Emerging Markets Rates and Currencies Handbook

76 Citi | Emerging Markets Currencies Handbook 2021 License requirements No licenses are required. Requirements to open a foreign currency account Every person in Chile has the right to freely engage in foreign exchange transactions with no restrictions from the local government. It is possible to open a local USD account in Chile. Deal Management Rollover: Rollover at market prices. Unwinding: No restrictions to unwind derivatives. Full liquidity to do unwinding under the combination currencies and tenors detailed above. Early Maturity: Parties can agree early termination clause at inception under Condiciones Generales contractos de Derivados en el Mercado Local (local ISDA) or ISDA (in case a counterparty is an offshore entity). Documentation Requirements Product specific The BCCH requires all transactions to be reported by the dealer institutions for statistical and tax purposes. For NDF transactions there are no restrictions. In the case of spot transactions, a more regulated process monitors non-resident counterparties entering the local market. For trading derivatives locally, Condiciones Generales Contratos de Derivados en el Mercao local is required in a standard format required by all banks and recognized by BCCH for trading derivatives offshore, the client would require an ISDA. Foreign exchange inflows and repatriations performed by investors under Exempt Resolution 150 regime must be executed with participants of the formal foreign exchange market. As per Central Bank regulation, as of March 1st 2021, foreign entities can open CLP current accounts in Chile. Trade flows Trade flows are not subject to any restrictions. The only obligation is to inform the Central Bank the code of each transaction for statistical purposes (the information to the BCCH is provided by the banks). Capital flows/FDI Portfolio investors can repatriate funds with no restriction, FDI falls under Chapter 14 which is part of the Compendium of Foreign Exchange Regulations from the BCCH. The types of investments regulated through this chapter are: injection of capital, investments, deposits and offshore loans. Additional Comments There are no regulatory restrictions to hedging forecasted transactions. If forecasts change, companies will have the typical flexibility associated with derivatives (unwinding, restructuring, etc.) Hedge accounting is attainable as per IFRS guidelines. Chile’s Rates Market Overview The local CLP interest rate which indexes government floating debt is the “CAMARA” rate. CAMARA is an overnight floating rate which is mainly used in the interbank market. For longer tenors, the Camara rate (TCN or TNA) is calculated through the difference of the “Indice Camara Promedio” (ICP) as follows: The derivatives Market trades IRS CLP fixed vs Camara and CCS UF fixed vs Camara. Day count convention in both cases is ACT/360 and bullet semi annual. Although this rate has been commonly associated with the interbank market, we have recently seen many corporates trading products with Camara, funding and swaps. There is good liquidity up to 10 years on swaps. It is, however, possible to structure transactions with longer tenors with liquidity premium considerations. There are no interest rate options. In terms of inflation, the Central Bank of Chile set a target range of annual inflation of 2%-4%, which has been fulfilled in most of the past 15years. The monthly CPI is applied over the Unidad de Fomento (UF), which is an index used in several financial instruments such as mortgage loans, insurances, etc. Regarding the derivative inflation market, the first two years of the curve are traded with UF forwards and anything 2 years onward is commonly traded with swaps. In terms of liquidity, we do not see issues to trade up to 15 years. Citi Chile El Bosque Norte 500 Piso 7 Las Condes Santiago, Chile FX Sales Contact: +562 2430 9515 / +562 2430 9525 Chile