Resolution 103/98 Approving the New Repo Operations Regulation

BOARD RESOLUTION NO. 103/98 SUBJECT: CURRENCY AND CREDIT – APPROVES NEW REGULATION OF REPO OPERATIONS

VIEWED: Law of the Central Bank of Bolivia No. 1670 of October 31, 1995. The Regulation of Repo Operations, approved by Board Resolution No. 105/97 of April 29, 1997. Board Resolution No. 145/97 of September 2, 1997, which approves the Regulation of the Open Market Operations Committee (COMA). The Open Market Operations (OMA) Regulation, approved by Board Resolution No. 074/98 of August 11, 1998. Technical Report from the Currency and Credit Management No. 031/98 of November 13, 1998. Legal Advisory Report ALEG. 381/98 of November 16, 1998.

CONSIDERING: That the Central Bank of Bolivia is authorized to execute monetary policy and regulate the quantity of money and credit volume according to its monetary program, in accordance with Article 6 of Law No. 1670, being able to emit, place, and acquire securities and carry out other open market operations, such as purchase or sale of repos.

//2. B.D. No. 103/98 That in order to regulate the liquidity of the economy, the stability of the purchasing power of the currency, and ensure compliance with the monetary targets defined for each management period, it corresponds to the BCB to control the volume and composition of available means of payment in the economy, through repo operations. That the Currency and Credit Management in its Report No. 031/98 recommends, within the framework of the Open Market Operations Regulation and given the importance of repos in the execution of the BCB's monetary policy, the convenience of issuing a new regulation on the matter to optimize procedures for these operations. That in the opinion of the Legal Advisory, the draft regulation meets the necessary requirements and there is no impediment to its approval by the Board. That Article 54, subsection b) of Law 1670 of October 31, 1995, authorizes the Board to issue norms for Open Market Operations.

THEREFORE, THE BOARD OF DIRECTORS OF THE CENTRAL BANK OF BOLIVIA RESOLVES: Article 1.- Approve the new Regulation of Repo Operations that will enter into force on January 1, 1999, in its V chapters and 18 articles, which, as an annex, forms part of this Resolution. Article 2.- Repeal, effective January 1, 1999, the Regulation of Repo Operations approved by Board Resolution No. 105/97 of April 29, 1997. //3. B.D. No. 103/98 Article 3.- The Presidency and General Management are charged with the execution and compliance of this Resolution. La Paz, November 24, 1998

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Juan Antonio Morales A.

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Armando Pinell S. Jaime Ponce G.

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Juan Medinacelli V. Fernando Campero P.

//4. B.D. No. 103/98 REGULATION OF REPO OPERATIONS CHAPTER I GENERALITIES Article 1 (Object). – This instrument aims to regulate Repo Operations (OR) carried out by the Central Bank of Bolivia (BCB) with financial entities, in compliance with the provisions of Title II, Chapter I of Law No. 1670, the Statute of the BCB (Board Resolution No. 082/97 of February 20, 1997), and the Open Market Operations Regulation (Board Resolution No. 074/98 of August 11, 1998). Article 2 (Definition). – An OR consists of the sale of securities by one agent (the seller/reportado) to a second agent (the buyer/reportador), with the commitment of the seller to repurchase the securities within a predetermined term and at a predetermined price on the transaction date. The repurchase price, in addition to the determined value for the security, must establish a premium in favor of the buyer. Article 3 (Modalities of the OR). – The BCB may act in ORs as seller or buyer. The OR will be termed passive when acting as seller and active when acting as buyer. ORs will be carried out indistinctly in any authorized currency, and may be executed in a currency different from that of the security. CHAPTER II CONDITIONS OF THE REPOS Article 4 (Types of Securities). – The BCB will only carry out ORs with securities issued by the TGN or the BCB itself. //5. B.D. No. 103/98 Article 5 (Initial Price and Premium Rate). – The initial price and premium rate of a repo are subject to the following limits: I. In passive ORs, the minimum initial price and maximum premium rate are fixed by the Open Market Operations Committee (COMA) based on market conditions. II. In active ORs, the initial price of the repo cannot exceed the market value of the security on the date of the operation. Article 6 (Final Price). – The final price to be paid by the seller at the maturity of the ORs is given by: VRV = P [1 + (TP * PL / 360)] Where: VRV = Value of the repo at its maturity; P = Initial price of the repo; TP = Annualized premium rate; and PL = Term of the repo operation. Article 7 (Terms). – The minimum and maximum terms of the ORs will be defined by the COMA. These terms cannot extend beyond the maturity date of the reported securities. The COMA may authorize early redemptions of the ORs when deemed necessary. //6. B.D. No. 103/98 CHAPTER III POLICY, EXECUTION, EVALUATION, AND CONTROL BODIES Article 8 (Policy Body). – The COMA has the function of interpreting and applying in the ORs the quarterly monetary policy guidelines approved by the BCB Board. The COMA will have the following attributes: I. Define weekly or at the periodicity it decides, global amounts, premium rates, terms, security types, and all characteristics of ORs in the money market, as well as the authorized bands for them when applicable. II. Authorize the holding of auctions of securities offered in repo and the conditions applicable to them. III. Determine, as appropriate, ranges of autonomous negotiation for ORs carried out by the Execution Body of the BCB. IV. Authorize financial entities to carry out ORs, prior to verification of compliance with the requirements mentioned in Chapter IV of this Regulation. V. Fix additional requirements that must be met by financial institutions authorized to carry out ORs with the BCB. Article 9 (Execution Body). – Subject to the guidelines of the Board and the determinations of the COMA, the Currency and Credit Management (GMYC) is the responsible body within the BCB for the execution of ORs. The GMYC may: • Carry out ORs in the BCB Money Market. • Conduct auctions of securities offered in repo with express authorization from the COMA. //7. B.D. No. 103/98 • Use other negotiation mechanisms authorized by the Board and the COMA, as appropriate. Article 10 (Autonomy Margins). – The GMYC may carry out daily operations, applying amounts, security types, negotiation rates, and other modalities of the ORs defined by the COMA. In authorized cases, the GMYC may operate autonomously within the ranges approved for that effect by the COMA. If due to situational circumstances it is necessary to carry out operations outside the approved autonomous negotiation ranges, the GMYC must obtain prior and express authorization from the President of the COMA. Article 11 (Evaluation Body). – The Economic Policy Advisory is responsible for evaluating the behavior of the ORs and their impacts on the Monetary Program, and must present reports to the Board each quarter. Article 12 (Control Body). – The Internal Audit Unit of the BCB is responsible for controlling the compliance with this Regulation and the application of the ORs, and must present reports to the Board each quarter.

CHAPTER IV REQUIREMENTS Article 13 (OR Requirements). – Financial entities with a current account at the BCB are authorized to carry out ORs. These entities must present the following documents: • For the first time or when there are modifications, a card with the record of authorized signatures or equivalent document. //8. B.D. No. 103/98 • Annual OR adherence contract, duly signed. This contract must contain a clause in which the seller authorizes the BCB to debit the corresponding amount in the accounts it holds with the Issuer Entity on the date of maturity of the repo, starting at 15:00 hours. • For each OR, active or passive, a duly filled and signed request. • In the case of active ORs, financial agents must present the securities duly endorsed in favor of the Issuer Entity. • Notarized Power of Attorney authorizing one or more officials of the respective entity to carry out ORs with the BCB. This document must specify the maximum amounts authorized for each operation. Article 14 (Additional Requirements for Passive ORs). – In the case of passive ORs, the COMA will implement them according to the guidelines for the placement of determined securities in articles 12 and 13 of the Open Market Operations Regulation.

CHAPTER V OTHER PROVISIONS Article 15 (Custody of Securities). – In all cases, the securities subject to repos will remain in deposit and custody of the BCB, or another entity authorized by the BCB during the validity of the operations. Article 16 (Certification). – The BCB, at the request of financial agents, will issue certifications of the ORs carried out. //9. B.D. No. 103/98 Article 17 (Sanctions for Non-Compliance). – Financial entities that fail to fulfill the commitment to repurchase securities by OR at maturity will be disqualified from participating in OMA for a period of 45 days the first time, 90 days the second, and, in the event of a third contravention, the case will be submitted to the Board for sanction. Article 18 (Regulation of Operational Aspects). – The COMA may regulate any operational aspect not foreseen in the Regulation. -- o --