Instructions for the Administration of Negotiable Securities Issued by the Central Reserve Bank of El Salvador — BCR — SV

BANCO CENTRAL DE RESERVA

Instructions for the Administration of Negotiable Securities Issued by the BCR

920513

Financial Operations Management

BANCO CENTRAL DE RESERVA DE EL SALVADOR
GOVERNMENT OF EL SALVADOR

Instructions for the Administration of Negotiable Securities Issued by the Central Reserve Bank of El Salvador

FINANCIAL OPERATIONS MANAGEMENT
Payments and Securities Department

September 2023

BANCO CENTRAL DE RESERVA DE EL SALVADOR	INSTRUCTIONS FOR THE ADMINISTRATION OF NEGOTIABLE SECURITIES ISSUED BY THE CENTRAL RESERVE BANK OF EL SALVADOR	PAYMENTS AND SECURITIES DEPARTMENT

CONTENTS

GENERALITIES ....................................................................................................................4
1.1 Background...........................................................................................................................4
1.2 Legal Basis ..............................................................................................................................4
1.3 Scope of Application..............................................................................................................5
OBJECTIVE ................................................................................................................................5
DEFINITIONS.........................................................................................................................5
GENERAL RULES...........................................................................................................8
4.1 Registration of Issuances.............................................................................................................8
4.2 Registration of Investors........................................................................................................8
4.3 Access to Electronic Systems.........................................................................................8
SPECIFIC RULES ........................................................................................................9
5.1 Negotiation.............................................................................................................................9
5.2 Monetary Settlement ..........................................................................................................11
5.3 Securities Settlement..........................................................................................................12
5.4 Redemption of Securities ...........................................................................................................12
SPECIAL PROVISIONS ...........................................................................................14
6.1 Prevention of Money Laundering and Asset Confiscation, Terrorism Financing and
Financing of the Proliferation of Weapons of Mass Destruction. ..........................................14
6.2 Consequences for Non-payment of Securities .................................................................................15
6.3 Contingency..........................................................................................................................15
7 VALIDITY, DISTRIBUTION AND DISCLOSURE................................................................16

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GENERALITIES

1.1 Background

In Session No. CD-16/2019 of April 29, 2019, the Board of Directors authorized the creation of the Asset and Liability Committee (ALC) from the integration of the International Reserves Investment Committee (IRIC) and the Liquidity Operations Committee (LOC).

The Board of Directors in Session No. CD-47E/2019 of December 6, 2019, approved the entry into force of the Asset and Liability Committee (ALC) from January 02, 2020, integrating the responsibilities and functions of the IRIC and the Strategic LOC into the ALC and that related to the Permanent LOC into the Financial Department. As well as the approval of the transitional provision for the update of the institutional regulations related.

In Session No. CD-36/2021 of November 6, 2021, the Board of Directors approved the Instructions for the Administration of Negotiable Securities issued by the Central Reserve Bank of El Salvador, in which it integrated what was regulated in the Instructions for the Administration of Liquidity Negotiable Certificates (CENELI) and Medium-Term Bonds issued by the Central Reserve Bank of El Salvador.

1.2 Legal Basis

The issuance of the negotiable securities governed by these Instructions is based mainly on the following legal provisions:

1.2.1. Articles: 23 letters g) and j), 49 letter a), 62 and 87 of the Organic Law of the Central Reserve Bank of El Salvador.

1.2.2. Articles: 1, 3, 72 and 73 paragraph 2 of the Securities Market Law

1.2.3. Articles: 1, 26 to 29 of the Law on Electronic Annotations of Securities in Account.

1.2.4. Liquidity Policy of the Central Bank authorized by the Board of Directors of the Central Reserve Bank of El Salvador.

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1.2.5. Guidelines for Portfolio Management approved by the Asset and Liability Committee of the Central Reserve Bank of El Salvador.

1.3 Scope of Application

These Instructions will be applicable to Direct and Indirect Investors, to the Depository in which the Central Reserve Bank of El Salvador delegates the electronic registration of issuances and securities accounts, to the Bolsa de Valores de El Salvador and to the units of the Central Reserve Bank of El Salvador, whose functions are related to the planning, negotiation, issuance, liquidation, custody, redemption and registration of the issued securities.

OBJECTIVE

Regulate the negotiation, issuance, liquidation, custody, redemption and registration of the negotiable securities issued by the Central Reserve Bank of El Salvador, as instruments for raising financial resources in the legal securities market, which allow the proper management of the institution's liquidity.

DEFINITIONS

For the purposes of these Instructions, the following shall be understood:

3.1 Electronic Annotation of Securities in Account: accounting note made in an Electronic Registry of Securities Accounts maintained by a Depository Institution. It is constitutive of the existence of dematerialized securities, as well as the obligations of its issuer and the rights of its legitimate owner.

3.2 Central Bank: Central Reserve Bank of El Salvador

3.3 BVES: Bolsa de Valores de El Salvador, S.A. de C.V., the entity that facilitates the negotiation environment for securities.

3.4 Brokerage Houses: Stock market intermediaries affiliated with a Stock Exchange whose positions can be carried out on their own account as well as on behalf of third parties.

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3.5 ALC: Asset and Liability Committee of the Central Bank, is the body that defines strategic actions for the management of financial assets and liabilities in compliance with the criteria established in the Investment and Liquidity Policies.

3.6 Adjudication Committee: Composed of the Financial Operations Manager, Head of the Payments and Securities Department, Head of the Securities Section and Head of the Financial Department, who will have the function of evaluating the bids received in the auction of the negotiable securities, defining the cut-off rate and adjudicating the securities based on previously established parameters.

3.7 Call: Process by which the Central Bank invites different investors to participate in the auctions of the issuance of negotiable securities.

3.8 Depository: Company specialized in the deposit and custody of securities in which the Electronic Registry of Issuances and Securities Accounts issued by the Central Bank has been delegated.

3.9 Discount: Difference between the nominal value and the price. For its calculation, the mathematical formula detailed in the issuance characteristics that is applicable will be applied.

3.10 FINDUR: Portfolio Management and External Payments System.

3.11 Manager: Financial Operations Manager of the Central Bank.

3.12 Investors: National and foreign natural or legal persons authorized to participate in the auctions of negotiable securities issued by the Central Bank, which may be:

3.12.1 Direct Investors: National and foreign legal persons who can access the Negotiation System directly, including: banks, cooperative banks and savings and credit societies, public or private pension entities, brokerage houses and others authorized by the Central Bank.

3.12.2 Indirect Investors: National and foreign natural or legal persons, not qualified as Direct Investors, to acquire the Central Bank's securities, require the intermediation of a brokerage house.

3.13 Head of the PSD: Head of the Payments and Securities Department of the Central Bank.

3.14 Head of the SV: Head of the Securities Section of the Central Bank.

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3.15 LBTR: Real-Time Gross Settlement System, which aims to settle payment instructions in the deposit accounts that Participants maintain in the Central Bank.

3.16 Compliance Office: Advisory department of the Central Bank whose fundamental objective is to ensure compliance with the legal and regulatory framework regarding risks of Money Laundering and Asset Confiscation, Terrorism Financing and Financing of the Proliferation of Weapons of Mass Destruction (ML/TF/WMD); and in matters of prevention of bribery, corruption, fraud and anti-competitive practices (BCF/AC).

3.17 Bids or offers: notification by which an investor expresses interest in acquiring securities, based on the conditions established in the respective call.

3.18 Price: will be established according to the mathematical formula included in the characteristics of each type of issuance when applicable.

3.19 Negotiation System: is the electronic platform used for sending and receiving offers or bids and adjudication of the auction for the placement of securities in the primary market.

3.20 Auction: process by which investors submit their bids to the Central Bank, expressing the yields, terms and amounts offered.

3.21 Differentiated Rate Auction: securities are awarded starting from the lowest offered yields or spreads with respect to the determined reference rate, up to the established cut-off rate or spread. The yield or spread assigned to each of the bids will be that offered by each investor.

3.22 Cut-off Rate or Spread: is the maximum yield or spread with respect to the determined reference rate that the Central Bank is willing to pay to the investor and for its determination, the institution's liquidity needs, market information and offers presented by investors will be considered.

3.23 Dematerialized Securities: securities represented by electronic annotations in account.

3.24 Nominal Value: is the face value of the instrument, this will be the value that the Central Bank will pay to the holders at maturity.

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GENERAL RULES

4.1 Registration of Issuances

The Central Bank will request the BVES and the Depository to register the issuance in the respective records, sending certification of the Board of Directors agreement authorizing the issuance of the negotiable securities. In case there are modifications in the characteristics of these titles, it must be communicated in the same way to be included in the aforementioned records. The ALC will give approval to the modifications of the issuance characteristics, prior to being authorized by the Board of Directors.

4.2 Registration of Investors

4.2.1 New Direct Investors may be those who, prior to analysis and authorization by the Central Bank, have been accepted as Investors, for which they must send to the Manager a letter signed and stamped by the Legal Representative, manifesting their interest in participating in the Auctions of negotiable securities of the Central Bank.

4.2.2 Upon receipt of the request, accompanied in its entirety by the required information according to paragraph 6.1.1, it will be submitted to analysis and opinion of the Compliance Office, which will be incorporated into the technical evaluation carried out by the Payments and Securities Department that will present the result to the Manager, for authorization if applicable. The Manager will communicate the result in writing to the applicant, within a period not exceeding fifteen (15) business days, counted from the complete receipt of the information by the applicant.

4.2.3 Indirect Investors may participate in the Auctions through a Brokerage House.

4.3 Access to Electronic Systems

4.3.1 The Central Bank will indicate the Negotiation System to be used for the negotiation of securities, through notification made by the Manager through electronic means, generating all conditions and providing the necessary information and resources for access.

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4.3.2 The Central Bank will request annually the update of the names and email addresses of at least two authorized persons to enter bids in the Negotiation System, in order to assign them their respective accesses; as well as the name of an authorized person to manage temporary users in case of difficulty with the main users. For these purposes, investors must notify the Manager, through a note signed by their legal representative. Any change in authorized users must be notified by the legal representative or the person designated by him, on the date this occurs or at least one day before the respective auction, which will be attended by the Securities Section on the same date the request is received or prior to starting the auction.

SPECIFIC RULES

5.1 Negotiation

5.1.1 Call
5.1.1.1 The Head of the SV or the Head of the PSD or the person designated by him in writing, will notify investors of the call notice (Annex No.1) automatically through the Negotiation System, at least one business day prior to the Auction; based on the parameters defined by the Financial Department.

5.1.1.2 On the day of the Auction, the Head of the SV or the Head of the PSD or the person designated by him in writing, will register the characteristics of the Call in the Negotiation System, which will contain the following information:

Call date,
Date and time of opening and closing for the receipt of Bids,
Date of settlement and issuance of securities,
Deadline for receipt of funds,
Available terms,
Maturity dates of the securities to be auctioned.

5.1.1.3 On the day of the auction, the Head of the SV or the Head of the PSD, or the person designated by him in writing, will endorse the respective call in the Negotiation System, so that investors proceed to register their bids or offers.

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5.1.1.4 Investors will have access to consult the characteristics of the Call in the Negotiation System, whose schedules will be mandatory for investors.

5.1.2 Registration and Adjudication of Bids

5.1.2.1 Based on the information contained in the Call and from the opening hour, the investor will proceed to register their bids, entering:

Term they wish to invest,
Amounts offered in each term,
Yield rate or spread with respect to the offered reference rate or the price in percentage terms, and
Securities account in which they will register their securities in the Depository

5.1.2.2 Each Investor may register one or more bids at equal or different terms and rates. Once the bid is sent to the Central Bank, it will be binding and irrevocable, therefore, it cannot be modified or cancelled.

5.1.2.3 In order to guarantee the transparency of the Auction, the identity of the investors who submit the bids cannot be viewed in the Negotiation System, while the Auction is not adjudicated.

5.1.2.4 Once the time for receiving bids has expired, the Securities Section will present a technical proposal to the Adjudication Committee containing at least the following information:

Applicable reference rates
Integration of current local debt portfolio, including balances, rates, maturities.
Last placements of the Ministry of Finance.
Last placements in the public primary market.
Proposal for adjudication recommendation.

5.1.2.5 The Adjudication Committee, based on the received technical proposal and the defined parameters, will authorize the amount and the cut-off rate, which will be used to accept or reject the received offers. In any case, the Central Bank reserves the right to declare the auction void.

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5.1.2.6 The Head of the PSD or the Head of the SV, with the authorization of the Adjudication Committee in the adjudication minutes, will proceed to the respective adjudication.

5.1.2.7 The adjudication will be executed automatically in the Negotiation System, which will perform the assignment or rejection of the offers, considering the authorized cut-off rate.

5.1.2.8 If the total offered amounts exceed the authorized placement amount, the offers with the lowest yields or spreads will be assigned up to the established cut-off rate or they will be assigned from lowest to highest rate or spread up to the cut-off rate or spread. If at the end of this process there are equal offers in yields or spreads, the differential of the unassigned target will be prorated automatically proportionally among these offers. The Adjudication Committee may award an amount greater than the indicative placement target considering the total funding need if the financial conditions are favorable for the Central Bank.

5.1.2.9 Once the securities are adjudicated, the Head of the PSD or whoever he delegates will proceed to request the Financial Risk Management Department, that based on the Adjudication Minutes, create the instruments in the FINDUR so that the Securities Section proceeds to register and authorize them in said system for portfolio tracking.

5.1.2.10 The purchase price of the securities will be calculated using the formulas included in the respective issuance characteristics.

5.2 Monetary Settlement

5.2.1 The monetary settlement of the adjudicated securities can be carried out through two mechanisms: charged to an account at the Central Bank and by electronic transfer of funds from abroad.

5.2.2 Settlement charged to deposit accounts at the Central Bank:

5.2.2.1 Direct Investors must settle their adjudicated securities through a debit in the deposit accounts they hold at the Central Bank, through the LBTR no later than 17:00 hours.

5.2.2.2 Indirect Investors must settle the adjudicated securities through the Depository, who must adjust

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to the schedules and forms defined in the regulations established by the Depository, in accordance with the operating schedules of the LBTR.

5.2.3 Settlement by means of electronic transfer of funds from abroad: The Direct Investor must make the transfer to the current accounts that the Central Bank has in its correspondent banks, notified in the call notice and inform the Securities Section about said transaction. The investor must ensure that the deposit of funds is confirmed by the correspondent bank to the Foreign Department no later than 15:00 hours (local time) on the day of settlement, in order to carry out the corresponding internal operations.

5.3 Securities Settlement

5.3.1 On the same day as settlement, the Payments and Securities Department will electronically send to the Depository the information on securities placed in the primary market that have been previously settled, so that the Depository registers the amounts placed in the Central Bank's account and performs the electronic annotation of the securities in the Investors' accounts. The Depository will electronically confirm the receipt of this information immediately.

5.3.2 It is the direct responsibility of the Depository to correctly administer the securities accounts under its custody.

5.3.3 Investors may consult the availability of their securities in the respective accounts they hold at the Depository through the mechanisms defined for such purposes, once the settlement operations for money and securities have been closed.

5.4 Redemption of Securities

5.4.1 Early Redemption, Payment of Coupons and Principal at Maturity

5.4.1.1 At the proposal of the Financial Department, with prior approval from the CAP, the Board of Directors of the Central Bank may authorize that the securities be redeemed early and with the consent of the investor.

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5.4.1.2 The Depository will electronically send, at least one business day before the maturity of the coupons and principal, the payment instructions to the Payments and Securities Department, so that it deposits the amounts on the maturity date of the securities, into the respective deposit accounts.

5.4.1.3 On the maturity date of each coupon and principal, the Payments and Securities Department will pay the corresponding value. When this date coincides with a non-business day, the payment will be made on the next immediate business day, without this implying the additional payment of yields for the non-business day or days following the maturity date.

5.4.1.4 The Depository will be responsible for the integrity of the information sent and for the payments to be made on the maturity date of the security to the holders of the securities accounts it holds in its registry and according to its instructions.

5.4.1.5 The payment will be made with a credit to a deposit account at the Central Bank, through the LBTR according to the schedules defined in the regulations established by the Depository, in concordance with the LBTR operating hours:

5.4.1.5.1 To Direct Investors, through a credit in the deposit accounts they hold at the Central Bank.

5.4.1.5.2 To Indirect Investors, through a credit made to the Depository in its deposit account at the Central Bank.

5.4.1.6 On the maturity date of each coupon, the Payments and Securities Department will calculate the applicable interest rate for the coupon and electronically notify the Depository, the BVES, and the Financial Risk Management of the Central Bank for the purpose of updating their respective records.

5.4.1.7 On each coupon and principal maturity date or early redemption date, the Securities Section must make a corresponding registration and authorization in the FINDUR System, for the tracking of the debt portfolio.

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SPECIAL PROVISIONS

6.1 Prevention of Money Laundering and Asset Laundering, Terrorism Financing and Financing of the Proliferation of Weapons of Mass Destruction.

6.1.1 The Compliance Office will carry out a prior analysis before issuing an opinion on the registration of Direct Investors, for which it will request the information described in the Know Your Customer Policy of the Central Bank.

6.1.2 The Head of the SV or the Head of the DPV will inform the Compliance Office at least one business day prior to the holding of the Auction, regarding the call notice including the date and time of the event.

6.1.3 On the day of the auction, once the allocation process is concluded, the Securities Section will inform the Compliance Office of the names of the investors who registered bids to perform the respective searches in the World Check One list system owned by the Central Bank, which includes watchlists and sanctioned lists.

6.1.4 Investors to whom negotiable securities are allocated must comply with the due diligence requirements established in the Know Your Customer Policy of the Central Bank.

6.1.5 The Head of the SV will consult with the Compliance Office regarding the investors to whom negotiable securities are allocated to determine if they have previously submitted the information referred to in paragraph 6.1.4. If the information has already been submitted, the investor will only be asked to inform in case there is any modification, addition, or elimination.

6.1.6 When an investor to whom negotiable securities are allocated represents a High Risk according to the Due Diligence carried out by the Compliance Office, is on sanctioned lists, or has a conviction or sentence against them for crimes related to money and asset laundering, terrorism financing, and financing of the proliferation of weapons of mass destruction according to paragraph 6.1.1, their participation will not be allowed.

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6.2 Consequences for Non-Payment of Securities

6.2.1 Every bid received is mandatory and irrevocable, with the exception of what is established in paragraph 6.1.6. In the case that an offer presented by an investor has been allocated and, for causes not attributable to the Central Bank, does not make the corresponding payment for the allocated securities, the Payments and Securities Department will proceed to notify the Manager on the same day the default is constituted. Likewise, the Manager will inform the investor specifically about the consequences of non-payment of the allocated securities and the situation expressed in paragraph 6.1.6; a copy of this communication will be sent to the Depository and to the BVES, this will happen no later than the third business day after being notified.

6.2.2 In the case that the investor does not make the payment for the allocated securities as described in paragraph 6.2.1, they will not be allowed to participate in the next placement. In case of recurrence, they will not be able to participate in the next two placements, and if it happens a third time, they will no longer be able to participate in the purchase of negotiable securities definitively.

6.3 Contingency

6.3.1 In cases where problems with access to electronic systems arise, the following procedure will be followed:

6.3.1.1 Investors must send to the Head of the DPV and the Head of the SV, a request via email (Annex No. 2) signed by an authorized official, offering the purchase of the securities, on the day and time specified in the call notice, explaining the causes that prevented them from entering their bid. The Payments and Securities Department will verify that the bids contain all corresponding information and that the signature corresponds to authorized officials; otherwise, the bids will not be considered in the respective auction.

6.3.1.2 Once the bids are received and reviewed, the Payments and Securities Department will proceed to register and process them in the mechanism defined by the Central Bank, using predefined formats in Excel.

6.4 Operational difficulties not contemplated in these Instructions must be resolved by the Manager.

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6.5 Aspects not contemplated in these Instructions will be resolved by the Board of Directors of the Central Bank.

7 VALIDITY, DISTRIBUTION AND DISSEMINATION

7.1 These Instructions will enter into effect from October 2, 2023, and repeal the Instructions for the Administration of Negotiable Securities issued by the Central Reserve Bank of El Salvador approved by the Board of Directors in Session No. CD-36/2021 of November 6, 2021.

7.2 The Board of Directors will keep a copy of these Instructions as support for the approval minutes and will deliver the original to the Risk and Strategic Management Management for its custody. Likewise, it will deliver an electronic copy to the Financial Operations Management and authorize it to deliver electronic copies to the following units:

7.2.1 Payments and Securities Department
7.2.2 Financial Department
7.2.3 Foreign Department
7.2.4 Financial Risk Management
7.2.5 Compliance Office

7.3 The Manager, through the Payments and Securities Department, will disseminate these Instructions to the corresponding administrative units of the Central Bank.

7.4 The Risk and Strategic Management Management is authorized to publish these Instructions in the Central Bank's Administrative Instruments System, so that they are available for general consultation.

7.5 The Presidency is authorized to send an electronic copy of these Instructions to Direct Investors, the Central Depository of Securities, and the Stock Exchange of El Salvador, following the established distribution and sending control mechanisms, and to publish it on the Central Bank's Website for the knowledge of the general public.

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MODIFICATION CONTROL TABLE

Revision No.	Previous Version	Approved Version	Approved and date

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Annex No. 1

CALL NOTICE
NEGOTIABLE SECURITIES ISSUED BY THE BCR

The Central Reserve Bank of El Salvador, in accordance with what is authorized by the Board of Directors in session No. CD-X/20XX of ___ of _________ of 20XX, announces the following issuance of negotiable securities:

Indicative target:
Minimum investment of US$
Denomination of US$ and its multiples

Series	Reference Rate	Terms/Days:	Maturity

Trading date:
Settlement date:
Schedule for submission of bids:
Deposit Agent

Settlement method:
a) Electronic transfer to current account in correspondent banks of the Central Bank. i) ii) iii)

b) Debit instruction to deposit account at the Central Bank.

c) For the case of investor agents who do not have an account in this Central Bank, they must carry out the settlement through the Depository.

Annex No. 2

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OFFER LETTER

Subject: SUBMISSION OF BID

Financial Operations Manager
Central Reserve Bank of El Salvador

In accordance with the call notice for the placement of negotiable securities, an offer is sent:

Investor:
Auction date:

Offer No.	Series	Term	Offered Amount	Offered Yield Rate or Spread	CEDEVAL Account Number

Cause of failure in the trading systems:

Authorized by:
Manager

Lineage: No known changes