Resolution 074/98 Approving New Open Market Operations Regulation

BOARD RESOLUTION NO. 074/98 SUBJECT: CURRENCY AND CREDIT - APPROVES NEW REGULATION ON OPEN MARKET OPERATIONS.

VIEWING: The Law of the Central Bank of Bolivia No. 1670 of October 31, 1995. The Regulation on Open Market Operations, approved by Board Resolution No. 102/97 of April 22, 1997. The Report from the Currency and Credit Management No. 012/98 of August 4, 1998. The Legal Advisory Report LEGAL No. 225/98 of June 22, 1997.

CONSIDERING:

That Article 6 of Law No. 1670 empowers the Central Bank of Bolivia to execute monetary policy and regulate the quantity of money and the volume of credit according to its monetary program, being able to issue, place, and acquire securities and carry out other open market operations for this purpose.

That Article 54, subsection b) of Law 1670 of October 31, 1995, empowers the Board of Directors to issue norms for open market operations.

That the technical and legal reports indicate that the new draft Regulation on Open Market Operations meets the necessary requirements and that there is no legal impediment to its approval.

THEREFORE

THE BOARD OF DIRECTORS OF THE CENTRAL BANK OF BOLIVIA RESOLVES:

Article 1.- Approve the new Regulation on Open Market Operations in its VI chapters and 16 articles, which, as an annex, forms part of this Resolution.

Article 2.- Repeal the Regulation on Open Market Operations, approved by Board Resolution No. 102/97 of April 22, 1997.

Article 3.- This Regulation shall enter into force on September 14, 1998.

Article 4.- The Presidency and the General Management are charged with the execution and compliance of this Resolution.

La Paz, August 11, 1998

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Juan Antonio Morales A.

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Jaime Ponce G. Juan Medinaceli V.

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Fernando Campero P.

REGULATION ON OPEN MARKET OPERATIONS

CHAPTER I OBJECT AND SCOPE OF THE REGULATION

Article 1 (Objective). This Regulation aims to establish the norms for Open Market Operations (OMA) to be carried out by the Central Bank of Bolivia (BCB) with financial entities or public institutions.

Article 2 (Definition of OMA). OMAs are operations in the primary or secondary market with securities carried out by the BCB on its own account, with monetary policy objectives. They consist of the purchase, sale, repurchase, or other operations with securities, either through public auction, money desk operations, or other mechanisms authorized by the BCB Board of Directors for such transactions.

Article 3 (Legal Basis). Law No. 1670 of October 31, 1995, and the Statute of the Issuing Entity of February 20, 1997, empower the Central Bank of Bolivia to carry out open market operations.

CHAPTER II POLICIES AND OBJECTIVES OF OPEN MARKET OPERATIONS

Article 4 (Definition of Policies). The BCB Board of Directors defines monetary policies in general and open market operation policies in particular. At the beginning of each quarter, the Board will define general guidelines for OMAs taking into account the recommendations of the Economic Policy Advisory.

Article 5 (Objectives of OMAs). OMAs shall have the objective of contributing to the fulfillment of monetary policy.

CHAPTER III ATTRIBUTES OF THE POLICY, EXECUTION, EVALUATION, AND CONTROL BODIES OF OPEN MARKET OPERATIONS.

Article 6 (Open Market Operations Committee). The Open Market Operations Committee (COMA) has the function of applying the guidelines approved by the BCB Board of Directors regarding OMAs.

Article 7 (Application of OMA Policies). Based on the guidelines defined by the Board, COMA will determine weekly, or with the periodicity it decides, the securities to be traded, their amounts, rates or prices, negotiation modality, and other characteristics of OMAs.

Article 8 (Execution Body). By virtue of the attributes granted in this Regulation and subject to the Board's guidelines and COMA's determinations, the Currency and Credit Management (GMYC) is responsible for the execution of OMAs at the BCB and for formulating recommendations on securities, amounts, terms, rates or prices, and types of OMAs, based on the analysis of market liquidity conditions and the fulfillment of monetary policy targets. The GMYC may carry out daily operations, using the different types of securities, amounts, rates or prices, and other modalities defined by COMA. The GMYC must present a quarterly report to the Board on the behavior of OMAs.

Article 9 (Autonomy Margins). In cases authorized by COMA, the GMYC may operate autonomously within the ranges of amounts, rates, prices, or terms approved for that purpose. If due to situational circumstances the GMYC considers it necessary to carry out operations outside the approved ranges for autonomous negotiation, it must obtain prior and express authorization from the President of COMA.

Article 10 (Evaluation Body). The Economic Policy Advisory is responsible for evaluating the behavior of OMAs, and must present a Quarterly Report to the Board regarding them, including their impacts on the Monetary Program.

Article 11 (Control Body). The Internal Audit Unit of the BCB is responsible for controlling the compliance with this Regulation and the execution of OMAs, and must present reports to the Board every quarter.

CHAPTER IV MODALITIES OF OPEN MARKET OPERATIONS

Article 12 (Operational Mechanisms). OMAs may be carried out through public auction, the BCB money desk, or other mechanisms authorized for that purpose:

I. Public Auction. It is a competitive mechanism for the allocation of securities issued by the BCB or the General Treasury of the Nation (TGN) to authorized institutions. Allocation may be carried out in two modalities: i) on explicit prices or rates proposed by participants and ii) through adhesion proposals.

i) In the case of explicit proposals, COMA will allocate the securities to the best proposals (in descending order of prices, or ascending in terms of rates) made by the participating agents in the auction. At the time of making the allocation, COMA may reject bids with prices lower or rates higher than its reference levels. If, at the margin, there is equality of prices or discount rates between bids, they will be allocated pro rata when applicable. The available offer under this modality will be calculated after deducting the amount demanded in modality ii), which will represent up to 25% of the auction offer. If at the margin the quantity demanded in a single bid is greater than the remaining available offer, only that remaining amount will be allocated.

ii) In the case of adhesion proposals, COMA will allocate the securities to the demanding entities, up to a maximum of 25% of the total offered for each security, at the weighted average of the rate or price results mentioned in the previous paragraph. In all cases, the amount requested under this modality by each participating entity must not exceed the value of US$1,000,000 for securities in foreign currency and Bs.1,000,000 for securities in national currency. In the event that there are no allocations under the first modality, and therefore it is not possible to determine a reference rate or price for the corresponding auction, COMA will not allocate the securities requested under this modality. If the total demand for a security under this modality exceeds the available offer, COMA will carry out the allocation pro rata, up to the limit of the available amount.

II. Money Desk. It is a mechanism through which the GMYC carries out purchase, sale, or repurchase operations with public securities issued by the TGN or the BCB, authorized by COMA, with authorized institutions. In the money desk, economic agents also have the possibility to redeem operations or transactions with securities in advance, under the conditions determined by COMA.

III. Other Mechanisms. The BCB Board of Directors may authorize the execution of OMAs with mechanisms different from those of the public auction and the operations defined for the money desk.

Article 13 (Types of Operations). The types of OMAs carried out by the BCB may be the following:

I. Primary Placement of Securities. Primary placement will be carried out with the securities issued, administered, or authorized by the BCB. The placement or sale of securities will be carried out through public auction or money desk operations, and a public call must be made previously for this purpose, disseminated through written, oral, or electronic media. Such securities must be registered in the securities market registry.

II. Secondary Market Operations with Securities. Secondary operations can be carried out with any security issued by the TGN or the BCB, through repurchase operations, swaps, purchase, sale of securities, and others authorized by the BCB Board of Directors and by COMA.

CHAPTER V REQUIREMENTS REQUIRED OF PARTICIPANTS

Article 14 (Participants in the Auction). Only financial entities that are authorized for their operation by the corresponding Sectoral Superintendencies of the Financial Regulation System (SIREFI) may participate in public auctions. Individuals and non-financial entities in the private sector may access OMAs through the financial entities included in the SIREFI regime. Entities participating in the public auction must certify the documents cited below or others upon request of the BCB.

• Application for participation in auction.

• Payment document for the operation, which can be made with matured securities duly endorsed, deposit slips, or letters of authorization for debit from their accounts at the BCB.

• Copy of the Taxpayer Registry ID (RUC). This document must be presented only the first time and when there is any modification.

Article 15 (Participants in the Money Desk). Banks and financial entities that are authorized for their operation by the corresponding Sectoral Superintendencies of SIREFI may participate in the money desk. Public entities that have been duly authorized for this purpose by the Ministry of Finance may also participate in money desk operations. Individuals and non-financial entities in the private sector may access OMAs through the financial entities included in the SIREFI regime. Financial and public entities wishing to participate in the money desk must certify the following documents or others upon request of the BCB.

For the first time and when modifications exist: Authorized signature card for OMAs.

• For financial entities: Notarized Power of Attorney authorizing them to participate in OMAs with the BCB, which must specify the maximum authorized operation amounts.

For each operation: Application for purchase, sale, repurchase, swap, or other operation, duly filled out.

• Payment document backing the operation.

CHAPTER VI OTHER PROVISIONS

Article 16 (Resolution of Unforeseen Operational Aspects). COMA may resolve any operational aspect not foreseen in this Regulation.

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