Circular REMON 1-784: Monetary Regulation Operations. Central Bank Participation in Peso Lebac Repo Markets and Secondary Lebac/Nobac Buy/Sell Markets

"2004 - Year of the Argentine Antarctic"
CENTRAL BANK OF THE ARGENTINE REPUBLIC
COMMUNICATION "A" 4143 21/05/2004
TO FINANCIAL ENTITIES:
Ref.: Circular
REMON 1 - 784
Monetary regulation operations. Central Bank participation in peso Lebac repo markets and secondary Lebac and Nobac buy/sell markets.
____________________________________________________________ We address you to communicate the regulations governing the Central Bank's participation in the peso Lebac repo market and the secondary market for Lebac and Nobac buy/sell operations, with the aim of conducting regulation operations in line with the development of the monetary program.

1. Repo Operations.
   The Central Bank will participate in the repo operations market with application of non-CER-adjustable pesos, which develops through the SIOPEL electronic system of Mercado Abierto Electrónico S.A. (MAE), by including and/or accepting buy and sell offers for Lebacs in the immediate cash negotiation wheel, under the blind negotiation modality, called REPO. Given that the negotiation screen in said wheel only shows the opening of the offered repo operation, the settlement type "FP" (Free of Payment) marked for a purchase (active repo operation for the Central Bank) will mean that the sale effected at maturity, for the closure of the same operation, will be settled "FT" (Free of Transfer of Securities), and vice versa. The term in which the Central Bank will operate will be 1, 7, and 30 calendar days. The conditions under which the Central Bank will operate in said market are as follows:
   a) It will operate FP for the opening of active repos and for the closure of passive repos, and FT for the opening of passive repos and for the closure of active repos, with settlement of the Lebacs in the CRyL and of the pesos in the entities' current accounts at the Central Bank. b) Settlements will be carried out in harmony with the rest of the operations traded between financial entities, which will be settled through Argenclear S.A. or other accepted modalities. Consequently, the days and hours in which settlements will be effected are as follows:
   i) Cash purchase for the opening of an active repo and forward purchase for the closure of a passive repo, on the negotiation date and maturity date, respectively.

• Debit of the Lebacs in the entity's CRyL "own portfolio" account, from 16:00 and, at the latest, until 19:00 hrs.
• Credit of the pesos in the entity's current account, immediately after verification of the receipt of the Lebac.
• If entities need to anticipate the settlement time, they may request the Central Bank to debit their CRyL account, from 14:00 hours.
  To this end, an X-400 message must be sent to the address: BCRA CRyL.

-5- ii) Cash sale for the opening of a passive repo and forward sale for the closure of an active repo, on the negotiation date and maturity date, respectively.
Entities must credit the capital amount in pesos to account No. 900 of the Central Bank in the MEP until 16:00 hours, using the DF5 operation code for this purpose.
In the event that the entity does not make the credit under the preceding terms, the following procedure will be followed:

• Debit of the pesos in the entity's current account, from 16:00 and, at the latest, until the settlement of the electronic clearing chambers for checks and other values, which takes place approximately at 20:00 hrs.
• Credit of the Lebacs in the entity's CRyL "own portfolio" account, immediately after verification of the collection of the pesos, when applicable until 19:00 hours; if the debit occurs subsequently, the Lebacs will be credited the next business day with the value of the settlement date.
  c) Active repo openings for the Central Bank that cannot be settled on the negotiation date because the selling entity does not have sufficient Lebacs in its CRyL "own portfolio" account (capital plus margin) will continue to be presented for settlement daily until reaching the business day prior to the agreed maturity date. On the negotiation date, which will be the first settlement, and on each subsequent business day where defaults occur, the entity will be debited under the concept of "Penalty for Non-Compliance" an amount equal to the daily interest that the operation would have accrued, considering for this purpose the number of calendar days included between business days. On the agreed maturity date, the repo operation will be considered annulled. Failed operations negotiated for a 1-day term can never be settled. For operations negotiated for more than 1 day, if the opening is settled after the negotiation date, the repo operation will remain valid for the residual period until reaching the agreed maturity date. d) In the event of non-compliance at the closure of a passive operation for the Central Bank, because the selling entity does not have sufficient Lebacs in its CRyL "own portfolio" account (capital plus margin), it will be presented for settlement until the second business day after the maturity date. On the maturity date and the following business day, if non-compliance continues, the entity will be debited under the concept of "Penalty for Non-Compliance" an amount equal to the daily interest that accrued in its favor during the operation's validity, considering for this purpose the number of calendar days included between business days. This is regardless of whether the operation accrued less interest for the entity, having been negotiated for a 1-day term. If, after 12:00 hrs of the third business day, the entity does not have in its CRyL "own portfolio" account the quantity and class of Lebac received from the Central Bank as capital plus margin, which it must now reintegrate, the Central Bank will proceed to buy them in the secondary market on behalf and order of the entity, charged to its current account in pesos, to then be credited in its CRyL "own portfolio" account, and proceed to the immediate settlement of the closure of the passive repo operation for the Central Bank that was in default. e) In the event that the opening of a passive repo operation for the Central Bank is defaulted due to insufficient funds in the entity's current account, the operation will be considered annulled regardless of the negotiated term, prior to debit in its current account in pesos, under the concept of "Penalty for Non-Compliance", of an amount equal to the interest that would have accrued in favor of the defaulting entity. Regarding the default at maturity of an active repo operation for the Central Bank, the entity will have until 12:00 hours of the next business day to enable its current account with sufficient funds to allow its
  settlement; otherwise, the Central Bank will proceed to the partial settlement of the operation by crediting the Lebacs (capital plus margin) in the entity's CRyL "own portfolio" account, to then proceed to their sale, on behalf and order of the entity, in the secondary market, under possible conditions. Upon crediting the counter-value in the entity's current account in pesos, it will proceed to collect the pesos that were in default, along with an amount under the concept of "Penalty for Non-Compliance", equal to the interest calculated on the owed capital, at the rate accrued by the operation and for the number of calendar days the default lasted, via debit in the current account in pesos of the defaulting entity. f) The party that receives pesos and delivers Lebacs must integrate a margin of 10% of the transacted value, in equal species of Lebacs, which will be reintegrated to it on the maturity date along with the Lebacs delivered for the transacted capital.

2. Buy/Sell Operations.
   The Central Bank will participate in the markets for Lebac and Nobac buy/sell operations that develop through the SIOPEL electronic system of Mercado Abierto Electrónico S.A. (MAE), by including and/or accepting offers in the 24-hour cash negotiation wheel, under the blind negotiation modality, called LECE, subject to the following conditions:
   a) It will operate "free of payment" (FP) for purchases and "free of transfer of securities" (FT) for sales of Lebacs and Nobacs, with settlement of the instruments in the CRyL and of the pesos in the entities' current accounts at the Central Bank. b) Settlements will be carried out in harmony with the rest of the operations traded between financial entities, which will be settled through Argenclear S.A. or other accepted modalities. Consequently, the days and hours in which settlements will be effected are as follows:
   i) 24-hour cash purchase, on the business day following the negotiation date.

• Debit of the Lebacs and Nobacs in the entity's CRyL "own portfolio" account, from 16:00 and, at the latest, until 19:00 hrs.
• Credit of the pesos in the entity's current account, immediately after verification of the receipt of the Lebac and Nobac.
• If entities need to anticipate the settlement time, they may request the Central Bank to debit their CRyL account, from 14:00 hours.
  To this end, an X-400 message must be sent to the address: BCRA CRyL. ii) 24-hour cash sale, on the business day following the negotiation date.
  Entities must credit account No. 900 of the Central Bank in the MEP until 16:00 hours, using the DF6 operation code for this purpose.
  In the event that the entity does not make the credit under the preceding terms, the following procedure will be followed:

-5-

• Debit of the pesos in the entity's current account, from 16:00 and, at the latest, until the settlement of the electronic clearing chambers for checks and other values, which takes place approximately at 20:00 hrs.
• Credit of the Lebacs and Nobacs in the entity's CRyL "own portfolio" account, immediately after verification of the collection of the pesos, when applicable until 19:00 hours; if the debit occurs subsequently, they will be credited the next business day with the value of the settlement date.
  c) Central Bank purchase operations that, after 19:00 hrs of the settlement day, i.e., the business day following the negotiation day, cannot be settled because the selling entity does not have sufficient securities in its CRyL "own portfolio" account, will continue to be presented for settlement daily until reaching the third business day following the negotiation date. For each calendar day of non-compliance, the entity will be debited an amount equal to the daily interest that the capital would have accrued, at the annual rate operated on each date at the close of the REPO wheel of the SIOPEL system for 7-day operations, or the previous close if no operations were carried out on the date. Upon reaching the third failed settlement, the operation will be considered annulled. d) Sale operations that, upon reaching the close of the Central Bank's activities on the settlement date, cannot be settled because the entity does not have sufficient funds in its current account, will be annulled. This will give rise to the collection of the "Penalty for Non-Compliance", which will be equal to the daily interest calculated on the peso value of the operation, until reaching the next business day, at the annual rate indicated in the second paragraph of point c) above. If the operation is defaulted on the settlement date, it will be considered annulled.

3. Situations common to REPO and LECE wheels.
   a) All entities are authorized to operate in both wheels. Nevertheless, the Central Bank may defer the authorization or suspend the carrying out of activities with certain entities when, in its judgment, some circumstance justifying such a decision has occurred. In such case, the Representatives designated by the entity will be informed immediately about the causes that motivated the adoption of any of such decisions. b) The Central Bank will interpret that the entities that assign it credit in the REPO wheels (repo operations with non-CER-adjustable Lebacs) and LECE (buy/sell of Lebacs and Nobacs) of the SIOPEL electronic system of Mercado Abierto Electrónico S.A. (MAE), accept to operate under the conditions described in points 1. and 2. above, regardless of the "Clearing House" and "Settlement Type" shown in their offers on screen. c) The Central Bank will limit the participation of entities in both wheels to a net effective debtor position in pesos, which cannot exceed 50% of the average closing balances in current accounts recorded during the last 5 business days or the one recorded on the immediately preceding day if it is lower. The net effective debtor position will be composed of repo operations negotiated for settlement on the date, maturities of repo operations to be settled on the date, and buy/sell operations negotiated on the previous business day, also for settlement on the date. d) After three annulments of operations, whether indistinctly of Central Bank purchases negotiated in the LECE wheel or active repos for the Central Bank negotiated in the REPO wheel, due to lack of Lebacs or Nobacs, as applicable, within a calendar month, or five annulments in the calendar year, the entity will be automatically suspended from operating with the Central Bank for a term of thirty calendar days. The new count of defaults will start from zero from the date of authorization for the resumption of activities. In the event that the entity defaults on a purchase operation with the Central Bank or a passive repo operation for the Central Bank due to insufficient pesos in its current account, it will be automatically suspended from operating in both wheels, until a decision is taken in the file opened to consider said default. e) Entities must designate two Representatives with sufficient power to notify, acting jointly or separately, on behalf of the entity, of the issues that arise as a consequence of the regulation established by this Communication. f) Entities wishing to operate with the Central Bank in the REPO repo negotiation wheel and LECE buy/sell wheel must send a note according to the model attached in the Annex. g) Modifications that may be issued in the future will take effect on operations closed from the next or subsequent day after their issuance, depending on whether their transmission via x-400 occurred before or after 16:00 hours. h) Except for everything stated in this Regulation, operations negotiated in the REPO and LECE wheels
   will be subject to the regulations issued by MAE for both operations. We salute you very attentively. CENTRAL BANK OF THE ARGENTINE REPUBLIC Juan I. Basco Julio C. Siri External Operations Manager Payment System and Operations Manager

ANNEX

B.C.R.A.
Monetary regulation operations. Central Bank participation in peso Lebac repo markets and secondary Lebac and Nobac buy/sell markets.
Annex to
Comm. "A"
4143
-1-
To the Central Bank of the Argentine Republic:
In my capacity as (title in which representation is exercised)...........................of (name of the financial entity)..................................................... I hereby declare that the financial entity I represent resolved to participate, to the extent that market conditions are of our interest, in active and passive repo operations with non-CER-adjustable Lebacs and buy/sell of Lebacs and Nobacs, to be negotiated with the Central Bank through the SIOPEL electronic system of Mercado Abierto Electrónico S.A. (MAE), in the REPO and LECE wheels. Given the above, I declare on behalf of my represented entity to know and accept the conditions established in Communication "A" ........... of .05.04. . To this end, I agree that complementary or modifying provisions will be considered duly notified from their inclusion in the Central Bank's X-400 communications system, and that they will take effect on operations to be negotiated from the next or subsequent business day, depending on whether such inclusion occurred before or after 16:00 hrs. of the day of issuance. Likewise, I accept that any controversy resulting from the operation to which it adheres will be subject exclusively to the Courts of the City of Buenos Aires that integrate the Federal Justice, waiving any other tribunal, jurisdiction or mechanism of dispute resolution that might correspond. Finally, I request the Central Bank of the Argentine Republic on behalf of my represented entity, to proceed to credit and debit in its CRyL "own portfolio" accounts No. .......... the Lebacs and Nobacs resulting from the settlements proper to the negotiated operations, as well as to proceed to debit and credit in its current account in pesos at that Central Bank No. .........., the amounts that result as the counterparty of the movements that occur in the CRyL, for identical operations negotiated, provided that my represented entity has not made the payment through the MEP system, before 16:00 hrs. of the settlement day. Signature:
Clarification: