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Document Type

Case Study

Case Series

Bank Holidays & Other Suspensions

Abstract

With Argentina facing a liquidity crisis and collapse in demand for government debt, on Wednesday, August 28, 2019, the country's minister of economy, Hernán Lacunza, announced after markets closed that the government was extending the maturity of USD 7 billion of its short-term public debt securities, among other measures. Lacunza stated that domestic retail investors would not be subject to the terms of the maturity extension and would be paid principal and interest on the affected securities per the original maturity schedule. This announcement caused confusion about the treatment of individual investors who held the affected securities indirectly through mutual funds. More than a dozen funds, facing uncertainty about the announcement and severe redemption pressures, suspended redemptions indefinitely on Thursday, August 29, with the support of the Argentine mutual fund association and the industry’s regulator, the National Securities Commission (Comisión Nacional de Valores, CNV). Later that day, the CNV adopted a general resolution clarifying that all individual investors were to be exempt from the extensions and giving funds a mechanism to group assets based on their liquidity and type of investor and apply different valuations to similar securities for redemption payments based on the type of investor who was redeeming shares. Following this resolution required funds to make complex operational adjustments to their accounting systems. By September 13, 2019, most funds had removed their gates and allowed redemptions again, following the CNV’s guidelines. The central bank (Banco Central de la República Argentina, BCRA) provided substantial liquidity assistance to mutual funds after they reopened, starting August 30. The BCRA also announced that money market funds, which did not own the affected securities but had suffered runs, could terminate bank term deposits early to raise liquidity to meet redemption requests. By the end of September, the industry had normalized and assets under management grew for the remainder of the year.

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