Circular to Approved Intermediaries No. 2021-03 of May 31, 2021

Tunis, May 31, 2021
CIRCULAR TO APPROVED INTERMEDIARIES NO. 2021-03 SUBJECT: ORGANIZATION AND FUNCTIONING OF DOMESTIC FOREIGN CURRENCY MARKETS

The Governor of the Central Bank of Tunisia,
Having regard to the Foreign Exchange and External Trade Code promulgated by Law No. 76-18 of January 21, 1976 consolidating and codifying the legislation governing foreign exchange and external trade relations between Tunisia and foreign countries, as amended by subsequent texts and notably the Decree-Law No. 2011-98 of October 24, 2011; Having regard to Law No. 2016-35 of April 25, 2016 establishing the status of the Central Bank of Tunisia; Having regard to Decree No. 77-608 of July 27, 1977 setting the application conditions for Law No. 76-18 above, as amended by subsequent texts and notably its Article 25; Having regard to the Foreign Exchange Opinion of the Minister of Finance regulating the placement and use of non-convertible foreign currency holdings, published in the Official Journal of the Tunisian Republic on February 5, 2008; Having regard to Circular No. 86-02 of January 22, 1986 regarding detailed statements for the purchase and sale of foreign currencies, as amended by subsequent texts; Having regard to Circular No. 86-13 of May 6, 1986 regarding the activity of non-resident banks, as amended by subsequent texts; Having regard to Circular No. 92–13 of June 10, 1992 regarding the foreign currency money market, placement and use of non-convertible currencies, and refinancing in foreign currencies with the Central Bank of Tunisia, as amended by subsequent texts and notably Circular No. 2018–15 of December 26, 2018; Having regard to Circular No. 97-08 of May 9, 1997 establishing rules regarding foreign exchange position monitoring; Having regard to Circular No. 2016-01 of February 8, 2016 regarding the foreign exchange market and instruments for hedging foreign exchange and interest rate risks; Having regard to Circular No. 2018-06 of June 5, 2018 regarding capital adequacy standards; Having regard to the Compliance Control Committee Opinion No. 2021-03 dated April 21, 2021 Decides:

GENERAL PROVISIONS
Article 1: Foreign exchange and foreign currency money market operations are carried out in accordance with the conditions defined by this circular. The conventional operating hours of interbank markets extend from 8:00 to 17:00 local time (from 8:00 to 14:00 during the single session), unless otherwise decided by the Central Bank of Tunisia.
Article 2: Foreign exchange and foreign currency money market operations are executed at interest rates/currencies determined by the Approved Intermediaries.
They must relate to a currency quoted by the Central Bank of Tunisia.
Article 3: Foreign exchange and foreign currency money market operations, including hedging instrument transactions, processed between the Approved Intermediaries must be executed via the Reuters Dealing and/or Bloomberg systems. An Approved Intermediary choosing to use the Reuters Dealing system exclusively or in parallel with Bloomberg must install the "Trade Reporting" solution provided by Refinitiv. An Approved Intermediary choosing to use Bloomberg's system is required to authorize the latter to allow the Central Bank of Tunisia to access transactions executed on this platform.
Article 4: Approved Intermediaries may manage foreign exchange positions generated by their foreign currency operations, in compliance with the rules set forth in Title III of this circular regarding risk management rules.

TITLE I
FOREIGN EXCHANGE MARKET
CHAPTER 1
SPOT FOREIGN EXCHANGE OPERATIONS
SECTION 1
OPERATING RULES
Article 5: Approved Intermediaries are authorized to conduct spot foreign currency/Tunisian Dinar and foreign currency/foreign currency exchange operations with their clients for transactions carried out in compliance with prevailing regulations.
Article 6: Exchange operations may be conducted with an Approved Intermediary other than the domiciliary agent of the underlying transaction. The domiciliary Approved Intermediary is solely authorized to proceed with settlement after verifying the regularity of the relevant transaction.

Article 7: Approved Intermediaries may freely conduct spot foreign currency/Tunisian Dinar exchange transactions on the interbank foreign exchange market, in compliance with the rules set forth in Title III of this circular regarding risk management rules.
Article 8: Approved Intermediaries may conduct foreign currency against foreign currency exchange operations among themselves and with foreign financial institutions as part of their foreign exchange position management.
Article 9: Spot buying and selling rates for currencies against the Dinar must be continuously communicated to the market via electronic display.
Article 10: The standard delivery period for counter-values in spot foreign exchange operations is two business days. However, Approved Intermediaries may exceptionally agree on shorter periods among themselves.
Article 11: The Central Bank of Tunisia intervenes in the foreign exchange market to buy or sell currencies against the Dinar directly or via 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 12: The Central Bank of Tunisia publishes, on an indicative basis, the average interbank foreign exchange rates for currencies against the Dinar.
SECTION 2
SPECIFIC RULES FOR MARKET MAKERS
Article 13: A Market Maker is a participant who contributes to providing and improving liquidity in the spot interbank foreign exchange market by systematically displaying buying and selling rates upon each quotation request, at which they are willing to buy and sell a specific currency against the Dinar within a maximum rate margin and for a specified amount.
Article 14: Any Approved 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 58 below. The Central Bank of Tunisia will communicate its response in writing.
The access by an Approved Intermediary to Market Maker status will be notified to the market via a note to approved intermediaries.

Article 15: The Market Maker must designate a contact with the Central Bank of Tunisia, who may 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.
Article 16: A Market Maker is required to provide a firm two-way spot quotation for EUR/TND and USD/TND parities if requested by another Approved Intermediary.
The maximum margin between the displayed buying and selling rates for the Market Maker is 30 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 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 17: The internal limits of a Market Maker's foreign exchange positions must be at least two-thirds of the regulatory limits.
The total daily limits per counterparty granted to other Approved Intermediaries for spot foreign exchange transactions must be at least 200 million dinars.
The Market Maker is exempt from the quotation obligations set forth in Article 16 above if the execution of the relevant foreign exchange transaction results in exceeding internal position and/or counterparty limits. The Market Maker must, however, justify to the Central Bank of Tunisia, via a duly signed written statement by an authorized officer, any refusal to quote linked to position and/or counterparty limits.
Article 18: The Market Maker undertakes to update indicative buying and selling rates at regular intervals on a dedicated page of the Reuters and/or Bloomberg systems. Indicative quotations must be updated at intervals not exceeding 60 seconds.

Article 19: If the Market Maker is unable to display quotations due to a technical or other incident, it is authorized to decline quotation requests, provided that it supplies the Central Bank of Tunisia with justification for the malfunction.
Article 20: When the Central Bank of Tunisia identifies an incident causing market dysfunction, it may take any decision or measure to remedy it, including:

• deciding to suspend or cancel transactions, after optionally consulting the concerned Market Makers;
• deciding that transactions be executed according to procedures different from those prescribed by 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 21: The Central Bank of Tunisia ensures that commitments undertaken by the Market Maker, admission conditions, and rules prescribed by this circular for exercising its activity are always respected.
  Whenever the Central Bank of Tunisia finds that a Market Maker's situation or conduct no longer corresponds to undertaken commitments, violates access conditions to Market Maker status or activity exercise rules as above, or affects the proper functioning of the market, it invites them to remedy the situation. If the Market Maker fails to cease the relevant conduct, they may be subject to suspension or revocation of their Market Maker status.
  Article 22: An Approved Intermediary wishing to relinquish Market Maker status must notify the Central Bank of Tunisia in writing at least one month in advance.
  The relinquishment by an Approved Intermediary of Market Maker status will be notified to the market via a note to approved intermediaries.
  SECTION 3
  FOREIGN CURRENCY AUCTIONS
  PARAGRAPH 1
  GENERAL RULES
  Article 23: Foreign exchange market intervention via auction is initiated by the Central Bank of Tunisia.

Article 24: Calls for tender are conducted in EUR or USD.
Article 25: Only Market Makers participate in the Central Bank of Tunisia's foreign currency auctions.
Article 26: 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 call for tender.
Market Maker submissions will be made via Reuters Dealing or Bloomberg.
Auction results will be communicated to the entire market via a dedicated page on Reuters and Bloomberg systems.
In case of malfunction of these two platforms, the Central Bank of Tunisia specifies to Market Makers the communication method to be used for managing auctions.
Article 27: Upon launching its call for tender, the Central Bank of Tunisia communicates to Market Makers the following information:

• direction of the call for tender;

• currency of the call for tender;

• value date of the call for tender;

• deadline for receiving submissions;

• deadline for responding to submissions.
  Article 28: After tallying the tender submissions, the Central Bank of Tunisia fulfills, within the limit of foreign currency to be injected or absorbed, all or a certain percentage of bids submitted by bidders according to the multiple exchange rate method or the single exchange rate method.
  PARAGRAPH 2
  ELIGIBILITY OF SUBMISSIONS
  Article 29: Bidders must strictly comply with the provisions of Article 57 regarding the communication of their foreign currency treasury forecasts.
  Article 30: Submissions must meet the following conditions:

• submissions are made exclusively in the currency announced by the Central Bank of Tunisia;

• the minimum amount per submission is USD or EUR 1 million;

• the maximum amount per submission is USD or EUR 30 million;

• each submission may comprise up to 3 proposals covering an integer number, separated by at least 1 pip;

• the submission amount must not imply exceeding regulatory foreign exchange position limits.
  Article 31: Submissions must be communicated to the Central Bank of Tunisia no later than 30 minutes after the announcement of the call for tender.
  Article 32: Submitted proposals are firm and irrevocable except for recognized quotation and/or volume errors.
  PARAGRAPH 3
  SETTLEMENT OF THE AUCTION
  Article 33: The settlement of foreign exchange transactions by the Central Bank of Tunisia with selected bidders will be executed via Reuters Dealing or Bloomberg no later than 30 minutes after the deadline for receiving submissions.
  Article 34: The marginal rate, weighted average rate, maximum and minimum rates of the auction, total allocated amount, and number of participants will be published on electronic information systems.
  PARAGRAPH 4
  RESPONSIBILITIES
  Article 35: The Central Bank of Tunisia guarantees transparency of information on auctions and confidentiality of bidders' proposals and allocations.
  Article 36: A Market Maker that does not comply with the provisions of this circular may be excluded from one or more auctions.
  CHAPTER 2
  OPERATIONS ON FOREIGN BANKNOTES AND TRAVELLERS CHEQUES
  Article 37: Interbank exchanges of foreign banknotes are executed at rates determined by Approved Intermediaries.

Article 38: Purchase and sale operations of foreign banknotes and travellers cheques with the public are executed at Dinar rates established by the Approved Intermediary and visibly displayed on boards in each foreign exchange counter across their entire operational network.
Article 39: The Central Bank of Tunisia purchases foreign banknotes from Approved Intermediaries against the Dinar or foreign currency. Sales of foreign banknotes by the Central Bank of Tunisia to Approved Intermediaries are made exclusively against the Dinar.
Purchases of foreign banknotes by the Central Bank of Tunisia against foreign currency are made exclusively against the denomination currency of the foreign banknote, 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 9 of this circular.
Article 40: The Central Bank of Tunisia publishes, on an indicative basis, the average interbank foreign exchange rates for foreign banknotes.
TITLE II
FOREIGN CURRENCY MONEY MARKET
Article 41: Approved Intermediaries are authorized to conduct operations on the foreign currency money market, in compliance with the rules set forth in Title III of this circular regarding risk management rules.
Currencies that Approved Intermediaries may hold under the conditions prescribed by this circular are those lodged in foreign currency accounts of non-residents and residents.
Article 42: Approved Intermediaries may exchange liquidity on the foreign currency money market in the form of mutual loans.
It is understood that resident currencies, previously leveled, which are borrowed by non-resident banks must be used for financing in compliance with the provisions of paragraphs 3, 4, and 5 of Article 43 below.

Article 43: Approved Intermediaries may use, without prior authorization, resources constituted by non-convertible foreign currencies belonging to their resident and non-resident clients in the following uses:

1. Placement with their correspondents of foreign currency holdings belonging to their non-resident clients, in compliance with the rules set forth in Title III of this circular regarding risk management rules.
2. Granting financing to the State, in compliance with prevailing legislation and regulations, on foreign currency holdings belonging to their non-resident clients.
3. Financing import and export operations of resident enterprises and non-resident enterprises established in Tunisia operating in the industrial and service sectors, and export operations of locally sourced products conducted by non-resident international trade companies established in Tunisia, including recourse to factoring or any other similar foreign currency financing instrument. The import and export operations mentioned above must be carried out in compliance with prevailing foreign exchange regulations.
4. Financing investments made in compliance with prevailing foreign exchange regulations by resident enterprises.
5. Granting to the non-resident enterprises and companies referred to in paragraph (3) above operating credits other than those provided by the same paragraph.
6. Placement with the Central Bank of Tunisia in the form of remunerated deposits.
7. Any other use authorized by the Central Bank of Tunisia.
   Article 44: Remuneration of foreign currency accounts, as well as term and demand deposits, is freely negotiated with account holders based on prevailing market rates.
   Article 45: The Central Bank of Tunisia publishes remuneration rates it grants on the main currencies traded on the foreign currency money market. Deposits with the Central Bank of Tunisia must be made no later than 16:00 (13:00 during the single session).

TITLE III
RISK MANAGEMENT RULES
CHAPTER 1
GENERAL PROVISIONS
Article 46: Approved Intermediaries are required to establish necessary internal control procedures to comply with market operation management rules. To this end, they must strictly separate contract negotiation functions (Front-Office) from control, settlement, and accounting processing functions (Back-Office). Market Makers must ensure the existence of a risk monitoring and market activity performance measurement structure (Middle-Office).
Article 47: Approved Intermediaries are required to establish a list of financial institution counterparties for market operations, defining counterparty limits.
The determination and updating of this list, as well as limits per financial institution, must take into account objective risk assessment criteria in accordance with international best practices.
CHAPTER 2
FOREIGN EXCHANGE MARKET
DEFINITION AND DETERMINATION OF THE OVERALL NET FOREIGN CURRENCY POSITION
Article 48: The overall net foreign currency position is determined in accordance with the provisions of Article 41 of Central Bank of Tunisia Circular No. 2018-06 of June 5, 2018 regarding capital adequacy standards.
Article 49: The rate applied to calculate the counter-value of the overall net foreign currency position in a given currency is the average of buying and selling rates as displayed by the Central Bank of Tunisia on electronic information systems at 16:00 (11:00 during the single session).
Article 50: Each Approved Intermediary is required to permanently respect:

1. a maximum ratio of 10% between the amount of the overall net position in each currency and the amount of its net equity;
2. a maximum ratio of 20% between the amount of the overall foreign exchange position and the amount of its net equity.
   Net equity is determined in accordance with Title I of Central Bank of Tunisia Circular No. 2018-06 of June 5, 2018 regarding capital adequacy standards.
   Article 51: Approved Intermediaries must possess:

• a control system ensuring compliance with foreign exchange position management rules;
• a permanent system for the instant maintenance of foreign currency positions by currency and overall, as well as the calculation of related results.
  Article 52: Foreign currency positions resulting from the settlement of foreign exchange operations may only be placed on the foreign currency money market.
  CHAPTER 3
  FOREIGN CURRENCY MONEY MARKET
  Article 53: In carrying out operations provided for in Title II of this circular, Approved Intermediaries must comply with the following prudential conditions and rules:

1. Ensure adjustment of their foreign currency resources and uses to meet commitments at all times.
2. Ensure compliance with prudential rules, including solvency, liquidity, and risk diversification as prescribed by prevailing banking management standards and banking conditions regulations.

Article 54: Eligible correspondent institutions for placement operations mentioned in Article 43 paragraph (1) must have at least one short-term rating from one of the three major international rating agencies (Standard & Poor’s, Moody’s, Fitch Ratings). This rating must be at least A-2 (S&P) or an equivalent rating.

TITLE IV
COMMUNICATION TO THE CENTRAL BANK OF TUNISIA
CHAPTER 1
FOREIGN EXCHANGE MARKET
Article 55: Communication to the Central Bank of Tunisia of foreign currency receipts and expenditure statements must be ensured by Approved Intermediaries in accordance with Central Bank of Tunisia Circular No. 86-02, as amended by subsequent texts, following the procedure established in Annex 1 of this circular.
The foreign currency receipts and expenditure statement must be sent to the General Directorate responsible for statistics.
Article 56: Approved Intermediaries will send to the Central Bank of Tunisia via the system