PROPOSALS BY THE AD HOC COMMITTEE: UPGRADES ON EQUITY MARKETS REGULATION

Transcription

1 PROPOSALS BY THE AD HOC COMMITTEE: UPGRADES ON EQUITY MARKETS REGULATION February

2 Contents 1 INTRODUCTION SUMMARY OF PROPOSALS DETAILED PROPOSAL DESCRIPTIONS CLOSING PRICE, CLOSING AUCTION, ORDERS AT CLOSING PRICES Calculating Closing Prices for Liquid Instruments Calculating Closing Prices for Low Liquidity Instruments Closing Auction Closing Price Orders Exclusive Trading at the Closing Price Dissemination of Theoretical Adjudication Price, Quantity and Imbalance PLACING ORDERS WITH PAYABLE TODAY (T+0) AND PAYABLE TOMORROW (T+1) CONDITIONS APPLICABLE ONLY FOR CHILEAN BROKERAGE HOUSES Changes in Trading Systems and Order Routing MATCHING COMPATIBLE ORDERS FROM THE SAME BROKER Eliminating Direct Orders (OD) Changes in Trading Systems and Order Routing AUTOMATIC TRADING HALT DUE TO CHANGES IN PRICES AND AUCTION AND VOLATILITY Changes in Trading Systems and Order Routing ANONYMOUS OFFER (BLIND SCREEN) Changes to Trading Systems and Market Data TRADING LOW-LIQUIDITY INSTRUMENTS Flow to Trade Low-Liquidity Instruments AMENDMENTS TO TRADING USING AUCTIONS Bid Dissemination for Auctioneer and Electronic Auctions and Adjudication of the Order Book Minimum Amounts and Bid Validity in the System to Adjudicate the Order Book Refining Auctioneer Auction Procedures Refining Electronic Auction Procedures TERMINATE OPEN OUTCRY ON THE TRADING FLOOR

3 1 INTRODUCTION This document contains several initiatives aimed at refining the market from the perspective of Equities Markets order placing and trading at the. It has been prepared by an Ad Hoc Committee composed of Directors in 2014 and has inputs and comments received in a Public Consultation from all market participants at the. This process was complemented by ongoing communication with the Chilean Capital Markets Regulator (former SVS Superintendencia de Valores y Seguros) from the day that the proposal was submitted by the, as well as by inputs collected by the Ibero American Federation of Exchanges (FIAB) Guidelines for liquid and non-liquid Equity Markets, published in 2016, which aims at standardizing trading on exchanges across the region, in accordance with the highest international standards. The objectives of these proposals are to increase liquidity, therefore concentrating most orders under the same trading modality and settlement cycles, refine the market price discovery, and encourage order placement. The proposed amendments adopt most of the market standards of Europe, North America and the main Latin American markets, while recognizing certain characteristics that are unique to the Chilean market, such as significant orders requiring dissemination that enables market interference and price discovery. The benefits of adopting international standards include promoting liquidity, since most orders under the same trading modality; price discovery as they encourage independent order placement and prevent free riders waiting for a counter order to match; the use of automatic order placement systems (Algo Trading and Program Trading) and Direct Market Access (DMA) that are increasingly important in our market, since they are designed to operate in an automatic matching (not in auctions). 3

4 2 SUMMARY OF PROPOSALS The market refinement amendments are as follows. 1. Establish a new mechanism to calculate the closing price. 2. Establish a closing auction to define closing market prices. 3. Establish a mechanism to execute transactions at the closing price. 4. New limits under Payable Today (T+0) and Payable Tomorrow (T+1) settlement conditions. 5. Allow same-broker compatible buy and sell orders to be matched. 6. Define an automatic trading halt and trading resumption model using a volatility auction when predefined price ranges are exceeded. 7. Create an anonymous market (blind screen), where the brokers participating in buy and sell orders are not identified. 8. Establish a mechanism to trade low liquidity stocks. 9. Redefine the dissemination deadlines and limits to amounts and numbers of shares for electronic, auctioneer and order book auctions. 10. Establish a mechanism to control competitive bids at auctions. 11. Refine the procedures for special auctions by only allowing bids to be placed under specific conditions. 12. Refine the procedures for electronic auctions by amending their trading hours, the duration of each auction, and allowing auctions to be extended. 13. Terminate open outcry on the trading floor. 4

5 3 DETAILED PROPOSAL DESCRIPTIONS 3.1 CLOSING PRICE, CLOSING AUCTION, ORDERS AT CLOSING PRICES Transactions at the closing market price are required mainly by international funds that value their assets at the closing price for each instrument, and require no variation between the valuation of their buy/sell transactions and the valuation of their assets. Statistical analysis revealed that in the last 30 minutes before the market closes transactions come to a peak when compared to the daily total, which can be explained by the large number of market operators that require and expect to execute transactions at a price close or equal to the closing price. The tools presented in this section enable investors to execute such transactions at the closing price, as three types of orders are available. Firstly, by placing Limit Orders that indicate the maximum or minimum price at which they are willing to buy or sell, respectively. Secondly, by placing market orders that maximize the possibility of winning the auction. Finally, by placing Closing Price Orders (CPO) with no price specified, as they will not form part of the process that calculates the closing price, but are placed at the price determined by the auction. Furthermore, a more robust mechanism to calculate stock market closing prices has been developed, which uses a closing auction. This new mechanism incorporates a demanding limit with respect to the minimum amount required to set closing prices. This limit has increased from UF to UF 1, Calculating Closing Prices for Liquid Instruments The following criteria will be used to calculate closing prices for liquid instruments. 1. It will be the price assigned to the resulting transactions for bids using the closing auction price, which is the unique value arising from this trading mechanism, provided that the sum of all these transactions for the same instrument is at least UF 1, UF Unidad de Fomento: currency unit indexed according to inflation. This index is calculated on a monthly basis effective on the 10th day of the current month until the 9th day of the following month, with the value of the UF adjusted daily. 5

6 2. If there are no transactions that can be used to set the closing price under these terms, any CPO transactions will be eliminated, and the closing price shall be calculated as the weighted average of transaction prices from the closing auction and the last 20 minutes prior to the start of the closing auction, provided that these transactions add up to at least UF 1, If there are insufficient transactions during that period that meet the requirements to set the closing price, the price of the instrument will be defined using the weighted average price of the last normal spot transactions for the day that total UF 1, If these conditions have not been met, it will be the weighted average price of the last normal spot transactions for the day that total UF Finally, if these conditions have not been met, it will be the previous day's closing price, and its condition will be nominal Calculating Closing Prices for Low Liquidity Instruments The following criteria will be used to calculate closing prices for low liquidity instruments. 1. It will be the unique price for the last low liquidity auction of the day. 2. If there were no transactions during the last low liquidity auctions, it will be the price for the previous low liquidity auction. 3. If there were no normal transactions during all the low liquidity auctions for that day according to the preceding numbers, it will be the previous day's closing price Closing Auction A closing auction will be take place, similar to the opening auction, where bids can be placed at market price or closing price. It uses a matching algorithm to select a single price that maximizes the number of shares traded, from all the normal compatible purchase and sale bids that are valid when performing the match. The general matching criteria will be as follows: 1. Firstly, the bids compatible with the price are matched; 2. Secondly, the buy and sell CPO orders that are indivisible, but for the same number of shares, and have been simultaneously placed by a specific broker in the system, are matched; 3. Thirdly, the buy and sell CPO orders that are divisible are matched, in the chronological order they were placed in the system (first-in, first-out); 6

7 4. Finally, the remaining buy and sell orders are matched with compatible CPO bids using prices considered in calculating the closing price Closing Price Orders Closing Price Orders (CPO) will be included in the closing auction. The price of these orders shall be the closing price calculated in the closing auction. When the auction has finished and only if the closing price is calculated using the closing auction, the CPOs will be matched and their price will be assigned to the transactions that would have been executed using this type of order. Furthermore, brokers can simultaneously place indivisible buy and sell orders at the closing price, for the same volume of shares Exclusive Trading at the Closing Price A differentiated period to place bids with a price and at the closing price during the auction. This trading can only be executed by placing both divisible and indivisible CPO, and at the price calculated by the closing auction Dissemination of Theoretical Adjudication Price, Quantity and Imbalance The theoretical adjudication price, theoretical adjudication volume and theoretical imbalance will be disseminated continuously for each individual instrument from the moment the auction begins, in order to facilitate auction monitoring and order placement. 7

8 3.2 PLACING ORDERS WITH PAYABLE TODAY (T+0) AND PAYABLE TOMORROW (T+1) CONDITIONS APPLICABLE ONLY FOR CHILEAN BROKERAGE HOUSES Brokerage Houses can placed orders under the T+0 and T+1 settlement condition within a price range with respect to the best bids for the same security with the Regular Settlement (CN for the Chilean acronym) condition, which in Chile is T+2. If there are none, with the last price that meets the conditions of a dynamic closing price with the Regular Settlement (CN) condition. In the absence of a dynamic closing price during the day, with the closing price for the last day that contained a transaction that meets the conditions for setting a closing price. The price range will be defined by the Board and informed through an Internal Communication. In this sense, the Board has agreed that the price range for shares with market presence is +/-1.00%, while for shares with no market presence the range is +/- 3.00%. The Payable Today (T+0) and Payable Tomorrow (T+1) settlement conditions are used mainly as a mechanism for resolving settlement problems involving Regular Settlement (CN) transactions. This situation particularly applies to transactions when the final customer is a foreign investor, where time zone problems or delays in instructions sent to custodians, may result in local brokers not having the required instruments in order to settle using the CCLV. This market situation makes an alternative system necessary in order to obtain the securities and comply with transaction settlement. Refining the placement of T+0 and T+1 bids ensures that prices are market prices, while providing an efficient mechanism for resolving the risk of settlement failure in the market. Furthermore, trading under T+0 and T+1 conditions is used to execute orders from foreign customers, especially fund managers that are trying to track the behavior of national indexes, when they have been unable to execute such orders under normal spot conditions. These settlement conditions only apply for local Brokerage HouseS. 8

9 3.2.1 Changes in Trading Systems and Order Routing Users will be able to identify rejections in Telepregon by the following referential validation message (for quoted instruments): Placements using order routing mechanisms will follow the same logic, with rejection messages being received when appropriate. 9

10 3.3 MATCHING COMPATIBLE ORDERS FROM THE SAME BROKER Eliminating Direct Orders (OD) Compatible buy and sell orders for liquid shares that have been independently placed by the same brokerage house will be automatically matched. Allowing compatible orders to be matched creates an order book with increased depth, facilitating the dissemination of such bids to the market and ensuring that they can be matched at the best possible price. This price arises from a single book that encompasses all market participants and not in different order books as it was the case with the OD book. Placing a Direct Order (DO) triggers the creation of an independent order book, negatively affecting the liquidity of the share and increasing the possibility that interferences may result in a match at prices that are not aligned with the best bid and ask of main order book. With the Elimination of OD, customers interests are protected as their orders are channeled into a single orderbook, so that their bids can access the best possible price conditions, and are not managed by brokers through a Direct Order (OD) that used to trigger the creation of an additional book, enabling interference and defenses of prices which result is not the best possible price for the customer. International experience indicates that there are no direct orders (DOs) in developed markets and that all bids are placed in a single orderbook, allowing compatible orders placed by the same brokerage house to be matched. This measure ensures that all participants have the same access to market prices. A significant local change in operational practice over recent years can be seen in the increase in the number of transactions and trading volumes placing orders using DMA. 10

11 3.3.2 Changes in Trading Systems and Order Routing The Telepregon and the Serialized Auction no longer allow OD in the order placement section. Current Image Modified Image In addition, information will be disseminated about cross-transactions using the "OC flag on the screens that display such information. Finally, order routing will no longer receive OD in s systems. 11

12 3.4 AUTOMATIC TRADING HALT DUE TO CHANGES IN PRICES AND AUCTION AND VOLATILITY Transactions are automatically halted when an order is placed with a price that exceeds predefined price ranges, as it could trigger transactions with significant price variation. Price ranges that trigger suspension will be based on the closing price immediately before bid placement (dynamic), and on the share s liquidity. Placing an order with a price that exceeds the defined price range triggers a change in trading for such an instrument to auction mode. The order that triggered the auction may not be canceled from the order book during the auction. The price range and suspension period was redefined: price range for shares with market presence on the stock market is 5.00%, while for shares with no market presence the range is 10.00%. Volatility auctions will last 5 minutes. Volatility auctions allow information to be absorbed by the market or by the company or its sector industry, giving awareness of information that was not disseminated by then and therefore was potentially triggering bids with exceeding price range. Furthermore, they avoid typing errors that generate erroneous orders that are subsequently eliminated and send signals to the market that can lead to investment decisions based on erroneous information. Not only do transactions that are erroneous send wrong signals regarding that security, but also the indexes to which that share belongs are incorrectly calculated. Therefore, the wrong signal is amplified. A volatility auction limits the possibility that such situations occur. However,, to avoid this mechanism being incorrectly used, will investigate bids that trigger a volatility auction. The proposal to halt the trading of instruments that exceed price range and resume it by an auction has been supported by the Ibero American Federation of Exchanges (FIAB) Guidelines for liquid and non-liquid Equity Markets in It is a standard measure for developed international markets. 12

13 3.4.1 Changes in Trading Systems and Order Routing When a placement is identified by the trading system that exceeds the parameters mentioned above, a validation message will be displayed warning that trading may be suspended for that instrument, as follows: Placements made using the order routing mechanism will not be accepted if they exceed the previously mentioned parameters. 13

14 3.5 ANONYMOUS OFFER (BLIND SCREEN) The dissemination of buy and sell orders does not identify the brokerage house that placed such orders. They are anonymous, and these terms are the same for all bids. The ID of the brokerage house that participated in the transaction will be disclosed to the market as soon as the transaction is complete. Implementing a system with anonymous brokerage house ID ensures that all market participants share equal conditions, thus increasing market transparency and competition. It avoids free ride strategies of some participants waiting certain brokerage houses to place orders, and then front run strategies that brokerage houses are executing for prop accounts or for their clients. This is especially true in a small market with significant end-investors with direct access to the trading screens (operating under the sponsorship of a brokerage house), and where some participants try to predict investment decisions by these end-investors with direct access and identifying the ID codes of the brokerage house that sponsors such access and the trend of their orders in the market. The blind screen also minimizes the opportunity to place pre-arranged bids. Furthermore, the emergence of specialized computer programs that analyze the behavior of market participants makes anonymity necessary during the bidding process, as these programs can use broker codes to detect patterns and predict investment decisions. Therefore, only disclosing the ID of brokerage houses participating in a transaction after it has been executed reduces the prediction that these automated programs can use to identify patterns and predict other investors investment decisions. Finally, using anonymous orders increases order book liquidity, while reducing free rider and front running strategies, so market participants will prefer to place their orders in the book, as using anonymous codes makes it difficult to identify behavioral patterns. Studies carried out by the Oslo Bors 2 explain that aiming to trade anonymously and hide operator ID reduces the opportunity to adopt bidding strategies that depend on the identity of other operators placing orders in the order book. These are called front running strategies, which not only have negative effects but also increase execution costs for customers. This is a potential market threat, as brokers trading orders for large volumes of institutional investors seek less transparent trading processes, which reduces central order book liquidity and is detrimental to the price formation process. Additional studies 3 suggest that a benefit arising from anonymity is that large customer s orders (i.e. institutional investors) will be placed through the order book, which will 2 Pre-Trade Anonymity & Tick Size Consultation paper April 2007, Oslo Stock Exchange 3 Does anonymity matter in electronic limit order markets? CFR Working Paper, No Foucault, Thierry; Moinas, Sophie; Theissen, Erik. 14

15 increase liquidity while reducing execution costs. Larger customer orders are expected to attract further liquidity providers and this will lead to a virtuous cycle. Euronext Paris introduced anonymity in Subsequently, several studies have examined the effect. It is difficult to demonstrate using statistics that trading volumes have increased, as only a slight increase was detected during the 40-day measurement period after this change. However, a decrease in the bid-ask spreads has been proven. Therefore, the introduction of anonymous orders has increased the quality of the market, and improved price formation. An anonymous market is also presented in the Ibero American Federation of Exchanges (FIAB) Guidelines for liquid and non-liquid Equity Markets from 2016, thus reinforcing the need to officially endorse the best industry standards Changes to Trading Systems and Market Data The Telepregon HT will cease to disseminate brokerage house ID codes for orders placed by an institution other than their own, in their various reporting windows. Best Orders Window The Impact of Limit Order Anonymity on Liquidity: Evidence from Paris, Tokyo and Korea, Carole Comerton-Forde, Alex Frino, Vito Mollica. 15

16 Detail Window Systems will disseminate information about counterparties at transaction level, exactly as they did prior to these changes. Trading Screen 3.6 TRADING LOW-LIQUIDITY INSTRUMENTS Trading low liquidity instruments that do not compose a market index calculated by will use an auction mechanism similar to the opening auction, instead of automatic matching. This measure encourages price formation and increases the dissemination of bids for such securities. Two auctions per day are proposed for lowliquidity securities and the criteria for classifying securities as low liquidity. In any case, securities under the low liquidity concept are those that do not compose a market index, nor those whose market presence is less than 5%, that do not have a market maker, nor whose average daily volume is less than UF 40 (approximately US$ 1,700). Around 70 securities are traded under this modality, which represent 0.01% of total trading value. The securities traded under this modality will be defined on a quarterly basis, using their average traded amounts and market presence for the last six months, and shall be reported through Internal Communication. 16

17 This trading modality provides orders of low-liquidity instruments have visibility, as automatic matching is will not be allowed for these securities. Any order with these instruments will be placed for a dissemination and selection period at an auction, which ensures greater order dissemination and execution at the best possible price. In particular, two auctions are proposed to trade these instruments. They will take place between 9:30 a.m. and 12:00 p.m. and between 12:00 p.m. and prior to the start of the closing auction (4:00 p.m. in wintertime / 5:00 p.m. in summer time) Flow to Trade Low-Liquidity Instruments The following flow explains a trading day for low-liquidity instruments: Also, Market Data will be used to disseminate the beginning and the end of these auctions, and the low liquidity condition that applies to the instruments included in the list. 17

18 3.7 AMENDMENTS TO TRADING USING AUCTIONS Bid Dissemination for Auctioneer and Electronic Auctions and Adjudication of the Order Book. Prior dissemination periods have been established for auctioneer and electronic auctions and adjudication of the order book based on volumes, ownership, settlement conditions and price changes, according to the following table: Table 1: The minimum dissemination periods for all bids with a Regular Settlement (CN) condition, which in Chile is T+2, payable tomorrow (T+1) and payable today (T+0) settlement condition are as follows, provided that their bid registration price at the auction does not exceed the closing price by 5.00%: Dissemination band Minimum dissemination period Trading value and volume lower limit Trading value and volume upper limit 1 30 minutes 0 UF 100,000 (US$ 4,500,000 approx.) or 1% of the issued securities 2 2 hours UF 100,000 (US$ 4,500,000 approx.) or 1% of the issued securities UF 300,000 (US$ 13,000,000 approx.) or 3% of the issued securities 3 24 hours (Registration the previous working day, before the auction time) UF 300,000 (US$ 13,000,000 approx.) or 3% of the issued securities UF 1,000,000 (US$ 44,000,000 approx.) or 6% of the issued securities 4 2 working days (Registration 2 working days prior to the auction date) UF 1,000,000 (US$ 44,000,000 approx.) or 6% of the issued securities 18

19 For orders under the T+3 and T+5 settlement conditions, only dissemination bands 3 and 4 of the previous table will apply, according to the following table: Dissemination band Minimum dissemination period Trading value and volume lower limit Trading value and volume upper limit 24 hours 3 (Registration the previous working day, before the auction time) 0 UF 1,000,000 (US$ 44,000,000 approx.) or 6% of the issued securities 4 2 working days (Registration 2 working days prior to the auction date) UF 1,000,000 (US$ 44,000,000 approx.) or 6% of the issued securities If the price of a sell offer registration price at the auction exceeds the closing price by 5% when registering, registration will only be applied under Dissemination band 4: Dissemination band Minimum dissemination period Trading value and volume lower limit Trading value and volume upper limit 2 working days 4 (Registration 2 working days prior to the auction date) 0 This enables competitive orders to be placed at auctions, as described in the following paragraph, which will increase competition and interference opportunities for such bids. This measure expands current dissemination time for auctions enabling wider dissemination, attracting competitive buy and sell orders registered at higher-thanmarket prices and will improve price formation and transparency at these auctions. (Current dissemination periods for auctions vary from 30 minutes for bids up to UF 19

20 300,000; dissemination until the working day prior to the day of the auction for orders between UF 300,000 and UF 500,000; and 20-hour dissemination for orders of more than UF 500, System Behavior Offers registered at a price 5.00% higher than the closing price at registration will enable sell orders to be placed that compete with the original bid, as long as they are under the same conditions of quantity, settlement condition or any other condition defined in the original bid, but at a price lower than the original bid (with a competitive price). The following image shows a bid that has a sell price 5.00% higher than the dynamic closing price. It is marked in red and competing bids can be placed: Placing competitive orders, amending their price, or the price of the original bid to defend its priority, is allowed until the close of business on the working day prior to the auction date. Any parameter other than price cannot be changed during the dissemination period of two working days prior to the auction, nor can these bids be canceled. The following image shows how to register a bid that is competitive with a bid that has a price change: 20

21 To compete for a bid that has a price change, place the mouse over it and click on the button "Compete", which is located in the upper section of the Bid Inquiry Menu. This allows a bid to be placed at a lower price by displaying a placement box that has all the bid parameters blocked with the exception of the price: After placing the competitive bid (at a price lower than the original bid), it will be displayed at the top of the inquiry, as follows: 21

22 The new offer will have priority during matching (in red), while the original will be moved to a position beneath it and thus will lose its priority and be highlighted in orange. Placing these competitive bids shall not affect the time and day of the original auction, which will remain unalterable. To defend the bid itself, the user should position the mouse over his/her bid and improve it, as shown below: 22

23 The bid is at the top and retains the priority set at the beginning of the offer period: If any parameter other than the price is changed, the amended bid no longer competes with the bid at the top of the book and shall be treated according to the Dissemination bands as if it were a normal placement, as follows: 23

24 When the auction begins, offers can only be submitted for the best competitive bid. Offers can be placed for the next bid once the competitive bid has already received offers. If the competitive bid does not receive offers, placing offers for non-competitive bids will no longer be permitted, and both will proceed to the next auction, under the same conditions Competitive Bid Placement, Amendment and Cancellation Behavior Placing competitive offers at equities auctions depends on the day they were placed and when they will compete, according to the behavior of orders and on the number of days before the auction, as follows: * T-0 is the auction date, when the offer period begins Minimum Amounts and Bid Validity in the System to Adjudicate the Order Book A minimum bid of UF 300,000 or a bid that represents over 3% of the securities issued is required, in order to place a bid in the system to adjudicate the order book. Bids placed will be valid for at least 24 working hours, instead of the current two business days, in order to ensure that bids requiring this minimum period have an alternative to an electronic or auctioneer auction. 24

25 3.7.3 Refining Auctioneer Auction Procedures Bids for an auctioneer auction can only be placed if they meet any of the following conditions: Contain an option (whoever is awarded the first trading lot can opt to take the total bid). Contain a condition that is not available within the conditions for the electronic auction (other pricing conditions or comments that attach special characteristics to the bid). The bid is higher to UF 300,000 or higher than 3% of the securities issued. Bids at auctions that do not comply with any of these requirements can only be placed at an electronic auction, as follows: Concentrating auctions in an electronic trading system favors the dissemination of bids and offers to all market participants, resulting in better discovery and access to sole prices for a given instrument. The auctioneer auction is required to maintain an alternative trading mechanism for operations with special characteristics that make it difficult to incorporate them into a standard electronic trading system. Furthermore, this trading mechanism could handle large volumes, which would concentrate market attention on one event. 25

26 3.7.4 Refining Electronic Auction Procedures These measures provide the electronic auction with greater capabilities to provide an optimal service to channel most of the required orders using an auction system, thus concentrating instrument trading in this mechanism. This system has wide exposure, which guarantees the concentration of offers and obtains the best market prices. These initiatives optimize the use of this tool and adapt it to the required standards to become the principal mechanism for auction trading, leaving auctioneer auctions and the adjudication of the order book for non-routine transactions where the characteristics of such systems are required Number of Daily Auctions Increase the number of daily electronic auctions from 4 to 6 and 7 (depending on the closing hours of the ). Auction Number From : To : Settlement Condition First Auction 10:30 AM 10:35 AM T+0; T+1; CN; T+3; T+5 Second Auction 11:30 AM 11:35 AM T+0; T+1; CN; T+3; T+5 Third Auction 12:30 12:35 PM T+0; T+1; CN; T+3; T+5 Fourth Auction 1:30 PM 1:35 PM T+0; T+1; CN; T+3; T+5 Fifth Auction 2:30 PM 2:35 PM T+1; CN; T+3; T+5 Sixth Auction 3:30 PM 3:35 PM T+1; CN; T+3; T+5 Seventh Auction (summer) 4:30 PM 4:35 PM T+1; CN; T+3; T Offer Period for Each Auction Decrease the offer period from 10 minutes to 5 minutes per auction Extend the Offer Period for Each Auction The auction duration may be extended, if competitive offers are "amended" at the end of the auction. Amending competitive offers during the last 30 seconds of the auction will immediately trigger an extension of 30 seconds to the auction closing time. This will not change the timing of following auctions, and trading lots that did not receive offers will be automatically transferred to the next auction. 26

27 Foreign Securities in Chilean Pesos Auctions can include foreign securities that are traded and settled in Chilean pesos with T+0, T+1 and CN settlement conditions, in addition to the current T+3 and T+5 conditions. 3.8 TERMINATE OPEN OUTCRY ON THE TRADING FLOOR Terminate physical open outcry on the trading floor. Concentrating all trading into a single electronic trading system encourages the dissemination of bids to all market participants, improves prices, reduces the bid-ask spread, and provides access to a unique price for a given instrument. 27