MEMORANDO

TO: YanireMartes

InternationalSwapsandDerivativesAssociation,Inc.

FROM: BrunoPinedaCordero

NataliaAlmiedaOleas

ISSUE: ISDAQuestionnaireEcuador

DATE: July4,2016

Thepurposeofthismemorandumistoprovidegeneraladviceinrespecttocrossborder

OTCderivatives froman Ecuadorian lawperspective, according to thequestionnaire

senttousinApril,2016.

1. DoOTCderivativestransactionsfaceanenforceabilityproblem(e.g.dueto

anti-wageringprovisionsetc.underlocallaw)?

WehavenoprecedentsofenforcementofOTCderivativestransactions.

Derivatives transactions are expressly permitted activities for financial

entitiesaccordingtoarticle194oftheEcuadorianMonetaryandFinancing

Codeand the regulations issuedby theSuperintendencyofBanksand the

Monetary and Financing Board. Even if derivatives transactions are not

expresslypermittedactivities fornon- financial entities, these transactions

shouldbeallowedforhedgingpurposesandalsoasinvestmenttransactions

whichmaybeperformedbyallnon-financialcompaniesonanon-ordinary

baseaccordingtoarticle3oftheCompaniesLaw.

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2. Are thereany issueswith foreign lawgovernedcontracts (mainlyEnglish

and New York law) when used for cross-border transactions into your

jurisdiction?Forexample,somecountriesmayrestricttheuseofforeignlaw

andlanguagedocumentswhenitcomestocontractingwithlocalpubliclaw

orstateentities.

No,therearenoissueswithforeignlawgovernedcontracts(mainlyEnglish

andNewYorklaw)whenusedforcross-bordertransactionsintoEcuador.

Financial institutions, hedge funds and other private Ecuadorian

counterparties do not need the authorization of third parties in order to

submittoforeign law.Ontheotherhand, it ispossiblefortheState,State

institutionsandStateinstrumentalities,tosubmitthemselvestoforeignlaw

andforeignjurisdictionorarbitration,aslongasthereisapriorauthorization

fromtheAttorneyGeneralfromthemainofficeroftherelevantentity.

3. Arethereprovisions(ofastatutory,customary,commonlaw,etcnature)in

locallawthatprovidefortheenforceabilityofclose-outnetting?Isclose-

outnettingdefinedinadditiontoset-offunderlocallaw?Doeslocallaw

allownettinginaccordancewiththetermsoftheunderlyingcontract(e.g.

theISDAMasterAgreement)?

No,therearenolegalorregulatoryprovisionsinEcuadorthatprovideforthe

enforceabilityofclose-outnetting.Close-outnettingisnotexpresslydefined

underEcuadorianlaw,contrarytoset-offwhichisregulatedbytheCivilCode.

By not being expressly defined, close-out netting is neither permitted nor

prohibited,whichmeansitcouldbeconvenedbasedonthewilloftheparties,

butsubjecttotherestrictionsmentionedinthisanswerstoset-off.According

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to articles 1671, 1672 and 1673 of the Ecuadorian Civil Code, set off is

applicableonlyinthefollowingcases:

1.Eachobligationmustconsistonamonetaryobligationorinanobligation

involving fungible things or undetermined choses of the same gender and

kind.

2.Bothobligationsmustbedueanddetermined.

3.Bothobligationsmustbepayable.

4.Inanycase,thepartiesshallbedebtorsofeachother.

4. In case therearenettingprovisionsunder local law,do theyapply toall

typesofcounterparties,e.g. financial institutions,corporates(commodity

trading firms, utilities, manufacturers etc.), SPV, public law entities

(municipalities,centralbank,developmentbanksetc.)?

Not applicable, as we mentioned before, there are no netting provisions

underlocallaw.

5.Is the scopeof transactions eligible restricted in anyway, e.g. to certain

products(rates,currencies,equities,creditetc.). Whataboutcommodity

products (gas, coal, oil, metals, agricultural etc.) and "new" products

(emissions allowances, freight rates, weather variables etc.)? Is there a

different treatment for financially settled transactions as opposed to

physicallysettledones(i.e.wheretheunderlyingproductisdelivered)?

No,asthereisnoalegalorregulatoryrestrictioninapplicablelaws(Finance

andMonetaryCodeandregulationsissuedbytheSuperintendencyofBanks

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andtheEcuadorianMonetaryandFinancingCode),thescopeoftransactions

eligibleisnotrestricted(e.g.tocertainproducts,commodityproductsagainst

newproducts).Furthermore,therearenodifferenttreatmentforfinancially

settledtransactionsasopposedtophysicallysettledones.

6. Are financial collateralarrangementsgovernedby foreign lawrecognized

under local law? In particular, would title transfer and security interest

arrangements(underEnglishandNYlaw)beenforceable(e.g.ISDAcredit

supportdocumentation)?

TheanswerdependsonthelocationoftheassetsaccordingtotheEcuadorian

CivilCode.

According to thearticle15of theEcuadorianCivilCode, theeffectsof the

agreements related to assets located in Ecuador shall be according to

Ecuadorian laws. Thus, title transfer and security interest arrangements

regardingassetslocatedinEcuadorshouldbegovernedbyEcuadorianlaws

or,iftheyarenotsubjecttolocallaw,thecontractsmustbeconformedto

locallawinorderforthemtohaveeffectsinEcuador.

In case the assets are located abroad, financial collateral arrangements

governed by foreign law should be recognized under Ecuadorian law.

Therefore,transferandsecurityinterestarrangements(underEnglishandNY

law)shouldbeenforceable(e.g.ISDAcreditsupportdocumentation).

The same rules apply in case the counterparty is the Ecuadorian State,

EcuadorianStateinstitutionsandEcuadorianStateinstrumentalities,aslong

assuchentitieshavetherequiredauthorizationsandtheycomplywithpublic

lawrequirementsinordertocontractunderforeignlaw,itshallberecognized

astheapplicablelaw.

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7. Anyotherissuesunderlocallaw(e.g.conflictoflawrules;jurisdictionissues

(e.g.arbitrationrecommended)?

Weforeseethefollowingeventualproblemsincaseofenforcementofforeign

sentencesorawardsrelatedtoISDAtransactions:

a. Nettingclauses/set-off:Aswementionedbefore,set-offisonlypossible

incase:

1. Eachobligationmustconsistonamonetaryobligationorinanobligation

involvingfungiblethingsorundeterminedchosesofthesamegenderand

kind.

2.Bothobligationsmustbedueanddetermined.

3.Bothobligationsmustbepayable.

4.Inanycase,thepartiesshallbedebtorsofeachother.

Thus,itisnotpossibleset-offincaseof(i)immatureorcontingentdebtand

(ii)debtswithsubsidiariesnotpartiesoftheagreement.

Also, please bear in mind that if the counterparty is a corporation and a

limitedliabilitycompany,ithassubmitteditselftoacreditors’arrangement

process and this process has been accepted by the Superintendency of

Companies,SecuritiesandInsurance,asuspiciousperiodof180dayswillbe

appliedtoobligationsterminatedbymeansofcloseoutnetting.

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This creditors’ arrangement process (called “concurso preventivo de

acreedores” or “concordato”) applies to non-financial and non-insurance

corporations and limited liability companies in an arrangement process

lookingfordebtor’srelief.Thissuspiciousperiodappliesbecauseinaclose

outnettingdebtsthatarenotduecouldbepaid.

b.Compoundinterest:CompoundinterestareprohibitedinourConstitution

andinotherlaws.Thus,itwillbeagainstpublicpolicyanditwillbedifficultto

enforcetheprovisionsofaforeignsentenceorforeignawardcontemplating

compoundinterest.

ForfurtherinformationandadviceontheapplicationofthelawsofEcuadortoOTC

derivatives transactions as well as enforceability of ISDAMaster Agreement, please

contact:

NataliaAlmeida-Oleasnalmeida@pbplaw.comBrunoPineda-Corderobpineda@pbplaw.com

Yourssincerely,

BrunoPinedaCordero NataliaAlmeidaOleas