BCT Circular to Authorized Intermediaries No. 2016-01 of February 8, 2016

Tunis, February 8, 2016
CIRCULAR TO AUTHORIZED INTERMEDIARIES No. 2016-01 SUBJECT: Foreign exchange market and hedging instruments for foreign exchange and interest rate risks.
The Governor of the Central Bank of Tunisia,
Having regard to Law No. 58-90 of September 19, 1958, establishing and organizing the Central Bank of Tunisia, as amended by subsequent texts; Having regard to the Foreign Exchange and Foreign Trade Code promulgated by Law No. 76-18 of January 21, 1976, consolidating and codifying foreign exchange and foreign trade legislation governing relations between Tunisia and foreign countries, as amended by subsequent texts, notably Law No. 93-48 of May 3, 1993; Having regard to Decree No. 77-608 of July 27, 1977, setting the conditions for implementing the aforementioned Law No. 76-18, as amended by subsequent texts, notably its Article 25; Having regard to Circular No. 86-02 on detailed statements of foreign currency purchases and sales, as amended by subsequent texts; Having regard to Circular No. 97-08 of May 9, 1997, setting rules regarding the monitoring of foreign exchange positions; Having regard to Circular to Authorized Intermediaries No. 2001-11 of May 4, 2001, on the foreign exchange market and hedging instruments for foreign exchange and interest rate risks, as amended and supplemented by Circular No. 2007-27 of December 18, 2007 and Circular No. 2014-04 of May 9, 2014. Decides:

TITLE I
MARKET OPERATIONS
CHAPTER 1
GENERAL PROVISIONS
Article 1: Foreign exchange market operations shall be carried out in accordance with the conditions defined by this circular.
The conventional operating hours of the interbank foreign exchange market run from 8:00 to 17:00 local time (from 7:00 to 13:00 during the single session), unless otherwise decided by the Central Bank of Tunisia.
Article 2: Foreign exchange operations shall be executed at rates determined by Authorized Intermediaries. They must involve a currency quoted by the Central Bank of Tunisia.
Article 3: Resident Authorized Intermediaries may manage foreign exchange positions generated by their foreign currency operations in accordance with applicable regulations.
Article 4: Authorized Intermediaries are required to implement necessary internal control procedures to ensure compliance with foreign exchange operation management rules. To this end, they must, in particular, maintain a strict separation between the functions of negotiating foreign exchange contracts (Front-Office) and those of monitoring, settling, and accounting for foreign exchange contracts (Back-Office). Market Makers must ensure the existence of a structure responsible for risk monitoring and measuring market activity results (Middle-Office).
Article 5: Authorized Intermediaries are required to sign a standard "ISDA" framework agreement with their clients governing their activity on hedging instruments.
Article 6: Authorized Intermediaries are required to establish a list of counterparty banks for market operations, defining in particular limits per counterparty.
The determination and updating of this list, as well as the limits per bank, must take into account objective criteria for assessing banking risk in accordance with international best practices.

CHAPTER 2
SPOT FOREIGN EXCHANGE OPERATIONS
SECTION 1
GENERAL RULES
Article 7: Authorized Intermediaries are authorized to conduct spot foreign currency/Tunisian dinar and foreign currency/foreign currency exchange operations with their clients for transactions conducted with foreign entities, in accordance with applicable regulations.
Article 8: Foreign exchange operations may be conducted with an Authorized Intermediary other than the domiciliary intermediary of the underlying operation. The domiciliary Authorized Intermediary is solely authorized to proceed with settlement after verifying the regularity of the operation in question.
Article 9: Authorized Intermediaries may freely conduct spot foreign currency/Tunisian dinar exchange transactions on the interbank foreign exchange market, respecting the prudential limits on foreign exchange positions set by applicable regulations.
Article 10: Authorized Intermediaries may conduct foreign currency/foreign currency exchange operations among themselves and with foreign financial institutions as part of their foreign exchange position management.
Article 11: The spot bid and ask rates for foreign currencies against the Tunisian dinar must be continuously communicated to the market via electronic display.
Article 12: The usance period for delivery of counter-values in spot foreign exchange operations is two business days. However, Authorized Intermediaries may exceptionally agree to shorter periods among themselves.
Article 13: The Central Bank of Tunisia intervenes in the foreign exchange market to buy or sell foreign currencies against the dinar directly or through auction.
The Central Bank of Tunisia deals exclusively with Market Makers, while reserving the right to conduct foreign exchange transactions with other market participants for non-standard currencies or under special conditions.
Article 14: The Central Bank of Tunisia publishes, for indicative purposes, the average interbank exchange rates for foreign currencies and foreign banknotes.

SECTION 2
SPECIFIC RULES FOR MARKET MAKERS
Article 15: A Market Maker is a participant who contributes to providing and improving liquidity in the spot interbank foreign exchange market by systematically displaying bid and ask rates at which they are willing to buy and sell a specific currency against the dinar with a maximum rate margin and for a specified amount upon each quotation request.
Article 16: Any Authorized Intermediary wishing to obtain Market Maker status must submit a request to the Central Bank of Tunisia accompanied by the documents specified in paragraphs 1 and 2 of Article 73 below. The Central Bank of Tunisia will communicate its response in writing.
The granting of Market Maker status to an Authorized Intermediary will be notified to the market via a circular to authorized intermediaries.
Article 17: A Market Maker is required to provide a firm two-way spot quotation for EUR/TND and USD/TND parities if requested by another Authorized Intermediary.
The maximum margin between the bid and ask rates to be displayed by the Market Maker is 15 pips, for a maximum foreign currency amount (EUR or USD) of 3 million.
The Market Maker is not required to comply with the provisions of this article for quotation requests involving foreign currency amounts (EUR or USD) below 0.5 million, and for all other currencies regardless of the amount. The Market Maker must execute at least 5% of the volume of the spot interbank foreign exchange market on average over a year.
Article 18: The internal foreign exchange position limits of a Market Maker must be at least two-thirds of the limits set by applicable regulations.
The total daily limits per counterparty granted to other Authorized Intermediaries for spot foreign exchange transactions must be at least equal to 150 million dinars.
The Market Maker is exempt from the quotation obligations set forth in Article 17 above if executing the foreign exchange transaction in question would exceed internal position and/or counterparty limits.
The Market Maker must, however, justify in writing to the Central Bank of Tunisia, duly signed by an authorized official, any refusal to quote related to position and/or counterparty limits.
Article 19: The Market Maker undertakes to update indicative bid and ask quotations at regular intervals on a special page of the Reuters and/or Bloomberg system. Indicative quotations must be updated at intervals not exceeding 60 seconds.
Article 20: The Market Maker must designate a point of contact for the Central Bank of Tunisia, who could be the head of the unit responsible for negotiating foreign exchange operations. Periodically, the Central Bank of Tunisia may hold meetings with Market Maker representatives to review the foreign exchange market situation and related management rules.
Market Makers are invited to implement a code of conduct to promote professionalism in the market and facilitate the resolution of disputes that may arise between participants.
Article 21: If the Market Maker is unable to display quotations due to a technical or other incident, they are authorized to decline quotation requests, provided they supply the Central Bank of Tunisia with justification of the malfunction.
Article 22: When the Central Bank of Tunisia identifies an incident causing market malfunction, it may take any decision or measure to remedy it, including:

• deciding to suspend or cancel negotiations, after having, without being obliged, collected the opinion of the concerned Market Makers;
• deciding that transactions be conducted according to procedures different from those set forth in this circular;
• suspending the quotation obligations of one or more Market Makers.
  Any decision taken by the Central Bank of Tunisia under this article is immediately notified to the Market Makers.
  Article 23: The Central Bank of Tunisia ensures that the commitments undertaken by the Market Maker, the conditions required for admission, and the rules set forth in this circular for exercising their activity are always respected. Whenever the Central Bank of Tunisia finds that the situation or conduct of a Market Maker no longer corresponds to the undertakings made, violates the conditions for obtaining Market Maker status or the rules for exercising the activity mentioned above, or jeopardizes the proper functioning of the market, it invites them to remedy the situation. If the Market Maker fails to cease the conduct in question, they may be subject to, among other measures, suspension or revocation of their Market Maker status.
  Article 24: An Authorized Intermediary wishing to relinquish Market Maker status must notify the Central Bank of Tunisia in writing at least one month in advance.
  The relinquishment of Market Maker status by an Authorized Intermediary will be notified to the market via a circular to authorized intermediaries.
  SECTION 3
  FOREIGN CURRENCY AUCTIONS
  PARAGRAPH 1
  GENERAL RULES
  Article 25: Intervention in the foreign exchange market through auction is initiated by the Central Bank of Tunisia.
  Article 26: Tenders are conducted in EUR or USD.
  Article 27: Only Market Makers participate in the Central Bank of Tunisia's foreign currency auctions.
  Article 28: The Central Bank of Tunisia informs Market Makers via Reuters Dealing or Bloomberg of its intention to intervene in the foreign exchange market and the characteristics of the tender. In case of malfunction of these two platforms, the Central Bank of Tunisia specifies to Market Makers the communication method to be used for settling the auction. Tenders will also be announced to the entire market via a dedicated page on Reuters and Bloomberg.
  Article 29: Upon launching its tender, the Central Bank of Tunisia communicates the following terms to Market Makers:
• direction of the tender;
• currency of the tender;
• value date of the tender;
• deadline for submission of bids;
• deadline for response to bids.
  Article 30: After tallying the bids, the Central Bank of Tunisia fulfills, up to the amount of foreign currency to be injected or absorbed, the total or a certain percentage of the demands expressed by bidders according to the multiple exchange rate or single exchange rate method.
  Article 31: Bids from Market Makers shall be submitted via Reuters Dealing or Bloomberg or by any other means specified by the BCT.
  PARAGRAPH 2
  ELIGIBILITY OF BIDS
  Article 32: Bidders must strictly comply with the provisions of Article 72 regarding the communication of their foreign currency treasury forecasts.
  Article 33: Bids submitted during auctions must meet the following conditions:
• bids are submitted only in the currency announced by the Central Bank of Tunisia;
• the maximum amount per bid is USD or EUR 30 million;
• each bid may consist of at most 3 proposals with amounts in multiples of 5, separated by at least 1 pip;
• the bid amount must not imply exceeding the regulatory limits on foreign exchange positions.
  Article 34: Bids must be communicated to the Central Bank of Tunisia no later than 30 minutes after the announcement of the tender.
  Article 35: Submitted proposals are firm and irrevocable except for recognized quotation and/or volume errors by the Central Bank of Tunisia.
  PARAGRAPH 3
  SETTLEMENT OF THE AUCTION
  Article 36: The settlement of foreign exchange transactions by the Central Bank of Tunisia with successful bidders will be conducted via Reuters Dealing or Bloomberg no later than 30 minutes after the deadline for receiving bids.
  Article 37: The marginal rate, weighted average rate, maximum and minimum rates of the auction, the total allocated amount, and the number of participants will be published on the Central Bank of Tunisia's website.
  PARAGRAPH 4
  RESPONSIBILITIES
  Article 38: The Central Bank of Tunisia guarantees transparency of information regarding auctions and confidentiality of bidders' proposals and allocations.
  Article 39: A Market Maker who fails to comply with the provisions of this circular may be excluded from one or more auctions.
  CHAPTER 3
  HEDGING INSTRUMENTS AGAINST FOREIGN EXCHANGE AND INTEREST RATE RISKS
  SECTION 1
  FORWARD FOREIGN EXCHANGE OPERATIONS
  Article 40: Authorized Intermediaries are authorized to conduct forward foreign currency/Tunisian dinar exchange operations with resident clients for transactions conducted with foreign entities, in accordance with applicable regulations.
  Article 41: The maturity of the forward exchange contract must coincide with the contractual settlement date of the underlying operation. For financial operations involving repatriation or transfer of capital and income, the maximum hedging period is set at 12 months.
  The forward exchange hedging must be conducted in the currency of the contract. In case the contract includes a currency of account different from the currency of settlement, the forward contract must cover the currency of account.
  Article 42: Forward foreign exchange operations may be conducted with an Authorized Intermediary other than the domiciliary intermediary of the underlying operation.
  Only the domiciliary Authorized Intermediary is authorized to proceed with settlement after verifying the regularity of the operation in question.
  Article 43: The settlement of forward hedging can only occur through direct allocation of the purchased or sold foreign currencies to the related operations. The Authorized Intermediary must ensure upon maturity that the settlement to be made corresponds to the forward foreign exchange hedge.
  Article 44: After the initial contract period has expired, extensions of forward hedging must be duly justified and documented.
  The extension of forward hedging for financial operations involving repatriation or transfer of capital and income cannot exceed the 12-month limit.
  In case of total or partial failure to settle the forward foreign exchange contract, the client must not derive any advantage.
  Article 45: Authorized Intermediaries are authorized to establish counterpositions for forward purchase operations of dinars by non-residents.
  Article 46: Authorized Intermediaries are authorized to conduct forward foreign currency/Tunisian dinar exchange operations among themselves as part of their foreign exchange position management.
  SECTION 2
  FOREIGN CURRENCY/TUNISIAN DINAR EXCHANGE OPTIONS
  Article 47: Authorized Intermediaries are authorized to quote foreign currency/Tunisian dinar exchange options for their resident clients to allow them to hedge against foreign exchange risk generated by transactions conducted with foreign entities, in accordance with applicable regulations. To this end, Authorized Intermediaries may offer their clients, within the framework of a single commercial or financial operation, a purchase or sale exchange option or a combination of exchange options.
  Article 48: The authorized exchange options are European-style "vanilla" options.
  Article 49: The maturity of the exchange option must coincide with the contractual settlement date of the underlying operation. For repatriation or transfer of capital and income operations, the maximum duration of the exchange option is 12 months.
  The exchange option must cover the currency of the contract. In case the contract includes a currency of account different from the currency of settlement, the exchange option must cover the currency of account.
  Article 50: Exchange option operations may be conducted with an Authorized Intermediary other than the domiciliary intermediary of the underlying operation. In case of exercise of the option, the domiciliary Authorized Intermediary is solely authorized to proceed with settlement after verifying the regularity of the operation in question.
  Article 51: Authorized Intermediaries are authorized to quote foreign currency/Tunisian dinar exchange options for non-residents, but only in the direction where the Authorized Intermediary sells dinars against foreign currency.
  Article 52: Authorized Intermediaries may trade foreign currency/Tunisian dinar exchange options among themselves as part of their foreign exchange position management.
  Article 53: The exercise price of the exchange option as well as the premium are freely negotiated between the Authorized Intermediary and its client.
  Article 54: The exercise of the option can only occur at the agreed maturity. To this end, the holder of the exchange option must notify their counterparty of their decision to exercise the option two business days before the maturity date, at 11:00 local time at the latest.
  Article 55: The premium payment must be made in dinars two business days after the date of conclusion of the option contract.
  Article 56: The settlement of an exercised exchange option contract follows the usual foreign currency purchase or sale procedure.
  Article 57: The settlement of an exchange option contract can only occur through direct allocation of the purchased or sold foreign currencies to the underlying operations.
  Article 58: Authorized Intermediaries are required to provide the necessary physical organization, information systems, and human resources to manage an exchange options portfolio.
  Article 59: Authorized Intermediaries are required to integrate the net delta equivalent of the options portfolio for each foreign currency when determining their net foreign exchange positions per currency, respecting the prudential limits set by applicable regulations.
  The net delta equivalent of an options portfolio for a given currency corresponds to the sum of the products of the deltas of individual options by their notionals.
  SECTION 3
  FOREIGN CURRENCY/TUNISIAN DINAR SWAPS
  Article 60: Resident Authorized Intermediaries are authorized to conduct foreign currency/Tunisian dinar swap operations with resident companies.
  The swaps in which the resident company buys foreign currencies at spot and sells them at forward against the dinar must be backed by transactions conducted with foreign entities in accordance with applicable regulations. These swaps may be conducted with an Authorized Intermediary other than the domiciliary intermediary of the underlying operation.
  Article 61: Resident Authorized Intermediaries are authorized to conduct foreign currency/Tunisian dinar swap operations among themselves.
  Article 62: Resident Authorized Intermediaries are authorized to conduct foreign currency/Tunisian dinar swap operations with non-resident Authorized Intermediaries, foreign banks, and non-resident companies established in Tunisia, only in the direction where resident Authorized Intermediaries buy at spot and sell at forward dinars to the aforementioned non-resident counterparties.
  SECTION 4
  HEDGING INSTRUMENTS AGAINST INTEREST RATE RISK
  Article 63: For hedging against interest rate risk on the currency, resident Authorized Intermediaries are authorized to conclude interest rate guarantee agreements or "Forward Rate Agreements - FRA" among themselves, with non-resident Authorized Intermediaries, and with foreign banks.
  Article 64: Authorized Intermediaries are authorized to establish counterpositions in "FRA" interest rate guarantee agreements with resident companies. The maturity of the hedge must correspond to that of the loan or borrowing contract.
  TITLE II
  OPERATIONS ON FOREIGN BANKNOTES AND TRAVELER'S CHEQUES
  Article 65: Interbank exchanges of foreign banknotes are conducted at rates determined by Authorized Intermediaries.
  Article 66: Purchase and sale operations of foreign banknotes and traveler's cheques with the public are conducted at dinar rates established by the Authorized Intermediary and visibly displayed on a board at each foreign exchange counter across their entire operating network.
  Foreign exchange sub-delegatees must apply, for foreign banknote purchase operations, the bid dinar rate of the delegating Authorized Intermediary.
  Article 67: The Central Bank of Tunisia purchases foreign banknotes from Authorized Intermediaries against the dinar or against foreign currency. Sales of foreign banknotes by the Central Bank of Tunisia to Authorized Intermediaries are made only against the dinar.
  Purchases of foreign banknotes by the Central Bank of Tunisia against foreign currency are made only against the currency in which the foreign banknote is denominated, subject to a 0.25% commission deducted from the amount of banknotes to be transferred. The transfer order must be accompanied by a request conforming to Annex 7 of this circular. TITLE III COMMUNICATIONS TO THE CENTRAL BANK OF TUNISIA
  Article 68: The communication to the Central Bank of Tunisia of statements of foreign currency receipts and expenditures must be ensured by Authorized Intermediaries according to the provi