||Sebastián Boada Morales
The Colombian Central Bank (Banco de la
República de Colombia or BRC) is the regulatory
authority in charge of foreign exchange (FX) matters. As such,
it is in charge of overseeing the Colombian cross-border
derivatives market and the local derivatives market related to
FX operations. Contracts for difference (CFDs) are generally
defined as derivatives products that allow investors to take a
position on the changes in value of an underlying asset. Until
recently, Colombian regulation did not consider these types of
products to be financial derivatives.
In Colombia, CFDs are not regulated by statute. They belong
to a type of contract known as atypical contracts; namely,
those that have not been defined by an act of Congress.
Notwithstanding this nature, the BRC has classified CFDs by
interpretation; first as margin accounts and later as financial
The BRC issued Opinion JDS-03409 on February 16 2011. This
defined CFDs as a type of contract known locally as a margin
account; tantamount to a margin FX instrument but with the
possibility of having several different underlying products.
The BRC differentiated CFDs from derivatives in Colombia based
on the following:
- CFDs do not have a maturity and settlement date defined
from the outset. This contrasts with derivatives, which have
a maturity and settlement date set out from the
- CFDs are similar to futures in that they contain
variation margin, although futures are subject to central
counterparty clearing while CFDs are not.
The promotion and trading of CFDs with Colombian
counterparties was thus subject to regulation on local margin
However, on September 12 2016, the BRC issued Opinion
JDS-19704 whereby it redefined CFDs as derivatives products.
The BRC did not refer to its previous Opinion 3409, and it did
not differentiate the two opinions to evidence the
interpretative change. The BRC went on to provide the statutory
definitions of a financial derivative and stated that according
to the description of the financials of CFDs, these products
fit into the category of a financial derivative under Colombian
As of September 2016, CFDs receive the regulatory treatment
of derivatives instruments and thus their cross-border trading
with Colombian counterparties is subject to new rules. By way
of example, now Colombian clients may only enter into these
products with foreign counterparties which qualify as so-called
authorised foreign agents under local regulation.
Foreign traders looking to offer these products to Colombian
clients, or enter into these types of products generally, must
be aware of the new legal requirements imposed by the BRC's
change of interpretation.
Carlos Fradique-Méndez and Sebastián Boada