[9689]
February 20, 1998
TO: INTERNATIONAL COMMITTEE No. 7-98
RE: MERCOSUR INITIATIVE TO PERMIT CROSS-BORDER MUTUAL FUND
SALES
______________________________________________________________________________
At the International Committee meeting on January 27, 1998 members expressed interest in
obtaining more information about a reported initiative by Mercosur countries to permit a mutual fund
organized in one Mercosur country easily to be sold in other Mercosur countries. We have obtained the
following additional information, set out below, from discussions with officials of Brazil’s CMV. No
written documents about the initiative are available at this time.
Securities regulatory officials in the Mercosur countries, Argentina, Brazil, Paraguay and
Uruguay, recently agreed on a regulatory framework for cross-border mutual fund sales and are
negotiating the details of the regime. They expect to allow open-end funds organized in one Mercosur
country that meet certain requirements to be sold in the other countries under a streamlined regulatory
procedure. To qualify, a fund must have at least 51% of its assets invested in equity securities and invest
at least 51% of its assets in the country in which the fund is organized. Any fund purchases of securities
of issuers in non-Mercosur countries must be in the form of depository receipts held in Mercosur
countries. (The requirements to have at least 51% of fund assets in equity securities and hold foreign
securities as depository receipts apparently derive from specific requirements of one or more countries.)
In addition, there likely will be a requirement that the first year a fund is sold on a cross-border basis it
only can be sold to institutional investors. To make cross-border sales, a fund likely will be required to
send host country securities regulators copies of its prospectus and local distribution contracts.
Regulators are discussing the disclosure requirements that will apply to cross border sales.
Mercosur securities regulators hope to implement the cross-border regime in 1999.
Please let me know if there are particular issues concerning the proposal that you believe the
Institute should raise with Mercosur securities regulators at this time. You can reach me by phone at 202
326-5826 or by fax at 202 326-5841.
Mary S. Podesta
Associate Counsel