| | Dear all,
The Ministry of Finance is about to issue a decree which regulates article 74 of Law 1328 of 2009 (Law 1328). Article 74 provides the possibility for early termination, liquidation and close-out netting under OTC derivative transactions, in the event one of the parties is subject to an insolvency, restructuring or liquidation procedure, when at least one of the parties is under the surveillance of the Colombian Financial Superintendence or an authorized foreign agent, provided such OTC transactions are registered in accordance with the rules set forth by the Colombian Government.
The draft provides that when OTC derivative transactions must be mandatorily traded through the foreign exchange market (given that liquidation is agreed on in foreign currency or the counterparty is a foreign resident), the registration of said operations, as set forth by article 74 of Law 1328, will be deemed to be completed by means of filing the corresponding reports established by the Colombian Central Bank.
When said derivative transactions are not required to be traded through the foreign exchange market, and at least one of the parties is under the supervision of the Colombian Financial Superintendence, the registration of the aforementioned transactions requires (i) the party subject to supervision to furnish the forms regarding valuation of the relevant derivatives to the Financial Superintendence, as well any additional information that the latter may deem appropriate (ii) the preservation of the master agreement, schedules, confirmations, credit support annex, and all supporting documents, by the entity subject to surveillance of the Financial Superintendence.
Furthermore, the draft sets forth the conditions upon which, the non-defaulting party may, without judicial requirement, enforce certain local collateral granted by its counterparty in an OTC derivative transaction, when the defaulting party is subject to an insolvency, restructuring or liquidation procedure. Also, the draft clarifies that collateral issued and located abroad, will be subject to foreign law and jurisdiction to the extent provided by the counterparties in the master agreement.
Brigard & Urrutia, both directly and through the Banking Association, has been actively involved in the discussion of this important draft, which once issued will allow Colombian regulations on derivative transactions to meet international standards. | |
