Market Profiles

FII Market Entry Requirements for Chile

RBC IS operates a segregated account structure in this market.

Whilst no documents are required in this market, it is prudent to hold on record client documents to show the legal existence of the client in case the agent or the country regulator requests it.

For further information or support around accessing this market, please contact your RBC IS representative.

Bolsa de Comercio de Santiago (BCS) - Santiago Stock Exchange (SSE), handles the largest trading volume. Its role is split into four basic functions: to facilitate savings and investment flows; to optimise the allocation of resources; to act as a secondary market; and to regulate the market.

Bolsa Electrónica de Chile (BEC) – trading is electronic and continuous throughout the day.

Bolsa de Corredores de Valparaiso (BCV)

There are three trading mechanisms:

• floor trading for shares
• electronic trading for shares
• electronic auction system for bonds

Shares can be traded simultaneously on all exchanges.

Fixed income instruments are usually traded through auctions or OTC. Trading sessions for fixed income instruments are held in accordance to the following timetables: 10:30 - 10:40; 11:15 - 11:25; 12:00 - 12:10; 12:45 - 12:55; and 16:15 - 16:25.

ISIN (International Securities Identification Numbering): Only for shares. Fixed income still uses short name in the local market although ISIN codes can be obtained for them.

Other: Local alphanumeric codes are used for securities identification.

Comisión para el Mercado Financiero or CMF (Financial Market Commission): The CMF began operating on 17 January 2018, replacing the Superintendencia de Valores y seguros SVS (the former main regulator for the Chilean securities market). This commission is chaired by a council of 5 members, which are elected by their academic or professional prestige. The principal director of this commission is elected by the President of the Republic and will remain in the role until the end of President’s period. The rest of the members are proposed by the President and ratified by the Senate with 4/7 majority.

The main difference and improvement is its independence, and segregation of investigation, indictment and penalty application duties. There are also improved sanctioning procedures, including increase in investigation powers and information gathering.

Law 21.000 is in force since 2018, created the CMF, and approved the absorption of the SVS. Additionally, Law 21.130 approved the absorption of Superintendencia de Bancos e Instituciones Financieras, SBIF (superintendence of Banks and financial Institutions by the CMF.

This change was made to modernize and strengthen the banking regulatory framework and increase surveillance. It didn´t affect the current banking secrecy laws.

Banco Central de Chile (BCCh): The Banco Central de Chile (BCCh), the Chilean Central Bank, is an autonomous institution with full authority over monetary and foreign exchange policies. The BCCh maintains close monitoring over foreign exchange transactions in order to ensure proper balance-of-payments and acts as lender of last resort to local banks. Formal foreign exchange transactions must be informed to the BCCh. Among other banking authorities and duties, it can regulate deposits and set maximum interest rates thereon; define foreign guaranty treatment; establish asset and liability ratios; regulate clearinghouses as well as authorize credit indexation or readjustment

Servicio de Impuestos Internos(SII): The Servicio de Impuestos Internos (SII), the Internal Tax Service is the Chilean Tax Authority: According to its constitutional law, the SII is a governmental agency in charge of the collection of all the domestic taxes in which the Treasury has an interest and where it has not been entrusted by law to a different authority. In order to carry out its duty, the SII has been granted with wide regulatory, enforcement and supervision and prosecution powers.

Physical securities in the Chilean market are very rare; 100 percent are dematerialized at the Chilean central depository. Physical settlements are not used for regular trading purposes, besides, any physical custody and settlement is not part of the current standard of service of Banco de Chile in the market, for foreign investors.

Circuit breakers in Chile are designed to ensure that all necessary information for price formation of an individual security is disclosed to the market. The circuit breaker can be triggered in two ways; significant price fluctuations on individual securities, or at the discretion of the stock exchanges if there is cause to believe that there is a need for the "dissemination of essential facts, relevant to price determination, not known by the public.

CLP

Although there is no formal over-the-counter (OTC) exchange, fixed income and money market instruments are traded OTC. There is also an important sale and repurchase agreement ("repo") market that is traded OTC.

OTC market participants include agencias de valores (dealers), banks, brokers, pension funds, insurance companies and listed corporations. Most OTC dealers are regulated, although the market itself is not.

Trading hours: Monday to Friday: 09:30 to 14:00

Book-Entry: There are two different settlement processes, inter-broker clearing and broker to investor. For the former, inter-broker clearing for equities is now performed via the Central Counterparty (CCLV), instead of SCL. Clearing is done in a multilateral basis for securities and cash. Cash is cleared via LBTR, the RTGS system operated by the Central Bank. For the latter, brokers and investors input the trade data, and clearing is done on a gross basis. In this case, associated cash payment may take place either by means of LBTR or the ACH and synchronised through the electronic settlement facility in AIPAC (which is the market standard), or via manual cash payment. 

The following details are regarding the broker to investor settlement process only.

DCV will pre-match instructions on trade date in a batch process that is performed every 30 seconds throughout the day. If the details match, the transaction will be classified as "compared" by the DCV, who will then proceed to verify if the seller has sufficient position.

If the seller has sufficient position in their account, the transaction will be classified as "verified". Otherwise, the transaction will be classified as "pending balance". The DCV will continue to attempt the verification process each time the batch is run. This process will continue until 18:30, after which the transaction will be automatically cancelled on the system of the DCV. 

Once the transaction has been "verified," the securities will be moved to a "retained" account maintained by the DCV, in accordance to the electronic or manual settlement processes. A "retained" account is established for every safekeeping account maintained with the DCV (i.e. securities are held on the final beneficial owner level in segregated "retained" accounts).

The buyer sends a conditional payment instruction to its clearing bank (which is the custodian for foreign and some institutional investors), making reference to the DCV code for the transaction. The buyer's clearing bank debits the buyer's cash account or overdraft facility and delivers a "DVP payment instruction" to the electronic securities settlement facility, the Switch. This system sends a message requesting verification of position availability and its movement to a retained status to the DCV. DCV then reserves securities per the Switch's message and confirms securities retention to the Switch.

At this stage, payment occurs in four steps: (i) the Switch instructs cash transfers to the relevant clearing entity, LBTR or ACH, (ii) the relevant clearing entity transfers or compensates the cash position per the instruction; (iii) the relevant clearing entity confirms payment to the Switch; and (iv) the Switch confirms payment to the DCV.

Upon confirmation, the DCV changes the "retained" status to a final "available" position and transfers the securities from the segregated account to the buyer's account. The settlement is now final. The relevant clearing entity sends advices to the clearing banks of the buyer and the seller and the seller's clearing bank credits the seller's cash account. Finally, each clearing bank sends advices to its corresponding clients.

In the case of manual settlement, the DCV will update the status of the transaction to "retained" on its system after verification and, simultaneously, it will generate a unique transaction code, which is only provided to the buyer and is used to manually synchronise payment. The buyer presents payment (please note high-value cashier's cheques are penalised by the Central Bank) to the seller at the latter's premises. Upon receiving the payment, the seller will issue a receipt to the buyer and will confirm the payment to the DCV through its on line system. The DCV will then issue a code to the seller, which should match the code originally given to the buyer.

Physical - Physical securities in the Chilean market are very rare; 100 percent are dematerialized at the Chilean central depository. Physical settlements are not used for regular trading purposes, besides, any physical custody and settlement is not part of the current standard of service of Banco de Chile in the market, for foreign investors

Equities: stock changes hands three times on SD through the use of a stock transfer deed called a traspaso.

• On SD, the seller transfers the stock to the executing broker by issuing a traspaso(for foreign investors this is signed by the local representative). The selling broker then issues a second traspaso to the buying broker for signature. The selling broker delivers both traspasos and the share certificates to the issuing company.
• The buying broker issues a third traspasoby which it transfers ownership to the buying party. The buying party will effect payment which the buying broker issues to the selling broker, as well as delivering the third traspaso to the issuing company.
• The issuing company receives all three traspasoson SD for verification. If the seller has sufficient position and the documentation is in order, the issuing company registers the shares into the new owners name on their books.

Debt: 
There is no Central Counterparty for fixed income instruments, only a Clearinghouse.Most fixed income is held immobilised at the DCV and trading is done electronically, however endorsed certificates are exchanged for payment by cashier's cheques. A trade invoice is also submitted with stock exchange transactions. Most debt instruments are issued in bearer form and its settlement is performed by simple physical delivery.

Short selling transactions can only be executed with shares included in "List A" of the Santiago Stock Exchange (BCS) and must be registered with, and settled through, the Santiago Stock Exchange. The stock exchange acts only as agent in the transaction, not in a principal capacity. The Short Seller has to secure its obligation with the lender with securities with an aggregate market value of at least 125% of the market value of the shares being lent. The stock exchange has published a list of securities that will be accepted as collateral and each type of security will be valued differently for collateral purposes. The short seller will place such collateral with the Custody Department of the BCS in segregated sub-accounts on behalf of the lender as collateral. An adhesion agreement must be entered into between the short seller and its intervening broker. There is a maximum term on any lending transaction of 360 days.

Procedures establish limits on the aggregate amount as well as individual limits for each class or type of share deposited with the custody department as outlined above. Margin calls need to be fulfilled on a next day basis.
Short selling transactions have to comply with the "highest offer" or "up-tick" rule, meaning that the price of the transaction must be higher than the last transaction for that security. The only exception is when the price of the last transaction was higher than the transaction before it, the price of the short selling transaction can be the same as the last regular transaction.

The lender retains all the economic benefits derived from the shares, including dividends and other kinds of distributions.

The local brokers are responsible to register short selling at the Santiago Stock Exchange. Registration must be done through a special purpose facility in the automated systems. Short sales must be assigned to investors using their tax-id on the same day, after trading and before 18:30. Lending brokers must inform the lenders’ tax-id between 8:00 and 10:00 of the next exchange day. Loan settlements must be effected after trading ends and until 18:30. Anticipated settlements may take place from 10:00 until the last trading session ends. Borrower initiated settlements must follow agreement with the lender. Lender initiated settlements must be complied by the borrower with the lending broker three (changed to two) exchange days after the lending broker’s notice is received by the borrowing broker and the lending broker must deliver the shares on the same day to the borrowing broker.

The lending broker must record loans under broker’s custody registration in the lender’s client registry. Likewise, the custody reports that brokers send to their clients must include any and all loans with their main characteristics, namely, issuer, series, amount, term and fees.

Turnarounds are a market practice for money market and fixed-income instruments; however, inter-broker clearing procedures and timeframes make turnarounds for equities difficult.

Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor, COMBANC S.A.
This entity is a privately owned, for-profit company under Chilean law, owned by the 20 participant banks. The capital is USD 4 million and its structure is divided in three share tiers, in accordance to the banks' share of average sight balances in the system. The first tier is for banks that had over a 10 percent share of sight balances of the system, each has 11.12 percent of the shares of the company; they elect four directors of the board. The second tier is for banks that had between 2 percent and 10 percent share of sight balances of the system, each has 8.37 percent of the shares of the company; they elect altogether three directors of the board. The last tier is for the banks that had less than 2 percent share of sight balances of the system, each has 1.16 percent of the shares of the company; they elect altogether the two remaining directors of the board. A 5.8 percent of the shares have been left unsubscribed for up to five new banks in the last tier. The clearinghouse has been operating since December 2005.

The clearinghouse operates payments under a deferred multilateral netting model, using bilateral limits defined by the participants instead of actual balances. These bilateral limits are defined daily at the beginning of operations by each participating bank. Banks constitute guarantees in a special purpose account at the Central Bank of Chile based on the limits they have granted other participants; each bank deposits an 11.5 percent of the highest bilateral limit granted for the day. Likewise, the system establishes a multilateral limit, defined as a 10 percent of the sum of all bilateral limits received by any given participant. This limit is enforced as the maximum exposure to the system for such participant and it is always smaller than the sum of the guarantees in the Central Bank account (in fact, the regulatory requirement is that the sum of the guarantees must be at least 1.15 times the highest multilateral limit). Payments are always performed in compliance to both bilateral and multilateral limits.

Therefore, the guarantees would always cover the highest maximum exposure of any given participant.

The system has a loss-sharing agreement in case one or more participants enter into default in their obligations in the clearinghouse, to cover the difference between the guarantee funds of the defaulting party or parties and the total exposure. Losses are shared in the proportion the surviving participants gave limits to the defaulting ones.

DVP Switch 
The module known as the Switch is a facility within AIPAC operated by COMBANC, based on SWIFT messaging and the payment systems that operate in Chile. The Switch intends to achieve deliver versus payment between the securities, held at the DCV, and the cash, which is handled either via LBTR or ACH. 

Contraparte Central de Liquidación de Valores (CCLV)
The Central Counterparty CCLV (Contraparte Central de Liquidacion de Valores) provides clearing and settlement systems; implements risk administration and sets fines and penalties to local brokers that do not comply in a timely manner with securities and liquidity to achieve settlement of transactions. The CCLV is a corporation subsidiary of the BCS with a 97.27 per cent ownership and the remaining 2.73 per cent held by participant brokers. 

CCLV seeks to:

• Provide a legal framework for clearing and settlement transactions: innovation, finality of settlement and settlement of collaterals,
• Allow settling payments through the LBTR (RTGS) system operated by the BCCh,
• Establish an exclusive purpose corporation, with minimum capital established as a Central Counterparty,
• Establish minimum requirements for shareholders, whereas membership must be equal or greater than 10 per cent of the property,
• Accept brokers (securities and commodities), securities dealers and banks as clearing members, · Set forth financial and operational risk management procedures,
• Have the power to set fines and penalties, · Establish three committees for Audit, Penal and Corrective - and Risk purposes, and
• Require guarantees and sufficient liquidity of funds for clearing and settling transactions.

CCLV replaced the former Clearing and Settlement System for brokers (SCL), therefore securities market functioning has not been affected.

Depósito Central de Valores, S.A., (DCV)

The Depósito Central de Valores, the Chilean central securities depository, was incorporated in 1993 and began operations in 1996. The DCV currently has the capability for clearing, settlement and safekeeping of equities, money market and most fixed income instruments including corporate and bank bonds, debentures, title of securities debt, fixed term deposits, all BCCh and Treasury issues, mortgage notes, investment fund shares, non-serialized negotiable instruments, preferred option stock of corporations, as well as commercial invoices and stand-by letters of credit. Securities are held either immobilised or dematerialised at the DCV. 
The DCV is subject to supervision by the CMF and has a minimum capital requirement of 30,000 UF in order to be a formal depositary. The CMF has set the minimum guarantees or insurance needed by the DCV to be able to cover the securities held under custody, which is 0.1 per cent of the value of the securities held. Current policies have a deductible of USD 150,000 per event and a total coverage of USD 150 million, which exceeds the lawful minimum. In addition, the DCV is subject to Ministry of Finance’s Supreme Decree No. 734, which provides additional regulations relating to the operation of depositories, as well as its own internal regulations, which have been approved by the CMF. A consortium of market participants owns the DCV:

• 30 per cent Sociedad Interbancaria de Depósito de Valores S.A. (an association of banks);
• 30 per cent Inversiones DCV S.A. (an association of pension funds);
• 23 per cent Bolsa de Comercio de Santiago;
• 10 per cent DCV Vida S.A. (an association of life insurance companies);
• 6.4 per cent Inversiones Bursátiles SA;
• 0.6 per cent other minority shareholders;

The DCV maintains master accounts in the name of the participants that have executed a Depository Agreement with it. Participants can open segregated sub-accounts in the name of the final beneficial owner. Securities held at the DCV are registered in the issuing company’s shareholder record in the name of the DCV. The DCV provides reporting to the issuing companies with the breakdown by sub-account for shareholder meetings and other corporate actions on a daily basis.

Settlement through the DCV is mandatory for government securities. Most other fixed income instruments settle through the DCV, although it is not mandatory. The BCS and the BEC require local brokers to settle most listed securities through the DCV, although safekeeping at the DCV is not mandatory for non-dematerialized securities.

The DCV uses an electronic system called “Sade Web” for clearing and settling transactions.

While the DCV does carry insurance, it does not have a guarantee fund. Insured amount is of 0.1 per cent of assets under custody. DCV’s insurance coverage is USD 448 million and it is valid for the period 31 October 2022 to 31 October 2023. These policies include BBB (Banker's Blanket Bond, FIPI (Professional Civil Liability), terrorism Cybersecurity and other policies. DCV carries insurance in the form of a Banker’s Blanket Bond (BBB) for USD 301 million and an Adjustment Rate for Banker’s Blanket Bond for USD 89 million. It includes electronic fraud coverage. In addition to that, DCV has a terrorism policy for USD 16 million, cybersecurity for USD 10 million and others coverages for USD 32 million. The DCV has been appointed the official numbering agency for ISIN codes; such codes are available for all dematerialized instruments.

Bank for International Settlements (BIS) Settlement Model
BIS is an international organisation which fosters cooperation among central banks and other agencies in pursuit of monetary and financial stability. The Committee on Payments and Market Infrastructures (CPMI) uses three common structural approaches, or models, to categorise the links between delivery and payment in a securities settlement system.

The gross bilateral settlement between the investors and the local stock brokers applies to Model 1, a system in which there is a simultaneous transfer of securities and associated funds from the buyer to the seller. All transfers occur on a trade-by-trade (gross) basis with all transfers made via book entry. All transfers are final.

The settlement through multilateral nets between local stock brokers for equities and fixed income applies to Model 3, a system in which securities transfers occur on a trade-for-trade (gross) basis throughout the processing cycle. However, fund transfers occur on a net basis at the end of the processing cycle. Security transfers are made via book entry and are final; fund transfers are irreversible, but not final. Therefore, final transfer of securities precedes final transfer of funds (i.e. delivery precedes payment).

Book-Entry: 
Equity: 
In accordance to current regulations, shares are registered in the name of either the final beneficial owner (in case the beneficial owner has a segregated account at the DCV) or its local custodian on behalf of them. For foreign investors, the name for direct registration in its name will be the one registered with the Chilean authorities to invest through any of the mechanisms available. Currently, there is no central registrar and each issuing company maintains its own shareholder record, either directly or through service providers, one of which is the DCV. Registration occurs automatically upon settlement at the DCV for positions held therein.

For securities held in the depository environment, shares are registered with the issuing company in the name of the DCV. The DCV allows participants to open sub-accounts under the participant's master account to allow securities to be held in the name of the final beneficial owner. On a daily basis, at the end of the day, the DCV sends each company a shareholder list.

Fixed Income
For fixed income securities held within the depository environment, the DCV maintains the ownership records and provides reporting to the issuing company giving the breakdown of the final beneficial owners. Most fixed income securities and money market instruments are issued in bearer form, therefore there are no registration procedures. In case of registered debt securities, registration occurs simultaneously with transfer in the DCV books, but these are very rare.

Physical: 
Equity:
For physically held securities, local regulations state that the issuing company is required to effect registrations within 24 hours of the presentation of the transfer deed (traspaso)and physical share certificates. Ownership is transferred when the issuer updates its records. Shares may be traded during the registration process. Physical certificates can be issued upon request and are generally available within a period that varies from one week to three weeks. According to local law, issuing companies can reject traspasoswithin 24 hours of presentation only if the broker has insufficient shares to sell, or if there are any documentation discrepancies. Please see the Fails section for additional details.

In the event that the registrar rejects securities because they are forged or stolen, the buyer's recourse will depend whether the trade was executed on the exchange or directly with a counterpart. If traded on the exchange, the exchange will use the guarantees or other mechanisms to hold the broker delivering the fraudulent securities responsible. If traded directly between counterparts OTC, recourse will be limited to the normal legal system.

Fixed Income
Fixed income instruments in physical form are usually bearer instruments and do not require registration. Physical possession evidences ownership.

Currently, there is no central registrar and each issuing company maintains its own shareholder record, either directly or through service providers, one of which is a subsidiary of the DCV.

Equities held in the depository environment, are registered with the issuing company in the name of the DCV. The DCV allows participants to open sub-accounts under the participant's master account to allow securities to be held in the name of the final beneficial owner. On a daily basis, at the end of the day, the DCV sends each company a shareholder list. In the case of physically held equities, re-registration is performed by issuer after reception of a transfer deed locally known as “traspaso”, duly signed by counterparts and witnesses. Certificates are supposed to be issued on a next business day basis, but they are normally issued within three business days. Ownership is transferred when the issuer updates its records

For fixed income securities held within the depository environment, the DCV maintains the ownership records and provides reporting to the issuing company giving the breakdown of the final beneficial owners. Most fixed income securities and money market instruments are issued in bearer form; therefore there are no registration procedures. In case of registered debt securities, registration occurs simultaneously with transfer in the DCV books, but they are very rare. Fixed income instruments in physical form are usually bearer instruments and do not require registration.

Shareholdings in this market may be required to be disclosed by the beneficial owner, particularly when such shareholdings reach or exceed prescribed disclosure limits. Investors must ensure that they comply in full by reporting such holdings to the appropriate organisations for this market, within the timeframe required. If you have any questions regarding this issue we encourage you to consult your legal counsel. 

Failure to comply with the reporting requirements in this market may lead to penalties and / or other sanctions.

Article 12 of the Capital Market Law: Any person that directly or indirectly owns 10% or more of the subscribed capital of a corporation ("sociedad anónima") registered in the Securities Registrar or, any person that as a result of the acquisition of shares (including securities, derivatives and equity repos) reaches such percentage, plus the directors, liquidators, senior officers, chief executive officer and managers of such companies (regardless of the number of shares owned), must inform the SVS and each of the Exchanges, of all direct or indirect acquisitions of shares or sales effected, within one exchange day from the date of execution of any such transactions. Additionally, the majority shareholders must advise in their report if the purchase of shares is for the purpose of acquiring control over the corporation or if such purchase is for financial investments only.

Article 54: Every person that, directly or indirectly, has the intention to take over a company that executes a public offer of its shares, shall advise the general public in advance. A written communication must be sent to the company intended to be taken over; to the controller or to the companies which are controlled by the company to which the take over is intended; to the Superintendence of Securities and Insurance; and to the Stock Exchanges where its shares are traded. A prominent advertisement must also be published in two nationwide publication newspapers. The communication and publication must be done at least ten business days before the date that the take over of the corresponding company is intended to be executed, and as soon as the negotiations for the take over of the company have been initiated, by providing information and documentation of the company to be acquired.

The content of the communication and publication must be determined by the Superintendence through instructions of general application, and must contain at least the price and other primary conditions of the negotiation to be executed.

The breach of this article will not annul the operation, but it will grant the shareholders or interested third parties the right to ask for compensation for damages caused, besides the corresponding administrative sanctions. Likewise, operations that allow the taking over of a company that do not comply with the regulations of this Title could be considered, together, as an irregular operation for the purposes established in article 29 of the Decree Law N° 3,538, of 1980.

Article 54 A: Within two business days following the date in which the acts or contracts through which a company offers its shares to the public are executed, a notice must be published in the same newspaper as the original article. The notice must advise about the execution and the corresponding communication must be sent to the persons mentioned in the second subparagraph of Article 54.

Article 54 B: In the case of intention of take over through an offer regulated in title XXV of this Act, the regulations of this Title will be exclusively applicable.
Under Law 18.657, foreign investment funds cannot own more than 5% of the capital of a company or 10% of the portfolio. Disclosure must be made to the SVS within five days following the transaction.

There are no formal buy-in procedures however brokers are obligated to settle all trades executed on the stock exchanges.

As per new Resolution 150, securities lending is allowed for foreign investors.

Foreign investors are eligible to participate in securities lending and short selling through a local broker. Procedures of the BCS define securities lending as the operation by which any person who owns certain shares of stock or other financial assets (the "lender") lends such securities to another person (the "short-seller") in exchange for a premium (“prima”).

There are two types of securities lending:

- The Administrative Lending: intended to prevent a settlement failure

- Normal Lending: It is more likely to be used to cover a short selling (from the borrower side) or to get cash liquidity (from the lender side)

Both types of lending have the same rules and are governed by the short sales and securities lending manual issued by the BCS. It is important to note that the stock exchange acts only as an agent in the transaction not in a principal capacity.

The maximum term for these transactions is 360 days (Normal lending) or 3 exchange days (administrative lending).

Short-selling transactions (and therefore securities lending related to short sales) can only be executed with shares included in “List A” of the BCS and must be registered with, and settled through CCLV, the central counterparty of the BCS. In the case of administrative lending, any stock is eligible.

Likewise, procedures establish limits on the aggregate amount of short positions, as well as individual limits for each class or type of share deposited with the custody department as outlined above.

Loans are performed off-exchange between brokers/broker-dealers or between client and broker. The structure does not contemplate the existence of securities lending agents other than brokers. This is a requirement imposed by law to maintain CGT. Exchange fees for Short Sales are the same as the ones applied to regular transactions.

Taxes:

Normal lending: The capital gains of returned securities is not subject to CGT, provided that:

- The lent securities are shares with exchange presence and were obtained on exchange

- The shares are associated to a short sale

- The shares are returned within a year from the date of the lending

However, the prima and the capital variations of the asset are subject to a 35 per cent additional tax.

Administrative lending: Both the capital gains and the prima are subject to a 35 per cent additional tax.

Authorizations:

There is no specific authorization or license required by a non-resident investor, however a securities lending contract (“Condiciones Generales para el Préstamo de Acciones” or “Condiciones Generales para el Préstamo de Otros Activos Financieros”) must be signed between the investor (either as a lender or as a borrower) and the local broker. Additionally, assets do not need to be segregated in the local depositary in order to be lent.

Collateral:

The Short Seller has to secure its obligation with the lender with securities with an aggregate market value of at least 100 per cent of the market value of the securities being lent; there are special rules to determine the market value, either for shares and for other types of financial assets. The Short Seller will place such collateral with the Custody Department of the BCS in segregated sub-accounts in favor of the Lender as collateral within two exchange days from the date of transaction.

The collateral linked to securities lending transactions is posted in the Santiago Stock Exchange by the borrower broker; however please note that such collateral is not specifically linked to specific securities borrowed, but to all of the local broker’s obligations.

Margin calls can be done by BCS in case that the collateral is under the securities market value. Additional margin calls can be also done in case that there is a benefit payment (dividend, interest or other) exceeding the amount of the collateral placed in custody. Margin calls need to be fulfilled on a next exchange day basis.

Return:

The borrowing broker must return the same amount of shares of the same issuer and series or, in the case of other financial assets, the same amount of a similar species of securities.

Upon maturity, the borrowing broker must return all the economic benefits derived from the Shares, including dividends and other kinds of distributions, along with the fees, expressed as a monthly rate. These deliveries must be reported to BCS.

Custody and guarantees will be released the next exchange day after returns and deliveries are made and fees are paid.

Anticipated return:

Loans may be terminated upon request of any of the counterparties before their maturity, totally or partially. Lenders may oblige Borrowers to return shares and pay fees prorated by actual time.

Income collections and corporate actions during loans:

• Dividends and capital return: borrowing broker pays on issuer’s pay date.
• Bonus shares are delivered with lent shares upon maturity.
• Optional dividends, the lending broker must communicate the borrowing broker within the defined timeframe. Should the lender opt for cash, it would be paid on issuer’s payment date, otherwise, securities would be delivered upon maturity.
• Optional redemption, the lending broker must communicate the borrowing broker within the defined timeframe. Should the lender agree, it would be paid on issuer’s payment date, otherwise, funds would be paid upon maturity.
• Pre-emptive rights, the lending broker must communicate the borrowing broker within the first 15 days of the defined timeframe (validity of the option). Should the lender opt for subscription or sale, the rights must be transferred free of payment within three exchange days.
• Share exchanges, the borrowing broker must act and deliver upon maturity.
• Mergers and spin-offs, the borrowing broker must act and deliver upon maturity.

None

Our subcustodian complies with any and all policies of Anti-Money Laundering and Terrorism Finance prevention that have been defined at a corporate level. Furthermore, they comply with any and all local regulations on these matters, which, nowadays, complies with the relevant definitions of Basle and "GAFISUD".

This is an FII market. Please contact your RBC Investor & Treasury Services representative before making portfolio investments.

Foreign investment in the Chilean market must be registered under any one of the available mechanisms thereto: Decree Law 18,657, Chapter XIV or the Chapter XXVI (valid only for ADR programs that were outstanding as at April 2001) as well as Resolution N°150. All of them with the exception of Chapter XIV require prior approval from the relevant authority. Chapter XIV is the mechanism more widely used by direct portfolio investors in Chile.

The government has imposed several reforms in order to foster foreign portfolio investment, particularly in Chapter XIV as the main vehicle. The Decree Law 600 is not available for portfolio investments, while the tax benefits of Law 18,657 are less decisive vis-à-vis general capital gains exemptions and the unification of interest withholding tax at a lower rate, although it has maintained its five-year capital repatriation restriction.

Chapter XIV specifically deals with foreign credit to Chilean resident borrowers, foreign investment and foreign capital inflow. All inflows and outflows are informed to the Central Bank, but there are no prior approvals required to perform either operation. There are no portfolio diversification rules, no restrictions on repatriation time or any other specific restrictions placed on Chapter XIV investment. Informed foreign investment portfolios can be transferred to another foreign investor without prior approval of the Central Bank.

The Tax Authority has issued one regulation under which portfolio investors are exempted from the duties of keeping full accounting in the country. This regulation, namely Resolution No. 150, operates as complement of Chapter XIV. Resolution No. 150, permitting the investment in listed equities and fixed income, repos and permitted hedge instruments. The local custodian assigns the tax ID.

Previous approval must be obtained for the acquisition of controlling interest in media sector companies and land close to national borders. None of these businesses or assets is currently represented in exchange listings. Agency trading by foreign broker-dealers is not currently possible in the market. Transactions must be settled between the local broker and the foreign investor or the traded securities will lose any capital gains exemptions that they may have, as the delivery of shares from the broker-dealer to its client is deemed to be a transfer and an exchange trade is required. 

Investment Limits - under Resolution 36 an investor may hold directly or indirectly up to 10% or more of the capital or profits of the issuer company. 

According to new Res. 150, The limit of USD 500,000 investment imposed to investors domiciled in tax haven countries is no longer applicable,
provided that the final investor provides additional information to Tax Authority and commits to provide further information when required, related with its domicile or residence and the origin of the funds that finance its investments. This limit is neither applicable if Chile has celebrated an Agreement that allows the exchange of tax information to prevent and fight fraud, evasion and fiscal elusion with the country of origin of the investor

Chapter XIV: All inflows and outflows are registered with the Central Bank however there are no prior approvals required to perform either operation. Registered foreign investment portfolios can be transferred to another foreign investor without prior approval of the Central Bank. 

Chapter XXVI: Still valid but only for ADR programs that were outstanding as of April 2001. All investments made through this vehicle must be registered with the Central Bank through the local agent and repatriations arising from DR cancellations require prior approval from the BCCh. 

Law 18.657: The investor must create a Chilean Foreign Capital Investment Fund (FIF) through which they can invest in publicly offered securities and a limited percentage of non-listed stocks. Foreign investors must appoint a local administrator to represent them. There is a minimum investment of USD1 million in the first year of operations. The FIF must have at least 60% of its investment capital held in listed equities by the end of the third year. Holdings of a single issuer must not exceed 10% of the total value of the FIF or represent 5% of an issuer's total capital. No more than 10% of the FIF's portfolio can be comprised of non-listed securities.

Chapter XIV: No restrictions on repatriation. 

Chapter XXVI: Prior approval is required from the BCCh, however this is usually obtained within three business days. 

Law 18.657: A five year investment period is required during which the investment capital entering the country cannot be repatriated. There is no restriction on the repatriation of interest or capital gains.

Foreign investors must obtain prior approval before investing foreign currency in the Chilean market. Foreign exchange transactions must be registered with the BCCh in order to secure remittance of income and repatriation of capital.

As per Res. 150, foreign exchange transactions must be performed with operators of theformal exchange market. The formal foreign exchange market (FEM), is intended for foreign loans, international trade, investment inflows and remittances, among others. The FEM is regulated by the Banco Central de Chile (BCCh), the Central Bank of Chile, and operated by banks as well as those registered exchange houses, brokers and OTC dealers.

With the exception of Chapter XIV, which is currently the standard vehicle for portfolio investment, foreign investors must obtain prior approval before investing in the Chilean market. Foreign exchange regulations require investors to execute their transactions in the FEM. Foreign exchange transactions must be informed to the BCCh by the entity executing them.

The market deadline for the execution of spot and forward foreign exchange transactions is 13:00, local time. Spot transactions are those that have a value date of T+0, T+1 and T+2. 

As per local regulation, Foreign Investors cannot speculate with the local currency, therefore, an FX shall be associated to securities transactions.

The system structure for high-value payments in Chile can be summarised as follows:

• LBTR, inter-bank RTGS payment system handling proprietary and client payments. It allows all other payment facilities, including the High-Value Netting Clearinghouse, to settle their balances and is also directly integrated to the DVP Switch.
• AIPACSystem, operating the High-Value Netting Clearinghouse (the “ACH”) operated by COMBANC (owned by most of the banks operating in Chile). It operates as a deferred net settlement clearinghouse, complies with the so-called Lamfalussycriteria and has a loss-sharing agreement among participants.
• DVP Switch, a routing facility within AIPAC operated by COMBANC, based on SWIFT messaging and a control interface for electronic securities settlement between the DCV, and either LBTR or COMBANC ACH. DCV, the CDS, interconnects via SWIFT messaging to the “DVP Switch”.

Clearing methods and systems are different for high-value and low-value payments, with a threshold of CLP50 million.

High-value payments follow the same process as used for securities trade settlement using LBTR, the RTGS payment system of the Central Bank, and AIPAC, the deferred net clearing facility run by COMBANC. Both systems process electronic funds transfers. Cashier's cheques are no longer a practice for high-value payments, while regular cheques may be used for general purpose payments. Payments are final at the moment they are confirmed by the clearing facility to the participating banks.

Cheque clearing is supervised by the Central Bank and is officially the responsibility of the Banking Association (all licensed banks are members). Cheque clearing is managed through a special legal entity called SINACOFI, however the physical interchange of documents is actually conducted by a member bank appointed by the Banking Association each month. The Central Bank has no other role than participating in the settlement.

Low-value payments can be performed through cheques of all kinds and through a special purpose clearinghouse, the CCA (Centro de Compensación Automatizado -Automated Clearing Center). CCA is a privately held, for-profit corporation providing low-value clearing and is owned by three local banks (Banco de Chile, Banco de Crédito e Inversiones and Banco Santander). The SBIF and Banking Association regulate the CCA, which is not a central counterparty and does not guarantee the settlement of transactions. CCA compensates via LBTR.

Foreign investors under the provisions of Law 18,657, Resolution N°150 or Chapter XXVI are not allowed to have any type of indebtedness in Chile, therefore no overdraft facilities are, or can be, made available. Should such an account be short of funds, any purchase of securities will fail. 

In the case of investors using Chapter XIV, no local currency credit extension is allowed, although the usage of foreign exchange related settlement lines is permitted.

Chilean rules state that corporate announcements must be made 15 days prior to the event record date. Normally RD -15.

Announcement Method: dividends are reported by the issuer companies to Stock Exchanges, normally with at least one-month anticipation. Issuer companies also advise dividend payments through the media.

Record Date: record date is five business days before pay date.
Ex Date: not applicable in the Chilean market
Pay Date: pay date is five days after record date.

Entitlement: securities bought on or before record date will be entitled. Issuer companies compute entitlements on the base of registered shareholders as of record date. For any securities not registered on record date but bought on or before such date, payment of the dividend is obtained through claims to the brokers involved in such purchases (remember that settlement period in Chile for equities is T+2).

Distribution: companies pay dividends directly or through local banks. Payment is effected normally either through cheques or DDA credits.

Payment Availability: proceeds availability will ultimately depend on payment documentation (depending if cheques received were issued on the same or a different clearing area than the clearing area where the cash account of the investor is located). Cheques may have one to three clearing days; however, majority of cheque payments related to dividends are done on the basis of the Santiago clearing area, and thus subject to one day clearing period.

Dividends are usually paid annually, semi-annually or quarterly.

Bond interest is usually paid quarterly, semi-annually or annually.

There is no market standard on accrual of interest, namely 360 or 365 days basis, and it depends on the particular issue.

The most common corporate actions are rights and dividends issuance. Corporate actions are advised by the company to the stock exchange, which in turn publishes them in its daily report, Boletín Diario de la Bolsa de Comercio de Santiago, which is the official source of corporate action information and companies are required to publish corporate action information in the Boletín. In the case of shareholder meetings, dividend payments, and certain other events, shareholders are also advised by means of direct letters sent by the issuers and by publications in the newspapers.

Entitlement is based on traded positions as of record date but only paid on based on settled, registered positions. No predefined claims policy.

None for shares with voting rights

No

Qualified cases only.

On request in Spanish only.

Physical attendance is required therefore the local agent or other designate must have a power of attorney specifically granting them the right to represent the shareholder. Res. 43, 5,412,128 and 36 were terminated and unified under Res. 150. Under the latter, the account at the DCV is registered under the local agents nominee name, a power of attorney is not necessary, unless the investor chooses to open an account at the DCV under their own name.

Only the appointed legal representative can exercise voting rights.

Entitlement to vote is determined by the settled, registered position as of record date. Shares are not blocked during shareholder meetings.

Split voting is only permitted at the omnibus account level at the CSD, each underlying investor is identified. Split or partial voting is not permitted with the exception of the election of board members.

By local law proxy cards are not used in the market, physical attendance is required at the meeting to vote.

Banco de Chile will no longer withhold the difference between the tax amount retained by the issuer and the full 35 percent statutory tax rate. Investors will now receive dividends net of tax as paid by the issuer on pay date taking into consideration the provisional tax rate informed on payment date.

Please refer to CHILSW00523 dated 24 March 2023.

Local companies are subject to a corporate tax ("first category"). Dividends are paid by the issuer net of this tax where foreign investors are able to offset the first category tax rate that has already been paid by the issuer against the 35 percent statutory tax rate applicable on dividends.

Investors domiciled in a country that celebrates a Double Taxation Avoidance Treaty (DTAT) with Chile can have 100 percent of the FCTC applied against the WHT on dividends paid to them.

Those investors from other countries can only have 65 percent of the credit applied. For those purposes, Banco de Chile requires a Certificate of residence that states the Tax residency of the final beneficiary, so that a correct tax rate can be applied.

It is also important to know that, as off 2020 all dividends are considered “provisional dividends” by local law,until the issuer undertakes his tax filing at the end of the business year.

Withholding tax on interest over fixed income instruments, is calculated and withheld by the issuer company in all those cases when the fixed instrument contract stipulate that condition, in the rest of the cases the applicable tax shall be calculated based on the accrued interest and withheld by the tax agent (Banco de Chile).

Custody fee invoices are normally tax exempt for non-domiciled, non-resident investors; kindly note this definition excludes permanent establishments of foreign entities in the market.

10% withholding tax when entering through Law 18.657; otherwise the rate is 4%.

Upon a sale, Banco de Chile will calculate and withhold the applicable tax on the accrued interest period while the bond was held by the investor and pay to the Tax Authority immediately with no need to adjust by inflation at year end.

There are special regimes in terms of Capital Gains Tax exemption in Chile, known as Articles 104 and 107 of the Income Tax Law for fixed income securities and shares/fund shares respectively.

Article 104 provides CGT exemption for fixed income securities provided the following conditions are met:

• Government Bonds will be exempt from capital gains tax, regardless of the trading system or venue.
• Corporate Bonds that comply with Article 104, shall be eligible for capital gains tax exemption provided that they are:

(1) Traded in a continuous auction system

(2) These securities must avail of exemption under Art 104 in the issuance contract, where a mechanism to define the “Tasa Fiscal” (Fiscal Rate) in accordance to the law must be established.Article 107 previously covered the general Capital Gains Tax exemption for all investors.

However in February 2022 article 107 was modified, so that the CGT exemption was removed for non- institutional investors, and was replaced by a single tax rate of 10% on the capital gain. Should the cost base of the share be unable to be determined by the broker, then a provisional retention of 1 percent of the sale proceeds can be applied.

Institutional investors will continue to be exempt of this tax if they meet the definition as outlined in Article 4 bis of Law 18.045, being that they are a bank, financial company, insurance company, national reinsurance entity or fund manager authorized by law and regulated by an entity similar to the CMF.

Covered Securities are:

• Shares of stock and listed investment funds complying with exchange presence conditions; and
• Mutual and investment funds that comply with certain conditions.

An exemption regime is available for capital gains produced in the sale of actively traded stock provided that the following requirements established by Article N° 107 are met:

1. a) The seller must have acquired the shares:

(i) on a Chilean stock exchange authorized by the CMF; or

(ii) pursuant to a regulated tender offer carried out according to Title XXV of the Chilean Securities Market Law; or

(iii) at the time of incorporation of the corporation or pursuant to a capital increase; or

(iv) pursuant to the exchange of public traded securities convertible in shares (in this case the acquisition cost of the shares corresponds to the exchange price); or

(v) in a redemption of securities from mutual funds;

In regards to shares acquired in a capital increase process (as mentioned in (iii) above) before the company was publicly listed, only the greatest amount between the portion which exceeds the price of the offering on the stock exchange (closing price on the first day of transactions for the BCS) and the book value on the prior day will be exempted.

1. b) The shares must be sold:

(i) on a stock exchange authorized by the CMF;

(ii) pursuant to a regulated tender offer; or

(iii) in a contribution of securities on mutual funds; and in the event that a security loses its exchange presence, the Bolsa de Comercio de Santiago will publish this information in their daily bulletin.

Investors will have 90 calendar days to sell the position maintaining the CGT exemption.

If the security remains without exchange presence after this date, the CGT exemption benefit is lost. In order to calculate the capital gains due, regardless of what the selling price is, inflation is applied to the original buying price from the month prior to purchasing the shares until the month prior to selling the shares. In the event that the security regains its market presence, this will also be reflected in the bulletin and CGT exemption will be applicable again from this date. Exchange presence of securities is determined by the following:

1. A) Requirements:

Securities shall be considered to have exchange presence, if at the time of trading they meet the following requirements:

1. Be registered at the CMF;
2. Be registered in a securities exchange in Chile, and III. Comply with at least one of the following requirements: a) Have an ‘adjusted presence’ set at least at 25 percent, b) Have a contract with a ‘market maker’ for less than a year
3. B) Adjusted presence:

The presence of a security set for a given day is calculated as follows:

1. Total number of days the security has traded above the equivalent in CLP of 1,000 UF (App. USD 41,000), within the last 180 trading days preceding the trade date
2. This number is divided by 180, and the resulting number will be multiplied by 100, being expressed in percentage. Consequently, for a security to have exchange presence, they must have had daily transactions on the securities exchange of UF 1,000 or more for at least 45 of 180 trading days.
3. C) Market maker:

A security will have a recognized "Market Maker", to the extent that the issuer of the respective security has signed a contract with at least one broker that meets the following conditions:

The contract complies with the format and minimum content as established by the stock exchange rules for the service of "Market Maker";

The contract has a minimum duration of 180 days;

It will be mandatory for the broker to operate as Market Maker to have an active daily order of a buy and sell for an amount equal to or greater than 500 UF. The sum of the buy must always be at least 1,000 UF. Price differences between the two trades may not exceed 3 per cent of the purchase price. The offer shall be valid within the market trading hours or until they have completed transactions for an amount equal to or greater than 1,000 UF in the market on that corresponding day;

1. Termination of the market making contract must be informed to the investors through the securities exchange with at least 30 days’ notice.

In order to provide information to investors, the securities exchange maintains on its website an updated list of securities that have a market maker, indicating the brokers acting in that capacity for each security, start date and end of contract for the market maker.

For investors domiciled in the United States, some taxes paid in Chile can normally be used as credit for U.S. taxes.

For additional information on tax treaties, including capital gains, please contact your Local Custodian.

New Exempt Resolution No. 150 of the SII was published on the Tax Authority’s website on 10 December 2020. Like Resolution 11, this new Resolution continues to require investors who wish to be granted DTAT or FCTC benefits to lodge a CoR with the market and for this document to be issued by a competent tax authority in their country of tax residence. The tax agent must receive the original CoR and distribute it to the involved parties (issuers or other responsible agents) through physical or electronic means in order to certify the investor’s residency. The certificate may be used by the withholding agent to prove the investor’s country of residence for the purpose of obtaining 100 percent benefit of the first category tax credit on dividends and to apply DTAT benefits. However, it remains up to the individual issuer (as withholding agent) as to whether the FCTC benefit is applied.

Additionally, it is worth noting that CoRs in digital format are subject to the Authority´s approval on a country to country basis.

The stamp duty’s rate is 0.033 per cent per month or fraction of a month with a maximum of 0.4 per cent for year term. The market practice is that the issuer or debtor pays this tax. Because foreign investors use Resolution 150 as an entry mechanism to the Chilean Market, none of the instruments available to them are subject to Stamp Duties. Fees for all local services are subject to a 19 per cent value-added tax, although custody services provided to non-resident entities are not subject to such value-added tax.

Generally, foreign investors in Chile are subject to a 35 percent withholding tax on dividends and other/adhoc income.

Banco de Chile will no longer withhold the difference between the tax amount retained by the issuer and the full 35 percent statutory tax rate. Investors will now receive dividends net of tax as paid by the issuer on pay date taking into consideration the provisional tax rate informed on payment date.

Please refer to CHILSW00523 dated 24 March 2023.

Local companies are subject to a corporate tax ("first category"). Dividends are paid by the issuer net of this tax where foreign investors are able to offset the first category tax rate that has already been paid by the issuer against the 35 percent statutory tax rate applicable on dividends.

Investors domiciled in a country that celebrates a Double Taxation Avoidance Treaty (DTAT) with Chile can have 100 percent of the FCTC applied against the WHT on dividends paid to them.

Those investors from other countries can only have 65 percent of the credit applied. For those purposes, Banco de Chile requires a Certificate of residence that states the Tax residency of the final beneficiary, so that a correct tax rate can be applied.

It is also important to know that, as off 2020 all dividends are considered “provisional dividends” by local law,until the issuer undertakes his tax filing at the end of the business year.

Withholding tax on interest over fixed income instruments, is calculated and withheld by the issuer company in all those cases when the fixed instrument contract stipulate that condition, in the rest of the cases the applicable tax shall be calculated based on the accrued interest and withheld by the tax agent (Banco de Chile).

Custody fee invoices are normally tax exempt for non-domiciled, non-resident investors; kindly note this definition excludes permanent establishments of foreign entities in the market.

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