Regulatory Alerts2021-04-15
Circular No. 03/EMO/2021, of April 15 - Fundamental Information Document for OTC Derivatives
The Bank of Mozambique issued Circular No. 03/EMO/2021 to mandate a standardized Fundamental Information Document for over-the-counter (OTC) derivatives transactions. The circular requires financial counterparties to disclose essential product characteristics, risk profiles, potential financial losses, default procedures, and complaint mechanisms to ensure market transparency. This regulatory framework, effective April 16, 2021, operationalizes Article 14 of the Un-cleared OTC Derivatives Regulation by establishing the mandatory disclosure model for risk hedging products.
Bank of Mozambique Administration
MONETARY STABILITY DEPARTMENT CIRCULAR NO. 03/EMO/2021
Maputo, April 15, 2021
SUBJECT: FUNDAMENTAL INFORMATION DOCUMENT FOR OTC DERIVATIVES
The Regulation on Financial Derivatives of the Un-cleared Over-the-Counter Market by a Central Counterparty provides that the Bank of Mozambique shall establish the model for the fundamental information document.
Accordingly, under the provisions of paragraph 2 of Article 14 of the Regulation on Financial Derivatives of the Un-cleared Over-the-Counter Market by a Central Counterparty, approved by Notice No. 1/GBM/2021, of March 16, the Bank of Mozambique establishes:
| FUNDAMENTAL INFORMATION DOCUMENT |
|---|
| 1. PURPOSE OF THE TRANSACTION |
| To provide counterparties with fundamental information on the risk hedging product. |
| 2. PRODUCT CHARACTERISTICS |
| Product Name |
| Product Type |
| Objective |
| Product Term |
| 3. RISKS AND RETURNS |
| The financial counterparty must describe, among other things: |
| • the risk profile of the product; |
| • the risk level of the product to be transacted, when compared with other products; and |
Bank of Mozambique Administration
| • the likelihood of the product suffering financial losses in the future due to adverse market factors or the issuer's inability to honor its commitment. |
|---|
| 4. MEASURES IN CASE OF DEFAULT |
| Describe all measures to be taken in the event of a default (default) by counterparties. |
| (...) |
| 5. COMPLAINT MECHANISMS |
| (...) |
| 6. OTHER RELEVANT INFORMATION |
| Describe the set of information that the financial counterparty considers relevant to include in the document and that reinforces transparency and a better understanding of the product. |
Any doubts arising from the interpretation and application of this Circular shall be clarified by the Market and Reserve Management Department of the Bank of Mozambique.
This Circular enters into force on April 16, 2021.
BANK OF MOZAMBIQUE Monetary Stability Department
Silvina de Abreu Administrator