Cross-Border Custody Links Case: Central America and Panama

Iván Díaz G.

General Manager

Central Latinoamericana de Valores, S.A.

A Bit of History: Background of the CSDs* in the Region

• Project sponsored by BID-BOLCEN• Duration of the Project: 1995-1998• Countries involved in the project:• Guatemala, Honduras, El Salvador, Nicaragua,

Costa Rica y Panama.

Project:“Harmonization of the Securities Markets in Central America

*(Central Securities Depository)

Central Depositories in the region:

CEHVAL

LATINCLEAR

CENIVAL

CEVAL

CAJA DE VALORES

CEDEVAL

CEVAL

Guatemala Honduras El Salvador Nicaragua Costa Rica Panama

Development of the Securities Markets in the Region

– Progress on the equity markets regulation : Costa Rica: Adoption of a securities law in 1997 Panama: New regulatory scenario in 1999 El Salvador: Securities Market Law (1994) and subsequent

regulations.El Salvador: Electronic recording of Securities by Book-Entry

Law (2002) – Mandatory immobilization / dematerialization as of September, 2003.

Nicaragua: A new Capitals Market is approved. November, 2006.

Guatemala: The securities market is regulated by the Securities and Goods Law which was approved in 1996.

About the Regulatory Framework :

Experiences in Panama: Year 2001- in compliance with applicable regulations the mandatory

immobilization and/or dematerialization of the market is in effect

Year 2002: Latinclear and Ceval of Costa Rica sign an International Custody agreement

Latin Clear and Ceval of Costa Rica link their systems electronically.

Year 2003: Latinclear signs a a Custody Agreement with Cedeval from El Salvador.

Note: Other CSDs in the region have entered into bilateral International Custody Agreements on a reciprocal basis.

CSD Developments: International Best Practices and Cross-border Custody Agreements:

The structure improves as well as the adoption of international standard.

Cross-border custody increases Based on the establishment of the CSDs and the signing of the

custody agreements, international custody activity has become more active, both in the public securities sector and in the private sector.

The regulatory bodies have also promoted securities trading beyond the domestic markets :

In 2003, the Regulators of Panama and El Salvador sign an Agreement of Acknowledged Jurisdiction (a more dynamic binational listing)

In May of 2005; the National Securities Commission of Panama accepts Costa Rica as as an Acknowledged Jurisdiction.

As a result of the preceding …

The Links in NumbersCaso: Latinclear/Cedeval

Year 2007

(to 31 Aug)Year 2006Term

0021.9Withdrawals

59159.6101144.8Total

93.941.1Capital Payments

284.5457.1Interest

Payments

223.9865.2Capital payments upon maturity

2027.44269.5Transfers

No. TxAmount (In USD million)

No. TxAmount (In USD

million)

Type of Transaction

Market Profile

Regional Profile of the Market -CSD’sNumbers December 2006

Detail\Country Guatemala Honduras El Salvador Nicaragua Costa Rica Panama

Balance in Custody (US$MM)

US$1,166 N/A US$3,992 US$230 US$13,743 US$4,192

%Fixed Income 99.8% 100.0% 88.9% 100.0% 74% 68%

% Securities market

0.17% 0% 11.1% 0% 26% 32%

% Immobilized/Dematerialized

Local Market 2%

Int’l

Market. 100%

100% -Physical

Securities

83% 100%-Physical

Securities

87% 99.8%

Form of proving the existence of the securities :

Physical

Securities

------ Physical Securities

Immobilized/ Dematerialized

----- Physical Securities

Immobilized/ Dematerialized

Immobilized/ Dematerialized

Settlement

Cycle

T+1 Public

T Private+ Repo’s

T T Repo’s

T+1 MP & MS T+3

T T+1Fixed income

T+3 Shares

Market

T+3

% Make up of the Custody

5% N/A 17% 1% 59% 18%

Balance of Regional Custody: US$23,323 million

Main CSD Services

Detail\ Country

Guatemala Honduras El Salvador Nicaragua Costa Rica Panama

Custody Corporate

Events -------- --------

Clearing and

Settlement

(Stockmarket)

-------- (Stockmarket)

Bilateral

Settlement Stock market

positions

(Stock market)

(Latin Clear)

International

Custody

Clearstream -------- JPM -------- Clearstream

BoNY

Clearstream

Securities

Lending

-------- -------- Project -------- Automatic Loan

Project

Intruction Routing Model in Central America and Panama

FECHA DE OPERACIONSETTLEMENT DATE

FOREIGNBROKER

1.- PURCHASING TRANSACTION:1.- PURCHASING TRANSACTION:

LOCALBROKER

INSTRUCTS PURCHASE ORDER

LOCAL STOCK MARKET

INPUTS PURCHASE ORDER

(FOREIGN BROKER)

CONFIRMS TRANSACTION

COMMERCIAL BANK

PURCHASES FOREIGN CURRENCY IN LOCAL

MARKET

SETTLES WITH THE LOCAL INTERMEDIARIE’S ACCOUNT

CONFIRMS TRANSACTION PAYMENT

CONFIRMS PURCHASE INSTRUCTION(PRICE, DATE AND AMOUNT)

INSTRUCTS FUTURE

RECEPTION OF SECURITIES

FROM ABROAD

LOCALCUSTODIAN

TRANSACTION DETAILS FOR

LOCAL SETTLEMENT

CONFIRMS SECURITIES DEPOSIT IN ITS ACCOUNT UNDER THE NAME OF THE FOREIGN BROKER

CONFIRMS DEPOSIT OF SECURITIES IN

HIS ACCOUNT

FOREIGN CUSTODIAN

COMPARE AND MATCH TRANSACTION DETAILS SIMULTANEOUSLY

INSTRUCTIONS ROUTINGINSTRUCTIONS ROUTING

LOCAL ISSUER

2.- DIVIDEND AND INTERST PAYMENT :2.- DIVIDEND AND INTERST PAYMENT :

ANOUNCES ENTITLEMENT AND

ITS DETAILS

LOCALDEPOSIT

INSTRUCTS FX TRANSACTION

COMMERCIALBANK

FOREIGN DEPOSITOR

NOTIFIES TYPE OF ENTITLEMENT

AND ITS DETAILS

DELIVERS CASH IN THE CORRESPONDING FOREIGN CURRENCY

FOREIGN BROKER

INFORMS ENTITLEMENTS WITH TIMING AND THE CHARACTERISTICS

OF THE LOCAL MARKET

MAKES CASH

PAYMENT

DEPOSITS CASH IN THE CORRESPONDING LOCAL

CURRENCY

INSTRUCTIONS ROUTING INSTRUCTIONS ROUTING

Thanks!!

www.latinclear.com