Capital market in venezuela

In economic matters, a market is the place or area where buyers and sellers meet to carry out exchange operations, Financial markets can be: money markets and capital markets.

Money markets are made up of financial institutions, which provide the mechanism to transfer or distribute capital from the mass of savers to the demanders (borrowers).

In Venezuela, the money market is regulated by the Superintendency of Banks and Other Financial Institutions, through the General Banking Law.

Capital markets are made up of a series of participants who buy and sell shares and credit instruments in order for financiers to cover their capital needs and investors to place their excess capital in businesses that generate returns.

In Venezuela, the capital market is regulated by the National Securities Commission, through the Capital Market Law. This Law regulates the public offering of securities, whatever they may be, establishing for this purpose the principles of organization and operation, the governing rules of the activity of all the subjects and entities involved in them and their control regime.

CAPITAL MARKET

The Capital Market in Venezuela, like any other international market, is made up of a series of participants who buy and sell shares and credit instruments in order to offer a range of financial products that promote domestic savings and sources of capital for the companies. The capital markets are an ideal source of financing through the issuance of shares, in order to keep the company's capital structure balanced. In Venezuela, the capital market is regulated by the National Securities Commission, through the Capital Market Law

Investors (natural or legal persons with excess capital) and financiers (legal persons in need of capital) attend the capital markets. These capital market participants are related through securities, these securities can be fixed income or variable income.

The Fixed Income Securities are those that confer a right to charge a fixed interest periodically, ie, their performance is known in advance. On the contrary, Variable Income Securities are those that generate returns or losses depending on the results or circumstances of the issuing company and therefore cannot be determined in advance at the close of the fiscal year. Shares are generally so called.

In addition, the securities can be of primary or secondary issue. The e primary mission is the first issue and placement to the public that a company that first access to organized markets financed, these securities are traded on the primary market.

The secondary emission begins when financial instruments or securities that have been placed on the primary market, are under negotiation. These negotiations are generally carried out on the Stock Exchanges

Capital market investors conduct investment opportunity analysis using two techniques: fundamental analysis and technical analysis.

Fundamental Analysis. This analysis technique to predict the future prices of a security is based on the meticulous study of the financial statements of the issuing company as well as its future expectations of expansion and capacity to generate profits. The fundamental analysis also takes into account the situation of the company in its sector, the competition, its stock market performance and the group in which it is located and, in general, the socio-economic, financial and political perspectives. With all these components, the fundamental analyst gets to determine an intrinsic value of the company around which the stock must be listed.

Technical Analysis. It is the name applicable to a set of techniques that try to predict stock prices from their historical perspective, also taking into account the behavior of certain stock market magnitudes such as trading volume, prices in the last sessions, evolution of prices in longer periods, market capitalization, etc. Technical analysis relies on the construction of graphs that indicate the historical evolution of the prices of securities, but also on analytical techniques that can predict stock market fluctuations. It is also called chart or graphical analysis, although technical analysis is broader because it currently incorporates mathematical, statistical and econometric models that go beyond pure graphic theory.

ELEMENTS OF THE CAPITAL MARKET

In the Capital Market, the participants that carry out the operation of the market are:

National Securities Commission. Body created by the Capital Market Law dated May 16, 1973, amended in 1975 and 1998, whose objective is the promotion, regulation, surveillance and supervision of the securities market, with legal personality, and its own and independent assets National Treasury, is attached to the Ministry of Finance, for the purposes of administrative supervision.

Securities box. Securities clearing and settlement system that simultaneously provides an exchange of securities and cash on the settlement date that is agreed. On the settlement date, the securities are transferred from the seller's account to the buyer's securities account. Through this system no physical movement of values or cash amounts takes place. This Entity that facilitates the rapid transfer of funds and securities deposited by natural or legal persons that actively participate in the securities market, granting them the consequent legal security in the execution of the agreed operations, while allowing immobilization physical of these values, minimizing the risks of theft, loss, falsification, among others.

Stock Exchange. They are official secondary markets, intended for the exclusive trading of shares and convertible securities or that grant the right of acquisition or subscription. The Stock Exchange does not constitute direct mechanisms for obtaining capital, but rather provides a physical place and the necessary services, so that sellers and buyers of securities, through Public Brokers, Shareholders or their proxies, carry out their transactions with such titles. The members of the Exchange attend meetings called the Wheel of Brokers, to carry out the operations that have been entrusted to them. There the Brokers make their sale or purchase offers indicating the kind of securities, the quantity, price and the type of operation that they propose.

Issuing entities These are the institutions that issue and place their securities in organized markets to finance themselves

Intermediaries

Securities Broker. The Public Securities Broker is defined in the Regulations relating to the Authorization of Public Securities Brokers in article 1 as the natural or legal person whose main purpose is to carry out brokerage operations with securities, with prior authorization from the National Securities Commission to act as such. Brokerage house. Company or brokerage house authorized by the National Securities Commission to carry out all those securities intermediation activities and related activities. When a brokerage company is admitted to a stock exchange, it can use the name of the brokerage house. 63 brokerage houses belong to the Caracas Stock Exchange, each one owning one share and having been approved for membership by the institution.

Capital Market in Venezuela

CARACAS STOCK EXCHANGE

Private institution organized in accordance with Venezuelan Law to facilitate the negotiation of securities authorized by the competent bodies and that act under the supervision of the National Securities Commission. The Stock Exchange has a place open to the public where brokers used to go to the wheel, and since 1992 some brokers also attend but most operate from their brokerage houses, interconnected by a network of computers linked via microwaves and fiber optics (the System Remote Connection). The public has access to the Stock Market Investors Room, from where, through consultation stations, transactions can be observed. Other investors know in real time quotes and prices of market sessions from remote terminals located in different cities and countries,while the largest volume of people and institutions know about the results of the Stock Market through the Internet and various media.

HISTORY

It dates back to 1805 when two merchants from the city of Santiago de León de Caracas, opened a "Stock Exchange and Recreation House for Merchants and Farmers". with authorization from the Spanish Crown.

On January 21, 1947, the anonymous company Bolsa de Comercio de Caracas was registered in the Mercantile Registry.

In 1973 the first Capital Market Law was approved. Rules are established for stock brokerage, as well as protection and surveillance mechanisms.

In 1974, the National Securities Commission was created and the first authorizations were issued to act as a Public Broker of Securities.

Lugo in 1975 the first reform of the Capital Market Law was carried out. This year the National Securities Commission is created, attached to the Ministry of Finance.

In 1976, at an extraordinary shareholders' meeting, it was agreed to change the name of the institution to "Caracas CA Stock Exchange."

Mission

Facilitate the intermediation of financial instruments and disseminate the information that the market requires in a competitive manner, ensuring transparency and efficiency within a self-regulated framework and adhering to legal and ethical principles, relying on the best human resources and the solvency of the shareholders.

objective

Its main objective is to provide the public with all the services necessary to carry out in a continuous and orderly manner operations with securities traded on the Capital Market, in order to provide them with adequate liquidity.

characteristics

They are a barometer, compass or thermometer of the country's economy. Their indicator indicates not only what is happening, but what is going to happen in the world of finance. It is the place where the laws of supply and supply are best complied with. Anonymity of buyers and sellers is maintained.

In Venezuela, bank shares can be traded through the stock market, as follows:

The acquisition of shares in the stock market, which does not make the owner of said shares the owner of more than ten percent (10%) of the capital of the bank or financial institution, as well as the acquisition of shares that causes a person to own the ten percent (10%) or more of the capital or the voting power of the Shareholders' Meeting, does not require the prior authorization of the Superintendency of Banks, but it must be informed to that Institution within five (5) business days following the registration in the shareholders' book. In the latter case, the Superintendency of Banks may object to the transaction within a period of no more than forty-five (45) continuous days from the date of participation.

LEGAL FRAMEWORK

The legal framework is the set of rules that regulate the capital market, in Venezuela it is made up of:

Capital Market Law: This Law regulates the public offering of securities, whatever they may be, establishing for this purpose the principles of organization and operation, the rules governing the activity of all the subjects and entities involved in them and their control regime

Securities Law: Establishes the regulatory framework for securities deposit and custody services, in which, consequently, the physical immobilization of the aforementioned securities is facilitated.

Collective Investment Entities Law: Its general purpose is to promote the development of the Venezuelan capital market, through the design and creation of a variety of collective investment entities, to channel savings towards productive investment.

Special Organic Law: Authorizes the National Executive to carry out public credit operations aimed at refinancing external public debt.

Law of the Central Bank of Venezuela: Regulates the operation of the Central Bank of Venezuela and contains regulations that affect the negotiation of securities in the Venezuelan securities market.

Income Tax Law : And its Partial Regulation on Withholding Matters, regarding the enrichment or gross income taxes originating from operations carried out in the capital market. These laws form the legal framework of the Venezuelan capital market, insofar as they tax the enrichment or gross income originated from the operations carried out in this market.

CAPITAL MARKET LAW

This Law regulates the public offering of securities, whatever they may be, establishing for this purpose the principles of organization and operation, the governing rules of the activity of all the subjects and entities involved in them and their control regime.

By means of this Law, the National Securities Commission (CNV) was created, a body in charge of regulating, monitoring and supervising the capital market. This body has the following functions:

Authorize the public offering of shares and other securities issued by natural or legal persons domiciled in Venezuela and international organizations, foreign governments and institutions, companies domiciled abroad, whenever it is in the national interest. Authorize the public offering, outside the national territory, of shares and other securities issued by companies incorporated in Venezuela Register the issuance of shares and other securities in the National Registry of Values, once their authorization has been agreed Authorize the actions of people who intend to constitute companies by public subscription and the advertising and prospectuses of the issuance of shares and other securities, for the purposes of their public offering Authorize the creation of stock exchanges,prior opinion of the respective Chamber of Commerce, as well as the approval of the Statutes and Regulations thereof Authorize and supervise the performance of public securities brokers, members or not of a stock exchange Control shares and other securities of those that are made public.

According to this law, corporations may issue registered or bearer obligations, up to an amount equivalent to one and a half times the sum of their paid-in capital (Article 27 of the Law).

In particular, corporations may issue bonds convertible into shares at the option of the bondholder, under the terms and conditions and for the price set by the company in the issuance contract (Article 30 of the Law). The issuance thus carried out imposes on the corporation certain rules, provided for in Article 31 of the Law:

Decree and pay dividends from the net profits obtained from the issuance. Make capital increases payable in cash and provided that the subscription is made at a value equal to or greater than the conversion of the obligations into shares, unless it is modified the conversion rate, so that it represents an economic value equal to the one it had before the capital increase. Not being able to vary the regime established by the bylaws in relation to the rights of the shareholders between them and against the bondholders.

Not being able to reduce its share capital, except in the case of loss, or liquidate, merge or dissolve without prior authorization from the CNV. We understand that in the case of the merger, the approval issued by the Superintendency for the Protection and Promotion of Free Competition, provided for in the Organic Law for the Promotion and Protection of Free Competition, remains necessary.

Similarly, the Law, in its Article 32, establishes that the company issuing the obligations to which we have been referring, will require prior approval of the bondholders to:

Modify the issuance conditions Carry out a new issue of convertible bonds Decree extraordinary dividends Increase the capital charged to undistributed profits or any section of profits not affected by the statutes or by the Law for specific purposes Modify the nominal value of its shares.

The law considers treasury shares as the acquisition of own shares, by the issuing companies, in the event that their securities are registered in the aforementioned National Securities Registry. In this case, the Law (Article 43) establishes a general prohibition for issuing companies to acquire, for consideration, their own shares. However, the Law itself establishes the exception to this regime consisting of the fulfillment of all the following conditions:

That the acquisition is authorized by the shareholders' meeting. That the acquisition is made with undistributed profits or with sums from profit sections not affected by the statutes or by law for specific purposes. That the shares are fully paid. In this case, the Law provides that said shares may be acquired free of charge provided that the shares are fully paid.

The law establishes that the following persons and institutions are subject to the control of the CNV:

Stock companies with authorized capital (SACA). They are those whose subscribed capital may be less than the capital authorized by their bylaws, and in which the shareholders' meeting authorizes the administrators to increase the subscribed capital up to the limit of the authorized capital by issuing new shares. registered with open capital (SAICA). They are those corporations that are authorized to act as such by the CNV, that have a paid-in capital of not less than one million bolivars (Bs. 1,000,000, oo), represented in common registered shares that have the same nominal value, and that no less than fifty percent of the capital stock is held by a group of shareholders whose investment calculated at nominal value is not less than two thousand bolivars (Bs. 2,000.00).Mutual investment funds. They are those companies whose purpose is to invest in securities in accordance with the principle of risk distribution, without such investments representing a majority stake in the capital stock of the company in which it is invested, or allowing its economic or financial control Mutual investment fund management companies. Its purpose is to manage the assets of mutual investment funds and represent them according to the management contract that they enter into for this purpose. Said contract must be previously approved by the CNV. The stock exchanges. These are understood to be institutions open to the public,The purpose of which is the provision of the services necessary to carry out securities transactions traded in the capital market. The transfer agents. The administrators of the companies whose securities are registered in the National Securities Registry are fully equated. Its appointment is expressly authorized by the shareholders 'meeting, and its purpose is to keep the shareholders' books or issue provisional or definitive share certificates, in the manner prescribed by the Commercial Code. Public securities brokers, other intermediaries and advisers. All these people must obtain authorization to carry out the activities of their object of interest.The administrators of the companies whose securities are registered in the National Securities Registry are fully equated. Its appointment is expressly authorized by the shareholders 'meeting, and its purpose is to keep the shareholders' books or issue provisional or definitive share certificates, in the manner prescribed by the Commercial Code. Public securities brokers, other intermediaries and advisers. All these people must obtain authorization to carry out the activities of their object of interest.The administrators of the companies whose securities are registered in the National Securities Registry are fully equated. Its appointment is expressly authorized by the shareholders 'meeting, and its purpose is to keep the shareholders' books or issue provisional or definitive share certificates, in the manner prescribed by the Commercial Code. Public securities brokers, other intermediaries and advisers. All these people must obtain authorization to carry out the activities of their object of interest.in the manner prescribed by the Commercial Code. Public securities brokers, other intermediaries and advisers. All these people must obtain authorization to carry out the activities of their object of interest.in the manner prescribed by the Commercial Code. Public securities brokers, other intermediaries and advisers. All these people must obtain authorization to carry out the activities of their object of interest.

The Law provides administrative and criminal sanctions for the violation of the regulations set forth therein, its Regulations or the regulations issued by the CNV. Thus, in relation to administrative sanctions, fines ranging from two hundred bolivars (Bs. 200, oo) to Forty Thousand bolivars (Bs. 40,000, oo) are provided depending on the seriousness of the offense.

In relation to criminal penalties, corporal penalties are established ranging from one (1) to six (6) years.

As we have already stated, through the stock exchanges operations can be carried out in securities subject to negotiation in the capital market. In this sense, it should be noted that according to the Capital Market Law, the Boards of Directors of the Stock Exchanges may register securities for the purposes of their listing in the registry that is kept for that purpose (Article 102, numeral 3.). Said regulation, in conjunction with Article 5 of the Special Organic Law that authorizes the National Executive to carry out public credit operations aimed at refinancing external public debt, already mentioned, allows the purchase and sale of securities denominated in foreign currency in the capital market of Venezuela.

In effect, the aforementioned article 5 establishes that the bonds issued in accordance with the aforementioned Law may be registered or bearer, placed at their par value, with a discount or with a premium. They may be redeemed before their expiration, by drawing or acquisition in the market or a combination of both systems. If they are bearer, they may be registered in any stock exchange in Venezuela or abroad and used, upon maturity, for the payment of any national tax.

To conclude, just mention that for the purposes of the purchase and sale of the securities to which we have been mentioning, the observance of article 94 of the Law of the Central Bank of Venezuela, relative to obligations, accounts and documents in foreign currencies, is imposed. Said Article verbatim says that the payments stipulated in foreign currencies are canceled, except in a special agreement, with the delivery of the equivalent in legal tender, at the current exchange rate in place on the date of payment.

Capital Gains Tax. The income obtained by companies from the sale of shares, provided that the operation is carried out through a stock exchange domiciled in the country, will be taxed with a proportional tax of one percent (1%), applied to the amount of gross income. of the operation.

In relation to the capital gains obtained as a result of the negotiation of fixed-income securities, there is an income tax withholding by the debtors or payers of gross enrichments for said concept, according to whether the activity is carried out by Resident natural persons, non-resident natural persons, resident legal persons or non-resident legal persons.

In this sense, in the case of resident individuals, the interests paid by legal or natural persons and legal persons governed by special laws in the financial and insurance field cause a withholding of 3%. In this same case and in the case of non-resident natural persons, the withholding will be 20%.

Now, if it is about legal persons domiciled in our country, the withholding percentage will be 5%.

Finally, in the case of legal persons not domiciled in Venezuela, the tax withholding will be made within the taxable year, at the time of payment or crediting of the accumulated net enrichments, converted to tax units, in accordance to the following percentages:

Fifteen percent (15%) up to the amount of two thousand (2,000) tax units Twenty-two percent (22%) between two thousand (2,000) tax units and three thousand (3000) tax units Thirty-four percent (34 %) for the amount that exceeds three thousand (3000) tax units.

The result obtained by applying the percentages is multiplied by the value of the tax unit (currently 2,700 bolivars) and the result is the amount of bolivars that must be withheld and reported to the Tax Administration.

BIBLIOGRAPHY

Learn about the capital market. What is the Capital Market? Available at: http://www.caracasstock.com/mercado/quees.jsp (Consultation: 10/13/2003, 9:15 pm.)

Produced by:

Mariany barboza

[email protected]

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