Guidelines for the Stock Exchange to Observe in Repo Transactions

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CDSV-71/1998 RCD.MV.71/1998
GUIDELINES THAT THE STOCK EXCHANGE MUST OBSERVE IN THE NEGOTIATION OF REPOS Approval: 12/11/1998 Validity: 05/01/1999

1. Enforce Instructions No. 10/92 dated June 17, 1992 and No. 20/92 dated December 4, 1992, issued by the Stock Exchange.

2. The Stock Exchange must require Brokerage Houses to provide collateral coverage for repo sale operations with fixed-income securities. For this purpose, the Stock Exchange must consider the marketability or liquidity of the fixed-income securities being negotiated or reported.

3. Securities issued by the Ministry of Finance, the Central Reserve Bank, long-term securities classified within categories AAA, AA, A, and short-term securities classified as N1 and N2 shall be considered high-liquidity securities, until there is valuation or other mechanisms that allow determining the liquidity of the reported securities.

4. Establish compliance with collateral margins in three stages, according to what is established in the following table:

Type of Security	1st Stage High Liquidity	1st Stage Low Liquidity	2nd Stage High Liquidity	2nd Stage Low Liquidity	3rd Stage High Liquidity	3rd Stage Low Liquidity
Public	2.5%	N.A.	5%	N.A.	10%	N.A.
Banking	5%	10%	10%	15%	15%	20%
Non-Banking	10%	15%	15%	20%	20%	25%

The First stage will begin on June 21, 1999. This Superintendence will verify its impact on the market. (2)

5. The collateral referred to in the preceding paragraphs is for the purpose of covering the possible reduction in the market price of the traded security, in case the buyer has to retain the reported security.

6. If for any reason the collateral referred to in the preceding paragraph proves insufficient, the Stock Exchange must require the Houses to make the necessary restitution so that said collateral regains its original condition.

7. Reported securities must be or remain under the custody of a Specialized Company in Securities Custody.

8. The Stock Exchange, based on what is established in Article 63 of the Securities Market Law, must require collateral from Brokerage Houses based on the volume of repo operations they carry out in order to reduce their exposure to risks.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CDSV-71/1998 RCD.MV.71/1998
GUIDELINES THAT THE STOCK EXCHANGE MUST OBSERVE IN THE NEGOTIATION OF REPOS Approval: 12/11/1998 Validity: 05/01/1999

9. The Stock Exchange will be responsible for applying these provisions and must inform the Securities Superintendence, no later than within three business days following, in case of non-compliance by some Brokerage Houses, without prejudice to the sanctions it must apply based on its General Internal Regulations.

10. The Stock Exchange and CEDEVAL must adopt the mechanisms and controls that allow the proper functioning of repo operations, as well as the necessary instructions to make these provisions operational. In any case, the instructions issued by both companies must be communicated to the Securities Superintendence, at least 5 business days in advance, before their application. (1)

MODIFICATIONS:
(1) Approved by the Board of Directors in Session CD-05/99 on January 21, 1999.
(2) Approved by the Board of Directors in Session CD-34/99 on June 14, 1999.