Resolution JPRF-V-2023-083 Reforming Title VIII 'Securities Houses' of the Codification of Monetary, Financial, Securities and Insurance Resolutions

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador Resolution No. JPRF-V-2023-083

THE FINANCIAL POLICY AND REGULATION BOARD

CONSIDERING:

That Article 226 of the Constitution of the Republic of Ecuador prescribes that State institutions, their agencies, dependencies, public servants, and persons acting by virtue of a State power shall exercise only the competencies and faculties attributed to them in the Constitution and the law; having the duty to coordinate actions for the fulfillment of their purposes and to make effective the enjoyment and exercise of the rights recognized in the Constitution;

That Article 227 of the Fundamental Norm establishes that public administration constitutes a service to the community governed by the principles of effectiveness, efficiency, quality, hierarchy, decentralization, concentration, coordination, participation, planning, transparency, and evaluation;

That Article 13 of the Organic Monetary and Financial Code, Book I, reformed by the enactment of the Organic Law Reforming the Organic Monetary and Financial Code for the Defense of Dollarization, created the Financial Policy and Regulation Board, part of the Executive Function, as a public law legal entity, with administrative, financial, and operational autonomy, responsible for formulating credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation;

That Article 14 ibidem, Book I, in numbers 1 and 2, determines that, within the scope of the Financial Policy and Regulation Board, it corresponds to formulate credit, financial, including insurance, prepaid comprehensive health care services, and securities policies, as well as to issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial, securities, insurance, and prepaid comprehensive health care services systems, in accordance with what is provided in Article 309 of the Constitution of the Republic of Ecuador; establishing that, for the fulfillment of these functions, it will issue norms in matters within its competence, without altering legal provisions; being able to issue regulations by segments, economic activities, and other criteria;

That the Organic Monetary and Financial Code, Book I, in its article 14.1, prescribes that, for the performance of its functions, the Financial Policy and Regulation Board must comply with certain duties and exercise certain faculties; among which are those indicated in numbers 1, 9, and 27, which are: to regulate the creation, constitution, organization, activities, operation, and liquidation of securities entities; to issue the non-prudential regulatory framework for all securities entities, which will include, among others, norms on transparency and information disclosure, market integrity, and consumer protection; and to exercise the other functions, duties, and faculties assigned to it by the aforementioned Code and the law;

That the Organic Monetary and Financial Code, Book II (Securities Market Law), when referring to the object and scope of said Law, determines in its article 1 that its purpose is to promote an organized, integrated, efficient, and transparent securities market, in which securities intermediation is competitive, orderly, equitable, and continuous, as a result of true, complete, and timely information; whose scope covers the securities market in its stock and over-the-counter segments, stock exchanges, trade associations, securities houses, fund administrators and trusts, rating agencies, issuers, external auditors, and other participants who in any way act in the securities market;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador |

That the aforementioned Code, Book II, in its article added immediately after article 1, prescribes that the guiding principles of the securities market that guide the actions of the Financial Policy and Regulation Board, the Superintendence of Companies, Securities and Insurance, and participants are: 1) public faith; 2) investor protection; 3) transparency and publicity; 4) symmetric, clear, true, complete, and timely information; 5) free competition; 6) equal treatment for securities market participants; 7) application of good corporate practices; 8) respect and strengthening of the regulatory power of the Financial Policy and Regulation Board, subject to the Constitution of the Republic, public policies of the Securities Market, and the Law; and, 9) promoting financing and investment in the national development regime and a democratic, productive, efficient, and solidarity market. These principles shall always be interpreted in the sense that most favors the investor;

That Article 9 of the aforementioned Code enumerates the attributions that currently correspond to the Financial Policy and Regulation Board in the context of this Law, among which are those indicated in numbers 1, 4, and 6, which are, respectively: to establish the general policy of the securities market and regulate its functioning; to issue the resolutions necessary for the application of the aforementioned Law; and, to regulate the creation and functioning of securities houses, as well as the services they provide;

That Article 10 ibidem, when referring to the attributions and functions of the Superintendence of Companies, Securities and Insurance, states that, in addition to the functions indicated in the Companies Law, the control body will exercise those of surveillance, audit, intervention, and control of the securities market with the purpose that the activities of this market are subject to the legal order and attend to the general interest;

That Article 56 of the aforementioned Organic Code determines that securities houses are anonymous companies authorized and controlled by the Superintendence of Companies, Securities and Insurance, which carry out securities intermediation, and that their sole corporate purpose is the realization of the activities provided for in the aforementioned Code; and, additionally indicates that the Financial Policy and Regulation Board will be the regulatory body determined to fix the minimum capital, parameters, indices, ratios, and other solvency and financial prudence norms and controls that the Financial Policy and Regulation Board determines;

That Article 58 ibidem, in its numbers 1, 2, and 13, prescribes the following faculties possessed by securities houses: (i) operate in the stock market according to the instructions of their principals; (ii) administer portfolios of securities or third-party funds to invest them in Securities Market instruments according to the instructions of their principals; and, (iii) enter into correspondent agreements with securities intermediaries from other countries, so that, under the responsibility of the local securities house, they take buy or sell orders for securities, traded in public and informed markets, on behalf and risk of their principals;

That the article added immediately after article 58 of the Organic Monetary and Financial Code, Book II (Securities Market Law), determines in its numbers 1, 3, and 9, among others, the following obligations of securities houses: (i) keep the records determined by the Financial Policy and Regulation Board; (ii) provide their principals with updated information on securities in circulation in the market and regarding the legal, administrative, financial, and economic situation of issuing companies; and, (iii) those others determined by the Financial Policy and Regulation Board, respectively;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador |

That the Fifty-Fourth Transitory Provision of the Organic Monetary and Financial Code, Book I, prescribes: "Transitory Regime of Resolutions of the Codification of the Financial Policy and Regulation Board. The resolutions contained in the Codification of Monetary, Financial, Securities and Insurance Resolutions of the Financial Policy and Regulation Board and the norms issued by the control bodies will maintain their validity until the Financial Policy and Regulation Board and the Financial Policy and Regulation Board resolve what corresponds, within the scope of their competencies.";

That the Quito Stock Exchange (BVQ) and the Guayaquil Stock Exchange (BVG) through Letter S/N of May 23, 2023, submitted to the Financial Policy and Regulation Board projects for reform to Book II of the Codification of Monetary, Financial, Securities and Insurance Resolutions, among which is the proposal for reform to the norms applicable to Securities Houses;

That the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2023-0083-M of October 11, 2023, submits to the President of the Board the following reports:

i) Technical Report No. JPRF-CTSV-2023-005 of October 11, 2023, issued by the Technical Coordination of Policy and Regulation of the Securities and Insurance System of the Board, which states that considering the operational impact of the application of the norm applicable to securities houses contained in Title VIII "Securities Houses", of Book II "Securities Market" of the Codification of Monetary, Financial, Securities and Insurance Resolutions, a reform is necessary in order to adjust secondary regulation to primary regulation, purge duplicated documentation, seek improvements in the processes of securities houses; as well as, promote efficiency in their operational processes in aspects pertaining to the obligations of these entities; delivery and subscription means of information; commercial commission contracts; trading orders; liquidation receipt; and, correspondent agreements of securities houses; and,

ii) Legal Report No. JPRF-CJF-2023-049 of October 11, 2023, issued by the Legal Coordination of Policy and Financial Norms of the Board, which concludes that the Financial Policy and Regulation Board, as responsible for formulating policy and regulation for the securities sector, has legal competence and faculty to: (i) regulate the creation, constitution, organization, activities, operation, and liquidation of securities entities; (ii) issue the non-prudential regulatory framework for all securities entities, which will include, among others, norms on transparency and information disclosure, market integrity, and consumer protection; and, (iii) exercise the other functions, duties, and faculties assigned to it by the Organic Monetary and Financial Code and the law; in accordance with what is provided in article 14.1, numbers 1, 9, and 27 of the aforementioned Organic Code, Book I. Additionally, that the Financial Policy and Regulation Board has the attribution to: (i) establish the general policy of the securities market and regulate its functioning; (ii) issue the resolutions necessary for the application of the Securities Market Law; and, (iii) regulate the creation and functioning of securities houses, as well as the services they provide; in accordance with what is prescribed in article 9, numbers 1, 4, and 6 of the Organic Monetary and Financial Code, Book II (Securities Market Law);

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador |

That the Financial Policy and Regulation Board, in ordinary session held by technological means, convened on October 13, 2023, and carried out via video conference on October 16, 2023, reviewed Memorandum No. JPRF-ST-2023-0083-M of October 11, 2023, issued by the Technical Secretary of the Board; as well as the aforementioned reports from the Technical Coordination of Policy and Regulation of the Securities and Insurance System and from the Legal Coordination of Policy and Financial Norms, in addition to the corresponding resolution project;

That the Financial Policy and Regulation Board, in ordinary session held by technological means, convened on October 13, 2023, and carried out via video conference on October 16, 2023, reviewed and approved the following Resolution; and,

In exercise of its functions,

RESOLVES:

ARTICLE FIRST.- The text of article 2 "Information on portfolio administration" of Chapter II "Maintenance of Registration in the Public Registry of the Securities Market and Submission of Continuous Information", Title VIII "Securities Houses", Book II "Securities Market" of the Codification of Monetary, Financial, Securities and Insurance Resolutions is substituted by the following:

"Art. 2.- Information on portfolio administration: Securities houses that provide portfolio administration services must deliver to the investor monthly, in physical or digital format at the choice of the principal, a summary or statement of their operations, a statement of portfolio evolution, as well as the composition or valuation of their portfolio, the variation of quotes, profitability, and other information considered of interest to the principal.

Securities houses, upon request and express written acceptance of the portfolio holder, must deliver the information provided in the previous paragraph to the email address determined by the principal, which will replace the physical delivery thereof."

ARTICLE SECOND.- The text of article 1 "Obligations" of Chapter III "Intermediation and Negotiation", Title VIII "Securities Houses", Book II "Securities Market" of the Codification of Monetary, Financial, Securities and Insurance Resolutions is substituted by the following:

"Art. 1.- Obligations: As indicated by the Securities Market Law, securities houses must:

1. Keep accounting records in accordance with the chart of accounts dictated by the Financial Policy and Regulation Board.

2. Keep: a. A chronological and sequential register in which the orders of the principals will be noted, with the date and time of entry, as well as the date and time in which such orders were fulfilled. The register will contain at least the following: date, negotiated value, price, term, name of the principal, order number, stock exchange liquidation number, and contract liquidation number.

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador |

b. A register of funds and securities, in which each person who requested portfolio administration must be individually identified. If it is a legal entity, the list of its shareholders, partners, members, or participants must be requested, as appropriate, in accordance with what is established in the provisions related to registration in the Public Registry of the Securities Market of this Book.

3. They must keep under their responsibility, an individual register and file of each of their principals, which will contain: the name, address, copy of the identity card or R.U.C., current appointment of the legal representative or power of attorney, the portfolio administration contract, if applicable.

4. Send in physical or digital format at the choice of the principal, the receipt of the operations that they have celebrated for him, until the next business day after its realization.

5. Keep confidentiality regarding the negotiations they carry out, as well as the names of the persons who entrust them, unless prevented by the nature of the operations, or there is a request from the Superintendence of Companies, Securities and Insurance, judicial order, or express consent of the interested parties.

6. When it comes to operations with foreign securities, the following obligations are established: a. Be responsible for providing principals with the information available in international information systems. b. Provide principals with the quotation price of the securities in the market where they are traded. c. Maintain valid contracts with authorized foreign stock intermediaries, which guarantee them access to updated information and the negotiation of securities."

ARTICLE THIRD.- The text of the last paragraph of article 4 "Portfolio administration" of Chapter III "Intermediation and Negotiation", Title VIII "Securities Houses", Book II "Securities Market" of the Codification of Monetary, Financial, Securities and Insurance Resolutions is eliminated.

ARTICLE FOURTH.- The following unnumbered article is incorporated immediately after article 6 "Term of orders" of Chapter III "Intermediation and Negotiation", Title VIII "Securities Houses", Book II "Securities Market" of the Codification of Monetary, Financial, Securities and Insurance Resolutions:

"Art. (...) Commercial Commission Contract.- The commercial commission contract must be made in writing and must contain what is established in the Commercial Code and detail at least the following:

1. Identification of the principal and the commission agent;
2. The object that will consider the realization by the commission agent of one or several stock operations on behalf of the principal;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador |

3. Commission that the principal will pay to the commission agent and the form of payment thereof;
4. Detail of the securities or funds for the performance of the commission assignment;
5. Term of duration of the contract;
6. Obligations of the commission agent;
7. Obligations of the principal;
8. Dispute resolution clause;
9. Applicable legislation; and,
10. Physical or electronic signature in accordance with the Law on Electronic Commerce, Electronic Signatures, and Data Messages.

In case that the commercial commission contract is granted for the realization of one or several stock operations, a trading order must be signed for each assigned operation."

ARTICLE FIFTH.- The text of article 7 "Format of orders" of Chapter III "Intermediation and Negotiation", Title VIII "Securities Houses", Book II "Securities Market" of the Codification of Monetary, Financial, Securities and Insurance Resolutions is substituted by the following:

"Art. 7.- Format of orders: Securities Houses will elaborate the formats for trading orders observing the norms pertaining to Commercial Commission, which will contain at least the following:

1. Names and surnames or denomination or trade name and identity card or R.U.C. number, as appropriate, of their principal and the person who signs the order;
2. Place, date, and time of receipt of the order;
3. Object of the order (buy or sell), quantity of securities to be negotiated or amount to be invested and its conditions;
4. Validity term of the order;
5. Name of the authorized person who receives the order;
6. Costs and conditions of the negotiation;
7. Physical or electronic signature of the principal or their legal representative, when applicable; and,
8. Physical or electronic signature of the person authorized by the securities house."

ARTICLE SIXTH.- The text of number 10 of article 8 "Liquidation receipt" of Chapter III "Intermediation and Negotiation", Title VIII "Securities Houses", Book II "Securities Market" of the Codification of Monetary, Financial, Securities and Insurance Resolutions is eliminated, and the text of the final paragraph of the article is substituted by the following:

"The liquidation receipt must be sent to the principal in physical or digital format, according to their choice."

ARTICLE SEVENTH.- The text of article 3 "Correspondent Agreements" of Chapter IV "General Provisions", of Title VIII "Securities Houses", Book II "Securities Market" of the Codification of Monetary, Financial, Securities and Insurance Resolutions is substituted by the following:

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador |

"Art. 3.- Correspondent Agreements: Securities houses may enter into correspondent agreements with securities intermediaries domiciled abroad, so that, under the responsibility of the securities house, they take buy or sell orders for securities or refer principals."

UNIQUE GENERAL PROVISION.- In case of doubt regarding the content or scope of the provisions of this Resolution, it will correspond to the Superintendence of Companies, Securities and Insurance to resolve them.

FINAL PROVISION.- This Resolution will enter into force from the present date, without prejudice to its publication in the Official Register, and will be published on the institutional website of the Financial Policy and Regulation Board within a maximum term of two days from its issuance.

COMMUNICATE.- Given in the Metropolitan District of Quito, on October 16, 2023.

THE PRESIDENT, Mgs. María Paulina Vela Zambrano

The resolution above was processed and signed by Master María Paulina Vela Zambrano, President of the Financial Policy and Regulation Board, in the Metropolitan District of Quito, on October 16, 2023.- I CERTIFY.

TECHNICAL SECRETARY Mgs. Nelly Arias Zavala