Circular Letter No. 3073 — Creates titles and subtitles in Cosif and clarifies procedures for registering credit derivatives

CIRCULAR LETTER NO. 003073

Creates titles and subtitles in Cosif and clarifies procedures for registering credit derivatives.

In view of the provisions of Circulars 3,082, of January 30, 2002, 3,106, of April 10, 2002, 3,129, of June 27, 2002, and 3,150, of September 11, 2002, and based on item 4 of Circular 1,540, of October 6, 1989, the following accounting titles and subtitles are created in the Accounting Plan of the Institutions of the National Financial System - Cosif:

I - with attributes UBDKIFJACTSWERLMNZ and codes ESTBAN and publication, 130 and 140, respectively:

1.3.3.80.00-9 CREDIT DERIVATIVES - ASSET
1.3.3.80.10-2 Credit Swap
1.3.3.80.30-8 Total Return Rate Swap;

II - with attributes UBDIFACTSWELMN and codes ESTBAN and publication, 130 and 140, respectively:

1.3.3.80.13-3 Credit Swap - Hedge of Security Held to Maturity 1.3.3.80.33-9 Total Return Rate Swap - Hedge of Security Held to Maturity

III - with attributes UBDKIFJACTSWERLMNZ and code ESTBAN 300:

3.0.6.55.00-9 CREDIT DERIVATIVES - TRANSFERRED RISK 3.0.6.56.00-8 CREDIT DERIVATIVES - RETAINED RISK;

IV - with attributes UBIFASLMNZ and code ESTBAN 300:

3.0.6.57.00-7 CREDIT DERIVATIVES - RECEIVED RISK 3.0.6.57.10-0 Underlying Asset Weighted at 0% 3.0.6.57.20-3 Underlying Asset Weighted at 20% 3.0.6.57.50-2 Underlying Asset Weighted at 50% 3.0.6.57.90-4 Underlying Asset Weighted at 100%;

V - with attributes UBDKIFJACTSWERLMNZ and codes ESTBAN and publication, 470 and 485, respectively:

4.7.1.80.00-0 CREDIT DERIVATIVES - LIABILITY
4.7.1.80.10-3 Credit Swap
4.7.1.80.30-9 Total Return Rate Swap;

VI - with attributes UBDIFACTSWELMN and codes ESTBAN and publication, 470 and 485, respectively:

4.7.1.80.13-4 Credit Swap - Hedge of Security Held to Maturity 4.7.1.80.33-0 Total Return Rate Swap - Hedge of Security Held to Maturity;

VII - with attributes UBIFASLMNZ and codes ESTBAN and publication, 500 and 503, respectively:

4.9.9.40.00-4 PROVISION FOR RECEIVED RISK IN OPERATIONS WITH CREDIT DERIVATIVES;

VIII - with attributes UBDKIFJACTSWERLMNZ and codes ESTBAN and publication, 711 and 716, respectively:

7.1.5.80.60-7 Credit Derivatives
7.1.9.90.26-6 Credit Derivatives;

IX - with attributes UBDIFACTSWELMN and codes ESTBAN and publication, 711 and 716, respectively:

7.1.5.80.63-8 Credit Derivatives - Hedge of Security Held to Maturity;

X - with attributes UBDKIFJACTSWERLMNZ and codes ESTBAN and publication, 712 and 716, respectively:

8.1.5.50.60-3 Credit Derivatives
8.1.8.30.26-8 Credit Derivatives;

XI - with attributes UBDIFACTSWELMN and codes ESTBAN and publication, 712 and 716, respectively:

8.1.5.50.63-4 Credit Derivatives - Hedge of Security Held to Maturity;

XII - with attributes UBDKIFJACTSWERLMNZ and code ESTBAN 800:

9.0.6.55.00-1 TRANSFERRED RISK WITH CREDIT DERIVATIVES 9.0.6.56.00-0 RETAINED RISK WITH CREDIT DERIVATIVES 9.0.6.57.00-9 RECEIVED RISK WITH CREDIT DERIVATIVES.

2. The accounting title CREDIT DERIVATIVES - ASSET, code 1.3.3.80.00-9, is intended for the registration of credit derivatives, observing that:

I - in credit swap operations, the value paid or payable regarding the protection rate for the transfer of credit risk must be registered on the date of contracting by the risk-transferring counterparty, being appropriated as an expense due to the contract's duration, or fully appropriated upon the occurrence of the credit event, evaluated monthly, at minimum, at market value;

II - in total return rate swap operations, the amount receivable must be registered, with the corresponding revenue account as the counterpart, evaluated monthly, at minimum, at market value.

3. The accounting title CREDIT DERIVATIVES - TRANSFERRED RISK, code 3.0.6.55.00-9, is intended for the registration of the value resulting from the application of the risk weighting factor applicable to the underlying asset on the reference value of the credit derivative operation, with the title TRANSFERRED RISK WITH CREDIT DERIVATIVES, code 9.0.6.55.00-1, as the counterpart.

4. The accounting title CREDIT DERIVATIVES - RETAINED RISK, code 3.0.6.56.00-8, is intended for the registration of the value resulting from the application of the weighting factor (WP), calculated in accordance with the provisions of Circular 3,106, of 2002, on the reference value of the credit derivative operation, with the title RETAINED RISK WITH CREDIT DERIVATIVES, code 9.0.6.56.00-0, as the counterpart.

5. The accounting title CREDIT DERIVATIVES - RECEIVED RISK, code 3.0.6.57.00-7, is intended for the registration of the reference value of credit derivative operations by the institution receiving the risk, classifying them in the accounting subtitles according to the risk weighting factor applicable to the underlying asset, with the title RECEIVED RISK WITH CREDIT DERIVATIVES, code 9.0.6.57.00-9, as the counterpart.

6. The accounting title CREDIT DERIVATIVE - LIABILITY, code 4.7.1.80.00-0, is intended for the registration of credit derivatives, observing that:

I - in credit swap operations, the value received or receivable regarding the protection rate for the reception of credit risk must be registered on the date of contracting by the risk-receiving counterparty, being appropriated as revenue due to the contract's duration, or fully appropriated upon the occurrence of the credit event, evaluated, at minimum, monthly at market value;

II - in total return rate swap operations, the amount payable must be registered, with the corresponding expense account as the counterpart, evaluated, at minimum, monthly at market value.

7. The accounting title PROVISION FOR RECEIVED RISK IN OPERATIONS WITH CREDIT DERIVATIVES, code 4.9.9.40.00-4, is intended for the registration of a specific provision for covering credit risk, calculated according to the same criteria established by Resolution 2,682, of December 21, 1999, applied to the reference value of the credit derivative operation, with the subtitle Credit Derivatives, code 8.1.8.30.26-8, as the counterpart, or, in case of reversal, the subtitle Credit Derivatives, code 7.1.9.90.26-6.

8. Upon the occurrence of a credit event that, according to contractual provision, implies the transfer of the underlying asset, the write-off must be processed by the institution holding the asset, with the consequent registration, by the counterparty in the operation, of the asset duly adjusted by the appropriate provision.

9. The criteria for registration and evaluation of financial derivative instruments established by Circulars 3,082, 3,129 and 3,150, all of 2002, apply to credit derivatives.

10. The denomination relative to code 130 in ESTBAN is changed to SECURITIES AND FINANCIAL DERIVATIVE INSTRUMENTS.

11. The following titles and subtitles are included in the Asset Classification Table referred to in art. 2., Paragraph 1., of the Regulation Annex IV to Resolution 2,099, of August 17, 1994, and subsequent amendments:

I - as NULL RISK, weighting factor of 0% (zero percent), Underlying Asset Weighted at 0%, code 3.0.6.57.10-0;

II - as REDUCED RISK, weighting factor of 20% (twenty percent), Underlying Asset Weighted at 20%, code 3.0.6.57.20-3;

III - as REDUCED RISK, weighting factor of 50% (fifty percent), Underlying Asset Weighted at 50%, code 3.0.6.57.50-2;

IV - as NORMAL RISK, weighting factor of 100% (one hundred percent):

1.3.3.80.00-9 CREDIT DERIVATIVES - ASSET
3.0.6.56.00-8 CREDIT DERIVATIVES - RETAINED RISK 3.0.6.57.90-4 Underlying Asset Weighted at 100%;

V - with a negative sign and weighting factor of 100% (one hundred percent), CREDIT DERIVATIVES - TRANSFERRED RISK, code 3.0.6.55.00-9.

12. The following titles and subtitles are created in the Economic-Financial Consolidated - Conef, document 5 of Cosif:

30.6.6.00.00-1 Transfer, Retention and Reception of Risks 30.6.6.55.00-1 CREDIT DERIVATIVES - TRANSFERRED RISK 30.6.6.56.00-0 CREDIT DERIVATIVES - RETAINED RISK 30.6.6.57.00-9 CREDIT DERIVATIVES - RECEIVED RISK 30.6.6.57.10-2 Credit Derivatives - Underlying Asset Weighted at 0% 30.6.6.57.20-5 Credit Derivatives - Underlying Asset Weighted at 20% 30.6.6.57.50-4 Credit Derivatives - Underlying Asset Weighted at 50% 30.6.6.57.90-6 Credit Derivatives - Underlying Asset Weighted at 100% 40.8.9.40.00-9 PROVISION FOR RECEIVED RISK IN OPERATIONS WITH CREDIT DERIVATIVES.

13. The following aggregations must be made in document Annex II to Circular Letter 2,918, of June 15, 2000:

I - the title 1.3.3.80.00-9 into 10.3.3.10.00-6;

II - the title 3.0.6.55.00-9 into 30.6.6.55.00-1;

III - the title 3.0.6.56.00-8 into 30.6.6.56.00-0;

IV - the subtitle 3.0.6.57.10-0 into 30.6.6.57.10-2;

V - the subtitle 3.0.6.57.20-3 into 30.6.6.57.20-5;

VI - the subtitle 3.0.6.57.50-2 into 30.6.6.57.50-4;

VII - the subtitle 3.0.6.57.90-4 into 30.6.6.57.90-6;

VIII - the subtitle 4.9.9.40.00-4 into the title 40.8.9.40.00-9.

14. This circular letter enters into force on the date of its publication.

Brasília, December 30, 2002.

Department of Standards of the Financial System

Antonio José Barreto de Paiva
Substitute Chief
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