Through an official communication, the Galicia Financial Group offered to voluntarily pay the penalty imposed by the National Securities Commission (CNV) for an amount of $28,837 million after the regulator initiated an investigation into unfair use of the Central Bank’s (BCRA) “puts.”
“I’m heading to that National Value Comission (the CNV) for the purpose of informing that on the current day the BCRA debited the sum of $28,837,892,152.80 from the current account of Banco de Galicia as acceptance of a proposal made by the Central Bank voluntarily offering comprehensive reparation for the alleged damage that the BCRA claims to have suffered as a consequence of the exercise of “a liquidity option by the Bank in the month of February 2024” and without including possible sanctions derived from BCRA regulations.
“Such an offer was made with the purpose of restoring the trust historically built by Banco Galicia with the BCRA, throughout its extensive history, as well as repairing its reputation and that of its related companies and the individuals summed up by it. that Commission, which was affected by the public dissemination of the case. The aforementioned proposal was made without recognizing any facts or rights linked to the circumstances subject to investigation by the CNV,” says the Galicia statement.
The antecedent
The regulator opened an investigation into one of the operations it observed as suspicious carried out last February. It would be what is called wash trade (artificial transactions) in the management of debt bonds. With the move, Galicia would have earned more than $23,000 million.
The CNV accusation was based on a notification from the Central Bank for questioned maneuvers with public debt securities in charge of Galicia to artificially inflate their price (wash trade) and then collect insurance (puts) guaranteed by the Central Bank, according to the summary opened by the market regulatory body.
Galicia became aware of the investigation late Tuesday. Following this it began “an internal investigation to analyze the questioned operations and control processes and will respond to the CNV within the expected deadlines.”
From the bank, at that time, they acknowledged when asked Ambit that “the CNV is investigating a possible regulatory infringement due to the exercise of a put by Banco Galicia against the BCRA, at a price that would have been higher than that which would have corresponded without considering some transactions carried out by the related companies.”
Why Banco Galicia is being investigated
“Various bond issues carried out by the Treasury gave participating banks the possibility of buying puts, which gives them the right to sell said bonds to the BCRA as a liquidity option. Although the Bank exercised several puts in the last few months within the normal course of its business, the price at which the put was exercised on the aforementioned date is being investigated in particular,” a CNV statement said at the time.
The investigation targeted a set of operations in the market that Banco Galicia carried out with the dual bond maturing in January 2025 (TDE25). Specifically, the CNV is examining a transaction carried out on February 19. Two minutes before the market closed, the CNV detected a very high volume of transactions in that bond on the MAE wholesale market.
This dynamic was repeated, according to the CNV, on February 20, with a negotiated amount greater than usual for that same bond, which led to an increase in its price in the market.
The next day, the Galicia Bank specified its “liquidity option” (put, in financial jargon), a resource that the BCRA enabled for certain bonds that it guarantees to the entities the possibility of collecting, before maturity, the value in pesos of these debt instruments.
“The expansive monetary effect, as a consequence of this execution, was $112,794 million, $23,072 million higher than that resulting from having been exercised at the extrapolated price,” says the CNV investigation.
“The operations carried out in the TDE25 species on 02/19/2024 and 02/20/2024 denote the intervention of said companies belonging to the same Financial Group, with the same being arranged between one or another company of the Group as a counterparty,” says the accusation, which points to Banco Galicia, Galicia Securities and Inviu – three firms controlled by the Group. In turn, it adds that “said practice could be classified as that recognized by the doctrine as wash trade or “washed negotiation”.
Specifically, the CNV investigated whether these operations between companies in the same group were aimed at artificially increasing the value of the assets, in order to obtain a greater profit from the execution of the puts.
