JPRF-V-2024-0136 — Reforms to the Self-Regulation Standard for Stock Exchanges and Trade Associations

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | Resolution No. JPRF-V-2024-0136 THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING: That, Article 82 of the Constitution of the Republic of Ecuador prescribes that the right to legal security is based on respect for the Constitution and on the existence of prior, clear, public legal norms applied by competent authorities; That, number 6 of Article 132 of the aforementioned Constitution grants public regulatory bodies the authority to issue norms of a general nature in matters within their competence, without being able to alter or innovate legal provisions; That, Article 226 of the Magna Carta provides that State institutions, their bodies, dependencies, public servants, and persons acting by virtue of a State power shall exercise only the competencies and faculties attributed to them in the Constitution and the law; having the duty to coordinate necessary actions for the effective fulfillment of rights recognized in the Constitution; That, Article 227 of the Fundamental Norm determines that public administration constitutes a service to the community governed by the principles of effectiveness, efficiency, quality, hierarchy, decentralization, coordination, participation, planning, transparency, and evaluation; That, Article 13 of the Organic Monetary and Financial Code, Book I, created the Financial Policy and Regulation Board, part of the Executive Function, as a public law legal entity, with administrative, financial, and operational autonomy, responsible for formulating credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation; That, Article 14, numbers 1 and 2, of the aforementioned Code, regarding the scope of competence of the Financial Policy and Regulation Board, determines that it corresponds, among other functions, to formulate securities policy and issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the securities system; That, numbers 1, 7, 9, and 27 of Article 14.1 of the aforementioned Organic Monetary and Financial Code, Book I, establish that it corresponds to the Financial Policy and Regulation Board, among other faculties, the following: i) regulate the creation, constitution, organization, activities, operation, and liquidation of securities entities; ii) issue the prudential regulatory framework to which securities entities must adhere; iii) issue the non-prudential regulatory framework for all securities entities, which will include, among others, norms on accounting, transparency and information disclosure, market integrity, and consumer protection; and, iv) exercise the other functions, duties, and faculties assigned by the Organic Monetary and Financial Code and the law; That, the last paragraph of Article 14.1 ibidem mandates that all norms and policies issued by the Financial Policy and Regulation Board in the exercise of its functions, duties, and faculties must be backed by duly founded and argued technical reports; That, Article 25.1, number 1, of the aforementioned organic code determines, within the functions of the Technical Secretariat of this Board, the elaboration of technical and legal reports that support the regulation proposals to be issued by the Financial Policy and Regulation Board;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | That, the Twenty-Ninth General Provision of the Organic Monetary and Financial Code, Book I, prescribes: “In the current legislation where reference is made to the 'Monetary and Financial Policy and Regulation Board', replace it with 'Financial Policy and Regulation Board.'; That, the Fifty-Fourth Transitional Provision of the aforementioned Code determines the transitional regime for resolutions of the Codification of the Monetary and Financial Policy and Regulation Board, establishing that: “(…) The resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Monetary and Financial Policy and Regulation Board and the norms issued by control bodies will maintain their validity until the Monetary and Financial Policy and Regulation Board and the Financial Policy and Regulation Board decide what corresponds, within their respective competencies.”; That, the Securities Market Law, contained in Book II of the Organic Monetary and Financial Code, when referring to the object and scope of said Law, determines in its Article 1 that its object is to promote an organized, integrated, efficient, and transparent securities market, in which securities intermediation is competitive, orderly, equitable, and continuous, as a result of true, complete, and timely information; whose scope covers the securities market in its exchange and over-the-counter segments, stock exchanges, trade associations, securities houses, fund managers and trusts, rating agencies, issuers, external auditors, and other participants who in any way act in the securities market; That, the Securities Market Law, in its article numbered immediately following Article 1, prescribes that the guiding principles of the securities market that guide the actions of the Financial Policy and Regulation Board, the Superintendency of Companies, Securities and Insurance, and participants are: i) public faith; ii) investor protection; iii) transparency and publicity; iv) symmetric, clear, true, complete, and timely information; v) free competition; vi) equal treatment of securities market participants; vii) application of good corporate practices; viii) respect and strengthening of the regulatory power of the Financial Policy and Regulation Board, subject to the Constitution of the Republic of Ecuador, public policies of the Securities Market, and the Law; and, ix) promote financing and investment in the national development regime and a democratic, productive, efficient, and solidarity-based market; determining that these principles must always be interpreted in the sense that most favors the investor; That, Article 9 of the Organic Monetary and Financial Code, Book II (Securities Market Law), enumerates the attributions that currently correspond to the Financial Policy and Regulation Board in the context of this Law, among which are those indicated in numbers 1 and 5, which are: (i) establish the general policy of the securities market and regulate its functioning; and, (ii) issue general norms on the basis of which stock exchanges may issue their self-regulation norms; That, Article 43 of the same Securities Market Law, prescribes that self-regulation is understood as the faculty that stock exchanges and trade associations formed by entities created under the protection of said law and duly recognized by the National Council of Securities -currently the Financial Policy and Regulation Board- have to issue their regulations and other internal norms, as well as to exercise control over their members and impose sanctions within the scope of their competence; determining, furthermore, that self-regulation will contemplate at least norms of ethics, discipline, self-control, surveillance, sanction, and good customs constituted by uniform, public, and generally practiced facts; and, that the transgression of self-regulation norms must be sanctioned by the self-regulatory body, without prejudice to the sanction that the control body may eventually impose;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | That, in accordance with what is provided in the article numbered after Article 43 of the Securities Market Law, self-regulation norms will necessarily require the approval of the Superintendency of Companies, Securities and Insurance; also stating that members of the highest administrative body of stock exchanges and trade associations formed by entities created under the protection of the aforementioned law, as well as their legal representatives, will be responsible for ensuring strict observance of self-regulation norms; providing that any non-compliance with those self-regulation norms must be sanctioned by the self-regulatory entity and reported immediately to the Superintendency of Companies, Securities and Insurance; That, number 12 of Article 48 of the same law establishes the obligation of stock exchanges to sanction legal and natural persons subject to their control for transgressions of self-regulation norms; That, Article 28 ibidem provides that stock exchanges and other self-regulation associations must maintain mechanisms of information to the public, in which the information that issuers and institutions regulated by the Securities Market Law must make public is registered; such records will be public and the information contained in them must be widely disseminated by any electronic means or other systems to which market participants have access; That, regarding the attributions and functions of the Superintendency of Companies, Securities and Insurance, Article 10 of the Securities Market Law, in its numbers 10, 15, and 18, mandates that said surveillance, audit, intervention, and control body corresponds to: (i) dispose, through a founded resolution, the suspension or modification of self-regulation norms issued by stock exchanges or trade associations created under the protection of the aforementioned law, when such norms could infer harm to the development of the market or contradict express legal or complementary norms; (ii) register self-regulation trade associations created under the protection of the aforementioned law; and, (iii) approve self-regulation norms and dispose, through a founded resolution, the suspension or modification of self-regulation norms issued by stock exchanges, respectively; That, in accordance with what is prescribed in numbers 6, 16, and 25 of Article 207 of the Securities Market Law, administrative infractions to be sanctioned by the control body are determined as follows: (i) not observing self-regulation norms approved by stock exchanges or by trade associations that form entities created under the protection of the aforementioned law; (ii) not informing and sanctioning, by stock exchanges or trade associations formed by entities created under the protection of the aforementioned law, to the Superintendency of Companies, Securities and Insurance, of any non-compliance with self-regulation norms, immediately upon knowledge thereof, or of sanctions imposed for transgression of self-regulation norms; and, (iii) not sending to the Superintendency of Companies, Securities and Insurance any information that it requires in compliance with the Securities Market Law and its complementary norms, or that is specifically required to exercise its control labor; That, Article 15 of the Organic Administrative Code, with reference to the principle of responsibility, provides that the State will respond for damages as a consequence of the lack or deficiency in the provision of public services or the actions or omissions of its public servants or subjects of private rights acting in the exercise of a public power by delegation of the State and its dependents, controlled or contractors, with the State making effective the responsibility of the public servant for intentional or negligent acts or omissions, stating that no public servant is exempt from responsibility;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | That, through Office S/N of April 29, 2024, the Quito Stock Exchange (BVQ) and the Guayaquil Stock Exchange (BVG) presented to the Financial Policy and Regulation Board a list of reform proposals to Book II “Securities Market” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, among which is one related to norms applicable to self-regulation, covering aspects such as regulated subjects, approval of self-regulation regulations, and publication of resolutions issued by sanctioning bodies in the corresponding regulatory framework; That, the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2024-0116-M of December 27, 2024, sends to the President of the Board, Acting, the Technical-Legal Report No. JPRF-CTCJ-2024-015 of December 27, 2024, issued by the Technical Secretariat of the Board, as well as the respective draft resolution; That, the Financial Policy and Regulation Board, in a reserved in-person ordinary session held on December 31, 2024, reviewed the Memorandum No. JPRF-ST-2024-0116-M of December 27, 2024, issued by the Technical Secretary of the Board; as well as the aforementioned Technical-Legal Report No. JPRF-CTCJ-2024-015 and the corresponding draft resolution; That, the Financial Policy and Regulation Board, in a reserved in-person ordinary session held on December 31, 2024, reviewed and approved the following Resolution; and, In exercise of its functions, RESOLVES: ARTICLE FIRST.- The text of Article 2 of Chapter I “Self-Regulation Standard for Stock Exchanges and Trade Associations”, Title VI “Self-Regulation”, Book II “Securities Market” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions is substituted by the following: “Self-regulator: Are the stock exchanges and trade associations formed by entities created under the protection of the Securities Market Law.” ARTICLE SECOND.- Immediately following Article 2 of Chapter I “Self-Regulation Standard for Stock Exchanges and Trade Associations”, Title VI “Self-Regulation”, Book II “Securities Market” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, the following article is incorporated: “Art. 2.1.- Subjects obliged to comply with self-regulation norms: a. Subjects obliged to comply with self-regulation norms issued by Stock Exchanges are: i) securities houses, their operators and officials; ii) investment banks, their operators and officials; and, iii) public sector officials authorized to operate in the Stock Exchange. b. Subjects obliged to comply with self-regulation norms issued by trade associations are: the members of the trade association. c. Subjects obliged to the self-regulation norm also include natural and legal persons linked to the regulated subjects.

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | Persons linked to regulated subjects are understood to be natural or legal persons, their legal representatives, administrators, and other officials, and related companies regardless of the type of contractual relationship, as long as they participate directly or indirectly in the realization of activities inherent to the regulated subject. For this purpose, the linkage criteria provided by the Securities Market Law and its complementary norms will be considered.” ARTICLE THIRD.- The text of Article 6 of Chapter I “Self-Regulation Standard for Stock Exchanges and Trade Associations”, Title VI “Self-Regulation”, Book II “Securities Market” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions is substituted by the following: “Of the request for approval of self-regulation regulations and their reforms: The legal representative or attorney-in-fact of the stock exchange or trade association, once it has obtained approval of the self-regulation regulation or its reforms from the Board of Directors or competent body, must present to the Superintendency of Companies, Securities and Insurance the request for approval, to which it will attach the following documentation:

1. Certified copy of the minutes with which the self-regulation norm or its reforms were approved; and,
2. Certified copy of the full text of the self-regulation norm. In the case of self-regulation norms that, in accordance with the Law and norms issued by the Financial Policy and Regulation Board, require joint approval by stock exchanges, both the request for approval and the full text of the self-regulation norm must be signed by the legal representatives of the stock exchanges.” ARTICLE FOURTH.- The text of Article 11 of Chapter I “Self-Regulation Standard for Stock Exchanges and Trade Associations”, Title VI “Self-Regulation”, Book II “Securities Market” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions is substituted by the following: “Publication of resolutions of sanctioning bodies and sending of the process file: Resolutions that impose sanctions by stock exchanges and trade associations, in application of their self-regulation norms, must be notified to the Superintendency of Companies, Securities and Insurance, through circulars, web pages, and other dissemination means they consider appropriate, no later than the day following the issuance of the resolution; likewise, the Superintendency will be informed of the autos of the start of the sanctioning procedure, no later than the day following their dictation. Additionally, and within the time period indicated above, the resolution will be published on the web page of both the self-regulatory entity and the regulated subject, as applicable. A certified copy of the sanctioning process file, regardless of whether it involved a sanction or exoneration of the accused, will be sent to the Superintendency of Companies, Securities and Insurance within three business days counted from the notification of the corresponding decision.”

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Governmental Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | GENERAL PROVISIONS FIRST.- The Superintendency of Companies, Securities and Insurance will communicate to the respective controlled entities the content of this Resolution. SECOND.- In case of doubt regarding the content or scope of the provisions of this Resolution, it will correspond to the Superintendency of Companies, Securities and Insurance to resolve them. FINAL PROVISION.- This Resolution will enter into force from this date, without prejudice to its publication in the Official Register, and will be published on the institutional web page of the Financial Policy and Regulation Board within a maximum term of two days from its issuance. NOTIFY.- Given in the Metropolitan District of Quito, on December 31, 2024. THE PRESIDENT, Mgs. María Paulina Vela Zambrano The preceding Resolution was processed and signed by Master María Paulina Vela Zambrano, President of the Financial Policy and Regulation Board, in the Metropolitan District of Quito, on December 31, 2024.- I CERTIFY. TECHNICAL SECRETARY, Mgs. Luis Alfredo Olivares Murillo