Emerging Markets Rates and Currencies Handbook

80 Citi | Emerging Markets Currencies Handbook 2021 Colombia Requirements to open a foreign currency account A currency account offshore cannot be credited with local currency. The Colombian market has restrictions on cash accounts held by foreign investors. Cash accounts for FPIs in Colombia must be linked to securities accounts and may only be held in Colombian Pesos (COP). These accounts are created for the purpose of settling securities and FX transactions in the market. Deal Management Rollover : Rollback and rolling forward is permitted for NDFs. Unwinding : Unwinding is permitted. Transactions are net settled. Early Maturity : It is possible to terminate a trade early. Transactions are net settled. Documentation Requirements Product specific Spot transactions can only be traded onshore by financial institutions authorized by the Central Bank. FX Spot trades can be settled between T+0 and T+3, however the local standard is same-day settlement s (T+0). A foreign exchange form (“Declaración de Cambio”) must be filed with the Central Bank for every FX transaction. Citi clients can submit the form electronically through the “Post- Trade” platform. For benchmark spot orders, clients may request price indications using TRM as the transaction rate. For TRM spot orders, Citi requires the request to be received at least one day prior to the TRM formation date. Depending on the transaction size, orders might need to be placed more days in advance. Because the benchmark rate is published by the central bank by the end of the day, benchmark spot orders are settled in T+1 as opposed to the market standard of T+0. Deliverable forwards are only traded onshore by local entities and are settled on the expiry date. NDFs are available both onshore and offshore and are settled on the next business after the expiration date. Onshore NDFs are COP settled while offshore NDFs are settled in convertible currencies and both are usually fixed based on the TRM. Onshore swaps are settled in COP and can be linked to inflation (UVR), floating (IBR) or fixed interest rates. Offshore swaps are usually settled in USD and are traded OTC under ISDA definitions. Local derivatives would be subject to terms of the Contrato Marco (local ISDA). Trade flows So long as FX trades are reported through the Declaración de Cambio, there are no specific restrictions on trade flows. Capital flows/FDI All foreign exchange transactions done by a Foreign Portfolio Investor (FPI) must be for the exclusive purpose of investing in securities and must be registered with the Central Bank, by the FPI’s local administrator. Currency speculation by foreign investors is not allowed. All foreign exchange transactions performed by a FPI regarding capital investment, net profits, sale proceeds and dividends must be registered with the Central Bank separately on a trade-by-trade basis. Rates: Markets Overview • The Colombian monetary policy rate is known as the Intervention Rate, which is defined by the Board of Directors of the Banco de la Republica (BANREP) in each of its eight annual meetings. • The Intervention Rate is defined as the minimum interest rate that BANREP charges financial entities through Open Market Operations (OMAs). • OMAs constitute the main monetary policy intervention mechanism used by BANREP to affect the amount of money circulating in the economy. • The execution of OMAs is carried out under expansion or contraction Repo auctions using the Intervention Rate as reference. • These auctions allow the Indicador Bancario de Reperencia (IBR) to be close to the Intervention Rate. • The IBR is the short-term benchmark interest rate denominated in COP that reflects the price at which Banks are willing to offer or raise resources in the money market. • IBR is derived from the mid-rate provided in daily auctions by the eight selected participants. It is published in a daily basis by BANREP for one day, one month, three months, and six months tenors. • Regarding the term structure of interest rates: the Colombian economy manages two main yield curves of sovereign debt denominated in COP and Real Value Unties (UVR). • UVR is a unit tied to inflation certified by the central bank. It reflects the purchasing power of money based on CPI variations. This enables the UVR indexed bonds or titles to preserve their value, protecting the investor from inflation. Citi Colombia Carrera 9A # 99–02 Bogota, Colombia FX Sales Contact: +57 1485 4000