Resolution 138/2003 Approving the Regulation of Electronic Clearing Houses and Clearing and Settlement Services

BOARD RESOLUTION NO. 138/2003
SUBJECT: GENERAL MANAGEMENT – APPROVES REGULATION OF ELECTRONIC CLEARING HOUSES AND CLEARING AND SETTLEMENT SERVICES

HAVING VIEWED:
Law No. 1670 of October 31, 1995, of the Central Bank of Bolivia.
Law No. 1488 of April 14, 1993, on Banks and Financial Entities.
Law No. 1834 of March 31, 1998, on the Securities Market.
The Regulation of the Check Clearing House, approved by Board Resolution of the Central Bank of Bolivia No. 046/95 of May 18, 1995.
The Regulation of Securities Depository Entities and Clearing and Settlement of Securities, issued by the Superintendence of Pensions, Securities and Insurance, through Administrative Resolution SPVS-IV No. 967 of December 13, 2002. The Report from the Management of the SIPE Payment System Project No. 023/2003 of November 25, 2003. The Report from the Legal Affairs Management SANO No. 234/2003 of December 3, 2003. The note from the General Management GGRL.I. No. 956/2003 of December 3, 2003.

CONSIDERING:
That Law No. 1670, in its Article 54, subsection k), establishes that it is an attribute of the Board of Directors of the BCB to authorize the creation and regulate the operation of Clearing Houses.

That Law No. 1488, in Article 3 numeral 6, defines as auxiliary services activity the operation of clearing houses, establishing in its Article 58 that it corresponds to the Superintendence of Banks and Financial Entities to grant the operating license to these companies. Likewise, Article 68 of this same Law establishes that the rules for the creation, constitution, and operation of clearing houses will be established by the Central Bank of Bolivia.

That the Regulation of Securities Depository Entities and Clearing and Settlement of Securities, issued by the Superintendence of Pensions, Securities and Insurance, through Administrative Resolution SPVS-IV No. 967 of December 13, 2002, in its Article 109, establishes that the provisions contained in Title VI "Clearing and Settlement of Operations" of the Regulation will be adapted according to the regulations for clearing and settlement in clearing houses issued by the Central Bank of Bolivia within the scope of its attributes and functions provided by Law.

That according to what is established in the Report from the Management of the SIPE Payment System Project No. 023/2003, it is necessary to have a regulation that governs the constitution and operation of payment clearing and settlement entities, as well as to regulate the operation of these entities adapting them to international standards.

That through Report SANO No. 234/2003, the Legal Affairs Management states that the draft Regulation of Electronic Clearing Houses and Clearing and Settlement Services does not contravene the current legal order, therefore, it corresponds to the Board of Directors of the BCB to consider the approval of the aforementioned draft.

THEREFORE,

THE BOARD OF DIRECTORS OF THE CENTRAL BANK OF BOLIVIA RESOLVES:

Article 1.- Approve the Regulation of Electronic Clearing Houses and Clearing and Settlement Services in its V Chapters, 32 Articles, and one additional provision, which, as an annex, forms part of this Resolution.

Article 2.- This Resolution will enter into force from December 9, 2003.

Article 3.- Order the adaptation of the BCB Regulations that contemplate operations related to Clearing Houses, insofar as appropriate by the pertinent areas. These modifications must be presented for consideration by the Board of Directors by June 1, 2004.

Article 4.- From the entry into force of this Resolution, entities providing check clearing services have a period of six months to adapt their constitution and operation.

Article 5.- Once the adaptation period to the Regulation of Electronic Clearing Houses and Clearing and Settlement Services is concluded, Board Resolution No. 046/95 of May 18, 1995, will be repealed.

Article 6.- The Presidency and the General Management are entrusted with the execution and compliance of this Resolution.

La Paz, December 4, 2003.

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Juan Antonio Morales A.

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Juan Medinaceli V. Enrique Ackermann A.

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José Luis Evia V. Fernando Paz B.

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Jaime Apt B.

//4. R.D. Nº 138/2003

ANNEX
REGULATION OF
ELECTRONIC CLEARING HOUSES AND
CLEARING AND SETTLEMENT SERVICES

CHAPTER I
GENERAL PROVISIONS

Article 1. (Object). This Regulation aims to regulate the creation, constitution, and operation of Electronic Clearing Houses (ECH) and the general framework for clearing and settlement services of payment instruments.

Article 2. (Scope of Application). The rules contained in this Regulation are applicable to ECHs, their participants, the Central Bank of Bolivia (BCB), and Clearing and Settlement Service Entities (CSSE).

Article 3. (Definitions). For the purposes of applying this Regulation, the following definitions are established:

1. Electronic Clearing House. An ECH shall be understood as the clearing houses defined by Article 68 of Law No. 1488, which use electronic systems for processing their operations. They are auxiliary financial service entities whose sole object is the automatic and centralized processing of clearing and settlement of payment instruments, through the use of telecommunications networks.

2. Cycle. Process comprising the stages of clearing and settlement of the multilateral net positions of participants. A cycle may have one or more sessions.

3. Clearing. Process consisting of the transmission, reconciliation, and calculation of the multilateral net positions of payment instruments of each participant, prior to settlement.

4. Settlement Account. Account at the BCB of the ECH or CSSE to centralize funds destined for the settlement of multilateral net positions.

5. Direct Debit. Charge to the account of a payer, previously authorized, initiated by the beneficiary.

6. Settlement Entity. Entity that maintains a current and reserve account at the BCB and assumes responsibility for providing the necessary funds for the settlement of the multilateral net positions of a participant without accounts at the BCB.
   The settlement entity may also act as a participant of an ECH or CSSE.

7. Clearing and Settlement Service Entity. Entity that performs clearing and settlement of payment instruments as an ancillary activity.

8. Payment Instruments. Instrument that allows the holder or user to transfer funds.

9. Consolidated Limit. Maximum debit amount, in each currency denomination and at the national level, that a settlement entity can register in all ECHs in which it participates.

10. Debtor Multilateral Net Position Limit. Maximum debit amount, in each currency denomination and at the national level, that a participant can register as a debtor multilateral net position during a cycle. This limit is not applicable to the BCB.

11. Settlement. Debit or credit to the settlement entity's account, according to the results of the clearing.

12. Participant. Entity enabled in the system of an ECH or CSSE, to send and receive payment instruments.

13. Multilateral Net Position. Sum of the value of all payment instruments in favor of a participant during a cycle, minus the sum of the value of all payment instruments against it. If the result is positive, the participant is in a creditor multilateral net position; if the result is negative, it is in a debtor multilateral net position.

14. Session. Phase of a cycle in which clearing is carried out that does not involve settlement.

15. User. Natural person expressly authorized by a participant to carry out operations on behalf of the latter.

CHAPTER II
ON ECHs

SECTION I
CONSTITUTION AND OPERATING LICENSE OF ECHs

Article 4. (Constitution). ECHs are constituted as joint-stock companies within the framework of what is provided by Law No. 1488 of April 14, 1993, on Banks and Financial Entities, and have as their sole corporate object the clearing and settlement of payment instruments received from their participants.

Article 5. (Capital). The minimum paid-in capital is established in Bolivianos by an amount equivalent to 3,000,000.- (three million 00/100) Housing Development Units (UFV).

Article 6. (Additional Requirements for Operating License). The Superintendence of Banks and Financial Entities (SBEF) to grant the operating license to ECHs will verify, according to its regulations, compliance with the following requirements:

a. Operational Requirements:
1.1. Processing Computer System. ECHs must have a processing computer system that allows:
a) To have an automatic mechanism for clearing payment instruments, which complies with the clearing guidelines established in this Regulation. b) To calculate, in real time, the multilateral net positions of each of its participants. Real time shall be understood as the processing of payment instruments individually at the moment they are received. c) To register the debtor multilateral net position limit of each of its participants. d) To control that in the clearing process, the debtor multilateral net position limit is not exceeded. e) To inform online and in real time, individually to each of its participants, their multilateral net position, the debtor multilateral net position limit, the detail of payment instruments that have been cleared, and those that exceed the debtor multilateral net position limit. The term "online" indicates that there is a direct and continuous connection to the centralized computer system. f) To classify payment instruments as private or public, according to the source of the payment funds. g) To connect with the BCB's transfer and messaging systems.

1.2. Computer Security Conditions. The operations of ECHs that do not have documentary backup must comply with the use of digital signature mechanisms according to the regulations established by the BCB. Likewise, ECH operations must comply with the "Guidelines and Minimum Computer Security Requirements for the Administration of Information Systems and Related Technologies" defined by SBEF regulations.

b. Operational Requirements:
2.1. Have an Organization and Functions Manual.

2.2. Have a User Manual that includes at least the following procedures:
a) Operation in the clearing and settlement system. b) Use of the processing computer system. c) Computer security that the user must comply with to operate in the system. d) Contingency that the user must comply with according to the ECH's contingency plans in which it participates.

2.3. Have an Internal Operations Regulation (RIO), which expressly establishes the free access of participants and includes at least the following:
a) Definition, description, and scope of services provided. b) Rights, obligations, and responsibilities of participants. c) Processes and criteria for admission and exclusion or withdrawal of participants. d) Description of the clearing and settlement process of payment instruments in all its stages, indicating the precise moment when they begin and end. e) Description of the mechanism for administering payment instruments that did not enter clearing due to exceeding the debtor multilateral net position limit. f) Procedure for the registration and control of debtor multilateral net position limits of its participants, by currency denomination. g) Procedure for determining and disseminating the number of sessions, as well as the cycles and schedules in which they operate. h) Procedure for determining, modifying, and disseminating its tariffs.

i) Detail and periodicity of information provided to its participants.

//9. R.D. Nº 2003

SECTION II
OPERATIONS, OBLIGATIONS, AND RIGHTS OF ECHs

Article 7. (Operations). ECHs are authorized to perform for each of their participants and by currency denomination the following operations:

1. Clear the payment instruments submitted.
2. Settle the multilateral net positions.
3. Register the debtor multilateral net position limit.

Article 8. (Obligations). The obligations of ECHs are the following:

1. Maintain a settlement account at the BCB, for each currency denomination in which it operates, for the settlement of the multilateral net positions of its participants.
2. Subscribe and maintain valid contracts for clearing and settlement services of payment instruments with its participants.
3. Ensure correct and timely clearing, as well as the timely submission of information to all its participants and the BCB for the provision of funds to allow settlement, according to what is established in this Regulation and in its RIO.
4. Execute the settlement of the multilateral net positions of its participants with creditor positions.
5. Send, within the established deadlines, the statistical and control information required by the BCB and SBEF.
6. Ensure that participants clear and settle, up to the limit of their debtor multilateral net position.
7. Establish administration mechanisms for un-cleared payment instruments.
8. Disseminate internal rules and procedures to its participants.
9. Preserve electronic records of operations with their corresponding digital signature, for a period of no less than ten (10) years after the operation is carried out, when there is no documentary backup.
10. Respond to its participants for operational or security failures of its clearing and settlement system, as well as any of its contingency plans.
11. Use the funds credited in the settlement account(s) owned by it to settle the creditor multilateral net positions of its participants.
12. Others established by SBEF in its capacity as supervisory authority.

Article 9. (Rights). The ECH has the following rights:

1. Receive information from the BCB when there are variations in the value of the debtor multilateral net position limit of its participants.
2. Receive compensation for the services provided.

Article 10. (Sanctions). Sanctions for non-compliance with this regulation will be those established by SBEF.

Article 11. (External Audit). The BCB may request SBEF to instruct an ECH to hire, at its cost, a special external audit of its system.

SECTION III
PARTICIPANTS OF ECHs

Article 12. (Participants). The BCB and entities that meet the following minimum requirements may be participants of ECHs:

1. Have an operating license granted by SBEF.
2. Subscribe a contract for clearing and settlement services of payment instruments with the ECH. Participants in the ECH will assume the risks derived from the clearing and settlement of their operations.

Article 13. (Start of Operations). The ECH, before authorizing the start of operations of a participant, will simultaneously inform the BCB, SBEF, and other participants of the start date of operations.

Article 14. (Rights). Participants of ECHs have the following rights:

1. Access the services provided by the ECH on equal conditions.
2. Obtain information about their operations in the manner established in this Regulation and in the ECH's RIO.
3. Be informed about any changes in the rules governing the operation of the ECH, under the responsibility of the latter.
4. Obtain the information existing in the ECH that allows them to evaluate the global risk of the clearing and settlement system in which they participate.
5. Receive, at the close of the cycle, the total payment of their creditor multilateral net position.

Article 15. (Obligations). The obligations of participants of ECHs are the following:

1. Comply with the provisions contained in this Regulation and in the internal regulations of the ECH in which they participate.
2. Continuously monitor their multilateral net position and their debtor multilateral net position limit.
3. Take necessary actions regarding payment instruments that cause them to exceed their debtor multilateral net position limit.
4. Classify payment instruments as private or public before sending them to an ECH.
5. Pay for the services provided by the ECH.
6. Inform the ECH in which they participate, the BCB, and SBEF about any fact or event that puts the clearing and settlement system at risk.
7. Preserve electronic records of their operations with their corresponding digital signature, for a period of no less than ten (10) years after the operation is carried out, when there is no documentary backup.
8. Pay their debtor multilateral net position during the settlement schedule.
9. Have all the technological resources required by the ECH to ensure continuous connection with its computer system.

Article 16. (Withdrawal and Exclusion).

1. Participants of an ECH may:
   a) Voluntarily withdraw, through written communication addressed to the ECH, with the advance notice that it determines. b) Be excluded according to what is established in the ECH's RIO.

2. Any voluntary withdrawal or exclusion will be communicated immediately and simultaneously by the ECH, to the BCB, SBEF, its participants, and other ECHs. Withdrawal and exclusion will be effective within the period determined by the ECH's internal regulations.

CHAPTER III
ON CLEARING AND SETTLEMENT

SECTION I
CLEARING

Article 17. (Payment Instruments). The payment instruments that can be cleared by ECHs are the following:

1. Checks.
2. Electronic fund transfer orders.
3. Payment instructions generated from:
   a) Securities transactions. b) Direct debits. c) Credit card transactions. d) Debit card transactions.
4. Others expressly authorized by the Board of Directors of the BCB.

Article 18. (Schedule and Number of Cycles).

1. ECHs will establish the number of cycles they will carry out per day, as well as the start and end times of each of them, within the BCB's operating hours. The schedule of each cycle will be communicated to the BCB and participants.

2. The official date and time of settlement of each cycle will be that recorded by the BCB's transfer system.

Article 19. (Guidelines). Clearing in each ECH will be carried out complying with at least the following guidelines:

1. In a consolidated manner at the national level and for each currency denomination.

2. Under the multilateral net modality, up to the debtor multilateral net position limit.

3. By calculating, in real time, the multilateral net position and controlling that the debtor multilateral net position limit of each participant is not exceeded.

4. Using one of the following two administration mechanisms for payment instruments not cleared due to exceeding the debtor multilateral net position limit:

a) Rejection of payment instruments that cause a participant to exceed their debtor multilateral net position limit. b) Wait Mode, keeping pending entry into clearing, payment instruments sent by a participant, when their value exceeds the debtor multilateral net position limit. Pending payment instruments will be cleared within the cycle and the allowed limit, according to the administration mechanisms established by the ECH in its RIO.

SECTION II
DEBTOR MULTILATERAL NET POSITION LIMIT

Article 20. (Object). The debtor multilateral net position limit establishes the maximum debit amount that a participant can have during the cycle, to ensure the settlement of their debtor multilateral net position at the end of the cycle.

Article 21. (Determination of the Limit). The debtor multilateral net position limit will be determined by each participant, as a percentage of their RAL Fund, which will be communicated to the BCB by currency denomination and for each ECH in which they participate. In no case, the consolidated limit of a participant may be greater than 95% of their RAL Fund for each currency denomination.

Article 22. (Expansion of the Debtor Multilateral Net Position Limit). Before or during a cycle, a participant may expand their debtor multilateral net position limit, through the following mechanisms:
a) By requesting the BCB to expand the limit with uncommitted percentages of their resources in the RAL Fund. The uncommitted percentage of the RAL Fund in dollars may be considered to expand the debtor multilateral net position limit in Bolivianos. b) By depositing funds made by a settlement entity in the ECH's settlement account.

Article 23. (Decreases in the Debtor Multilateral Net Position Limit). Participants may decrease the percentage of their limit in each ECH. This decrease will be applied only for the following cycles.

Article 24. (Approval or Rejection of the Consolidated Limit by Participant). The BCB will verify that the participant's limits comply with what is established in this Regulation, communicating its approval or rejection to the participant and to each ECH.
In case of approval, each ECH will register in its system the value of the debtor multilateral net position limit assigned to each of its participants so that they are effective in the corresponding cycle. The procedure for communicating debtor multilateral net position limits, as well as the schedules for expanding and decreasing these limits, will be established by the BCB through an express circular from its General Management.

SECTION III
SETTLEMENT

Article 25. (Guidelines). The settlement of the multilateral net positions of participants will be subject to the following minimum guidelines:

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1. Settlement shall be unique and carried out at the end of each cycle, on the same day as clearing, through the liquidation account of each of the CHs, for each currency denomination and in accordance with the resulting multilateral net positions from the clearing process.

2. It shall be carried out for the value of the multilateral net positions for which each settlement entity is responsible.

3. The settlement of the multilateral net debtor positions of the participants shall be carried out by their respective settlement entities, using funds from the current and reserve accounts that these entities maintain at the Central Bank and, where applicable, with the disbursement of liquidity credits guaranteed by the RAL Fund.

4. Settlement shall be irrevocable; therefore, no reversal of funds credited to the CH's liquidation account shall be made.

5. Settlement shall conclude when funds have been credited to the accounts of the entities with a multilateral net creditor position.

Article 26. (Process). The settlement process of the multilateral net positions shall generally comprise the following stages:

1. The settlement entities of the participants with a multilateral net debtor position shall carry out the transfers of the necessary funds for settlement from their current and reserve accounts to the CH's liquidation account, in the corresponding currency denomination. These transfers shall be made up to the time established for the settlement of each of the cycles and using the Central Bank's transfer system.

2. If the settlement entity does not carry out the transfers described in the preceding paragraph within the established schedules for this purpose, the CH shall request the Central Bank to carry out the respective automatic debit from the settlement entity's current and reserve accounts and credit the liquidation account.

3. If, after the automatic debit, the funds are insufficient, the Central Bank shall grant liquidity credits guaranteed by the RAL Fund to the settlement entity to cover its multilateral net debtor position, in accordance with what is established by Article 28 of this Regulation.

4. When the liquidation account has sufficient resources, the CH shall proceed to credit the accounts of the settlement entities of the participants with a multilateral net creditor position, through the Central Bank's transfer system.

5. The CH's liquidation account at the Central Bank must register a zero balance at the end of the settlement of each cycle.

Article 27. (Authorization of automatic debit). Settlement entities, to ensure the settlement of their multilateral net debtor positions and those of the participants on whose behalf they settle, shall expressly authorize the Central Bank to carry out automatic debits in their current and reserve accounts that they maintain at the Issuer Entity. The cost for automatic debit shall be governed by what is established in the Central Bank's Fine Table.

Article 28. (Liquidity credits guaranteed by the RAL Fund). The percentage of the RAL Fund committed in the determination of the multilateral net debtor position limit shall not be collateral for any other liquidity credit.

Article 29. (Payment method and interest rate of liquidity credits for settlement). Liquidity credits to cover the unpaid multilateral net debtor positions of participants shall be paid by 10:00 a.m. on the next business day following the day of their disbursement. The applicable interest rate for these credits shall be equal to that defined by the Open Market Operations Committee of the Central Bank for liquidity credits guaranteed by Tranche II of the RAL Fund plus 200 basis points. If there are weekends or holidays between the disbursement date and the first business day, the interest rate shall apply to all calendar days.

If the financial intermediary entity does not pay the liquidity credit for clearing house settlement within the established deadline, the Central Bank shall debit the overdue amount owed from its accounts and, in case of insufficiency, liquidate the collateral.

An entity that has a pending liquidity credit for clearing house settlement shall not be allowed to enter a new clearing and settlement cycle of a CH until it has cancelled it.

CHAPTER IV
CLEARING AND SETTLEMENT SERVICE ENTITIES

Article 30. (Operating License).

1. The supervision and control bodies, when granting the operating license to CSSEs, shall verify compliance with the requirements established in this Regulation regarding clearing and settlement.

2. The RIO of the CSSEs shall regulate, in addition to what is established in Article 6 of this Regulation, the rights and obligations of the settlement entities of each participant.

Article 31. (Settlement Guarantees and Net Debtor Position Limit of CSSEs). The supervision and control bodies of the CSSEs shall define and communicate to the Central Bank the settlement guarantee mechanisms and, where applicable, the net debtor position limit for the participants of these entities.

CHAPTER V
GENERAL PROVISIONS

Article 32 (Oversight). The Central Bank, as the governing body of the payment system, in coordination with the supervision and control bodies, shall carry out oversight of the operations of the CHs and CSSEs in order to promote the adequate functioning of the clearing and settlement system and prevent systemic risks arising from the functioning of the clearing and settlement system.

FINAL PART
ADDITIONAL PROVISIONS

Sole. (Modification of regulations on clearing and settlement). In virtue of what is established in Article 109 of the Regulation of Deposit Entities and Clearing and Settlement of Securities, the Superintendence of Pensions, Securities and Insurance shall modify and adapt its internal regulations based on what is established by this Regulation.

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