Clearing and Settlement with a Local Securities Custodian

Once the transaction has been executed by the local broker dealer, acting upon the instructions of the International Broker, the foreign portfolio investor contacts its global custodian and provides the details of the executed transaction as received from the local broker dealer. The global custodian then forwards this information to the local custodian for settlement and compliance purposes.

The timing of the transmission of this information is relevant, as it determines whether the local broker dealer can settle the transaction using the investor's funds rather than its own resources on the settlement date.

Upon receiving the transaction information from the global custodian, the local custodian -without prior knowledge of the local broker dealer through which the foreign portfolio investor executed the transaction- initiates the process of identifying the relevant brokerage company. Once identified, the parties exchange the transaction details by telephone or through their internal platforms so that the transaction executed on behalf of an foreign portfolio investor can be duly recognized. Where a prior consistency between instructions is identified, a "pre- match" of the transaction is made, in accordance with market practice.

Subsequently, the local custodian informs the global custodian of the successful matching of instructions with its Colombian counterparty and the confirmed settlement amount, so that the global custodian may remit the required funds prior to or on the settlement date, in a currency acceptable in the Colombian market, typically U.S. dollars or euros.

The need for these funds is communicated to the foreign portfolio investor, who transfers the resources to the global custodian. Alternatively, where the global custodian has agreed credit facilities with the foreign portfolio investor or maintains sufficient cash balances, the investor may instruct the global custodian to send of the funds to Colombia in the aforementioned currencies.

In cases where the foreign investment is executed under a local custody arrangement with direct linkage, notifications are made directly to the foreign portfolio investor rather than the global custodian.

Clearing and Settlement under Direct Linkage with a Trust Company or Brokerage Firm

In cases where the foreign investment is executed under a trust agreement or a commission agreement, the trust company or the local broker dealer carries out the clearing and settlement processes through the relevant market infrastructure and systems.

In the case of trust companies, it has been observed that the volume of transactions they process is relatively low compared to that of securities custodians. As a result, the verification of the information relating to both investor and the counterparty is conducted on an individual, transaction-by-transaction basis. 

Clearing, Settlement and FX for Divestment

When a foreign portfolio investor decides to repatriate its funds, such funds are held in Colombian pesos (COP), therefore, the foreign portfolio investor must instruct its portfolio manager to purchase the relevant foreign currency (e.g., U.S. dollars, euros.). For this purpose, the foreign portfolio investor may contact the foreign exchange market intermediary (IMC in Spanish) of its choice, which may be a bank within its financial group, to negotiate the amount and exchange rate, or may delegate this negotiation to its portfolio administrator.

In this case, the funds in COP are held in the bank account designated for clearing and settlement for the investor, and the IMC proceeds to debit such funds in order to transfer them to the foreign account designated by the foreign portfolio investor.

The portfolio administrator must submit the corresponding foreign exchange declaration to the Central Bank, indicating the description of the transaction as divestment.