SERVICIO DE ANOTACIONES EN CUENTA

INTRODUCTION

The Committee on Payment and Settlement System of the central banks of the Group of Ten (G-10) countries (CPSS) and the International Organisation of Securities Commissions (IOSCO) have demonstrated a shared concern with regard to clearance and settlement practices throughout the world. Both the CPSS and IOSCO believe that common interests in the efficiency and risk management of securities settlement systems can be advanced through collective initiatives. Consequently, in 1996 the CPSS and IOSCO formed a joint working group to develop a disclosure framework for securities settlement systems. The working group consisted of securities settlement system operators, including both official and private sector representatives, securities regulators and central bankers. Both developed and emerging markets were represented in the working group.

The goal of developing a disclosure framework for securities settlement systems (SSSs) builds on important prior work undertaken by the CPSS and IOSCO to identify risks associated with securities settlement. The 1992 CPSS report Delivery versus Payment in Securities Settlement Systems (DVP Report) defines and analyzes the types and sources of risk associated with settlements between direct participants in a single settlements system. This report also clarifies the meaning of delivery-versus-payment (DVP) mechanism and describes three common approaches to achieving DVP, each of which entails different risks to market participants.

The Cross-Border Securities Settlements report (Cross-Border Report), prepared by the CPSS in 1995, expands on the DVP Report by analyzing the channels that market participants use to complete cross-border securities transactions. This report outlines the different risks that may be present in these arrangements, even in those cases where DVP is achieved, including replacement cost risk, liquidity risk, cash risk, deposit risk and systemic risk. In particular, the report highlights the fact that custody risk will be present whenever market participants hold their securities through an intermediary, a standard practice for non-residents attempting to settle cross-border transactions.

The Cross-Border Report stresses the importance of understanding the nature of the custody risk, as well as the procedures used to effect back-to-back settlements and crosssystem settlements in the cross-border context. The report concludes that the complexity of relationships between the multiple intermediaries associated with cross-border settlements poses challenges to the oversight of domestic markets and settlement systems. It notes that the most basic challenge stems from lack of transparency in crossborder securities settlement arrangements.

In 1990, IOSCO published a report in which it endorsed and supported the prompt implementation of nine recommendations by the Group of Thirty, such as shortening the time between trade date and settlement and assuring the simultaneous exchange of payment and securities. Successive reports on their implementation have also been prepared (1993, 1994, 1995 and 1996). In 1992, IOSCO published a document entitled Clearing and Settlement in Emerging Markets - A Blueprint, to facilitate the development of centralised, automated SSSs.

More recently, IOSCO’s 1996 Report on Cooperation Between Market Authorities and Default Procedures (IOSCO Report) determines that transparency of market default procedures is important in that it provides certainty and predictability to market participants, facilitates orderly handling in case of an actual default and enables market participants to make an informed assessment about markets.

These reports, as well as other work undertaken by the CPSS and IOSCO, have consistently emphasized the importance of transparency of market mechanisms. At the same time, however, growth in worldwide settlements volumes and greater use of financing transactions have required settlement system operators to develop processes for more rapid exchange of securities and funds and more efficient linkages between systems. Moreover, as prior reports have shown, apparent similarities in the technologies employed and services offered can mask significant differences in securities settlement arrangements, as well as in the approaches taken to the management of the associated risks.

Therefore, it is critical that participants in the securities markets carefully examine the rules and operating procedures and practices of each system, as well as the governing law, underlying custody arrangements and linkages across the systems. While much relevant information of this type is publicly available, it is often contained only in extensive, detailed handbooks of rules and procedures. A number of SSSs do publish informative pamphlets for their participants, but these can take a variety of forms, making it difficult for participants to assess similarities or differences in the risk management approaches used by the different systems.

To assist market participants in identifying important risks associated with their participation in SSSs, the CPSS and IOSCO therefore determined that it would be beneficial to develop jointly a disclosure framework that system operators and participants could use to gain a clearer understanding of the rights, obligations and exposures associated with SSSs. The CPSS and IOSCO welcomed the participation of a number of private sector SSS operators in the development of the disclosure framework.

The framework is intended to be completed by SSS operators for the information and benefit of their direct participants, both current and potential, as well as for indirect participants. It is not intended as an attempt to set prescriptive standards for SSSs, as a replacement for the rules and procedures of the SSS or as a legal representation or binding contract. Moreover, the framework does not necessarily identify all information that the SSS should disclose in the light of its individual facts and circumstances and therefore it may be necessary for participants to discuss issues directly with the SSS to obtain a full understanding of the system. The framework should, however, help market participants and regulators to organize and understand the information that they need in order to appraise the risks, including any systemic risks, potentially associated with SSSs.

While the framework focuses on the risks of direct participation in SSSs, it is clear that many of the same issues arise in connection with the relationships between market participants and local or global custodians. Therefore, while this framework is not intended to cover the specific aspects of these relationships, it may be helpful as a point of reference for those using the services of custodians as well.

GLOSSARY

The following glossary of terms is not intended to provide legally precise definitions for all relevant jurisdictions. Rather, by clarifying the usual meaning of various terms, it is intended as a tool to help in answering the questions in the disclosure framework and in understanding the responses to those questions.

Back-to-back trades: a pair of transactions that requires a counterparty to receive and redeliver the same securities on the same day. The transactions involved may be outright purchases and sales or collateral transactions (repurchase agreements or securities loans). For example, a securities dealer might buy and sell the same securities for the same settlement date in the course of making markets for customers or it might buy securities for inventory and finance the position through a repurchase agreement.

Beneficial ownership/interest: entitlement to receive some or all of the benefits of ownership of a security or a financial instrument (e.g. income, voting rights, power to transfer). Beneficial ownership is usually distinguished from „legal ownership” of a security or a financial instrument.

Bilateral netting: netting between two parties.

Book-entry system: an accounting system that permits the electronic transfer of securities without the movement of certificates.

Bridge: the “bridge” is the name commonly used for the link between Euroclear and Cedel that permits cross-system settlement of a trade between a participant in one ICSD and a participant in the other ICSD.

Cash correspondents: banks (or similar institutions) used by the SSS to make or receive payments.

Cash deposit risk: the credit risk associated with the holding of funds with an intermediary for the purpose of settling securities transactions.

Cash memorandum accounts: records kept by the SSS of the funds due to be paid to or received by participants in conjunction with their securities settlements; the records are for information purposes only and do not represent legal claims or liabilities between the SSS and its participants.

Central securities depository (CSD): an institution for holding securities which enables securities transactions to be processed by means of book entries. Physical securities may be immobilized by the depository or securities may be dematerialized (so that they exist only as electronic records).

Certificate: the document which evidences the undertakings of an issuer of a security or financial instrument.

Chaining: a method used in certain settlement systems for processing transfers. It involves the manipulation of the order in which transfers are processed to increase the number or value of transfers that may be settled with available securities and funds balances (or available credit lines).

Clearance: the term “clearance” has two meanings in the securities markets. It may mean the process of calculating the mutual obligations of market participants, usually on a net basis, for the exchange of securities and money. It may also signify the process of transferring securities on the settlement date, and in this sense, the term “clearing system” is sometimes used to refer to securities settlement systems. In this disclosure framework, the term is used only in the first sense.

Collateral: an asset or third party commitment that is accepted by the collateral taker to secure an obligation of the collateral provider vis-á-vis the collateral taker.

Confirmation: the process by which a market participant notifies its customers of the details of a trade and allows the customer to positively affirm or question the trade.

Counterparty: one party to a trade.

Credit risk: the risk that a counterparty will not settle an obligation for full value, either when due or at any time thereafter. Credit risk includes replacement cost risk, principal risk and cash deposit risk.

Cross-border settlement: a settlement that takes place in a country other than a country in which one trade counterparty or both are located.

Custodian: an entity, often bank, that safekeeps and administers securities for its customers and that may provide various other services, including clearance and settlement, cash management, foreign exchange and securities lending.

Custody-only link: a link between two SSSs which enables transactions in securities held in SSS1 to be settled using SSS2 (rather than SSS1) when the buyer and seller are both participants in SSS2. Custody-only links do not provide for the transfer of funds between SSS1 and SSS2 and cannot be used to settle transactions between a participant in SSS1 and a participant in SSS2.

Custody risk: the risk of loss of securities held in custody occasioned by the insolvency, negligence or fraudulent action of the custodian or of a sub-custodian.

Customer: a buyer, seller or holder of securities and financial instruments that does not participate directly in a system. A participant’s holdings in a system often include securities and financial instruments of which the participant’s customers are the beneficial owners.

Daylight credit (or daylight overdraft, daylight exposure, intraday credit): credit extended for a period of less than one business day, in a credit transfer system with endof-day final settlement, daylight credit is tacitly extended by a receiving participant which accepts and acts on a payment order, even though it will not receive final funds until the end of the business day.

Debit balance: see net debit position.

Default: failure to complete a funds or securities transfer according to its terms for reasons that are not technical or temporary, usually as a result of bankruptcy. Default is usually distinguished from a “failed transaction” .

Delivery: final transfer of a security or financial instrument.

Delivery versus payment: a link between a securities transfer system and a funds transfer system that ensures that delivery occurs if, and only if, payment occurs.

Dematerialisation: the elimination of physical certificates or documents of title which represent ownership of securities so that securities exist only as accounting records.

Depository receipt: an instrument issued in one country that establishes an entitlement to a security held in custody in another country.

Domestic settlement: a settlement that takes place in the country in which both counterparties to the trade are located.

Domestic trade: a trade between counterparties located in the same country.

Failed transaction: a securities transaction that does not settle on the contractual settlement date, usually because of technical or temporary difficulties.

Finality risk: the risk that a provisional transfer of funds or securities will be rescinded.

Final transfer: an irrevocable and unconditional transfer which effects a discharge of the obligation to make the transfer. The terms “delivery” and ”payment” are each defined as a final transfer. See provisional transfer.

Forced settlement: securities or funds settlement that is either mandated or enforced by the actions of a third party.

Global custodian: a custodian that provides its customers with custody services in respect of securities traded and settled not only in the country in which the custodian is located but also in numerous other countries throughout the world.

Gridlock: a situation that can arise in a funds or securities transfer system in which the failure of some transfer instructions to be executed (because the necessary funds or securities balances are unavailable) prevents other instructions from being executed on the scheduled date.

Gross settlement system: a transfer system in which the settlement of funds or securities transfer instructions occurs individually (on an instruction-by-instruction basis).

Haircut: the difference between the market value of a security and its collateral value. The haircut is intended to protect a lender of funds or securities from losses owing to declines in collateral values.

Immobilization: placement of certificated securities and financial instruments in a central securities depository to facilitate book-entry transfers.

Internal settlement: a settlement that is effected through transfers of securities and funds on the books of a single intermediary. An internal settlement requires both counterparties to maintain their securities and funds accounts with the same intermediary.

International central securities depository (ICSD) : a central securities depository that settles trades in international securities and in various domestic securities, usually through direct or indirect (through local agents) links to local CSDs.

Irrevocable transfer: a transfer which cannot be revoked by the transferor. Issuer: the entity that is obligated on a security or financial instrument.

Issuing agent: an institution that acts on behalf of the issuer of securities in distributing the securities and in realising the proceeds thereof for the benefit of the issuer.

Legal ownership: recognition in law as the owner of a security or financial instrument.

Legal risk: the risk of loss because of the unexpected application of a law or regulation or because a contract or other right cannot be enforced.

Liquidity risk: the risk that a counterparty will not settle an obligation for full value when due, but on some unspecified date thereafter.

Local agent: a custodian that provides custody services for securities traded and settled in the country in which it is located to trade counterparties and settlement intermediaries located in other countries (non-residents).

Local custodian: a custodian that provides custody services for securities traded and settled in the country in which the custodian is located. See global custodian.

Loss-sharing agreement: an agreement among participants in a clearing or settlement system regarding the allocation of any losses arising from the default of a participant in the system or of the system itself.

Loss-sharing pools: cash, securities or possibly other assets that are provided by the participants in advance and are held by the system to ensure that commitments arising from loss-sharing agreements can be met.

Marking to market: the practice of revaluing securities and financial instruments using current market prices. In some cases unsettled contracts to purchase and sell securities are marked to market and the counterparty with an as yet unrealized loss on the contract is required to transfer funds or securities equal to the value of the loss to the other counterparty. See variation margin.

Matching (or comparison, checking): the process for comparing the trade or settlement details provided by counterparties to ensure that they agree with respect to the terms of the transaction. Settlement instructions that have been successfully matched between counterparties are referred to as matched settlement instructions. In some securities settlements systems, penalties may apply to participants that unilaterally revoke matched settlement instructions. In other systems, unilateral revocation of matched settlement instructions may not be possible.

Member: in this disclosure framework, the term is used synonymously with participant. See participant.

Multilateral netting: netting among more than two parties.

Net credit or net debit position: a participant’s net credit or net debit position in funds or in a particular security is the sum of all the transfers it has received up to a particular time less the transfers it has sent; if this sum is positive, the participant is in a net credit position, if the sum is negative, it is a net debit position. The net credit or net debit position at settlement time is called the net settlement position. These positions may be calculated on a bilateral or multilateral basis.

Net settlement: a settlement in which a number of transactions between or among counterparties are settled on a net basis.

Netting: an agreed offsetting of mutual positions or obligations by trading partners or participants in a system. The netting reduces a large number of individual positions or obligations to a smaller number of positions. Netting may take several forms which have varying degrees of legal enforceability in the event of default of one of the parties.

Nominee: a person or entity named by another to act on his behalf. A nominee is commonly used in a securities transaction to obtain registration and legal ownership of a security.

Obligation: a duty imposed by contract or law. It is also used to describe a security or financial instrument, such as a bond or promissory note, which contains the issuer’s undertaking to pay the owner.

Omnibus customer account: an account in which the securities held by the participant on behalf of all (or at least several) of its customers are kept. See also proprietary account, segregation.

Participant: a party which participates in a system. This generic term refers to an institution which is identified by the system and is allowed to send transfer instructions directly to the system or which is directly bound by the rules governing that system.

Paying agent: an institution that, acting on behalf of an issuer, makes payments to holders of securities (e.g. payments of interest or principal).

Payment: the satisfaction and discharge of a monetary obligation by the debtor’s final transfer of a claim on a party agreed to by the creditor. Typically, the party is a central bank or a commercial bank.

Position netting: the netting of instructions in respect of obligations between two or more parties which neither satisfies nor discharges those original obligations. (Also referred to as payment netting in the case of payment instructions).

Pre-matching process: process for comparison of trade or settlement information between counterparties that occurs before other matching or comparison procedures. Generally, pre-matching does not bind counterparties as matching can do.

Principal risk: the risk that the seller of a security delivers a security but does not receive payment or that the buyer of a security makes payment but does not receive delivery. In this event, the full principal value of the securities or funds transferred is at risk.

Proprietary accounts: an account in which a participant holds only those securities it is holding on its own behalf (as opposed to those securities it is holding on behalf of its customers). See also omnibus customer account, segregation.

Provisional transfer: a conditional transfer in which one or more parties retain the right by law or agreement to rescind the transfer.

Real time: the processing of instructions on an individual basis at the time they are received rather than at some later time.

Registration: the listing of ownership of securities in the records of the issuer. This task is often performed by an official registrar/transfer agent.

Replacement cost risk: the risk that a counterparty to an outstanding transaction for completion at a future date will fail to perform on the settlement date. This failure may leave the solvent party with an unhedged or open market position or deny the solvent party unrealised gains on the position. The resulting exposure is the cost of replacing, at current market prices, the original transaction.

Repurchase agreement (repo): a contract to sell and subsequently repurchase securities at a specified date and price. Also known as an RP or buyback agreement.

Rolling settlement: a situation in which a settlement of securities transactions takes place each day, the settlement of an individual transaction taking place a given number of days after the deal has been struck. This is in contrast to a situation in which settlement takes place only on certain days, for example, once a week or once a month, and the settlement of an individual transaction takes place on the next settlement day (or sometimes the next but one settlement day) following the day the deal is struck.

Same-day funds: money balances that the recipient has a right to transfer or withdraw from an account on the day of receipt.

Securities borrowing and lending programme: a facility whereby a loan of securities is made to facilitate timely fulfilment of settlement obligations.

Securities depository: see central securities depository (CSD).

Securities settlement system (SSS): a system in which the settlement of the securities takes place. Often the SSS is a CSD.

Segregation: optional or compulsory separation of the securities held by a participant on its own behalf from those held on behalf of its customers. See also omnibus customer account, proprietary account.

Self-collateralising: an arrangement whereby securities being transferred can be used as collateral to secure risks involved in the transfer process.

Settlement: the completion of a transaction, wherein the seller transfers securities or financial instruments to the buyer and the buyer transfers money to the seller.

Settlement date: the date on which the parties to a securities transaction agree that settlement is to take place. The intended date is sometimes referred to as the contractual settlement date.

Settlement interval: the amount of time that elapses between the trade date (T) and the settlement date (S). Typically measured relative to the trade date, e.g. if three days elapse, the settlement interval is T+3.

Settlement risk: general term used to designate the risk that settlement in a transfer system will not take place as expected. This risk may comprise both credit and liquidity risk.

Sub-custodian: where one custodian (e.g. a global custodian) holds its securities through another custodian (e.g. a local custodian), the latter is known as a subcustodian.

Substitution: the process of amending a contract between two parties so that a third party is interposed as an intermediary creditor/debtor between the two parties and the original contract between the two parties is satisfied and discharged.

Systemic risk: the risk that the inability of one situation to meet its obligations when due will cause other institutions to be unable to meet their obligations when due.

Trade date: the date on which a trade/bargain is executed.

Trade-for-trade (gross) settlement: a settlement in which a number of transactions between counterparties are settled individually.

Trade matching: see matching.

Trade netting: a legally enforceable consolidation and offsetting of individual trades into net amounts of securities and money due between trading partners or among members of a clearing system. A netting of trades which is not legally enforceable is a position netting.

Transfer: an act which transmits or creates an interest in a security, a financial instrument or money.

Unwind: a procedure followed in a certain clearing and settlement systems in which transfers of securities and funds are settled on a net basis, at the end of the processing cycle, with all transfers provisional until all participants have discharged their settlement obligations. If a participant fails to settle, some or all of the provisional transfers involving that participant are deleted from the system and the settlement obligations from the remaining transfers are then recalculated. Such a procedure has the effect of allocating liquidity pressures and losses from the failure to settle to the counterparties of the participant that fails to settle. Unwinds can be distinguished from debits to securities accounts that do not imply the original transfer is rescinded (e.g. in cases where securities are discovered to be forged or stolen).

Variation margin: the amount which is paid by a counterparty to reduce replacement cost exposures resulting from changes in market prices, following the revaluation of securities or financial instruments that are the subject of unsettled trades.

Zero-hour rule: a provision in the insolvency law of some securities whereby a bankruptcy or similar procedure declared by a court during the day is considered to have been declared at 0.00 a.m. of the same day. This generally has the effect of retroactively rendering ineffective all transactions of the closed institution that have taken place after 0.00 a.m. on trade date.

I. BASIC INFORMATION

The sections below are intended to elicit important information from SSSs in the areas of organizational structure and market context, ownership arrangements, rules and procedures, relationships with participants, links to other SSSs and intermediaries, procedures for funds and securities transfers, default procedures, settlement of back-to back transactions, risk control measures and operational risks. The disclosure framework is structured in the form of a questionnaire which SSSs would complete. The CPSS and IOSCO encourage SSSs to complete the questionnaire and make their responses available to market participants, regulators and other interested parties. To ensure that the information in their responses to the questionnaire remains accurate, SSSs would also need to review their responses periodically, at least annually, and make appropriate changes if necessary. The questionnaires completed by SSSs would therefore serve to increase the transparency of their operations to the market-place.

This section addresses a number of fundamental features of the SSS, and provides the market context for its operation. The questions establish the basic functions of the SSS, including the securities for which it provides settlement services, as well as whether the SSS offers other services. Questions on the organizational and ownership structure of the SSS elicit information on its legal basis and corporate governance.

A wide variety of organizational structures and business functions are possible for SSSs. For example, systems may be owned by central banks, by their participants or by an independent private sector entity that may or may not be operated for profit. It is helpful to distinguish the type of ownership, the organizational and decision making structure of the SSS and the financial resources of the SSS, as well as the supervisory oversight to which the system is subject, as a first step in clarifying the respective responsibilities of all relevant parties.

A. What is the name of the Securities Settlement System (SSS)?

The name of the SSS is “Servicio de Anotaciones en Cuenta y Liquidación” (Book Entry and Settlement Service), using the initials SACL for short.

B. Where and in which time zone is the SSS located?

The SACL is located in Valencia (Spain) and is operative in the CET time zone (Central European Time).

Address: Libreros 2-4, Valencia 46002 SPAIN

Telephone: +34963870132

FAX: +34963870162

C. What function does the SSS perform?

The SACL performs the following functions:

a. Keeping of accounting records for securities represented by means of book-entries admitted for negotiation only on the Valencia Stock Exchange (VSE), as well as for those for which admission has been requested or is going to be requested.

b. Keeping of accounting records for those securities which have not been admitted for negotiation on the Stock Exchange (OTC values).

c. Exclusive management of clearing and settlement of securities and funds deriving from negotiation on VSE, of the securities admitted only on VSE.

d. Fulfilment and execution of agreements with entities devoted to keeping accounting records of securities or to the clearing and settlement of securities.

1. Does the SSS serve as a securities depository and/or provide securities settlement services?

The SACL provides central registration services of dematerialised securities and clearing and settlement services of securities and assets (Securities Settlement System service). It also keeps the registry book of stockholders on behalf of the issuers.

It does not perform the role of Global Custodian, or of Safekeeping for physical certificates.

(a) What types of instrument are eligible for deposit at the SSS?

The values which are registered in the SACL are as follows:

a. Debt and Promissory Notes (3, 6, 12 and 18 months) issued by the Government of the Generalitat Valenciana (PGVs).

b. Private Fixed Yield Securities (Bonds and Obligations).

c. Stocks issued by private issuers, Security Investment Companies (SIM) and Security Investment Companies of Variable Capital (SIMCAV).

(b) What types of instrument are eligible for transfer within the SSS?

All the securities registered in the SACL, see I.C.1.(a).

(c) Please describe whether eligible securities are dematerialised, immobilised or transferred physically.

All the securities registered in the SACL are represented by book entries (dematerialised), these accounting records (registration references, RRs) certifying their ownership. According to Law 24/1988, of the Stock Market, all securities negotiated on Spain Stock Exchange should be represented by book entries. Therefore, all the securities of the SACL are totally dematerialised in a book-entry type system.

(d) Does the SSS provide safekeeping for physical certificates?

The SACL does not perform the functions of safekeeping for physical certificates.

2. Does the SSS provide cash accounts and/or provide funds transfers in conjunction with securities transfers? If so, in what currencies?

The SACL provides:

a. securities position accounts: for each participant and security, which reflect the balance of securities credited to each participant, differentiating proprietary account and third-party account.

b. provisional settlement accounts: where the position in which operations pending settlement is kept.

c. cash memorandum account: the SACL does not keep cash accounts for participating entities, however, it uses cash memorandum accounts for the implementation of BIS model 2. These accounts record the credit and debit movements, in euros, resulting from operations and are updated as soon as possible, so that they represent an accurate record as an advance on the cash settlements in treasury accounts opened in the Bank of Spain.

The Objective of the SACL, in any case, is that of ensuring Delivery Vs Payment.

3. Does the SSS provide trade matching services? Do others provide such services for securities settled at the SSS?

The transactions of OTC domestic securities are confirmed and so the information referring to them is checked directly among the participants. The SACL does not keep this information.

For other securities admitted only for negotiation on VSE, the SACL does not provide trade matching services. Once the negotiation has taken place on the floor of VSE, VSE informs the SACL of the terms (See diagram below).

TREASURY ACCOUNTS IN BANK OF SPAIN

4. Does the SSS provide trade netting services? Do others provide such services for securities settled at the SSS? In either case, what types of netting, if any, are performed?

The SACL settles operations on a multilateral netting service with finality on the morning of T+3, i.e. clearing is multilateral through the SACL.

5. Does the SSS offer a securities lending or borrowing programme?

The SACL, in accordance with its Organisation and Functioning Regulations, can operate programmes of lending and repurchase of securities. However, in view of the fact that the registered securities have very little liquidity, these are not operative at the moment, with a procedure defined only in the case of repurchases.

6. Does the SSS provide custodial and/or related services such as the collection of interest, dividends, principal or withholding tax reclamation? Which types of service are provided?

Through the SACL, certificates of position of participant entities will be generated in cases in which perception of a right is applied to the set of securities from the same issue, and in proportion, so that it can be based on the global position of the entity, such as amortizations by reduction of face value, reduction of capital through reduction of face value (when there is cash payment for the stockholder), payment of dividends and interest, collection of passive dividends, single or final amortization or amortization on request, rights issue, separation of warrants, changes in face value in N x M proportion and trade-offs and conversions.

The certificates will indicate the position of the entity at the time of registration for the exercise of the corresponding economic rights to the issuer or to the designated issuing agent.

El SACL provides the service of keeping the register of stockholders on behalf of issuers, inclusion and exclusion of securities, register of non-admitted securities.

7. Does the SSS act as a central counterparty or principal to transactions with its participants?

No, the SACL never acts as a central counterparty or principal in any transaction performed in its system.

8. Others? Please specify.

Not applicable.

D. What type of organisation is the SSS?

The SACL constitutes a specific service of VSE, directed by its Chief Executive and a Service Manager.

1. Please indicate whether the SSS is a public sector or private sector entity.

The SACL is a private sector service of VSE.

2. Please indicate whether the SSS is organised on a for-profit or a non-profit basis.

The resources of the SACL will be those necessary to carry out its functions (see I..C.), with the aim of covering operative costs.

3. What is the legal basis for the establishment of the SSS and for securities transfers made through it?

The SACL constitutes a specific service of VSE, under the protection of national leglislation:

a. Article 54, second paragraph of Law 24/1988 of 28 July of the Stock Market.

b. Royal Decree 116/1992, of 14 February, on representation of securities by means of book entries and clearing and settlement of stock exchange operations.

And on the basis of regional legislation in this respect:

c. Decree 147/1991, of 29 August, of the Consell de la Generalidad Valenciana (Valencian Regional Government).

d. Order of 27 April 1993, of the Consellería de Economía y Hacienda (Department of Economy and Income Tax).

E. Please describe and provide a diagram outlining the organisational and ownership structure of the SSS.

II. RULES AND PROCEDURES OF THE SSS

It is important that SSSs have clear rules and procedures governing all major aspects of their operations. If participants have access to these rules and procedures, they will be able to form clear expectations about the actions of the SSS and will be able to use their understanding to make decisions on that basis. This is particularly important with regard to the resolution of failures to settle or other potential disruptions to the operation of the SSS.

The rules and procedures also typically describe the structures and processes for taking decisions that are at the core of any organization’s corporate governance. For SSS operators, the integrity of the decision-making processes and the means for communicating decisions is important to the level of confidence participants have in the system’s ability to manage risk fairly and effectively.

The questions below focus broadly on how participants can obtain copies of the SSS’s rules and procedures, how participants can provide input to the rules and procedures, how they are notified of changes, the applicability of the rules and procedures to the SSS as well as its participants, and the circumstances under which the rules and procedures can be overridden. Taken together, the questions are intended to provide participants with an understanding of the role that the system’s rules and procedures play within the operation of the SSS.

A. Does the SSS maintain a complete list of the rules and procedures governing the right and obligations of participants and the duties of the SSS?

The SACL, in conjunction with VSE, holds full updated Regulations of Organisation and Functioning of the SACL, which are at the disposal of the participants, together with circulars, operating instructions, bulletins and the procedure manual. These set out both the technical and legal responsibilities of the participants as well as those of the SACL. The basic legislation on which the SACL is founded is also available.

1. How can participants obtain a copy of the rules and procedures?

When an entity becomes a participant of the SACL it is provided with the procedure manual, circulars, operating instructions and bulletins, which describe how to proceed as regards registration and clearing and settlement, such as:

a. The settlement of operations: breakdown, confirmation, assignment, justification, settlement and repurchases.

b. The control of positions and ownership: monitoring of settlement and bookentry, cash settlement, cash transfers between participants, notification of holders to issuers, updating of the register of registered securities and cashing-up.

c. Securities transfers and other operations: subsequent inclusions of registered securities and ‘to the bearer’ securities, securities transfer, changes and rectifications of ownership.

d. Financial operations: position certification, cash adjustments, opening of rights accounts, exclusion of registration references and inscription of registration references.

Copies of these are also supplied on request.

2. Does other documentation provided to participants have the same status as the rules and procedures?

Periodically, the SACL adapts and updates the procedures manual in accordance with the new regulations which affect the work of registration and securities clearing and settlement. It is also updated as a result of the offer of new services or applications to the participants.

3. Describe the process for changing rules and procedures, including any need for regulatory approval.

VSE, by means of circulars and operating instructions, regulates operating processes and relations with participants of the SACL, giving rise to new adaptations of the procedures manual.

These circulars regulate the bookkeeping and control system of the accounting records and the processes of clearing and settlement. They are approved by the Board of Directors of VSE or approval can be delegated to the Chief Executive Officer. They must be communicated to the Instituto Valenciano de Finanzas (IVF) within 24 hours after being adopted and published in the Official Stock Exchange Bulletin of VSE.

The operating instructions must record, in conformity with the circulars, any development or modification in the sequence or instrumentation of the technical procedures which are applied to securities or operations. They are issued after signing by the Chief Executive Officer of VSE or a person delegated by him.

Proposals to carry out technical or legal changes made by participants of the SACL can also be implemented.

(a) What authority is required, and how does this differ depending on the type of change involved?

These depend on the legal status of the regulation. A Law requires parliamentary approval. A Real Decreto (Royal Decree) needs Government approval, whereas circulars and operating instructions are approved by VSE.

In any case, before a change, modification, development, implementation etc. of a new procedure is approved, the SACL consults all the professionals who participate in the market, including its governing bodies (participating entities, members of the market, VSE, IVF and CNMV).

(b) How are participants notified of changes in rules and procedures?

It is compulsory for changes in regulations, whatever the status of the rule, to be notified by post to all the participants of the SACL.

However, the SACL continuously maintains direct contact by telephone, E-mail etc.

(c) Is there a procedure for participants or others to comment on proposed rule changes?

The SACL, in conjunction with VSE, maintains a high degree of cooperation with its participants, and is always open to initiatives which can improve established procedures or the creation of new procedures, provided these are coherent and maintain the efficiency and security of the SACL.

Continuous daily exchanges of information between participants and the SACL guarantee that the proposals made are in line with the needs of the market.

The Technical Advisory Commission analyses the proposals for changes in the rules and procedures of the SACL.

B. Are the rules and procedures binding on the SSS as well as its participants? Under what conditions and on whose authority can written rules and procedures be waived or suspended by the SSS?

All the legal norms (Laws, Royal Decrees) and procedures (Circulars and Operating Instructions) must be strictly observed by both the SACL and its participants. They cannot be modified unilaterally by the SACL.

Exceptionally, market authorities (VSE, IVF and CNMV) and judicial authorities can suspend the application of a specific procedure or regulation provided that there are exceptional circumstances to warrant such a measure.

III. RELATIONSHIPS WITH PARTICIPANTS

In evaluating SSSs, it is essential that participants understand the nature of the relationships that the systems have with their participants. The different types of membership that are available as well as the requirements for admission as a participant should be understood. A knowledge of the account structure of the SSS is also important for an informed evaluation of the system. Participants should understand whether this structure allows or require the segregation of their customers’ cash or securities in separate account or sub-accounts at the SSS.

This section addresses the issues as well as the procedures for and consequences of terminating participation in the SSS. Because of loss-sharing or other arrangements, termination of membership may not extinguish all obligations of participants with respect to the SSS. General limitation on SSS liability to participants are the subject of the final question in this section. These questions are obviously important in enabling participants to establish the magnitude of their exposures to different risks associated with the SSS.

Although these questions provide the basic framework of the relationship between participants and the SSS, many of the most important aspects of these relationships concern the resolution of failures to settle or events of default. Specific questions on these topics are discussed in Section VII below.

A. Please describe the types of membership offered by the SSS.

Basically, there exist two types of entities participating in the SACL:

a. Entities which keep the accounting records of the securities represented by itemized book entries and the clearing and settlement of stock exchange operations.

Entities within this category can, in turn, be of four types:

a.1. Stock Exchange Dealers and Brokers who are members of Valencia Stock Exchange (note that it is compulsory to be a participant in the SACL in order to deal on the floor of Valencia Stock Exchange).

a.2. Entities which belong to one of the following categories and, as such, meet this requirement in accordance with the criteria of the Order of 27 April, 1993 of the Consellería de Economía y Hacienda of the Generalitat Valenciana:

a.2.1. Banks

a.2.2. Savings Banks, including the Spanish Confederation of Savings Banks.

a.2.3. Official Financial Institutions.

a.2.4. Stock Exchange Dealers and Brokers

a.2.5. The Securities Clearing and Settlement Service S.A. (now IBERCLEAR), and the Clearing and Settlement Services created by the Boards of the Stock Exchanges, subject to Law 24/88 of the Securities Market.

a.2.6. The Bank of Spain and the General Depositary

a.2.7. Other entities, in accordance with prevailing legislation.

a.3. Foreign entities which carry out similar activities to those of the SACL, subject to reciprocal agreements when these entities do not belong to the European Union.

a.4. A participating entity which holds an account in the central register of the SACL can trade with another participating entity (a.1., a.2. y a.3.), with a Stock Exchange, or with the SACL itself (hereafter termed authorised entity), the keeping of its registration of book entries of settlements subject to the approval of VSE, when relevant. The authorised entity will carry out registration of the holder in accordance with the information it receives from the holder or from the SACL. The authorised entity will be answerable to the SACL for the correct functioning of the registration of holders.

b. Entities which are not responsible for detailed accounting records, but which handle clearing and settlement. This type of entity is termed authorised entity and can be any of those mentioned in a.1., a.2., a.3., and a.4.

In order to participate in the activities of the SACL, all participant entities must effect their corresponding share of the collective deposit.

The registration system must strictly segregate assets belonging to the corresponding participant from the assets participants hold in their accounts for third parties.

1. How do the types differ?

The SACL has 55 participating entities, of which:

· 19 are stock exchange members (2 Securities and Stock Exchange Brokers, 16 Securities and Stock Exchange Dealers and 1 Credit Entity).

· 5 are not members of the market (4 Securities Brokers y 1 Securities Dealer).

· 5 are Savings Banks (4 Savings Banks and the Spanish Confederation of

Savings Banks, CECA).

· 26 are Banks.

2. Within each membership category, are all participants subject to the same rules and procedures? Please describe important exceptions, including both differences in rules across participants and the rationale for these differences.

All entities participating in the book-entry system and in the clearing and settlement of stock exchange operations are subject to the same rules and procedures.

B. Can participants establish accounts for their customers’ assets that are segregated from their own asset accounts at the SSS?

The register of book entries of the SACL constitutes the only instrument representing all the securities belonging to the same issue included in the system. Entries deriving from trading operations, with the object of legal registration, will be carried out at the time of settlement.

The SACL keeps the accounting records of securities quoted on VSE, which is considered a central register. It contains, for each participating entity and with reference to each category of securities:

a. the balance of account which each participant holds at all times: proprietary account.

b. the global balance of account which the participant holds registered in his accounts in the name of third parties: omnibus customer account.

Complementary to the above mentioned balances, the SACL will keep a file of registration references to safeguard the balances of each security of the participants, allowing individual identification of each transaction. Each participant will maintain the same structure in his itemised register, assigning the balances of securities and corresponding registration references to each holder.

The same accounting system will be established for securities not admitted for trading which are in book entries and whose accounting records are entrusted to the SACL. However, for these securities only one record will exist, not two.

1. If so, is this accomplished through a single omnibus customer account or through a multiplicity of accounts and /or sub-accounts?

Each participant will keep an omnibus customer account open in the central register of the SACL, where balances belonging to third parties can be distinguished. The level of detail of customers is the participant’s responsibility and not the SACL’s, since the SACL only knows global positions.

However, the participants can keep sub-accounts with their customers, although these will not be registered in the SACL.

2. Is the segregation optional or compulsory?

The separation which exists in the central register of the SACL between proprietary balances and balances belonging to third parties is compulsory.

3. Does the fact that a sub-account at the SSS bears the name of a third party give any rights to that third party as a participant under the rules of the system?

It is not applicable to the central register of the SACL, while it is a common practice in detailed customer accounts, although these would never be considered as participants of the SACL.

C. Please describe participant requirements for each type of membership.

The requirements for participation in the SACL are identical for all participants, see III.A.

In order to maintain the condition of participants, the entities mentioned in III.A must have at their disposal the appropriate systems of control and technical facilities to carry out the functions assigned to them.

The SACL will specify the tests, controls and minimum levels of functioning which must be met in order to acquire and maintain the condition of participant.

The SACL will determine the technical and functional requirements which the systems of intercommunication with participants must meet. Homologation by the SACL will be compulsory for their implementation and use.

The entities mentioned in III.A that wish to acquire the condition of participant must apply in writing to the SACL, indicating in their application:

a. registration data of the Entity in question in the register of Banks and Bankers or Savings Banks of Spain, or of Stock Brokering Agencies or Firms of the Securities Exchange Commission.

b. identification of the office or branch at which they are going to carry out their business relations with the SACL.

c. their commitment to strictly comply with the Regulations of Organisation and Functioning of the SACL.

d. whether they hold the condition of participants in IBERCLEAR (the Spanish CSD). If so, they should give proof.

Within two months, the SACL will supply the IVF with a report on whether the entity meets the requirements mentioned above. The approval of the IVF will imply attainment of the status of participant.

1. Are participants required to be domiciled or resident in a particular jurisdiction?

No, there are not domicile or residence requirements.

2. Are participants required to be subject to a supervisor regime? If so, please describe.

Yes, all the participants of the SACL are under the supervision of market authorities, among them Valencia Stock Exchange itself, the Instituto Valenciano de Finanzas (IVF), the Bank of Spain and the Securities Exchange Commission, as the case may be.

3. Are participants required to hold equity stakes in the SSS?

Not applicable.

4. Are there financial, economic, personal or other requirements? If so, please describe.

No, the only requirement is that participants should be one of the entities mentioned in III.A., and meet the requirements of III.C. However, it is assumed that all the participants fulfil the conditions of professionalism and confidentiality necessary to perform efficiently and securely their functions of registration and clearing and settlement.

D. Does the SSS engage in oversight of its participants to ensure that the actions are in accordance with its rules and procedures? If so, please describe.

The SACL, VSE and the IVF are responsible for supervising the participants in the keeping of the register and securities clearing and settlement.

The SACL should oversee the proper keeping of the accounting records by the participants, compliance with settlement regulations and procedures of financial operations and the efficiency of the processes of stock exchange clearing and settlement operations.

In particular, the SACL should constantly check the consistency of the balances of the securities accounts system and the participants’ accounts system and that they coincide with registration references. Moreover, all participants should control the global position of each and every one of the securities daily. In order to do this, the SACL will put at their disposal the breakdown of the different balances which make up this position.

With the aim of maintaining the necessary level of security in the system, and in particular, consistency between the central register of the SACL and that of the participants, periodic procedures of cashing up of balances and registration references will be established between the SACL and the participants.

E. Under what conditions can participants terminate their membership in the SSS? Does this mark the end of all liabilities of the participant? If not, please describe what liabilities could remain.

The condition of participant of the SACL can be lost in the following circumstances:

a. renunciation

b. on losing the status of Stock Exchange Broker or Dealer or an entity mentioned in III.A.b.

c. on failing to adapt to the technical demands imposed by modifications or improvements made by the SACL, or by legal requirements in the systems of keeping of accounting records and of clearing and settlement.

Loss of the status of participant will be in force from the date on which any of the circumstances mentioned in a. and b. occur, or from the date on which the loss is agreed by the IVF, in case c.

F. Under what conditions can the SSS terminate a participant’s membership in the SSS?

At the SACL’s proposal, the IVF can agree to the suspension of a participant if that participant is in default of payment of any debts incurred with the SACL.

Also, when the participants do not reach the minimum volumes of clearing and settlement established by the IVF, suspension can be agreed to on the SACL’s recommendation.

Moreover, at the SACL’s proposal, the IVF can agree to suspension or loss of the status of participant, if the entity repeatedly fails to perform its duties in the settlement process, including delays in settlement.

From the moment when the suspension or loss of the status of participant occurs, the entity cannot perform the activities of participant, without detriment to the finalisation of the operations in hand and the performance of the registration activities from which the entity derives a reduction in the volume of registered securities.

Both loss and suspension of the status of participant must be published in the Official Stock Exchange Bulletin of VSE.

G. Please describe the scope of the SSS’s liability to participants, including the standard of liability, the force majeure standard, and any limitation to the scope of liabilities of the SSS. Where are these liabilities and their limitations set out.

The actions which the participants perform fall within the scope of the SACL’s liability, except in the force majeure standard. The SACL cannot accept liability when the actions of the participants are in bad faith, constitute fraud or culpable negligence.

Within the scope of its functions of control, the SACL oversees the proper keeping of the accounting records by the participants, the fulfilment of the regulations and procedures of settlement of financial operations and the efficiency of the processes of clearing and settlement of stock exchange operations.

The SACL, in order to perform its duties of supervision, requires all the information necessary from the participants and will inspect directly, on the participants’ premises, the activities carried out by them in relation with securities clearing and settlement, as well as their book entries, on obtaining the participant’s consent.

The SACL will immediately inform the IVF and, if the case may be, the Securities Exchange Commission, of any facts or actions which come to its attention in the exercise of its functions that could constitute an infraction of the binding regulations, or any departure from the guiding principles of the regulation of the securities market (Law 24/1988, Securities Market).

The SACL will consider any possible discrepancies which might arise between its participants, and in order to resolve these, will request any information which it deems appropriate. The Chief Executive Officer of VSE will designate an Incidents Commission responsible for supervising the activities in this area and for dealing with complaints which might be made, if they warrant investigation. The commission will be formed in accordance with point III.E.3(a).

IV. RELATIONSHIPS WITH OTHER SSSs AND COMMERCIAL INTERMEDIARIES

Many SSSs have relationships with intermediaries who perform critical asks for the SSS and indirectly, therefore, for the system’s participants and their customers. In particular, relationships or linkages between SSSs may be important for an understanding of the implications of settlement arrangements. For example, in those instances where the linkage includes using another SSS or a commercial intermediary as a securities sub-custodian, disclosure of information concerning the linkage would be essential for participants to fully evaluate the associated risks. The appraisal of risks may differ depending on whether the linkage allows only free deliveries or whether cash accounts at the two SSSs are also involved. The latter types of linkage deserve particular attention to ascertain whether they increase the potential for settlement disruptions to spread quickly between different systems.

Because it is the SSS and not its participants that negotiates and concludes the agreements with these third parties, it is important for participants to be fully advised on the relevant aspects of the system’s various intermediary relationships, including the standards used by the SSS in the selection and monitoring of intermediaries, the functions that the intermediaries perform and any specific risk management mechanism in place specifically to protect against the risks posed by these relationships. It is also important to identify instances in which the SSS advances funds or securities on behalf of third parties or intermediaries, as these actions can pose risks to the SSS and its participants.

A. Does the SSS maintain linkages or other relationships with other SSSs?

The SACL does not have linkages with other SSSs, although, indirectly, through IBERCLEAR (Spanish CSD), it is able to transact FOP (Free of Payment) since 1999 to some SSS participants in the ESCDA (European Securities Central Depositary Association), as a result of bilateral agreements signed by them. For this reason, the SACL should endorse the corresponding bilateral agreement with IBERCLEAR.

Nor does the SACL maintain linkages with other CSDs (Central Securities Depository), ICSDs (International Central Securities Depository) or GCs (Global Custodian).

1. Please identify each of the other SSSs used and the type of securities transferred via the linkages.

Not applicable.

(a) What is the name of the other SSS? Where is it located?

Not applicable.

(b) What securities are eligible for transfer via the linkage to the other SSS?

Not applicable.

(c) Are transfers of securities made via the linkage to the other SSS limited to only those that are free of payment or are transfers against payment also made via the linkage to the other SSS? If against payment, please describe the timing of the transfers and the corresponding payments.

Not applicable.

(d) Does the other SSS provide custody services to the SSS and, if so, who bears any credit or custody risks?

Not applicable.

B. Does the SSS use securities custodians (other than the other SSSs addressed in the previous question) and/or commercial cash correspondents?, Please identify the custodians or cash correspondents used and the duties that each performs.

Not applicable.

C. Please describe the standards used in approving or reviewing relationships with other SSSs, custodians or cash correspondents, including any financial or operational requirements or the presence of insurance or public supervision.

Not applicable.

D. Does the SSS advance funds or securities to or on behalf of other intermediaries such as issuing or paying agents?, If so, please identify the circumstances in which such exposure could arise.

Not applicable.

E. Please describe measures in place to protect the SSS and its members against the failure of other SSSs or commercial intermediaries to meet obligations to the SSS, including risk controls, collateral or alternative sources of funds and securities.

Not applicable.

V. SECURITIES TRANSFERS, FUNDS TRANSFERS AND LINKAGES BETWEEN TRANSFERS

At the heart of the operations of SSSs are the transfers of securities and fund that actually comprise the settlement process. The questions in this section begin by focusing on the process, if any, for matching settlement instructions prior to beginning the settlement process itself. In some markets, matched settlement instructions are binding, which may impose additional obligations on participants that are important for them to understand.

This section next considers issues raised by the practice of securities registration. Because the laws of different countries vary widely in this regard, this disclosure framework has not been designed to substitute for the legal analysis of the implications of registration, for example the issue of the nature of the title to securities that is transferred in the SSS if the system itself is not also the registrar. The questions are instead focused on the circumstances in which the SSS itself becomes involved in the registration process, as well as the risks that may arise if participants fail while securities are in the process of being re-registered in the buyer’s name. In particular, it is important to understand whether the rules and procedures of the SSS would require transactions to be unwound in such an event.

The mechanics of securities and funds transfers are then addressed, ncluding the issue of where cash transfers associated with securities transfers at the SSS take place. These questions also address the circumstances under which the SSS extends credit to participants as an aspect providing funds transfer capability at the SSS. It is clearly important or participants to understand what types of cash account are offered at the SSS and on whom they take a risk with respect to cash deposits, as well as whether the SSS itself bears credit risk in conjunction with these accounts.

The questions then explore the timing of processing within the SSS, hether the SSS is a DVP system, and what type of DVP model, if any, has been adopted by the SSS. DVP is a mechanism which ensures that final delivery occurs if and only if final payment occurs, which eliminates principal risk and contributes to reduction in liquidity risk.

The issues which arise in the practical implementation of DVP were outlined in the DVP Report referred to in the Introduction, and mainly concern the finality of the securities transfers and the funds transfers which together constitute the DVP settlement. Transfers are final if they are both irrevocable and unconditional. A transfer is irrevocable when the parties to it can no longer revoke their instructions, and it becomes unconditional when there are no longer any circumstances that could cause the SSS to unwind it. If transfers are provisional at the time of processing, even if DVP is achieved, the risk remains that transfers may have to be unwound later if finality cannot be achieved.

If not properly recognized and controlled, this “finality risk” could have systemic effects. Members of SSSs are often provided with immediate availability of securities received, even if the transfer is not final. If these members sell the securities again, or make them available to custodial clients, and the original transfer is subsequently unwound, additional transfers by the member or the member’s clients may also have to be unwound, spreading the impact of the unwind to unrelated parties. It could also ultimately lead to losses to be shared among participants. For these reasons, the questions below attempt to clarify precisely the circumstances under which transfers become final.

The questions also address the provision of settlement guarantees by the SSS. If guarantees exist, it is necessary for participants to understand the events that trigger the guarantee as well as the coverage that is provided by the guarantee, including the liability of the SSS with respect to the guarantee.

A. Please discuss whether and how settlement instructions are matched between participants prior to processing by the SSS.

A pre-matching process is carried out at VSE for all instructions in respect of negotiations taking place between members of VSE (both for transactions made in the Central Market and for OTC securities) before beginning the settlement process in the SACL.

In the pre-matching process which VSE performs, in any case, the breakdowns of trading date T which the market members have made them observe, between T and T+1, both inclusive, will be checked. On the other hand, this information will be completed with notification of the ownership data associated to the applicants of purchase operations on registered securities, for which the time limit will be the same. Each breakdown will be identified with an operation number, assigned by the stock exchange, which will ensure that the transaction from one day of trading T is fully itemised on T+1.

The SACL will receive the data corresponding to the pre-matching the VSE has performed; the net cash of the order, the participant customer (when different from the clearing member of the operation), details of commissions of parties intervening in the operation, data of the registered holder, intermediary or applicant etc.

This notification must be made on trading days and always before the next trading day, except those authorised by the supervisors of VSE outside working hours that can be received before the beginning of the trading session on the following day. At the end of each day, the SACL, will deem closed the trading date of the previous day, first ensuring that the balances square.

Every time the SACL receives a breakdown, a matching process is initiated, the object of which is to ensure that the information corresponds to the previously received trading data and that the securities and itemised sums accumulated do not exceed, and finally equal, the totals of securities and amounts reflected in the register of trading volume for the same date of trading, type of deal, stock exchange, type of security and member. As a result of this matching, the SACL will send a message in reply to VSE, in which it will return the entries received, identified with an error or acceptance code. If VSE should receive an entry identified as erroneous, this must be corrected and retransmitted once the necessary corrections have been made.

If, as a result of an incident in the notifications, the date of trading has to be reopened exceptionally, the SACL will close it again as soon as the corresponding balance is squared.

Notification of executions to the SACL can be sent by transmission of files at the end of the day, which will validate the correct format of the data corresponding to the trading date, i.e. that the sales and purchases tally both in number of securities and cash amounts, in terms of each type of trading, class of security and for all the members of the market. As a result of this process, the SACL will send a message of response to VSE, in which it will indicate whether the identified entries received are correct or erroneous.

Once trading at this level is accepted, the SACL will proceed to register the executions received and will be prepared to receive and process later notifications of breakdowns. At the end of the aforementioned processes, the SACL will put the breakdowns at the disposal of the designated entities as clearing members so that they can confirm or reject their clearing of operations, thus initiating the settlement process.

1. Is matching required for all transactions without exception?

Yes, both in DVP transactions and in FOP Delivery.

2. What procedure is used when instructions do not match?

VSE has its own clearly defined procedures in the event of not receiving the instructions correctly. In any case, when the matching necessary to initiate the settlement process has not been possible, the details which have given rise to the unmatched operation will be notified immediately.

SERVICIO DE ANOTACIONES EN CUENTA Y LIQUIDACIÓN

&

Answer to Questions on

Disclosure Framework for

Securities Settlement Systems

From IOSCO and CPSS

June, 2003

I. BASIC INFORMATION

II. RULES AND PROCEDURES OF THE SSS