Title II : Stock Exchanges And Stock Operations

Chapter I: Stock Exchanges

Legal Nature

Sect. 21.- Stock exchanges will be constituted as corporations of variable capital. They will be of indefinite duration and will have as purpose the development of the securities market and to provide their members the necessary means to carry out efficiently transactions of securities through continuous and concurrent mechanisms of public auction and so that they can perform the other intermediation activities of securities that this Law authorizes.

Minimum Capital

Sect. 22.- Each stock exchange must be founded and operate at all moments with a minimum capital of two million five hundred thousand Colones, entirely subscribed and paid, in cash when it is the foundation capital, which will vary in conformity with what establishes Section 98 of this Law.

Also, each stock exchange must constituted by an indeterminate number of shareholders, among whom at least ten will be legally constituted Brokerage Houses, with entries in the securities Database or in the process of registering. To be shareholder of a stock exchange, the interested will fulfill the requisites specified in this Law and in the statutes and regulations of stock exchanges.

No shareholder will be able to own more than one share, all of which will have the same nominal value and be of the same series. There won't be preferred shares.

Prohibitions

Sect. 23.- It will not be possible for directors or administrators of stock exchanges to be shareholders:

1. The debtors of the financial system for credits with reserves for bad debt of fifty percent or more of the balance, as well as their spouses or relatives within the first degree of consanguinity. This inability will be applicable also to those directors that own twenty-five percent or more of the shares of corporations that are in the situation mentioned above. This prohibition will subsist while the irregularity of the credit persists.
2. Directors, officials or administrators of an institution of the financial system that has incurred in equity deficiencies of twenty percent or more of the minimum required by the law; that has needed contributions from the State for its reparation or that has been intervened by the Superintendence, in which the responsibility of the mentioned people in such situation is demonstrated;
3. Shareholders, directors or administrators of a broker house that has been canceled by the Superintendence except that they prove that they didn't have participation in the act that gave place to the cancellation. ^{(1) (2)}

Incorporation

Sect. 24.- The Incorporation of a company that intends to operate a stock exchange will be previously authorized by the Superintendence.

Sect. 25.- The interested will apply to the Superintendence for the authorization to constitute the corporation, attaching the following information:

1. The draft of the articles of Incorporation in which the internal regulation will be included;
2. The organization and administration scheme of the corporation, the operations that it seeks to develop, as well as the economic justification for its formation;
3.  The general information about the applicants. When it is Brokerage Houses that are not registered in the Superintendence, the information referred to in Section 12 of this Law must be attached.

The Superintendence will be able to demand from the interested parties, within the term of thirty days counted from the date of presentation of the application, other information that it believes pertinent.

The Superintendence must resolve the application within the sixty following days to the date in which the applicants provided all the required information.

The Superintendence will grant the authorization to constitute it when in its judgment the economic justification, as well as the personal honorability and responsibility of the applicants and of the future directors and administrators of the corporation, fulfill the requisites specified in this Law.

If the decision were favorable to the applicants, the authorization to constitute the corporation will be issued by resolution of the Superintendence, indicating the term within which the incorporation must be granted.

Sect. 26.- The certified copy of the charter will be presented to the Superintendence so that it verifies if the specified terms conform to the previously authorized draft and if the minimum capital has been effectively paid in agreement with the authorization.

Articles of incorporation of a Stock Exchange cannot be presented for registration in the national Registration of Trade, if they do not include an annotation signed by the Superintendence in which its authorization is stated.

Authorization of operations

Sect. 27.- Each stock exchange, to obtain authorization to operate, will certify, before the Superintendence that:

1. It has elaborated the internal general regulation referred to by Section 32 of this Law, and the drafts of forms, applications, contracts and other necessary documents for stock operations;
2. It has the organization, the means and appropriate procedures for the realization of transactions that allow the investors the good execution of their orders and instructions. The means and procedures may be electronic;
3. It has the books, records and other information required by the Superintendence, all of which will be available to it for exam and verification;
4. It has systems that allow the orderly match of purchase and sales offerings of securities and the execution of the corresponding transactions by Brokerage Houses;
5. It has the necessary means and personnel to provide and to maintain available to the public information about offered and traded securities in the stock exchange, its Issuers, intermediaries and the stock operations; and
6. It has the necessary means to inform and certify the offerings and stock transactions and to provide daily broad information on these offerings and transactions.

Sect. 28.- Once fulfilled the requisites and registered the articles of incorporation in the national Registration of Trade, the Superintendence will certify that the alluded stock exchange can begin its operations, authorizing its registration and of the new Brokerage Houses that conform it, in this case won't be required from them the previous registration in the stock exchange.

The certification of the Superintendence, indicating the name of the corporation, the commercial name, the data relative to the registration and authorization of its articles of incorporation, the amount of paid-in capital as well as the names of its directors and administrators will be made known by means of adds that will be inserted, at the expense of the respective corporation, for a single time, in two newspapers of national circulation.

Administration and Functions

Sect. 29.- Each stock exchange will be administered by a Board of Directors not smaller than seven members, out of which at least three must be members of the Board of Directors of Brokerage Houses.

The Board of Directors of a stock exchange will have, without prejudice of what is established in the articles of incorporation, among other the following attributions:

1. Regulator: to dictate and modify the internal regulations and norms of the stock exchange and to issue the instructions by which their Brokerage Houses will abide pursuing at all times that the transaction mechanisms ensure the existence of a transparent, fair, comparative, orderly and informed market;
2. Inspecting: to be alert that in the development of the operations it is observed strict execution of the legal precepts, of the regulations and instructions imparted by the stock exchange and of those dictated by the Superintendence;
3. Disciplinary: to apply to Brokerage Houses and their agents and other personnel the disciplinary measures established in their guidelines and regulations. Everything without prejudice of the delegation of powers that can be done to the directors, General Manager and other employees to apply or to propose sanctions in the trading sessions, in compliance with what is contemplated in the norms; and
4. Administrative: to assist in the organization of the stock exchange, the personnel's recruiting and the necessary means for its operation; to gather and to disclose the information relative to the Issuers and securities registered in it and all that it is conducive to the efficient operation of the entity; and to designate a general manager and other higher executives to whom it may delegate specific powers in agreement with the guidelines of the stock exchange.

The stock exchanges will elaborate norms of internal control by means of guidelines or regulations, to ensure that the stock operations give protection and security to the investors, and that in their execution the legal requirements and established procedures are fulfilled.

The external auditors of the stock exchanges will incorporate in their reports the fulfillment of these norms. ⁽²⁾

Requisites to be director or administrator of stock exchanges

Sect. 30.- The directors or administrators of stock exchanges will satisfy the following requirements:

1. To be Salvadoran or Central American, and in the case of other foreigners, to have at least three years of residence in the country.
2. Older than twenty five years of age
3. To be of recognized honorability and financial competence

The information given to support the fulfillment of the previous requirements must include bank references that show financial solvency.

Inabilities to be director or administrator of a stock exchange

Sect. 31.- The following persons are unable to be directors or administrators of a stock exchange:

1. The directors, officials or employees of other stock exchanges;
2. The spouse and the relatives within the fourth degree of consanguinity or second of affinity of the members of the Board of Directors of the Stock exchange or of their respective spouses;
3. The insolvent or broken while they have not been rehabilitated, and those that have been unqualified judicially as responsible for a fraudulent or deceitful crash;
4. Those who have been sentenced judicially to the payment of debts, while they don't prove to have canceled them;
5. Those who have been sentenced for crimes of theft or against the Public Treasury.

Regulation

Sect. 32.- The internal general regulation of each stock exchange will be approved by the Superintendence and will contain provisions at least on the following aspects:

1. Requirements for the registration of Issuers and securities; taking into account those specified in Section 9, as well as other criteria that allow to determine the solvency of the corporation that registers and its shareholders, for which it may require an opinion from a classifier of risks. In the case of securities will be observed the requirements indicated in the Code of Trade and those included in this Law;
2. Requirements to authorize and register Brokerage Houses, considering what was prescribed in Section 12 of this Law, norms for the sale and purchase of stock exchange posts and the mechanisms to determine their price;
3. Norms for the presentation and disclosure of the information about groups and relations between corporations of the registered Issuers;
4. Rights and obligations of Brokerage Houses;
5. Requirements to authorize and to register broker agents, as well as their rights and obligations;
6. Obligations of Brokerage Houses towards their clients, including those derived from the investment recommendations that they make;
7. Requirements that should be observed in the trading of securities;
8. The priority, parity and precedence of the orders to guarantee orderly markets and an appropriate execution of all the received orders;
9. Regulations to promote equitable principles in the stock exchange transactions that facilitate compliance with the laws, and that protect investors from frauds and illegitimate or dishonest handlings;
10. Uniform processes by which the partners of a stock exchange, the Brokerage Houses, as well as shareholders and employees, can be sanctioned, suspended or expelled in case they have incurred in infraction to this Law and to its regulations;
11. Causal of suspension and cancellation of an issuer;
12. Causal of suspension and cancellation of the trading of a Security, as well as of the registration of the corresponding issue; and
13. Causal of suspension and cancellation of a stockbroker.

All modifications to the internal regulation will undergo the approval of the Superintendence.

Registration of issuers and securities

Sect.33. - The issuers of securities for public offering, with the purpose of complying with Section 3 of this Law, will request from a stock exchange its registration, as well as that of their issues of securities; for such purpose they will present the information contemplated in this Law and satisfy the requirements established by the regulation of the respective stock exchange.

The stock exchanges will have a term of thirty business days to resolve on registrations, counted from the date of presentation of the respective application, unless by means of reasoned resolution they demand to be provided additional information or that the information received be rectified for not fulfilling the valid norms. Once the demand is fulfilled, it must be solved within the indicated term.

Once the application of registration of Issuers and securities has been approved, the stock exchanges will request from the Superintendence to be registered in the securities Database, for which they must comply with Section 9 of this Law.

Sect. 34.- Entities registered in the Registration of the Superintendence, will provide to it and to the stock exchange in which they are registered, quarterly information about what is specified in the last point of this Section and in their Internal Regulation.

Based on the received information, stock exchanges will elaborate bulletins that will be published quarterly, that contain detailed information of the issuers registered in the Superintendence, including the relative to groups and relations between corporations that have been communicated by them.

The registered entities will disclose audited Balance Sheets and profit and loss statements up to the thirty first of December of the previous year, as well as the Proof or Situation Balance Sheet up to the thirtieth of June of every year, within the sixty following days to those dates. They will also disclose through the stock exchanges, truthfully, sufficiently and opportunely, every essential fact or information regarding themselves that can affect positively or negatively in significant measure their legal, economic and financial situation or the position of the corporation or of its securities in the market, which must also be disclosed. The disclosures referred to by the present point, will be made in a newspaper of national circulation for a single time or in special bulletins published by stock exchanges with this information or in newspapers specialized in financial and stock exchange matters, both of wide circulation. In case the issue of securities is guaranteed by a bank or financial company the issuer will be exempted from fulfilling the disclosure requirements indicated in this point. ⁽¹⁾

Reserved Information

Sect. 35.- With the unanimous approval of the directors, the issuer of securities will be able to give reserved character to facts or antecedents related to pending trades that, if known, could harm their result and consequently, affect the interests of the issuer. This decision will be communicated to the respective stock exchange and the Superintendence no later than the following business day of its adoption. For these purposes it will be understood by fact or information of reserved character that which a good businessman who owns a business would consider important for his/her decisions.

Those who deceitfully or wrongfully qualify or help with their favorable vote to declare as reserved a fact or antecedent, of those to which this Section refers, will be accountable for their acts without prejudice of the sanctions that proceed.

The reserved information may not be invoked against legal requirements or those founded on a legal power.

The directors, administrators and every person that by virtue of their position or place in the corporation have access to information that has not yet been officially disclosed to the public in compliance with this Law, and that can influence in the prices of their securities, will keep strict reserve on it. The same obligation will have the external auditors of the corporation and the officials of the Superintendence with access to reserved information.

It is prohibited to people mentioned in the previous point to take advantage of this information to obtain for him/herself or for other, advantages by means of the purchase or sale of securities. They will also be alert that this neither happens through subordinates or third parties of their trust.

People mentioned in the fourth point who contravene this section will return to the issuer all profits that they obtained by means of transactions with its securities during the period in which the information should have kept in reserve, provided their responsibility is determined by judicial way. The above-mentioned is without prejudice of the imposition of sanctions that, for cases of non fulfillment are contemplated in this Law.

Every person harmed by infraction to what is specified in the present section will be entitled to seek compensation against people indicated in the fourth point, except if he/she knew the reserved information.

Qualification and registration of Brokerage Houses

Sect. 36.- Stock exchanges will resolve on the viability of the registration of Brokerage Houses, when the Brokerage Houses request it and provide at least the information indicated in this Law and in its Internal Regulation.

The stock exchange will have sixty days to approve or refuse the registration, counted from the date of presentation of the respective application. In any case will be accepted as cause for refusal reasons that imply limitation of the number of participants in the market.

Once registered in the securities Database the new stockbroker, the respective stock exchange will proceed to the sale of the corresponding post, in conformity with its internal regulation.

The rules for the determination of the price of a stock exchange post will be uniform for all who wish to acquire it, and the conditions of their market will be taken into account

Refusal to sale a post

Sect. 37.- The rejection of a stock exchange of an application for acquisition of a post, will admit revision before the Superintendent of the Financial System. If the resolution of the revision is favorable to the applicant, the stock exchange will put to his/her disposition the acquisition of a post at a price determined in conformity with the previous Section, within a term of thirty days, counted from the date of notification of the resolution of the Superintendence.

Suspension and cancellation of transactions of securities

Sect. 38.- The Administrator or the official of the respective stock exchange to whom corresponds the conduction of the trading sessions, will be able to suspend or to cancel the transactions of a security, when in his/her opinion the interests of the issuer or of the investors are put in danger.

The suspension of the transactions will be at most for the whole duration of the session. When the official that decides it considers that it should be for a longer term, he/she will communicate it immediately to the Board of Directors, so that it resolves accordingly.

The definitive resolution will be communicated to the Superintendence during the three following business days:

Suspension or cancellation of Brokerage Houses

Sect. 39.- The Board of Directors of the stock exchanges will have the power to suspend temporarily, until up to thirty days, or of canceling, according to the case, a stockbroker for incurring in some of the causes indicated in its Internal Regulation, and will request from the Superintendent their cancellation in the Registration, when:

1. Having been suspended twice they incur again in causal of suspension;
2. Carry out activities that violate the provisions contained in Section 100 of this Law; and
3. In any other case in which the internal norms of a stock exchange establish the expulsion of its members as sanction.

In cases of suspension or cancellation mentioned in this Section, audience of twenty-four hours will be given to the stockbroker, and based on the answers or contempt, a probe will open for eight days if it were necessary and will be resolved whatever is pertinent.

The cancellation of a stockbroker in the Database will have as consequence the inability to exercise the intermediation of securities, and the corresponding provisions of the code of Trade regarding the liquidation of corporations will be applied to them. ⁽¹⁾

Appeals before the superintendence

Sect. 40.- The corporations that are not registered as Brokerage Houses or that have been suspended or subject to any other sanction imposed by a stock exchange, as well as Issuers to whom it is refused the registration of their securities in a stock exchange, or their trading is suspended, will be able to appeal before the Superintendent within the next fifteen business day s of having received the respective resolution, who will solve after an audience with the respective stock exchange.

The same right will assist them when the stock exchange doesn't resolve on their applications within the terms established in its internal norms.

Disclosure of information

Sect. 41.- The stock exchanges will publish in two newspapers of national circulation their audited financial statements, at the thirtieth of June and the thirty first of December of every year, in compliance with the resolutions and norms that the Superintendence issues for such purposes in conformity with its Organic Law. These financial statements will include the opinion of external auditors registered in the Superintendence; the corresponding opinion will be published in the same opportunity. Also, they will publish in the same dates the commissions that they get paid for their services. ⁽²⁾

After each trading session stock exchanges will publish in two newspapers of wide circulation in the country a bulletin in which the concluded operations, the quantities of traded securities and their prices are indicated, as well as the firm offerings of purchase and of sale in relation to each registered security.

Limitation of activities

Sect. 42.- If a stock exchange fails to fulfill one or more of the requirements or obligations that this Law imposes, the Superintendent will be able to limit its activities to those that are not affected by the lack in compliance, or to suspend or cancel its authorization to operate.

Deficiencies of capital

Sect. 43.- If the number of Brokerage Houses of a stock exchange or the amount of its minimum capital were reduced to figures lower than what is specified in this Law, without prejudice of the actions that correspond to the Superintendence in the exercise of its inspection function, the corporation will notify such fact to the Superintendence, and the Superintendence will grant a term of ninety days to correct it. If it were not corrected, the Superintendence, upon request from the corporation, will be able to extend the term until up to ninety additional days. If the deficiency persists, the authorization by the Superintendence to operate will be revoked, in conformity with what is specified in the last two points of Section 18 of this Law. The revocation will produce the liquidation of the corporation with the pertinent legal effects. ⁽¹⁾

Causal of liquidation

Sect. 44.- When the circumstances pointed out in Section 187 of the Code of Trade are present, the Directive Council of the Superintendence, upon request from the Superintendent, will be able to require from the Attorney General of the Republic to legally request the breakup and mandatory liquidation of the corresponding stock exchange, and to propose in its opportunity for such purposes the appointment of one or more liquidators, if they were not appointed by the shareholders, with the same powers and functions specified in the mentioned Code.

The liquidation of the corporation will be made according to the legal provisions.

While the liquidators don't take possession of their posts, the stock exchange in liquidation will be under the responsibility of an official or officials appointed by the Superintendence, who will assume the functions of manager and legal representative.

When being liquidated a stock exchange, once cleared the assets and paid the liabilities of the corporation, the resulting net worth will be distributed among the owners of the shares.

REFORMS:
(1) D.L. No. 254, Published in the Official Newspaper No. 35, Vol. 326, of February 20, 1995
(2) D.L. No. 925, Published in the Official Newspaper No. 25, Volume 334 of February 7, 1997.