New Regulation on Promissory Notes Linked to Commodities, Indices, and Reference Rates
Banking and Financial Institutions and Capital Markets Department Report | New Regulation on Promissory Notes Linked to Commodities, Indices, and Reference Rates.
Dear All,
We inform you that, through Regulatory Decree No. 1124/2024 (the “Decree”), the National Executive Power has regulated one of the articles of Decree-Law No. 5965/1963, which addresses certain issues applicable to the accrual of interest under bills of exchange and promissory notes.
Now, under the Decree, the issuer of a promissory note or bill of exchange is allowed to opt for new methods of interest accrual, which may include:
1-References to Commodity Prices: Interest may be calculated based on the price of a commodity (e.g., grains, precious metals, or hydrocarbons). In such cases, the reference must be based on official, public, and accessible markets, whether domestic or international;
2-Financial Indicators: Interest may be stipulated in relation to national or international financial indicators, or indices from financial markets widely recognized in the economic-financial sphere. Examples of such indicators are those related to the pricing of financial assets, such as stock prices, bond yields, etc.;
3-Reference Base Rates: Interest calculation may be tied to reference rates such as the monetary policy rate of the Central Bank of the Argentine Republic (BCRA), the LIBOR rate, the BADLAR rate, or any other officially recognized rate published in highly liquid and transparent markets. Please note that these are examples, and we understand this also encompasses successor rates, as might occur in the case of LIBOR, among others.
Previously, these options were not only unavailable but also interpreted to require explicit specification within the text of the bill of exchange or promissory note, without referencing external sources for their calculation, which are now expressly permitted.
In all cases, the Decree emphasizes that the calculation method and the source of the information necessary to determine the rate must be clearly and transparently stated in the instrument. This is a regulatory extension of the principle of autonomy of credit instruments, which can be deemed satisfied as long as these new provisions are met and there is no room for doubt and/or difficulty in determining the applicable rate. However, the scope of the regulatory authority (since Article 5 of the Decree-Law clearly establishes that an unspecified interest rate in the instrument is deemed unwritten), as well as the verification of the existence of a clear and transparent interest rate, will likely be further debated in legal doctrine and subsequent case law. Additional regulations by the CNV and the BCRA will undoubtedly assist in this regard.
Thus, the Decree, which comes into effect as of today, December 27, 2024, will enable various sectors of the economy to establish their payment obligations linked to their production, offering new hedging options.
Finally, the Decree states that it will be the responsibility of the National Securities Commission and the BCRA to issue complementary regulations within their respective jurisdictions to ensure the proper application of this new regulation.
For any inquiries or additional clarifications regarding this matter, please do not hesitate to contact our team.
Best regards,