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

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Presentation on theme: "Cross-border links legal challenges ACSDA LAWYERS WORKSHOP 2011 Latin American Integrated Market."— Presentation transcript:

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

2 Agenda 1. Background 2. Integration Phases 3. Integration Benefits 4. Integration Model 5. Main Integration Challenges 6. MILA Implementation 7. MILA Operations

3 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. 2009 On 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. BACKGROUND 1. BACKGROUND

4 On 06/08/2010, BVL-BCS-BVC- CAVALI –DCV-DECEVAL signed a Phase 1 Implementation Agreement and continue with the Phase 2 feasibility study. 2010 On 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 A private initiative supported by the 3 markets supervisors 2011 On 05/30/2011. Outing to MILA production 1. BACKGROUND

5 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. BACKGROUND Project Execution Strategy

6 2. 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 ETFs) Secondary market Cash operations 2010 - 2011 2011 -2012

7 3. 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.

8 4. 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

9 4. 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.

10 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 challenges? 5. MAIN CHALLENGES OF INTEGRATION

11 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 countrys 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 been? 5. MAIN CHALLENGES OF INTEGRATION

12 6. MILA IMPLEMENTATION Implementation Activation of securities offer and 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 spreading of relevant information The stock exchanges are obliged to guarantee access to each market relevant information through their web pages Intermediated routing Authorization and establishment of characteristics Does not require rule adjustment Characteristics and conditions are established Routing agreement between intermediaries Depositories accounts Depositories will operate through omnibus accounts. Continuous reconciliation of balances. Final holder information supply to authorities and issuer. Precautionary measures The registration and execution of precautionary measures is executed where the investors account is opened. Exercise of social rights Procedure established by depositories which ensures investors the exercise of social rights.

13 6. MILA IMPLEMENTATION Implementation Internal Regulations Authorize startup of the Integrated Market. Approve Internal Regulations for the operation of infrastructure suppliers. Rules for Market implementation 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 supervision Create the integrated market supervision protocol. Information exchange rules and approach to make its use viable.

14 Executive Committee Secretarial Staff Operational Sub-committee Technological Sub- committee Commercial and Marketing Sub-committee Entity Coordinator 7. MILA OPERATION MILA HIERARCHY SCHEME

15 Volume transacted in MILA at July 2011: $1.5 million dollars 7. MILA OPERATION Operations executed by Colombian SCB Operations executed by Chilean SCB Operations executed by Peruvian SCB

16 AGREEMENTS 28 bidirectional agreements have been signed between intermediaries of the 3 countries 7. MILA OPERATION Chilean SBC and Peruvian SBC Colombian SBC and Peruvian SBC Colombian SBC and Chilean SBC

17 VOLUMES TRANSACTED IN MILA DATE OP. COLOMBIA IN CHILE AMOUNT USD OP. COLOMBIA IN PERÚ AMOUNT USD OP. CHILE IN COLOMBIA AMOUNT USD OP. PERU IN COLOMBIA AMOUNT USD TOTAL DAILY AMOUNT USD MAY 13 $ 156.968,267 $ 11.829,151 $ 43.635,206 $ 14.492,99 $ 226.925,60 JUNE 70 $ 801.354,002 $ 1.739,459 $ 72.876,700 $ - $ 875.970,15 JULY 13 $ 185.490,810 $ -2 $ 6.587,511 $ 3.293,42 $ 195.371,74 TOTAL 96 $ 1.143.813,079 $ 13.568,6012 $ 123.099,417 $ 17.786,41 $ 1.298.267,49 7. MILA OPERATION MONTHLY AMOUNT IN USD TOTAL MONTHLY AMOUNT USD MAYJUNEJULY

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