4326 OFFICIAL GAZETTE OF THE REPUBLIC OF MADAGASCAR Monday, August 3, 2020

PRESIDENCY OF THE REPUBLIC

Law

LAW NO. 2019-009

governing repurchase operations on the financial market.

The National Assembly and the Senate have adopted in their respective plenary sessions on December 13, 2019,

The President of the Republic, Having regard to the Constitution, Having regard to Decision No. 03-HCC/D3 of January 16, 2020 by the Constitutional Court,

Promulgates the law whose text follows:

TITLE ONE

GENERAL PROVISIONS

Article 1. – Object This law governs repurchase operations defined as operations whereby the transferor transfers full ownership to the transferee, for an agreed price, of securities, and whereby the latter respectively and irrevocably undertake, the transferor to repurchase the securities and the transferee to resell them at the agreed price and date.

Art. 2. – Definitions For the purposes of this law, the following terms shall mean: a. Haircut: the reduction in the market value of a security compared to its nominal value; b. Credit institutions: institutions subject to banking law and approved by the Banking and Financial Supervision Commission or CSBF. c. Securities: Transferable and negotiable financial instruments covering repurchase operations that generate revenue or interest, issued by the State or a legal entity; d. Equivalent securities: one or more securities having the same issuer or debtor, and having the same remaining maturity; e. Event triggering early execution: a default or any other similar event agreed upon by the parties in the master agreement, the occurrence of which empowers the transferee to directly and automatically acquire full ownership of the securities or trigger a set-off with acceleration of maturity; f. Set-off with acceleration of maturity clause: a contractual clause pursuant to which the occurrence of an event triggering early execution, whether by novation, set-off, or otherwise, entails the following effects:

• acceleration of maturity such that the obligations of the parties are either immediately due and expressed as an obligation to pay an amount representing their estimated current value, or extinguished and replaced by an obligation to pay the suspended amount, and
• settlement of the sums mutually owed by the parties under these obligations and settlement of an amount equal to the net balance to be paid by the party with the higher debt.

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TITLE TWO

REPURCHASE OPERATIONS CARRIED OUT WITHIN THE FRAMEWORK OF MONETARY POLICY

Art. 3. – Conditions for application Repurchase operations carried out between the Central Bank of Madagascar and credit institutions benefit from the regime of validity, enforceability, and implementation described below, provided that the following conditions are met:

a. that repurchase operations relate exclusively to securities that circulate via account-to-account transfer and whose list and applicable haircuts are established by the Central Bank of Madagascar by means of an instruction;

b. that cash movements related to the repurchase operation are effected and settled within the Automated Clearing and Settlement System operated by the Central Bank of Madagascar;

c. that securities movements related to the repurchase operation are effected and settled within the securities settlement system duly established, operated, and supervised in accordance with international standards;

d. that cash and securities movements occur simultaneously under the delivery versus payment principle.

Art. 4. – Requirement of a Master Agreement Repurchase operations with credit institutions within the framework of monetary policy operations are subject to the prior signature of a Master Agreement adopted by the parties.

Art. 5. – Validity of repurchase operations Repurchase operations must be evidenced in writing or in electronic form or any other durable medium by any process leaving a written trace and allowing the identification of assets.

Recovery, resolution, liquidation measures, or any other assimilable measures taken by the CSBF under banking law with respect to a credit institution do not affect the validity of a repurchase operation concluded prior to the date of the decision pronouncing said measure.

A repurchase operation concluded on the date of a recovery, resolution, liquidation, or any other assimilable measure taken by the CSBF produces its legal effects and is enforceable against third parties only if the concerned credit institution can prove that it was unaware of its existence or could not reasonably have taken knowledge of it.

Art. 6. – Equivalent securities Either party may, during the duration of the operation or on the date set for the execution of the respective obligations of the parties, substitute or deliver equivalent securities.

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The delivery of equivalent securities does not entail the novation of the repurchase operation.

Art. 7. – Enforceability of repurchase operations

Without prejudice to the rules governing the entry and execution of instructions within the Payment and Securities Settlement Systems, repurchase operations become enforceable against third parties upon delivery of the securities.

Art. 8. – Execution of repurchase operations

In the event of events triggering early execution, and without prejudice to the obligation to pay default interest, the creditor of the defaulting party may immediately and automatically obtain performance by equivalent of the obligations due:

a. by way of sale or appropriation of the securities, either by set-off or to discharge open financial obligations; b. by way of appropriation of cash, either by set-off or to discharge open financial obligations.

Appropriation is only possible if this has been agreed upon by the parties in a Master Agreement and if the parties have agreed on the valuation of the securities under normal commercial conditions.

Alternatively, the transferor may also acquire the securities subject to resale on the market at the expense of the transferee.

Art. 9. – Set-off with acceleration of maturity clause

Parties to a repurchase operation may agree on set-off with acceleration of maturity clauses.

Such clauses produce their effects immediately and automatically, according to the modalities they provide for, notwithstanding the existence of recovery, resolution, or liquidation procedures as provided for by banking law.

Art. 10. – Interest

The difference between the resale price and the transfer price of the securities subject to repurchase constitutes operating profit.

The remuneration of the transferee, whatever its form, constitutes a credit income. It is treated on an accounting basis as interest.

Art. 11. – Accounting and tax treatment of repurchase operations

Accounting and financial information rules relating to repurchase operations are established by the Central Bank of Madagascar by means of an instruction while respecting the principle of the primacy of substance over form and in accordance with the accounting plan of credit institutions.

The tax regime applicable to repurchase operations is determined by the General Tax Code.

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4329 OFFICIAL GAZETTE OF THE REPUBLIC OF MADAGASCAR Monday, August 3, 2020

TITLE THREE

REPURCHASE OPERATIONS ON THE INTERBANK MARKET

Art. 12. – Principle

Credit institutions, within the framework of their treasury operations, are authorized to take and place in repurchase securities that circulate via account-to-account transfer.

For securities registered in the account opened with the Central Bank of Madagascar, their processing is carried out within the Automated Clearing and Settlement System.

To ensure the financial security of transactions and with a view to contributing to the development of the interbank market, by means of an instruction, the Central Bank of Madagascar is authorized to make the provision of collateral mandatory for interbank exchanges.

Articles 5 to 11 of this law shall govern the validity, enforceability, and implementation of repurchase operations carried out on the interbank market by credit institutions on securities registered in accounts opened with the Central Bank of Madagascar.

TITLE FOUR

REPURCHASE OPERATIONS BY THE PUBLIC TREASURY

Art. 13. – Principle

The Public Treasury may, with credit institutions, take securities in repurchase within the framework of managing its cash surpluses.

For securities registered in the account opened with the Central Bank of Madagascar, their processing is carried out within the Automated Clearing and Settlement System.

Operations thus carried out by the Public Treasury are subject, as regards their validity, enforceability, and implementation, to Articles 5 to 11 of this law.

At the level of the Public Treasury, the accounting treatment of the operation is governed by an instruction from the Directorate in charge of Public Accounting.

TITLE FIVE

FINAL PROVISIONS

Art. 14. – Exemption

Public Treasury securities subject to repurchase are exempt from procedures governing these securities, as well as fees and commissions collected for the benefit of the Public Treasury related thereto.

Art. 15. – Control and declarations

The Central Bank of Madagascar monitors compliance with the provisions of this law for the operations referred to in Title Three and Title Four.

To this end, entities carrying out operations that are not processed within the Automated Clearing and Settlement System are required to report to the Central Bank of Madagascar according to the modalities specified by means of an instruction from the latter.

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Art. 16. – Acceptance of new participants

With the agreement of the Ministry in charge of Finance, the Central Bank of Madagascar may, by means of an instruction, extend in whole or in part the rules governing the validity, enforceability, and implementation of repurchase operations set forth in Articles 5 to 11 of this law to other economic operators engaged in financial activities within the Republic of Madagascar. This instruction shall be published on the website of the Central Bank of Madagascar.

Art. 17. – Implementing decree and publication for public notice

An implementing decree shall be adopted.