Resolution JPRF-V-2024-0125: Reforms to Chapter III "Norms Regulating Stock Market Negotiation Mechanisms"

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | Resolution No. JPRF-V-2024-0125 THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING: That Article 82 of the Constitution of the Republic of Ecuador prescribes that the right to legal security is based on respect for the Constitution and the existence of prior, clear, public legal norms applied by competent authorities; That number 6 of Article 132 of the aforementioned Constitution grants public regulatory bodies the authority to issue general norms in matters within their competence, without altering or innovating legal provisions; That Article 226 of the Magna Carta provides that State institutions, their bodies, 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 necessary actions for the effective fulfillment of rights recognized in the Constitution; That Article 227 of the Fundamental Norm determines that public administration constitutes a service to the community governed by the principles of effectiveness, efficiency, quality, hierarchy, decentralization, coordination, participation, planning, transparency, and evaluation; That Article 13 of the Organic Monetary and Financial Code, Book I, 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 service policy and regulation; That Article 14, numbers 1 and 2, of the aforementioned Code, regarding the scope of competence of the Financial Policy and Regulation Board, determines that it corresponds, among other functions, to formulate securities policy and issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the securities system; That numbers 1, 7, 9, 14 letter b., 25, and 27 of Article 14.1 of the aforementioned Organic Monetary and Financial Code, Book I, establish that it corresponds to the Financial Policy and Regulation Board, among other faculties, the following: i) regulate the creation, constitution, organization, activities, operation, and liquidation of securities entities; ii) issue the prudential regulatory framework to which securities entities must adhere; iii) issue the non-prudential regulatory framework for all securities entities, which will include, among others, norms on accounting, transparency and information disclosure, market integrity, and consumer protection; iv) authorize securities entities for new activities or operations that, while not prohibited, are necessary for the fulfillment of securities policy, in accordance with the regulations issued for this purpose; vi) apply the provisions of said organic code and resolve cases not foreseen therein, within its scope of competence; and, vii) exercise the other functions, duties, and faculties assigned to it by the Organic Monetary and Financial Code and the law; That the unnumbered Article following Article 6 of the aforementioned Code prescribes that bodies with regulatory, normative, or control capacity shall seek to adopt international technical standards related to their scope of competence as a reference framework for the issuance of norms and the exercise of their functions, strictly adhering to the normative hierarchy established in the Constitution of the Republic of Ecuador;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | That Article 25.1, number 1, ibidem prescribes, among the functions of the Technical Secretariat of this Board, the elaboration of technical and legal reports that support the regulation proposals to be issued by the Financial Policy and Regulation Board; That the Twenty-Ninth General Provision of the Organic Monetary and Financial Code, Book I, prescribes: "In the current legislation where mention is made of the 'Monetary and Financial Policy and Regulation Board', replace it with 'Financial Policy and Regulation Board.'"; That the Fiftieth-Fourth Transitional Provision of the aforementioned Code determines the transitional regime for resolutions of the Codification of the Monetary and Financial Policy and Regulation Board, establishing that: "(...) Resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Monetary and Financial Policy and Regulation Board and norms issued by control bodies shall maintain their validity until the Monetary Policy and Regulation Board and the Financial Policy and Regulation Board resolve what corresponds, within their scope of competence."; That the Securities Market Law, contained in Book II of the Organic Monetary and Financial Code, when referring to the object and scope of said Law, determines in its Article 1 that its objective 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; That the Securities Market Law, in its unnumbered article added following Article 1, prescribes that the guiding principles of the securities market that guide the conduct of the Financial Policy and Regulation Board, the Superintendence of Companies, Securities and Insurance, and participants are: i) public faith; ii) investor protection; iii) transparency and publicity; iv) symmetric, clear, true, complete, and timely information; v) free competition; vi) equal treatment of securities market participants; vii) application of good corporate practices; viii) respect and strengthening of the normative power of the Financial Policy and Regulation Board, subject to the Constitution of the Republic of Ecuador, public policies of the Securities Market, and the Law; and, ix) promote financing and investment in the national development regime and a democratic, productive, efficient, and solidarity-based market; determining that these principles shall always be interpreted in the sense that most favors the investor; That Article 9 of the Organic Monetary and Financial Code, Book II (Securities Market Law), 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, 2, 4, 5, 6, 10, 19, and 21, which are, respectively: (i) establish the general policy of the securities market and regulate its functioning; (ii) promote the development of the securities market, through the establishment of policies and mechanisms for promotion and training regarding it; (iii) issue the resolutions necessary for the application of the law in question; (iv) issue general norms on the basis of which stock exchanges may issue their self-regulation norms; (v) regulate the creation and functioning of securities houses, stock exchanges, the provider and administrator society of the unique stock system (SIUB) and of the compensation and settlement depositories for securities, as well as the services they provide; (vi) regulate the public offering of securities, establishing the minimum requirements that securities offered publicly must have; as well as the procedure for the information that must be disseminated to the public to adequately reveal the financial situation of issuers; (vii) authorize the related activities of stock exchanges and securities houses that are necessary for the adequate development of the securities market; and, (viii) regulate concerning activities and operations of the securities market, accounting systems and operation registration systems, and other aspects of the conduct of participants in the market; That Article 37 ibidem establishes the guidelines for the participation of the public sector in the securities market; That Article 49 of the aforementioned Law, when referring to authorized forms of negotiation, defines them as organized means of negotiation in the securities market that allow the orderly meeting of offers and demands and the execution of corresponding negotiations by securities intermediaries, with the Financial Policy and Regulation Board being competent to establish authorized negotiation mechanisms, which must use a single transactional system for the stock market case; That Article 15 of the Organic Administrative Code, with reference to the principle of responsibility, provides that the State will respond for damages as a consequence of the lack or deficiency in the provision of public services or the actions or omissions of its public servants or subjects of private rights acting in the exercise of a public power delegated by the State and its dependents, controlled entities, or contractors, with the State making effective the responsibility of the public servant for intentional or negligent acts or omissions, stating that no public servant is exempt from responsibility; That, through Office No. MEF-SFPAR-2024-1020-O of July 17, 2024, the Undersecretary of Public Financing and Risk Analysis of the Ministry of Economy and Finance presented to the Financial Policy and Regulation Board a project aimed at reforming provisions related to negotiation mechanisms, contained in Book II "Securities Market" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions; That, the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2024-0100-M of November 26, 2024, sends to the President of the Board the Technical Report No. JPRF-CTSV-2024-006 of November 25, 2024, issued by the Technical Coordination of Policy and Regulation of the Securities and Insurance System; as well as the Legal Report No. JPRF-CJF-2024-053 of November 25, 2024, issued by the Legal Coordination of Policy and Financial Norms of this Board, as well as the respective resolution project; That, the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on November 26, 2024, and carried out via video conference on November 27, 2024, reviewed the Memorandum No. JPRF-ST-2024-0100-M of November 26, 2024, issued by the Technical Secretary of the Board; as well as the aforementioned Technical Report No. JPRF-CTSV-2024-006 and Legal Report No. JPRF-CJF-2024-053, in addition to the corresponding resolution project; That, the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on November 26, 2024, and carried out via video conference on November 27, 2024, reviewed and approved the following Resolution; and, In exercise of its functions,

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | RESOLVES: ARTICLE FIRST.- The text of Article 1 of Section I "Common Terms for Stock Negotiations", Chapter III "Norms Regulating Stock Market Negotiation Mechanisms", Title VII "Stock Exchanges", Book II "Securities Market" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions is replaced by the following: "Definitions: The terms used in this norm shall be understood according to the following definitions:

1. Notice: Communication in which the securities house or authorized public official electronically informs stock exchanges and the general market about the purchase and sale of securities it wishes to carry out in the stock market through auctions. This notice will be made with an advance of at least thirty (30) minutes before the start of the auction, in accordance with what is established in this regulation or with the advance time that will be determined in the joint self-regulation norms of the stock exchanges, which shall not be less than thirty (30) minutes.
2. Matching: The process by which the conditions of a buy order and a sell order coincide with each other according to authorized negotiation mechanisms, which leads to the closing of an operation.
3. Automatic matching without bidding: The process by which supply and demand orders for securities are automatically assigned by the system, which leads to the closing of the operation for non-crossed operations. Illiquid equity operations are excluded.
4. Matching with bidding: The process by which supply and demand orders are exposed to the market for a period of time for the start of price or yield improvement; in this process, any authorized intermediary may intervene by making a new offer or demand that will be taken into account for assignment purposes, which will be carried out at the end of said period and between the valid supply and demand orders that have better price or rate conditions, as applicable. This negotiation mechanism will be mandatory in crossed operations and in the negotiation of illiquid equity securities. In other cases, it will be optional.
5. Operation closing: The perfection of an operation that obliges both parties to fulfill the conditions of the respective orders.
6. Stock exchange session closing: End of a stock exchange round or session, according to the schedules established by the stock exchanges.
7. Order conditions: Firm and market orders may be subject to execution conditions, depending on the type of security.
8. Conditions in the execution of fixed-income securities: By minimum volume: An order that implicitly carries the condition of negotiating at least the minimum volume determined at the time of entering the order.

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | 9. Conditions in the execution of equity securities: a. By drip or hidden volume: Shows the system only a part of the volume to be negotiated, and the shown volume will be executed; the remainder will be considered for all effects as new orders, whose characteristic is hidden volume. b. Package order: The system may allow the entry of package offers when the amount offered is equal to or greater than one percent (1%) of the subscribed capital of the company, on the date of negotiation. The system will allow the entry of package demands only to match such offers. 10. Stock exchange days: Are the days that stock exchanges fix as working days. 11. Securities issuers: Are the entities authorized to publicly offer the securities they issue, which are registered in the Public Registry of the Securities Market and in stock exchanges, including the Special Stock Registry - REB as a permanent segment of the stock market. 12. Value date: Is the date on which the buyer and seller commit to fulfilling the terms of the operation, through the delivery of the sold security or financial instrument, as well as the payment of the agreed price. 13. Suspension period: Is the thirty (30) minute period during which the system temporarily suspends the entry of orders, matching, and closing of equity securities operations in the electronic round, because the matching price of an operation of the same equity security exceeds the established price range limits; so that the market can react by presenting buy or sell orders for the same security, to define and balance the new reference price. In this modality, the random closing figure operates, such that in the last thirty (30) seconds of the suspension period, the system will randomly end the period without the exact moment of termination being known to market participants. 14. Bidding norms: The minimum improvement accepted in equity orders is one percent (1%) of the nominal value of the security. For fixed-income securities, the minimum improvement will be twelve and a half (12.5) hundredths of a point on the nominal annual yield rate, and when they have no term, it will be five (5) hundredths of a point of the price. 15. Crossed operation: Is the operation in which the same securities house is both buyer and seller of the same security or financial instrument; but acting on behalf of different principals or for its own portfolio. Crossed operations may only be carried out using the matching with bidding methodology within the electronic round mechanism. 16. Bidding period: Is the two (2) minute period in which price improvement is allowed, to match an order or carry out a crossed operation. During said period, any operator may intervene by making a new offer or demand with the object of being taken into account for assignment purposes. In this modality, the random closing figure operates, such that in the last thirty (30) seconds, a closing will occur randomly, after which the system will consider the operation closed without the exact moment of termination being known to market participants or in the period determined in the joint self-regulation norms of the stock exchanges.

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | 17. Order: Reflects the position of an operator in the market. Orders can be buy or sell. 18. Weighted average price: Is the result of the weighting of the prices and/or yields presented that have been admitted based on the reserve price and/or yield. It is obtained by summing the product of each admitted price by its offered amount; and dividing the total sum of the products by the total assigned amount. 19. Reserve price and/or yield: Is the pre-established threshold by the issuer that defines the price or yield required in an auction. For the case of an offer auction, the reserve price represents the minimum price (maximum yield) acceptable to assign the securities; while, for the case of a demand auction, the reserve price is the maximum price (minimum yield) acceptable to assign the securities. This threshold ensures that securities are assigned only if the offers meet the minimum or maximum criterion established by the offerer or demander. 20. Bidding: Is the action of improving the price in the offer or in the demand, carried out by securities operators during the "bidding period" of the electronic round. On the demand side, bidding is the action of price improvement in which the assignment of the operation corresponds to the demand order that presents the highest price, among those orders that exceed the matching price. On the offer side, bidding is the action of price improvement in which the assignment of the operation corresponds to the offer order that presents the lowest price, among those orders that are below the matching price. Price improvements can only be entered, considering the following: a. If the first improvement is on the offer side, only offers can be entered; and, b. If the first improvement is on the demand side, only demands can be entered. A securities house that has already entered a price order can only make an improvement in said order if there are orders from other securities houses during the bidding. No securities house can enter and modify multiple prices without competition from other securities houses. 21. Price range for equity securities: Is the maximum price and the minimum price allowed for the matching of an equity securities operation. The initial range for the day results from the application of the allowed variation percentage to the closing price of the previous day. The variation percentage for the purpose of establishing the price range is: a. Liquid securities: Are those that have been subject to closed operations that mark a price during at least seven (7) rounds within the last thirty (30) stock exchange days. The variation percentage is ten percent (10%) to calculate the minimum and maximum range, on the last closing price. b. Illiquid securities: Are all those that do not meet the condition established in the previous letter a. There are no limits for the variation percentage.

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | 22. Electronic round: Is the negotiation mechanism for securities registered in the Public Registry of the Securities Market and in stock exchanges, in which offers, demands, matching, and operation closings are carried out, in accordance with the established negotiation methodologies. In this mechanism, which is implemented through the computer platform provided by the Unique Stock System - SIUB -, and provided by stock exchanges for the stock negotiation of securities and...