Cross-border links legal challenges ACSDA LAWYERS WORKSHOP 2011 Latin American Integrated Market.

Cross-border links legal Cross-border links legal challengeschallenges

ACSDA LAWYERS WORKSHOP 2011

Latin American Integrated Market

AgendaAgenda

1. Background

2. Integration Phases

3. Integration Benefits

4. Integration Model

5. Main Integration Challenges

6. MILA Implementation

7. MILA Operations

2009

On 09/08/2009 BVL-BCS-BVC-CAVALI–DCV-DECEVAL signed an Agreement of Intent for the execution of a Feasibility study and define a single variable income market integration model.

2009On 10/28/2009 in Santiago, the Authorities of the 3 countries (SFC-CONASEV-SVS) entered into a MOU to assist the Integration Project development and establish the best cooperation mechanisms while facing the challenge of promoting the transnational negotiation of securities.

A private initiative supported by the three markets supervisors

2010

Considering the technological impact the integration model had, the presidents of the entities involved agreed to reframe the project in 2 phases.

1. BACKGROUND1. BACKGROUND

On 06/08/2010, BVL-BCS-BVC-CAVALI –DCV-DECEVAL signed a Phase 1 Implementation Agreement and continue with the Phase 2 feasibility study.

2010On 01/15/2010 in Lima, the Authorities of the 3 countries signed a MOU with the purpose of agreeing on aspects related to the exchange of information, inquiries and cooperation , as well as future supervision coordination needs.

2010

On 11/09/2010, the Stock Markets signed the variable income integration agreements for: (it the registration of securities; (ii) commands routing characteristics , and (iii) information supply

On 11/09/2010, the Depositories signed interconnection agreements for the opening of accounts as direct depositors and the provision of other services.

2010

2010

A private initiative supported by the 3 markets supervisors

2011

On 05/30/2011. Outing to MILA production

1. BACKGROUND1. BACKGROUND

Government figure through an integrated Project Management

Assignment of leader per each front: Functional, Technological, Juridical and Commercial

Executive Committee among the presidents of the 6 entities

Weekly tracking in the functional and technological front

Approach between intermediaries

Training on new components, regulation and other countries’ business rules.

1. BACKGROUND1. BACKGROUND

Project Execution StrategyProject Execution Strategy

2. INTEGRATION PHASES2. INTEGRATION PHASES

Phase 1

Phase 2

• Direct access by intermediaries (Validation to operate locally) • Full validation as local issuer• Primary market of shares• Other operations: Repos and TTVs• Other markets: fixed income and derivatives• Standardized business rules• Cross-border standardized and efficient C and L processes

• Intermediated routing with added value• Authorization for foreign securites to be negotiated

locally• Variable income market (Shares and ETF’s)• Secondary market• Cash operations

2010 2010 - 2011 - 2011

2011 -20122011 -2012

3. INTEGRATION BENEFITS3. INTEGRATION BENEFITS

•Greater instruments alternatives

•Wider possibilities for diversification of portfolios

INVESTORS:

•Integration promotes more attractive and competitive stock markets.

•Increases the range of products for distribution to clients and enables the creation of new investment means.

•Technological strengthening and adoption of international standards.

INTERMEDIARIES:

•Access to a broader market for issuers.

•Increase of the demand for funding capturing the interest of a greater number of investors.

ISSUERS:

Greater visibility of the Region worldwide as an investment purpose.

4. INTEGRATION MODEL4. INTEGRATION MODEL

•Independent Technological Platforms

•Each stock exchange administrates its own market and the stock exchanges enter into an agreement for market integration.

•The negotiation is executed under the rules of the market where the securities are listed.

•The integrated market will consider only Variable Income cash operations.

NEGOTIATION

• The operations are settled in local currency.

• The local intermediaries will administrate the risks related to said operations and are responsible of the operations executed in the local market.

• Subscription of interconnection contracts between the central depositories.

COMPENSATION AND SETTLEMENT

• Ease: 100% locally.

• Reciprocal account opening between depositories; transparency for users

• Administration of accounts in depositories as per the rules where the securities are listed.

CUSTODY

4. INTEGRATION MODEL4. INTEGRATION MODEL

INVESTORS•Eligible for any kind of investors.

•Foreign investment treatment that enables capital flow between markets.

•The Stock Exchanges will allow access to markets information through their web pages.

IINTERMEDIARIES•Access to foreign markets from the local market through an intermediated routing automated model.

• Routing requires the subscription of service agreements between intermediaries.

•Risk management and vacancies between intermediaries of the different countries.

ISSUERS•Validation of foreign securities / issuers (integrated market) for public offer in the three markets.

•These securities may be distributed to clients increasing the product offer.

REGULATORS•Agreements for the supervision and control among regulators of the 3 countries.•Complete availability of the information for supervisors and investors.

Analysis of the regulatory frame of the 3 partaking countries and their suitability for the model, looking for the least changes possible.

Definition of the mechanism of access to securities in the integrated market and to the relevant information of each market.

Evaluation of the intermediated routing features and definition of the final model.

Definition of the interconnection between local and foreign depositories through the option of an omnibus account.

Representation for the pursue of political and economic rights of foreign investors in the local market.

Definition of the minimum terms of the contracts to subscribe between Intermediaries, Stock Exchanges and central depositories.

What have been these great challengesWhat have been these great challenges??

5. MAIN CHALLENGES OF INTEGRATION5. MAIN CHALLENGES OF INTEGRATION

For all purposes, the knowledge of the investor-client is under the responsibility of the intermediary to whom the client is related.

Understanding of the 3 countries tax regime applicable to MILA operations.

Understanding of the application of local regulations for (i) registration and execution of precautionary measures and (ii) treatment of defaults. Understanding and acceptance of the model by the authorities and subscription of Memorandums of Understanding.

Approval by each country’s regulators to give the instructions and authorizations required for the implementation of MILA.

Harmonization of FIX 4.4 courier service.

Coordination of functional and technological tests.

What have these great challenges beenWhat have these great challenges been??

5. 5. MAIN CHALLENGES OF INTEGRATIONMAIN CHALLENGES OF INTEGRATION

6. MILA IMPLEMENTATION6. MILA IMPLEMENTATION

ImplementatioImplementationn

Activation of Activation of securities offer securities offer and negotiationand negotiation

FS registration in a special RPV record and in the SE

FS registration in RPVE and in BCS

FS are listed only in BVC, in the SLCVE of the integrated market

Integrated market stock exchange agreements

Handling and Handling and spreading of spreading of

relevant relevant informationinformation

The stock exchanges are obliged to guarantee access to each market relevant information through their web pages

www.conasev.gob.pe www.bolsadesantiago.com www.superfinanciera.gov.co

Intermediated Intermediated routingrouting

Authorization and establishment of characteristics

Does not require rule adjustment

Characteristics and conditions are established

Routing agreement between intermediaries

Depositories Depositories accountsaccounts

• Depositories will operate through omnibus accounts.• Continuous reconciliation of balances.• Final holder information supply to authorities and issuer.

Precautionary Precautionary measuresmeasures

The registration and execution of precautionary measures is executed where the investor’s account is opened.

Exercise of Exercise of social rightssocial rights

Procedure established by depositories which ensures investors the exercise of social rights.

6. MILA IMPLEMENTATION6. MILA IMPLEMENTATION

ImplementationImplementation

Internal Internal RegulationsRegulations

• Authorize startup of the Integrated Market.• Approve Internal Regulations for the operation of infrastructure

suppliers.

Rules for Rules for Market Market

implementationimplementation

Issue the rules required in each jurisdiction under the superintendence: - Minimum content of agreements- Validation of foreign markets- Requirements for the information, appreciation and accounting of FS

Coordination for Coordination for supervisionsupervision

• Create the integrated market supervision protocol. • Information exchange rules and approach to make its use viable.

Executive CommitteeExecutive Committee

Secretarial Staff

Secretarial Staff

Operational Sub-

committee

Operational Sub-

committee

Technological Sub-

committee

Technological Sub-

committee

Commercial and

Marketing Sub-

committee

Commercial and

Marketing Sub-

committee

Entity Coordinator

7. 7. MILA OPERATIONMILA OPERATION

MILA HIERARCHY SCHEMEMILA HIERARCHY SCHEME

Volume transacted in MILA at July 2011: $1.5 million dollars

7. 7. MILA OPERATIONMILA OPERATION

Operations executed by Colombian SCB

Operations executed by Chilean SCB

Operations executed by Peruvian SCB

AGREEMENTSAGREEMENTS

28 bidirectional agreements have been signed between intermediaries of the 3 countries

7. 7. MILA OPERATIONMILA OPERATION

Chilean SBC and Peruvian SBC

Colombian SBC and Peruvian SBC

Colombian SBC and Chilean SBC

VOLUMES TRANSACTED IN MILA

DATEOP.

COLOMBIA IN CHILE

AMOUNT USDOP.

COLOMBIA IN PERÚ

AMOUNT USD

OP. CHILE IN COLOMBIA AMOUNT USD

OP. PERU IN

COLOMBIAAMOUNT USD TOTAL DAILY

AMOUNT USD

MAY 13 $ 156.968,26 7 $ 11.829,15 1 $ 43.635,20 6 $ 14.492,99 $ 226.925,60

JUNE 70 $ 801.354,00 2 $ 1.739,45 9 $ 72.876,70 0 $ - $ 875.970,15

JULY 13 $ 185.490,81 0 $ - 2 $ 6.587,51 1 $ 3.293,42 $ 195.371,74

TOTAL 96 $ 1.143.813,07 9 $ 13.568,60 12 $ 123.099,41 7 $ 17.786,41 $ 1.298.267,49

7. 7. MILA OPERATIONMILA OPERATION

MONTHLY AMOUNT IN USD

TOTAL MONTHLY AMOUNT USD

MAY JUNE JULY