Instruction No. 14/2020

BO No. 5/2020 4th Supplement • 2020/06/01
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Topics
Markets :: Money Markets
Mod. 99999940/T – 01/14

Index
Text of the Instruction
Annex III - Contract for the pledge of financial instruments and individual credit rights in the form of bank loans for monetary policy operations

Text of the Instruction

Subject: Implementation of monetary policy – Additional temporary measures

On 15 May 2020, the Governing Council of the ECB approved the extension of additional temporary measures regarding Eurosystem refinancing operations and the eligibility of collateral assets, enabling the acceptance of individual credit rights granted to companies benefiting from guarantees provided by public sector entities. The acceptance of commercial paper not held in a Central Securities Depository was also approved.

Accordingly, in the exercise of the competence attributed to it by Articles 12, 15, 16 and 24 of its Organic Law, approved by Law No. 5/98 of 31 January, in its current version, the Bank of Portugal determines the following:

Instruction No. 7/2012 (BO No. 3, of 15-03-2012) is amended as follows:

1. The fifth paragraph of the preamble is amended, to read as follows:

In accordance with the rules set out in the aforementioned documentation and in line with BdP Instruction No. 3/2015 of 15 May, the BdP, upon request by the Counterparty, shall open a credit facility in its favour, the amount of which shall be limited by the result of the difference between the value assigned by the BdP to the collateral delivered by the Counterparty, in accordance with the valuation rules set out in Instruction No. 3/2015 and this Instruction, the amount of the intraday credit contracted by the Counterparty, the use of the liquidity of contingency facility under BdP Instruction No. 54/2012 of 15 January and the value reserve constituted under BdP Instruction No. 8/2018 of 22 March.

2. In II.1:

a) In number II.1.1 the current paragraph is numbered as a) and a new paragraph, b), is introduced, with the following wording:

b) Comply with point a) of this section and have been granted under the economic support lines - COVID 19, and benefit from a guarantee. The guarantee, to be eligible, must cover up to 80% or 90% of the principal, must be issued by a Mutual Guarantee Society and counter-guaranteed 100% by the Mutual Counter-Guarantee Fund. The guarantee does not require legal confirmation regarding its legal validity, binding effect and enforceability. It must also comply with the remaining requirements contained in Instruction No. 3/2015, namely Article 114. For the purposes of valuing credit rights, only the guaranteed amount is considered.

b) In II.1.3 the designation “fixed coupon” is replaced by “fixed rate”

3. In II.2, amendments are introduced in the following numbers, which shall read as follows:

a) In number II.2.1 the first and third paragraphs are amended:

Credit rights on the following are admitted:

• Loans intended for the acquisition, construction and completion of works on permanent, secondary or rental housing, as well as for the acquisition of land for the construction of permanent housing, secured by mortgage and granted to families (“Mortgage Credit”), for which no minimum value is established.

• Loans granted to companies that do not have the nature of financial companies (“Renewable Credit”, “Non-renewable Credit”, “Factoring without recourse”, “Real Estate Financial Leasing”, “Movable Financial Leasing”, “Financing of Business Activity” and “Car Credit” according to the classification contained in the Technical and Operational Support Guide, complementary to BdP Instruction No. 17/2018), for which no minimum value is established.

b) In number II.2.2 the first part of II.2.2.2 is amended:

Credit right portfolios must be homogeneous, i.e., constituted by credit rights with the same purpose (mortgage credit, consumer credit and corporate credit) and are henceforth designated as:

HIPO: mortgage-backed credit right portfolios granted to families;

c) The footnote in number II.2.2.3 is deleted.

d) In number II.2.4, numbers II.2.4.1 and II.2.4.2 are amended

II.2.4.1 Counterparties may mobilize as collateral assets portfolios of credit rights, using, for each of the credit rights included therein, the probability of default (PD) for a 1-year horizon and loss given default (LGD) from an internal ratings method, also known as the IRB (Internal Ratings-Based approach) method, authorized by the BdP, under Article 14 of Decree-Law No. 104/2007 of 3 April, or authorized by the supervisory authority of origin, in the case of branches of financial institutions with headquarters in another Member State of the European Union (EU).

If the Counterparties are branches of financial institutions with headquarters in another EU Member State, confirmation from the supervisory authority of the country of origin is required that the authorization granted for the use of the IRB method includes within its scope the rating systems implemented by the aforementioned branches.

These systems must also comply with the requirements set out in the Eurosystem Credit Assessment Framework (ECAF), established in Part IV of BdP Instruction No. 3/2015.

For systems accepted after 1 June 2020, these requirements are temporarily not applicable.

II.2.4.2 In addition to the rules stipulated in this Instruction, Counterparties must comply with the procedures defined in Annex IV to this Instruction and with the operational requirements defined in the Transfer Manual regarding the Reporting of Credit Right Portfolios, made available by the BdP in the BPnet System (section “Monetary Policy Implementation”, under the title “Bank Loans”).

4. In III, amendments are introduced in the following numbers, which shall read as follows:

a) In number III.1, the following subparagraphs are amended:

(i) The maturity of the debt instrument is not more than 365 days at the time of issuance, or at any subsequent time.

(ii) The residual maturity of the debt instrument is not less than 25 days on the date on which the eligibility request is made to the BdP.

(iii) The debt instrument is issued by a non-financial company (defined in accordance with the European System of Accounts 2010 – ESA 2010) established in the euro area. In the event that it benefits from a guarantee, the guarantor must be a non-financial company established in the euro area, unless the guarantee is not necessary for the debt instrument to comply with the provisions relating to high credit standards set out in subparagraphs (v) and (vi) of this number.

(iv) The debt instrument integrated into a Central Securities Depository (CSD) is not admitted to trading on a market accepted by the Eurosystem, as provided for in Article 68 of Instruction No. 3/2015 (uncollected debt instrument), or the debt instrument is not integrated into a CSD (unintegrated debt instrument).

b) Numbers III.2 and III.3 are amended:

III.2 The haircuts applicable to additional short-term debt instruments are those presented in point II.1.3 of this Instruction, and the provisions in points II.1.3.2 and II.1.3.3 must also be taken into account. These haircuts apply to the nominal value of the debt instrument.

III.3 Uncollected short-term debt instruments that meet the requirements set out in number III.1, are issued in the euro area, in another NCB, or in a CSD that: a) has been given a positive assessment by the Eurosystem based on the assessment rules and procedures described in the document entitled “Framework for the assessment of securities settlement systems and links to determine their eligibility for use in Eurosystem credit operations”; and b) is established in the Member State belonging to the euro area where the other NCB is established, can only be accepted as collateral for Eurosystem credit operations, if a bilateral agreement has been concluded between the BdP and that NCB.

c) A new number is added, number III.4, which reads as follows, with the current number III.4 being amended and renumbered as III.5:

III.4 Unintegrated short-term debt instruments that meet the requirements set out in point III.1, and which have been issued outside Portugal, cannot be accepted as collateral for Eurosystem credit operations.

III.5 In addition to the eligibility requirements provided for in this Instruction: (i) additional uncollected short-term debt instruments must also comply with the operational requirements defined in section 7.4 of the External User Manual of the COLMS – Asset Management and Operations System and (ii) additional unintegrated short-term debt instruments must also comply with the operational requirements defined in section III of Annex IV to this Instruction.

5. In IV, the title of number IV.5 is amended, which shall read as follows:

IV.5 For the purposes of the provisions in IV:

6. In V, number V.5 is amended, which shall read as follows:

V.5 Only numbers I, [Reference missing], [Reference missing] and X of this Instruction apply to tradable assets denominated in foreign currency.

7. Annex I is amended as follows:

a) The identification of the parties is amended, to read as follows:

Bank of Portugal, a public law legal entity, with headquarters at Rua do Comércio, No. 148, in Lisbon, registered with the Lisbon Commercial Registry under the unique registration and legal entity number 500792771, represented in this act by ____________ _____________________________________________, holder of the Citizen Card No. ______, issued on , in, and _______________________________________, holder of the Citizen Card No. ________________, issued on ________, in __________, hereinafter designated as Bank of Portugal (BdP).

AND

_______________________________________________, public limited company, with headquarters at _____________________________________, in _________________, registered with the Lisbon Commercial Registry, under the unique registration and legal entity number _________, represented in this act by ________________________________________________, holder of the Citizen Card No. _____________, issued on ________, in __________, and _________________________________________________, holder of the Citizen Card No. ______________________, issued on ________, in __________, hereinafter designated as Counterparty.

b) Clause 1, No. 1 is amended, to read as follows:

The BdP, within the framework of Eurosystem credit operations regulated by Instructions No. 3/2015 of 15 May, No. 54/2012 of 15 January and the value reserve regulated by Instruction No. 8/2018 of 22 March, accepts as collateral, through the constitution of a financial pledge in accordance with the terms and conditions established in Decree-Law No. 105/2004 of 8 May, additional aggregated credit rights (portfolio) secured by mortgage, delivered by the Counterparty, which shall henceforth be designated as additional aggregated credit rights (portfolio) secured by mortgage.

c) Clause 6, No. 9 is amended, to read as follows:

Obtain the waiver by debtors, in writing or other legally equivalent form, of set-off rights against their respective institution and the BdP as well as rights arising from banking secrecy rules.

d) Clause 9, No. 2 is amended, to read as follows:

Communications and information to be made under the Contract, which include, inter alia, the proposal to contract and its acceptance, amendments to the contract thus constituted, the declaration of the existence and validity of the credit rights, the constitution of the pledge and the alteration of the set of credit rights constituting it, must be sent to the recipient in writing, by dedicated information system, by email, fax, or registered/certified mail. Any communication or information to be made under the Contract becomes effective:

a) If delivered in person or by unregistered mail, at the moment it comes into the possession of the recipient; b) If sent by registered mail, on the date of receipt fixed by the postmark; c) If sent by dedicated information system, email or fax, at the moment of receipt of the transmission, in legible conditions, with the sender bearing the burden of proof of receipt.

8. Annex II is amended as follows:

a) The identification of the parties is amended, to read as follows:

Bank of Portugal, a public law legal entity, with headquarters at Rua do Comércio, No. 148, in Lisbon, registered with the Lisbon Commercial Registry under the unique registration and legal entity number 500792771, represented in this act by ____________ _____________________________________________, holder of the Citizen Card No. ______, issued on , in, and _______________________________________, holder of the Citizen Card No. ________________, issued on ________, in __________, hereinafter designated as Bank of Portugal (BdP).

AND

_______________________________________________, public limited company, with headquarters at _____________________________________, in _________________, registered with the Lisbon Commercial Registry, under the unique registration and legal entity number _________, represented in this act by ________________________________________________, holder of the Citizen Card No. _____________, issued on ________, in __________, and _________________________________________________, holder of the Citizen Card No. ______________________, issued on ________, in __________, hereinafter designated as Counterparty.

b) Clause 5, No. 7 is amended, to read as follows:

Obtain the waiver by debtors, in writing or other legally equivalent form, of set-off rights against their respective institution and the BdP as well as rights arising from banking secrecy rules.

c) Clause 7, No. 3 is deleted, with number 4 being renumbered as number 3.

d) Clause 7, No. 2 and No. 3 are amended, to read as follows:

2. Communications and information to be made under the Contract, which include, inter alia, the proposal to contract and its acceptance, amendments to the contract thus constituted, the declaration of the existence and validity of the credit rights, the constitution of the pledge and the alteration of the set of credit rights constituting it, must be sent to the recipient in writing, by dedicated information system, by email, fax, or registered/certified mail.

3. Any communication or information to be made under the Contract becomes effective:

a) If delivered in person or by unregistered mail, at the moment it comes into the possession of the recipient; b) If sent by registered mail, on the date of receipt fixed by the postmark; c) If sent by dedicated information system, email or fax, at the moment of receipt of the transmission, in legible conditions, with the sender bearing the burden of proof of receipt.

9. A new Annex is added, which becomes Annex III, with the following content:

Annex III - Contract for the pledge of financial instruments and individual credit rights in the form of bank loans for monetary policy operations

Between

Bank of Portugal, a public law legal entity, with headquarters at Rua do Comércio, No. 148, in Lisbon, registered with the Lisbon Commercial Registry under the unique registration and legal entity number 500792771, represented in this act by _________________ _____________________________, holder of the Citizen Card No. ____________________, issued on ________, in __________, and ________________________________________________, holder of the Citizen Card No. ____________________, issued on __________, hereinafter designated as Bank of Portugal (BdP).

AND

____________________________________________________, public limited company, with headquarters at ___________________________________, in __________________, registered with the Lisbon Commercial Registry, under the unique registration and legal entity number _________, represented in this act by ______________________________________, holder of the Citizen Card No. _____________, issued on __________, and ____________________________, holder of the Citizen Card No. ______________, issued on __________, hereinafter designated as Counterparty.

Enter into this contract for PLEDGE OF FINANCIAL INSTRUMENTS AND INDIVIDUAL CREDIT RIGHTS IN THE FORM OF BANK LOANS FOR MONETARY POLICY OPERATIONS, which shall be governed by the terms and conditions set out in the following clauses:

Clause 1
Object

1. The BdP, within the framework of Eurosystem credit operations regulated by Instructions No. 3/2015 of 15 May, No. 54/2012 of 15 January and the value reserve regulated by Instruction No. 8/2018 of 22 March, accepts as collateral, through the constitution of a financial pledge, in accordance with the terms and conditions established in Decree-Law No. 105/2004 of 8 May, additional individual credit rights on third parties and additional financial instruments delivered by the Counterparty.

2. The eligibility of additional individual credit rights and additional individual financial instruments is subject to the requirements and conditions established in BdP Instruction No. 7/2012, hereinafter designated as Instruction, and subsidiarily to Instruction No. 3/2015.

Clause 2
Credit Amount

The amount of credit owed by the Counterparty corresponds, at any given time, to the liquidity lending operations carried out within the framework of the implementation of monetary policy, in accordance with the provisions of BdP Instruction No. 3/2015.

Clause 3
Provision of Collateral

1. The collateral provided by the Counterparty shall be itemized by it and subject to the acceptance of the BdP.

Instruction No. 14/2020 BO No. 5/2020 4th Supplement • 2020/06/01 Topics Markets :: Money Markets
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Mod. 99999940/T – 01/14

2. The counterparty guarantees, under its responsibility, that: (i) the credit rights exist and are valid; (ii) the financial instruments are its property; and that (iii) no encumbrance, charge, limitation, or lien applies to these and those, other than the registration of a financial pledge in favor of the BdP.

3. The set of individual credit rights and financial instruments constituting the object of the financial pledge may be altered, in case of reinforcement, reduction, or substitution of the amount of credit rights and financial instruments given as security, whether by requirement of the BdP or by convenience of the Counterparty with the prior agreement of the BdP.

4. This contract is only effective after the BdP (i) has received from the Central Securities Depository or the depositary entity, if applicable, communication that the financial instruments have been transferred to the BdP's account and that the exercise of the right of disposal is duly registered therein, (ii) has verified, accepted, and registered the credit rights and the debt instruments not integrated into a Securities Depository Central, as well as the constitution of the financial pledge in favor of the BdP.

5. The Counterparty cedes to the BdP, by virtue of this contract, the possession of the pledged credits, henceforth acting in relation to these credits as mere holder in the name of the BdP.

6. The BdP reserves the right to notify the debtor of the credit rights of the existence of the financial pledge, at any time it deems convenient. Notification will always occur in case of default by the Counterparty, in which case the Counterparty ceases to hold the credit, which becomes the property of the BdP.

Clause 4th
Right of Disposal

1. With the constitution of a financial pledge in favor of the BdP, the right of disposal over the financial instruments given as security is conferred upon it, allowing the BdP to proceed with their alienation or encumbrance, as if it were their owner, in accordance with Article 9 of Decree-Law No. 105/2004, of May 8.

2. For the purposes of the preceding paragraph, the exercise of the right of disposal over the financial instruments will be duly mentioned in the respective account register.

3. The parties attribute to the transfer of ownership of the financial instruments to the BdP the effects of the exercise of the right of disposal and/or appropriation, in the event of default by the Institution, without any additional registration in the respective account being necessary for the application of the regime established in the aforementioned decree.

4. When Portuguese law is not the competent law to regulate the requirements necessary for the constitution of the financial pledge over the financial instruments, the Counterparty shall proceed to fulfill all legal requirements demanded by the competent law so that the financial instruments are made available to the BdP on terms equivalent to those provided in Article 9 of Decree-Law No. 105/2004, of May 8, in the shortest possible time.

5. If the Counterparty proceeds to settle the granted credit on the due date, the BdP has the obligation to (i) return the financial instruments delivered as security, or (ii) if it has proceeded with their sale, the respective value thereof or the delivery of equivalent financial instruments. The BdP may also exercise the right of set-off for the exercise of the right to return the financial instruments.

6. The interest and other patrimonial rights inherent to the financial instruments belong to the Counterparty, obliging the BdP to proceed with their transfer to the counterparty as established in the Instruction, on the same day, except if on that date the financial instruments given as security are insufficient to cover the financing provided, in which case they will be retained as long as necessary.

Clause 5th
Amortization and Settlement

Whenever, during the validity of the contract, there is amortization, settlement, or default of the credit rights or financial instruments subject to financial pledge, the credit opening amount fixed by the BdP will be reduced accordingly.

Clause 6th
Other Obligations of the Counterparty

The Counterparty undertakes to:

1. Act as faithful depositary, on behalf of the BdP, of the originals of the contracts relating to the credit rights given as security concluded between the Counterparty and the debtors.

2. Perform, in the name of the BdP, if requested by it, in its name and representation, all acts necessary for the good management of credit rights against third parties and their respective guarantees, including collection services and relations with debtors, even in the liquidation of the Counterparty.

3. Deliver to the BdP, when requested, the contracts referred to in the preceding number or an authenticated copy thereof, or authorize their consultation at the Counterparty's premises.

4. Not include in the loan contract any restrictions on the mobilization and realization of the credit resulting from the loan in favor of the Eurosystem, i.e., in favor of the national central banks of countries that have adopted the euro.

5. Not use the credit rights against third parties given as security to the BdP nor their respective guarantees, if any, to secure credits against third parties or for any other purposes.

6. Inform the BdP, at the latest during the next business day, about any early repayments of the credit rights against third parties given as security, as well as about credit rating downgrades of the debtor or other materially relevant subsequent changes that may affect the security provided.

7. In the event of default by the Counterparty, maintain in a separate account, for the benefit of the BdP, the amounts related to any payments made by the debtors of the bank loans.

8. Obtain the waiver from debtors, in writing or other legally equivalent form, of the rights of set-off against their respective institution and the BdP, as well as of the rights arising from bank secrecy rules.

Clause 7th
Communications and Information

1. The Counterparty will inform the BdP of the identity of the person or persons, who are bound by it, authorized to make communications within the scope of this Contract, and to update this information, in the same manner, when necessary.

2. The communications and information to be made under the Contract, which include, inter alia, the proposal to contract and its acceptance, amendments to the contract thus constituted, the declaration of the existence and validity of the credit rights, the constitution of the pledge, and the alteration of the set of credit rights and financial instruments constituting it, must be sent to the recipient in writing, by dedicated information system, electronic mail, fax, certified or registered mail. Any communication or information to be made under the Contract becomes effective.

3. Any communication or information to be made under the Contract becomes effective:
   a) If delivered by hand or by unregistered mail, at the moment it comes into the power of the recipient; b) If sent by registered mail, on the date of receipt fixed by the postmark; c) If sent by dedicated information system, electronic mail, or fax, at the moment of receipt of the transmission, under conditions of legibility, with the sender bearing the burden of proof of receipt.

4. The preceding number does not apply when the actual or presumed receipt of the communication takes place after the closing of the respective business day or on a non-business day; in this case, it is considered that such communication comes into the power of the recipient on the next business day.

5. The Counterparty must communicate to the BdP the alteration of its address, fax number, or electronic mail address.

6. All telephone communications related to the Operations carried out within the scope of this Contract may be recorded, which may be used as means of proof of the carrying out of the operations.

Clause 8th
Default by the Debtor

1. Default by the debtor is considered to occur whenever at least one of the following situations is verified:
   a) The Counterparty assigns a low probability to the possibility of the debtor fully respecting its obligations towards its own institution, its parent company, or any of its subsidiaries, if it does not resort to measures such as the enforcement of any eventual guarantees; b) The Counterparty considers it likely to have to face the debtor's liabilities, and its recovery is doubtful, regarding extrapatrimonial elements; c) The debtor registers a delay of more than 90 days regarding a significant payment obligation to the Counterparty, its parent company, or any of its subsidiaries.

2. When it concerns significant overdrafts, the delay must start to be counted from the moment the debtor has infringed an authorized limit, has been notified of the fixing of a limit lower than its debt amounts, or has used, in an unauthorized manner, credit amounts.

3. Notwithstanding the provision in letter c) of number 1, when it concerns risk positions on public sector entities, the 90-day period may be extended to 180 days.

4. In the case of risk positions on the retail portfolio, institutions may apply the definition of default at the level of a credit facility.

5. In all cases, the overdue risk positions must be above a limit fixed by the BdP that reflects an acceptable level of risk. This limit shall be €50, except when institutions demonstrate to the BdP that another value is more appropriate.

6. For the purposes of this point, the following circumstances constitute indications of a possible situation of default:
   a) Assignment to the credit obligation the status of non-performing credit; b) Introduction of a value adjustment taking into account the perception of the existence of a significant deterioration in credit quality, compared to the date of credit granting; c) Sale of the credit obligation, with realization of a significant economic loss; d) Decision to proceed with an urgent restructuring of the credit obligation, including risk positions on shares that are subject to the PD/LGD method, likely to reduce its amount, due, inter alia, to a significant write-off or deferral of the respective repayment of the capital in debt, interest, or, if applicable, commissions; e) Request for the declaration of insolvency of the debtor by the institution, its parent company, or any of its subsidiaries; f) Request for the declaration of insolvency or special recovery of a company by the debtor, in order to avoid or delay the repayment of its obligations to the institution, its parent company, or any of its subsidiaries.

Clause 9th
Non-Payment and Default

1. The non-payment of any amounts that the Counterparty must pay to the BdP may constitute a situation of default of the Contract, in accordance with Clause 10th, and may lead to its execution, without the need for any notice, notification, or formality.

2. The default in fulfilling, by the Counterparty, the obligation to pay the outstanding balance, confers upon the BdP the right to demand default interest calculated at the rate of the marginal lending facility plus 2.5 percentage points, according to the Actual Number of Days/360 convention, during the period of default, including the day of constituting in default and excluding the day on which the payment is made.

3. If the Counterparty's obligations arising from this Contract are not fulfilled in a timely manner, the granting of credit is automatically suspended until they are fulfilled.

Clause 10th
Default

1. The default of this Contract as well as the occurrence of any of the situations that, according to the established in Instruction No. 3/2015, notably in Article 160th, constitute default by the Counterparty, determine the early maturity of all its obligations and confer upon the BdP the right to satisfy its credits against it through set-off or execution.

2. In situations of default, the BdP may execute the financial pledge contract, and:
   a) Make its own the credit rights against third parties or the financial instruments, through appropriation or sale, either compensating their value or applying it to settle the secured obligations; b) Pay itself from what it is owed by the net product of the appropriation, sale, or cession of the credit rights against third parties or of the financial instruments, up to the necessary amount, or c) If the value is insufficient, demand from the Counterparty the payment of the eventual subsisting debt, based on this Contract.

3. The parties agree that, in the case of sale or cession of the pledged assets to third parties, their value is what results from that sale or cession.

4. If the BdP decides to keep the credit rights against third parties or the financial instruments in its portfolio or to extinguish the obligation by set-off, the parties agree that the valuation of the credit rights against third parties and the financial instruments, for the purposes of appropriation and set-off, is carried out by the BdP, according to the criteria and methods used during their mobilization.

5. The BdP undertakes to return to the Counterparty the amount corresponding to the difference between the value of the pledged assets and the amount of the financing provided, after, (i) in the case of cession to third parties of the credit rights or financial instruments pledged, from the receipt of that value, (ii) in the case of appropriation, within the due date thereof or (iii) in the case of execution, after the end of the respective execution processes.

6. It is the responsibility of the Counterparty to pay all procedural expenses or other expenses related thereto.

Clause 11th
Unity of the Contract and Assignment of Contractual Position

1. The Operations are regulated by the provisions of this Contract and the Instruction, and considered as a whole - as a single contractual relationship, thus recognized by the parties - for the purposes of their resolution and set-off, so that the default of any of the Counterparty's obligations in one operation constitutes or may constitute (depending on the BdP's understanding) default of all other operations.

2. The provisions of this Contract override any existing contracts between the parties that contain general terms and conditions for Operations. Each provision and agreement contained in this Contract must be treated separately from any other provision or agreement of the same Contract and shall have legal force despite any other provision or agreement not having it.

3. The rights and obligations of the Counterparty arising from this Contract and the operations covered by it shall not, in any case, be assigned to third parties, nor negotiated in any way, without the prior and express written consent of the BdP.

Clause 12th
Term and Termination

1. The Contract is concluded for a period of six months, being automatically renewable for an equal period.

2. The Contract may be terminated at any time, upon notification of termination by registered letter with acknowledgment of receipt, the notification producing effects thirty days after its receipt.

3. The Contract will continue to govern the operations in progress, contracted between the parties before the termination produces its effects.

4. After the delivery of a termination notification, no new operation should be carried out under the provisions of this Contract.

Clause 13th
Subsidiary Application

To all situations not expressly regulated in this Contract and in BdP Instruction No. 7/2012, BdP Instruction No. 3/2015 is applicable.

Clause 14th
Jurisdiction and Applicable Law

10. The operations carried out under this Contract are subject to Portuguese law in general and, in particular, to the BdP Instructions in force.

11. For the benefit of the BdP, for any dispute, notably regarding the validity, interpretation, and application of this Contract, as well as the resolution of any conflicts, a voluntary arbitration tribunal shall be competent, to be constituted in accordance with the applicable law and which will function in Lisbon.

12. Nothing limits the right of the BdP, at its exclusive discretion, to initiate any actions in any national or foreign jurisdiction.

Lisbon, (date)
Banco de Portugal
(name of the counterparty)

13. The current Annex III is renumbered and becomes Annex IV, which is altered, in the following terms:
    a) The designation of the Annex is altered, taking the following wording:
    Annex IV – Procedures for the use of additional credit rights and debt instruments not integrated into a CDT as collateral assets in Eurosystem credit operations.
    b) Number I is altered, taking the following wording:
    Regarding the additional individual credit rights, the same procedures for the use of credit rights established in Annex XIV of Instruction No. 3/2015 and in the Communication of Information Manual within the TEB System (Bank Loan Treatment) are applied. In the context of the response to the pandemic, bank loans benefiting from a guarantee issued under the credit lines approved by the Portuguese Government in the context of COVID-19 are now accepted. Since these guarantees do not meet all the eligibility requirements of Instruction No. 3/2015, the reporting of these bank loans must be carried out according to the specific procedures established for this purpose for the communication of individual bank loans, as per the Communication of Information Manual within the TEB System. c) In Number II, 1, B, letters b) and c) are altered, taking the following wording:
    b) After analysis and necessary iterations, the BdP approves the portfolios to be mobilized, which is communicated to the Counterparty. c) The Counterparty must report each portfolio to a data repository designated by the Eurosystem. The first report may be made up to three months after the date of mobilization of the portfolios, as defined in number [Error! Reference source not found.] of this annex. Subsequent reports must be made in the month following the end of the quarter. At the time of the first report to the data repository, the final approval of each portfolio is carried out after the validation of the information reported to the data repository designated by the Eurosystem, as defined in point D, letter i) of this annex. d) In Number II, 1, B, the third paragraph of letter d) is altered, taking the following wording:
    • Lists of credit rights, when applicable, as defined in the Transfer Manual
      e) In Number II, 1, C, letter d) is altered, taking the following wording:
      After the initial mobilization of the portfolios, only new credits with a reference date at the end of each month may be added and after approval by the BdP (see letter [Error! Reference source not found.] in point D). f) In Number II, 1, D, letters c), d), e), k), and l) are altered, taking the following wording:

Instruction No. 14/2020 BO No. 5/2020 4th Supplement • 2020/06/01 Topics Markets :: Money Markets
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Mod. 99999940/T – 01/14 c) Monthly, when applicable, the list attached to portfolio contracts must be updated in accordance with the file referred to in letter a) and as defined in the Transfer Manual. d) The file referred to in letter a) must be accompanied by a monthly declaration, according to the format defined in the Transfer Manual. e) Without prejudice to the requirements specified in this annex, contingency procedures defined in the Transfer Manual apply. k) Following explicit approval by the BdP (letters g) and h) above), the valuation margins (haircuts) will be updated by the BdP, according to what is defined in point II.2.3.2 of this Instruction. l) Following explicit approval by the BdP (letter i) above), the valuation margins (haircuts) will be updated by the BdP, according to what is defined in point II.2.3.2 of this Instruction. g) In number II, 2, letters b) and c) are amended, to read as follows:
b) After the first report, made in accordance with number 1, letter B, letter b), subsequent reports are made in the month following the end of the quarter. These reports must be made, preferably, within 3 business days after notification by the BdP (see number 1, letter D, letter i)), provided that this date does not exceed the end of the month following the reference date of the information. c) The report is made according to the models/templates presented in the Transfer Manual. h) Number II, 3., is amended, to read as follows:
Report to the ECB of collateral to be mobilized or mobilized as collateral assets for Eurosystem credit operations The report to the ECB is made according to the rules stipulated in Instruction No. 17/2018 and its respective Operational Technical Support Guide. i) In number II, 4. the first paragraph of number 2 is amended, to read as follows:

Instruction No. 14/2020 BO No. 5/2020 4th Supplement • 2020/06/01 Topics Markets :: Money Markets
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Mod. 99999940/T – 01/14
Individual credit rights 1
/ Portfolio of credit rights : ____________________ j) A new number, III, is added, which reads as follows:
III - Short-term debt instruments not integrated into a CDT (commercial paper not integrated)

1. Specific procedures applied to non-integrated commercial paper

1. For non-integrated commercial paper, considered eligible according to the provisions in number III.1 of this Instruction, the operational procedures used for individual credit rights are applied.
   For the mobilization of this type of asset, counterparties must comply with the procedures established in Annex XIV of Instruction No. 3/2015, with the exception of letter h) of number 1.3 and numbers 2 and 3.
   Counterparties must also send the following information to the Banco de Portugal, via the address teb@bportugal.pt:
   i) Technical sheet of the financial instrument in pdf format; ii) Information note of the underlying program, in the case of pooled issuances. iii) Excel file with the identification of the instrument through the ISIN code and its correspondence with the identifier code reported in the xml file (IEB code), as provided in the Manual of Information Communication within the TEB System; The above information must be sent every Friday, for issuances that have been mobilized during that week. Non-integrated commercial paper must be included in the checks carried out by external auditors, according to what is defined in article 101-A of Instruction No. 3/2015 and section 3 of Annex XIV to the same Instruction. For the checks carried out by external auditors of counterparties to non-integrated commercial paper, the template provided in number 2 of section III of this annex must be used.

2. Report model for checks
   Report on checks to non-integrated commercial paper

1 In the event of mobilization of individual collateral as provided for in II.1.1.(ii), the table established in section 3 of Annex XIV of Instruction No. 3/2015 must be applied in the constitution of the sample for the verification of credit rights.

Instruction No. 14/2020 BO No. 5/2020 4th Supplement • 2020/06/01 Topics Markets :: Money Markets
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Mod. 99999940/T – 01/14
External Auditor(s): ________________________________________

1. Reference period
   //______ to //______
   Comment:
2. Checks
   Methodology 2 for sample constitution:
   ______________________________________________________________________________ ______________________________________________________________________________ Sample size: ____________
   2.1. Characterization of short-term debt instruments not integrated into a CDT
   2.1.1. Verification of Commercial Paper
   Objective: Verification that no lien, charge, limitation or encumbrance applies to the commercial paper not integrated into a CDT, given as collateral to the BdP.
   Result: Situations in the sample where the CP does not exist:
   IEB Observations
   PTEB...
   ...
   Comments or other relevant observations:

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2.1.2. Exclusive mobilization collateral in favor of the Banco de Portugal
Objective: Verification that the commercial paper given as collateral to the BdP is not being used simultaneously for other purposes.
Result: Situations in the sample where the CP was mobilized simultaneously for other purposes:

2 The table established in section 3 of Annex XIV of Instruction No. 3/2015 should be applied in the constitution of the sample for the verification of these securities.

Instruction No. 14/2020 BO No. 5/2020 4th Supplement • 2020/06/01 Topics Markets :: Money Markets
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Mod. 99999940/T – 01/14
IEB Observations
PTEB...
...
Comments or other relevant observations:

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2.1.3. Eligibility of CP
Objective: Verification that the non-integrated CP meets the eligibility criteria and that the information communicated to the BdP is in conformity with the relevant documentation of the issuance.
Result (non-exhaustive list):
2.1.3.1. Situations in the sample where eligibility criteria were not met:
IEB Observations
PTEB...
...
2.1.3.2. Situations in the sample where the information communicated to the BdP is in conformity with the relevant documentation of the issuance:
IEB Observations
PTEB...
...
2.1.3.3. Situations in the sample where the type of interest rate of the CP was not correctly communicated to the BdP, and according to the rules established in the Manual of Information Communication within the TEB System for identification of fixed or variable interest rate:
IEB Observations
PTEB...
...
2.1.3.4. Situations in the sample where the credit assessment and respective credit assessment date of the issuer do not coincide with the information sent to the BdP:
IEB Observations

Instruction No. 14/2020 BO No. 5/2020 4th Supplement • 2020/06/01 Topics Markets :: Money Markets
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PTEB...
...
2.1.3.5. Situations in the sample where the issuer of the CP is in a situation of insolvency:
IEB Observations
PTEB...
...
2.1.3.6. Other situations (indicate which):
IEB Observations
PTEB...
...
Comments or other relevant observations:

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2.2. Quality and speed of transmitted information
Objective: The counterparty must communicate immediately to the BdP, at the latest during the next business day, any change that affects the mobilized asset.
Result:
IEB Observations
PTEB...
...
2.2.1. Situations in the sample where it was verified that early amortizations of the CP(s) were not communicated in a timely manner:
IEB Observations
PTEB...
...
2.2.2. Situations in the sample where it was verified that the change in credit quality assessment (PD) was not communicated in a timely manner, when applicable:

Instruction No. 14/2020 BO No. 5/2020 4th Supplement • 2020/06/01 Topics Markets :: Money Markets
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IEB Observations
PTEB...
...
Comments or other relevant observations:

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2.3. Compliance with operational requirements established in the Manual of Information Communication within the TEB System:
Objective: In addition to the rules stipulated in this Instruction, counterparties must also comply with the operational requirements defined in the respective Manual.
Result (non-exhaustive list):
2.3.1. Situations in the sample where it was verified that the identification code (IEB code) of the commercial paper was altered during its life:
IEB Observations
PTEB...
...
Comments or other relevant observations
________________________________________________________________________________ Other relevant matters ________________________________________________________________________________ Place, date and signature _______________________________________________________________________

Instruction No. 14/2020 BO No. 5/2020 4th Supplement • 2020/06/01 Topics Markets :: Money Markets
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Name of auditor/examiner

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14. The expressions “Participating Institution” and “PI” are replaced by the expression “Counterparty”.
15. References to “Annex III” of this instruction are changed to “Annex IV”.
16. This Instruction enters into force on June 1, 2020.
17. This Instruction is republished in its entirety, being available at
    https://www.bportugal.pt/instrucao/72012