Circular Letter No. 3.009

CIRCULAR LETTER No. 003009 ------------------------ Discloses operational procedures to be observed in the operations of the Banco Central Rediscount. Based on the provisions of art. 2 of Circular 3.105, of 5 April 2002, we clarify that the contracting of operations of the Banco Central Rediscount shall observe, as from 22 April 2002, the procedures described in this circular letter. 2. The registration pertaining to the request for granting operations of the Banco Central Rediscount observes the following times: I - purchase operations, with a resale commitment, intraday, of federal public securities registered in the Special System for Settlement and Custody - Selic, referred to in item I of art. 4 of the regulation annexed to Circular 3.105: from 6:30 a.m. to 6:15 p.m.; II - purchase operations, with a resale commitment, of one business day, of federal public securities registered in Selic, referred to in item II of art. 4 of the regulation annexed to Circular 3.105: from 5:45 p.m. to 6:30 p.m.; and III - operations involving other types of assets accepted by the Banco Central do Brasil, contracted for a term of up to fifteen business days and up to ninety calendar days, referred to in items III and IV of art. 4 of the regulation annexed to Circular 3.105: from 6:30 a.m. to 6:30 p.m., subject to communication, by 4:00 p.m., as provided in art. 15 of the regulation annexed to Circular 3.105. 3. The commitment assumed by the financial institution to repurchase the assets subject to a Banco Central Rediscount operation must be honored by 6:30 p.m. on the maturity date of each operation. 4. When extraordinary facts, at its sole discretion, so justify, the Banco Central do Brasil may, with effect for a given day or period: I - bring forward or postpone the times for requesting Banco Central Rediscount operations; and II - postpone the time for repurchase, by financial institutions, of the assets subject to a Banco Central Rediscount operation. 5. The Banco Central do Brasil shall disclose daily, on its Internet page, the list of federal public securities and their respective prices accepted in Banco Central Rediscount operations. 6. The Banco Central Rediscount shall be available on days considered business days for purposes of operations practiced in the financial market, in compliance with the provisions of annexes I to VI of this circular letter. 7. Operations of up to fifteen business days and of up to ninety calendar days, referred to in items III and IV of art. 4 of Circular 3.105, must be requested by financial institutions from the Department of Banking Operations and Payment System - Deban, with the delivery of the required documentation and an itemized list of the assets subject to the operation. 8. The itemized list must be accompanied by a file on electronic media containing all information essential to the proper evaluation of the assets by the Banco Central. 9. It is permitted to honor the repurchase commitment in installments
whenever the nature of the asset so permits. 10. The one-business-day operation in which the resale occurs on the same date as the purchase is equated to the intraday operation, for all purposes. 11. This circular letter enters into force on 22 April 2002, when Circular Letter 2.897, of 11 February 2000, is revoked. Brasília, 19 April 2002. Department of Banking Operations and Payment System Luis Gustavo da Matta Machado Head Annex I Intraday operation I - Main characteristics: a) Operation authorized by the Banco Central provided that it is requested by the financial institution in compliance with the regulatory requirements. b) Rediscount price PU[ida]: provided by the Banco Central, with 8 decimal places. c) PU[volta]: equal to PU[ida]. II - Calculation criteria: a) Financial Amount[ida] = Quantity of securities (whole number) x PU[ida], with the result expressed with two decimal places, discarding from the third onward. b) Financial Amount[volta] = Quantity of securities (whole number) x PU[volta], with the result expressed with two decimal places, discarding from the third onward. III - Example: Operation carried out with 139,238 securities, with a rediscount PU (PU[ida]) of 974.06997666 Financial Amount[ida] = 139,238 x 974.06997666 = R$ 135,627,555.41 Financial Amount[volta] = 139,238 x 974.06997666 = R$ 135,627,555.41 IV - Observation: When the repurchase commitment is honored in installments, until the maturity date, the procedures described in annex VI apply. Annex II One-business-day operation I - Main characteristics: a) Operation authorized by the Banco Central provided that it is requested by the financial institution in compliance with the regulatory requirements. b) Rediscount price (PU[ida]): provided by the Banco Central, with 8 decimal places. c) PU[volta]: calculated with 8 decimal places, rounded mathematically, for the business day following the operation. II - Calculation criteria: a) PU[volta]=PU[ida] x CostFactor Where: - CostFactor=SelicFactor x AccrualFactor, calculated with 8 decimal places, rounded mathematically; - SelicFactor=(1+SelicRate/100)^(1/252), calculated with 8 decimal places, rounded mathematically; - AccrualFactor=(1+AccrualRate/100)^(1/252), calculated with 8 decimal places, rounded mathematically; - SelicRate: is the Selic Rate on the date of contracting the operation, expressed in annual terms, with two decimal places, and disclosed by the Banco Central; - AccrualRate: is the cost, in addition to the Selic rate, related to the 1-business-day operation, expressed in annual terms, with two decimal places, and defined in Circular 3.120, of 19.4.2002. b) Financial Amount[ida] = Quantity of securities (whole number) x PU[ida], with the result expressed with two decimal places, discarding from the third onward. c) Financial Amount[volta] = Quantity of securities (whole number) x PU[volta], with the result expressed with two decimal places, discarding from the third onward. III - Example: 1 business day
operation carried out with 139,238 securities, with Rediscount Price (PU[ida]) of 974.06997666 on 27/6/2001, for return on the following business day. The Selic Rate, determined by the Central Bank for 27/6/2001, was 18.31% p.a. Financial Value[ida] = 139,238 x 974.06997666 = R$ 135,627,555.41 Calculation of the Financial Value[return]: - SelicFactor=(1+18.31/100)^(1/252)=1.00066744 - AccrualFactor=(1+6.00/100)^(1/252)=1.00023125 - CostFactor=SelicFactor x AccrualFactor=1.00066744 x 1.00023125=1.00089884 - PU[return]=974.06997666 x 1.00089884=974.94550972 - Financial Value[return]=139,238 x 974.94550972= R$ 135,749,462.88 IV - Note: When the repurchase commitment is honored in installments, up to the maturity date, the procedures described in Annex VI apply. Annex III One business day operation with maturity of the rediscounted security coinciding with the return date of the operation I - Main characteristics: a) Operation authorized by the Central Bank provided that it is requested by the financial institution in compliance with the regulatory requirements. b) The return of the operation is authorized upon the command of the outgoing leg, being settled on the following business day, in the Selic opening routine. c) Rediscount price (PU[ida]): provided by the Central Bank, with 8 decimal places. d) Provisional PU[return]: estimated and provided by the Central Bank, with 8 decimal places, calculated to ensure sufficient redemption value for the full settlement of the rediscount operation. e) Notes: i) the cost of this operation is provisionally defined at the time of registration, since the Selic Rate will only be known after the close of the Selic system; ii) on the following business day, the Rediscount system calculates the actual PU[return] of the rediscounted security, based on the Selic Rate determined for the previous business day, crediting or charging, through a message from the SLB Services Group of the Brazilian Payment System Message Catalog, any difference observed; iii) The actual PU[return] will be calculated in the usual manner, with eight decimal places, rounded mathematically. II - Criteria for calculating the cost due: a) PU[return]=PU[ida].CostFactor Where: - CostFactor=SelicFactor.AccrualFactor, calculated with 8 decimal places, rounded mathematically; - SelicFactor=(1+SelicRate/100)^(1/252), calculated with 8 decimal places, rounded mathematically; - AccrualFactor=(1+AccrualRate/100)^(1/252), calculated with 8 decimal places, rounded mathematically; - SelicRate: is the Selic Rate on the date of contracting the operation, expressed in annual terms, with two decimal places, and disclosed by the Central Bank; - AccrualRate: is the cost, in addition to the Selic Rate, related to the one business day operation, expressed in annual terms, with two decimal places, and defined in Circular 3,120, of 19.4.2002. b) Financial Value[ida] = Quantity of securities (whole number) x PU[ida], with the result expressed with two decimal places,
discarding from the third onward. c) On the following business day, the operation will be provisionally settled for the following provisional financial value, in the Selic opening routine: Provisional Financial Value[return] = Quantity of securities (whole number) x PU[return], with the result expressed with two decimal places, discarding from the third onward. d) The financial result due by the financial institution shall correspond to: Financial Value[return] = Quantity of securities (whole number) x PU[return], with the result expressed with two decimal places, discarding from the third onward. e) The amount of the difference between the provisional settlement value and the financial value due (Financial Value[return] - Financial Value[return]), if positive, shall be returned to the financial institution and, if negative, shall be charged to it, in both cases through messages of the SLB group. III - Example 1: 1-day operation with 139,238 securities, with rediscount PU[ida] of 999.10023558 on 27/6/2001, with provisional PU[return]* provided by the Central Bank of 1,000.00000000. The Selic Rate for 27/6/2001 was 18.31% p.a. - Financial Value[ida]=139,238 x 999.10023558=R$ 139,112,718.60 - Financial Value[return]=139,238 x 1,000.00000000= R$ 139,238,000.00 - The Financial Value[return] will be considered in the Selic opening routine to effect the provisional settlement of the rediscount operation. - The actual return financial value must be calculated with the following parameters: SelicFactor=(1+18.31/100)^(1/252)=1.00066744 AccrualFactor=(1+6.00/100)^(1/252)=1.00023125 CostFactor=SelicFactor.AccrualFactor=1.00066744 x 1.00023125 =1.00089884 PU[return]=999.10023558 x 1.00089884=999.99826684 Financial Value[return]=139,238 x 999.99826684=R$ 139,237,758.67 - In this case, the amount of the difference (Financial Value[return]* - Financial Value[return]) is positive: R$ 139,238,000.00 - R$ 139,237,758.67 = R$ 241.33 - The residual amount collected in excess is returned, through a message of the SLB group, to the institution that made the rediscount, at the opening of the STR. IV - Example 2: 1-day operation carried out with 139,238 securities, with rediscount PU[ida] of 999.10024030 on 27/6/2001, with provisional PU[return]* provided by the Central Bank of 1,000.00000000. The Selic Rate for 27/6/2001 was 18.75% p.a. - Financial Value[outbound]=139,238 x 999.10024030=R$ 139,112,719.25 - Financial Value[return]=139,238 x 1,000.00000000 =R$ 139,238,000.00 - The actual return financial value must be calculated with the following parameters: - SelicFactor=(1+18.75/100)^(1/252)=1.00068218 - AccrualFactor=(1+6.00/100)^(1/252)=1.00023125 - CostFactor=SelicFactor x AccrualFactor =1.00068218 x 1.00023125=1.00091359 - PU[return]=999.10024030 x 1.00091359=1,000.01300829 - Financial Value(return) = 139,238 x 1,000.01300829 = R$ 139,239,811.24 - In this case, the difference value (Financial Value[return] - Financial Value[return]) is negative: R$
139,238,000.00 - R$ 139,239,811.24 = - R$ 1,811.24 The residual value, underpaid, will be charged, through a message from the SLB group, to the institution that requested the rediscount and must be settled by 6:30 p.m. V - Note: When the repurchase commitment is honored in installments, until the maturity date, the procedures described in Annex VI apply. Annex IV Operation with a term exceeding one business day, with federal public securities I - Main characteristics: a)Operation subject to prior authorization from the Central Bank of Brazil, in accordance with the provisions of arts. 12 and 13 of the regulation annexed to Circular 3,105, of 5 April 2002. b)Rediscount price (PU[outbound]): provided by the Central Bank, with 8 decimal places. c)PU[return]: calculated with 8 decimal places, mathematically rounded. d)The operation may be settled early, with the outstanding balances calculated day by day, based on the updated PUs. II - Calculation criteria: a)Unit Return Prices: PU[return t+1]=PU[outbound t].CostFactor[t] PU[return t+2]=PU[return t+1].CostFactor[t+1] --- PU[return t+n]=PU[return t+n-1].CostFactor[t+n-1] Where: - CostFactor[i]=SelicFactor[i] x AccrualFactor[i], calculated with 8 decimal places, mathematically rounded; - SelicFactor[i]=(1+SelicRate[i]/100)^(1/252), calculated with 8 decimal places, mathematically rounded; - AccrualFactor[i]=(1+AccrualRate/100)^(1/252), calculated with 8 decimal places, mathematically rounded; - SelicRate[i]: daily rates from the date of contracting the operation, expressed in annual terms, with two decimal places, and disclosed by the Central Bank; - AccrualRate: is the cost, in addition to the Selic Rate, related to the contracted operation, expressed in annual terms, with two decimal places, and defined in Circular 3,120, of 19.4.2002. b)Financial Value[outbound] = Quantity of securities (whole number) x PU[outbound], with the result expressed to 2 decimal places, discarding from the third onward. c)Financial Value[return]: Financial Value[return t+1] = Quantity of securities (whole number) x PU[return t+1], with the result expressed to two decimal places, discarding from the third onward. Financial Value[return t+2] = Quantity of securities (whole number) x PU[return t+2], with the result expressed to two decimal places, discarding from the third onward. --- Financial Value[return t+n] = Quantity of securities (whole number) x PU[return t+n], with the result expressed to two decimal places, discarding from the third onward. III - Example: Operation carried out with 139,238 securities, with a rediscount PU[outbound] of 974.06997666 on 27/6/2001, contracted for return on 18/7/2001 (15 business days), but settled early on 2/7/2001 (3 business days): Date Selic Rate Selic Factor Accrual Factor Cost Factor I II III 27/06/2001 18.31 - - - 28/06/2001 18.31 1.00066744 1.00015565 1.00082319 29/06/2001 18.32 1.00066744 1.00015565 1.00082319 02/07/2001 - 1.00066777 1.00015565 1.00082352 Date PUs outbound PUs
return Amount Due IV V VI 27/06/2001 974.06997666 974.06997666 135,627,555.41 28/06/2001 974.06997666 974.87182132 135,739,202.65 29/06/2001 974.87182132 975.67432605 135,850,941.81 02/07/2001 975.67432605 976.47781337 135,962,817.77 I = (1+SelicRate/100)^(1/252), rounded to 8 decimal places; II =(1+4.00/100)^(1/252), rounded to 8 decimal places; III = I x II, rounded to 8 decimal places; IV = V of the previous day; V = IV x III, rounded to 8 decimal places; VI = 139238 x V, truncated to two decimal places. The "Amount Due" column indicates the outstanding balance of the operation on each day, which correspond to the amount at which the operation may be settled early, at the sole discretion of the financial institution that requested the operation. If settlement occurred on 2/7/2001, the amount to be paid would be R$ 135,962,817.77. IV - Note: When the repurchase commitment is honored in installments, until the maturity date, the procedures described in Annex VI apply. Annex V Operation with a term exceeding one business day, with other assets: I - Main characteristics: a)Operation subject to prior authorization by the Central Bank of Brazil, in accordance with the provisions of arts. 12 and 13 of the regulation annexed to Circular 3,105, of 5 April 2002. b)Characteristics similar to the operation described in Annex IV, with the difference that there will be no PUs but rather an original financial balance for each operation, provided by Deban, based on the valuation of the assets offered for rediscount, and expressed to two decimal places. c)The outstanding balance is calculated to two decimal places, discarding from the third onward. The operation may be settled early, with the outstanding balance calculated day by day based on daily factors. II - Calculation criteria: Balance[t+1]=Balance[t] x CostFactor[t] Balance[t+2]=Balance[t+1] x CostFactor[t+1] --- Balance[t+n]=Balance[t+n-1] x CostFactor[t+n-1] Where: - CostFactor[i]=SelicFactor[i] x AccrualFactor[i], calculated with 8 decimal places, mathematically rounded; - SelicFactor[i]=(1+SelicRate[i]/100)^(1/252), calculated with 8 decimal places, mathematically rounded; - AccrualFactor[i]=(1+AccrualRate[i]/100)^(1/252), calculated with 8 decimal places, mathematically rounded; - Selic Rate[i]: daily rates from the date of contracting the operation, expressed in annual terms, with two decimal places, and disclosed by the Central Bank; - AccrualRate: is the cost, in addition to the Selic Rate, related to the contracted operation, expressed in annual terms, with two decimal places, and defined in Circular 3.120, of 19.4.2002. III - Example: Operation carried out with a portfolio of assets, valued by Deban at R$ 347,000,000.00 on 25/6/2001, contracted for return on 18/7/2001 (17 business days, 23 calendar days), but settled early on 2/7/2001 (5 business days): Date Rate Factor Factor Selic Selic Accrual I II 25/06/2001 18.30 - 26/06/2001 18.30 1.00066710 1.00007858 27/06/2001 18.31 1.00066710
1.00007858 28/06/2001 18.31 1.00066744 1.00007858 29/06/2001 18.32 1.00066744 1.00007858 02/07/2001 - 1.00066777 1.00007858 Date Factor Value Value Cost Taken Due III IV V 25/06/2001 - 347,000,000.00 347,000,000.00 26/06/2001 1.00074573 347,000,000.00 347,258,768.31 27/06/2001 1.00074573 347,258,768.31 347,517,729.59 28/06/2001 1.00074607 347,517,729.59 347,777,002.14 29/06/2001 1.00074607 347,777,002.14 348,036,468.12 02/07/2001 1.00074640 348,036,468.12 348,296,242.53 I = (1+SelicRate/100)^(1/252), rounded to 8 decimal places; II =(1+2.00/100)^(1/252), rounded to 8 decimal places; III = I x II, rounded to 8 decimal places; IV = V of the previous day; V = IV x III, truncated to two decimal places. The "Amount Due" column indicates the outstanding balance of the operation on each day, which correspond to the amount at which the operation can be settled early, at the sole discretion of the financial institution that requested the operation. In the example, if there were settlement on 2/7/2001, the amount to be paid to the Central Bank would be R$ 348,296,242.53. IV - Observation: When the repurchase commitment is honored in installments, until the maturity date, the procedures described in Annex VI apply. Annex VI Partial Payments I - Characteristics: a) In all modalities of Rediscount of the Central Bank, settlement in installments is permitted until the maturity date of the operation. In the case of operations involving assets with Unit Price-PU, examples of which are intraday and one-business-day operations, the amount of the last installment must be the amount necessary to settle the remaining amount existing at the Central Bank. b) Given the characteristics of the formation of financial amounts for rediscount, there may be a financial residual in the case of installment settlement, since the sum of the financial installments resulting from the PU x Quantity relations of each installment, due to rounding, may not correspond to the product PU x Total Quantity of the operation, and any residual must be adjusted when paying the last installment. II - Example: Intraday operation carried out with 139,238 securities, with rediscount PU equivalent to 974.06997666, paid in three installments: the first corresponding to 52,412 securities, the second corresponding to 46,414 securities and the third corresponding to 40,412 securities, totaling the original 139,238 securities. This operation generates the following financial flows: Rediscount request: Financial Amount[ida] = 139,238 x 974.06997666 = R$ 135,627,555.41 Payment of the first installment: Financial Amount installment1 = 52,412 x 974.06997666 = R$ 51,052,955.61 Payment of the second installment: Financial Amount installment2 = 46,414 x 974.06997666 = R$ 45,210,483.89 After the two installments, the financial institution still has an outstanding balance to pay of exactly R$ 39,364,115.91 (R$ 135,627,555.41 - R$ 51,052,955.61 - R$ 45,210,483.89). This amount corresponds to the 40,412 securities
(139,238 - 52,412 - 46,414) that still must be repurchased. If the amount of the third installment were simply calculated by the product of the remaining quantity of securities by the PU, a discrepancy of R$ 0.02 would be identified in relation to the amount due, due to the rounding performed when calculating the amount of the first two installments: Financial Amount = Quantity of securities x PU Financial Amount = 40,412 x 974.06997666 = R$ 39,364,115.89 The difference of R$ 0.02 between the financial amount corresponding to the balance of securities to be repurchased and the outstanding balance of the financial volume generated by the original rediscount operation (R$ 39,364,115.91 - R$ 39,364,115.89) means that the third installment must be of an amount equal to R$ 39,364,115.91. Thus, in rediscount operations, whose payment is made in more than one installment, the last installment, which fully settles the rediscount operation, must have as its financial amount the remaining amount existing at the Central Bank. In the example above, the last installment must have the following parameters: Quantity of securities = 40,412 PU = 974.06997666 Financial Amount = 39,364,115.91 (and not 39,364,115.89)