Resolution R-CNMV-2019-17-MV: Regulation to Establish and Operate Centralized Trading Mechanisms

SCIDI// Superintendencia del Mercado de Valores dc la República Dominicana CERTIFICATION The undersigned, Lic. Ervin Novas Bello, General Manager of the Central Bank of the Dominican Republic (hereinafter, "Central Bank"), representing the Governor of the Central Bank, Ex Officio Member and President of the National Securities Market Council (hereinafter, "Council"); and Licda. Fabel María Sandoval Ventura, Secretary of the Council, CERTIFY that the text below constitutes a faithful copy transcribed in its entirety in accordance with the original of the Fourth Resolution, R-CNMV-2019-17-MV, adopted by said body in the meeting held on Tuesday, the second (02) of July, two thousand nineteen (2019):

"FOURTH RESOLUTION OF THE NATIONAL SECURITIES MARKET COUNCIL DATED TWO (2) JULY TWO THOUSAND NINETEEN (2019). R-CNMV-2019-17-MV REFERENCE: Approval of the Regulation to Establish and Operate Centralized Trading Mechanisms.

WHEREAS: That in compliance with Law No. 249-17, on the Securities Market of the Dominican Republic, promulgated on the nineteenth (19) of December, two thousand seventeen (2017) (hereinafter "Law No. 249-17"), as well as what is provided by the Internal Regulation of the National Securities Market Council (hereinafter "Internal Regulation of the Council"), adopted by said collegiate body through the First Resolution, R-CNMV-2018-06-MV, dated the twenty-ninth (29) of November, two thousand eighteen (2018); on Tuesday, the second (2) of July, two thousand nineteen (2019), the Superintendent of the Securities Market submitted to the knowledge and approval of the National Securities Market Council (hereinafter "the Council"), the definitive version of the draft Regulation to Establish and Operate Centralized Trading Mechanisms (hereinafter "the Draft Regulation").

That the Council, in compliance with the attributions and powers conferred by articles 13, literal 5, and 25 of Law No. 249-17, validly assembled following prior summons, deems it appropriate to state the following:

CONSIDERING:

1. That article 13, numeral 5, of Law No. 249-17 confers upon the Council, as the superior body of the Securities Market Superintendency (hereinafter "the Superintendency"), the attribution to "(d)ictate, upon the proposal of the Superintendent, the regulations for the application of this law".
2. That article 25 of the aforementioned Law No. 249-17 provides that "(e) the Council is the competent body to establish regulations regarding the activities of the securities market indicated in this law."
3. That the Third Transitory Provision of the aforementioned Law No. 249-17 establishes that the Council must complete the issuance of the regulations that develop the application of said law no later than twenty-four (24) months after the date of its entry into force, among which it cites the Regulation to Establish and Operate Centralized Trading Mechanisms.
4. That in compliance with Law No. 200-04, General Law of Free Access to Public Information, dated the twenty-fifth (25) of February of the year two thousand five (2005) and its implementing regulation, approved through Decree No. 130-05, dated the twenty-fifth (25) of February of the year two thousand five (2005), the preliminary version of the Draft Regulation was published for consultation by interested sectors from the eighteenth (18) of April of the year two thousand nineteen (2019) until the twenty-seventh (27) of May of the year two thousand nineteen (2019), inclusive.
5. That as a result of said consultative process, observations were received from the Central Bank of the Dominican Republic, the Ministry of Finance, CEVALDOM Centralized Securities Depository, S.A., the Association of Stock Exchanges of the Dominican Republic (APB), the Securities Exchange of the Dominican Republic (BVRD), and the Dominican Association of Investment Fund Managing Companies (ADOSAFI).
6. That, likewise, as part of the administrative procedure, prior to the definitive approval of the Draft Regulation and in attention to the principles of transparency and participation, during the month of June of two thousand nineteen (2019), various working groups were held with interested sectors.
7. That the observations received were duly analyzed and weighed by a technical team of the Superintendency along with its external, national, and international advisors, determining that seventy-five percent (75%) of the observations could be favorably accepted for incorporation into the definitive version of the Draft Regulation.
8. That among the main observations that were accepted, the following stand out:
   • Clarification of cross trades.
   • Modification of the irrevocability of trades.
   • Modification of sanctioning measures to indicate that they will be reported to the Securities Market Superintendency in a reserved manner.
   • Modification of the self-regulatory role of societies administering centralized trading mechanisms.
9. That with the entry into force of Law No. 249-17, the Superintendency carried out a comprehensive review of the provisions linked to centralized trading mechanisms, whose analysis evidenced the need to expand and unify the provisions for the authorization, organization, functioning, and degree of transparency of said mechanisms, which were dispersed in various instruments.
10. That the Draft Regulation aims to develop the provisions relative to the regulation of centralized trading mechanisms and their administering societies, as established by Law No. 249-17 and international standards in the matter.

SEEN: a. The Constitution of the Dominican Republic, voted and proclaimed by the National Assembly on the thirteenth (13) of the month of June, two thousand fifteen (2015), published on the tenth (10) of July, two thousand fifteen (2015). b. Law No. 249-17, on the Securities Market, dated the nineteenth (19) of the month of December, two thousand seventeen (2017). c. Law No. 107-13, on the Rights of Persons in their Relations with Administration and Administrative Procedure, dated the sixth (6) of August, two thousand thirteen (2013). d. Law No. 200-04, General Law of Free Access to Public Information, dated the twenty-fifth (25) of February of the year two thousand five (2005). e. The Corporate Governance Regulation dictated by the National Securities Market Council through Single Resolution, R-CNMV-2019-11-MV, dated the second (2) of April of two thousand nineteen (2019). f. The Internal Regulation of the National Securities Market Council dictated through the First Resolution, R-CNMV-2018-06-MV, dated the twenty-ninth (29) of November of the year two thousand eighteen (2018). g. The Regulation of Fees for Regulation Concepts and for the Services of the Securities Market Superintendency, dictated by the National Securities Market Council through First Resolution, R-CNMV-2018-10-MV, dated the eleventh (11) of December, two thousand eighteen (2018). h. The Regulation of the General Law of Free Access to Public Information, approved through Decree No. 130-05, dated the twenty-fifth (25) of February of the year two thousand five (2005). i. The Principles Applicable to Financial Market Infrastructures issued by the Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO) dated February of two thousand nineteen (2019). j. The International Financial Reporting Standards (IFRS) established by the International Accounting Standards Board (IASB). k. The matrix prepared by the technical team of the Superintendency, which collects the observations and comments of the sectors that participated in the public consultation. l. The other documents that make up the file.

THEREFORE: After having studied and deliberated on the matter, the National Securities Market Council, in the exercise of the powers conferred by Law No. 249-17, by unanimous vote of its members, attending to the reasons exposed,

RESOLVES: FIRST: APPROVE the definitive version of the draft Regulation to Establish and Operate Centralized Trading Mechanisms, whose text is transcribed below:

"REGULATION TO ESTABLISH AND OPERATE CENTRALIZED TRADING MECHANISMS

TITLE I GENERAL PROVISIONS

CHAPTER I Object and Scope

Article 1. Object. This Regulation aims to develop the provisions relative to the regulation of centralized trading mechanisms and their administering societies, as established by Law No. 249-17 on the Securities Market, promulgated on the nineteenth (19) of December of the year two thousand seventeen (2017), and in accordance with international standards in the matter.

Article 2. Scope. The provisions of this Regulation shall be applicable to the societies administering centralized trading mechanisms (hereinafter "administering societies"), to the centralized trading mechanisms, to securities intermediaries, and to other institutional investors.

CHAPTER II Definitions

Article 3. Definitions. For the purposes and effects of this regulation, the terms and concepts detailed below shall have the following meaning:

1. Affiliate: A legal entity authorized as a participant in a centralized trading mechanism by the administering society.
2. Continuous trading automatic matching: A matching method without manual intervention of offers entered throughout the entire trading day, where the best price offer, understood as the highest price if it is a buy and the lowest price if it is a sell, is matched by the first contrary offer entered at that price or a better one, prevailing the chronological order of entry of the offer at equality of price, with priority given to the oldest offer.
3. Affiliate Committee: A committee integrated by various representatives of the affiliates to the centralized trading mechanisms administered by the administering society, whose function is to advise the board of directors on fundamental provisions that impact their affiliates.
4. Council: The National Securities Market Council of the Dominican Republic.
5. Law: Law No. 249-17 on the Securities Market of the Dominican Republic, promulgated on the nineteenth (19) of the month of December, two thousand seventeen (2017).
6. Order Book: Electronic list, chronologically ordered, of all buy and sell orders instructed by clients of a securities intermediary and of all intentions of buy and sell offers on own account by affiliates of the centralized trading mechanism.
7. Price formation mechanism: Set of rules whose function is to determine the equilibrium price of the supply and demand of securities. These mechanisms can be of continuous trading or auction.
8. Algorithmic trading: Procedure employed by an affiliate to a centralized trading mechanism, which, through a computer algorithm, automatically determines the different parameters under which the buy or sell offers of the affiliate enter the transactional system (time of entry, price, and quantity), with limited or no manual intervention.
9. Continuous trading: Price formation process that allows uninterrupted entry of buy and sell offers, throughout the daily trading day, generating the matching of offers automatically or discretely.
10. Buy or sell offer: Manifestation of interest to buy or sell certain securities, through an instruction entered by an affiliate to a transactional system of a centralized trading mechanism.
11. Matched trade: A trade whose conditions were agreed upon through the matching of the respective buy and sell offers, but which has not yet been confirmed.
12. Structured trade: A trade derived from a contractual agreement, which involves a series of linked transactions, with settlement on different dates, determining the yield of said trade from the result of the set of individual trades.
13. Agreed trade: A matched trade that has been confirmed by the parties and under conditions of being communicated to the clearing and settlement system as a transfer order, having the quality of irrevocable.
14. Buy or sell order: Instruction to buy or sell, respectively, certain securities, delivered by a client to their securities intermediary.
15. Closing price: Price of a specific value at the end of the trading day in a centralized trading mechanism.
16. Registry: The Securities Market Registry.
17. Operational risk: Risk that deficiencies that may occur in information systems or loss due to lack of adequacy or failure of internal processes, human errors, management failures, or alterations caused by personnel and of internal systems or internal controls applicable, or due to external events that result in the reduction, deterioration, or interruption of services provided by an entity.
18. Systemic risk: Risk that the inability of one or more participants to fulfill their obligations as agreed, implies that other participants are unable to fulfill their obligations at the corresponding maturity, causing a chain effect on the rest of the financial market and eventually a collapse of it.
19. Direct order routing: Procedure through which a securities intermediary affiliated to a centralized trading mechanism facilitates a client's entry of offers into the transactional system, using the intermediary's identity. The information entered can be channeled directly to the transactional system or through the intermediary's systems, but without manual intervention by the latter.
20. Transactional system: Technological functionality responsible for operationally implementing the price formation mechanism.
21. Open outcry auction: Price formation procedure consisting of the communication of buy and sell offers in a physical space called the "ring", determining the price or prices that equilibrate the supply and demand of the auctioned securities through the matching of offers carried out by an official of the administering society according to a set of previously established rules.
22. Automatic matching auction: Price formation process consisting of the posting of buy and sell offers in a time window within a trading day, with the aim of determining at the end of said period, the price or prices that equilibrate the supply and demand of the auctioned securities and the subsequent automatic matching of offers according to a set of previously established rules by the administering society.
23. Nominal value unit: The minimum divisibility of a security, expressed in monetary terms, that is susceptible to being traded.

TITLE II OF THE SOCIETIES ADMINISTERING CENTRALIZED TRADING MECHANISMS

CHAPTER I. Of the Operating Requirements for Administering Societies

Section I. Of the Authorization for Registration in the Registry and for Commencing Operations

Article 4. Authorization. In accordance with what is established in the Law, centralized trading mechanisms and their administering societies shall be subject to the authorization of the Council and the supervision of the Superintendency.

Article 5. Application. The legal entity interested in operating as an administering society of centralized trading mechanisms must obtain authorization from the National Securities Market Council to register in the Securities Market Registry, having to process the corresponding application via the Superintendent of the Securities Market, through its operational departments, accompanying the documents required in Title II of this Regulation. Paragraph I. The Superintendency shall proceed to register in the Securities Market Registry the administering societies approved by the National Securities Market Council.

Article 6. Responsibility and formalities of the documentation. Every application for authorization for registration in the Securities Market Registry must be signed by the legal representative of the society or general or special attorney constituted for such purposes, who must provide the information and documents required in this Regulation, in a truthful, timely, exact, and sufficient manner. The applicant is responsible for the documentation deposited with the Superintendency. Paragraph I. The application must be presented via form available at the Securities Market Superintendency and on its website, and its supporting documents presented in one (1) copy, organized in the same order in which the information is requested and with a backup in the electronic media available to the Superintendency. Paragraph II. Prior to the delivery of the application, the applicant must make the corresponding payments in accordance with the Regulation of Fees for Regulation Concepts and for the Services of the Securities Market Superintendency promulgated through Resolution R-CNMV-2018-10-MV dated the eleventh (11) of December of two thousand eighteen (2018) of the National Securities Market Council (hereinafter, "Regulation of Fees") for the concept of regulation and for the services of the Securities Market Superintendency and attach as proof of payment a physical or digital copy of the respective deposit slip or transfer issued by the financial intermediary entity.

Article 7. Formalities of foreign documents. Any document originating abroad that is presented before the Superintendency must be duly legalized by the competent authorities of the country of origin and by the consular authorities of the Dominican Republic located in the same. In case there is no Dominican consular office in the country of origin, the procedure shall be carried out before the concurrent Dominican consular representation. If the country of origin of the documents has signed the Hague Convention, the documents only need to be apostilled. Paragraph I. All documents and information drafted in another language must be translated into Spanish by a judicial interpreter before being sent to the Superintendency. In case of inconsistency or error, the Superintendency will only admit the validity of the original document.

Article 8. Deadlines for technical evaluation of the application. Once the application is received, the Superintendent will verify within a period of three (3) business days that it complies with the deposit of the documents established in Title II of this Regulation. If during the verification of the application the Superintendency determines that there are elements that could induce errors or interpretations contrary to current regulations, depending on their magnitude, it may, through a duly motivated act, return the application or require corrections of the non-compliance, errors, or disqualifications detected. Paragraph I. If the application is complete, the Superintendent will have a period of twenty-five (25) business days to verify that it is in accordance with the requirements established in this Regulation and to elevate it to the knowledge and approval of the National Securities Market Council. Paragraph II. In the case that the Superintendent formulates observations to the applicant within the period established in the previous paragraph, the latter will have a period not exceeding fifteen (15) business days to respond to said observations and complete the matters that have been required. After this period has elapsed without the interested party having fulfilled the formulated requirements, the application will be automatically dismissed. Paragraph III. The period established in the previous paragraph may be extended by the Superintendent, provided that there are duly justified causes by the applicant. However, the added period..."