Third Resolution R-CNMV-2021-17-MV: Regulation on Supervision, Change of Control, Merger, Administrative Intervention, Suspension and Exclusion of Issuers and Public Offering Securities — SIMV — DO

Superintendence of the Securities Market of the Dominican Republic CERTIFICATION

The undersigned, Mr. Ervin Novas Bello, Manager of the Central Bank of the Dominican Republic (hereinafter "Central Bank"), on behalf of the Governor of the Central Bank, ex officio member and President of the National Securities Market Council (hereinafter "Council"); and Mrs. Fabel Maria Sandoval Ventura, Secretary of the Council, CERTIFY that the text below constitutes an exact and complete copy transcribed from the original of the Third Resolution, R-CNMV-2021-17-MV, adopted by the Council in the meeting held on the sixteenth (16) day of July of the year two thousand twenty-one (2021), which is kept in the archives of this Secretariat, namely:

"THIRD RESOLUTION OF THE NATIONAL SECURITIES MARKET COUNCIL OF THE SIXTEENTH (16) DAY OF JULY OF THE YEAR TWO THOUSAND TWENTY-ONE (2021).
R-CNMV-2021-17-MV
REFERENCE: Approval of the Regulation on Supervision, Change of Control, Merger, Administrative Intervention, Suspension and Exclusion of Issuers and Public Offering Securities.

WHEREAS:

That on the twelfth (12) day of July of the year two thousand twenty-one (2021), the Superintendent of the Securities Market (hereinafter "Superintendent") submitted to the knowledge and consideration of the National Securities Market Council (hereinafter "Council"), the draft Regulation on Supervision, Change of Control, Merger, Administrative Intervention, Suspension and Exclusion of Issuers and Public Offering Securities (hereinafter "Draft Regulation").

That in accordance with the powers conferred by Law No. 249-17, on the Securities Market of the Dominican Republic, promulgated on the nineteenth (19) day of December of the year two thousand seventeen (2017) (hereinafter "Law No. 249-17"), and the Internal Regulation of the Council, adopted by this collegiate body through the First Resolution, R-CNMV-2018-06-MV, issued on the twenty-ninth (29) day of November of the year two thousand eighteen (2018) (hereinafter "Internal Regulation of the Council"); the Council, meeting validly after due notice, deems it appropriate to state the following:

CONSIDERING:

That in accordance with Article 7 of Law No. 249-17, the Superintendence of the Securities Market
(hereinafter "Superintendence") has the objective of promoting an orderly, efficient and transparent securities market, protecting investors, ensuring compliance with the aforementioned legal statute and mitigating systemic risk, through the regulation and oversight of natural and legal persons operating in the securities market.
That, in attention to what is provided by Article 10 of Law No. 249-17, the Superintendence
is integrated by a collegiate body, the Council, and an executive official, the Superintendent.
That the aforementioned law, in the main part of its Article 13, establishes that the Council is the superior body
of the Superintendence, with functions essentially of a normative, oversight and control nature.
That, in addition to the foregoing, paragraph 5 of the previously referenced article confers upon the
Council the authority to issue, upon proposal of the Superintendent, the regulations for the application of Law No. 249-17.
That, likewise, Article 25 of Law No. 249-17 reiterates that "[t]he Council is the competent body to establish regulations regarding the activities of the securities market
indicated in this law."
That paragraph I of said article adds that "[i]n the exercise of regulatory power, the
Council and the Superintendence shall observe the principles of legality and the rules of public consultation, participation and transparency contained in the Constitution of the Republic and the laws in force."
That it is worth highlighting that Article 2 of the aforementioned Law No. 249-17 reveals that its
provisions apply to all natural and legal persons who carry out activities, operations and transactions in the securities market of the Dominican Republic, with securities of public offering that are offered or traded within the national territory.
That, parallel to this, in the paragraph of the aforementioned article it is established that "[n]atural and
legal persons who carry out any of the activities or services provided for in this law, shall be subject to the regulation, supervision and oversight of the Superintendence of the Securities Market, insofar as it relates to the exercise of those mentioned activities or services."
That, for its part, Article 36 of Law No. 249-17 states that "[t]he Superintendence shall have a Registry available to the public, which may be electronic, and in it shall be registered the natural and legal persons participating in the securities market, as well as public information regarding the securities registered in the Registry and
the market participants regulated by this law."
That, according to what Article 3, paragraph 33, of the aforementioned legislation states, market participants are natural or legal persons registered in the Securities Market Registry and regulated by the Superintendence.
That, likewise, Law No. 249-17 defines in its Article 3, paragraph 9, the issuer as the legal person that registers in the Securities Market Registry to carry out a public offering of securities, prior authorization of the Superintendence.
That regarding differentiated issuers, Article 3, paragraph 10, of Law No. 249-17,
states that it refers to the Central Government of the Dominican Republic, the Central Bank of the Dominican Republic, multilateral organizations of which the Dominican Republic is a member, foreign central governments and central banks, whose securities are traded in the Dominican Republic under conditions of reciprocity.
That Article 17, paragraph 8, of Law No. 249-17 provides as an attribution of the
Superintendent the supervision, inspection and oversight of the activities and operations of market participants.
That the aforementioned Article 17 empowers the Superintendent, in the manner provided by Law
No. 249-17, to, among other things: (i) intervene and suspend provisionally market participants; (ii) provisionally suspend the quotation or trading of securities subject to public offering; (iii) exclude from the Securities Market Registry public offering securities and their issuers; (iv) supervise, inspect and oversee the activities and operations of market participants; and, (v) know and approve the merger and change of control of market participants subject to its approval.
That the powers inherent to supervision are widely developed in Article 27 of Law No. 249-17, which empowers the
Superintendence to, among others, access documentation, request information, conduct inspections, adopt measures for compliance with applicable regulations, order the suspension or limitation of operations, initiate legal actions, etc.
That said law, from its Article 205, has developed the figure of administrative intervention, whose admission is conditioned to the fulfillment of certain parameters, namely: the protection of investors' rights; the prevention and management
of systemic risk of the securities market; and, the preservation of good functioning, equity, transparency, discipline, integrity of the securities market and public confidence in it.
That in accordance with what Article 4 of Law No. 249-17 provides, the securities market is governed with strict adherence to the Constitution of the Dominican Republic, voted and
proclaimed by the National Assembly on the thirteenth (13) day of June of the year two thousand fifteen (2015), published on the tenth (10) day of July of the year two thousand fifteen (2015) (hereinafter "Constitution of the Dominican Republic"), to what is prescribed in said law and what is established in the regulations and resolutions issued by this collegiate body and the Superintendent.
That, regarding applicable regulations, the final part of the aforementioned Article 4 specifies that general provisions of administrative law, corporate legislation, commercial, monetary and
financial legislation, trust law, common law and commercial usages shall apply subsidiarily, in matters not specifically provided for in the aforementioned norms, in that same order.
That Article 265 of the General Law of Commercial Companies and Individual Limited Liability Enterprises, of the eleventh (11) day of December of the year two thousand eight (2008), and its modifications (hereinafter "Law No. 479-08"), establishes that "[t]he Securities Superintendence may intervene anonymous societies that enter the securities market for the purpose of overseeing their operations. This intervention may be carried out when so requested, with just cause, shareholders representing at least one-tenth (1/10) of the subscribed and paid capital, or, ex officio when situations arise that warrant it."
That, in follow-up to the foregoing, paragraph II of this same article provides that "[t]he procedure for intervention by the Securities Superintendence, as well as the execution of the general control powers provided for in this section, shall be established through the Regulation on Supervision of anonymous societies that enter the securities market."
For its part, paragraph III indicates that, if in the intervention carried out by the Superintendence
there were irregularities in the management of corporate funds coming from the securities market, in addition to the administrative sanctions it may establish in the regulation referred to in paragraph II, it may file a complaint with the Public Ministry.
That, furthermore, paragraph IV establishes that the Superintendence shall keep confidentiality on all acts in which it intervenes, and that the obligation to keep confidentiality shall extend to its officials under penalty of dismissal and without prejudice to the responsibilities that correspond.
That, from the reports presented to this collegiate body, the technical areas of the
Superintendence emphasize the need for the regulatory body to define the scope that the administrative intervention process will have for issuers of public offering securities when requested, with just cause, by shareholders of issuers representing at least one-tenth (1/10) of the subscribed and paid capital, or, ex officio when situations arise that warrant it; in accordance with what is provided by the aforementioned Article 265 of Law No. 479-08.
That Article 268 of Law No. 479-08 establishes that anonymous societies that
enter the securities market shall be obliged to exhibit to the Superintendence their accounting entries and corporate records, within the limits of the corresponding oversight.
That, likewise, Article 269 of the aforementioned law provides that anonymous societies that
enter the securities market shall send to the Superintendence changes in the composition of their internal administration and oversight bodies that do not have a circumstantial nature.
That the technical area of the Superintendence highlighted that issuers of public offering securities
are not exclusive to the securities market, being entities that seek their growth and financing through this market with the issuance of variable income or fixed income securities; for which reason they consider that the legislator excluded them from the procedures established by Law No. 249-17 for scenarios of change of control, merger, restructuring, dissolution and liquidation; providing that, for issuers of securities, these processes shall be governed by the provisions of their sectoral regulations or, in default, by the provisions of common law in the matter.
That Article 3, paragraph 43, of Law No. 249-17, defines fixed income securities as debt securities originating from the issuer's liabilities, whose yield does not depend on their financial results, for which they represent an obligation to return the invested capital plus a predetermined yield, in the terms and
conditions indicated in the respective security.
That, regarding this matter, in the documentation presented to the Council it was explained that the functions
of the Superintendence in scenarios of fixed income issuances must be directed to verifying compliance with the conditions of public offerings and to mitigating the risks that could affect investors; it not being consistent with the nature of the figure administrative intervention in the terms defined by Law No. 249-17.
That, for its part, the same Article 3, in its paragraph 42, defines variable income securities as those that grant their holders, rights or proportional shares of participation in the issuer's equity on a pro-rata basis of the investment, being the yield variable in the form of capital gains or periodic distributions of dividends, depending on the dividend policy established.
That, in this regard, in the pieces comprising the file elevated to this collegiate body it was exposed that, in the cases of issuance of variable income securities, the surveillance and
oversight work of the Superintendence must focus on compliance with the conditions of the public offering and on the evaluation and inspection of the functioning, the strength of the administrative structure and the internal control environment of corporate governance in listed societies, with intervention being an administrative tool for these purposes.
That Article 205, paragraph II, of Law No. 249-17 provides that administrative intervention is configured under the modalities of management supervision and
participation in management.
That, regarding this aspect, the technical reports rendered develop that the objective of management supervision is to remedy weaknesses and contrarieties related to activities in the market of listed societies, maintaining the permanence of the members of the administrative management bodies of the society in their respective positions, an objective that is consistent with the scope established in Law No. 479-08, when referring to intervention at the request of the society's shareholders.
That it is added, for its part, that the main objective of participation in management is preventive intervention through administration, legal representation and
temporal control of the participant in order to allow the remediation of the weaknesses and contrarieties presented, this being inapplicable to listed societies due to the nature of the activity performed in the securities market and the legal scope of the Superintendence.
That regarding the intervention modality, it was clarified that, in accordance with the guidelines drawn by Law No. 479-08 and Law No. 249-17, in case the Superintendence acts ex officio or at the request of an interested party, it will apply to
listed societies the management supervision; in which case the members of the administrative or management bodies of the entity will remain in their positions, reporting to the Superintendence the measures adopted to remedy the causes that gave rise to the intervention.
That, likewise, in the presentation of the technical area of the Superintendence it was brought to
relief the need to regulate the supervision, inspection and administrative intervention of issuers of securities and the suspension, temporary or definitive, and exclusion both of the issuers as well as of the public offering securities; highlighting that the securities market of the Dominican Republic is a fixed income market and that the aspects established by Article 265 of Law No. 479-08 were identified as obstacles to the creation of a robust variable income market through the quotation of shares; considering it appropriate to establish that the development of aspects related to the supervision and intervention of securities issuers would procure an environment of greater legal certainty for potential listed societies.
That through the Third Resolution, R-CNMV-2021-13-MV, issued by the Council on the fourth (4) day of May of the year two thousand twenty-one (2021), the Superintendent was authorized to effect the publication of the draft Regulation in one or more printed media of wide national circulation, as well as on the institutional portal, for the purposes of abbreviated public consultation of market participants and
interested sectors; in compliance with the provisions contained in Law No. 200-04, General Law on Free Access to Public Information, of the twenty-eighth (28) day of July of the year two thousand four (2004) and its implementing regulation, approved through Decree No. 130-05, of the twenty-fifth (25) day of February of the year two thousand five (2005).
That, having concluded the consultative procedure, through communication received in the Secretariat of the Council on the twelfth (12) day of July of the year two thousand twenty-one (2021), the Superintendent submitted for final sanction by the Council the draft Regulation; which was accompanied, among others, by a report rendered by the Regulation Directorate, as well as by a matrix of comments and
observations received during the public consultation.
That the report highlights that, as a result of the abbreviated consultation process, which took place from the nineteenth (19) day of May to the second (2) day of June of the year two thousand twenty-one (2021), inclusive, observations were received from the Dominican Association of Investment Fund Management Companies (ADOSAFI), the company CEVALDOM Centralized Securities Depository, S.A., the company Stock and Securities Markets of the Dominican Republic, S.A., the BHD León Financial Center, S.A., and the Association of Stock Exchanges of the Dominican Republic, Inc. (APB).
That it is added that said observations were duly analyzed and
considered by a technical team of the Superintendence, comprising the Public Offering Directorate, the Regulation Directorate, the Participants Directorate, the Department for the Prevention of Money Laundering of the Securities Market and the Department of Risk Analysis and Economic Studies; highlighting among those accepted the following:

a. A definite period is established to understand that a merger process by a listed society is underway. b. The object of the technical norms for the development of supervision that the Superintendent may issue is delimited.
c. The objective of the supervision and
oversight of securities issuers is delimited, clarifying that its main function is the evaluation and verification of the strength of the administrative structure and corporate governance in listed societies and compliance with the conditions of the public offering of issuers of fixed income. d. The process for the suspension and exclusion from the Registry of issuers and their public offering securities is clarified and organized. e. The concepts of transparency and integrity in the securities market are clarified. f. The validity of account entries registered in centralized securities depositories is established and their obligation to remain until the issuer makes payment of the corresponding sums in favor of investors. g. The process for the withdrawal and cancellation of shares registered in the Registry is clarified. h. The deadlines for the submission of the Action Plan to the Superintendence are reviewed.

That, likewise, it is indicated that, as part of the administrative procedure, in attention to the
principles of transparency and participation, on the sixteenth (16) day of June of the year two thousand twenty-one (2021), a working table was held, in virtual modal, with interested sectors.
That from the documents accompanying the communication of the Superintendent, it is highlighted that the object of the draft Regulation is to develop exclusively aspects regarding supervision of issuers of public offering securities and for administrative intervention of listed societies, as established by Law No. 249-17; its provisions being applicable to securities issuers to the extent that they are related to the carrying out of public offerings of securities in the Dominican market, with the exception of differentiated issuers.
That it is indicated, furthermore, that with the draft Regulation the applicable process is clarified for
mergers and changes of control of securities issuers, establishing that issuers that undergo a change of control shall be governed by the provisions of their sectoral regulations or, in default, by the provisions of common law in the matter, without prejudice to the duty of information and updating of information vis-à-vis investors, if applicable and the Registry.
That, in attention to all the foregoing, observing the favorable opinion of the Superintendent, along with the reports and
documentation rendered by the technical area of the Superintendence, this organization

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