Linkage schemes are essential for foreign portfolio investments in the Colombian securities market. 

Foreign portfolio investors interested in investing in a specific security in Colombia can learn about the different products of the securities market through several mechanisms. It can be through issuers, local broker dealers or local custodians who carry out international events or investment rounds or it can be through global custodians or international brokers who recommend investment strategies in our market. 

In the linking process, two main mechanisms were identified through which foreign portfolio investors are linked to the entities of their choice to subsequently make portfolio investments in the Colombian securities market:

1. Indirect linkage through international brokers and global custodians. 

In this linkage scheme, the operations of foreign portfolio investors are channeled through international brokers to the local market.

In addition, the characteristics of the operation are reported through the global custodian.

Therefore, those who establish the contractual relationship with the local broker dealer through the commission contract are the international brokers and those who establish the contractual relationship with the local custodians through the sub-custody contract are the global custodians.

2. Direct linkage to a local broker dealer (through a commission agreement) or a trust company (through the opening of a trust contract or fiduciary assignment), or a local securities custodian (through a securities custody agreement).

In direct linkage, the foreign portfolio investor establishes its contractual relationship directly with a local broker dealer, local custodian or trust company and, through these, makes its investments in the Colombian securities market. In this process, the foreign portfolio investor may not be interested in some of the services offered in the value chain, so it has the freedom to decide on the services it will take, for example, it can perform the execution of the operations by the local broker dealer and the securities custody activity and delegate the attorney-in-fact service to a securities custodian.

In the case of direct linkage to a local broker dealer, it carries out the activities corresponding to the linkage and execution of the operations directly instructed by the foreign portfolio investor without requiring the intermediation of an international broker. However, if said entity does not provide the attorney-in-fact service, the foreign portfolio investor must be additionally linked to any of the entities authorized to provide these services (local broker dealer, trust company or securities custodian), on the understanding that for foreign portfolio investment, the attorney-in-fact is mandatory.
 

In general terms, the bonding process, regardless of whether it is direct or indirect, consists of:

1. To receive the necessary documentation for the knowledge of the client and execution of the contract:
   
   In the case of indirect linkage, the client of the local custodian is the international custodian and the clients of the local broker dealer are the international broker, the foreign portfolio investor clients of the international broker and the global custodian, who are referred to for operational and tax purposes as users.
   
   The foreign portfolio investor does not have a direct operational relationship with local entities, as customer due diligence is performed by foreign intermediaries; however, it remains the legal holder of the investment and subject to applicable tax and foreign exchange obligations in Colombia.
   
   However, when it comes to direct linkage, the knowledge of the customer is made by the local entity (trust company or local broker dealer) with the information provided by the foreign portfolio investor who is directly its customer.
   
    
2. Registration in the Single Tax Registry (RUT in Spanish), through which the Tax Identification Number (NIT in Spanish) is assigned:

   
   In the case of the Single Tax Registry, as a general rule, the attorney-in-fact acts as the legal representative of the foreign portfolio investor before the Colombian Tax and Customs Authority (DIAN in Spanish) and is responsible for carrying out the RUT registration and update procedures, and it carries out the necessary procedures such as obtaining the appointment and sending the documentation. In the case of direct linkage through a trust company or a local broker dealer, these are the entities in charge of processing the RUT when they act as attorneys-in-fact.
   
   However, in the event that the foreign portfolio investor has already made investments in the country previously and therefore has a RUT previously, the attorney-in-fact of the respective investment must update its status with the DIAN in this document.

   It should be noted that an the foreign portfolio investor can legally have a different attorney-in-fact for each investment and when a new one requires the RUT of an the foreign portfolio investor, in practice, coordination with existing attorneys-in-fact may be required to update the RUT information, depending on market procedures. There is also an agreement among local custodians to share this type of information and decisions to update and cancel foreign portfolio investors' information.

3. Opening of a bank account and a clearing and settlement account in centralized securities depositories:
   
   The opening of these accounts, as a general rule, is the responsibility of the foreign portfolio investor attorney-in-fact. In the case of bank accounts, these accounts may qualify for exemption from the Financial Transactions Tax (GMF in Spanish), subject to compliance with the applicable legal requirements.
   
   In the case of direct linkage, through a fiduciary assignment in a trust company or through a local broker dealer, if they act as attorneys-in-fact, they would open the money and securities accounts.

4. Creation of internal systems accounts:
   
   Once the Tax Identification Number (NIT) is available and the bank and clearing and settlement accounts are created in the securities depository, these are linked to the internal systems, so that from there, the foreign portfolio investor can operationally make its investment.
   
   However, it should be clarified that in both direct and indirect linkages, it is necessary to have the information of each of the foreign portfolio investors, whether they are customers or users, to make the investment in Colombia. The foregoing, considering that the Colombian securities market operates under a beneficial ownership framework, where the foreign portfolio investor is identified as the ultimate beneficial owner of the investment and the foreign portfolio investor is the one who is obliged to comply with the tax and foreign exchange obligations that apply to it, despite the fact that it complies with them through its attorney-in-fact.