Notice No. 10/GBM/2015 of November 26 – Interbank Foreign Exchange Market Regulation

NOTICE NO. 10/GBM/2015 Maputo, November 26, 2015

SUBJECT: INTERBANK FOREIGN EXCHANGE MARKET REGULATION Given the need to align the operating mechanisms of the Interbank Foreign Exchange Market with the current stage of development of the financial system, the Bank of Mozambique, exercising the powers conferred by Article 21(1) of Law No. 1/92 of January 3 – the Organic Law of the Bank, determines:

1. To approve the Interbank Foreign Exchange Market Regulation, attached hereto, which forms an integral part of this Notice.
2. This Notice takes effect on the date of its publication and revokes Notice No. 02/GBM/2011 of April 27. Any doubts arising from the interpretation and application of this Notice shall be submitted to the Markets and Reserve Management Department of the Bank of Mozambique. Ernesto Gouveia Gove, Governor

INTERBANK FOREIGN EXCHANGE MARKET REGULATION CHAPTER 1 General Provisions Article 1 (Concept and Objectives) The Interbank Foreign Exchange Market, hereinafter referred to as the MCI, is the segment of the foreign exchange market in which the Bank of Mozambique and authorized institutions buy and sell foreign currency to balance foreign currency needs and surpluses, as provided in this Regulation. CHAPTER II Membership and Continuity in the MCI Article 2 (Membership Requirements to the MCI) Membership requirements for the MCI are: a. Being an authorized bank operating in Mozambique; b. Having access to the Bank of Mozambique's Meticalnet application – foreign exchange module; c. Possessing technical-professional capacity and technological infrastructure meeting internationally accepted standards for settling foreign operations; d. Strictly observing the solvency ratio and all current regulations on foreign exchange operations, namely foreign exchange position limits, external payments and receipts, and statistical reporting; e. Submitting historical information on foreign exchange intermediary operations resulting in payments or receipts abroad over the last six months, with a minimum monthly transaction volume equivalent to 10% of the institution's own funds; and f. Subscribing to the Interbank Markets Code of Conduct.

Article 3 (Membership Procedures)

1. The membership application to the MCI must be submitted to the Bank of Mozambique by letter addressed to the Markets and Reserve Management Department.
2. The decision on the application is communicated to the applicant within 10 business days from receipt.
3. Banks that are market participants on the effective date of this Notice retain this status, unless a duly justified contrary expression of intent or exclusion decision by the Bank of Mozambique is made based on Article 4. Article 4 (Suspension and Exclusion from the MCI)
4. Compliance with requirements d) and e) of Article 2, as well as the Interbank Markets Code of Conduct, is subject to periodic reassessment for banks' continuity in the MCI.
5. Participating banks that do not meet requirement e) of Article 2 on the effective date have a 6-month compliance period.
6. Without prejudice to the above, if a participating institution repeatedly violates this Regulation, the Bank of Mozambique may: a) Issue a warning for first-time non-compliance; b) Suspend participation in the MCI for 5 business days for second-time non-compliance, regardless of nature; c) Suspend participation in the MCI for 3 months for third-time non-compliance, regardless of nature; d) Exclude the institution from participating in the MCI for fourth-time non-compliance, regardless of nature. Article 5 (Readmission to the MCI)
7. The Bank of Mozambique may readmit an institution previously excluded by decision or that voluntarily requested exclusion, upon a duly justified request.
8. Readmission is conditioned on resolving the situations that determined exclusion and meeting membership requirements.
9. For exclusions by decision, readmission requests may only be made after a minimum period of 6 months.

CHAPTER III Execution of Operations in the MCI Article 6 (Obligation to Transact in the MCI) All foreign currency transactions between banks and between them and the Bank of Mozambique must occur in the MCI. Article 7 (Currency and Minimum Transaction Amount)

1. The transaction currency in operations where the Bank of Mozambique is a counterparty is the United States Dollar (USD).
2. The minimum transaction amount with the Bank of Mozambique is USD 50,000 (fifty thousand United States dollars).
3. Without prejudice to the previous article, banks may transact other currencies besides USD in operations where the Bank of Mozambique is not a counterparty. Article 8 (Bank Quotations)
4. The Bank of Mozambique provides, via the Meticalnet application (foreign exchange module), a window where participating institutions must register daily, during market hours, their buy and sell quotes for United States Dollars (USD).
5. The first daily quotes must be entered into the Meticalnet foreign exchange module by 8:15 AM.
6. The quote calculated at 8:15 AM each day is considered the opening rate.
7. Participating institutions that fail to submit quotes by the stipulated time are subject to sanctions in this Regulation.
8. Participating institutions may update their quotes throughout the day.

Article 9 (Spread) The maximum spread between the buy and sell foreign exchange rates, quoted per Article 8, is stipulated by the Bank of Mozambique and communicated to participating institutions via the Market Operations System (SOM). Article 10 (MCI Operating Hours)

1. The MCI operates continuously, on all business days, from 8:00 AM to 3:30 PM.
2. Exceptions to the above may be communicated by the Bank of Mozambique via SOM for weighty reasons. Article 11 (Buy and Sell between Participants)
3. Participating institutions must announce on Meticalnet all their foreign currency needs and availabilities, along with respective quotes, prior to any transaction;
4. USD buy or sell transactions must be executed at the rate displayed on screen at the time of negotiation; and
5. Participating institutions may update their buy/sell intentions throughout the day. Article 12 (Operations with the Bank of Mozambique) Operations with the Bank of Mozambique are executed based on the best price criterion.

CHAPTER IV MCI IT Application and User Designation Article 13 (Duty to Use the MCI IT Application) All MCI operations, whether between participating institutions or between them and the Bank of Mozambique, must be executed electronically via the Meticalnet application (foreign exchange module). Article 14 (User Designation)

1. For IT application access, each participating institution must designate users for "Register", "Verify", and "Authorize" operation profiles.
2. The number of users per profile is stipulated by the Bank of Mozambique and communicated to institutions via SOM.
3. Designation must be communicated to the Bank of Mozambique by letter addressed to the Legal Affairs Department, following, with necessary adaptations, the model for approvers and communicators of Interbank Money Market (MMI) operations, attached to the Market Operations System Regulation approved by Notice No. 05/GBM/2013 of June 6, or alternatively, by attaching a power of attorney indicating conferred powers. CHAPTER V Communication, Confirmation and Settlement of Operations Article 15 (Duty and Form of Communication)
4. Participating institutions must communicate, within MCI operating hours, all operations conducted between themselves via the IT application or other means indicated by the Bank of Mozambique.
5. The Bank of Mozambique uses the same communication means to announce proposed operations and transmit results.

Article 16 (Information to be Communicated)

1. In MCI operations, participating institutions must provide the following information according to operation type: a) Amount; b) Currency; c) Exchange rate; d) Value date; e) Correspondent's SWIFT code abroad; f) Nature of the operation.
2. For item a), participating institutions must enter data as a foreign currency demand in case of purchase, and as an offer in the inverse case.
3. Item e) must be accompanied by the account number for foreign currency credit of the correspondent abroad. Article 17 (Confirmation and Settlement)
4. All executed operations are confirmed via the IT application by changing the status from "verified" to "approved" by an authorizing user.
5. After confirmation, institutions may exchange relevant operational information via SWIFT messages.
6. Settlement implies the irreversible allocation of participating institutions' deposit accounts in Meticais with the Bank of Mozambique, specifically crediting or debiting the corresponding transaction value. Article 18 (Value Date)
7. Operations where the Bank of Mozambique participates as a counterparty in the MCI are executed spot, with settlement on the second business day following the transaction date, though exceptional different value dates may be accepted. Whenever the value date of foreign currency buy/sell operations does not coincide with a business day in the involved currencies' market, it must be rolled forward to the next business day.
8. Failure by one party to meet the negotiated value date entitles the aggrieved party to claim, as compensation, interest at market rates and reimbursement of other expenses charged by correspondents during the non-compliance period.

CHAPTER VI Statistical Information Article 19 (Statistical Information Submitted by the Bank of Mozambique) The Bank of Mozambique provides electronically the following information: a) Daily exchange rate tables for valuation purposes; b) Daily and weekly summary of exchange rates applied in market operations. Article 20 (Statistical Information Submitted by MCI Participants) MCI participants must submit to the Bank of Mozambique, via the foreign exchange module, daily information on all foreign exchange operations conducted with their clients, indicating for each operation the client's full name or designation, the applied exchange rate, the transacted amount, the purpose of the operation, and the code of the executing agency. CHAPTER VII Miscellaneous Provisions Article 21 (Evidence) On the value date of operations, the Bank of Mozambique proceeds with debiting or crediting the national currency deposit accounts of intervening institutions, constituting the MCI closing report as formal proof of executed operations. Article 22 (Sanctions) Non-compliance with this Regulation constitutes an offense punishable under applicable legislation.