WESTERN HEMISPHERE PA17MENTS AND SECURITIES SETT1,EMENT FORUM CENTRE FOR LATIN AMERICAN MONETARI' STUDIES THE WORLD BANK Public Disclosure Authorized PAYMENTS AND SECURITIES CLEARANCE AN D SETTLEMENT SYSTEMS Public Disclosure Authorized IN BOLIVIA Public Disclosure Authorized DECEMBER 2004 Public Disclosure Authorized PAYMENTS AND SECURITIES CLEARANCE AND SETTLEMENT SYSTEMS IN BOLIVIA PAYMENTS AN D SECURITIES CLEARANCE AN D SETTLEMENT SYSTEMS IN BOLIVIA WESTERN HEMISPHERE PAYMENTS AND SECURITIES SETTLEMENT FORUM CENTRE FOR LATIN AMERICAN MONETARY STUDIES THE WORLD BANK First Engl ish editlon, 2006 0 Centro de Estud~osMonetarios Lat~noamer~canosy Banco Mundial, 2006 Publicado tarnbi6n en espairol Centro de Estudios Monetarlos Latinoarnerlcanos, 2003 Durango 54, Mexico, D.F 06700 All rights reserved Derechos reservados conforme a la ley l SBN 968-5696-09-8 Pr~ntedand made in Mex~co lmpreso y hecho en MQico Foreword Following arequest horn the Western Hemisphere Finance Ministers, the World Bank launched in January 1999 the Western Hemisphere Pqments and Securities Clearance and Settlement In itiative. The World Bank, in partnership with the Centre for Latin American Monetary Studies (CEMLA),first led this Initiative, which, over the years, has wolved into apermanent Forum a; aresult ofthecapacity already created throughout the Region. The Western Hemisphere Payments and Securities Settlement Forum represents a new set of organizational arrangements to give continuityto the effortsstarted under the Initiative and was formally launched in June 2003. The objective ofthe Forum is to describe and to assess the payment systems ofthe Western Hemisphere with aview to identifying possible improvement measures in theirsafety, efficiency and integrity. To carry out this mandate an lnternational Advisory Council (IAC)was established in March 1999 comprised of experts in the field from several institutions. In addition to representatives from the World Bank and from CEMLA, this Council includes members from the following institutions: Bank for lnternational Settlements, Bank of Italy, Bank of Portugal, Bankof Spain, Council ofsecurities Regulators of the America; (COSRA),De Nederlandsche Bank, European Central Bank, Federal Reserve Board, Federal Reserve Bank of New York, lnterhmerican Development Bank, lnternational Monetary Fund, lnternational Organization of Securities Regulators (losco), Securities Commission of Spain, Swiss National Bank and U.S. Securities Commision (~EC). To assure quality and effectiveness, the Forum includes two important components. First, all studies are conducted with the active participation ofcountry officials and the project builds on the existingwork being undertaken in the respective countries. Second, the Forum draws on international and national expertise on the subject, through the IAC, to provide guidance, advice and alternatives to current practices. The Forum has undertaken anumber of activities in order to respond to the Western Hemisphere Finance Ministers' request. These include: the preparation on public reports containingasystemic in-depth description of each country's payments clearance and settlement systems; the delivery of recommendations reports to country authorities on aconfidential basis; the organization of IAC meeting to review country studies and provide input for future work; the organization ofworkshops focusing on issues of particular interest; the creation of a web-page (www.forodepagos.org) to present the outputs ofthe Forum and other information of interest in the payments systems area; and promotion of working groups to ensure a continuation of the project activity. CEMLA ha; been actingas Technical Secretariat ofthe Forum and is playingamajor role in makingthe process sustainable andcapable ofextension to all thecountries in the Hemisphere. To this end, the Forum ha; helped strengthen CEMLA'Sin-house expertise. Additionally, practitioners in payments and securities clearance and settlement in some countries in the Region have participated in the studies prepared under the Initiative and at present under the Forum, through CEMLAcoordination, and this ha; contributed to broadening the knowledge and the transfer of know-how within the Region. The endeavors of the working groups in coordination with CEMLA already provide this permanent Forum for the countries in the Region to discuss,coordinate, and add a coIlective impetus to the work in the area of payment and securitiesclearance and settlement systems. This report, 'Payments and SecuritiesClearance and Settlement Systems in Bolivia", isone ofthe public reports in the series and wa; prepared under the coordination of CEMLA and the World Bank. The Banco Central de Bolivia also participated actively in its preparation. Kenneth Coates David de Ferranti Cesare Calari Director General Vice-president, LAC Vice-president, Financial Sector CEMLA World Bank World Bank Acknowledgments Thls report IS the result of the works undertaken by a team of the Western Hemisphere Payments and Securities Settlement Forum, comprised by an internatronal team and a local team. The members of the rnternational team were Massimo Cirasino (World Bank), Jose Antonio Garcia (CEMLA and CTSP-ALC'J and Mario Guadamrllas (World Bank) The rnternational team vrs~tedBolivia in October 2004 and worked in closed collaborat~onwith the local team comprrsed by officers of the Banco Central de Bolrvra. Eduardo Navarro (Manager of the Payment Systems Unit), coordinated the local team, it also rncluded RenC Alberto Maldonado and Patricia MPndez (Analysts of the Payment Systems Unit). ' Working Group on Payment System Issues of Lat~nAmerica and the Caribbean Bollv~aReport December 2004 TABLE OF CONTENTS 1 ECONOMIC AND FINANCIAL MARKET OVERVIEW ........................................................ 1 1.1 OVERVIEWOF RECENTREFORMS .......................................................................................... 1 1.2 MACROECON~MICBACKGROUND ........................................................................................ 2 1.2.1 Fiscal Sector ..................................................................................................... 3 1.2.2 External Sector ..................................................................................................3 1.3 FINANCIALSECTOR ........................................................................................................... 3 1.4 CAPITALMARKETS ........................................................................................................... 5 1.5 MAJORTRENDS IN THE PAYMENTSYSTEMS ............................................................................. 6 1.6 MAJORTRENDS IN THE SECURITIESCLEARANCE AND SETTLEMENTSYSTEMS ..................................... 7 2 INSTITUTIONAL ASPECTS .................................................................................................. 8 2.1 GENERALLEGAL FRAMEWORK .............................................................................................. 8 2.1.1 Payments .......................................................................................................... 8 2.1.2 Securities .......................................................................................................... 9 2.1 .3 Derivatives ....................................................................................................... 9 2.1.4 Specific Legal Issues Related to Clearance and Settlement ............................... 10 2 . 1.4. 1 Netting ...........................................................................................10 2.1.4.2 Novation ..........................................................................................10 2.1.4.3 Finality ............................................................................................. 10 2.1.4.4 Zero Hour Rule ................................................................................10 2.1.4.5 Digital Signatures and Documents .................................................... 10 2.2 THEROLE OF THE FINANCIAL~NSTITUTIONS: PAYMENTS .......................................................... 11 2.2.1 TheBankingSector ......................................................................................... 11 2.2.2 The Non-Banking Sector ................................................................................. 12 2.2.3 Other lnstitu tions that Provide Payment Services ............................................. 12 2.3 THEROLE OF FINANCIALINSTITUTIONS: SECURITIES ................................................................ 13 2.3.1 Securities Market Participants .......................................................................... 13 2.3.2 Exchanges .......................................................................................................14 2.3.3 Securities Clearance and Settlement Institutions ..............................................14 2.4 THEROLEOFTHECENTRALBANK................................................................................ 15 2.4.1 Monetary Policy and Other Functions ............................................................. 15 2.4.2 Involvement in the Payments System ............................................................... 16 2.5 THEROLE OF THE BANKINGSUPERVISION AUTHORITY ............................................................ 17 2.5.1 Supervision of Financial Entities ...................................................................... 17 Bol~vraReport December 2C04 2.5.2 Deposits Insurance