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Market Update ASLF 2016 Raphael Coutinho Colombia Direct Custody and Clearing Head Country Hot Topic Peace Process • The peace process is scheduled to be signed by March 26, 2016 and will be subject to a popular vote • The government should send a tax reform bill to Congress with the goal of looking for resources to finance the deal. Current Balance Account • The government is focusing its efforts to reduce the current balance account deficit. ISAGEN privatization Increasing FDI flows for 4G projects Refinery of Cartagena Current Account Balance (% of GDP) 2.0 1.1 0.0 -1.0 Continuous inflows of portfolio investments -2.0 Fiscal expenses reduction -4.0 -1.2 -3.0 -5.0 -6.0 -7.0 • On the fiscal side, a comprehensive tax reform should be presented to congress. 0.7 1.0 -1.4 -0.9 -0.7 -1.3 -1.8 -2.9 -4.1 -4.6 -2.7 -2.0 -3.0 -2.9 -3.1 -3.3 -4.2 -5.0 -5.2 -6.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Macroeconomic Overview 4th Largest economy in Latin America Equities Market 6% CAGR 05-15 6th Largest Fixed Income market in the world 3rd Derivatives Market in Latin America 36% CAGR 05-15 Foreign Portfolio Investment 13% CAGR 10-15: GDP 9% CAGR 05-14 FX Market 7% CAGR 05-15 Market Capitalization 9% CAGR 05-15 4th most business- friendly country according to the Ease of Doing Business Investment Grade Since 2011 Source: WFE, World Bank, BVC, Colombian Central Bank Capital Market Government Bonds Holders Distribution by Investor Type Holder distribution on Gov Bonds 5% 14% Equity Market Vol. Distribution by Investor Type 20% 15% 6% 1%5% 15% Retail Investors Insurance Companies Brokerage Firms Financial Sector Manufacture 17% 18% Pension Funds 32% Pension Funds Foreign Investors Mutual Funds Foreign Investors 28% 12% Public Trust Others 12% ADR Programs Derivatives FX Market As of December 2015 the traded volume was COP 121 Trillion and the equivalent in USD approx.. 40 BN. In the FX market, the average daily volume traded as of December 2015 was USD 942 MM. 300 140 121 250 234 247 257 220 120 100 87 80 60 40 45 84 219 222 228 2013 2014 2015 200 95 150 64 53 200 100 31 50 20 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2008 2009 2010 Source: Colombia Stock Exchange, * Value as of July 2015. Billion (BN) , million (MM), and per cent (%)., Minister of Finance reports 2011 2012 Recent Market Developments Initiative Summary Custody Project CCP for Equities Transactions Client Benefit Direct participation of the local custodian in the clearing and settlement process. The intent is to when settling equity transactions eliminate the need of a dual settlement process. Implemented 3Q 2015. and financial). Possibility of netting cash on the investors level Reduce settlement related risks (operational Reduction of counterpart risk Netting allowance Market efficiency introduced new securities lending regulations, Clearer rules aimed at harmonizing it with international standards. Stronger collateral requirements Issuers will adopt international standards on Creation of a Central Counterparty to Clear and Settle equity transactions The government and the Stock Exchange Securities Lending Regulations Citi has the obligation to perform enhanced Common Reporting Standard due diligence on all new and incremental safekeeping accounts as a result of CRS financial statements Increased transparency for foreign investors Service Update Automated Tax Calculation Initiative Summary Client Benefit Complete automation of the fixed income withholding tax calculation processes on profit from sales, coupon and interest payments and monthly tax calculation and report. Implemented in 3Q 2015. Increase efficiencies by eliminating manual intervention. MT547 messages to include tax information (rate and amount) Cash Automation Accounts in the Name of Individuals Implementation of tax relief process for fixed income instruments to apply reduced tax rates defined in Double Taxation Treaties signed by Colombia. Full automation of the settlements process with DECEVAL. Citi’s systems automatically check cash and securities availability, and settle the transactions. Extension of our product offering to allow global custodians to open accounts for individuals interested in participating in the Colombian capital market. Implemented in 3Q 2015. Implemented in 2Q 2015. Implemented in 2Q 2015. Relief at source Increase FX Straight Through Processing (STP), no manual intervention Minimize operational risk Increase flexibility for client to book an FX regardless of the transaction’ status Double Taxation Treaties Application Possibility for our clients to attract new potential relationships Service Update FX Single Pipe Initiative Summary Ability for client to instruct auto FX via field 11A. MT300 confirmations will be automatically created and released with time stamps.. Target date: 1Q 2016 Client Benefit Increase FX Straight Through Processing (STP), no manual intervention Minimize operational risk Increase flexibility for client to book an FX regardless of the transaction’ status Account Opening Enhancements Implementation of account opening process status, by releasing automated messages to maintain our clients updated on the progress of the account opening. Target date: 1Q 2016 Clients will be able to track their instructions and the status on account opening requests Improve communication by generating automatic messages to keep clients up to date on the account opening status Shadow Posting and Clearing Transfers Between Accounts of Same Final Beneficiary Improve our product offering by allowing the control and report of lent positions and securities posted as collateral. Ability for investors to transfer positions and cash between accounts under the same tax id. Target date: 2Q 2016. Target date: 3Q 2016 Investors will be able to track the lent and collateral positions under its portfolio. Allow clients to perform transfers between accounts Forthcoming Initiatives / Market Advocacy Summary Foreign Investment Decree Proxy Enhancements Omnibus Cash Accounts Autoclaims Withholding Agent for Equities Expected the new decree to be published. • Recognition of the local custodians in the foreign investment chain Target date: 1Q 2016 Client Benefit Simplification of FX regulation Revamp the entire proxy voting process. Target date: 2Q 2016 Enhance client experience Deliver confirmation that voting instruction was executed Lobbying efforts with the government to allow omnibus cash account structure per global custodian. Target date: 2Q 2016 Citibank Colombia will be able to extend overdraft facilities to global custodians Implementation of a proactive auto-claim process for our clients. Target date: 3Q 2016 Lobbying efforts with the Ministry of Finance to become the withholding agent for equities payments. Target date: TBD Expedite claim resolution Ability to apply reduced withholding tax rates, in accordance with DTTs signed by Colombia Disclaimer IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the "promotion or marketing" of any transaction contemplated hereby ("Transaction"). Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor. 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