INTRODUCTION

The new dynamics of the global economy impose on each country to

to have a dynamic capital market capable of ensuring attractiveness
sufficient for the funds necessary for its development.
What is a capital market and what are its missions?
In the past, for any investment or borrowing operation, economic agents
had no other alternatives than to resort to traditional banking products.
Since the end of the 1980s and following the facilitated financial innovations
Through technological progress, capital markets have become a favored place.
for economic operators seeking better conditions for their
financial operations.

This is how several types of financial instruments gradually emerged.

providing their issuers with lower costs and their holders with
yields exceeding those of traditional banking products coupled with faculties
of fairly flexible negotiability.

With the globalization process, the role of the capital market has surpassed that
from a simple local economic operator, to become the main concern of
States, due to its impact on the management of macroeconomic balances and its
ability to play a leading role in development through the appeal it exerts on
capital on a global scale.

1/74
 THE CAPITAL MARKET

Module 1: the characteristics of the capital market

The capital market is a market that represents all offers and demands of
short, medium, and long-term capital. Through this ensured connection between research and
the presentation of the funds necessary for the growth dynamics of any economy, the
The capital market performs several functions that allow it to:

to ensure permanent financing of the national economy,

2. to structure the liquidity of savings,
to serve as a reference to assess the value of assets,
4. to contribute to the transformation of companies,
5. and to allow for the almost permanent negotiation of risk.

Permanent financing of the national economy

The main function of a capital market is to channel savings in order to transform it.
on financial instruments likely to be used for financing the domestic economy.
The collection of savings from agents with financial surpluses allows thus
to businesses, to the State, and to local authorities, often presenting needs for
funding, to obtain resources without resorting to traditional bank financing.
Compared to traditional bank financing, the company's funding through
The resort to capital markets seems to be increasingly sought after these days by the
companies considering the advantages it provides, including among others:
a. An advantageous borrowing cost: it is always verified that market rates
capital is generally more attractive than that related to bank credit
classic.
The standard is that of the market taken in its possibility and not that of strategy.
of a bank subject to prudential rules.
b. Less restrictive procedures: to obtain a bank loan, the company is
subjected to multiple administrative procedures often leading to delays in
level of credit file processing.

2. The capital market allows for structuring the liquidity of savings.

Thanks to the multitude of products, the capital market allows for the structuring of liquidity.
savings. This is how each saver, based on their profile, looks for the product that
more suited to his needs.
For the short term, the saver can invest in short-term treasury bonds, in securities of
negotiable securities or money market UCITS.
The investor seeking the medium term can be directed towards treasury bonds, securities of
negotiable debts, bonds or shares of bond mutual funds.

2/74
As for agents seeking a very long placement, they are always allowed to subscribe.
to the same product but with longer deadlines.
The liquidity of securities is also ensured through the existence of a secondary market that
allows the negotiation of securities before their maturity.
The capital market therefore has a major advantage, namely: the backing of
savings in investment based on duration, while ensuring a near liquidity of funds
permanent.

3. Main reference for assessing the value of assets

The consistency of the quotes displayed by the capital market allows investors
to permanently appreciate the value of companies.
The information provided is reliable, easily accessible, and relayed by major media.
financiers (financial press).
The capital market thus constitutes, alongside other methods of valuing companies
an undeniable tool for assessing the value of companies.

4. Contribute to the transformation of companies

In addition to its mission as a meeting place between the supply and demand for capital,
capital markets also offer companies the opportunity to operate a
restructuring at the level of their organization.
It is therefore common to observe that mergers and acquisitions operations once carried out at
over-the-counter transactions are currently realized through arrangements
financiers.
As an illustration, the merger operation between BCM and WAFABANK resulted in the creation
d'ATTIJARIWAFA BANK was quickly completed through public tender offers.
WAFA BANK shares coupled with a public exchange offer.
ATTIJARIWAFABANK against the former WAFA shares.

5. Almost permanent negotiation of risk

Each market operator finds its place based on its motivation.

capital market.
This is how the capital market offers the possibility to:
• Hedging risks to protect against price volatility.
Forward exchange products are the most illustrative example in this regard.
the moment it allows the purchase or sale of currencies before the deadline.
• Speculate: the search for profitability through the anticipation of a given evolution
Values are also available at the market level.
The stances are nevertheless perilous since the operator acting for
his account is exposed to the risk of its entirety.
• Make arbitration decisions: arbitration operations involve ensuring the meeting
between a supplier and a buyer of a given product. The operator intervening as
the arbitrageur exposes himself to no risk. His only motivation being the search
3/74
of a certain margin, resulting from the difference in prices applied to the seller and to
the buyer of the title.

4/74
 THE MONEY MARKET
In order to enable savers and investors to benefit from the
varied investment opportunities with financing options under specific conditions
Optimal, many reforms in the financial sector have emerged in recent years.
years.
The primary goal of these reforms is to establish a vast capital market, accessible to all.
categories of stakeholders and featuring several compartments, "from day-to-day money to
the longest deadlines.
It is within this framework that a modern money market has been established in Morocco since the beginning.
the 1980s. This market was also equipped with instruments for better regulation
eased market liquidity and more flexible access to funding sources.

Definition
The money market is the place where short-term and very short-term securities are issued and traded.
opposes a financial market specialized in long-term capital, the money market is the
liquidity market.
For a long time, the money market has been reserved for banks and a few non-bank institutions.
banking activities that brought them to have large amounts of liquidity and were thus
authorized to operate in the money market (the Ex OFS).

This market consists of two compartments, namely the interbank market and the market.
expanded monetary.

THE INTERBANK MARKET

Open only to credit institutions, this market allows the conclusion of transactions of
day-to-day or fixed-term liquidity loan/borrowing at an agreed rate between the parties
contracting parties called interbank rate. The level of rates in this market constitutes the main
reference for BAM which proportionately adjusts its magnitude based on the volatility of the latter
intervention.

A - PARTICIPANTS AND FORM OF TRANSACTIONS

1) Speakers
Only banks, the deposit and management fund can intervene in the interbank market.
as well as certain other financial institutions such as the Moroccan securities deposit, fund
guarantee center and Dar-Addamane,

2) Transaction forms
Interventions conducted on the interbank market can take place in the form of:
in advance in blank, simple transfers of funds without delivery of securities in return, or
-guaranteed advances, or
of pension effects.
However, the entirety of operations in the interbank market consists of loans and borrowings.
in white.

B -TRANSACTIONS AND DETERMINATION OF RATES

Transaction volume
During the year 2004, the average volume traded daily on the interbank market was
fluctuated between 200 million and 5.9 billion. It should be noted, moreover, that the exchanges between banks in y

5 out of 74
are mainly listed. The average monthly operations of lending/borrowing are on the other hand
returned to 1.3 billion dirhams against 855 million dirhams in 2003.

On the other hand, banks can resort to temporary operations in the secondary market of
Treasury bonds.

Duration of operations
Liquidity exchanges on the interbank market consist of 70% of the
day-to-day operations. Futures operations, on the other hand, are mainly concluded for
very short durations ranging from one week to one month.

3) Determination of interest rates

Interest rates in the interbank market are the result of a free confrontation of supply and demand.
fund request. They must also register within the band defined by the rates
directors of the BAM. The weighted average rate (WACR) of operations is calculated every day by the
central bank. The latter represents the operational objective that it aims to achieve through its
interventions in the money market. Indeed, and with the aim of reducing the volatility of the rates on the
interbank market, in 1996 the BAM eased the method of calculating the monetary reserve of
banks based on the monthly average of the daily balances of their current account at Bank
Morocco. This method has indeed allowed banks to develop an active management of
their treasury, but also a limitation on their recourse to advances from the BAM. However,
the surplus liquidity noted from the second half of 1999, in connection with the income from
subsequent measures following the privatization operations have recently led the Central Bank to
highlight the constant respect for the monetary reserve. Furthermore, the persistence of
overabundance of liquidity has once again led the central bank to carry out repurchases
liquidity as a borrower in the interbank market, allowing banks to build up
on her behalf, interest-bearing deposits.

The Expanded Monetary Market

Definition
In the expanded money market, both interbank operations (see above) are also conducted.
that so-called Repo operations (in English: repurchase agreement or repossession agreement)
c.a.d. liquidity exchanges guaranteed by securities.
These operations are also called provisional purchase or sale transactions of securities.
negotiable debt.

Mechanism of Repo operations

In this regard, the mechanism of the Repo operation is similar to that of the interbank operation except that
this one is backed by a negotiable debt security (usually treasury bills).
This type of operation therefore requires the activation of guarantees represented by securities.
titles are returned at maturity to their initial holder (entity that borrowed) against the
repayment of the loan (principal plus interest).
That is why they are called temporary purchase/sale transactions of securities.

Characteristics of Repo operations

In addition to the fact that Repo transactions are secured by TCN, this kind of operation is
subject to the same regulations as those governing interbank operations.

Advantages of repo operations

flexibility: opening the money market to operators with surplus liquidity but
deprived of acting on the interbank market such as mutual funds, insurance companies, savings banks
and large companies.

6/74
Liquidity: by lending or borrowing cash over a short period, operators can easily find
counterparties as long as transactions are secured by the collateralization of securities.
profitability: considering the diversity of stakeholders, resorting to this market segment
monetary can prove to be interesting, as often the borrowing rate is less expensive than
the interbank. Indeed, insurance companies, UCITS, and enterprises are not subject to constraints
of the required reserve and therefore obliged to place their cash surpluses even if the rate
the remuneration is lower than that of the interbank rate. Borrowers have an interest in this case to
cover their cash needs through this type of operation.

Disadvantages of repo operations

For banks and in case of liquidity shortages, those that cannot invest their surpluses on
the interbank are therefore obliged to reduce their remuneration rates considering
the existence of fierce competition caused notably by mutual funds and insurance.

Illustration of a money market operation

A bank has a liquidity need of 200,000,000 DHS. It borrows from Bank B.
100,000,000 DHS on the interbank rate of 3% for 24 hours and concluded with the OPCVM C
24-hour Repo borrowing operation of 100,000,000 MAD at 3% as well.
D-Day:
The account of Bank A with BAM is credited with 200,000,000 MAD.
The account of Bank B with BAM is debited by 100,000,000 DHS
The account of the mutual fund C with its depositary bank has been debited by 100,000,000 DHS.
The account at BAM of the custodian bank of the mutual fund is debited by 100,000,000 DHS.
The Day J+1:
The account of Bank A with BAM is debited by 200,000,000 MAD plus interest.
(200,000,000 x 3x1/36000) = 16,666 DHS. Therefore, 200,016,667 DHS
The account of Bank B with BAM is credited with 100,000,000 DHS plus interest.
(100,000,000 X 3 X 1 / 36,000) = 8,333.33 DHS. Therefore, a total of 1,000,008,333.33 DHS
The account at BAM of the domiciliary bank of the mutual fund is credited with 100,000,000 MAD.
plus the interest (100,000,000 X 3 X 1 / 36000) = 8333.33 DHS. Thus a total of 1,000,008,333.33 DHS
The account of the UCITS C with its custodian bank is credited in turn.
100,000,000 DHS plus interest (100,000,000 X 3 X 1/36000) = 8,333.33 DHS. Totaling to
1000 008 333.33 DHS

7/74
II - THE TREASURY BOND MARKET ISSUED BY AUCTION
The market for Treasury bills issued by auction was created in 1988. Its purpose was
to establish an active Treasury securities market in which volumes and rates would be
constituted by market rules. A reform of this market was introduced in 1995 in order to
to energize this compartment, by opening it to all categories of
bidders, whether they are legal entities or individuals, residents or not
residents.
Moreover, the introduction of the technique for bidding treasury bonds has allowed for
develop the primary market for TCN.
This technique consists of meeting the demands on Treasury Bonds by setting a price.
limit above which all other proposals are rejected.
Indeed, the treasury may, if the rates seem too high, waive in whole or in part
the bidding or to set an amount higher than that contemplated when the rates allow it
the proposed ones are interesting.
The different awarded amounts are paid at the rates proposed by the subscribers.
even if their level is below the limit price retained during the auction session.
The payment of interest is made at maturity for short-term Treasury bonds.
less than a year and annually (on the anniversary date) for medium and
long term.
The issuance of Treasury Bonds is carried out according to a detailed schedule as follows
Every Tuesday: for maturities 13 weeks, 26 weeks, and 52 weeks
the second and last Tuesday of each month: for maturities of 2 years, 5 years, 10 years and
15 years
the last Tuesday of each month: the 20-year Treasury Bonds.
Note that only banks are authorized to bid in the auctions for Bonds.
Treasury whether for their own account or on behalf of clients.

A) The characteristics of good and bidders

Among the aims of this reform was to provide investors with a range of
varied products that are better suited to their investment expectations.

The characteristics of good ones

Treasury bond auctions are conducted either on short-term bonds with a duration of 13,
26 and 52 weeks, repayable at maturity (repayment of the total amount at maturity; or alternatively on
long-term bonds, also redeemable at maturity, with a duration of 10, 15, and since
September 2000, 20 years ago.

The discontinuation, in March 1995, of the issuance of one-week bonds and three- and five-week bonds
and the issuance of bonds has reduced the scope of deadlines.
The payment of interest is made at maturity or at issuance in the case of short-term bonds.
and annually and at maturity for medium and long-term bonds.
The total amount of bonds issued as part of the auctions must have a unit value, set by means of
regulatory. It has been gradually reduced from five million dirhams to one hundred thousand.
dirhams, and this since May 2001. Registered in current account with the central depository.
on behalf of the establishments authorized to submit bids, these vouchers are negotiable by mutual agreement
gre on the secondary market of Treasury bonds.

2) The establishments allowed to submit the bids

The establishments allowed to directly bid in the market for the auction of bonds of
Treasury for their own account and for that of their clients are the banks and the Deposit Office.
8/74
and management. Five credit institutions (C.M.M., C.C.G, Dar-Addamane, Bank Al-Am al and
F.E.C.) can only submit bids for their own account.

TREASURY BONDS INTERMEDIARIES (IVT)

This new category of participants in the auctions market emerged after the reform.
created in 1995. These entities called: treasury securities intermediaries (IVT) and represented
financial institutions commit to participating in the animation of both the primary market of
adjudications from the secondary market. The management was established through an agreement.
conclude with the Ministry of Finance. Thus, the I.V.T. find themselves obliged to evaluate the
global market demand before each adjudication but also to communicate their
appreciation at the Ministry of Finance. Furthermore, these intermediaries must acquire at least 8%
volume auctioned each quarter in the three categories of Treasury bills (short-term bills
term, in the medium term and in the long term).
They are also required to participate in transactions on the secondary market for a share.
of at least 8% as well, compared to the firm transactions of each quarter. In exchange for
Through their efforts, the IVTs can establish non-competitive offers that the Treasury thus commits to serving.
at 50% of the rate or the limit price and, up to 50%, at the rate or the average price
weighted the bonds issued during the auction. The total amount of non-competitive bids does not
can exceed 20% of the volume of the allocated bonds in each category of securities. In addition, on the
secondary market, these institutions are required to respect a maximum margin by maturity,
difference between the buyer price and the seller price.

B) The terms of the auction

The periodicity of broadcasts
Every Tuesday, the auction sessions for short-term bonds take place, and the second and
the last Tuesday of the month in the case of medium-term bonds, at 10 years and at 15 years, also the
last Tuesday of each quarter for the 20-year bonds. A monthly schedule of issuances is
published by the Ministry of Finance, which reserves the right to cancel scheduled sessions or to
to proceed with additional auctions. The settlement of the auctions takes place on the following Monday.
the bidding session.
2) The submissions
For each category of vouchers, the bidder has the option to propose a single amount.
with the rate or the corresponding price, or to divide it into several tranches with different rates or
at distinct prices. The 1995 reform allowed for bids to be presented in prices, which
reporting to bonds with the same characteristics of rate and maturity as issues
previous ones they are linked to. This method of issuance by assimilation contributes to the
the establishment of significant deposits on existing lines and, through the simplification it brings,
to help develop the volume of transactions on the secondary market.
3) The results of the auction
Submissions are received by Bank Al-Maghrib, which creates an anonymous table of offers. This one
is transmitted to the Ministry of Finance which sets the rate or the maximum price of the auction. Only the
bids made at a rate equal to or lower than the limit rate, or at a price equal to or higher than the price
limits are satisfied. The amount of offers at the limit rate or price may be held in full or in
part only. In this latter case, the distribution is made proportionally to the offers.
received.
The main results (proposed amounts, rates or limit prices accepted, awarded amounts) of each
bidding session are brought on the same day by
Bank Al-Maghrib is aware of the participants in the market and disseminated to the public by
through the press agencies.

9/74
Example of a treasury bond auction session

10:19 29JUN05 BANK OF MOROCCO MP02003 BAM/MON04

RESULTS OF THE TREASURY BOND AUCTIONS (In MDH)
****************** ************************************

AWARD OF 28/06/05 REGULATION 04/07/05

MATURITIES AMOUNT RATE/PRICE AMOUNT RATE/PRICE RATE/PRICE

PROPOSE
=========================*======================================================
* * * * *
13 SEM (03/10/2005) NONE * * *
26 SEM (02/01/2006) 207.00 *
52 SEM (05/06/2006 2.70%) NONE * * *
2 YEARS (19/02/2007 3.05%) NONE * * *
5 YEARS (05/16/2010 3.95%) *1000.00 *100.08-100.08%*1000.00 *100.08% *100.08%
10 YEARS (20/06/2015 4.75%) *1000.00 *100.09-100.09%*1000.00 *100.09% *100.09%
15 YEARS (06/06/2020 5.30%) *700.00 *99.92%-99.92% *NONE * *
20 YEARS (28/02/2025 6.00%) *200.00 *100.44-100.44%*NONE * *
* * * * *
* * * * *
* * * * *
================================================================================
3107.00 *

C) The secondary market for Treasury bonds issued by auction

In order to enhance the appeal of issuances in the primary auction market, a secondary market
of these titles was created in 1996. This market should allow investors to proceed with a
active management of their Treasury securities portfolio, thanks to the arbitrage they are able to make
to distinguish between the different types of maturities and yields.
Regarding this market, regulation provides for a notification to Maroclear of transactions, by
the transferring institution but also by the acquiring institution. The conclusion of the operations is
is achieved through the agreement between the indications related to the characteristics of the titles, to their number,
at the transaction price and on the execution date.

The secondary market has expanded very rapidly since its creation; for example, the volume
transactions increased from 5.7 billion in 2002 to 8.4 billion in 2003, totaling
100.2 billion at the end of the 2004 fiscal year. Favorably impacted by the downward trend in interest rates, the
transactions on medium and long maturities, offering capital gains opportunities, have
developed to represent nearly 70% of the volume of firm operations.

10/74
III-THE MARKET FOR PRIVATE NEGOTIABLE DEBT SECURITIES
It is within the framework of the modernization of the Moroccan capital market, which began in 1995, that a
The market for negotiable debt securities was established with the aim of contributing to
dismantling the barriers of the money market and making it more accessible to all agents
economic:
Now with the arrival of TCNs, operators can better arbitrate between the different products.
and choose the investment duration that suits them.
Thus, alongside the Treasury bonds that already had negotiable status, the market experienced
the arrival of three other new products namely:
- Deposit certificates
- Treasury bills
- Financial company vouchers

In fact, a Negotiable Debt Security (NDS) can be defined as a security issued under the
form of note or bond at maturity, represented by securities or simply recorded in an account and
which, although not publicly traded, confer on their holder a freely negotiable claim right,
important interest.
The minimum unit amount of a TCN was set in 1995 at 250,000 DHS before being reduced to
100,000 DHS in 2001.

A) Regulation of TCN emissions

The 3 available categories of TCN are:

The Certificates of Deposit which are defined as negotiable debt securities issued by the
credit institutions and whose duration varies between 10 days and 1 year. They differ from deposits at
classic terms by:
- negotiability: which removes the two-point penalty provided by BAM in case of advance
on cash voucher or term account;
- the indications related to the CDs such as the nominal amount and the increased amount of
interest to be settled at maturity, the issue and maturity dates, and the applied rate can
to interest buyers and sellers in the same capital market.
The duration of a certificate of deposit can range from 10 days to 7 years;

Treasury bills: are securities issued by any legal entity other than an establishment
financial. They were created in December 1986 to allow for the expansion of the market for
capital but also to help develop greater flexibility for financing
businesses, and this thanks to:
to the alleviation of the pressure exerted on credits and the mobilization of liquid savings;
-and, in creating the necessary conditions for the establishment and development of relationships
financial transactions between non-banking economic agents.

Their maturities can range from 10 days to one year. The issuers of commercial paper
must have equity of an amount at least equal to 5 million dirhams, and
to have at least three certified financial statements.

The bonds of Financing Companies: are negotiable securities issued by the

financing companies for terms ranging from 2 to 7 years.
Issuing companies must be authorized to receive public funds for a term longer than 2.
ans.
In addition, they are required to maintain a maximum prudential ratio between
the outstanding bonds issued and their uses in the form of credits, set at 40%.

11/74
 CDN Treasury bills BSF
EMITTERS Establishments All legal entities of The companies of
banking Moroccan law excluding properly financed
banks and companies of authorized for this purpose
funding, having 3 years by the Ministry of
of existence at least and having Finances.
of equity amounting to
minimum of 5,000,000 DH. And
belonging to one of the categories
following: the companies by
actions; the establishments
non-financial public entities;
the cooperatives subject to
provisions of Law No. 24-83.
SUBSCRIBERS Any person Any natural person or All persons
physical or moral, resident or non-resident morale physical or moral
resident or non-resident resident. residents or non-residents
resident. residents.
AMOUNT 100,000 DH. 100,000 DH. 100,000 dirhams.
UNITARY
MINIMUM
DURATION 10 days - 7 years 10 days – 1 year 2 years - 7 years
RATE Freely Freely determined but fixed, Freely determined
determined, but must potentially giving rise to interest and can be fixed or
to be fixed when the withholdings. reviewable (the interests)
duration of the CDN is are payable
less than or equal to annually on the date
1 year (the interests anniversary of the title and
are then payable for the remaining duration to
at the due date); but run until
also fixed or the deadline, when
reviewable when the this duration is
duration of the CDN is less than a year.
greater than 1 year
(the interests are
payables
annually at the
birthday date of
title and for the duration
remaining to run
when she is
less than one
year)

12/74
B) Market operation
general provisions
Only legal entities under Moroccan law can issue T.C.N. They must have a
unit amount not exceeding that of treasury bonds issued by auction. This amount, which has
was set by the decree of the Minister of Finance on October 9, 1995, at 250,000 dirhams, has been reduced to
100,000 dirhams by the order of July 10, 2001.

2) Detention regime and circulation of titles

Negotiable debt securities are characterized by an account registration with the
financial intermediaries authorized by law to this effect, including Bank Al-Maghrib and banks
for certificates of deposit and treasury bills, as well as financing companies for bonds
issued by these companies. TCNs are bearer securities. In this context, TCNs are therefore securities
dematerialized and freely transferable through a transfer from one account to another.

Only the issuer, credit institutions, the Deposit and Management Fund, and the companies
exchanges can carry out these placement and trading operations of T.C.N.

3) Remuneration and reimbursement of securities

The interest rate on T.C.N.s with a maturity of one year or less is fixed. These securities
Debt can give rise to prepaid interest.
On the other hand, titles with an initial duration of at least one year can have a
fixed or adjustable compensation (the adjustment takes place on the anniversary date of the issuance).
Except in cases of severe financial difficulties and following an agreement between both parties, the certificates of
deposits and the bonds of financing companies can be redeemed early, in the
framework of an exceptional authorization granted by the BAM.
The buyback of securities from issuing banks and financing companies can only be done at
20% concurrence of the outstanding issued securities.

C) Protection of savers
In order to promote the protection of savers (already ensured by the requirements in terms of
capital and account certification and the establishment of prudential rules have been put in place
the information obligations imposed on issuers of T.C.N.

1) Information obligations
A file of information relating to the issuer's activity, its economic situation and
financial and the issuance program must be made available to the public at their headquarters and with
of banks that hold securities and this by the issuers of T.C.N. When a guarantee of a
credit establishment T.C.N. (financial company bonds and commercial paper) is
granted to the TCN, the information file must mention the guarantee and contain
Information regarding the guarantor, identical to that related to the issuer.
As long as the T.C.N.s are in circulation, it is imperative that the information file is up to date.
annually - at most 45 days after the holding of the shareholders' general meeting deciding
on the accounts of the last financial year.

2) Emission control
Only the BAM and the Securities Regulatory Council (C.D.V.M.) ensure the
monitoring compliance with legal provisions regarding the issuance of T.C.N. as well as obligations
information.
In this context, issuers of commercial paper, in order to be able to proceed with issuances, do
are required to have their information file approved by the C.D.V.M. which receives it
days before the first broadcast. The information file (as well as updates) of the broadcasters

13/74
certificates of deposit or corporate financing bonds may be requested by the C.D.V.M to
at any time.
However, the compliance by T.C.N. issuers with the issuance procedures as well as the good
the functioning of the market is carried out by the BAM.
Thus, at least two weeks before the issue date, issuers must keep informed the
central bank of their intention to carry out an issuance on the T.C.N. market, and this by
communicating a copy of the information file. This same file, updated with the updates, must
also to be addressed to the BAM.
On the other hand, and on a weekly basis, the issuers of deposit certificates and the domiciliary banks
financial institution bonds and commercial paper are required to be sent to the bank
central, the characteristics of the emissions but also information relating to the different
transactions and the evolution of the prices of the securities they traded on the secondary market last week
previous.

D - THE CENTRAL DEPOSITORY

A mandatory registration regime for all listed securities as well as for the
negotiable securities on other markets (for example: Treasury bonds issued by auction, T.C.N.)
private and the shares and units issued by the mutual investment funds (O.P.C.V.M.) were established by law No. 35-96 which aimed to
also allowing for the establishment of an organization centralizing the conservation of titles in account in
replacement of the physical representation of securities.

In response to the obligation to ensure this function, the company Maroclear was established in June 1997 thanks to
the law relating to the central depository. It constitutes a major vector within the system
of the organization of the account registration regime because it ensures the preservation of titles and facilitates
the circulation and administration of current accounts of securities opened in the name of its
affiliates. Thus, Maroclear should benefit from the ability to transfer between accounts
currents within a securities settlement system against delivery and to establish all
procedures aimed at facilitating its affiliates the exercise of rights related to the securities as well as
the collection of the products they generate.
Only financial intermediaries (Bank Al-Maghrib, General Treasury, banks, companies of
financing, brokerage firms, the management company of the stock exchange, the C.D.G.) are
affiliated with Maroclear. But also the depositary institutions of the assets of the U.C.I.T., to
individuals or entities issuing values subject to account registration, and the
foreign organizations whose function is similar to that of the central depositary.
Finally, Maroclear is responsible for compliance with the rules for maintaining enhanced securities accounts.
the accounting of account holders. It also ensures the verification of balances
accountants. In this context, Maroclear records the entirety of the securities comprising each issue.
of values accepted for its operations in its accounting. Moreover, the counterpart of each
The issuance must be recorded in the accounting of the central depositary to the credit of the accounts.
affiliate currents. Thus, Maroclear must ensure that at all times the total of the securities registered in the account
The holders with the account keepers correspond to the credit balance of current accounts.
For this, it is able to carry out on-site and document checks with the affiliates having
securities accounts. So, all operations carried out on the negotiable securities market are
carried out within a secure framework, characterized by transparency and the improvement of conditions
of the settlement of transactions.

14/74
E- volume of operations
With the abundance of liquidity and the decrease in interest rates, the issuance of securities
negotiable claims experienced a notable recovery in 2004, after the decline recorded during
from the previous year. Indeed, the total volume of emissions increased from 2.9 billion to nearly 6
billions of dirhams. This evolution is attributable to the strong increase in companies' appeals
non-financials in the commercial paper market, which amounted to 4.4 billion.
On the contrary, the emissions of corporate financing bonds, amounting to 1.3 billion, have decreased.
a contraction of 38%, while those of time deposits only amounted to 275 million,
translating the ease of bank liquidity.

15/74
 The Financial Market
The financial market is a meeting place for the supply and demand of long-term capital.
term.
In contrast to the money market, in which economic agents negotiate between
their needs and their short-term capital surpluses, the financial market is the place
negotiation of long and medium term capital exchange materialized by
instruments called securities.

The participants in the financial market:

Financial markets are driven by participants who expect them to
fulfill a number of functions for the circulation and allocation of financial flows
as well as protection against risk.
The participants on the supply side of securities are of three kinds.
Companies: these are capital companies also called joint-stock companies that
wish to find on the primary financial market the long-term financing necessary for
their development. They issue either shares or bonds.
The State: whose needs are considerable, issues bond loans to meet its
budget deficit.
Local authorities also issue bonds to meet their financing needs.
public equipment projects.
The participants on the demand side of the securities:
- Individuals: in search of a better investment for their savings
- Institutional investors such as insurance companies, the fund for
pensions, the Deposit and Management Fund, Collective Investment Organizations in
Securities (UCITS) that play an extremely important role, considering the
capital they have.
- The banks that are approached for participation in certain companies of
capital.
- Foreign investors who are often interested in taking stakes in
Moroccan companies. The privatization of certain Moroccan companies has stimulated the
foreign investments.

Role of the financial market

The financial market has the primary mission of directly connecting suppliers and buyers.
of capital. This connection between savings and investment occurs without going through the circuit
banking. This is what is called banking disintermediation. Credit institutions
content thus with the simple role of broker.
The financial market also allows for the expansion of the business considering the possibility of it
carry out merger-absorption operations and capital increase.

Organization of the financial market

The functions of a financial market are to ensure the circulation and optimal allocation of funds to
borrower agents.
But agents who lend fresh money may need to recover it quickly or else
may wish to exchange the titles they initially obtained for others.

16/74
It is therefore logical to provide for two compartments, one for which in return for the issued values,
capital seekers obtain liquidity - the primary issuance market - and the other on
which are negotiated the already issued securities - the secondary market.

The primary market is a market where all companies (public or private) can do
call for savings directly to obtain long-term financing. They issue in
counterpart of these collected funds in securities (stocks or bonds).

The secondary market is the one where already created securities are traded.
primary market). In this second segment of the financial market, investors who have already
those who bought securities in the primary compartment must be able to quickly liquidate their positions,
under optimal security conditions.
This market also allows operators:
to collect the remuneration attached to an investment
to make capital gains
achieve external growth (for example: acquire a sufficient number of shares to take the
control of a group.

Before explaining how the market works and its specifics, it is important to define the different
types of titles exchanged in this market and to specify the advantages they provide to their
acquirers.
Indeed, securities are transferable and negotiable instruments representing rights.
intangible assets of partners or creditors that can generate income for their holders.
We distinguish two categories of securities:

- variable income securities (stocks): A stock is a security that

represents a share of the capital of a company. Only public limited companies and
partnerships limited by shares have the ability to issue shares. Most other companies issue
social shares (LLC...). A so-called classic or ordinary share is broken down into several rights,
which give it its value. Shares are therefore ownership titles representing a fraction of the capital
of a company. Their holder (the shareholder) becomes a co-owner of the company. He receives part of the
profit of this company in the form of dividends, usually paid in cash, once a year.

A company that goes public commits part of its capital in the form of shares. The number
shares issued represent the engaged capital.

Any natural or legal person purchasing shares on the stock exchange then becomes a
shareholder associated with the company. The share can be bearer or registered. In the first case,
the holder is not known to the issuer but only to the account keeper. In the second case,
the holder is known to the issuer

17/74
Fixed income securities (bonds): a bond is a fixed income security, a title
negotiable evidencing a claim against the State or the issuing company. This fixed interest may be
determined at the issuance of the loan and payable even in the absence of profits.
The obligation is repayable within a period and according to terms set at the time of issuance.
The bondholder is a creditor and not a partner. In the event of liquidation, they are entitled to reimbursement of
amount of his loan before the shareholder, who is a partner.
The bond can, however, be convertible into shares (if the issuing company grants this benefit.
to the subscribers, and this, before the issuance) and the bondholder can become a shareholder under certain conditions
conditions.

A bond is a financial instrument that represents the commitment of a borrower to a lender

who provides funds at their disposal in return. This commitment includes a schedule of cash flows.
financiers who define the repayment terms of the funds and the method of compensation of the
lender in the meantime.

The financial market is divided into two compartments, namely the bond market and the market.
scholarship holder.

Mandatory Market

Obligations: principles and characteristics

The bond market is a less publicized but equally important market as
that of actions, in terms of volumes. There is only one reason for this, the share of the State on the
bond market. Because unlike stocks, a bond does not represent a
part of the capital but a part of debts. The bond market is a means of financing
used by businesses, the treasury, local authorities, and certain financial institutions.

There are almost as many types of bonds as there are issuers: Treasury bills, Bonds
Private, public enterprise obligations guaranteed by the state, window bonds,
premium bonds, zero-coupon bonds... but all retain a certain number of
characteristics communes.

Operation
A company with significant needs has several sources of financing.

She will either be able to seek funding on the equity market (through
a capital increase or an initial public offering,

2-either by borrowing. It can either borrow from a bank or finance itself through the
bond market. By financing itself in the bond market, the company becomes more
independent from banks. Indeed, each individual can buy bonds.
in the bond market. In exchange for this investment, the individual or any
investors will receive interest also called coupons (bond equivalent of
dividends).

The main types of bonds

18/74
Convertible Bond: The bond may be repaid in shares and not in
money.
Convertible Bond: The bond must be repaid in shares.
Window Obligation: The repayment of the obligation can be made over several
periods called windows.
Zero Coupon Bond: No coupon is paid throughout the entire life of the bond.
the obligation. The coupons are capitalized and paid in full at maturity.
the obligation.

The nominal
Like stocks, a bond has a nominal value. It is on this amount that the
coupons that will be paid to you by the company. The face value of the bonds is often
function of the type of securities. But in some cases, the CDVM can impose on the issuer
to increase the share of its nominal in order to limit the subscription to more investors
advertise.
The nominal interest rate
This is the interest rate for calculating the coupons. Thus, with a nominal of 500DHS.
and a nominal interest rate of 6%, a subscriber will receive, most often annually,
500 × 6 % = 30 DHS.

The issue price

In order to attract numerous investors, it is not uncommon for the issue price of the bond
is lower than the nominal value. The same applies to the stock market during
the initial public offering. It is also possible, in rarer cases, that the price
the issue amount is greater than the nominal amount. In practice, the company will reimburse to
the maturity of the obligation an amount higher than that borrowed.

The reimbursement price

At the maturity of the obligation, the amount of it will have been fully paid to you.
refunded. This refund may be greater than the nominal amount, and this in order to
to increase interest for investors. The difference between the repayment price and the
nominal is called redemption premium.

The pricing of bonds

Like any financial instrument, a bond can be traded, exchanged freely.
simplicity. In fact, the price of a bond evolves based on interest rates and other
specific elements of a bond. But it is important to know that a bond is
quoted as a percentage of its nominal value and not in monetary units.

The amortization method

How will the capital be reimbursed? There are three modes of capital reimbursement.
define further below:

- The repayment in fine: each year, only the interest is paid, all the
obligations are repaid at maturity

- by equal annuities or by constant amortizations: the issuer plans to

repay the bonds in several installments on fixed dates in advance

19/74
 zero coupon bonds: it is a bond whose full repayment
(principal and interest) is paid at the end of the loan term

The lifespan
The bond market is a long-term market. The average lifespan of bonds
is between 8 and 10 years for companies, and 15 years for bonds issued by
The State. The longer the lifespan, the higher the risk associated with the bond will be.

The duration
The lifetime of a bond thus represents the period remaining until maturity.
of this same obligation. But there is a concept that is much more used in the public.
financiers, namely duration. Duration corresponds to an average lifespan based
on the updated future cash flows of the bond.

20/74
Advantages of bonds

The obligation grants its subscriber several advantages, including:

Right to interest payment: unlike shareholders whose income is uncertain,

the remuneration of bond creditors is represented by the payment of interest in
function of the yield rate set at the launch of the loan each year on the date
anniversary of the operation.

This income can be fixed or variable, in which case the yield rate of the bonds must
to be indexed to a known reference such as the rate of treasury bills issued by means of
of adjudication.

The bondholder is also granted other privileges, namely:

The right to oversee the management of the company regarding the administration of the company in order to
ensure that the loan guarantee has not disappeared.
the right to freely transfer the securities: like the shareholder, the bondholder has the right to transfer
freely its obligations without asking for the agreement of the other bondholders.

On the other hand, as a creditor of the company, the bondholder is not responsible for the
debts and does not risk losing the amount of its investment (except in the case of liquidation of
the issuing company where it cannot disregard the bulk of its creditors even
after the transfer of assets secured by guarantee

Disadvantages

The bond loan not being linked to the company's results, the subscriber of
the obligation has no chance of making capital gains. The repayment
is based on the amount agreed upon at the issuance and does not take into account the factors
restrictive such as inflation and rising interest rates. In case of need for funds,
the investor is not sure he can recover his investment, because unlike stocks,
obligations are not very liquid due to insufficient counterparts.

Bond loans

The State, local authorities, and capital companies can initiate

bond borrowings from the public to finance their investment needs.

The issuance of bonds in Morocco must be subject to a prior declaration addressed to

Minister of Finance.

21/74
The latter can oppose the planned date of the issuance or the expected interest rate.
to avoid hindering the placement of state loans in the local market.
Any public broadcast must be published in the Official Bulletin (notice indicating
the characteristics of the issuing company and the loan.
The amount of the nominal value of the bonds cannot be less than 50 Dhs. To the
difference in shares, no legal provision prohibits issuing bonds at a price
below the nominal value.

Bond loans are issued for varying durations not exceeding

generally 15 years. Depreciation usually takes place either by drawing lots or by
buyback on the stock market if the issuing company has reserved this last possibility.

22/74
 ILLUSTRATION

BOND LOAN 'MAROC ALUMINIUM Company'

Name "Morocco Aluminum Sanad"

of the loan
Amount 20,000,000 dirhams divided into 2,000 bonds
Nominal 10,000 Dirhams per bond
Shape of The bonds are all registered.
obligations
Issue price The bonds are issued at par, that is to say 10,000 dirhams each.
obligation, fully payable upon subscription.

Rate 5%
Price of 10,000 dirhams per bond
refund
Date of Each bond subscribed under this loan
enjoyment enjoyment of interest from the effective date of its
subscription and release.
The accrued interest on each bond from the date of
subscription and the closing date being June 30, 2005 will be
counted and paid on that last date
The unique date of enjoyment in interest for all bonds
issued and which will serve as the basis for stock market negotiations is set
on July 1, 2005, even in the case of an extension of the date
closing limit.
Duration The bonds will be issued for a duration of 5 years.
Depreciation All issued bonds will be subject to depreciation
annual one-tenth of the loan amount, amounting to 4,000,000
dirhams.
The loan will be fully repaid on June 30, 2010.
Payment The annual interest payment and the repayment of the principal owed
will be carried out at the end of the term, starting from the first year
following the subscription deadline.
Tax regime Common law governing the taxation of bonds.
SubscriptionsThe subscriptions and payments will be received from June 20
and payments 2005 with ABC BOURSE stock intermediary.
Closing of Subscriptions to this loan will be closed without notice and at
subscriptions later on June 29, 2005.

23/74
 Amortization schedule of the bond loan of the company 'HARROUDAMAROC'

Obligations Obligations Interests Depreciation Capital

The years
refunded remaining dues service of capital amount due
30/06/2006 400 1,600 100,000 4,000,000 16,000,000
30/06/2007 800 1 200 80,000 4,000,000 12,000,000
30/06/2008 1200 8,000 60,000 4,000,000 8,000,000
30/06/2009 1600 400 40,000 4,000,000 4,000,000
June 30, 2010 2000 0 20,000 4,000,000 0

Comment:
The reimbursement is made annually on June 30 of each year by lottery.
First, payment of interest on the entire loan, namely:
20,000,000 X 5 / 100 = 100,000 Dhs, which will be served on all obligations (20,000).
Then, a repayment of 1/5 of the obligations, namely:
2000 / 5 = 4000 (obligations) x 10,000 (nominal value) = 4,000,000 Dhs
Amount to be refunded by drawing which will take place on June 30 of each year.
The holders of the 400 bonds, once reimbursed, will no longer be considered as
creditors and will no longer have rights over the borrowing company.
As of 30/06/2007: there will only be 1600 bonds of 10,000 Dhs nominal value left, which represents a capital
outstanding amount of 16,000,000 dirhams (1600 x 10,000).
Interest will only be paid on the outstanding principal, namely:
16,000,000 x 5 / 100 = 80,000 Dhs to all bondholders (not yet reimbursed).
A second draw will be held to extract the 400 bonds that will be redeemed.
30/06/2007
After this operation, the remaining capital due will only be 12,000,000 dirhams for 1200 bonds.
From 06/30/2007 to 06/30/2010, the operation will be carried out in the same manner as for the two
previous operations until total repayment of the loan.

24/74
The stock market

The stock market introduction

Going public is an exceptional event in a company's life. This is the reason

for which the Casablanca Stock Exchange has been leading, for a few years now at the national level and with the
stock exchange companies, a systematic policy of raising awareness and informing leaders
of companies on the interest of a stock market listing.

Opportunely decided and well prepared, a stock market introduction allows the company:
to liquidate its capital and therefore its assets,
to facilitate its internal and external growth, which will strengthen the assets of the companies involved
in a competition that has become global,
to issue shares, which will put it in a position to raise capital in the primary market
finance and will allow him to finance his development through equity rather than by
indebtedness,
to instantly widen the circle of shareholders that the company can appeal to for
capital increases. Funds are raised during the introduction and also after.
the introduction based on the project and the opportunities of the company (bond issue).
In one word, the stock market helps to promote solid and sustainable growth.

Advantages of going public

• Access to a new source of complementary financing to the offer of organizations
specialized and credit institutions
• No guarantee (real security or collateral) is required for the raising of capital
• Decrease in financial charges after the IPO attributable to the restructuring of
the financial situation
• Reduction of financial costs and increase in independence from institutions
of credit
• Increase in the company's notoriety, it becomes better known among
financial community
• Good governance label: increased credibility of the company now judged
Based on market analysts' studies. Its accounts are certified, analyzed, and published.

25/74
How to go public
The initial public offering can be done either by issuing shares on one of the three listing markets.
available, or by issuing bonds.
To access the Stock Markets, the following main conditions must be checked:

Main Market:

Criteria Required conditions

Profile of companies Large companies
Minimum amount to issue 75 million dirhams
Minimum number of titles to include (number 250,000 (shares)
actions to propose)

Developing market:

Criteria Required conditions

Company profile Medium-sized enterprises presenting
attractive development prospects
Minimum amount to be issued 25 million dirhams
Minimum number of titles to put (number 100,000 (shares)
actions to propose)

Developing market:

Criteria Required conditions

Company Profiles Fast-growing companies with a project to
financier
Minimum amount to issue 10 million dirhams
Minimum number of titles to include (number 30,000 (shares)
actions to propose

Moreover, the company can also raise funds through debt for the financing of its
development projects in the bond market.
To be able to access it, the company must meet the following conditions:
Minimum issue amount: 20 million dirhams
Minimum maturity of the issuance: 2 years

Initial public offering process

Once the basic decisions are made by the shareholders, it is the choice of intermediaries.
financiers and the agreement on the work program that triggers the "countdown". The deadlines
dependent, therefore, on the complexity of the file but, in any case, are not less than 3
month from the submission of the file to the Ethics Council of Securities and to the Stock Exchange
Casablanca. A preparation period of 6 months to 1 year is generally required for proper preparation.

26/74
Main steps of the initial public offering:

Preliminary step Shareholders' agreement on the introduction project, Variable deadlines

according to the cases
Possibly:
heritage developments
modalities for controlling capital (holding, shareholders' agreement,
etc.)
legal, financial, statutory, etc. reorganization
consolidation of accounts.
Determination of the share of capital put up for sale.
Setting the desired date.
•Pre-selection of financial intermediaries (banks, companies of
stock exchange, financial advisors,...
The choice of The regulations provide for the designation of one or more 4 to 6 months before
intermediaries authorized financial intermediaries (brokerage company). the introduction
mandatory This choice must be made carefully as these intermediaries assist
society before, during, and after the introduction and is the link between the
society and the market.
The official deposit of The submission of the file to the Securities Ethics Council 3 months minimum
file and at the Casablanca Stock Exchange allows to "run" the deadlines. before the date
The Securities Ethics Council requests that the scheduled for
the file should be submitted at least 3 months before the scheduled date of the introduction
the introduction. The Casablanca Stock Exchange reserves a date on the
introduction calendar.
The introduction in The introduction of the file is done by the Casablanca Stock Exchange and the This period
stock exchange Ethical Council of Securities Values in connection with the lasts about 2
leaders, the introducing establishments and the commissioners for month
accounts.
The decision The admission decision to one of the 3 compartments is made by the About 3
admission Board of Directors of the Casablanca Stock Exchange based on a weeks before
report prepared by his services. the introduction
Unless opposed, the Ethics Council for Securities
gives its visa on the information note.
The information from •Notice from the Casablanca Stock Exchange presenting the terms of In 15 days
market the introduction. preceding
Distribution of information documents. the introduction
Pre-marketing to investors and influencers.
Financial, institutional advertising.
First quotation Centralization of purchase orders at the Casablanca Stock Exchange, D-Day
determination of the course.
•Publication of a notice from the Casablanca Stock Exchange on the result of the
quotation.
Market monitoring From the first
daily quotation
Executed

27/74
Management of the three compartments

To facilitate access to the stock market, the Casablanca stock exchange has set up three markets.
regulated corresponding to a well-differentiated offer.
The 1hedepartments addressed to large Moroccan companies managing a public service that
have been carrying out their activities for at least 3 years, with some flexibility.
Listed companies in this compartment (since the beginning of 2005): AFRIQUIAGAZ, AUTOHALL, BCM, BMCE
BANK, BMCI, BRASSERIE DUMAROC, CIMENTS DUMAROC, COSUMAR, D U MOROCCO, DIACSALAF,
CREDIT
EQDOM, HOCIMMAROC, ITTISSALATMAGHRIB,
AL LAFARGECIMENTS, LESIEURCRISTAL, MANAGEM,
MAROC LEASING, NAXANSMAROC, ONA, SAMIR, SMI, SNI, SONASID, WAFAASSURANCES.

The second compartment, created in 1996, is aimed at medium-sized companies, often

familial, showing a good level of profitability and good growth prospects and whose
leaders seek recognition of their success by the market.
Companies listed in this compartment (since the beginning of 2005): ALUMINIUM DUMAROC, AUTONEJMA,
BERLIERMAROC, BRANOMA, CENTRALELAITIERE, CTM, IB MAROC.COM, LAMAROCAINEVIE, MAGHREB
OXYGENE, MAGHREBBAIL, DETETOUAN PAPER, SCE, SOFACCREDIT, TASLIF, UNIMER, CIH.

The third compartment, which now allows small and medium enterprises to call on
public savings and access the official market through the creation of this compartment.
The easing of access conditions to the third compartment aims to allow
small and medium enterprises, which form the core of our economic fabric and whose
funding needs to finance their development are significant, to take advantage of the benefits of
quotation by calling on savings.
Listed companies in this segment (since the beginning of 2005): Acred, AGMA-Lahlou Tazi,
Balima, Fertima, LGMC, Zellidja S.A, Carnaud Maroc, DIAC Equipement, Le Carton, Rebab
Company.

28/74
The parties involved in the initial public offering
s speakers during
Conditions of Financial Intermediaries
Role before the introduction:
establishment of the operations schedule,
proposals for legal, accounting, and tax adjustments to be made
in place
advice in relations with regulatory authorities,
participation in the valuation of the company, in determining the offering price,
at the choice of the date and the procedure taking into account the
characteristics of the company and market conditions,
Drafting of the information note submitted for the Council's approval
Deontological of Securities Values,
writing the financial analysis note,
placement of titles broadcasted in the public,
possible participation in liquidity or market-making contracts.
Role on the day of the introduction:
directly associated with market scrutiny and pricing
first course on the side.
Role after the introduction:
in consultation with the leaders:
daily market monitoring,
management of the liquidity or animation contract if applicable,
reclassification of titles,
financial information consulting, financial operations,
drafting and publishing financial analyses
management of the title service.
LA Casablanca Stock Exchange
As a market company, the Casablanca Stock Exchange is responsible for:
of the organization and proper functioning of the stock market (listing,
compensation, delivery settlement, market data dissemination in
real time)
to ensure its security (market control and participants)
to inform investors and issuers (dissemination of prices, of
review)
to ensure service to listed companies (post-support
introduction)
to promote the stock market to investors and companies
quotable.
In terms of introduction, the Casablanca Stock Exchange ensures:
The information for business leaders about the advantages it can bring them.
provide a quotation,
The instruction of the file that is presented for approval to its Council
of Administration,
the organization of quotes on the day of the introduction.
After the introduction, the Casablanca Stock Exchange notably ensures:
Issuer information on the market for their security,
the management of securities operations,
advising issuers and supporting them throughout
their stock market life.
29/74
 THE CONTROL AUTHORITY
LE ADVICE The Securities Ethics Council is an authority
Independent administrative authority responsible for ensuring the protection of savings,
DISVALUES to the quality and consistency of information, to the proper functioning of
FURNISHINGS markets.

In terms of introduction:
A file is submitted to the Ethical Council of Securities Values,
3 months before the introduction date,
This file includes, in particular, an information note that must obtain
his visa,
As part of its missions, the Ethical Council of Values
Mobilières maintains ongoing relationships with the commissioners.
accounts of candidate companies and may request a program
of improvement of accounting procedures.
THE OTHER ADVICE
THE It is advisable to involve the auditors early in the process.
COMMISSIONERS of introduction because:
TO THE ACCOUNTS They must be informed before the official submission of the file.
at the Securities Regulatory Council,
they have to certify the social accounts for the last 3 financial years
the introduction,
they will be in constant contact with the Ethical Council
Securities that will examine their due diligence and may, if applicable
if applicable, request the establishment of a work program.
THE AGENCY OF
Most companies now turn to an agency for
COMMUNICATION
financial communication to 'orchestrate' all operations
information related to the introduction:
document editing
organization of relations with the press, analysts, investors,
•organization of information meetings in Morocco or abroad.
After introduction:
The agency helps the company with its mandatory information policy or
volunteer (general assembly, annual report, letter to shareholders,
financial statements,...).

30/74
Conditions for going public: Information policy
Any initial public offering requires the implementation of a financial communication strategy.
to promote the strengths and project of the company and to ensure the successful placement of shares.
Indispensable from a marketing perspective – the action is a new product that needs to be promoted – the policy
Information also has mandatory aspects on the stock market in accordance with the circulars of the Council.
Ethical standards of Securities and the commitments made by the company during its introduction.
The information policy can be carried out by the company's services or with the
collaboration of a specialized agency.
Before the introduction
mandatory publication of an information note and accounts,
Distribution of the introduction file to all investors and influencers,
potential launch of a financial advertising campaign,
organization of an open financial information meeting for analysts,
investors and to the press,
staff information
After the introduction
the company is obliged to provide regular information throughout the year,
sincere regarding the following elements that should be the subject of an official publication:
the revenue of the last 3 semesters;
the company must also make known to the public any event in its life
the company likely to have an impact on the stock price.
Indeed, the stock market is inherently a competitive anticipation market where investors
make their decision based on the analysis of the available information and 'visibility'
which follows.

Conditions for going public: the different compartments

One of the advantages of the Casablanca Stock Exchange is the diversification of its components. Thus, the
Admission conditions for each compartment signify this diversification.

The content of the file

Presented by the issuer's advisor, the file includes:

a letter in which the company requests the admission of its securities on one of the three
compartments of the Casablanca stock exchange and commits to adhere to the provisions
regulatory measures established at the level of the General Regulation;

A draft information note prepared in accordance with the rules and circulars of the Council
Ethics of Securities Values;
the certified accounts of the last three financial years;
the minutes of the decision-making body that decided the introduction of the securities on the stock exchange and
their show.

31 out of 74
Once the company is listed on the stock exchange, its shares will be traded on the market.
secondary. In Morocco, the Casablanca stock exchange manages this activity.
The Moroccan stock market (The Casablanca Stock Exchange)

Created in 1929, the Casablanca Stock Exchange has undergone several reforms. The first, in 1948, has
attributed to the Stock Exchange the legal personality. The second, in 1967, allowed it to
to reorganize legally and technically and to define it as a public establishment.
Since 1993, the enactment of a set of laws aimed at reforming the financial market has
given to the Casablanca Stock Exchange the essential regulatory and technical framework for its
emergence.
Also, since 1996, the Casablanca Stock Exchange index has been integrated into the global index of the Company.
International Finance Corporation 'IFC' assessing the stock market performance of emerging countries.
• Participants in the Secondary Market (Stock Market)
The Casablanca Stock Exchange (SBVC)
The managing company (SBVC), established on 21/09/1993, is a public limited company with a capital of 10
millions of dirhams fully subscribed in equal parts by the brokerage firms.
The mission of the SBVC is to:
Pronounce the introduction and the delisting of securities on the official market.
Ensure compliance of operations carried out by brokerage firms with respect to the laws and
current regulations.
Set the operating rules of the market.
Inform the Council for Ethics in Securities (CDVM) of any violation it has
statement.

• Brokerage firms

By law, brokerage firms enjoy the monopoly on trading in securities.

listed on the Casablanca Stock Exchange, which undeniably places them at the heart of
the activity of the square.

At the end of January 2005, they number thirteen: Attijari Intermediation, BMCE Capital Bourse, BMCI
Bourse, CFG Markets, Credit of Morocco Capital, Eurobourse, Finergy, Brokerage and Consulting
Financier Al Wassit, Morocco Services Intermediation, Safabourse, Sogebourse, Somacovam, Upline
Securities.
Securities firms have the main purpose of executing transactions in securities.
They can also:
participate in the issuance of securities by legal entities making a public appeal for savings;
ensure the custody of the titles;
manage portfolios of securities under a mandate given by a saver;
advise and approach clients for the acquisition or disposal of securities;
assist legal entities making public appeals for savings in the preparation of documents
information intended for the public;
stimulate the market for listed securities on the stock exchange.
Brokerage firms are the only ones authorized to execute transactions on securities.
securities listed on the stock exchange.

• The Advisory Council of Securities Values (CDVM)

32/74
It is a public organization created in 1993 under the supervision of the Ministry of Finance.
His mission is to:
Secure and protect investors: The will to protect public savings invested in
securities and ensuring the proper functioning of the market has been reflected in particular by the
creation of the Dahir enacting law 1-93-212 concerning the CDVM.
Act as a supervisory authority: The CDVM is tasked with ensuring the proper functioning of
the transparency, integrity, and security of the securities market. It is also responsible
to ensure the protection of savers and investors by particularly ensuring their information
by legal entities making a public appeal for savings.
Manage customer guarantee funds: The law has established a guarantee fund intended to compensate for the
clientele of brokerage firms being liquidated. This guarantee fund is managed by the CDVM. The
Engagements covered by the guarantee concern the return of the securities and cash deposited with
stock brokerage firms in liquidation.
Ensure the guarantee of successful completion of operations: The Casablanca Stock Exchange will guarantee to companies
from the exchange the delivery of securities and the settlement of cash due to them under the transactions
on the listed securities and executed on the central market.
Ensure transparency: To ensure transparency and inform the shareholders of the companies
listed on the Casablanca Stock Exchange, the CDVM has published a circular defining the procedure for
threshold crossing declaration that a shareholder must comply with. Thus, any shareholder who
would own 5% of the capital of a listed company must notify the company, the CDVM, and the Stock Exchange
from Casablanca.
The Professional Association of Brokerage Firms (APSB)
The Professional Association of Brokerage Firms (APSB) is responsible for ensuring compliance by
its members to the legal provisions, to represent its members before public authorities or any
other organization and to study issues related to the practice of the profession.
Every duly licensed brokerage firm is required to join a professional association.
called 'professional association of brokerage firms' governed by the provisions of the dahir
the 1st of Jumada I 1378 (November 15, 1958) concerning the right of association.

The statutes of the APSB and their amendments must be approved by the Ministry of Finance.
after the opinion of the CDVM.

• The central depository MAROCLEAR

Securities were physically printed on paper until 1993. Their holders

They could thus keep them personally either at home or with financial intermediaries.
Since that date, the dematerialization of securities has been effective. The investor, instead of having a share
or obligation materialized on paper, will have an entry in a current account with
the financial intermediary of their choice (primary registration).
In turn, financial intermediaries have current accounts with Maroclear where are
grouped, by value, all the securities they manage for their clients (secondary registration).
The advantages of this procedure are numerous:
For emitters:
• Reduction of the cost of issuing securities (no printing of physical formulas),
• Improvement of the image of the issuing company with savers (payment of coupons to
good date)
• Better control of emissions (accounting tightness, protection against the emission of fakes
titles),

33/74
For financial intermediaries:
• Relief of the workload and costs related to the material preservation of titles;
• Simplification of procedures related to the circulation and administration of titles;
• Reduction of uncertainty following stock market negotiations.
For the financial center as a whole:
Enhancement of the attractiveness of the Casablanca place for foreign investors, particularly due to:
• the importance attached by the international financial community to the establishment of a
central depository as an essential measure for modernizing and securing the market
securities;
• the shortening and standardization of placement deadlines, particularly in terms of
delivery regulations
• the establishment of the principle of the simultaneity of cash settlements and deliveries of securities
correspondents.

The Undertakings for Collective Investment in Transferable Securities (UCITS)

• Investment companies
Definition
Investment companies aim to receive the savings of their members and to make
to capitalize on this in acquiring a portfolio comprising various securities and assets.
In Morocco, investment companies are governed by the Royal Decree of October 22, 1966. It is this
decree that also established the SNI (National Investment Company). Among the companies.
for investment, it is necessary to mention:

Mobile Savings Company owned by the National Investment Company (SNI).

Morocco Investment held by the Moroccan Bank for Commerce and Industry (BMCI)
Invested by the Moroccan Bank Society (SGMB)
The rules specific to investment companies are as follows:
• Name: investment companies are required to follow their name with
mention 'investment company governed by the Royal Decree of October 22, 1966, issuing Law No. 194-66'
the 7th of Rajab 1386.

• Share capital: minimum capital of 5 million dirhams.

• Legal form: must be a public limited company.
• Contributions in kind are not allowed except for securities.
• The shares of investment companies can be registered or bearer shares, fully
released within a period of 2 years from the date of their subscription.

• The corporate purpose: management of a portfolio of securities or securities issued by individuals.

public, semi-public or private morals.

The National Investment Company (SNI)

Also created by Royal Decree of October 22, 1966, the initiative was the responsibility of the Minister of
Finances.

34/74
The State is the main shareholder; the other shareholders are legal entities.
public and private individuals.
Subject: like that of private investment companies, it remains the management of a portfolio of
securities or stocks.

The Operation of the Market

The structure of the market
The Casablanca Stock Exchange has two compartments:
The central compartment: it is the heart of stock market activity within the SBVC. Also, and when
it is not traded on the block market, any transaction on a security listed on the Stock Exchange
From Casablanca must pass through the central market. As a result, the trading system of the stock exchange
from Casablanca is that of a centralized market whose stock performance is determined by the
orders.
The block market: however, in the absence of sufficient consideration on the sheet of
market, certain orders (importance of the operation) cannot be fully executed on the
central market. To address this malfunction, the SBVC has set up a compartment of
blocks that allow the immediate negotiation of such orders at a market-derived price.

Also, block market operations must present the characteristics:

present a volume at least equal to the minimum block size (TMB), defined by the Exchange
Casablanca for each value, by reference to the historical transaction volume;
to be negotiated at a price included in the range of prices from the market sheet.

Note that since April 2001, the procedures for reporting block market transactions
are totally automated.
This architecture, linked to the new electronic rating system, represents the solution to
imperfections that characterized the previous organization of the market (direct transfer market
and official market).
It is the 'General Regulations' of the Casablanca Stock Exchange that specifies the rules of operation.
of markets. It has the force of law and is therefore enforceable against third parties.

The electronic quoting system

Since June 1998, trading on the Casablanca Stock Exchange has become electronic.
Currently, all securities listed on the Casablanca Stock Exchange are traded on this
system from the trading stations made available to brokerage firms.
The orders entered by the traders are automatically sorted by price limit and by order.
chronological of their introduction on what is agreed to be called a 'market sheet.'

The execution of orders is done through the application of two priority rules:
By price, first of all;
-by time, then. Two orders of the same direction at the same limit are executed in the order of their
entry.

35/74
 The rating methods
On the central market, securities are classified, based on their liquidity, into three
categories:
the least liquid values are quoted at the fixing (one price per session);
The moderately liquid values are quoted at multiple fixing (2 fixings per session);
The most liquid assets are quoted continuously.

The stock market session for listed securities at the fixing:

The pre-opening:
Orders are grouped on the order sheet starting at 09:00 without any transaction.
do not intervene.
The opening:
Based on the orders present on the order sheet, the electronic system calculates a price.
of equilibrium or "fixing price", which allows at the opening at 12:00, the exchange of the largest number of
titles.
The trading session of the listed securities at the multi-fixing:
It is the same pricing method as the fixing. The only difference is that in the multifixing, there is
two openings the first at 11:00 AM and the second at 12:15 PM, which may lead to two classes per
session.
The continuous trading session of listed stocks:
The pre-opening:
Orders accumulate on the order sheet starting at 09:00 without any transaction.
does not intervene.
The opening:
Based on the orders present on the order book, the electronic system calculates a price.
of balance or opening course, which allows continuous exchange from 10:00 to 12:55 of the largest
number of titles.
The session of the ongoing:
During this phase, any order introduced into the system can instantly cause one or
several transactions if the market sheet allows it.

On August 15, 2000, the Casablanca Stock Exchange implemented a closing fixing that is scheduled
with a five-minute pre-closing period during which traders can introduce,
modify or cancel orders in the quoting system without triggering transactions. This course
the closing is determined as follows:
In the case of quotation, the price determined during the closing fixing is taken as the closing price.
In the event of a reservation or no quotation at the end of the closing fixing, the price retained is that of the
last transaction.
The electronic quoting system automatically feeds a distribution system. The
broadcasters receive in real time a set of market data (time, price, number of
exchanged titles,...)

• Settlement of Transactions and Investor Protection

The conclusion of transactions

The basic principle that governs the transaction settlement system is the simultaneity of the
delivery of securities against cash settlement. The settlement of transactions concluded between the
participants in the market organized by the Casablanca Stock Exchange, is carried out through the delivery of securities against the
concurrent settlement of funds. This condition is linked to the respect of a placement deadline
normalized (currently the resolution is done at D+3).

36/74
The Protection of Investors

The customer guarantee fund

The law established a guarantee fund intended to compensate clients of the brokerage firms placed in
liquidation. This guarantee fund is managed by the CDVM. The commitments covered by the guarantee concern
the restitution of securities and cash deposited with the brokerage firms in liquidation.
The guarantee fund of brokerage firms
Similar to the customer guarantee fund, the law also provided for the establishment of a guarantee fund for
Brokerage Firms. To this end, each Brokerage Firm establishes deposits with the Stock Exchange.
guarantees intended to cover the net open positions held by them as part of the
central market.
The guarantee of movements
In the event of a breakdown of an intermediary, the Casablanca Stock Exchange initiates a resolution process.
defects titles and species that allow to guarantee the resolution of pending operations.

The declaration of crossing thresholds

To ensure transparency and inform shareholders of companies listed on the Casablanca Stock Exchange, the
CDVM published a circular defining the procedure for declaring threshold breaches that everyone
shareholder must comply.
Thus, any shareholder who would own 5%, 10%, 20%, 33.33%, 50% or 66.66% of the capital of a company
listed on the Casablanca Stock Exchange must notify the company, the CDVM, and the Casablanca Stock Exchange.
must also specify their intentions. Conversely, a shareholder owning 5%, 10%, 20%, 33.33%, 50%
% or 66.66% and who comes to transfer all or part of their shares must also notify the company, to the
CDVM and the Casablanca Stock Exchange.
Any shareholder who does not declare a crossing of thresholds upwards or downwards is liable to a
a fine of 5,000 MAD to 100,000 MAD. He also risks during an undeclared upward crossing.
to lose the right to vote for two years on actions exceeding the fraction that should have been declared.

The Stock Indices

In order to equip itself with efficient measuring instruments and with the aim of providing tools for
adapted references for a dynamic approach to collective management, the Casablanca Stock Exchange has
develop a consistent range of capitalization indices:
the MASI (Moroccan All Shares Index) which includes all stock values listed on the Stock Exchange
Casablanca
the MADEX (Moroccan Most Active Shares Index), composed of the most active stocks on the market, in terms of
of liquidity.

The two indices are based on the same methodology as the major index creators in the world and
thus allowing for a finer view of the evolution of the different capitalizations recorded on the
Casablanca place, and their contributions to market activity.

Admission criteria for the rating of equity securities (stocks)

The Casablanca Stock Exchange is composed of 3 compartments. To be listed on one
In these three markets, companies must strictly adhere to the criteria set by law.

37/74
 LESOPCVM
Since their launch, UCITS have experienced a real explosion as the volume of assets
managed increased from 10 billion dirhams in 1997 to about 86 billion dirhams by the end of 2004.
This growth can be explained by the fact that investors, whether institutional or
individuals quickly realized the importance and benefits of these
new savings instruments.
Indeed, mutual funds allow investors to access the financial market in the best
safety and profitability conditions. They also have the advantage of being liquid, more
more effective in the long term than traditional investment products.
Furthermore, the diversity of funds offered by financial institutions today allows for
the investor to choose the funds best suited to their investment needs.

What is an UCITS?

UCITS (Undertakings for Collective Investment in Transferable Securities)

in Securities) are
collective savings instruments. Indeed, several savers pool their
investments in a portfolio primarily composed of securities (stocks,
obligations).
In this form of investment, savers are no longer direct holders of securities.
of properties or claims of companies, but of shares or units of UCITS themselves
investments in securities.
Organism
In a concern for security and control, the legislator wanted to provide a legal framework.
and regulatory to these products, making a public appeal for savings.
The creation and operation of mutual funds are governed by Dahir. Indeed, the creation of a
UCITS in Morocco is subject to authorization from the Ministry of Finance, after consultation with
Ethics Council of Securities (CDVM).
Then, the mutual fund in question must publish a notice in a legal announcements journal.
detailed information (developers, marketing organization, manager,
financial characteristics, ...), targeted by the CDVM and made available to everyone
underwriter.
Placement
UCITS are vehicles for investing collected savings in securities
furniture.
Collective
This notion of community has 3 advantages:
Investment funds are accessible to everyone, including small savers.
minimum representing only a certain number of dirhams approximately,
The investment of the small saver is managed just as well as that of the larger saver.
important, and the profits are fairly distributed in proportion to their initial investment.
Together, these investments represent a very substantial amount that it is
so possible to manage under optimal performance conditions (market access
finance) and security (risk diversification).

38/74
Securities
The UCITS, managed by professionals, invest the amounts that
they are entrusted to the financial market, with the aim of making them profitable.
These investments consist of a set of securities, shares and
obligation for the essential.

Economic role of UCITS

The financial market
Some economic agents invest more than they save: they have needs for
financing.
Others save more than they invest: they have financing capacities.
It is necessary to organize the transfer from one to the others; that is the function of
financial market.
Traditionally, the financial market is made up of two main circuits: the circuit
banking and the stock market circuit.

What forms can a UCI take?

There are two main types of UCITS, SICAVs (Société d'investissement à capital variable)
and mutual funds (Fonds Communs de Placement). These two organizations have a legal nature.
different, but present identical operating rules.
SICAV (Investment Company with Variable Capital)
It is the most common form that an UCITS can take. It is doublely
regulated since it is governed both by the laws of the public limited company and by
two governing the UCITS. Thus, it operates within a very regulated and closely
monitored.
Investment in a SICAV is represented by shares.
Mutual Funds
A product with less regulation than the SICAV, the FCP benefits from co-ownership status.
The investment in a mutual fund is represented by shares or certificates of
co-ownership.
In practice, the SICAV form is generally retained for marketing.
of public mutual funds, while adopting the status of FCP for more mutual funds
specific, even dedicated to one or more institutions, or who invest in
specific sectors such as agri-food, cement factories... etc.
These two legal forms, SICAV and FCP, can be either:
Capitalization funds
The income generated by the SICAV or FCP portfolio (dividends, coupons and
interest essentially) is integrated into the capital.
The shareholders of the Fund realize their profits in the form of capital gains they generate.
during the transfer of part or all of the shares or units of the Fund.

39/74
Distribution Funds
The income generated by the Fund's portfolio is distributed to shareholders.
periodically in the form of a coupon, according to a frequency decided by the manager and
mentioned in the data sheet.
On the day of the bond's detachment from the Fund, the value of its share decreases by the amount of the
distributed coupon.
These two categories of Funds (either capitalizing or distributing) are each,
subject to a different tax regime.

What are the different families of mutual funds?

Equity UCITS
Invest a minimum of 60% in shares of companies listed on the stock exchange
Casablanca, they are riskier because they are more volatile, generally more performant but on
a longer time horizon.
Bond or interest rate UCITS
Invest a minimum of 90% in bonds, they are generally defined for a
precise maturity (average lifespan of bonds in the portfolio). These UCITS are
intended for investors looking for a medium-term investment, low-risk, but whose
performance, modest, is consistent over time.
Diversified UCITS
are composed equally of shares and interest-bearing products; they allow the saver to
make the most of the stock market's dynamism and benefit from the security of investments
bondholders.
Money Market Funds
Invest in bonds and short-term negotiable debt securities, money market mutual funds.
are mainly intended for institutions and businesses for optimization of the
management of their cash flow.

How does a mutual fund work?

The net asset value (NAV)

The savings collected by the mutual fund are invested in securities. It is therefore necessary to
periodically determine the value of the mutual fund. For this, the law has established rules.
specifications that the manager must adhere to regarding valuation.
Frequency and method of calculating the VL
Thus, at least once a week, the value of the mutual fund is determined by valuation.
from his portfolio based on the latest stock and bond prices that he holds in
wallet.
Once the portfolio of the mutual fund is valued, it is possible to determine its value.
shares, or parts by dividing the value of the asset, net of management fees, by the number of
existing shares or actions.

40/74
This asset value is referred to as 'net asset value' in the sense that it is calculated on the
courses effectively traded on the stock exchange and that it is theoretically possible to 'liquidate' it
portfolio, that is to say sell it in its entirety to repay the shareholders or holders of
share of the mutual fund.

The subscriptions
The investor can buy as many shares of UCITS as he wants, whenever he wishes, and
always on the basis of this same net asset value.
This margin of maneuver increases the degree of liquidity of investments in SICAV and FCP, and
constitutes another advantage compared to both individual management and other products
financiers with lower availability.
The buybacks
The whole point of UCITS lies not in limiting itself to this theoretical possibility, but in
allow investors to sell their shares or interests at any time; and it is
the mutual fund itself that has the obligation to buy back its own shares or units from
investors who wish.
The operation being carried out based on the net asset value of the UCITS, it is therefore executed
at a fair price, both for investors who remain shareholders of the mutual fund, and for
those who liquidate their portfolio.
This buyback obligation made to the UCITS is therefore a liquidity guarantee for
the investor who can recover his investment whenever he wishes.
The valuation rules imposed on the UCITS also represent a guarantee of
security for the investor who is assured of recovering his investment at the best price
just, that is to say the one from the market.
Entry and exit fees:
The investor who subscribes or sells their shares in mutual funds conducts their operation based on
the net asset value calculated weekly or, if applicable, daily.
This net asset value is increased by a subscription fee called entry fee.
or reduced by a buyback fee called exit fee.
These rights aim to charge the new shareholder or the outgoing shareholder the costs.
what his arrival or departure entails, and it would be unfair to burden the former with it.
shareholders only.
Management fees
Management fees represent the percentage taken from the assets of the UCITS, intended for
cover operating costs, and to compensate the management company.
These fees are provided at each calculation of the net asset value.

41/74
Foreign Exchange Market

The globalization of trade and the interdependence of commercial and financial markets
International factors have led to a considerable increase in currency fluctuations.
These fluctuations resemble more erratic movements of exchange rates.
expose economic and financial operators to a risk commonly referred to as:
exchange rate risk

A- DESCRIPTION OF THE FOREIGN EXCHANGE MARKET

a- The international foreign exchange market

The global foreign exchange market is the most active financial market in the world, the demand
induced by the activities of importing or exporting companies is relayed and amplified
through speculation. It is an over-the-counter market, mainly driven by banks.

Every time a commercial or financial operation is carried out with a foreign party,
denouement translates to a currency exchange in relation to the national currency or
Conversely in the foreign exchange market. This conversion is called a currency exchange operation.

It can involve commercial operations, financial operations, or simply operations.

of speculation:

Import - Export
Investment
Supplier credit
Buyer credit
Financial borrowings
Missions
Business trips
Tourism trip

b- The characteristics of the foreign exchange market:

The foreign exchange market is thus the place where national currencies are exchanged with each other.

• An informal market (as opposed to organized exchange markets)

represented by the immense telecom network across the world.

• A permanent market, open 24/7, where financial markets take the

relay each other.

• When it closes in one country, it is already open in another.

42/74
 • A market essentially interbank since in reality, it is the
banks that centralize foreign exchange transactions on behalf of
companies.

• A market level at grape because transactions are conducted by phone or by

Dealing (online trading system) with confirmation by fax and Swift
(Interbank confirmation or payment system).

• A market that remains, despite the enormous technological progress that characterizes it,
a market where keeping one's word is the absolute priority
speakers.

c- Foreign exchange operations

The operations conducted in the market are mainly foreign exchange operations.
in cash.

A spot currency exchange operation is carried out at the exchange rates or

exchange rate, which expresses the price at which two currencies are exchanged for one another
the other, price resulting from the constant confrontation of offers and demands on the
market, and whose outcome (settlement and delivery of funds) is done 2 business days later
the negotiation date.

This implies:

- A seller's commitment to make available to the buyer, generally

within a period of 2 working days, with a correspondent a certain credit in
foreign currency account.

- A commitment from the buyer to pay within the same timeframe, namely in cash.
national, or in another currency (according to the same mechanism of
correspondant)

The main characteristics of a spot exchange operation are:

• The main motto

• The meaning: purchase or sale
• The secondary currency, or 'price' currency: currency sold if it is a purchase,
device purchased if it is a sale.
• The negotiation date
• Value date: generally equal to the trading date + 2 days
opened
• The negotiated amount, expressed in the main currency
• The negotiated price
• The amount in the secondary currency, calculated from the principal amount
and of the course

43/74
 • Settlement instructions: identification of correspondents with whom the
devices must be delivered / received.

A currency exchange operation always involves a pair of currencies: EUR/USD,

USD/MAD …etc, and the direction of the operation applies to the main currency, that is to say the
first motto of the couple.
A purchase of USD/MAD implies buying USD and selling MAD.

A currency exchange operation involves a certain amount of the main currency (currency
merchandise or guiding principle) : Example USDMAD
The counter-value of the secondary currency (price currency or quote currency) is determined by the
course of the operation: ExampleUSDMAD

A convention ensures what a course expresses. It consists of presenting the

operation currencies in the form of a fraction where the denominator represents the countervalue
of a unit of the currency present in the numerator.

An EUR/MAD exchange rate of 11.5435 means that 1 EUR = 11.5435 MAD

All combinations between convertible currencies are possible and imaginable.

Thus, the trader negotiates his currency transactions two business days before the date of
its regulation, and its account is then credited or debited based on the exchange rate
negotiated settlement with its counterparty.

Example:

The "Société Maroc Tex Export- SMTE" has completed the sale of a batch of textile products to its
Italian client wishes to convert the euros received into dirhams on the date of 01/06/05.

How will this conversion operation (between the company and its bank) take place?

- SMTE : Hello, this is Mr. M. Mohamed from the company SMTE.

- Bank : Hello, how can I serve you?
- SMTE : I need to sell 1,000,000.00 euros for
Mine
Please.
- Bank : Of course, it is currently worth 10,000.
- SMTE : Alright, it's done.
- Bank : OK, for confirmation the company SMTE is selling me
1,000,000.00 Euros against MAD at 10.0000 for a date
of value on 01/03/05. Where do you want to receive the funds?
- SMTE : It is domiciled with you.
- Bank : Okay, please transfer the funds to my correspondent.
European Trade Bank

d- The construction of exchange rates

44/74
It is globally recognized that the EURO will be quoted at a certain rate against all currencies. We
will therefore find courses: EUR/MAD, EUR/USD, EUR/GBP, EUR/xxx.

In general, currencies are always quoted against the USD (Dollar). For example, if you want to...
to provide a quote for GBP/MAD, we will use the prices in GBP/USD and USD/MAD for this.
deduct the price.

Example: 1 GBP = 1.8025 USD

1 USD = 9.0630 MAD

So 1 GBP = 1.8025 * 9.0630 MAD

1 GBP = 16,3360 MAD

The mode of expression of the course is a convention related to the level of 'priority' of currencies.
each other. The currency is quoted at a certain (in first position, e.g.:
EURMAD) when the method of expression of the exchange rate returns to defining the value of a unit of
this currency.

The Euro is valued against all other currencies. The US Dollar is valued against
all other currencies except the Euro and the Pound GB while the Dirham is quoted at an uncertain rate
against all currencies.

Market participants always quote currencies in the form of a price range: the
the lower being the one for which the counterparty providing the price is willing to buy: it is the
buyer price or 'bid', and the highest price at which she is willing to sell: selling price
or 'ask'.

Buyer Course (BID) Seller Course (Ask)

10,0000 10,0020

The difference often lies in the 'points', which refer to the 3rd and 4th.
digits after the decimal point; the "figure" refers to the 2nd digit after the decimal point.

A Dev1 / Dev2 course means: one unit of Dev1 = the rate by Dev2. A quotation of
Euros = 10,000 MAD means that for every Euro, it will cost 10 MAD.

B- THE PARTICIPANTS IN THE FOREIGN EXCHANGE MARKET

a- Central Banks:

Central Banks are called to intervene in the foreign exchange market to conduct
Okay monetary policy: stabilize prices, slow down inflation, etc.

45/74
They can either intervene directly, but then their action is known and its effectiveness
can be lessened, or intervene through other 'commercial' banks.

b- Commercial Banks:

Commercial banks can intervene in the foreign exchange market for various
reasons :

- Intervention on behalf of the client

- Intervention for one's own account
- Additionally, for the most important to finalize the operations that
have been entrusted by the Central Banks.

The role played by commercial banks in the foreign exchange market should in principle be
limited to intermediation activities between a financial market and a client. However, it appears that
the strong increase in exchange rate fluctuations over the last 30 years and
The gains that can result from it have pushed commercial banks to play a role
much more important.

c- Institutional investors:

Familiarly nicknamed the 'zinzins', they consist of pension funds and companies.
insurance, Sicav and FCP...etc.
Institutional investors primarily intervene with the aim of changing their
performance profiles from one country to another.
Their interests are more focused on assets and the passage through the foreign exchange market does not
constitutes a corrective factor for positions and yields.

d- Multinational companies:

These are large companies that have branches or subsidiaries in several

country :

- The commercial movements related to the activity

- Mergers & Acquisitions operations

Some of the largest companies (Total, EDF, General Motors, etc.) have
their own trading rooms (cash management at group level, interventions on the
foreign exchange and commodity futures markets, etc.) depending on their
activities.

e- National companies:

Import-Export companies operate in the foreign exchange market for the

regulation-collection of their international commercial or financial operations
in currencies different from their national currencies.

46/74
They constitute the recurring basis of the turnover of commercial banks on the
market.

C- THE PROFILES OF THE INTERVENERS

a- The Investors :

These are the operators who only intervene in the foreign exchange market out of necessity.
This concerns:

- National companies
- Multinational companies
- Institutional

The intervention in the foreign exchange market is merely a step for these investors.
mandatory for the conclusion or realization of their financial operations or
commercial.

b- The regulatory authorities:

It is about the Central Banks whose mission is to ensure the proper alignment between the
national monetary policy and the state of the financial markets.
Their interventions in the foreign exchange market aim for stabilization or equilibrium of
markets during periods of high pressure on prices.

c- Speculators and arbitrageurs:

Their interventions in the foreign exchange market have the sole purpose of making a profit.

Speculators participate in the formation of prices and especially trends. They

intervene in the market to profit from price variations over time.

Arbitrageurs do not participate in the formation of courses or trends, their

objectives are only to take advantage of the discrepancies observed in prices between different
financial products and different markets.

The result of their actions, however, offers the market a fabulous corrective effect that
contributes to the efficiency of the largest segment of the financial markets.

D- THE MOROCCAN MARKET

The exacerbation of international competition and the relative rigidity of the economy
Moroccan has imposed a very simple logic on the Moroccan economic authorities:
47/74
 Moroccan economic operators must have the same means and
the same instruments as their international counterparts to improve their
competitiveness.

The central bank 'Bank Al Maghrib', being the guarantor of the health of the country's economy and
from the stability of the national currency, has therefore begun the gradual, progressive liberalization
and prudent of the foreign exchange market.

a- The Reform of the Moroccan Foreign Exchange Market and Its Advantages

On June 3, 1996, the central bank launched the opening of the foreign exchange market in Morocco and
the abolition of its monopoly in the currency quotation of the Dirham and the management of foreign currency assets
through the authorization granted to national commercial banks to intervene (to create and
maintain) in the foreign exchange market.

The history of the foreign exchange market in Morocco has thus been characterized by two periods.
distinct: the before and after 1996.

This positive approach has significantly contributed to the improvement of the financial situation of
participants. Colossal advances have occurred as a result of this liberalization and the
Moroccan economic operators could now:

- to have a quotation on demand

- negotiate the rate and choose the bank to carry out the transfers
repatriation of currencies

- putting banks in competition to improve exchange rates and

reduce the fees related to orders

- obtain the same value dates as those practiced at the international level
namely j+2

- hedging against currency risk through forward transactions

The changes for the banking sector are also colossal. Indeed, banks
Moroccan businesses can now:

- transfer/acquire currencies with each other while quoting them gradually

sales / purchase operations

- carry out operations called 'CROSS' with BAM and other banks
(Cross: Currency exchange operation not including the Dirham)

- provide instant quotes to customers and make gains between the

buying and selling prices practiced

48/74
 - speculate on the allowed exchange positions

- to carry out more diverse operations than in the past, namely the
term covers

b- The constraints of the foreign exchange market reform

The terms 'gradual', 'progressive' and 'cautious' used above characterize

perfectly the approach undertaken by the Moroccan regulatory authorities regarding
their approaches to market reform.

Thus, Bank Al Maghrib prioritized caution and security over the urgent nature of such a
reform and which has practically translated into the establishment of a certain number of doors
firewall aimed at allowing economic operators and intermediaries
agreed by:

- have enough time for commercial banks

adapt their structures, train their employees and implement the
necessary tools for healthy management of this compartment

- to have a protected market against possible aggression from the large ones
foreign operators

- reduce the product offering to the maximum and establish strict control to protect
economic operators against abuses and against themselves.

Thus, Bank Al Maghrib has established a number of rules, the most important of which are:

- the necessity to align with the range of rates of Bank Al Maghrib for
spot operations.

- the obligation to collect a commission of two per thousand on all the

foreign exchange operations carried out by customers

- The obligation for banks to settle transactions among themselves, the residuals
either be kept in the exchange position, within the permitted limits, or
deals with the Central Bank.

Note that this last rule has been relaxed following the CNME (National Council of Currency and
savings) from January 1997 with the authority that has been conferred, since that date, to banks to make
"cross" with other banks and even with their foreign correspondents, meaning to exchange
directly one currency against another without going through the dirham.

c- The Dirham market: Onshore and Offshore

The foreign exchange regulations are very strict regarding the capacity for intervention of
Different international entities have given rise to a market that can be described as parallel.
49/74
This market is composed of a few international and Moroccan banks based in
the stranger.

These entities have created a mini international market for the Dirham with more possibilities and
flexibility regarding foreign exchange operations.

These entities allowed themselves, for example, to carry out unauthorized operations (up to
recently) in the domestic market (such as Currency Swaps).

That said, the interaction between the two markets is very strong and commercial banks
Moroccan entities offer these entities the same conditions as their counterparts in the In- market.
Still, short but applying the commission of two per thousand.

E- THE STAKEHOLDERS IN THE MOROCCAN MARKET

a- The Central Bank:

Bank Al-Maghrib intervenes in the foreign exchange market to restore imbalances.

temporary measures to achieve parity objectives for the national currency or in the
framework for the management of official reserves.

Her intervention is substantial as it helps to regulate the market although the

quotations should be determined by the semi-free play of supply and demand.
Its primary objective being the control and defense of the value of the Dirham to the extent
where it continuously sets the purchase and sale prices by quoted currency on the Reuters page.

The bank quotations consequently fall within a range with, in

plus, a mandatory commission of 2‰ that banking institutions are required to pay to him
to buy and sell currencies to their clients.

Example:

BAM Course: USD 10.0180 10.0780

Customer course: USD 9.9980 10.0981
(10.0180*0.998) 10.0806

Bank Al Maghrib also supervises operations in the foreign exchange market.

and monitoring compliance with the regulatory and ethical measures provided
Regulatory Ratio

b- Commercial Banks:

The authorized intermediaries are, along with Bank Al Maghrib, the only ones 'authorized to perform on the
foreign exchange market spot, forward and cash transactions in currencies and this
for their own account or on behalf of their clients.
50/74
At the market close, they can sell their currency surpluses or buy them.
if needed, with Bank Al Maghrib.

They may also decide (within the permitted limits) to maintain stocks in
currencies that are then said to be 'long' when there is a surplus on a currency and 'short' in
overdraft case on another, within the framework of the prudential rules imposed by
BAM.

The gains made on this segment by commercial banks come from both
from the margin obtained (Spread) between the selling and buying rates of currencies on the
transactions completed but also the difference between the exchange rates of a
position at a given date and those of the same position at a later date (in this
last case, more speculative, the results can be positive or negative.

c- The clientele:

The clientele is mainly made up of importing or exporting companies; the

investors and other institutional players intervene very rarely in the market of
change.

These operators must require the service of authorized intermediaries in order to resolve,
the foreign exchange market, the international operations they initiate, whether these are
commercial (imports, exports) or financial (loans and investments in
currency, transfers abroad of investment income in foreign currencies,
interest transfers on external credit...)

Some important rules:

- Importation

To carry out an import in Morocco, a company must domicile the operation.

with an intermediary bank to then proceed with the payment to its supplier
foreigner.

- Exportation

The exporter is required to repatriate the proceeds from their export after collection when
the method of payment is at sight and after a maximum of 150 days from the date of shipment of the
merchandise if a payment term has been granted. Nevertheless, he is allowed to keep
20% of export revenues in foreign currency, if he has a convertible dirham account.

- Financial operation

Banks and economic operators are allowed to resort to operations.

foreign currencies such as:

- Buyer or supplier credits

51/74
 - Credit lines for export financing

- Loans to finance investments

- Advances on current accounts of partners

- The repayment of foreign investments in principal and interest

- The transfer of capital income and the payment of ancillary fees to

the foreigner

F- Market Practice in Morocco

a- Characteristics of Trading Rooms in Morocco

Since the reform of the foreign exchange market, Moroccan commercial banks have been
faced with a series of pressing obligations:

Need to enter the market as soon as it opens

Need for an efficient and effective Front Office given the enormity of
processed amounts

Necessity to manage risks and adapt structures to avoid

surprises (Barings Bank) that a poorly managed market activity could
to train

As a result, the approved intermediaries quickly established training programs and

investment to facilitate the launching of the activity.

Since then, these programs are renewed and maintained every year in almost all the
banking establishments.

Currently, Moroccan trading rooms are positioned at the high end of the range.
compared to their Maghreb counterparts and they have almost all the means
technologies available on the international market (specialized software, system
information, negotiation system…etc.)

b- Organization of Market Rooms:

It is a place that brings together different specialized services allowing banks to intervene.
on the Capital Markets international. This place has many other names:
Dealing Room, treasury/Currency exchange…etc.

A Trading Room consists of three distinct entities:

52/74
 - The Front Office
- The Middle Office
- The Back Office

The Front Office

The entity that is solely capable of intervening in the financial markets on behalf of the
clientele or on behalf of the bank.

It is at the Front Office that the Traders work, who are generally grouped by
activity.

The language used is technical and has a strong Anglo-Saxon connotation. This is due to the fact
that English is (more or less) understood by almost all currency traders and also because
that this language has the advantage of expressing in few words (see 1 single word) the equivalent of a
phrase in the language of Molière.

The profiles of operators and technologies:

Traders: Operators intervening directly in the market

Sales: Operators who only have contact with the market through traders and
whose job is to manage customer relations

The Front Office must be at the forefront of technological progress, both in terms of
communications, such as the management of information flows or the various systems
IT (Reuters, Bloomberg, Finaccess...)

The Middle Office

This is the youngest field as it emerged in the 1980s. Its mission is to

bring together the raw transaction results with the accounting results obtained afterwards
injection of operations into the information system.

They are also responsible for monitoring risks: counterparty, interest rate, exchange.
liquidity.

The field has gained some importance and requires strong skills as it is about
both to discuss with the traders, with the accountants but also to manage (see to
develop tools for monitoring risks and knowing how to interpret the results.

The Back Office

It is the administrative entity of the Trading Room since payments are made there.
induced by the operations carried out by Traders or money changers.

53/74
They account for the operations and in many establishments they determine the
different positions (change and cash) and results.
She is also responsible, in certain cases, for monitoring the use of the lines.
credit, from the control of compliance with foreign exchange regulations... etc.

This highlights the importance of a good Back Office in the functioning of a Trading Room.
One only has to imagine the consequences of a payment error to be convinced.
a significant amount.

b- The dirham market:

This market is composed of two compartments.

- the spot market

- the futures market or outright

On this market, the buying and selling of currencies occurs at the day's rate of the
transaction.
The spot market quotes reflect the different economic forces that
exercise on currencies at a given moment. This is where banks come into play.
central banks when they want to influence exchange rates.

The buyer/seller spot prices are determined continuously and fluctuate within
a spread of 6‰ established by Bank Al Maghrib. These rates are displayed on Reuters.
8:30 AM to 3:30 PM

c- Characteristic of the Dirham

The Dirham is a basket currency. This means that the monetary authorities of the country have
choose a managed exchange rate regime in such a way that the value of the national currency is
attached to that of several other international currencies.

Note that there are other exchange rate regimes such as the fixed parity exchange rate regime.
(Peg: Egypt,..), the fully floating exchange regime,…etc.

The currencies making up the basket are meant to represent the bulk of trade flows and
financiers of the country.
Through this system, the monetary authorities are trying to protect the national currency.
against an excessive slide compared to foreign currencies representing the
different inflows and outflows from the country.

The calculation formula for the basket is as follows:

1 MAD = a EUR/USD + b EUR/GBP + c EUR/JPY + ..... + constant.

54/74
This means that if we have 1 MAD, it would be strictly identical in value to the
holding of: a EUR/USD plus b EUR/GBP + ... etc.

Only Bank Al Maghrib knows the exact value of the weighting factors (a, b,
c...etc) of the basket, and given that the exchange rates of the currencies making up the basket are
freely traded on the market, it remains in principle the only entity capable of providing the
value of the Dirham at any moment.

However, it is entirely possible for the stakeholders to determine the value of the MAD at
any moment through statistical calculations applied to the displayed rates by
Bank Al Maghrib.
These calculations provide a valuable approximation of the factors of
weights and thus the value of the MAD at any given moment (t).

d- The hedging operations of the Dirham:

The rating system through a basket offers a very appreciable advantage to the different
speakers: The coverage.

Indeed, and unlike currencies freely determined by the market, the Dirham offers the
possibility of an almost perfect hedge for open positions.

It is enough to have a balanced position across the weighting factors to cancel out.
the risk of loss related to the foreign exchange position (foreign exchange risk).

It is important to note that after the devaluation of the Dirham carried out by Bank Al-Maghrib in
On April 25, 2001, the national currency became strongly anchored to the Euro with some
relatively less significant weights for other major currencies.

Example:

A trader is conducting a spot exchange transaction with his client SMTE consisting of
the purchase by the bank of an amount of 1,000,000.00 Eur against MAD at an exchange rate of 10.0000
corresponding to an amount in MAD of around 10,000,000.00.

To cover this operation, the trader has the following information:

- 80%
- USD weighting = 20%
- Weighting GBP = 0%
- Weighting JPY = 0%

What should this trader do to hedge his position?

The trader must have, according to the principles of the basket, a stock corresponding to 80% of his
10,000,000.00 MAD (which is 800,000.00) in euros and 20% of its 10,000,000.00 (which is
200,000.00 USD.

55/74
It turns out that the trader has a zero stock in USD and an excess stock in euros.
of 200,000.00. Its coverage will therefore consist of selling its surplus in euros on the market.
and to repurchase the corresponding amount in USD so that:

- If the euro exchange rate rises: His gain realized on his stock in Euros will be offset by his
loss recorded on its USD stock

- If the euro exchange rate falls: Its realized gain on its USD stock will be offset by its loss.
on its stock Eur

e- The Exchange Rate:

The entities involved in the international foreign exchange market, due to their operations
commercial or financial, are likely to establish positions in currencies
other than their national currencies, subject to a permanent exchange rate risk.

The exchange position is the reflection of the positive or negative balance of operations in a currency.
given at a given moment. It is defined by the difference between assets and liabilities
labels in the same currency.

The calculation of an intervenor's foreign exchange position is done based on their balance sheet or based on the
forecast data.

All currency items must be listed and categorized by currency in order to

obtain a summary table of the exchange position on each currency expressed in
dirhams.

The exchange position is said to be 'closed' when the balance between receivables and payables
debt in each currency is equal to zero.

If this balance is different from zero, the exchange position is then said to be 'open', and
automatically exposes the company to exchange rate risk.

The open exchange position is said to be "long" when the holdings in a currency
data exceed the commitments in this same currency.

The position is said to be 'short' when the assets are lower than the liabilities in
a common currency.

f- Management of the exchange position:

The position holding system must provide basic features and information.
following:

• Manual or automatic recording of deals

• Validation of deals
56/74
 • Risk control: counterparty risk, market risk
• Real-time position calculations
• Real-time P&L (profit and loss) calculation
• Possibility to automatically generate deals, for example, the deals of
cover
• Transmission of the validated "ticket" to the Back Office

A participant in the foreign exchange market is exposed to currency risk as soon as they are engaged.
in a transaction denominated in a currency other than its reference currency, and will remain
at risk of exchange until the conversion of its receivable or debt into cash or
actual disbursement.

It is important to emphasize that exchange rate risk does not only occur at the time of
billing, but must be taken into account well before.
Thus, the importing (exporting) company is potentially exposed to exchange rate risk.
from the stage of the offer.

In the case of an importer, the exchange rate risk is said to be 'potential' at the stage of the offer of
supplier, it becomes 'real' upon the signing of the contract and disappears at the time of payment
from the debt by the importer.

Similarly, an exporter is potentially exposed to foreign exchange risk as soon as the order is placed.
of the order.

An open exchange position can result in foreign exchange losses that devour
benefits of operators.
Therefore, managing foreign exchange risk optimally becomes a necessity for the
participants and require them to know the different hedging techniques.

That said, and before any hedging decision, the company must first:

Determine your degree of exposure to the evolution of exchange rates

Quantify one's risk

Implement a currency risk management strategy

Study the characteristics and cost of financial products that will allow him
to implement its strategy

Ensure follow-up and check the effectiveness of the chosen strategy.

As a general rule, a company exposed to currency risk can have attitudes

different depending on one's degree of risk aversion, and three attitudes are generally distinguished.
possible:

The lack of systematic coverage:

57/74
It is implicitly estimated that the currency will evolve in a favorable direction or that the loss
eventuality will ultimately or on average be compensated by a future gain. But the brutality of
Fluctuations in certain currencies can lead to significant losses for the company.

The systematic coverage:

The company systematically protects itself without seeking any anticipation of the
trends.

The selective coverage:

The company has a set of criteria based on its perception of the

tolerable risk and the cost of each coverage. Once the risk is identified and measured,
The company can very well deliberately decide not to cover it.
Moreover, any decision in one direction or another carries an opportunity cost.

Example:
Our client SMTE who sold their goods in Italy will receive an amount in euros. What
Must it therefore be the reasoning of his director Mr. M. Mohammed?

1- What amount am I exposed to?

The total value sold is 1,000,000.00

2- If the exchange rate moves, how much could I risk losing?

For a 1% variation, for example, I risk losing 10,000.00 MAD

3- How much am I willing to lose in that case to not affect my margins?

I could bear a maximum loss of 20,000.00

4- What can I do to secure the transfer operation and at what cost?

Immediate cash exchange without any fees

Practical Example:

Case studies1:

A foreign bank based in Morocco quotes the Eur/MAD at 10.2420

Another Moroccan bank based in Paris quotes the Eur/MAD at 10.2280

To whom would a Moroccan client address themselves to buy Euros with MAD?

Response: To the Moroccan bank, for the simple reason that a Moroccan company does not
not allowed to conduct financial operations beyond the territory of Morocco.

2- Who would a bank wanting to buy Euro against MAD address?

Response: At the Moroccan bank in Paris as it offers the best price.

58/74
Case Studies2:

Bank X quotes EURMAD at 11,0520 11.0620

EURUSD at 0.8990 0.8992

The Y bank quotes EURMAD to 11,0480 11.0580

EURUSD at 0.8988 0.8991

The market quotes EURMAD at 11,0500 11,0600

EURUSD 0.8991 0.8992

1- Which bank would a Moroccan company importing cars deal with?

2- In relation to the market, are these two banks buyers or sellers?
3- What are the possible coverages?

Case studies 3 :

A trader has the following foreign exchange positions (stocks) at the beginning of the day:

Currency Positions Course C/V Positions MAD

EUR 1,000,000.00 11.0000 11,000,000.00
USD 100,000.00 10.0000 1,000,000.00
12,000,000.00

The trader must have 80% of his 12,000,000.00 MAD in counterpart value.
Euro and 20% in USD equivalent.

* 80% * 12,000,000.00 = 9,600,000.00

This amount is to be divided by the exchange rate, which will correspond to a position in euros.
872,727.27

* 20% * 12,000,000.00 = 1,920,000.00

This amount is to be divided by the exchange rate which will correspond to a position in USD.
192,000.00

So to be covered, the trader must have a foreign exchange position of 9,600,000.00 in

Euro and a position of 1,920,000.00 in USD corresponding to a total position in MAD
12,000,000.00
The trader must sell 127,272.73 euros and buy 92,000.00 USD.

h- Spot exchange with deferred settlement or forward exchange:

The forward exchange operation involves fixing, on the operation date, the conditions of
Negotiating a future transaction to eliminate the intermediate exchange risk.

59/74
The forward exchange allows for responding to an anticipation of a significant unfavorable evolution.
market conditions.
The client thus locks in the conditions for executing their future exchange operation, whatever the circumstances.
such is the evolution of the market namely the value date, the exchange rate and the amount to
to exchange, and contrary to what one might think, the term price is not a
anticipation of what the spot price will be in the future.

The deadline is defined within the framework of the Exchange Office circular No. 1.633 of the 1st
April 1996 and the circular of Bank Al-Maghrib No. 61/DAI/96 dated April 1, 1996 concerning the
foreign exchange market.

This solution allows the importer (exporter) to effectively protect themselves against the
exchange rate risk by fixing its purchase level (sale) of currencies until a deadline
of a year.
Such an operation has the advantage of neutralizing exchange rate risk but remains a
hardcover in the sense that it does not allow for any potential developments to be taken advantage of
favorable to the currency. The intervenor thus suffers an opportunity loss in the event of evolution
favorable market conditions at the due date.

The characteristics of a forward exchange operation are:

• The main motto

• The direction (buy or sell) in relation to the main currency
• The secondary currency (currency sold for a purchase, currency bought for a sale of
the main motto)
• The 'spot' price
• Term points: the forward rate = spot rate + term points
• The negotiation date
• Value date: the date on which the currencies will actually be exchanged

Determination of the forward price

The forward price depends on several parameters:

- The spot price on the day of the transaction

- The duration of coverage

- The differential between the interest rates of the currencies exchanged on the
considered period

If the interest rate in Dirham is higher than the interest rate in currency, the currency is
report it. This report adds to the spot rate of the quoted currency.

If the interest rate in Dirham is lower than the interest rate in currency, the currency is said to be
in deport. The latter is then deducted from the counting course of the quoted currency.

60/74
The difference between the spot rate and the forward rate is called the 'Swap Points'. When the
the forward price is higher than the spot price, we refer to it as 'contango'. When the forward price
is lower than the spot price we speak of 'discount'.

Thus, the forward price is calculated according to the following formula:

CAT = CS + Swap Points

CS + (CS * n * (t2 - t1)) / (360 + n * t1)

CS: the spot market

n : the number of days
the dirham rate
the exchange rate of the American dollar

Term courses are not quoted as such on the market. However, for each
We know the loan/borrowing rates on different maturities. It is these
rates that will be used to calculate forward prices.

From the trader's perspective who is quoting the operation, the forward exchange consists of combining 3
operations :

• A 'spot' change with the same meaning as the forward operation

• A loan in the purchased currency for the same duration as the forward transaction (the flow of
loan repayment, an inflow of funds, coincides with the forward purchase)
• A loan in the sold currency (the repayment flow coinciding with the sale to
term).

Case studies4 :

An exporter will receive in return for his goods an amount of USD 1 million,
deadline 3 months.
The market data is as follows:
- Interest rate of a MAD investment for 3 months: 3%
- Interest rate of a USD loan for 3 months: 2%
- Spot rate: USD/MAD = 8.7750

CAT = 8.7968

The pricing for the hedging operation will be structured as follows:

- USD loan at 2%

- Spot sale USD at 8.7750

- MAD placement at 3%

61/74
The exporter, to neutralize any exchange rate risk, will agree with their bank on a rate of
8.7896 for example, that is to say that regardless of the price at maturity, the exporter will yield
his dollars at 8.7896.

If the forward exchange rate is 8.25, the exporter is protected from a currency loss and
will carry out its operation at 8.7968.

On the other hand, if the price at maturity is 9, the transaction will still take place at
8.7968 and the exporter will not benefit from the favorable change in the rate.

Case studies5 :

An importer will pay an amount of USD 1 in exchange for the purchase of a good.
million, due in 3 months?
The market data is as follows:

- 3.8%
- 3-month USD loan interest rate: 2.60%
- Spot course 8.9095

CAT = 8.9280

The price construction for the hedging operation will be as follows:

- USD loan at 2.6%

- Spot sale USD at 8.7750

- Loan MAD at 3.8%

If the forward rate is 8.5080, the importer will incur an opportunity loss.
since he will be forced to deal at a rate of 8.9280

On the other hand, if the exchange rate at maturity is 9.8000, the importer will be protected and
will carry out its operation at a rate of 8.9280

Particular case of early withdrawals and extensions

What logic could be applied in the case of an early withdrawal on an operation?

term?

Historical Course + or - Swap Point + IT

Swap Points = (Spot * n * (tMAD - tDev) / 360)

62/74
(CH-Spot Rate) * tMAD * n / 360

IT Raising Antic = ((CH-5Spot Course + or - Swap Points)*tMAD*n)/(360 + tMAD*n)

Advantages of forward exchange:

The company knows the final price applied to its operation, which allows it to
mastering one's cost price

The forward exchange is a hedging product that requires no special monitoring.

The product is easy and accessible to all businesses.

It is available in several currencies and for all maturities.

Possibility of extension or early withdrawal

Disadvantages of forward exchange:

Rigidity (irrevocable character): the company is bound by the course it will have fixed with the
bank, and will have an opportunity loss in the event of a favorable evolution of the price of
change

i- The Currency Swap:

A currency swap is an operation by which two counterparties agree:

- To immediately exchange an amount in currency X for another amount in currency

Y. It is a spot exchange operation.

- To proceed, at a specified due date, to a symmetrical exchange of these currencies

for an amount identical or different from the initial exchange depending on the Report
/Forward. It is a forward exchange operation.

The characteristics of a currency swap are:

The first 'go' operation has the characteristics of a spot exchange:

• Main currency
• Direction: purchase or sale
• Secondary device
• Amount in the main currency
• Spot course
• Value date = trading date + 2 business days

63/74
The second 'return' operation has the characteristics of a forward exchange, which can be inferred.
from the spot operation:

• The currency bought is the currency sold on the outgoing leg.

• The currency sold is the currency bought from the outward leg
• The amount expressed in the main currency is identical
• The value date is the date on which the reverse exchange will take place.
• The price is the spot price plus the swap points

The currency swap is an effective and low-cost means for improving management.
the treasury even if it is processed and recorded as a combined exchange operation with
two lending/borrowing operations.

The management of a Swap operation is divided into three distinct operations:

1- A cash operation to impact the exchange position of the differential

of interest rates.

2- A loan operation to manage the operation's impact on the disbursed flow.

3- A borrowing operation to manage the handling of the operation on the received flow.

This product has experienced rapid development since its creation years ago for
several reasons:

The neutralization of counterparty risk given that the co-contractors

amounts are exchanged in cash, the counterparty risk now only concerns the
Adjustment spot and the replacement cost of the operation which both remain very
minimum except for long-term operations.

The decrease in equity consumption and the improvement of profitability

of these latter, since Swap operations are off-balance sheet across the
operation period.

The operation being not or little risky, the premium to be paid by the borrower to receive
the Cash is considerably reduced which makes it more interesting in terms of
costs.

The reduction of the consumption of credit lines granted by counterparties

given that only the net amount between the two flows is maintained which frees up
the space to perform other operations.

The reduction of costs and processing times as the operator will handle a
Swap operation to manage cash flow instead of two loan operations /
loans.

The rapprochement between the converging interests of two counterparts for a

same operation.

64/74
Example:

- A counterparty 'A' has a long position in currency X and a short position in

devise Y.

- A counterparty 'B' has a short position in currency X and a long position in

device Y.

- Instead of party A going to lend its cash in currency Y and

borrow an amount of cash in currency Y to cover its short position
she will conclude a swap operation involving the two currencies X and Y
with counterpart B.

Global scheme for carrying out exchange operations:

The Front Office system records deals in real time.

The deals negotiated by phone are entered by the trader while the deals made in
Electronic platforms are generally transmitted automatically to the systems.
of management of the Front which transmits to the Back Office in electronic format or on medium
paper the entered data.

The Back-Office system is designed to materialize the operations negotiated by the

trader

• In terms of the counterparty:

o Issuance of confirmations: foreign exchange transactions are confirmed by
messages SWIFT MT300
o Reconciliation of confirmations: given the considerable volumes
for negotiated operations, back offices equip themselves with systems of
automatic reconciliation between the confirmations issued and the
received confirmations. This allows for the detection of errors or the
misunderstandings before triggering the payments.
o Payment issuance: generating a payment order (MT202) for the
correspondent in the currency paid, a notice of funds entry (MT210)
for the counterpart in the received currency. If the counterpart is internal (client,
deal between 2 desks), payments are made via accounting (debit / credit in

• In relation to the establishment:

o Accounting entry of operations:
Foreign exchange deals are recorded off-balance sheet (accounting
engagement) during the period between the negotiation date and
the value date, then on the value date reached, the off accounting

65/74
 the balance sheet is extorted and the operations are recorded in the balance sheet of the
bank.
On the other hand, foreign exchange operations fund accounts that do not
are not denominated in the currency of the bank's balance sheet. The
held positions feed foreign exchange position accounts, including
The daily revaluation records the exchange rate risk incurred by the
bank

Example 1:

The company 'Stylo - Export of Morocco (SEM)' produces in its factory in Casablanca all the
office supplies and mainly pens.
She has a large client portfolio both in Morocco and in Europe.

On January 1, 2005, his financial manager, Mr. Mohamed K., contacts his
clients in Spain to negotiate the sale of a batch of pens.

The client 'Stylos d'Espagne (SE)' offers the following sales conditions:

- Unit price : 1 euro

- Quantity : 1,000,000.00 units
- Delivery date : 31 / 03 / 05
- Payment date: 1 month after the delivery date, i.e., 04/30/05
- Penalty :
- Delivery delay:
1% of the value per day of delay
- Payment delay:
5% of the value per week of delay

The SEM data is as follows:

- Unit cost : 9.50 MAD

- Administrative imposition and charge : 0.50 MAD
- Transport costs and ancillary fees : 1.10 MAD
- Minimum required yield : 0.2 MAD coin

1)- Is the operation profitable for SEM?

2)- Is the operation sufficiently profitable for SEM if the price is equal to 11.2500?
3)- What should Mr. Mohammed .K do?

Response:
The operation is profitable from a unit yield of 11.10 MAD. The pens
being sold for one euro each, the operation will generate a profit as soon as the price of
EUR/MAD exchange rate is higher than 11.1000 MAD.

2-) If we add the minimum margin required by Mr. Mohamed K, the transfer price must
to be greater than 11.3000 while it is only 11.2500, which would lead us to say that the operation
would not be profitable enough in that case.

66/74
3-) Mr Mohamed K must ensure that the rate of his operation before concluding it.
the applicable change will allow him to make his business operation profitable. He must then, and
as soon as the conclusion of its export operation, re-contact its bank to set up
set his hedging strategy.

Mr. Mohammed K. contacts his bank (account manager or trading floor sales)
to obtain a conversion course.

1)- What course reference should Mr. MK request (Spot, term, etc.)?

Response:
Mr. MK must inform himself about the applicable courses both for cash and for term in order to
to have all the necessary elements to make a decision regarding the strategy of
coverage to be put in place.

After receiving the necessary information from his bank, Mr. MK finds himself
with the following data:

- Cash transfer course : 1 Euro = 11.4050 MAD

- Exchange rate as of 04/30/05 : 1 Euro = 11.4040 MAD

1)- Is the operation profitable for SEM, and what are the risk factors?
2)- Does SEM have an interest in carrying out this operation?

response
1)- This operation is profitable for SEM considering that the overall unit cost, including
the minimum commercial margin is 11.3000 while for each pen sold, SEM
will reach one euro corresponding to 11.4050 MAD (if spot) or 11.4040 (if term). Only,
if the SEM chooses not to hedge its currency operation, it will be exposed to the factor
exchange risk

SEM has a legitimate interest in carrying out this operation since it will be able to generate a margin.
higher than the minimum yield it requires.

Case No. 1:

SEM has no exchange line and must go through its account management.

a- SEM chooses to do nothing while waiting for the receipt of funds from
the company 'SE'.

On 30/04/05, SEM sends the currency account numbers (SEM account in

convertible dirhams or foreign currency account of its bank) to its client SE to transfer the
amount of his transaction.

67/74
SEM therefore receives 1,000,000.00 EUR and calls its account manager to transfer these
currencies in MAD.

His account will be credited (depending on the procedures specific to each bank) between j and
j+4.
In this case, the account manager must ensure the receipt of the funds.
Euro) in the bank account before transferring the equivalent MAD to the account of
SEM.

b- SEM chose to handle the currency exchange operation upon the conclusion of the contract.
cash

SEM then calls his account manager on January 1, 2005, to request

a confirmation of the spot transfer rate (11.1050) communicated.

Once done, he confirms, by phone and fax, his commitment to sell 1,000,000.00 EUR
at 11.1050 and will receive the equivalent in MAD amounting to 11,105,000.00.
His account in MAD will be credited on value date J+2, which is January 3, 2005, against the
payment, on this same date, to his bank account of the corresponding amount in
Euro.

The account manager will fund SEM's account in MAD as soon as it

will be assured of the receipt of funds in Euros in the bank account.

c- SEM chooses to handle the forward exchange transaction at the conclusion of the contract.

SEM then calls his account manager on January 1, 2005, to request

a confirmation of the forward rate dated 30/04/05 (11.1040) communicated.

Once done, he confirms, by phone and fax, his commitment to sell in the future.
1,000,000.00 EUR at 11.1040 and also receiving at maturity the equivalent in MAD which is
11,104,000.00

His account in MAD will be credited on the maturity date of the forward transaction, i.e. on
April 30, 2005, against the payment (after verification) into his bank account of the amount
correspondent in Euro.

Case No. 2:

SEM has a currency exchange line and therefore direct access to the Trading Room.

a- SEM chose to do nothing while waiting for the receipt of funds from
the company "SE".

68/74
On the date of 30/04/05, SEM transmits the foreign currency account numbers (SEM account in
convertible dirhams or foreign currency account of his bank) to his client SE to transfer the
amount of his transaction.
SEM receives 1,000,000.00 EUR and calls its Trading Room to transfer this
currencies in MAD.

After negotiating the transfer price, SEM confirms to the Trading Room (at the Back-
Office) by fax its currency exchange operation.
The Back Office of the Trading Room will carry out the following operations:

- Notify their correspondent of the receipt of 1,000,000.00 Euro on their

account for the operation under reference (communicated by SEM) and in
request confirmation upon actual receipt
- Notify the agency holding the SEM account to transfer the amount.
correspondent in MAD upon receipt of funds on good date of
value

From then on, SEM's account in MAD will be credited (according to the specific procedures of
each bank) between j+2.

b- SEM chooses to handle the currency transaction at the conclusion of the contract.
cash

SEM then calls its Trading Room on January 1, 2005 to request a

confirmation of the cash transfer course (11.1050) communicated.

Once done, he confirms, by phone to the Trader and by fax to the Back Office, his commitment.
to sell 1,000,000.00 EUR at 11.1050 and receive the equivalent in MAD, which is 11,105,000.00.
His account in MAD will be credited on value date J+2, i.e., January 3, 2005, against the
payment, on this same date, to his bank account of the corresponding amount in
Euro.

The account manager will fund the SEM account in MAD as soon as
his Back-Office Market Room or his 'Reconciliation' unit will ensure the
receipt of funds in Euros in the bank account.

c- SEM chooses to handle the forward exchange operation upon the conclusion of the contract

SEM then calls his account manager on January 1, 2005, to request

a confirmation of the forward transfer course dated 30/04/05 (11.1040) communicated.

Once done, he confirms his commitment by phone to the Trader and by fax to the Back Office.
to sell 1,000,000.00 EUR at 11.1040 and receive the equivalent in MAD which is 11,104,000.00.

His account in MAD will be credited on the maturity date of the term operation, that is on
30/04/2005 against the payment (after verification) to his bank account of the amount
correspondent in Euro.

69/74
 Account Manager

Front Office

SEM

Back-Office

SEM Correspondent Bank Correspondent

Consultation, Negotiation and Transaction

Transfer order and receipt of funds

Transaction confirmation

MAD transfer order and confirmation

Transmission of processing orders

70/74
Mortgage market

Securitization is a new mode of financing for banks. It has made its

emergence in the United States at the end of the 70s and immediately captivated the markets
financiers around the world, giving rise to multiple forms of securitization.
Technically, it is about removing non-negotiable debts from the balance sheets of companies.
financial and to make them negotiable by transferring them through an ad hoc structure,
represented by a collective investment fund in securitization (CIF). This can be
created by one or more credit institutions.
The implementation of this system in Morocco responds to the need to support the State in
its social housing policy.
Banks thus have the means to recycle their portfolio of receivables and increase
their financing capacity, particularly in the housing sector.

Securitization operation

Securitization is a financial technique that allows a transferring institution to

sell part of its receivables by converting them into liquid and negotiable securities.
The transferring establishment sells a batch of receivables to an appropriate structure: In Morocco,
the Collective Investment Fund in Securitization (CIFS).
To finance this acquisition from the transferring institution, the FPCT issues
representative parts of these receivables. These Parts are placed with investors,
those who become co-owners of the fund and the flows (interest and principal) generated
through the receivables. These flows, returned to the FPCT, are allocated to reimbursement and to
remuneration of shareholders and commission agents.
Characteristic of a securitization operation
Securitization involves the sale of receivables. A credit institution transfers the loans.
previously consented. To this end, the Collective Investment Fund in Securities (CIFS) is established.
The latter acts as a link between the institution and the investors through the acquisition of
credits. To pay them, the FPCT approaches investors. It sells them securities, or more
commonly shares.
The subscribing investors thus become owners of shares in the FPCT. The fresh money will
for the payment of purchased credits. The amount is paid to the credit institution.
By assigning his receivables, the latter revives the machine to offer others. However, his role
does not stop there. Although it sold the receivables, the credit institution remains the sole collector
refunds.
Indeed, the client who took out a loan is unaware that their debt has been sold. They therefore continue to
reimburse the institution which remains its only point of contact.

Objective of a securitization operation

The establishment of this instrument primarily aims to mobilize savings in favor of

financing of investments. Its goal is also to stimulate capital markets
and to transform illiquid assets (long-term receivables) into tradable securities
financial compartment. Financial institutions find it beneficial there. By its nature,
this technique contributes to the refinancing of establishments struggling with long-term liquidity.
allows them to get rid of the constraint of the imbalance between resources and jobs, but
also to multiply their financing capacity.

71/74
Settlement circuit of a securitization operation

The Collective Investment Fund in Securitization

A transaction can materialize in the mortgage market without the involvement
instead of a collective investment fund in securitization:
The shares of an FPCT are thus the securities issued, guaranteed by credits.
mortgage. The repayment of these shares and their remuneration are made
through a transfer of the streams from the receivables to which they are
leaned
An FPCT is therefore a ad hoc vehicle whose exclusive purpose is the acquisition of receivables.
mortgages, held by credit institutions, with a view to issuing in a
only time representative shares of these receivables
The assets of an FPCT include acquired receivables, payment flows from
these last ones, as well as any cash product.
The liabilities of a FPCT include the shares representing the receivables acquired by the
funds.
The operation of an FPCT varies according to the nature of the setup developed. The principle of
its operation is the same for the different assemblies, and consists of returning
at FPCT the flows resulting from debt collection. The amounts recovered are
subsequently distributed to the shareholders, according to a predetermined protocol
of flow allocation.

Participants in the mortgage market

Each securitization operation requires the intervention of the following:

The Initiating Establishment (Assignor) is the credit institution that assigns a lot of
72/74
receivables to the Fund.
The Arranger ensures the design and development of the financial and legal structure.
from a Securitization operation,
The Collecting Establishment manages and collects debts.
In general, it is the credit institution that continues to collect the debts for the
account of the FPCT.
The Managing-Custodian Establishment ensures the management of the FPCT in the interest
exclusive of investors, retains the assets of the FPCT and manages its cash flow,
The Auditor certifies all accounts of the Fund

FPCT shares can be subscribed by the following organizations:

Collective Investment Schemes in Transferable Securities (CIS)
Credit institutions,
Insurance and reinsurance companies,
The deposit and management fund,
Retirement and pension organizations,
As well as other financial companies.
Advantages of Securitization
Advantages for the establishment
The advantages of Securitization for a transferring institution can be distinguished in
two main categories. The first concerns balance sheet management and risk, while
that the second of profitability.
Indeed, on one hand, Securitization offers a new financing solution that allows
to any transferring establishment to increase its financing capacity. This results from the
Unlike traditional financing methods, Securitization does not...
no call on equity, and therefore does not impose any limit on the level of financing
from the credit institution. Furthermore, Securitization allows the transferring institution
to finance itself, without debt, while optimizing its risk management. Thus,
to securitize a part of its receivables portfolio for an establishment of
credit an inflow of cash against an outflow from the balance sheet of part of its
engagements and their risks. Thanks to this technique, the funds raised do not
are not recorded in the passive of the transferring institution. Furthermore, Securitization is a
a financing option that is less expensive than bond or interbank borrowing. The
the parts issued are generally of better quality than those born from an appeal of
the credit institution for traditional financing, which translates into a premium
of less significant risk.
On the other hand, holding a portfolio of mortgage receivables involves a
lost earnings in favorable market conditions. Indeed, an establishment
of credit could make a capital gain by selling a portfolio of receivables. This
Value added consists of the differential in interest owed by the debtors of the institution.
of credits and those granted to investors, the recovery commission, as well
a possible replacement margin if the credit institution opts for a
reinvestment of the amount from the sale.
In addition to the above benefits, Securitization allows the transferring institution to
streamline its functions and improve its level of Reporting, as each operation of
Securitization involves an analysis of the credit granting procedures and circuits.
database management.
advantages for investors
In general, an investor bases their investment decision on a set of
of data. The most sought-after products often exhibit one of

73/74
following characteristics: Profitability, low risk, and liquidity. That being said, the
investors do not give the same priority to each characteristic mentioned, and are the
more often in search of diversifying their investment portfolio.
Securitization offers investors a new range of instruments with a
variety of profiles; FPCT shares represent different levels of risk,
return and duration according to the fund's arrangement. Thus, thanks to the flexibility regarding
structuring, different investors will be able to find in the shares of FPCT the
aspects of investments they are looking for.
It should also be noted that, as already explained, FPCT shares are insured.
through credit enhancement mechanisms and pay better than
fixed income investments of comparable quality. Thus, and in general they
represent the most attractive risk/return ratio after government bonds.
Disadvantages of securitization
The main risks to which investors in FPCT shares are exposed are:
The liquidity risk that may arise from a delay in payments by debtors
(borrowers),
The credit risk that may result from the default of one or more debtors,
The interest rate risk that may result from an unfavorable development of the yield curve.

74/74