Resolution 105/97 Approving the Repo Operations Regulation

BOARD RESOLUTION NO. 105/97 SUBJECT: CURRENCY AND CREDIT - APPROVES REGULATION FOR REPO OPERATIONS

VIEWED: The Law of the Central Bank of Bolivia (BCB), No. 1670 of October 31, 1995. The Pension Law, No. 1732 of November 29, 1996. Technical Report No. 07/97 of February 17, 1997. Legal Report S-JIN No. 165/97 of February 20, 1996. The Open Market Operations (OMA) Regulation, approved by Board Resolution of the BCB, No. 102/97 of April 22, 1997. The Regulation for the Issuance and Operation of Negotiable Deposit Certificates (CDs), modified and supplemented according to Board Resolution 027/91 of March 26, 1991, and Extraordinary Act No. 4 of the Open Market Operations Committee (COMA) of June 17, 1992. The Regulation for Foreign Exchange SWAP Operations, approved by Board Resolution No. 027/95 of April 4, 1995. The Regulation for Operations with Letters Issued by the General Treasury of the Nation (LTs), approved by Board Resolution No. 150/93 of December 7, 1995. The Regulation of the Open Market Operations Committee (COMA), modified by Board Resolution of the BCB, No. 148/93 of December 7, 1993.

CONSIDERING:

//2. B.D. No. 105/97 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, such as purchase or sale of repos, for this purpose. 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 the payment means available in the economy, through open market operations and within these through repo operations. That within the framework of the Open Market Operations Regulation and given the importance of repos in the execution of the BCB's monetary policy, it has been deemed appropriate to issue specific regulation for this type of operation. That the technical and legal reports indicate that the draft Regulation meets the necessary requirements and that there is no legal impediment to its approval. That Article 54, subsection b) of Law 1670 of October 31, 1995, empowers 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 Regulation for Repo Operations in its V Chapters and 17 articles, which, as an annex, forms part of this Resolution.

Article 2.- The Presidency and the General Management are charged with the execution and compliance of this Resolution.

29.IV.97 ____________________ Juan Antonio Morales A.

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Armando Pinell S. Jaime Ponce G. Juan Medinacelli V.

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Fernando Campero P. Edgar Millares A.

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REGULATION REPO OPERATIONS

CHAPTER I GENERALITIES

Article 1 (Object). This instrument aims to regulate the Repo Operations (OR) carried out by the Central Bank of Bolivia (BCB) with authorized financial entities and public institutions, 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. 102/97 of April 22, 1997, especially Chapter VI which defines the requirements for OMA participants).

Article 2 (Definition). An OR consists of the sale of securities by one agent (the repo seller) to a second agent (the repo buyer), with the commitment of the repo seller to repurchase the securities within a term and at a price predetermined on the date of the transaction. The repurchase price, in addition to the determined value for the security, must establish a premium in favor of the repo buyer.

Article 3 (Modalities of ORs). The BCB may act in ORs as repo seller or repo buyer. The OR will be termed passive when it acts as repo seller and active when it is repo buyer. ORs will be carried out indistinctly in any authorized currency, and the operation 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 (General Treasury of the Nation) or the BCB itself.

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Article 5 (Initial Price and Premium Rate). The initial price and the premium rate of a repo will be subject to the following limits: I. In passive ORs, the minimum initial price and the maximum premium rate will be 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 that the repo seller must pay upon maturity of the ORs will be given by:

[ (TP * PL) / 360 ] + 1 * P = VRV

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 it deems necessary.

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CHAPTER III POLICY, EXECUTION, EVALUATION, AND CONTROL BODIES

Article 8 (Policy Body in ORs). 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 with 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 for autonomous negotiation for ORs carried out by the BCB Execution Body. 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 body responsible within the BCB for the execution of ORs. The GMYC may:

• Carry out ORs in the BCB Money Market.
• Hold auctions of securities offered in repo with express authorization from the COMA.
• Use other negotiation mechanisms authorized by the Board and the COMA, as applicable.

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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 every 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 every quarter.

CHAPTER IV REQUIREMENTS

Article 13 (Requirements). Financial entities and public institutions authorized by the BCB to carry out ORs must present the following documents:

Once or when there are modifications: I. Card with the registration of authorized signatures, or equivalent document. II. Application for OR, active or passive, duly filled out.

For each OR: I. OR Contract duly signed.

//7. B.D. No. 105/97 II. The securities subject to repos will remain in deposit and custody with the BCB or another entity authorized by the BCB during the validity of the operations. In cases where the BCB acts as repo buyer, financial agents must present the securities duly endorsed in favor of the Issuing Entity. III. For financial entities: 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. IV. For public institutions: Authorization from the National Secretariat of Treasury to participate in ORs of the BCB money market, specifying the maximum amounts approved for each operation. The BCB, at the request of financial agents, will issue certifications of transactions carried out with securities of its own property.

CHAPTER V OTHER PROVISIONS

Article 14 (Authorization of the Repo Seller). The legal contract to be signed in each OR must contain a clause in which the repo seller authorizes the BCB to debit the corresponding amount from the current accounts it holds with the Issuing Entity, within 24 hours of a default occurring.

Article 15 (Sanctions for Non-Compliance). Financial and public entities that incur delays in fulfilling the commitment to repurchase securities for ORs will be disqualified from participating in OMA for a period of 45 days the first time, 90 days the second time, and, if a third contravention occurs, the case will be submitted to the Board for sanction.

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

Article 17 (Validity of the Regulation). This Regulation will be in effect from May 15, 1997.

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