Norm on Registration Requirements for Price Provider Companies for Portfolio Valuation

Resolution No. CD-SIBOIF-534-1-MAY21-2008
Date: May 21, 2008

NORM ON REGISTRATION REQUIREMENTS FOR PRICE PROVIDER COMPANIES FOR PORTFOLIO VALUATION

The Board of Directors of the Superintendence of Banks and Other Financial Institutions,

CONSIDERING

I

That Article 10, numeral 11), of Law No. 316, Law of the Superintendence of Banks and Other Financial Institutions, establishes that it is the authority of the Superintendence of Banks to issue norms related to the investments and deposits of institutions in the country and abroad.

II

That Article 98 of Law 587, Law of the Capital Market, published in La Gaceta No. 222, of November 15, 2006, establishes that the Superintendent shall ensure that uniform methods exist in the valuations of investment funds and their participations, as well as the calculation of the yield of said funds. Likewise, it shall ensure that such valuations are carried out at market prices and using mechanisms consistent with international standards or best practices in the financial or securities market. Without prejudice to the foregoing, in the absence of market prices, the Board of Directors of the Superintendence shall establish the general guidelines to carry out these valuations.

In exercise of its powers,

HAS ISSUED

The following,

NORM ON REGISTRATION REQUIREMENTS FOR PRICE PROVIDER COMPANIES FOR PORTFOLIO VALUATION Resolution No. CD-SIBOIF-534-1-MAY21-2008

CHAPTER I
GENERAL PROVISIONS

Article 1. Concepts.- For the purposes of this Norm, the terms indicated in this article, both in uppercase and lowercase, singular or plural, shall have the following meanings:

a) Days: Calendar days, unless it is expressly established that it refers to business days.

b) Institutions: Banks, financial societies, insurance companies, stock exchanges, and investment fund or securitization management societies, subject to the supervision of the Superintendence.

c) Superintendence Law: Law No. 316, Law of the Superintendence of Banks and Other Financial Institutions, published in La Gaceta, Official Diary No. 196, of October 14, 1999.

d) Capital Market Law: Law No. 587, Law of the Capital Market, published in La Gaceta No. 222, of November 15, 2006.

e) Price Provider: Legal entity that provides the service of calculating, determining, and supplying prices to value financial instruments, based on a methodology that meets the requirements detailed in this Norm.

f) Registry: Securities Registry of the Superintendence of Banks and Other Financial Institutions.

g) Superintendence: Superintendence of Banks and Other Financial Institutions.

h) Superintendent: Superintendent of Banks and Other Financial Institutions.

Article 2. Object.- This Norm aims to establish the registration requirements in the Registry that legal entities must meet to provide price provider services to supervised institutions, for the valuation of financial instruments in their own investment portfolios or those they manage.

Article 3. Scope.- This Norm is applicable to supervised institutions and, in particular, to any legal entity providing price provider services for the purposes of this Norm.

CHAPTER II
REQUIREMENTS FOR THE REGISTRATION OF PRICE PROVIDER COMPANIES

Article 4. Requirements for registration.- Legal entities specialized in providing price provider services must request authorization for registration in the Registry from the Superintendent, attaching the following minimum information:

a) Information about the applicant.

1. Power of representation of the person authorized to submit the application on behalf of the society.

2. Notarially certified copy of the testimony of the public deed of constitution and bylaws of the society, as well as its modifications, if any. In the case of foreign legal entities, the equivalent documents duly authenticated.

3. Shareholding structure of the society, indicating the full names of its shareholders, natural or legal persons.

4. Names of the members of the board of directors, as well as the curriculum vitae of each of its members.

5. Unique Taxpayer Registry Number (RUC) of the society. In the case of non-domiciled foreign entities, they must present the equivalent used in the country where they pay taxes.

6. Internal regulations and operating manuals.

7. Documented curriculum vitae of the professionals responsible for knowing and applying the methodology determined for the calculation of the reference price. Photocopies of higher education degrees, post-graduates, master's degrees, and doctorates, certified by a public notary, must be attached to said curriculum vitae.

8. Policies and means they will use to provide prices.

9. Description of the technological equipment that will be used for the application of the methodology, as well as documentation proving that it has adequate personnel for its operation. The technological system must comply with what is established in the regulations governing the matter on technological risk.

10. Documented security and fault tolerance policies:
    i. Information backup policy;
    ii. Physical security and access policy to computer systems;
    iii. Continuity plan in case of failures in technological infrastructure.

11. Copy of the adhesion contract of the services they will provide to their clients.

b) Information about the valuation methodology, describing, at a minimum, the following:

1. The price calculation models for financial instruments.

2. The method of estimating future cash flows, discount interest rates, equivalent rates, exchange rates, present value, and other random processes applied.

3. The source of information from secondary market operations from which observations for price calculation will be obtained.

4. The method of estimating prices in the case of financial instruments for which there are no price observations in the market.

5. A detailed explanation differentiating the price calculation methodology between fixed-income financial instruments and equity financial instruments.

6. A detailed explanation differentiating the price calculation methodology between public sector instruments and private sector instruments.

7. A detailed explanation differentiating the price calculation methodology between instruments traded locally and instruments traded in other markets.

8. In cases where the information sources are international query systems with continuous operation, they must indicate the price providers used, the hours in which they will import the data, and the origin of the information.

9. A detail of the procedure for generating prices until their delivery to the end users of the information. This detail must include the delivery schedules of updated prices to carry out the valuation and their modifications to users, as well as the mechanisms for resolving objections formulated in writing by users regarding the updated prices. The latter must be processed on the same day the prices were published.

10. A description of the contingency mechanisms to be used in the event of any occurrence that could delay or prevent the generation of prices by the provider on a specific day.

c) Any other documentation or information that, in the judgment of the Superintendent, is required for this purpose.

Article 5. Deadlines for registration authorization.- Once the applicants have met all the information requirements required in the preceding article, and after its valuation, the Superintendent shall grant or deny the respective authorization within a maximum period of thirty (30) days.

Article 6. Public nature of methodologies.- The portfolio valuation methodologies used by price providers registered in the Registry shall be publicly accessible.

CHAPTER III
BASIC ELEMENTS FOR VALUATION

Article 7.- Basic elements of valuation models.- Without prejudice to the requirements established in the preceding Chapter, price providers must comply with the following basic elements in their financial instrument valuation models:

a) Efficiency: Estimates must adequately reflect the realization value in the market of financial instruments.

b) Independence: In the development of valuation functions, appropriate mechanisms must be established to minimize the possible emergence of conflicts of interest. In this regard, primary attention must be paid to the establishment of adequate internal control norms that guarantee the segregation of functions.

c) Responsibility: Responsibility for the estimation of the value of instruments must be clearly assigned and publicly disclosed by the price provider.

d) Timeliness: The update of the value of financial instruments must be carried out at reasonable intervals to reduce the probability that the price for the valuation of instruments presents lags with respect to its market value. Such update must be carried out at least daily, regardless of their degree of liquidity.

e) Objectivity: The determination and assignment of the fair value of a financial instrument must be carried out based on technical and professional criteria, which recognize the effects derived from changes in the behavior of all variables that may affect said price.

f) Transparency and representativeness: The fair value of a financial instrument must be determined and assigned with the purpose of revealing a certain, neutral, verifiable, and representative economic result of the rights incorporated in the respective instrument.

g) Permanent evaluation and analysis: The fair value attributed to a financial instrument must be based on the permanent evaluation and analysis of market conditions, issuers, and the respective issuance. Variations in these conditions must be reflected in changes in the previously assigned value or price, with the periodicity established for the valuation of investments determined in this norm.

h) Professionalism: The determination of the fair value of a financial instrument must be based on the conclusions resulting from the analysis and study that a prudent and diligent expert would carry out, aimed at the search, obtaining, knowledge, and evaluation of all relevant available information, so that the price determined reflects the amounts that would reasonably be received for its sale.

CHAPTER IV
FINAL PROVISIONS

Article 8. Validity.- This Norm shall enter into force from its publication in La Gaceta, Official Diary.

(f) Antenor Rosales B. (f) V. Urcuyo V. (f) Gabriel Pasos Lacayo (f) Roberto Solórzano Ch. (f) A. Cuadra G. (f) U. Cerna B.

URIEL CERNA BARQUERO
Secretary of the Board of Directors SIBOIF