Circular 12/23 — Authorization for Public Consultation of the Instruction for the Constitution, Registration, and Execution of Guarantees on Participation Quotas of Open or Mutual Investment Funds

SCIÉl/VIV
Superintendencia del Mercado de Valores de la República Dominicana A las Asunto CIRCULAR Núm. 12/23 Sociedades Administradoras de Fondos de Inversión Authorization for public consultation of the Instruction for the constitution, registration and execution of guarantees on the participation quotas of open or mutual investment funds.

VISTOS:
Constitution of the Dominican Republic, voted and proclaimed by the National Assembly on thirteen (13) June two thousand fifteen (2015), published on ten (10) July two thousand fifteen (2015).

Law No. 249-17, of the Securities Market of the Dominican Republic, which repeals and substitutes Law No. 19-00 of eight (8) May two thousand (2000), promulgated on nineteen (19) December two thousand seventeen (2017) and its modifications (hereinafter, the “Law No. 249-17”).

Law No. 167-21, on Regulatory Improvement and Simplification of Procedures, dated twelve (12) of August two thousand twenty-one (2021).

Law No. 45-20, on Movable Guarantees, dated twenty-one (21) February two thousand twenty (2020) and its modifications through Law No. 170-21, which suspends the application of Law No. 45-20 that modifies article 21 and reincorporates articles temporarily and permanently, dated seventeen (17) August two thousand twenty-one (2021).

Law No. 107-13, on the Rights of Persons in their Relations with the Administration and Administrative Procedure, dated six (6) August two thousand thirteen (2013).

Law No. 183-02 approving the Monetary and Financial Law, dated twenty-one (21) of November two thousand two (2002).

Decree No. 18-23, which establishes the Regulation of Law No. 45-20, on movable guarantees, dated twenty-six (26) January two thousand twenty-three (2023).

Regulation of Management Companies and Investment Funds.

Regulation for Centralized Securities Depositories and Clearing and Settlement Systems.

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Av. César Nicolás Penson No. 66, Gascue, Santo Domingo. Dominican Republic Telephone: 809.221.4433 ° http://www.sim.gob.do | info@sim.gob.do | RNC: J-01-31372-3

Superintendencia del Mercado de Valores de la República Dominicana

Circular No. 008/18 of the Banking Superintendence that brings into force the “Instruction on Formalization, Registration and Control of Guarantees” dated nine (09) March two thousand eighteen (2018).

CONSIDERING:

That numeral 14 of article 35 of the Regulation of Management Companies and Investment Funds establishes that management companies, within the framework of the administration of investment funds, in addition to what is established in the Law, must comply with the obligations determined by the Superintendence through technical or operative norms.

That numeral 19 of article 60 of the Regulation of Management Companies and Investment Funds establishes that, the internal regulations of open investment funds or mutual funds must contain any additional information, that contributes to a greater knowledge of the characteristics of the investment fund and of the activities of administration and operation, as determined by the management company or the Superintendence through technical or operative norms.

That numeral 4 of article 90 of the Regulation of Management Companies and Investment Funds establishes that the management company may suspend redemption operations and the consideration of new subscription requests for participation quotas of open investment funds before "Any other circumstance that determines the Superintendence through technical or operative norms ()".

That article 100, Paragraph II, of the Regulation of Management Companies and Investment Funds establishes that, in the case of open investment funds, the management company must keep a register of contributors in which the name of the holder, identity documents, address, number of quotas held, as well as the date on which the quotas were subscribed in their name will be noted. Contributors must be registered in this register according to their method of entry.

That article 17, numeral 14), of Law No. 249-17, empowers the Superintendent of the Securities Market to “issue the resolutions, circulars and instructions required for the development of this law and its regulations”.

That the Securities Market Superintendence, in its capacity as the regulatory body of the Securities Market and in accordance with article 7 of Law No. 249-17, shall have as its objective to promote an orderly, efficient and transparent securities market, protect investors, ensure compliance with the law and mitigate systemic risk, through the regulation and supervision of natural and legal persons operating in the securities market.

That the Superintendent of the Securities Market is the highest executive authority of the Securities Market Superintendence, having under his/her charge the direction, control and SC-07-03-05 Edition 3 Page 2 of 10 Av. César Nicolás Penson No. 66, Gascue, Santo Domingo, Dominican Republic Telephone: 809.221.4433 ° http://www.sim.gob.do | info@sim.gob.do | RNC: J-01-31372-3

Superintendencia del Mercado de Valores de la República Dominicana

10.
11.
12.
13.
14.
15. representation of this.

That it corresponds to the Securities Market Superintendence the development of the technical or operative norms derived from Law No. 249-17, from the applicable regulations and necessary norms for the development of the market in accordance with article 25 of the referenced Law.

That Law No. 45-20, on Movable Guarantees, established the legal framework of the movable guarantees regime, the Electronic System of Movable Guarantees, the processes of execution related to such guarantees, as well as a unitary legal regime for the constitution, effectiveness, publicity, registration, priority, execution and everything related to these.

That Law No. 170-21, suspended the application of Law No. 45-20, and provided for its entry into force from twenty (20) January two thousand twenty-three (2023).

That, likewise, on date twenty-six (26) January two thousand twenty-three (2023) was issued Decree No. 18-23 through which the Regulation of Law No. 45-20 on Movable Guarantees is established.

That article 2 of Law No. 45-20, provides an exception in its scope of application for securities and financial instruments regulated in the Securities Market Law only when a special norm or regulation is issued for the constitution of guarantee and execution of these.

That Law No. 249-17 has instituted in its article 47 that securities that are registered in the Securities Market Register to be submitted to a public offering process, prior to their placement in the primary market and those that are traded in the secondary market, must be dematerialized through an accounting system under the charge of an authorized centralized securities depository, excepting from this provision, the quotas of open investment funds, whose subscription and redemption must be recorded in the register of contributors held by the management company for each open fund it administers.

That Law No. 249-17 establishes in its articles 89 to 100 what relates to the encumbrances of the securities recorded in account and their execution, therefore, there are special provisions applicable to public offering securities, as stated in article 2 of Law No. 45- 20.

That article 89 of Law No. 249-17, provides that the Superintendence will establish the organization and operation norms of the corresponding accounting register, the guarantees, the identification and control systems of the securities represented by account entries and other requirements that are exigible to the centralized securities depository.

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Av. César Nicolás Penson No. 66, Gascue, Santo Domingo, Dominican Republic Telephone: 809.221.4433 ° http://www.sim.gob.do | info@sim.gob.do | RNC: J-01-31372-3

Superintendencia del Mercado de Valores de la República Dominicana

16.
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24.
That the keeping of the accounting register of the securities represented by means of count entries corresponding to the same public offering of securities, will be attributed to a single centralized securities depository.

That the quotas of closed investment funds and quoted open investment funds will be represented by account entry.

That article 91, paragraph III of Law No. 249-17, institutes that entities in charge of the keeping of the accounting register, must establish in their internal regulations, the necessary processes for the execution of guarantees, which must be approved previously by the Superintendence.

That the Regulation for Centralized Securities Depositories and Clearing and Settlement Systems establishes in its articles 90 to 99 everything relating to the Constitution and Execution of Securities in Pledge.

That the quality of contributor of an open investment fund is acquired through the subscription of quotas, which is carried out at the moment that the investment fund receives the contribution by virtue of the form of the quota subscription form and the person acquires the ownership of the quota and by the other forms of acquiring ownership established by Law, situation that must be recorded in the register of contributors that the management company will maintain for each fund it administers.

That for a contributor to subscribe or redeem quotas of an open investment fund must carry it out directly with the management company that administers it, except in the cases of quoted open investment funds where the subscription and negotiation of the quotas is carried out in the stock exchanges.

That the accounting register of the securities recorded in account is under the charge of the centralized securities depositories and for the case of the quotas of open investment funds the register is under the charge of the management companies that manage them, therefore, both entities must establish in their internal regulations, the necessary processes for the, constitution, registration and execution of guarantees applicable to the securities recorded in account and the investment quotas of the open funds administered, respectively, which will be subject to prior approval by the Superintendence.

That the books, registers and files of the management company and the investment funds it administers will be kept through automated data processing systems.

That it is necessary to define a homogeneous scheme, which contemplates the minimum conditions for the registration, constitution and execution of the guarantees of the quotas of participation of open or mutual investment funds with the aim of promoting investment in this type of financial instruments, granting greater incentives to the SC-07-03-05 Edition 3 Page 4 of 10 Av. César Nicolás Penson No. 66, Gascue, Santo Domingo, Dominican Republic Telephone: 809.221.4433 ° http://www.sim.gob.do | info@sim.gob.do | RNC: J-01-31372-3

Superintendencia del Mercado de Valores de la República Dominicana

25.
26.
27.
28.
29. contributors so that these quotas can be granted as guarantee as a surety for other financial operations.

That it is necessary to improve access to credit and not put investors at a disadvantage in mutual funds that currently cannot use their quotas as an admissible guarantee before Financial Intermediation Entities due to lack of regulation.

That, for its part, Law No. 167-21, on Regulatory Improvement and Simplification of Procedures has as its objective to define and articulate public policies directed to regulatory improvement and the simplification of administrative procedures.

That, according to the aforementioned Law, public consultation is defined as a mechanism of citizen participation that is used to transparent the process of production and review of regulations, allowing the reception of comments by the different interested groups and the general public.

That, for its part, Law No. 107-13 on the Rights of Persons in their Relations with the Administration and Administrative Procedure establishes in its article 30 “[T]he minimum and mandatory standards of administrative procedures that seek the adoption of regulations that have a general scope, whose purpose is that the Public Administration obtains the necessary information for its approval, in addition to canalizing dialogue with interested parties and the general public, “promoting the fundamental right to citizen participation as support for good democratic governance”.

That article 23 of Law No. 200-04, General Law on Free Access to Public Information, establishes that entities that perform public functions or that administer State resources “have the obligation to publish through official or private media of wide dissemination, including electronic media or mechanisms and with sufficient advance notice to the date of its issuance, draft regulations that they intend to adopt through regulation or acts of general character, related to requirements or formalities that govern the relations between private parties and the administration or that are exigible to persons for the exercise of their rights and activities”.

Therefore:
The Superintendent of the Securities Market, in the exercise of the powers granted to him by article 17, I. numeral 14), of Law No. 249-17, resolves:

Authorize the publication of the notice, in one or more printed media of wide national circulation and on the institutional portal, for the purpose of public consultation of participants of the securities market and the public, of the draft Instruction for the registration, constitution and execution of guarantees on the participation quotas of open or mutual investment funds, which is attached to this Circular.

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Av. César Nicolás Penson No. 66, Gascue, Santo Domingo, Dominican Republic Telephone: 809.221.4433 ° http://www.sim.gob.do | info@sim.gob.do | RNC: J-01-31372-3

Superintendencia del Mercado de Valores de la República Dominicana

II.
III.
IV.
VI.
Inform investment fund management companies that, from the date of final approval of the draft Instruction for the registration, constitution and execution of guarantees on the participation quotas of open or mutual investment funds, they must establish in their Manual of policies, procedures and control, the necessary processes for the registration and execution of guarantees of the participation quotas of open or mutual investment funds, which are subject to the prior approval of the Superintendence and must comply with the minimum provisions established in the annex of this Circular.

Inform the public that, the quotas of quoted open investment funds, unequivocally, apply to them the regime of registration, constitution and execution of guarantees established for securities recorded in account in a centralized securities depository as established by Law No. 249-17 and the internal and operational manuals of the referenced participant.

Inform investment fund management companies that investment promoters, within their activities to make known and inform about the operation and qualities of open or mutual investment funds, must communicate to the potential contributor about the right they have to grant as guarantee their participation quotas of open investment funds, as well as the process to follow for such purposes, in accordance with what is established in their Manual of policies, procedures and internal control.

Grant a period of forty-five (45) business days to gather the opinion of the participants of the securities market, interested sectors and the public, from the next business day following the publication of this.

Instruct the Regulation and Innovation Directorate of the Securities Market Superintendence to publish the Circular on the institution's website.

In Santo Domingo, National District, capital of the Dominican Republic, on eight (08) days of the month of December two thousand twenty-three (2023).

EBR/ecb/
Director of Regulation and Innovation
Enesto Bournigal Read
Superintendent
Av. César Nicolás Penson No. 66, Gascue, Santo Domingo, Dominican Republic Telephone: 809.221.4433 ° http://www.sim.gob.do | info@sim.gob.do | RNC: J-01-31372-3

Superintendencia del Mercado de Valores de la República Dominicana

I.
Av. César Nicolás Penson No. 66, Gascue, Santo Domingo, Dominican Republic Telephone: 809.221.4433 ° http://www.sim.gob.do | info@sim.gob.do | RNC: J-01-31372-3

ANNEX
INSTRUCTION FOR THE CONSTITUTION, REGISTRATION AND EXECUTION OF GUARANTEES OF THE PARTICIPATION QUOTAS OF OPEN OR MUTUAL INVESTMENT FUNDS General Provisions:
1.1
1.2.
1.3
1.4.
1.5
1.6.
.
For the case of open or mutual investment funds, the management company must keep a register of contributors in which the name of the holder, identity documents, address, number of quotas held, as well as the date on which the quotas were subscribed in their name and, if applicable, the encumbrances constituted on the quotas of said funds will be noted. Contributors must be registered in this register according to their method of entry in accordance with what is provided by the Regulation of Management Companies and Investment Funds.

The register of contributors will be governed by the Principle of Priority, by virtue of which, the act that is registered first in the property book will have priority over those that access with subsequentity, the management company of the investment fund must register the corresponding operations according to the order of presentation, in accordance with the
article 85 of Law No. 249-17.

The constitution of limited real rights or other type of encumbrances on the quotas of open or mutual investment funds, must be registered in the register book in the name of the contributor. The registration of the pledge is equivalent to the displacement of the possession of the security. The constitution of the encumbrance will be enforceable against third parties from the moment that the corresponding registration has been made, in accordance with article 89 of Law No. 249-17.

The quotas of open or mutual investment funds may be subject to pledge guarantee. The guarantee contract must be in writing and identify: (i) the parties, (ii) the management company of the investment fund that administers the public offering securities subject to guarantee, (iii) number of open or mutual investment fund quotas to be affected; (iv) the investment fund, (v) the current quota value and other characteristics that identify the securities that are subject to guarantee.

The pledge will be perfected, will have a certain date and will be enforceable against third parties, from the moment that the management company of the investment fund carries out the registration corresponding, in accordance with what agreed between the contributor and the financial intermediation entity, in accordance with Paragraph II of article 90 of Law No. 249-17.

The execution of the guarantee on the quotas of open or mutual investment funds, will be carried out directly by the management company of the investment fund as SC-07-03-05 Edition 3 Page 7 of 10

Superintendencia del Mercado de Valores de la República Dominicana

entity in charge of keeping the register of contributors of each open investment fund or mutual funds administered, by virtue of what is provided in the contract signed between the parties, in accordance with what is provided by article 91 of Law No. 249-17.

II. Process of constitution, registration and execution of guarantees for its admissibility in
Financial Intermediation Entities (FIE):
2.1. Prior Verification: The contributor interested in granting as guarantee quotas of
their ownership in an open or mutual investment fund must request from the management company of the investment fund, the issuance of a quota certification for guarantee addressed to their beneficiary (creditor of the guarantee) which, as minimum, must contain:

a. The general data of the contributor or contributors; b. The number of participation quotas held by the contributor or contributors;
c. The quota value of each participation quota corresponding to the day on which the
certification is issued; d. The total value represented by the participation quotas; e. The charges, encumbrances or annotations that weigh on the participation quotas, if any; f. The name, registration number in the Securities Market Register and National Taxpayer Registry (RNC) of the investment fund and of the management company that issues the certification; g. The rules applicable to the permanence pact in the investment fund and the early redemption commission, as well as the conditions for scheduled redemption and significant redemption, if applicable; h. The warning about the variable nature of the value of the participation quotas of the investment fund;
i. The warning that the certification reflects the information of the quantity of
quotas as of the date of its issuance;
The date of issuance of the certification and validity; The warning that the information may vary on the date of issuance of the same.

2.1.1. The request for the certification will serve as an indication and proof of the interest of the contributor or contributors that, in the future, a guarantee will be constituted in favor of the recipient of the
certification.

2.1.2. In the request made by the contributor or contributors, in the case of joint accounts,
it must clearly indicate their will, express acceptance and authorization for the fulfillment of the conditions established in this Instruction for the purposes of that the management company constitutes a guarantee in favor of the beneficiary, in accordance with what is reflected in the guarantee contract of the open investment fund.

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Av. César Nicolás Penson No. 66, Gascue, Santo Domingo, Dominican Republic Telephone: 809.221.4433 ° http://www.sim.gob.do | info@sim.gob.do | RNC: J-01-31372-3

Superintendence of the Securities Market of the Dominican Republic

2.1.3.
2.1.4.
The certification may be issued in physical form or in any type of digital format, as defined by the administering company in its internal processes. The certification will not generate a registry block, therefore, the contributor will retain the faculty to redeem their quotas and they may be affected by liens, encumbrances, and annotations. The certification may be subject to validation and confirmation by the recipient of the certification with the administering company.

2.2. Guarantee Contract on Quotas of Open Investment Funds or Mutual Funds. The contract signed by the fund contributor and the beneficiary of the guarantee must take the form of an act under private instrument. In all cases, it must clearly stipulate the granting in guarantee by the fund contributor, in favor of the party requiring the guarantee, of a determined number of quotas and the respective value at the date in the currency of the open investment fund.

2.2.1.
2.2.2.
2.2.3.
2.2.4.
2.2.5.
Av. César Nicolás Penson No. 66. Gascuc. Santo Domingo, Dominican Republic Telephone: 809.221.4433 • http://www.sif.gob.do | info@sif.gob.do RNC: 1-01-31572-3

The contract must indicate the name, the registration number in the Securities Market Registry and the National Taxpayer Registry (RNC) of the corresponding investment fund; likewise, it must be drafted legibly and establish the term or conditions under which this guarantee is granted and will remain valid. The Financial Intermediation Entity acting as creditor, through communication means established by common agreement with the administering company, must request the latter to register the guarantee by sending a copy of the signed guarantee contract by the contributor. Registration requests will be considered received exclusively until twelve noon (12:00 m) on a business day of the investment fund administering company. Receipt of the request at any other time will be considered received on the next business day of the administering company. In the event that the contributor has sufficient participation quotas to cover the amount of the guarantee and these are available, the investment fund administering company will affect the quotas up to the amount of the guarantee provided for in the contract. These quotas will remain unavailable while they are affected, and cannot be redeemed until the guarantee is cancelled. Partial guarantee registrations will not be admissible; therefore, if the contributor does not possess sufficient free quotas, free of lien, encumbrance or measure, to cover the guarantee, the investment fund administering company will not proceed with the registration of the guarantee, being obliged to inform the contributor and the Financial Intermediation Entity about the inadmissibility of the registration within a period no greater than one (1) business day of receiving the request.

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Superintendence of the Securities Market of the Dominican Republic

2.3.
2.4.
2.5.
2.6.
Term for the registration of the guarantee. The investment fund administering company must register the guarantee within a period no greater than one (1) business day of receiving the request and communicate it through the agreed means to the Financial Intermediation Entity in whose favor the guarantee is constituted, indicating the number of affected participation quotas, the respective amount at the date in the currency in which the fund operates, and the date of constitution and registration of the guarantee.

2.3.1 The investment fund administering company, at the request of the contributor or the Financial Intermediation Entity, may issue certifications on the status of the guarantee or enable channels for verification by the parties.
Default Management. In the event of contractual breach by the contributor that gives rise to the execution of the guarantee as established in the guarantee contract, the creditor will notify the investment fund administering company requesting the execution of the guarantee. Redemption of Quotas. Once exhausted the procedure indicated in the previous paragraph, the investment fund administering company will proceed to redeem the corresponding participation quotas up to the reported value, which in no case may exceed the value of the guarantee, and if there is a remainder, it will release said quotas and the respective value for their availability in favor of the contributor. The delivery of money to the Financial Intermediation Entity as creditor will be carried out via bank transfer to a creditor account or by check made out to their name. The investment fund administering company as a third-party facilitator of the guarantee transaction, acts in good faith and is not the judge of the execution of the guarantee, and therefore its responsibility is limited exclusively to carrying out the execution of the guarantee under the conditions requested by the regulated creditor entity, which assumes responsibility before the contributor for any error in the sum of the reported debt balance for the execution of the guarantee or any error in the report of the breach of any of the conditions that originate the execution or another claim that may arise from the contributor.

2.5.1 Cancellation of the Guarantee. In the event of total fulfillment by the debtor contributor of their payment obligation towards the creditor, or in the event of agreement between the parties, the cancellation of the guarantee on the quotas may be requested. For such cancellation, the contributor must present a balance letter issued by their creditor, which must be confirmed by the investment fund administering company.

2.6.1 The investment fund administering company must execute the respective process and leave at the free disposal of the contributor the participation quotas that were used as guarantee within a maximum term of one (1) business day after receipt of the guarantee cancellation request.

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Av. César Nicolás Penson No. 66, Casuco, Santo Domingo, Dominican Republic Telephone: 809.221.4433 • http://www.sif.gob.do | info@sif.gob.do RNC: 1-01-31572-3