Circular CAMCO 1-94: Electronic Clearing Chambers - Settlement - Guarantees

BANCO CENTRAL DE LA REPUBLICA ARGENTINA

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COMMUNICATION "A" 2610 29/10/97

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TO FINANCIAL ENTITIES:
Ref.: Circular
CAMCO 1 - 94.
Electronic Clearing Chambers
Settlement - Guarantees

We address you to communicate the provisions governing the guarantees to be established in the operational scheme foreseen for Electronic Clearing Chambers.
In this regard, the mechanism for the use of such guarantees has been defined, modifying the settlement schedules previously established through Communication "A" 2557 (point 9.3).
We salute you very attentively.

BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Alejandro L. Saravia Hector O. Biondo
General Manager of General Manager
Information Technology and Organization of Operations

ANNEXES

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|IB.C.R.A.|I |Cámaras Electrónicas de Compensación|IAnexo I a la I Procedimiento de Liquidación ICom "A" 2610 I
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In the scheme foreseen for Electronic Clearing Chambers (E.C.C.) corresponding to the National Payments System, the settlement process of checks and other compensable documents, direct debits, and transfers by said Chambers must comply with the following, according to the case in question (Sections I and II).

There will be a "Chambers Committee," which will be responsible for analyzing the situation of entities that have not covered their net debit balances by 12:00 hours each day, monitoring the situation until its immediate resolution, and investigating exceptional rejections to resolve their reasonableness.

To carry out the aforementioned investigation of rejections, said Committee will have 24 hours, and its opinion will be sent to the Superintendence of Financial and Exchange Entities as a background for the corresponding process.

The Chambers Committee will be composed of one member from each E.C.C., one member from the Superintendence of Financial and Exchange Entities, and two members of the B.C.R.A. designated by the General Manager of Operations.

I - LOW-VALUE CHAMBER
I.1-Guarantee
Banks must establish guarantees to cover the net debit balance in the E.C.C.s. Such guarantee will be, at a minimum, equivalent to the simple average of the five highest net debit balances of the last quarter, taking into account that the change of month for the establishment of the quarter to be considered can be made until the fifteenth of each month. The Chambers may agree among themselves and with the Banks to establish amounts higher than this limit.

The assets presented as collateral must have sufficient liquidity conditions to allow their immediate use at the time of settlement of the E.C.C.s if necessary.

Guarantees that have the necessary characteristics to be counted as Minimum Liquidity Requirements (M.L.R.) must be deposited in the name of the E.C.C., for the account of each entity, in unavailable accounts at the B.C.R.A. and will be considered by the entities as part of the M.L.R.

Guarantees that do not meet the M.L.R. conditions and, obviously, will not be counted for that purpose, must consist of assets whose liquidation is assured through an agreement with a Bank that, at a minimum, is qualified as "A", according to Communication "A" 2521 of 25.3.97.

I.2-Settlement Procedure
1) The Low-Value Electronic Clearing Chambers (48 hours and 72 hours) will receive transfers, direct debits, checks, and other compensable documents to be compensated, on the day of the "presented" round. At the end of the operations of that day, they will establish the net debit and credit balances of all operations involved, informing the adhering entities regarding the same.
Therefore, before the start of MEP operations on the settlement day, all entities must be informed of their net balance of presented items.

2) If the net debit balance is greater than the offered guarantee, the entity must increase the guarantee or transfer the difference before 12:00 hours on the settlement day to the current account of the E.C.C. at the Central Bank.

3) If by 12:00 hours on that day, the entity has not complied with the above, the E.C.C. must immediately inform the Superintendence of Financial and Exchange Entities and the Chambers Committee, who will analyze the situation.

4) The entity may, until 15:00 hours, inform the E.C.C. of rejections of checks and other compensable documents drawn against it, whose causes are normal (no funds, technical failures, check not corresponding to a current account of the Bank, etc.), resulting in acceptance without prejudice to further investigation of the case by the Chambers Committee.
These values reported, which will be presented to the E.C.C. in the "rejected" round along with the normal batch of rejections, cannot be redeemed or substituted by others.

5) If the entity does not manage to cover the deficiencies before 15:30 hours, the E.C.C. will proceed to inform the rest of the entities that all transfers, direct debits, and checks and other compensable documents (in that order) received against the same will be returned, excluding the entity from the compensation of values in the E.C.C. until the situation is regularized. The amounts of the rejections will be immediately communicated to each depositing entity to be taken into account in the establishment of the final net balance after the "rejected" Chamber, so that each one verifies the impact on its position and proceeds to cover any resulting deficiency in its balance or guarantee.

If in the "rejected" Chamber the entity pays its balance, it can avoid the rejection of the E.C.C., leaving firm only the rejections for common causes that it brings to the Chamber.

6) Entities whose rejections have been previously reported must bring the checks to be returned to the "rejected" session.
Entities excluded from the Chamber (item 5) must also bring the rest of the checks "rejected" for lack of funds with the corresponding legend, indicating that they cannot access compensation.
Checks or other documents cannot be rejected partially due to force majeure or lack of funds by the drawn entity; only the rejection of the entire E.C.C. received for these causes is possible, by product and in the following order: first, transfers, then direct debits, and finally checks and other compensable documents.

7) After the "rejected" session, which takes place at 17:30 hours, all entities must pay debit balances within the scheduled half-hour (19:30 hours to 20:00 hours) through transfers made via the MEP to the E.C.C. account or this will proceed to cover them with the corresponding guarantees. For this purpose, the E.C.C. must communicate to the debtor entities the corresponding coverage requirement.
If the entity does not pay the Chamber, the guarantee will be liquidated to cover the debt. The liquidation of the guarantee will be carried out from 20:00 hours if it has the necessary characteristics to carry out a swap operation with the B.C.R.A. Otherwise, it must be liquidated in the market immediately at the closing price of the day. This modality requires that each Chamber have agreements for the purchase of these assets with first-line Banks (Rating A or higher according to Communication "A" 2521). If necessary, the E.C.C. will request the maintenance of the MEP open for entities for half an hour - until 20:30 hours -, with the corresponding cost which will be passed on to the entities with problems. The guarantee must be returned the next day, before 12:00 hours. If it is not returned, the entity will be excluded from the Securities Compensation sessions.

8) If any debit balance remains unpaid after the "rejected" round, and only for check rejections presented that exceed the amount of the guarantee, the E.C.C.s will proceed to apply the mutualized guarantee fund, formed by contributions deposited by all entities in the E.C.C. to which they adhere in equal parts, and which will have an amount not less than $1,500,000.

This fund must be returned by the entities with problems at the first hour of the next day. If it is not returned before 12:00 hours, it must be reconstituted with the contribution of all entities and immediately reported to the Superintendence of Financial and Exchange Entities. The entity that does not return the fund will automatically be removed from the E.C.C. If the debit balance exceeds the total of the mutualized guarantee fund, the E.C.C. will proceed to reject all operations presented against the involved entity, carrying out a new round of rejections, by totals of each type of product in the order already stated: first transfers, then direct debits, and finally checks and other compensated values.

9) The E.C.C.s will credit the net credits to the creditor entities before 20:30 hours or in the half hour following the closure of the MEP in cases of abnormal settlement.
If necessary, the E.C.C.s may request the maintenance of the MEP open until the completion of the settlement, being able to transfer the corresponding costs to the involved entities.

II - HIGH-VALUE CHAMBER
II.1-Guarantee
High-Value Electronic Clearing Chambers must have guarantees established by user entities, sufficient to cover the respective amounts of received transactions.

The amount of the guarantees will be established by mutual agreement between the entity and the E.C.C., and may never be lower than the net debit balance of the day.

II.2-Processing of transfers
The E.C.C.s will process normally the transfers received from each entity while the net debit balance remains below the guarantee, keeping uncovered transactions in a chronological queue.

Entities may transfer via the MEP to the E.C.C. account at the Central Bank funds to cover the net debit balance, which for the purposes of processing pending transactions will be considered added to the assets deposited as collateral.

II.3-Settlement Procedure
1) At 18:30 hours, the E.C.C. must establish the final net debit of each entity, which will be immediately informed to them. Entities must transfer before 19:00 hours the corresponding amount for its coverage, crediting the E.C.C. account at the B.C.R.A. through the MEP.

2) Between 19:00 hours and 19:30 hours, the E.C.C. will proceed to liquidate the guarantees of entities that have not covered their debit balance, depositing the balance in their account at the B.C.R.A.

Liquidated guarantees must be returned by the entity at the first hour of the next business day. If they have not been returned before 12:00 hours on the next business day, the E.C.C. will immediately notify the Superintendence of Financial and Exchange Entities and the Chambers Committee.

3) Uncovered transactions at the end of the day will be rejected by the E.C.C.s and immediately reported to the Superintendence of Financial and Exchange Entities and the Chambers Committee.

4) The E.C.C.s will credit the net credits to the creditor entities before 19:30 hours.

III- EXCLUSION FROM CHAMBERS
Entities that are excluded from the securities compensation process for the second time within the calendar month will be automatically excluded from the E.C.C. even if they have regularized their situation, until the Superintendence of Financial and Exchange Entities rules on the matter.

The same treatment will apply when the entity reaches the fourth exclusion in the calendar year.

An abnormal situation is considered the use of guarantees to cover debit balances in the Chambers. Five total or partial liquidations by this means in the month, or twelve total or partial liquidations by this means in the calendar year, will be cause for exclusion of the entity from the E.C.C. with the agreement of the Superintendence of Financial and Exchange Entities.

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|IB.C.R.A.|I |Cámaras Electrónicas de Compensación|IAnexo II a la I Disponibilidad de Garantía I Com "A" 2610 I
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1. Guarantees in pesos
   The Electronic Clearing Chambers (E.C.C.) may request the Current Accounts and Securities Compensation Management to open current accounts with restricted use, whose operation will adjust to the guidelines indicated below, in order to keep available for immediate application the guarantees established by the entities adhering to their operation.

a) Ownership: The accounts will be designated "Abbreviated Name of the E.C.C. / Name of the adhering entity". b) Balance Availability: Checkbooks will not be enabled. Debits to the account will be ordered, solely and exclusively, by the E.C.C. via Staf message directed to the address: BCGARCC. c) Origin of credits: The crediting of funds will have no type of limitation or conditioning. d) Destination of debits: Only debits whose destination is the operational current account of the E.C.C., by application of the guarantee, or the main current account of the adhering entity, by transfer of guarantee established in excess, will be accepted. e) Institutional application of balances: These current accounts will have similar use as the main current account of the adhering entity, to apply their balances to the automatic execution of passive swap operations for the Central Bank and to the integration of Minimum Liquidity Requirements.

2. Guarantees in public titles denominated in foreign currency
   The Electronic Clearing Chambers (E.C.C.) may request the Open Market Management to open custody accounts with restricted use, whose operation will adjust to the guidelines indicated below, in order to keep available for immediate application to an active swap operation for the Central Bank, the guarantees established by the entities adhering to their operation.

a) Custodian: Central Bank of the Republic Argentina - Open Market Management. b) Custody account ownership: The custody accounts will be designated "Abbreviated Name of the E.C.C. / Name of the adhering entity".

c) Depository entity: Caja de Valores S.A. d) Ownership of the account and principal at the depository entity: The accounts will be designated "B.C.R.A. / Abbreviated Name of the E.C.C." and a principal account will be enabled for each adhering entity, whose designation will be "Abbreviated Name of the E.C.C. / Name of the adhering entity".

e) Use of the custody account at the Central Bank: The use of the custody account at the Central Bank will remain, solely and exclusively, at the order of the E.C.C., via Staf messages directed to the address: BCGARTIT. f) Origin of titles entered: The crediting of titles will have no type of limitation or conditioning. g) Destination of required titles: Only transfers of titles whose destination is the Central Bank account No. 31314 - principals 10 and 15 - or of the adhering entity, at Caja de Valores S.A. will be accepted. In the first case, with the object of carrying out an active swap operation with credit for the operational current account of the E.C.C., by application of the guarantee, while in the second, it responds to the transfer of a guarantee established in excess. As an exceptional situation, the E.C.C. may order the transfer in favor of any other account in the system, when it concerns the liquidation of the closing of the swap operation (forward sale) and the pesos have not been transferred in favor of the current account of the E.C.C. by the adhering entity that applied its guarantee. h) Recovery of expenses and commissions: The expenses and commissions charged by Caja de Valores S.A. to the Central Bank will be passed on to the E.C.C.s via debit in their operational current account.