Title IV: Securities and Their Trading

Chapter I: Characteristics of Securities Tradable in a Stock Exchange

Sect. 68.- The tradable securities in a stock exchange will have the following characteristics:

1. To be transferable
2. To be issued in series; and
3. That they represent the individual participation of their holders in a collective credit, of which the issuer is in charge, in case of obligations. That they represent an aliquot part of the issuer's capital, when it is shares, and other securities that represent equity participations.

The State, the Central Bank of Reserve of El Salvador, banks and financial firms will be able to register and trade in a stock exchange securities with characteristic different from those pointed our in paragraphs b and c of the present Section .

Dematerialization

Sect. 69.- securities that are traded in a stock exchange can be certificated or book-entry securities; the existence of the latter will be proven by means of electronic annotations in the record, of which certifications may be given by the operator of the electronic registration. The use of electronic records, their operation and registration procedures and the formalities of their certifications will be previously approved by the Superintendence, which will grant authorization for their operation.

The certification issued by the operator of the electronic registration will be the proof document of the existence of the book-entry securities, as well as of their inherent rights.

To exercise the inherent rights to the book-entry securities, it must be shown by the legitimate holder the certification issued by the operator of the electronic registration.

Sect. 70.- The legitimate holder to whom it is paid the total price of book-entry securities will give to the payer the certification issued by the operator of the electronic registration. If the payment was partial, this circumstance will be stated in the certification.

In all cases of transfer of book-entry securities, the corresponding annotations will be made in the electronic registration according to the instructions of the legitimate owner; and he/she will determine the effects that correspond to the transfer that he/she wants to make.

The recovery, the sequestration or any other mark on the inherent rights of the book-entry securities will be done in the registration of the operator of electronic annotations.

Sect. 71.- It won't be possible to register in a stock exchange neither in the Registration kept by the Superintendence individual securities, except for those contemplated in second paragraph of Section 68 of this Law, which will be registered only in a stock exchange, which will inform of this to the Superintendence. The issues of promissory notes endorsed by banks or financial firms will register in a stock exchange fulfilling only the requirements of the paragraphs a), b), c) and f) of Section 9 of this Law. ⁽²⁾

Primary Market

Sect. 72.- The placement of an issue of securities of public offering registered in a stock exchange and in the Superintendence, may be done inside or outside of a stock exchange, directly by the issuer or through underwriting and placement contracts with Brokerage Houses. The registration won't condition those securities to only be traded in a stock exchange.

Sect. 72-A. - Corporations will be able to issue treasury shares whenever they meet the following requirements:

1. It is specified in the internal regulation of the issuer;
2. The resolution to issue treasury shares will be adopted in Extraordinary General Meeting of Shareholders which will take place in conformity with the legal norms for capital increase;
3. The shareholders summoned to General Meeting will waive the right of preferential underwriting, what must be stated in the agreement of capital increase and issue of treasury shares. This waiving will be valid for the absent, present and dissident shareholders;
4. Once adopted the agreement of capital increase, authorization will be obtained for the realization of the public offering, registering the issue in a stock exchange and entering it in the registration kept by the Superintendence. It must be indicated in the agreement the term of underwriting of the treasury shares and their issue and placement conditions, including the norms to fix the price. The placement term won't exceed two years;
5. That the treasury shares stay in custody in a stock exchange or in a securities depository. Treasury shares won't generate dividends and won't be entitled to vote, while they don't become ordinary shares. Issuers will declare the specific destination that will be given to the resources raised from the public this way, which may not be modified;
6. The issuer will always show the difference in its publicity when reference is made to capital stock, subscribed or paid-in capital and the not subscribed capital represented by the authorized treasury shares;
7. The money raised from the placement will be accounted immediately as capital increase. The treasury shares will be paid entirely in cash at the moment of their underwriting;
8. The firm where the deposit of the treasury shares has been made will keep control of those underwritten and of those to underwrite; and
9. Once elapsed the authorization term, the issuer will, without any further step, proceed to the cancellation of treasury shares not underwritten, before the presence of another official of the superintendence, all of which will be kept in records.

Independently of what was specified in paragraph c) of this Section, dissident shareholders will be able to demand from the corporation to sell its shares at the same price of treasury shares. The corporation must sell first the shares of the dissident shareholders. However, the issue won't be carried out when twenty-five percent of the capital stock votes against the resolution; this right will be attested in the charter of the corporation and in the summon to the General Meeting. ⁽²⁾

Secondary Market

Sect. 73.- Brokerage Houses will carry out inside a stock exchange the trading in secondary market of the securities registered in a stock exchange, and when they have been issued by Banks or Financial Firms, they may not be traded in secondary market outside of it, neither will they be redeemed in advance, except for shares of these firms.

Securities issued by the State and the Central Bank of Reserve of El Salvador may be redeemed in advance, by wish of the parties, being able to carry out this operation inside and/or outside of a stock exchange in conformity with what was specified at the moment of authorizing the registration. ⁽²⁾

REFORMS:
(2) D.L. No. 925, Published in the Official Newspaper No. 25, Volume 334 of February 7, 1997.