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1 - Brief Glossary of terms from the Venezuelan Securities Exchange
DEPOSITOR: Individual or legal entity, national or foreign persons who have entered into a deposit contract with the exchange. CUSTODIAN BANK: Banks and financial institutions that safeguard and physically hold custody over securities deposited at the exchange. DEPOSIT CONTRACT: Contract established between the Depositor and the Securities Fund to formalize the rendering of services over the securities subject to deposit. SINGLE TITLE OR MACROTITLE: a physical document representing the totality or a percentage of a single series issued by an issuing entity. SECURITIES ACCOUNTS: accounts that are opened by the Securities Fund in its system, in each depositor’s name, for the purpose of crediting and charging securities as a result of deposit, withdrawal and transfer operations requested by the depositor, as well as any authorized operations in the corresponding deposit contract and the valid internal regulations. SECURITIES SUB-ACCOUNTS: accounts opened by the Securities Fund in its system, as specified in the notification made by depositors to the Securities Fund, for the purpose of crediting and charging securities, from deposit, withdrawal and transfer operations ordered by the depositor, as well as all other authorized operations specified in the corresponding deposit contract and the valid internal regulations. FUNDS ACCOUNT: a funds account is opened by the Securities Fund in its information systems in the depositor’s name, for the purpose of clearance and liquidation of funds, credits and charges corresponding to operations and commissions authorized as specified in the deposit contract and the valid internal regulations. SITRAD2002: a system of deposits, custody, transfer, clearance and liquidation of securities, operated by the Securities Fund. SYSTEM: a system of deposits, custody, transfer, clearance and liquidation of securities, operated by the Securities Fund. |
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2 - Capital Markets and Economic Development
1° The fundamental role of Capital Markets is to mobilize domestic savings towards investment and production. By offering appropriate savings compensation, the capital market offers incentives for long-term savings. 2° Capital markets are an ideal source of financing through stock issuance. capital markets are critical in order to keep a company’s capital structure balanced, particularly for companies financed by issuing stock. Economic growth requires new and growing companies to expand their stock capital base. 3° Efficient capital markets transmit efficiency to other sectors in the economy. In free-market economies, capital is valued at market prices. Depositors are compensated according to the risks they undertake, and investors or administrators must pay for the resources according to the risks they represent and the efficiency with which they are used. 4° Efficient Capital Markets offer a broad array of financing options at a lower cost to companies. In the absence of well-developed capital markets, entrepreneurs must resort to commercial or development banks to obtain resources in the form and at the cost available. With a well-developed capital market, entrepreneurs can weigh all existing alternatives, such as leasing, financing through stock, bonds, commercial papers, exchangeable instruments and similar options, and select the combination that best meets their financing needs. 5° Financial markets facilitate changes in property and management, in economies moving towards market economy approaches. As the majority of developing countries have initiated aggressive privatization programs, the capital markets have served as a transparent instrument for the sales process and as a democratizing factor of property. 6° Efficient capital markets attract foreign investment capital. Foreign investors are willing to invest in well-regulated, ordered and transparent markets, which contribute to adding depth and liquidity to the market in general. |
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3 - CVV in reference to v-bonds...
The CVV (Venezuelan Securities Fund) has two major activities: the deposit, custody and administration of v-bonds, and the transfer, clearance and liquidation of deposited securities. The Ministry of Finance deposited the total amount of bonds issued in the Venezuelan Securities Fund, and this private entity --as specified in the Law on Securities Funds-- is in charge of preserving control over ownership by bearers. The CVV prevents fraudulent acts and registers changes in ownership when the bonds are negotiated at the Caracas Stock Exchange or any other authorized transaction system, registering transfers from one sub-account to another or from a stock exchange to another financial entity within the same Securities Fund. The Securities Fund is also in charge of distributing respective quarterly interest paid worldwide by the Ministry of Finance to bond holders at the Securities Fund. |
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4 - Fundamental Capital Market Laws
The Venezuelan Capital Market is governed by the Law on Capital Markets, the Law on Securities Funds, the Law on Collective Investment Entities and the regulations issued by the Treasury Ministry and the National Securities Commission (CNV). |
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5 - How are negotiations made at the Stock Exchange?
When a person decides to invest, they are making a decision to put their savings to work. In this sense it is important to understand the forces underway in the securities market, especially those that interact in the shares market, in order to understand the reasons why shares sometimes vary in value, depending on the trends observed in one session or over different market sessions. The shares market follows the principles and bases of the free market, free supply and demand. In essence, consumers always purchase goods and services, generating increases in the demand curve and causing it to shift to the left, from D to D1, as shown in the chart above, thereby raising the price of the good from P-E to P-E´. The same thing occurs in the securities market. As purchase orders are positioned, and as sales orders are placed in the Record of Order on the quote screen for the respective transactions system, one can likewise observe the daily trends for each share, and in consequence, the market trend through the corresponding stock indexes (IBC index, financial index or industrial index). Likewise, a drop in the price of a share can be the result of an increased amount of available supply through many purchase orders placed in the Record of Orders, also reflected on the quote screen for the transaction system. Obviously, an increase in the volume of purchase or sale orders during a market session is generated by a series of additional elements or variables which must equally be analyzed. |
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6 - How are v-bonds negotiated?
A step that must be taken prior to selling v-bonds is for the first beneficiary or holder to transfer the balance of their v-bonds from their account at the Ministry of Finance to a brokerage firm that acts as financial agent in the sale of the bond at the Caracas Stock Exchange. This balance transfer at the CVV is free of charge. |
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7 - How is a transfer of funds carried out?
Once transfer of the v-bond is verified at the brokerage firm, the Caracas Stock Exchange orders the bank, by means of electronic instructions, to debit and credit the brokerage firm’s associated accounts for the amount in question (price of the operation plus accrued interest). The purchasing brokerage firm pays this amount to the selling brokerage firm, who in turn must pay the corresponding amount to its client, after deducting administrative expenses. |
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8 - How much does the Securities Fund charge?
The information access and custody services provided by the Securities Fund are free of charge. When the Securities Fund makes interest or capital deposits each quarter, the CVV will charge the v-bond bearer a fee of one Bolivar (Bs. 1) for every thousand bolivars (Bs. 1,000). If the bearer wishes to sell their v-bonds in whole or in part, they must transfer the balance to a brokerage firm. The balance transfer process is free of charge; however, upon selling, the seller, as well as the purchaser, must pay a commission of one thousand bolivars (Bs. 1,000), regardless of the amount purchased or sold. |
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9 - How often is interest paid on NP accounts?
Debt bonds normally pay interest every 3 months, 6 months or every year. |
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10 - Most-often issued public bonds
Lately, the most common state-issued bonds are National Public Debt Bonds (NPD). These NPDs are securities issued by the national government through the Ministry of Finance, which are guaranteed by the Republic. These bonds are issued as bearer securities and the coupons or interest generated are income tax-free. By means of these instruments the Venezuelan State obtains the necessary capital to finance investment projects or attend to debt commitments. Treasury bills are securities issued by the Ministry of Finance, destined to maintaining regular payments by the National Treasury. Through the Venezuelan Central Bank (BCV), the government issues these fixed income securities that enable financing and offer excellent short-term tax-free yields. Their liquidity is also great since they can be negotiated in a secondary market dedicated to the purchase-sale of public debt. Their rate of return is determined by auction, where the rates are set according to the rules of supply and demand between the BCV and participants. Treasury bills are generally zero coupon securities with less than a year to maturity. |
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11 - Steps for undertaking v-bond operations
1. Review the instruction brochure provided by the Ministry of Finance on the internet (www.mf.gov.ve/acrobat/venbonos.pdf) to find out about the characteristics of the v-bond and the formula for calculating interest, 2. Update your account information on the Venezuelan Securities Fund (CVV) webpage (www.cajadevaloresvenezolana.com), Enter into the SITRAD 2000 System, by following the steps indicated. You must now approve the bank account into which you would like quarterly interest accrued from the bond to be deposited. 3. You decide either to sell or keep your v-bond. Consult with a brokerage firm belonging to the BVC. Or if you decide not to sell the v-bond, keep informed as to interest payments. The instruction guide at the Ministry of Finance (www.mf.gov.ve) website will help you understand how interest is paid. You will be charged 1 Bolivar per every thousand of interest or capital you receive on account. If you wish to sell, you must contact a brokerage firm that will act as your intermediary for the operation, paying commissions, administrative expenses and taxes as established by law. |
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12 - The Role of the BVC in v-bond transactions
The stock exchange is simply the arena where member brokers go to undertake sale-purchase operations on bonds and shares based on the respective requests of investors using their transaction system - SIBE (Electronic Stock Exchange Integrated System). For the purposes of the stock exchange market, a v-bond is another NPD (National Public Debt) bond transacted between brokers of the Caracas Stock Exchange. The stock exchange does not play a specific role with respect to the different beneficiaries of v-bonds or the general public. Rather, the Stock Exchange has a new chore, which is to offer daily information on the instrument, include statistics on it in their weekly, monthly and yearly publications, and include explanatory texts about their Internet services to inform about the instrument’s characteristics. |
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13 - What are bonds or obligations?
Bonds are securities that represent a debt undertaken by the state or by any company, with certain characteristics at the time of issuance, such as the value, term of the security, date of issuance, date of maturity, coupons for the collecting interest, and the destination of the money they raise. Bonds or obligations may be issued by private companies or by the national government or its decentralized entities: the Venezuelan Central Bank, ministries, local government seats, municipal councils, autonomous institutes and other entities, all of which are susceptible to negotiation prior to maturity. |
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14 - What do Par Value, Premium Value and Discount Value mean?
Nominal value is the value inscribed on the bond (100%). When the price is less than 100%, the bond is quoted at a discount value. When the bond is quoted at the same value as the nominal value, it is referred to as par value. When the bond is quoted above 100% of its value, it is quoted at a premium value. |
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15 - What does dematerialized mean?
Dematerialization consists in substituting physical securities with annotations on record. These annotations on record are of the same nature and contain all rights, obligations, conditions and other provisions as physical securities. These dematerialized securities can be recognized as "securities represented through annotations on record". |
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16 - What interest rate do these bonds accrue?
These bonds accrue quarterly interest at a variable rate, backed by the Republic, according to a regular schedule of payments. They can be negotiated in the organized financial market, such as for instance the Caracas Stock Exchange, at a discount, par or premium price. The Venezuelan Government will pay interest every 91 days (three months), as of December 24, 2001, the date of issuance. This means that v-bonds have as many coupons as quarters stipulated for interest collection. The Ministry of Finance set the initial interest rate. Contrary to the first coupon, the remaining coupons will be variable and subject to review every 91 days from the time of maturity of the first coupon. They will be calculated at the start of their term at the yield of the Treasury bills 91 days after their auction, in the week corresponding to the beginning of the coupon’s term plus a differential of 250 basic points. |
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17 - What is a stock exchange quote?
It is the price registered at a stock exchange when a stock negotiation takes place. At the stock exchange, the prices of shares go up and down as a result of supply and demand. |
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18 - What is a v-bond?
"V-bond" is the denomination given by the Ministry of Finance to the five hundred and eleventh issue of National Public Debt bonds (NPDs), corresponding to internal debt for the amount of 300 billion bolivars, destined to the payment of labor liabilities for teachers, administrative personnel and workers at the universities, due to homologation of payments and salaries during the period 1998/1999. The decree for this issue 511 of NPDs was published in Official Gazette of the Bolivarian Republic of Venezuela N° 5564 dated December 24, 2001. Each beneficiary has received their debt in the form of bonds, whose value will be adjusted by means of the periodic establishment of interest rates. The Ministry of Finance, has briefly defined them as follows: “V-bonds are negotiable electronic bearer securities that represent obligations for the Republic, as stipulated in the provisions in the Organic Law on Financial Administration for the Public Sector and its Regulations". |
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19 - What is an electronic security?
This means that v-bonds do not exist on paper but that they are "dematerialized" and have been converted into electronic annotations on record at the Venezuelan Securities Fund, to offer more transparency to their presence, prevent fraud, and make their transfer safer when a negotiation takes place. |
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20 - What is effective yield?
It is the yield effectively earned in a year, as a result of having invested at the same nominal rate for a number of periods that year. It assumes that at the end of a period, the interest earned is capitalized for the following period. It is calculated by means of a formula. |
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21 - What is face value?
Face value is the same nominal value of the security, established by the Ministry of Finance when the v-bond is deposited. Bonds are negotiated at a percentage of their nominal or face value. Thereby, the purchaser only pays this proportion plus accrued interest on the coupon. |
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22 - What is the price for a v-bond?
The price for a v-bond is what investors offer for it on the market, and depends on their preferences and expectations and the existing liquidity, as well as the yield. In order to calculate the investor’s price, there are certain formulas that brokerage firms use, based on the expected interest rate for each quarter. The formulas can be found at the stock exchange’s web site. |
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23 - What is the role of a brokerage firm?
A brokerage firm, member of the Caracas Stock Exchange, may only act in the negotiation of v-bonds if one or any of the beneficiaries so decide. In this case, the beneficiary must transfer their v-bonds on their sub-account at the Ministry of Finance to a sub-account affiliated to the brokerage firm’s account at the Venezuelan Securities Fund, and give an order or mandate to the broker’s firm so that they may go to the market. |
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24 - What is the Stock Exchange?
The Caracas Stock Exchange, founded in 1947, is a private entity, a fundamental Capital Market institution in Venezuela, with 63 members, mostly belonging to brokerage firms. The Caracas Stock Exchange gives equal treatment to all players in the market, as stipulated in the internal regulations and legal norms. The Caracas Stock Exchange is an active member of the Ibero-American Federation of Stock Exchanges (FIAB), the Association of National Numbering Agencies (ANNA) and the National Council for the Promotion of Investments (Conapri). It also participates in the Euroclear liquidation and clearance system. |
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25 - What is the term of an NPD bond?
NPDs (National Public Debt bonds) are fixed- or variable-coupon bonds, with terms varying from 18 months to 4 years. Their lengths of time may vary as the Venezuelan State sees fit. NPDs are called long-term investment instruments because with them, investors obtain income from the date of issue to maturity of the debt, when the state offers to reimburse the amount of the established nominal capital to the bearer of the instrument. Meanwhile, the bearer of the bond receives a periodic payment established in the instrument’s issuance decree. |
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26 - What is the Venezuelan Securities Fund?
It is a company that has adopted the modality of an anonymous capital corporation, whose sole legal purpose is to render deposit, custody, transfer, clearance and liquidation services on shares subject to public offering. The Securities Fund’s operations have been authorized by the National Securities Commission, the supervising and controlling entity. |
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27 - Where are v-bonds registered?
V-bonds are under the custody of the Venezuelan Securities Fund S.A. (CVV). On December 28, 2001, they were deposited by the Ministry of Finance, and as of January 3, 2002 with the publication of a national press release, the beneficiaries were informed that they can identify and register ownership at that entity to be confirmed at a later date. |
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28 - Who directs the Stock Exchange?
The Caracas Stock Exchange is conducted by a Board of Directors comprised by directors that represent shareholders (brokers and brokerage firms that operate in the market, each of which has only one share). Also represented at the Board are Fedecámaras (the entity representing corporations), the Chamber of Commerce of Caracas, the National Securities Commission and issuing companies. |
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29 - Who makes up the Board of Directors of Activalores Sociedad de Corretaje S.A.?
President: Gonzalo Alonso. Executive Directors: Marcel Apeloig, Alan Rotter Alfonso Angrisano & Jacobo Garzon. |
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30 - Who makes up the Board of Directors of Holding Activalores S.A.?
President: Alan Rotter Executive Directors: Roberto Vainrub, Claudio Dolman, Jacobo Garzon, Marcel Apeloig, Alfonso Angrisano & Gonzalo Alonso. |
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31 - Why are NPDs and letters issued?
NPDs (National Public Debt) and Treasury bills are issued by the Ministry of Finance to finance specific projects, attend to commitments undertaken or cover temporary liquidity deficiencies at the Treasury. These instruments are placed by the BCV at the financial institutions and authorized mediators at pre-established prices and yields. Normally, banks acquire these instruments for themselves, and brokerage firms distribute them and intermediate with their clients, although at a lesser scale. An investor’s interest lies with having attractive returns on the money invested at maturity, with high payment security. |
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32 - Why does the Venezuelan Securities Fund exist?
The purpose of the Venezuelan Securities Fund is to facilitate the swift transfer of funds and securities deposited by individuals or legal entities that actively participate in the stock market, at the same time as granting them legal security in the execution of operations undertaken. |
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