if necessary, be liquidated in an orderly manner without the need for a formal proceeding. The net capital rule, in particular, incorporates appropriate charges for unsecured receivables, concentrations in portfolios, market risk, and credit risk.

The information provided under Securities Market Law and its rules helps the SVS and the stock exchanges to monitor broker-dealer exposure and risk. 2. Are further improvements or changes proposed? If so, please describe.

None is proposed at this time. Principle 30: Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk. 30. What is your assessment of the current status of your jurisdiction regarding implementation of this Principle?



The Securities Market Law gives the SVS authority over entities that are involved in securities processing and provides for a national system for the clearance and settlement of securities transactions. The scope of coverage includes organizations whose functions are essential to the efficient clearance, settlement, and transfer of securities, particularly clearing agencies. The SVS, depositary and clearing agency and the exchanges have established rules to enforce these obligations. Clearing agencies include clearing corporations and depositories, and are considered self-regulated corporations under the Securities Market Law. Stock exchanges may create or participate in clearinghouses, which shall serve as the counterpart of all purchases and sales of futures contracts, securities options, and others of a similar nature authorized by the SVS, which are carried out on the respective stock exchange after such operations have been registered with the aforesaid clearinghouse. The clearinghouse shall also administer, supervise, and liquidate the operations, open positions, current accounts, margins, and available balances that clients and stockbrokers carry out and maintain in those markets. The clearinghouses must be organized as special corporations in accordance with the Law Nº18,046 and the rules applicable to listed corporations and general norms issued by the SVS. The minimum paid-in capital, expressed in pesos, may not be less than the equivalent in cash of 15,000 U.F. They have an arbitration court made up of at least 3 members who are responsible for applying the disciplinary measures provided in their by-laws and the measures stated in the Securities Market Law and at least 30% of the profits of each business year is allotted to form a Contingency Fund, which serves to cover pending obligations resulting from operations registered with the clearinghouse. The foregoing is obligatory until the Fund is equivalent to the capital and reserves of the clearinghouse. Among other functions, c learinghouses issue and register futures and options contracts and be the counterpart thereof; receive initial margins, respective monies and securities from the brokers and credit the same to the respective current accounts; update the client’s open positions daily, report the lack or excess of margin to stockbrokers and balances of their clients’ current accounts; order stockbrokers to partially or completely close their clients’ open positions when they fail to meet margin or hedging requirements; liquidate, on the maturity date, the contract open positions, reducing the respective margin and debiting or crediting the losses or gains produced.

The SVS shall be the responsible for supervising and enforcing the operations and activities of clearinghouses established in accordance with the powers and authority conferred thereon by the securities Market Law, its organizational law, and the other laws with regard to its purview, particularly those referring to stock exchanges.

To establish and operate a clearinghouse, prior authorization of the SVS shall be required, including approval of the regulations and rules are issued for its operation and if, applicable, modifications thereto. The SVS is authorized to reject or propose modifications to the proposed regulations and rules.

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