Understanding who is forex market

Through General Resolution No. 951 dated March 1, 2023 (the “Resolution”) of the National Securities Commission (“CNV”), changes were incorporated to the regulation of the figure of the “market maker” within the regulation on secondary trading contemplated in Chapter V of Title VI of the CNV Rules.

The CNV had recognized the figure of the "market maker" through General Resolution 673 dated August 30, 2016, in line with the regulations of other countries. The figure of the "market maker" or "market maker" (the "Market Maker"), which is also called in other countries as "market maker" or "market entertainer", has as its objective to promote the liquidity of transactions in a secondary market for negotiable securities, fulfilling a function of accommodation between supply and demand.

The Resolution itself considers that this capital market player "contributes to achieving greater liquidity and competitiveness, generating prices continuously and deeply, moderating sudden fluctuations and increasing the volume of operations" and that "its participation provides adequate levels of liquidity that make it possible to access and exit the markets, generating more favorable conditions at the time of completing operations”.

Performance and functions of the Market Maker

The Resolution allows those who are a Settlement and Clearing Agent (“ALyC”) to act as Market Maker —as the previous regulation did— within the subcategories called ALyC Integral, ALyC Proprietary and/or ALyC I Agro rather, it extends this possibility to the Trading Agent that has an agreement with the respective Integral ALyC (the “Agents”); provided that they are authorized by an authorized market (the "Market") of which they are members to act under said figure on the species and/or instruments that it establishes and in accordance with the regulations that, for their authorization, performance and registration , dictate such Market (art. 70).

Each Market must keep, within its scope, the respective register of Market Makers.

The registry must be of public access for knowledge and permanent consultation of the investing public and other actors of the capital market.

The function of the Market Maker will consist —as the Resolution indicates— of “providing liquidity to the species and/or instruments on which it operates in order to the most efficient formation of the price and the consequent reduction of its volatility, through the formulation of offers of purchase and sale with a minimum differential between their respective prices under the conditions that each Market establishes and according to the specificity of the instrument or of the species that is determined in the respective regulation” (art 71).

The figure of the Market Maker can undoubtedly be linked to the legal framework of "market manipulation" as conduct contrary to transparency in the field of public offering. However, the task of the Market Maker must be distinguished from the so-called "manipulation", that is, from "those conducts that intend or allow the manipulation of prices or volumes of negotiable securities, altering the normal development of supply and demand." ”, as defined by art. 117, subparagraph b) of Capital Markets Law 26,831 (the “LMC”)[1], and that the CNV Regulations sanction in accordance with the provisions of Section II of Chapter III of Title XII. The Market Maker lacks intent or “manipulative will”[2] —a necessary element of the illegal act of “market manipulation”— but his task seeks to provide liquidity to the securities in the secondary market so that an active market can exist, where the price is formed more efficiently and volatility is reduced. In this context, the activity of the Market Maker can also be related to the task called “market stabilization” and that the CNV Rules regulate in Section IV of Chapter IV of Title VI[3]. It consists of the "operations aimed at stabilizing the market price" of the negotiable securities placed in a primary placement, in order to ensure the good "after-market" of a placement. They must be carried out by the agents who have participated in the organization and coordination of the placement and distribution of the issue and cannot be extended beyond 30 calendar days from the first day the secondary negotiation of the negotiable security began in the market. , and must also observe the other precautions established by the CNV Rules for this practice and what is warned to investors in the issuance prospectus.

Although this activity can also be seen as an artificial intervention in the market of the securities placed, and therefore a possible "manipulation", however the CNV allows it subject to conditions due to its beneficial effects for the good end.of the placement and to allow a liquid secondary market to develop in the security placed. As is well known, the existence of a fluid and deep secondary market is what allows issuers to be able to carry out a successful primary placement, since no investor wants to acquire securities that later do not have a more or less assured secondary market.

Consequently, the task of the Market Maker in the secondary market and of the agents that carry out "market stabilization" tasks in a primary placement, complying in both cases with the regulations of the CNV and the Markets, must avoid being confused. with any conduct contrary to transparency for "market manipulation". In any case, the Resolution clarifies that carrying out any of the operations provided for by the Market Maker regulations will be subject to the provisions of Law No. 26,831 on Capital Markets, the CNV Regulations and other regulations in force, and must Market Makers and/or the aforementioned clients that act in operations tending to provide liquidity (according to what we will explain below) refrain from carrying out their activity and/or allow or carry out the operation provided herein in such a way that practices are incurred contrary to transparency in accordance with the provisions of such provisions (art. 71).

Regarding the performance of the Market Maker, the Resolution provides that, during the period of presence in the respective trading session, the agent acting as Market Maker may only act in that capacity in the species and/or instruments for which that is authorized by the Market (art. 71).

The Market Maker must carry out its activity in the market segment that ensures the price-time priority through a computerized trading system authorized by the CNV (according to the provisions of Article 2 of Section II of Chapter V of Title VI of the CNV Rules) and act exclusively "on its own account", that is, that action that includes the operations carried out by the agent itself or for its controlled, controlling or under common control companies within the same economic group. (art. 6 of Section II of Chapter V of Title VI of the CNV Regulations), individualizing it as “own portfolio” in the computerized order register of each Market.

customer operations

The Resolution incorporates as a novel possibility that —under the entire responsibility of the Market Maker and exclusively through him— one or more of his clients carry out operations tending to provide liquidity to certain species and/or instruments. These clients must, as a minimum (art. 71):

a.1) Cover exclusively the character of legal persons -regularly constituted in the country or that, being constituted abroad, have complied with the requirements of the General Law of Companies. They must also have a valid account opening agreement and open custody sub-account in Caja de Valores to carry out this operation, and observe and comply with the provisions of this CNV contained -regarding account opening agreements- in Chapters I and II of Title VII of the CNV Rules, as well as the provisions of the specific regulations issued by the Financial Information Unit and other applicable laws and/or regulations in force;
a.2) Have the status of qualified investors under the terms of Article 12 of Section I of Chapter VI of Title II of the CNV Rules and in accordance with the regulations to be issued by the Markets;
a.3) Have sufficient resources and other conditions to carry out such operations, in accordance with the regulations to be issued by the Markets for such purposes; and
a.4) Prior to the start of their activities, be duly registered and authorized by the Market in respect of which the Market Maker has the status of member agent, all in accordance with the regulations to be issued by the Markets for its registration, qualification and performance, including, but not limited to, the required resources and/or other requirements or conditions for its performance. For this purpose, the Markets must keep and keep updated at all times, within their scope and under their sole responsibility, the register of the referred clients. After their registration, they must be previously authorized by the corresponding Market in order to effectively start the operation here with respect to each species and/or instrument.

b) The registry to be implemented by the Markets must, in all cases, be publicly accessible for permanent knowledge and consultation of the investing public and other capital market players. In this sense, it must, at least, contain the following information: (i) identifying dataaccounts of the clients in question; (ii) identifying data of the Market Maker through which said client will carry out operations aimed at providing liquidity, including its full name, agent category, registration number and membership; and (iii) species and/or instruments in relation to which it will carry out operations tending to provide liquidity.

c) During the period of its performance in the trading session, the provisions of Article 2 of Section II of Chapter V of Title VI of the CNV Rules must be observed, without exception, and may only act on its own account and with the purpose of providing liquidity in the species and/or instruments authorized by the respective Market.

d) The Market Maker will be responsible for all the acts and/or operations carried out by its clients as a result of this planned operation and for compliance with the procedures, requirements, specifications and other rules of action established by the CNV and/or in the regulations dictated by each Market, and must in all cases refrain from carrying out those customer operations that are contrary to such provisions.

Market Regulation

The regulations issued by the Markets in relation to the activity of Market Makers must include, at least, the following aspects (art. 72):

a) The requirements that Agents must meet for the registration and deregistration of their registration as Market Makers and validity of the registration in it, including the obligatory disclosure to the investing public, with due notice, in those cases of deregistration of the Market Maker. Market.
b) Maximum number of Market Makers and if the action in this capacity will be exclusive of one agent per species and/or instrument or the plurality of Market Makers will be allowed in the same species and/or instrument, and if each Market Maker may act in such capacity only in one species and/or instrument or in several.
c) Procedure and requirements for the authorization of Market Makers with respect to each species and/or instrument, based on the operational risks involved, financial capacity and operational infrastructure.
d) The rights and obligations of Agents registered as Market Makers, including the enforceable rules of conduct, as well as the criteria for order fulfillment, and must have a custody sub-account open at Caja de Valores to carry out the function of Market Maker.
e) Species or species and/or instrument or instruments negotiated in the Market with respect to which the Market Maker may operate.
f) Income that the Market Maker will receive for his actions.
g) Minimum presence requirements during the trading session.
h) Maximum differential between the prices of the purchase and sale offers that may be maintained by type and/or instrument during their presence in the trading session.
i) Minimum permanence of the offers corresponding to orders of clients of the Market Maker, on the screens of the trading systems, prior to those being able to be applied against offers of this character.
j) If there is a commitment or contract with an issuer or group of issuers, full information must be provided to the issuer or group of issuers on the action mechanism of the Market Maker.

On the other hand, the regulations issued by the Markets in relation to the operations of clients aimed at providing liquidity to a certain species or instrument must, at least, contemplate the following aspects:

a) Maximum number of clients per Market Maker and/or per species or instrument, requirements and mechanism for the registration and cancellation of their registration, validity of their registration and publicity of the list of registered members, for the knowledge of the investing public and other stakeholders of the capital market, including the obligatory disclosure to the investing public, with due notice, in those cases of voluntary withdrawal by the client in question.
b) In all cases, clients may only carry out the aforementioned operation through a single Market Maker and within the scope of a single Market, and cannot be registered and enabled by another Market -simultaneously or alternately- to carry out operations tending to provide liquidity.
c) Procedure and requirements for its qualification with respect to each species and/or instrument based on the operational risks involved, its financial capacity and operational infrastructure, as well as the requirements of suitability, professionalism, distinctive characteristics, and the resources required for such clients and the differentiated patrimonial requirements demandable to the agents due to the operation in question.
d) Prohibition to operate the species and/or instruments in question pOn the part of those clients that: (i) have the character of controlling, controlled or related companies -directly or indirectly- in the terms of article 33 of the General Law of Companies, and/or that are under common control within a same economic group, of the respective issuing company of the species and/or instrument object of the operation intended to provide liquidity; and/or (ii) sell or provide and/or supply goods and/or services or have any type of contractual, commercial and/or other type or nature relationship with any of the subjects indicated in the preceding paragraph.
e) Additional obligations of the Market Makers due to the operations of their clients and during the trading session, including, but not limited to, the rules of conduct required of them, as well as the criteria for compliance with the orders issued by them. Your clients.
f) Species or species and/or instrument or instruments negotiated in the Market with respect to which the operation will be enabled, and guidelines for the entry of orders in the event that (i) the Market Maker and the client; or (ii) one or more clients, acting in the same species and/or instrument.
g) Minimum presence requirements during the trading session.
h) Maximum differential between the prices of the purchase and sale offers that may be maintained by type and/or instrument during their presence in the trading session.
i) Income that you will receive for your actions.
j) In the event of a commitment or contract with an issuer or group of issuers, full information must be provided to them on the action mechanism implemented for these customers.

The CNV thus allows the Markets the most detailed regulation of the task of the Market Maker within the scope of each Market and, even, of each species and/or instrument with respect to which it can perform in such capacity. It is a healthy normative policy, which finds support in the regulatory functions and powers that art. 32, subparagraphs a), c) and d), of the LMC grants to the Markets. These regulations must be approved by the CNV, as ordered by art. 44 of the LMC, which also has concurrent regulatory powers "for the purpose of establishing minimum collections applicable uniformly throughout the country" (art. 32, LMC).

Although the LMC has taken away from the Markets some of the faculties that they enjoyed under Law 17,811[4] and, therefore, has diminished the so-called “self-regulation” of these[5], however it has left —to our criteria— a wide scope so that, with due state control, the Markets regulate operational issues that are very dynamic due to the constant development of financial markets and the innovation that occurs in capital markets at a local and global level. In this sense, the Resolution resumes the path of referring to the more dynamic regulation of the Markets detailed issues regarding the operations of the Market Maker in the scope of each Market.