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2022-02-09

Agreement No. 2-2022 of February 9, 2022 Modifying Articles 3 and 17 of Agreement No. 2-2011 of April 1, 2011

The Superintendency of the Securities Market of Panama issued Agreement No. 2-2022 to amend Articles 3 and 17 of Agreement No. 2-2011, expanding the permissible principal and ancillary activities of Securities Houses to include execution brokerage, investment advisory, portfolio management, and specific services to parent or affiliated financial institutions. The regulation mandates that all Securities Houses explicitly detail these activities in their business plans, subjects ancillary services to prior Superintendency approval and ongoing compliance monitoring, and grants the regulator authority to restrict or revoke approvals if risks or inadequate resources are identified. Additionally, the amendment establishes a mandatory monthly consolidated transaction reporting requirement via Form DS-01 through the Electronic Information Submission System, imposes administrative fines for late submissions, and sets a three-month compliance window for existing execution brokerage firms to align their business plans with the new framework.

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REPUBLIC OF PANAMA SUPERINTENDENCY OF THE SECURITIES MARKET

Agreement No. 2-2022 (Dated February 9, 2022)

“Modifying Articles 3 and 17 of Agreement No. 2-2011 of April 1, 2011”

THE BOARD OF DIRECTORS In exercise of its legal powers and CONSIDERING:

That through Law No. 67 of September 1, 2011, the Superintendency of the Securities Market (hereinafter the “Superintendency”) is created as an autonomous State entity, with legal personality, its own assets, and administrative, budgetary, and financial independence, with exclusive jurisdiction to regulate and supervise issuers, investment companies, intermediaries, and other participants in the securities market in the Republic of Panama.

That pursuant to Article 121 of Law No. 67 of September 1, 2011, the National Assembly issued the Single Text comprising Decree-Law No. 1 of July 8, 1999 and Title II of Law No. 67 of September 1, 2011 (hereinafter the “Single Text”).

That Article 3 of the Single Text establishes that the Superintendency's general objective is the regulation, supervision, and oversight of securities market activities conducted in the Republic of Panama or from it, promoting legal certainty for all market participants and guaranteeing transparency, with special protection of investors' rights.

That Article 10 of the Single Text establishes that it is within the Board of Directors' powers to “Adopt, amend, and revoke agreements that develop the provisions of the Securities Market Law.”

That Article 14 of the Single Text establishes among the Superintendant's powers to examine, supervise, and oversee the activities of entities licensed by the Superintendency, as well as their senior executives, securities brokers, and analysts, within the functions inherent to their licenses, as applicable.

That Article 54 of the Single Text establishes that Securities Houses may provide services and engage in incidental activities and businesses related to the Securities House business.

That Article 64 of the Single Text establishes that Securities Houses shall keep client securities and funds in investment accounts in accordance with regulations issued by the Superintendency. The Superintendency shall issue rules of conduct that Securities Houses and their securities brokers must observe regarding the management and administration of investment accounts and client funds, the transfer of investment accounts between Securities Houses, the establishment of guarantees on client securities and funds, the granting of loans in cash or securities to clients, and other securities transactions conducted with them.

That the Superintendency, through Agreement No. 2-2011 of April 1, 2011, adopted the rules applicable to the activities and operation of Securities Houses.

That in this regard, Article 323 of the Single Text establishes that when the Superintendency contemplates amending an agreement, it must consider to determine if the action is necessary and appropriate: (a) the public interest, (b) investor protection, and (c) whether the action promotes efficiency, market competition, and capital formation.

That during the Superintendency's working sessions, the need to modify Articles 3 and 17 of Agreement No. 2-2011 has been highlighted, with the objective of developing, among other things, activities, services, and businesses to be carried out by Securities Houses, clarifying the main activity of execution brokerage, as well as including in ancillary activities the provision of certain services to their parent house and/or financial institutions within their economic group; among others, and thus expand and improve the product offering for the benefit of the securities market.

That this agreement has been submitted to the Public Consultation Procedure established in Title XV of the Single Text of the Securities Market Law, specifically in Articles 323 et seq., whose deadline was from May 6 to May 26, 2021, as recorded in the public access file held by the Superintendency.

That, pursuant to the foregoing, the Board of Directors of the Superintendency of the Securities Market, in exercise of its legal powers,

AGREES:

ARTICLE ONE: MODIFY Article 3 of Agreement No. 2-2011 of April 1, 2011, which shall read as follows:

Article 3. Activities and Services.

Securities Houses may engage in the activities indicated in this article in compliance with the limitations and restrictions established by the Superintendency of the Securities Market.

Securities Houses shall have as their exclusive purpose engaging in the Securities House business, except for those that are also Banks or have been authorized by this Superintendency to act as Investment Managers.

Consequently, Securities Houses may only, as principal activities, receive and transmit orders, execute such orders on behalf of third parties, and give and execute orders on their own account. The foregoing may include the receipt and transmission of buy and sell orders issued on behalf of institutional clients whose transactions are settled and cleared directly in the books of said clients and their counterparty, an activity commonly known as execution brokerage, which must be described in their business plan.

Alongside such principal activities, Securities Houses, when so provided in their business plan, may provide the following services, activities, and incidental businesses related to the Securities House business:

  1. Investment advisory services.
  2. Discretionary and individualized management of investment accounts in accordance with mandates conferred by investors.
  3. Mediation, on behalf of the issuer, in the placement of issuances and public sales offers.
  4. Acting as underwriter or distributor of issuances and public sales offers.
  5. Management of custody accounts, which may include, where applicable, maintaining the accounting records of securities represented by book entries.
  6. Administration of individual investment portfolios.
  7. Execution of functions inherent to payment, registration, and transfer agency.
  8. Granting loans of securities and funds for the acquisition of securities.
  9. Offering structured products, such as swaps, credit default swaps, repurchase agreements, and any operations commonly conducted in capital markets.
  10. Payments or fund transfers from clients to third parties.
  11. Any activity that by legal mandate Securities Houses may perform.
  12. Any other activity subject to regulation by the Superintendency of the Securities Market, provided that it determines it is feasible for a Securities House to perform.

Securities Houses may also engage in other ancillary activities such as renting safety deposit boxes, advising companies on capital structure, industrial strategy, and securities issuances, as well as advisory and related services concerning mergers and acquisitions of companies, and services previously approved by this Superintendency for their parent house and/or financial institutions within their economic group, which will be evaluated by the Superintendency taking into account that such services must be consistent with the approved or to-be-approved business model, as well as the risks associated with providing them. The Superintendency of the Securities Market may, by resolution, suspend or revoke the approval of these services if it is determined that the securities house is not complying with them or if this puts at risk the house's own activities.

These ancillary activities must likewise be declared in their business plan.

The ancillary activity of renting safety deposit boxes may be provided exclusively to existing clients of the securities house, provided it is stated in the Securities House's business plan, with internal controls and procedural guidelines, as well as the signing of an independent contract supporting the ancillary safety deposit box rental service in accordance with local customs and practices.

The Superintendency may restrict the activities indicated in this article carried out by Securities Houses when deemed necessary to protect the interests of the investing public, the efficient functioning of the securities market, or specifically for one or more Securities Houses, provided it determines that the personnel and technical means are not adequate for the precise and efficient performance of their functions.

PARAGRAPH: (Compliance Period). Securities houses currently engaged in execution brokerage shall have a period of three (3) months from the promulgation of this Agreement to adapt their business plan in accordance with the provisions of this article.

In the case of securities houses that must also adapt their business plans according to the provisions established in Agreement No. 1-2022 of January 26, 2022, the compliance period to fulfill the provisions of this article shall be the one established in Agreement No. 1-2022.

ARTICLE TWO: MODIFY paragraph 1 of Article 17 of Agreement No. 2-2011 of April 1, 2011, which shall read as follows:

Article 17. (Information on Operations).

...

  1. Monthly report of all operations conducted. Every Securities House shall provide the Superintendency of the Securities Market, on a monthly basis, a consolidated report on all transactions conducted by its securities brokers. This report must be submitted no later than the 15th day of the following month. If this day is non-business, it shall be extended to the next business day.

This report must be submitted using Form DS-01, included as Annex No. 3 of this Agreement, which must be transmitted through the Electronic Information Submission System (SERI).

By Circular, instructions may be issued regarding the update of the content to be provided to the Superintendency in Form DS-01, as well as regarding the medium and method of submission. The current form will be available on the Superintendency's website.

Delay in submitting the monthly report of operations conducted by Securities Houses shall be sanctioned by the Superintendency in accordance with the rules established in Article 2 of Agreement No. 8-2005 of June 20, 2005, which establishes criteria for imposing administrative fines.

...

ARTICLE THREE: (MODIFYING PROVISION). This Agreement modifies Article 3 and paragraph 1 of Article 17 of Agreement No. 2-2011 of April 1, 2011.

ARTICLE FOUR: This Agreement shall take effect from its publication in the Official Gazette.

PUBLISHED AND COMPLY,

Luis Chalhoub President of the Board of Directors

Adriana Carles Secretary of the Board of Directors

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