BANCO CENTRAL DE LA REPUBLICA ARGENTINA

COMMUNICATION "A" 2461 30/08/96

TO FINANCIAL ENTITIES:

Ref.: Circular
LISOL 1 - 143.
Minimum capital requirement for the coverage of market risks. Complementary rules.

We address you to inform you that this Institution has adopted the following resolution:

"1. Incorporate the following immediately after the second paragraph of point I.2.b.i. of the resolution disseminated by point 1. of Communication "A" 2435:

"When the same asset trades in various markets in currencies other than the United States dollar, the quotation and currency of the most representative market based on the volume of transactions in that asset shall be considered."

2. Incorporate the following paragraphs into point II. of the resolution disseminated by point 1. of the resolution disseminated by point 1. of Communication "A" 2435:

"h) The requirement for usual quotation established in point I. refers to that arising daily from relevant transactions in whose amount the eventual liquidation of the assets in question cannot significantly distort their market value.

i) "Swaps" and other derivatives on assets not covered by this regulation are excluded from the portfolios referred to in points I.1. to I.3., provided that such operations aim to cover risks of financial intermediation operations, without prejudice to the fact that the execution of such contracts must be reported to the Superintendence of Financial and Exchange Entities in the manner and time established.

j) In the case of derivative contracts not expressly contemplated in points I.1. to I.3., the treatment to be used to determine the value at risk must be consulted with the Superintendence of Financial and Exchange Entities."

3. Replace points I.3.i.; II.c.; II.d. (first paragraph); II.f.; III.c.; IV.; V.; VI. (first paragraph) and VII. of the resolution disseminated by point 1. of Communication "A" 2435 with the following:

"3. Foreign currency positions.
i. Included positions.
Bought and sold positions of foreign currencies other than the United States dollar, at spot or forward, derivatives bought or sold on them, and the dollar value of the positions of instruments included in point 2., which trade in currencies other than the United States dollar, shall be included.

Holdings of currencies other than the United States dollar that, considered individually at the close of operations each day, are less than the equivalent of US$ 100,000 may be excluded.
This exclusion shall not be applicable when the set of computable foreign currencies exceeds the equivalent of US$ 500,000 at the close of operations each day."

"c. si
: Measure of daily volatility of the return of asset i.
The Central Bank will inform monthly the values of si that will be used for the calculation of the value at risk in the instruments included in points I.1.a. and I.1.b. -with the exception of common investment funds-, specifying additionally, and where applicable, to which zone each one belongs according to its average life. The information will be supplied on the last business day of the month and will be used for the calculations corresponding to the daily positions of the following month. Holdings of national assets whose volatilities are not published by the Central Bank -with the exception of common investment funds integrated by the included assets- will not generate capital requirements for market risk and will receive the treatment of "non-tradable" for the purposes of the application of the limit on holdings referred to in point 3.3. of Annex II to Communication "A" 2140. For foreign assets, the entity must calculate the volatilities as the standard deviation of the daily return of the assets, following the methodology exposed below:

si= [1-l Sj=1
74 l j*(Ri,t-j
-MRi
)2]0.5
Ri,t-j = (Pi,t-j
/Pi,t-j-1)-1
MRi =(1-l)*Sj=1
74 l j.*Ri,t-j

where l=0.94; j= 1 to 74;
Pi ,t-j
: Price of asset i, at the close of day t-j.
The volatility (standard deviation) obtained will be annualized, if necessary for the calculation of the value of options, by multiplying si by the square root of 252.
The calculation of the volatilities of common investment funds integrated by the included assets will be carried out by financial entities based on the value of their shares, applying the methodology exposed previously.
For the purposes of the calculation and use of the values resulting from the volatilities of foreign assets and common investment funds -of the country or abroad- the frequency followed by the Central Bank regarding national assets will be observed, that is, the obtained value will be considered for the determination of the values at risk of the portfolios that are registered daily during the following month."

"d. Ti
: Time that the financial entity needs to unwind an operation.

The minimum value for this factor is 5. As the positions held by the entity are of high value or constitute less liquid assets, with lower volume of daily transactions, the value of Ti will increase. The financial entity must determine the value of Ti that it considers adequate, given the size of its holdings and the liquidity of the market for that asset. Therefore, this factor will not be the same for all assets nor equal among financial entities. The value of T1 used for a derivative contract may differ from the value of T1 for the position in the relevant underlying asset."

"f. Valuation of options:
For the calculation of the coefficients linked to options (delta, gamma, vega), the Black-Scholes option valuation model will be accepted. In it, the data used, when pertinent, will be the volatility published by the Central Bank. In the case of exotic options, or when the entity possesses an alternative valuation method, its use must be approved by the Superintendence of Financial and Exchange Entities."

"c: Integration defect.
In the event of an integration defect of up to 3% of the total required requirement, originating in the computation of the VaRp requirement, the financial entity must replenish the capital and/or reduce its financial asset positions until it achieves compliance with the established requirement, for which it will have a period of 5 business days counted from the first deficiency. From the sixth business day onwards, deficiencies will be subject to a daily charge equivalent to 24% nominal annual, calculated on the largest daily deficiency recorded in the month. In the event of an integration defect greater than 3%, and not being able to be remedied through a decrease in its financial asset positions or through the replenishment of capital within 10 business days counted from the first deficiency, or when after the fifth business day counted in the same way deficiencies of up to 3% persist, within the following 24 hours the situation must be reported to the Superintendence of Financial and Exchange Entities, without prejudice to which the provisions contained in point 3.2. of Communication "A" 2136 will be applied. For the determination and settlement of the charge for the daily integration deficiency of the minimum capital requirement originating in the computation of the market risk values (largest daily deficiency and number of days with deficiencies), the increase in the defect with respect to the eventual deficiency calculated on the last business day of the previous month according to the provisions of Communication "A" 2136 will be taken into account."

"IV. COUNTERPARTIES.
Starting from 1.9.96, financial entities may sell option contracts provided they have an L3 rating or higher, issued by any of the rating agencies admitted by the Central Bank (Communication "A" 2269) or with a rating of a level similar to that of public titles issued by the National Government, granted by an international risk evaluator company included in the list of point 6. of Communication "A" 2269. Financial entities may buy option contracts issued by banks abroad, only in the case that the latter have an "investment grade" rating, granted by any of the aforementioned international agencies.

They may also buy option contracts issued by other counterparties, provided that they are operations that trade in institutionalized markets of the country or abroad. "

"V. CONSOLIDATION.
The capital requirements for market risk must be observed on a monthly consolidated basis, according to what is provided in point 5.2.1. of the annex to the provisions disseminated by Communication "A" 2227."

"VI. Responsibilities.
Financial entities that operate by buying and/or selling, regardless of their amount, option contracts and those that on any day of a month register assets (sum of the bought and sold positions referred to in points I.1. to I.3.) that together exceed 25% of the computable net worth registered on the last day of the second previous month must define the responsibilities in the management of the risk administration policy that is assumed for the positions subject to the daily minimum capital requirement for market risk."

"VII. SANCTIONS.
The actions in which the responsible officials incur according to what is provided in point VI. and that imply the concealment or non-computation of operations that must be considered for the purposes of determining the value at risk of financial assets will determine the application to them and to the financial entity of the provisions of article 41 of the Law of Financial Entities, for which effect the following guidelines will be taken into account:

• fine between 1.5 and 3 times the amount of the largest daily deficiency originating in the computation of the risk values recorded in the period of non-compliance. The financial entity and the aforementioned persons will be jointly responsible for the fines imposed.
• disqualification of two to five years for the performance of functions in the financial activity by the responsible persons."

4. Establish that for the purposes of determining the daily minimum capital requirement arising from the methodology referred to in point 1. of the resolution disseminated by Communication "A" 2435 modified by this resolution, a gradual adaptation process will be observed, applying the following percentages on the value at risk:

Period %

• 1.9/30.11.96 50
• 1.12.96/28.2.97 75
• from 1.3.97 100

5. Provide that the list of responsible persons who must be designated as a result of the modifications introduced by this resolution to point VI. of the provisions regarding the minimum capital requirement for market risk coverage (Communication "A" 2435), must be supplied to the Superintendence of Financial and Exchange Entities before October 18, 1996.

6. Replace, with effect from 1.9.96, point 3.3. of Annex II to Communication "A" 2140 (text according to Communication "A" 2435), with the following:

"3.3. 15% of the CNW, the sum of the following holdings:

• non-tradable shares, excluding participations in companies that provide complementary services to the activity of the financial entity and the participations necessary to obtain the provision of public services
• tradable shares and shares of common investment funds that do not originate a minimum capital requirement for the coverage of market risks."

We salute you very attentively.
BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Andrew Powell Alfredo A. Besio
Manager of Manager of
Economic Studies Standards for
Financial Entities

ANNEX

Annex to Com. "A" 2461
Ordered text of the rules on minimum capital requirement for the coverage of market risks.

• Establish that, from 1.9.96, to the capital requirements established by means of Communication "A" 2136 and complementary, the capital requirements for market risk established in point I.4., as a VaRp component, must be added.

I. CAPITAL REQUIREMENTS FOR MARKET RISK.

1. National assets portfolio.
   a. Bonds.
   i. Included positions.
   The positions of national public titles and shares of common investment funds whose object is the assets included in this point, which trade usually in the markets, bought or sold at spot (holdings and to settle) or forward, linked or not with repos. Deposits of national public titles captured must be additionally included as passive positions (sold) and as active positions (bought) the loans of national public titles granted. Operations of bought or sold option contracts on the previously mentioned assets will also be included. Opposite positions in the same instrument may be netted.

ii. Calculation of Value at Risk.
ii.a. The bought and sold positions in the considered assets will be grouped into 4 zones according to their average life ("modified duration": md)

1. bonds denominated in pesos, md less than or equal to 2.5;
2. bonds denominated in pesos, md greater than 2.5;
3. bonds denominated in foreign currency, md less than or equal to 2.5;
4. bonds denominated in foreign currency, md greater than 2.5.

ii.b. Value at risk of the position in asset Ai , VaRi VaRi = Vi *k * si

• Ti
  1/2 (1) where:
  Vi
  : Value of the sum of the positions in asset i; in the case of bought or sold options on the asset, the notional value of them multiplied by the delta of each option will be included. If the total sum of positions results negative, a sold position will be considered; if positive, a bought position will be considered. k: Factor that expresses the considered risk level. si : Measure of daily volatility of the return of asset i. Ti : Time necessary to unwind the position.

ii.c. The values at risk of the bought and sold positions in each zone will be summed separately, obtaining:
VaRj
C = Si VaRi
, for bought positions, in zone j (2)
VaRj
V = -Si VaRi
, for sold positions, in zone j (2')

ii.d. Additional value at risk of options. For the bought and sold options on each asset included in the bond portfolio, the gamma and vega risks will be additionally calculated, according to the following expression:
VaRoi = RgOi+RvOi
(3)
RgOi = | min ( 0 ; Sj gammaj

• (dPi
  2)/2 ) | (4)
  RvOi = | Sj vegaj
• 25 si
• (2520.5) | (5)
  where:
  VaROi
  : additional value at risk of the option portfolio on asset "i"; RgOi : gamma risk of the option portfolio on asset "i"; RvOi : vega risk of the option portfolio on asset "i" ; gammaj : value of the gamma coefficient of option "j", expressed as the change in the delta coefficient of the option before a change in 1 peso in the price of the underlying asset; vegaj : value of the vega coefficient of option "j", expressed as the change in the value of the option before a change of 1% in the annual volatility of the underlying asset; dPi = k * si
• Pi Ti
  1/2 , where Pi is the price of the underlying asset.
  Both the gamma coefficient and the vega coefficient of the options will take into account the number of units of the underlying asset to which each option refers.
  The additional value at risk for the option portfolio will result from the sum of the values at risk in options for each asset:
  VaRO = Si VaROi
  (6)

ii.e. The total value at risk of the bond portfolio will be equal to:
VaRAN-B= min (VaR1
C ; VaR1
V) + abs (VaR1
C - VaR1
V) +

• min (VaR2
  C ; VaR2
  V) + abs (VaR2
  C - VaR2
  V) +

• min (VaR3
  C ; VaR3
  V) + abs (VaR3
  C - VaR3
  V) +

• min (VaR4
  C ; VaR4
  V) + abs (VaR4
  C - VaR4
  V) +

• VaRO (7)

b. Shares.
i. Included positions.
The positions of shares of Argentine companies considered for the elaboration of the MERVAL Index and shares of common investment funds whose object is the assets included in this point, which trade usually in the markets, bought or sold at spot (holdings and to settle) or forward, linked or not with repos. Deposits of shares captured must be additionally included as passive positions (sold) and as active positions (bought) the loans of shares granted. Operations of bought or sold option contracts on the previously mentioned assets will also be included. Opposite positions in the same instrument may be netted.

ii. Calculation of Value at Risk.
ii.a. Value at risk of the position in asset Ai , VaRi VaRi = Vi *k * si

• Ti
  1/2 (8) where:
  Vi
  : Value of the sum of the positions in asset i; in the case of options, the notional value of them multiplied by the delta of each option will be included. If the total sum of positions results negative, a sold position will be considered; if positive, a bought position will be considered. k : Factor that expresses the considered risk level. si : Measure of daily volatility of the return of asset i. Ti : time necessary to unwind the position.

ii.b. The values at risk of the bought and sold positions will be summed separately, obtaining:
VaRC = Si VaRi
, for bought positions (9)
VaRV = - Si VaRi
, for sold positions (9´)

ii.c. Additional value at risk of options. For the bought and sold options on each asset included in the share portfolio, the gamma risk and the vega risk will be additionally calculated, according to the following expression:

VaROi = RgOi+RvOi
(10)
RgOi = | min ( 0 ; Sj gammaj

• (dPi
  2)/2 ) | (11)
  RvOi = | Sj vegaj
• 25 si
• (2520.5) | (12)
  where:
  VaROi
  : value at risk of the option portfolio on asset "i"; RgOi : gamma risk of the option portfolio on asset "i"; RvOi : vega risk of the option portfolio on asset "i" gammaj : value of the gamma coefficient of option "j", expressed as the change in the delta coefficient of the option before a change in 1 peso in the price of the underlying asset; vegaj : value of the vega coefficient of option "j", expressed as the change in the value of the option before a change of 1% in the annual volatility of the underlying asset; dPi = k * si
• Pi Ti
  1/2 , where:
  Pi is the price of the underlying asset.
  Both the gamma coefficient and the vega coefficient of the options will take into account the number of units of the underlying asset to which each option refers.
  The additional value at risk for the option portfolio will result from the sum of the values at risk for each asset:
  VaRO = Si VaROi
  (13)

ii.d. The total value at risk of the share portfolio will be equal to:
VaRAN-A= min (VaRC ; VaRV) + abs (VaRC - VaRV) + VaRO (14)

2. Foreign assets portfolio.
   a. Bonds.
   i. Included positions.
   The positions of debt titles of foreign companies, public titles of foreign governments and shares of common investment funds whose object is the assets included in this point, which trade usually in the markets, bought or sold at spot (holdings and to settle) or forward, linked or not with repos. Operations of bought or sold option contracts on the previously mentioned assets will also be included. Opposite positions in the same instrument may be netted.

The considered positions must be discriminated according to the currency of issuance of each instrument, regardless of the residence of the issuer. In the case of assets expressed in currencies other than the United States dollar, the entity must consider the risk of two positions: the one composed by the asset and the position in foreign currency. On the latter, a capital requirement will be determined based on point 3. following. The value of all positions will be expressed in United States dollars by converting currencies other than this according to the repo rate elaborated by the Banco de la Nación Argentina.

Interest rate derivative contracts must be converted into positions in the relevant underlying assets. For example, rate "swaps" will be treated as a combination of two positions in titles, one bought and one sold, with the interests (fixed or variable) and issuers that correspond.

ii. Calculation of Value at Risk.
It will follow the methodology of point 1.a.ii.
The value at risk will be calculated according to what is provided in the second paragraph of point 2.a.i., obtaining the total value at risk of the foreign bond portfolio as the sum of the values at risk of each currency:
VaRAE-B = Sj VaRAE-BMj
(15) where:
VaRAE-BMj is the value at risk of the instruments issued in the currency "j".

b. Shares.
i. Included positions.
The positions of shares of foreign companies, shares of common investment funds whose object is the assets included in this point and share indices, which trade usually in the markets, bought or sold at spot (holdings and to settle) or forward, linked or not with repos. Operations of bought or sold option contracts on the previously mentioned assets will also be included. Opposite positions in the same instrument may be netted.

The positions considered must be distinguished by quotation markets, taking into account the currency in which each instrument is quoted, regardless of the issuer's residence. In the case of assets expressed in currencies other than the United States dollar, the entity must consider the risk of two positions: the one composed of the asset and the foreign currency position. On the latter, a capital requirement will be determined based on the following point 3.

When the same asset is quoted in various markets in currencies other than the United States dollar, the quotation and currency of the most representative market, based on the transaction volume for that asset, will be considered.

The value of all positions will be expressed in United States dollars, converting currencies other than this one according to the "pase" (swap) rate elaborated by the Banco de la Nación Argentina.

ii. Calculation of Value at Risk.
The methodology of point 1.b.ii. will be followed. The Value at Risk will be calculated by quotation market, in accordance with the provisions of the second paragraph of point 2.b.i., obtaining the total Value at Risk of the foreign stock portfolio as the sum of the Values at Risk by market:

VaRAE-A = Σj VaRAE-AMj (16)

where:
VaRAE-AMj is the Value at Risk of the instruments quoted in market "j".

3. Foreign Currency Positions.
   i. Included Positions.
   Bought and sold positions of foreign currencies other than the United States dollar will be included, whether spot or forward, derivatives bought or sold on them, and the dollar value of the positions of the instruments included in point 2., which are quoted in currencies other than the United States dollar.

Holdings of currencies other than the United States dollar may be excluded if, considered individually at the close of operations each day, they are less than the equivalent of US$ 100,000.

This exclusion will not be applicable when the set of computable foreign currencies exceeds, at the close of operations each day, the equivalent of US$ 500,000.

ii. Calculation of Value at Risk.

ii.a. Value at Risk of the position in currency "i", VaRi

VaRi = Vi * k * si * Ti 1/2 (17)

where:
Vi: Absolute value of the sum of positions in currency "i", expressed in United States dollars, using the "pase" rate elaborated by the Banco de la Nación Argentina; in the case of options on that currency, the notional value of the same multiplied by the delta of each option will be included; k: Factor expressing the considered risk level; si: Value of the standard deviation of the daily change in the quotation of the currency against the United States dollar; Ti: Time necessary to liquidate the position.

ii.b. The Values at Risk of the positions will be summed, obtaining:

VaRME-F = Σi VaRi (18)

ii.c. Additional Value at Risk of Options. For bought and sold options on each considered currency, the gamma risk and vega risk will be additionally calculated, according to the following expression:

VaROi = RgOi + RvOi (19)

RgOi = | min ( 0 ; Σj gammaj * (dPi 2)/2 ) | (20)

RvOi = | Σj vegaj * 25 si * (2520.5) | (21)

where:
VaROi: Value at Risk of the options portfolio on currency "i"; RgOi: Gamma risk of the options portfolio on currency "i"; RvOi: Vega risk of the options portfolio on currency "i"; gammaj: Value of the gamma coefficient of option "j", expressed as the change in the delta coefficient of the option in response to a change of 1 peso in the price of the underlying asset; vegaj: Value of the vega coefficient of option "j", expressed as the change in the value of the option in response to a 1% change in the annual volatility of the underlying asset; dPi = k * si * Pi Ti 1/2, where Pi is the quotation of currency "i".

Both the gamma coefficient and the vega coefficient of the options will take into account the number of units of the underlying asset to which each option refers.

The additional Value at Risk for the options portfolio will result from the sum of the Values at Risk for each currency:

VaRO = Σi VaROi (22)

ii.d. The total Value at Risk for foreign currency will be equal to:

VaRME = VaRME-F + VaRO (23)

4. Capital Requirement Required for Market Risk.
   The capital requirement for market risk will be the sum of the Values at Risk calculated as provided in points 1. to 3.:

VaRP = VaRAN-B + VaRAN-A + VaRAE-B + VaRAE-A + VaRME (24)

II. Definitions and Values.
a. Prices and Calculation. The calculations of the capital requirement for market risk will be performed based on the positions that the entities hold at the close of operations of the day in the local market, using the prevailing prices at that moment. In the event that there is no quotation for any instrument, the last available one will be used. On days when no operations are recorded in the markets, the values of the requirement from the immediate preceding business day will be repeated.

b. Coefficient k: its value will be equal to 2.32.

c. si: Measure of daily volatility of the return of asset i.
The Central Bank will inform monthly the values of si that will be used for the calculation of the Value at Risk in the instruments included in points I.1.a. and I.1.b. - with the exception of common investment funds - specifying, additionally, and if applicable, to which zone each one belongs according to its average life. The information will be supplied on the last business day of the month and will be used for the calculations corresponding to the daily positions of the following month. Holdings of national assets whose volatilities are not published by the Central Bank - with the exception of common investment funds integrated by the included assets - will not generate capital requirements for market risk and will receive the treatment of "non-quoting" for the purposes of applying the limit on holdings referred to in point 3.3. of Annex II to Communication "A" 2140.

For foreign assets, the entity must calculate the volatilities as the standard deviation of the daily return of the assets, following the methodology exposed below:

si = [(1-l) Σj=1 74 l j*(Ri,t-j - MRi)2]0.5

Ri,t-j = (Pi,t-j / Pi,t-j-1) - 1

MRi = (1-l) * Σj=1 74 l j.*Ri,t-j

where l=0.94; j= 1 to 74;

Pi,t-j: Price of asset i, at the close of day t-j.

The volatility (standard deviation) obtained will be annualized, if necessary for the calculation of the value of the options, by multiplying si by the square root of 252.

The calculation of the volatilities of common investment funds integrated by the included assets will be performed by financial entities based on the value of their shares, applying the methodology exposed previously.

For the purposes of calculating and using the values resulting from the volatilities of foreign assets and common investment funds - from the country or abroad - the frequency followed by the Central Bank regarding national assets will be observed, that is, the obtained value will be considered for the determination of the Values at Risk of the portfolios registered daily during the following month.

d. Ti: Time that the financial entity needs to liquidate an operation.
The minimum value for this factor is 5. As the positions held by the entity are of great value or constitute less liquid assets, with lower volume of daily transactions, the value of Ti will increase. The financial entity must determine the value of Ti that it considers adequate, given the size of its holdings and the liquidity of the market for that asset. Therefore, this factor will not be the same for all assets nor equal among financial entities. The value of Ti used for a derivative contract may differ from the value of Ti for the position in the relevant underlying asset.

In the case where there is no fluid quotation of options and the entity must neutralize its impact through the futures market, the amount to be bought or sold to neutralize the position will be determined based on the delta of the total position in the asset. The delta of the total position will be calculated as the weighted average by amount (notional value in the case of options) of the individual positions in the asset.

e. r: For the calculation of the VaR of derivatives on national assets, the interest rate for loans to first-line companies for 30 days, in pesos or dollars, depending on whether the derivatives are on assets in pesos or dollars, corresponding to the fifth business day prior to the calculation day, will be used, according to the information provided by the Central Bank. For the case of derivatives on foreign assets, the interest rate for the government bond of the country in whose currency the asset is expressed, for one year, will be used.

f. Valuation of options: for the calculation of the coefficients linked to options (delta, gamma, vega), the Black-Scholes option valuation model will be accepted. In it, the data used, when pertinent, will be the volatility published by the Central Bank. In the case of exotic options, or when the entity possesses an alternative valuation method, its use must be approved by the Superintendence of Financial and Currency Entities.

g. Position in each asset (Vi): The net position must show the exposure that the entity holds in each considered asset, and therefore will be constituted by (the signs are shown in parentheses):

Spot Holdings (+)
Spot and forward purchases (%)
Spot and forward sales (-)
Forward purchases linked to passive swaps (+)
Forward sales linked to active swaps (-)
Purchase of call options (multiplied by the delta of the option) (+) Sale of call options (multiplied by the delta of the option) (-) Purchase of put options (multiplied by the delta of the option) (-) Sale of put options (multiplied by the delta of the option) (+) Securities loans, net of provisions for uncollectible risk (+) Securities deposits (-)

For the determination of Vi, the nominal values of bonds or shares included in each of the preceding operations must be multiplied by the spot price of the asset.

h. The usual quotation requirement established in point 1. refers to that which arises daily from relevant transactions in whose amount the eventual liquidation of the assets in question cannot significantly distort their market value.

i. "Swaps" and other derivatives on assets not covered by this regulation are excluded from the portfolios referred to in points 1.1. to 1.3., provided that such operations have the object of covering risks of financial intermediation operations, without prejudice to the fact that the contracting of such contracts must be reported to the Superintendence of Financial and Currency Entities in the form and opportunity established.

j. In the case of derivative contracts not expressly contemplated in points 1.1. to 1.3., the treatment used to determine the Value at Risk must be consulted with the Superintendence of Financial and Currency Entities.

III. CAPITAL REQUIREMENT AND INTEGRATION.
a. Capital Requirement.
Each month, it will be determined daily considering:

i. the capital requirement according to the current provisions of Communication “A" 2136 and complementary, established at the end of the previous month and which will remain constant throughout the month, and

ii. the VaRp requirement, calculated in point 1.4. for the daily positions of assets with market quotation.

b. Capital Integration.
Each month, it will be determined daily considering:

i. the capital integration on the last day of the previous month, according to the current provisions in Communication "A" 2136 and complementary, and

ii. off-balance sheet, the daily change in value that occurs in the portfolio of national assets, foreign assets, and their derivatives included in the calculations of the requirement for market risk (points 1.1. to 1.3.) as a consequence of changes in their market prices, since the last quotation registered at the close of the immediate previous month. In the case of incorporations (purchases) of assets during the month, only the variation in the value of those assets since their incorporation will be taken. In the case of sales of these assets (closing of positions), the resulting loss or gain between the sale price and the last price at which the position was valued must be taken into account.

c. Integration Defect.
In the event that an integration defect of up to 3% of the total required requirement, originating in the calculation of the VaRp requirement, occurs, the financial entity must replenish capital and/or reduce its financial asset positions until it manages to comply with the established requirement, for which it will have a period of 5 business days, counted from the first deficiency. From the sixth business day onwards, deficiencies will be subject to a daily charge equivalent to 24% nominal annual interest, calculated on the largest daily deficiency recorded in the month.

In the event that an integration defect exceeding 3% occurs and cannot be remedied through a reduction of its financial asset positions or through the replenishment of capital within 10 business days counted from the first deficiency, or when after the fifth business day counted in the same way deficiencies of up to 3% persist, the situation must be reported to the Superintendence of Financial and Currency Entities within the following 24 hours, without prejudice to the application of the provisions contained in point 3.2. of Communication "A" 2136.

For the determination and settlement of the charge for the daily integration deficiency of the minimum capital requirement originating in the calculation of the Values at Risk of the market (largest daily deficiency and number of days with deficiency), the increase in the defect with respect to the eventual deficiency calculated on the last day of the previous month according to the provisions of Communication "A" 2136 will be taken into account.

IV. COUNTERPARTIES.
Starting from 1.9.96, financial entities may sell options contracts provided that they have an L3 or higher rating, issued by one of the rating agencies admitted by the Central Bank (point 2. of Communication "A" 2269) or with a rating of a level similar to that of public titles issued by the National Government, granted by an international risk evaluation company included in the list of point 6. of Communication "A" 2269.

Financial entities may buy options contracts issued by banks abroad, only in the case that the latter have an "investment grade" rating, granted by one of the aforementioned international agencies.

They may also buy options contracts issued by other counterparties, provided that they are operations traded in institutionalized markets of the country or abroad.

V. CONSOLIDATION.
The capital requirements for market risk must be observed on a consolidated monthly basis, in accordance with the provisions of point 5.2.1. of the provisions disseminated by Communication "A" 2227.

VI. RESPONSIBILITIES.
Financial entities that operate by buying and/or selling, regardless of their amount, options contracts, and those that on any day of a month register assets (sum of the bought and sold positions referred to in points 1.1. to 1.3.) that together exceed 25% of the computable equity registered on the last day of the second previous month, must define the responsibilities in the management of the risk administration policy assumed by the positions subject to the daily capital minimum requirement for market risk.

This will imply designating the persons who will be in charge of the correct application of the established calculation methodology and the primary responsibility for adopting the necessary precautions to maintain the positions covered with the required capital, especially the actions leading to regularizing integration defects exceeding 3% of the requirement. They will also be responsible for supplying the information in time and form to the Central Bank according to the information regime established in this matter.

The list of designated responsible persons, the General Manager, the member of the Board of Directors, Administrative Council, or equivalent authority to whom the function is reported, must be supplied to the Superintendence of Financial and Currency Entities before October 18, 1996, and within the following ten calendar days in case any change occurs.

VII. SANCTIONS.
The actions in which the responsible officials incur, as provided in point VI., and which imply the concealment or non-computation of operations that must be considered for the purposes of determining the Value at Risk of financial assets, will determine the application to them and to the financial entity of the provisions of article 41 of the Law of Financial Entities, for which effect the following guidelines will be taken into account:

• fine between 1.5 and 3 times the amount of the largest daily deficiency originating in the calculation of the Values at Risk recorded in the period of non-compliance. The financial entity and the aforementioned persons will be jointly responsible for the fines imposed.

• disqualification for two to five years for the performance of functions in the financial activity by the responsible persons.