Regulation of the Interbank Foreign Exchange Market

NOTICE No. 07/GBM/2004
REGULATION OF THE INTERBANK FOREIGN EXCHANGE MARKET SUBJECT:

Given the need to introduce reforms in the functioning of the Interbank Foreign Exchange Market in order to align it with the current stage of development of the financial system, the Bank of Mozambique, under the provisions of Article 28 of Law No. 1/92 - Organic Law of the Bank, of January 3, determines:

1. The new Regulation of the Interbank Foreign Exchange Market, attached hereto, is approved, which forms an integral part of this Notice.

2. This Notice enters into force on the date of its publication and revokes all provisions to the contrary.

Doubts arising from the interpretation and application of this Notice shall be submitted to the Markets Department of the Bank of Mozambique.

Maputo, December 24, 2004
THE GOVERNOR

[Signature]

Regulation of the Interbank Foreign Exchange Market

CHAPTER I
Interbank Foreign Exchange Market - Definition and General Aspects

Article 1
Concept and Objectives

1. The Interbank Foreign Exchange Market, hereinafter designated as MCI, is a segment of the foreign exchange market in which authorized institutions buy and sell foreign currency to balance the needs and surpluses of foreign currency among credit institutions, as provided for in this regulation.

2. The Bank of Mozambique may intervene in the MCI through the purchase or sale of foreign currency.

3. The operations mentioned in the previous paragraph may be bilateral or through foreign currency auctions.

Article 2
Participating Institutions

1. The following Institutions participate in the MCI:
   a) Commercial Banks operating in Mozambique; b) Other Credit Institutions subject to prior authorization by the Bank of Mozambique.

The Bank of Mozambique also intervenes, in accordance with paragraph 2 of Article 1.

2. The institutions referred to in the preceding paragraphs must subscribe to the MCI Code of Conduct and comply with its provisions.

Article 3
Minimum Amount of MCI Operations

1. The minimum amount of any MCI operation in which the Bank of Mozambique participates as a counterparty shall not be less than USD 250,000 (Two Hundred and Fifty Thousand US Dollars), except in cases of pro-rata allocation resulting from foreign currency auctions.

2. The minimum amount of operations carried out between the other participating institutions shall be as agreed between the parties.

Article 4
Transaction Currency

1. The transaction currency in operations where the Bank of Mozambique is the counterparty shall be the United States Dollar (USD).

2. In transactions where the Bank of Mozambique is not the counterparty, other currencies different from the USD may be used, as agreed between the parties.

Article 5
Bank Quotes

1. The Bank of Mozambique makes available online, through the software application - Exchange Module, a window where participating institutions will register daily their buy and sell exchange rates for USD/MZM.

2. Participating institutions may update their exchange rates throughout the day.

3. The formation of the exchange rates referred to in paragraph 1 of this article must adhere to the principles established in the MCI Code of Conduct.

Article 6
Operating Hours of the MCI

The MCI will operate continuously, on all business days, from 8:30 to 15:30 hours.

CHAPTER II
Purchase and Sale of Foreign Currency Operations Between Participating Institutions

Article 7
(Purchase and Sale of Foreign Currency)

The participating institutions referred to in Article 2 may carry out purchase and sale of foreign currency operations among themselves.

Article 8
(Duty to Notify the Bank of Mozambique)

Whenever the participating institutions mentioned in paragraph 1 of Article 2 carry out operations as referred to in the previous article, they must notify the Bank of Mozambique thereof, through the software application (MCI Module), within the normal operating hours of the MCI.

Article 9
(Settlement and Confirmation Procedure)

CHAPTER III
Foreign Currency Auction

Article 10
Frequency

The Markets Department of the Bank of Mozambique will determine the frequency of holding foreign currency auctions, taking into account the specific conditions of the market.

Article 11
(Announcement of Foreign Currency Placement Conditions)

Article 12
(Criteria for Selection of Proposals)

1. Foreign currency auctions will be based on proposals presented by the institutions. This Chapter shall be processed in accordance with the stipulations in Article 17 of this Regulation.

2. When an auction is announced, of fixed or indicative amount, institutions may present proposals to which the following rules will apply:
   a) For each auction, institutions may present up to a maximum of 5 proposals, indicating their respective exchange rates. b) The minimum amount of each proposal shall not be less than USD 250,000.00 (Two Hundred and Fifty Thousand US Dollars). c) The proposals will be satisfied starting from those presenting the lowest or highest rates for the purchase or sale of foreign currency, successively, until the amount proposed by the Bank of Mozambique is reached. d) The amount to be transacted at the last rate that satisfies the requirements of letter b) shall be, when necessary, pro-rated in proportion to the amounts proposed by the participating institutions at that rate. e) In the case of an auction with a fixed amount, the Bank of Mozambique reserves the right not to sell in total.

3. In the proposals, exchange rates shall not present decimal places.

4. The Bank of Mozambique will communicate, through the software application or other means indicated:
   a) The total amount of foreign currency bought/sold by the proposing institutions; b) The participating institutions in the MCI, the total amount of foreign currency bought/sold, the weighted average exchange rate of the auction, and the minimum or maximum exchange rate accepted, depending on whether it is a sale or purchase auction.

5. After the selection of proposals, the usual steps of the Module - MCI in the software application will follow for the respective settlement and accounting of the operation by the BM.

CHAPTER IV
MCI Software Application and Designation of Users

Article 13
MCI Software Application

All MCI operations, whether between Participating Institutions or between them and the Bank of Mozambique, must be carried out electronically via the Bank of Mozambique's software application.

Article 14
Designation of Users

1. For access to the software application, each Participating Institution must designate two people with the profile to register and two others with the profile to authorize operations.

2. The designation must be communicated to the Bank of Mozambique, by letter addressed to the Legal Affairs Office, which must be made, with the necessary adaptations, in accordance with the model of approvers and communicators of Interbank Money Market (MMI) operations, attached to the Regulation of Market Operations System, approved by Notice No. 3/GGBM/2003, of August 11, or alternatively, through the attachment of a power of attorney with special powers to authorize operations up to the limit indicated therein.

CHAPTER V
Forms of Communication, Information to be Communicated, Confirmation and Settlement Procedures of Operations

Article 15
(Forms of Communication)

1. Participating institutions will transmit electronically, using the software application, or other communication means indicated by the Bank of Mozambique, the elements relating to the operations they intend to carry out.

2. The Bank of Mozambique will use the same communication means to announce the operations it proposes to carry out and to transmit the respective results.

Article 16
(Elements to be Communicated)

In operations, participating institutions of the MCI must communicate, in accordance with the following information:

1. The type of operation;
2. The following information:
   a) Amount; b) Currency; c) Exchange rate; d) Value Date; e) SWIFT Code of the Correspondent abroad and respective account number for foreign currency credit; f) Nature of the operation, whereby the participating institution, in cases of foreign currency purchase, must enter the data in the software application as a demand for foreign currency, and in the inverse case as an offer or telephone offer.

Article 17
(Confirmation and Settlement of Operations)

1. All operations carried out will be confirmed via the software application by changing the status by the user with the authorizer (approver) profile from "communicated" to "approved".

2. After the confirmation of the operation provided for in paragraph 1 of this article, institutions must confirm the operations via SWIFT message.

3. The settlement of operations implies, in an irreversible manner, the movement of deposit accounts in Meticals at sight of the participating institutions with the Bank of Mozambique.

Article 18
Value Date

1. Operations in which the Bank of Mozambique participates as one of the counterparties will, as a rule, have a spot value date (settlement on the second business day following the date of negotiation), and, in exceptional cases, different value dates may be accepted.

2. Whenever the value date of foreign currency purchase or sale operations does not coincide with a business day in one of the markets of the currencies involved, it will be transferred to the immediately following business day.

3. In the case where one of the parties does not comply with the negotiated value dates, the injured party may demand, as compensation, interest at market rates and any and all expenses charged by correspondents during the period in which the non-compliance occurs.

CHAPTER VI
Statistical Information

Article 19
Statistical Information Submitted by the Bank of Mozambique

The Bank of Mozambique will provide, daily, electronically, the following information:
a) Daily exchange tables, for valuation purposes. b) Daily and weekly summary of operations carried out in the market, including the respective amounts and exchange rates applied.

Article 20
Statistical Information Submitted by MCI Participants

1. Participating institutions of the MCI must submit to the Bank of Mozambique daily information regarding all foreign exchange operations carried out with their clients.

2. The format of the information as well as the reference period thereof will be stipulated in specific regulation.

CHAPTER VII
General Provisions

Article 21
Proof

The Bank of Mozambique, on the value date of the operations, will proceed to the movement of National Currency deposit accounts at sight of the intervening institutions and will issue Debit or Credit Bordereaux, which will constitute sufficient proof of the execution of the operations.

Article 22
Suspension

The Bank of Mozambique may suspend any institution from carrying out the operations provided for in the MCI whenever it finds that its actions may affect the proper functioning of the market.