The Capital Market Law, first implemented in 1998, charges the National Securities Commission (CNV) with the promotion, regulation, surveillance, and supervision of the capital market. In an effort to account for the evolving economy, the Law gave the CNV autonomy and assigned it promotion and sanctioning duties. The CNV's principle objective is to oversee transparency in the securities market and to provide investor protection through better disclosure of financial information and compliance with the laws, as well as all other rules and regulations However, there is not enough publicly available information to make an assessment as to Venezuela's overall level of compliance against the Principles of Effective Securities Regulation developed by the International Organization of Securities Commissions.

General Overview

The Capital Market Law, first implemented in 1998, charges the CNV with the promotion, regulation, surveillance, and supervision of the capital market. According to the 2007 "Doing Business" Guide produced by the U.S. Department of Commerce (DoC), the law also includes regulations for intermediaries, establishes new conditions for public offerings, increases the transparency of brokerage operations and enhances the flexibility of regulations for small firms wanting to issue stocks. The Center of Latin American Monetary Studies and the World Bank (CEMLA/WB) reported in 2002 that the Capital Market Law's definition of securities includes corporate equities, debentures, and other widely issued securities with the same characteristics, and provides the same rights within their class.. However, Article 1 of the Capital Market Law states that the law does not provide regulations on government securities and the debt securities issued in accordance with the Banks and Other Financial Institutions General Law (Ley General de Bancos y Otras Instituciones Financieras) and the National Savings and Loans System Law (Ley del Sistema Nacional de Ahorro y Préstamo). Article 24 covers the legal requirements for the immobilization and dematerialization of the securities.

The U.S. DoC guide for 2007 reports that the Collective Investment Companies Law of 1996 promotes capital market development through the creation of collective investment companies. The law's intention was to enhance the appeal of capital market investments for small and medium sized investors and initiate the establishment of mutual funds, collective investment venture capital companies and collective real estate investment companies.

The CNV is a member of the International Association of Insurance Supervisors (IAIS); the Association of Superintendents of Insurance of Latin America (ASSAL) and the Council of Securities Regulators of the Americas (COSRA). The CNV is part of the Executive Committee of the IAIS (CNV Website). In its May 1995 Resolution Concerning Principles of Effective Market Oversight, COSRA states the intention of its members, including the CNV, to use all reasonable efforts to implement and maintain systems for effective domestic market oversight based upon the COSRA Principles of Effective Market Oversight.

The Caracas Stock Exchange (CSE) is privately owned and has been operating since 1947, according to the U.S. DoC 2007 Guide, which goes on to state that "trading on Venezuelan stock exchanges is thin and highly concentrated," adding that, in 2006, the CSE index closed above 50,000, which was more than a 155 percent increase from the previous year. The Venezuelan Futures and Options Clearinghouse (CACOFV), started operations in September 1997 and, according to the DoC, was Venezuela's first market of the kind. The DoC added that membership in local capital markets is open to both individuals and legal entities. The CEMLA/WB report of 2002 noted that the securities market in Venezuela is dominated by government securities, which was approximately 97 percent of the total traded volume in 2001. The government predominantly issues National Public Debt Bonds (DPNs), Treasury Bills and, recently, "Vebonos."

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

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The Securities Market Law, first implemented in 1998, charges the CNV with the promotion, regulation, surveillance, and supervision of the capital market. According to the U.S. DoC 2007 Guide, the law also includes regulations for intermediaries, establishes new conditions for public offerings, increases the transparency of brokerage operations and enhances the flexibility of regulations for small firms wanting to issue stocks. The CEMLA/WB 2002 report notes that the Capital Market Law's definition of securities includes corporate equities, debentures, and other widely issued securities with the same characteristics and provides the same rights within their class. However, Article 1 or the Capital Market Law states that the law does not provide regulations on government securities and the debt securities issued in accordance with the Banks and Other Financial Institutions General Law and the National Savings and Loans System Law. Article 24 of the Capital Market Law covers the legal requirements for the immobilization and dematerialization of the securities. The CEMLA/WB 2002 report adds that the Capital Market Law gave the CNV autonomy and assigned it promotion and sanctioning duties. The CNV's primary objective is to oversee transparency in the securities market and investor protection through better disclosure of financial information and compliance with the laws and all other rules and regulations. However, the report does not address Venezuela's compliance with this principle.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

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According to the CEMLA/WB report of 2002, the CNV has complete financial autonomy and its own legal incorporation and patrimony. However, administratively, the CNV functions under the umbrella of the Ministry of Finance. The report adds that the CNV has the authority to issue a variety of sub-legal status rules and regulations over the capital market. The CNV regulates the functioning of the entities it controls, public buyout offers and takeover processes, the definition, prevention, regulation and arbitration of conflicts of interest with the potential to emerge in the capital market related activities, the acts of individuals intending to incorporate firms through the public offering of securities and compliance with the requirements of external and internal audits. However, the report does not address Venezuela's compliance with this principle.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

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The CNV is empowered by the Capital Market Law to apply administrative and penal sanctions, following the procedures noted in the Administrative Procedures Organic Law (Ley Orgánica de Procedimientos Administrativos), according to the CEMLA/WB 2002 report. The factors that are taken into consideration when applying a sanction, include such aggravating or attenuating circumstances as severity of the offense, recidivism, and the degree of responsibility of the offender. The fines for violations to the Capital Market Law or any of the CNV rules range from 100 to 1,000 Tax Units (Unidades Tributarias, UTs) and are independent of any other civil or criminal indictments. However, the CEMLA/WB report of 2002 does not address Venezuela's compliance with this principle.

4. The regulator should adopt clear and consistent regulatory processes.

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The CNV applies administrative and penal sanctions, following the procedures noted in the Administrative Procedures Organic Law (Ley Orgánica de Procedimientos Administrativos). The CEMLA/WB report of 2002 notes the factors that are taken into consideration when applying a sanction, including such aggravating or attenuating circumstances as severity of the offense, recidivism, and the degree of responsibility of the offender. The fines for violations to the Capital Market Law or any of the CNV rules range from 100 to 1,000 Tax Units (Unidades Tributarias, UTs) and are independent of any other civil or criminal indictments. However, the report does not address Venezuela's compliance with this principle.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

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Article 96 of the Capital Market Law considers stock exchanges to be self-regulatory organizations whose regulations must be approved by the CNV. The Article continues that the rights and responsibilities of the Board of Directors of a stock exchange must be stated in its internal regulation. According to the CEMLA/WB report of 2002, with the exception of equity shares, which are exclusively traded at the stock exchange through a brokerage house, all types of securities can be traded in the stock exchange or in the over the counter (OTC) market. Article 101 of the Capital Market Law states that the Board of Directors has the authority to supervise its member's activities and issue the internal regulation of the exchange which, among other things, is required to include the terms and conditions of all transactions made by members. Other than this, the CEMLA/WB report of 2002 does not address Venezuela's compliance with this principle.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

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According to the CEMLA/WB report of 2002, stock exchanges are required to adjust their internal regulation to comply with the rules or the resolutions issued by the CNV regarding particular activities or for securities brokerage activities in general. The same report notes that the internal regulations of the BVC subject stock exchange members to the following obligations: (1) compliance with the Internal Regulation, the resolutions of the Assembly, and the Board of Directors of the BVC, as well as with stock exchange best practices; (2) providing the Board of Directors and the Executive Vice president any information they may require;(3) attending the trading sessions and carrying out transactions in a fully honest, transparent, and accurate way; (4) ensuring that the fees to be applied strictly follow the rates established by the Board of Directors; and (5) carrying an updated customer registry, preserving confidentiality of their identity, and delivering in a timely fashion the receipts of the transactions that have been made. Following CNV approval, the Board of Directors can apply sanctions to stock exchange members, including fines, suspension, or expulsion.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

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There is no publicly available information as to Venezuela's compliance with this principle.

9. The regulator should have comprehensive enforcement powers.

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The CNV is empowered by the Capital Market Law to apply administrative and penal sanctions, following the procedures noted in the Administrative Procedures Organic Law (Ley Orgánica de Procedimientos Administrativos). The CEMLA/WB 2002 report notes the factors that are taken into consideration when applying a sanction, including the aggravating or attenuating circumstances such as severity of the offense, recidivism, and the degree of responsibility of the offender. The fines for violations to the CAPITAL MARKET LAW or any of the CNV rules range from 100 to 1,000 Tax Units (Unidades Tributarias, UTs) and are independent of any other civil or criminal indictments. The misuse of clients' funds for personal gain by a public securities broker or someone acting on their behalf is sanctioned by imprisonment. In such cases, a criminal investigation will ensue, regardless of whether the affected parties have filed an accusation. Other violations that warrant imprisonment include a brokers' making transaction without transferring the securities and resisting inspection actions of the CNV. Beyond this information, however, CEMLA/WB assessment does not address Venezuela's compliance with this principle.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

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The CNV is given the authority, by the Capital Market Law to apply administrative and penal sanctions, according to the CEMLA/WB 2002 report. In addition, the report notes that the CNV has the authority to issue a variety of rules and regulations, over the capital market, that have a sub-legal status. The CNV regulates the functioning of the entities it controls; public buyout offers and takeover processes; the definition, prevention, regulation, and arbitration of conflicts of interest with the potential to emerge in capital market related activities; the acts of individuals intending to incorporate firms through the public offering of securities; and compliance with the requirements of external and internal audits.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

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According to the CEMLA/WB report of 2002, all members of the stock exchange must provide the CNV with their balance sheets, income statements, and cash flow statements twice a year, and independent public accountants must then audit the financial statements. If the CNV requires additional information, members of the stock exchange are obliged to comply. Firms with publicly offered securities are required to provide to shareholders or other securities holders the firms' balance sheets, income statements, cash flow statements, and the statements of changes in equity as of the closing date of the financial year. The commissioner's report, as well as any other documents required by the CNV, must be provided 15 days in advance of the date set for assemblies, in addition to the disclosure of any event or fact that could alter the price of any of the issued securities. Until its general disclosure to market participants, that information will be considered insider information. If a company fails to provide the information required by the Capital Market Law, according to the established terms, the CNV can suspend securities quotations or cancel registrations. Beyond this information, however, the CEMLA/WB assessment does not address Venezuela's compliance with this principle.

On June 23-24, 1994, COSRA members met to produce a Framework for Co-operation in the Americas. In the framework, COSRA members, including the CNV, stated their intentions to ensure compliance with the members' securities laws by assisting one another in obtaining the relevant information, documents, and statements for any enforcement or regulatory inquiries being carried out by other COSRA members; obtaining legal authority or seeking help from other governmental agencies to provide assistance for Members who lack the legal authority; and continuing the evaluation process to assess the degree of assistance and mechanisms to improve cooperation among members.

In 1993, COSRA also reported that it had drawn up a set of Principles for Cross-border Surveillance which includes the following: each member country will "cooperate in sharing and providing information in its possession regarding investment management firms operating in the securities markets,... assist any other member upon reasonable request in obtaining information from or access to investment management firms that are subject to both members' jurisdiction" and "work together in conducting joint supervisory activities with respect to investment management firms subject to their jurisdiction."

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

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In 1994, COSRA members produced a Framework for Co-operation in the Americas following a meeting on June 23-24 of that year. In the framework, members, including the CNV, stated their intentions to ensure compliance with the members' securities laws by assisting one another in obtaining the relevant information, documents and statements for any enforcement or regulatory inquiries being carried out by other COSRA members; obtaining legal authority or seeking help from other governmental agencies to provide assistance for members who lack the legal authority; and continuing the evaluation process to assess the degree of assistance and mechanisms to improve cooperation among members. However, the publicly available information does not address Venezuela's compliance with this principle.

COSRA has also drawn up a set of Principles for Cross-border Surveillance. The principles, published in 1993, include the following: each member country will "cooperate in sharing and providing information in its possession regarding investment management firms operating in the securities markets,... assist any other member upon reasonable request in obtaining information from or access to investment management firms that are subject to both members' jurisdiction," and "work together in conducting joint supervisory activities with respect to investment management firms subject to their jurisdiction."

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

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The Members of COSRA produced a Framework for Full and Fair Disclosure in the Americas, following a meeting on June 23-24, 1994. According to Dillon, Articles 287 and 304 to 308 of the Commercial Code and Articles 126 to 129 of the Capital Market Law cover the disclosure of material information In addition, D. Dillon, writing in 2003, reported that auditing issues are regulated by the CNV. However, there is not enough publicly available information to properly assess Venezuela's compliance with this principle.

In 2002, CEMLA/WB reported that firms with publicly offered securities are required to provide shareholders, or other securities holders, with the firm's balance sheet, income statement, cash flow statement and the statement of changes in equity as of the closing date of the financial year. The commissioners' report, as well as any other documents required by the CNV, must be provided 15 days in advance of the date set for assemblies, in addition to the disclosure of any event or fact that could alter the price of any of the issued securities. Until its general disclosure to market participants, that information will be considered insider information If a company fails to provide the information required by the Capital Market Law, according to the established terms, the CNV can suspend securities quotations or cancel registrations.

15. Holders of securities in a company should be treated in a fair and equitable manner.

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There is insufficient publicly available information as to Venezuela's compliance with this principle. However, the 2002 CEMLA/WB report noted that firms with publicly offered securities are required to provide shareholders, or other securities holders, with the firm's balance sheet, income statement, cash flow statement, and the statement of changes in equity as of the closing date of the financial year.

In 2003, D. Dillon reported that Articles 289 and 292 of the Commercial Code address shareholder equality. Article 125 of the Capital Markets Law addresses the rights of minority shareholders. Articles 269, 285 and 286 of the Commercial Code address possible conflicts of interest. However, in 2006 Djankov et al., in "The Law and Economics of Self-Dealing" indicate that shareholders must own at least 20 percent of the capital to call a meeting in Venezuela.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

As indicated on the Deloitte & Touche IAS Plus website, in April 2004 the Venezuelan Federation of Certified Public Accountants or FCCPV), which has been responsible for the issuance of the Venezuelan Generally Accepted Accounting Principles (VGAAP) since 1973, declared its intent to fully adopt International Financial Reporting Standards (IFRSs). On June 19, 2004, the FCCPV adopted a draft Plan on the Adoption of the International Standards. Deloitte And Touche note that, according to the Plan, "the harmonization of the Venezuelan GAAP with the international standards aims at achieving more transparency and comparability of financial information provided by companies and institutions operating in Venezuela." To achieve this objective, the FCCPV decided to adopt IFRSs as Venezuelan GAAP, as well as International Standards on Auditing (ISAs) and International Public Sector Accounting Standards (IPSASs) issued by the International Federation of Accountants (IFAC). The plan was to be executed within 3 years and involved mandatory adoption of the international standards for periods commencing on January 1, 2007. There is no further publicly available information on the implementation.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

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According to the CEMLA/WB 2002 report, the following are under the control of the CNV: securities issuers; brokerage houses, brokerage firms, public securities brokers, investment advisors and accountants registered in the National Securities Registry (Registro Nacional de Valores) (RNV), stock exchanges, commodities exchanges, Central Securities Depositories (CSDs), risk-rating agencies, transfer agents, options and futures clearinghouses. collective investment entities, risk capital collective investment entities and real estate collective investment entities, as well as their management firms. However, the assessment does not address Venezuela's compliance with this principle.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

21. Regulation should provide for minimum entry standards for market intermediaries.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

The CEMLA/WB report of 2002 notes that the Capital Market Law was enacted on October 22, 1998. This law regulates the public offering of equities and other medium and long-term securities, as well as stock exchanges, securities market intermediaries and other related entities.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

According to the CEMLA/WB report of 2002, "the Caracas Stock Exchange has an electronic trading system, the Integrated Electronic Stock Exchange System. Transactions made at the BVC are settled on T+3. The Venezuelan Securities Depository settles the securities leg on a gross basis and informs the BVC on the securities transfers that were actually made. The BVC then generates an electronic file with the net debit and credit positions for the cash leg and sends it to a commercial bank that acts as the settlement agent. Participants with a debit net position have until 2:00 p.m. of the settlement date to fund their account with the settlement agent" (p. 9).

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

27. Regulation should promote transparency of trading.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

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There is insufficient publicly available information as to Venezuela's compliance with this principle.