Circular No. 3364 — Establishes Procedures for Calculating the Patrimônio de Referência Exigido (PRE) Portion for Exposures Subject to Floating Interest Rate Coupon Rates (PJUR[4])

Circular No. 3,364, of September 12, 2007 1

CIRCULAR NO. 3,364
Establishes the procedures for calculating the portion of the Required Reference Equity (PRE) related to exposures subject to variation of the interest rate coupon rates (PJUR[4]), as provided for in Resolution No. 3,490, of 2007.

The Collegiate Board of the CENTRAL BANK OF BRAZIL, in a session held on September 12, 2007, based on the provisions of Articles 10, item IX, with the renumbering given by Law No. 7,730, of January 31, 1989, and 11, item VII, of Law No. 4,595, of December 31, 1964, and considering the provisions of Article 6 of Resolution No. 3,490, of August 29, 2007,

DECIDED:

Article 1. The calculation of the daily value of the Required Reference Equity (PRE)
portion related to exposures subject to variation of the interest rate coupon rates (PJUR[4]), as provided for in Resolution No. 3,490, of August 29, 2007, must be performed based on the following formula:

M jur = multiplier factor for exposure to interest rate coupon, to be disclosed by the Central Bank of Brazil; t1 = number of interest rates in which there is exposure to interest rate coupon; ELi = net exposure at vertex "i" for interest rate coupon "t"; DVi = vertical mismatch at vertex "i" for interest rate coupon "t"; DHZj = horizontal mismatch in interest rate coupon "t" within the maturity zone "j"; and DHE = horizontal mismatch in interest rate coupon "t" between maturity zones.

Sole Paragraph. The calculation referred to in the main text applies to operations classified in the trading portfolio, as per Resolution No. 3,464, of June 26, 2007, including financial derivative instruments, and subject to variation of interest rate coupon rates, defined as the fixed interest rates of the instruments referenced in the mentioned coupon.

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Article 2. For the determination of the daily value of the PJUR[4] portion, each cash flow
is defined as the net result of the value of active positions minus the value of passive positions that mature on the same day, related to the set of operations maintained open on the business day immediately preceding.

§ 1. Cash flows must be obtained through the decomposition of each operation maintained open into an equivalent temporal structure of receipts and payments considering the contracted maturity dates.

§ 2. The number of cash flows corresponds to the number of maturities in which the net results determined are different from zero.

§ 3. The values of assets and liabilities that make up the cash flows must comprise the principal, interest, and other values related to each operation.

§ 4. The values of assets and liabilities that make up the cash flows must be marked to market through the use of the temporal structure of interest rates that represents the rates in force in the market on the business day immediately preceding.

§ 5. Operations without defined maturity or whose maturity depends on the application of specific contractual clauses must have their corresponding cash flows obtained based on consistent criteria and verifiable by the Central Bank of Brazil.

§ 6. For the purpose of obtaining cash flows, operations with financial derivative instruments must be considered, observing the following criteria in the case of operations with options referenced on interest rate coupons:
I - The representative value of each position must be obtained by multiplying the quantity of contracts by its size and by the variation of the option price relative to the variation of the price of its underlying asset (delta); II - The cash flows corresponding to each operation must be obtained separately and their result included in the cash flow of the contract maturity date.

§ 7. The values of positions held as a result of investments in investment fund shares must be treated consistently:
I - Based on the proportional composition of their portfolios; or in their impossibility II - As a position in an interest rate coupon, allocated at vertex P11 defined in Article 3.

Article 3. Cash flows must be grouped into the following vertices (Pi),
according to the number of business days remaining until the maturity date (Ti):
I - P1, corresponding to 1 business day;
II - P2, corresponding to 21 business days;

Circular No. 3,364, of September 12, 2007 3

III - P3, corresponding to 42 business days;
IV - P4, corresponding to 63 business days;
V - P5, corresponding to 126 business days;
VI - P6, corresponding to 252 business days;
VII - P7, corresponding to 504 business days;
VIII - P8, corresponding to 756 business days; IX - P9, corresponding to 1,008 business days; X - P10, corresponding to 1,260 business days; and XI - P11, corresponding to 2,520 business days.

§ 1. Cash flows with a term equal to Pi must be allocated to the corresponding vertices Pi.

§ 2. Cash flows with a term greater than 2,520 business days must be allocated to vertex P11, in proportion corresponding to Ti/2,520 of its marked-to-market value.

§ 3. Cash flows with terms between one business day and 2,520 business days must be allocated to the preceding (Pi) and subsequent (Pj) vertices, according to the following criteria:
I - The fraction ( Pj – Ti ) / ( Pj – Pi ) of the marked-to-market value of the cash flow must be allocated to the vertex with term Pi; II - The fraction ( Ti – Pi ) / ( Pj – Pi ) of the marked-to-market value of the cash flow must be allocated to the vertex with term Pj.

Article 4. The exposure in interest rate coupon "t", at vertex Pi
, is defined by the allocation of each position in the said rate, whether bought or sold, at the said vertex, must be weighted by the following factors Yi:
I - For positions at vertex P1, Y1 is 0% (zero percent); II - For positions at vertex P2, Y2 is 0.20% (twenty hundredths percent); III - For positions at vertex P3, Y3 is 0.30% (thirty hundredths percent); IV - For positions at vertex P4, Y4 is 0.40% (forty hundredths percent); V - For positions at vertex P5, Y5 is 0.70% (seventy hundredths percent); VI - For positions at vertex P6, Y6 is 1.25% (one whole and twenty-five hundredths percent);

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VII - For positions at vertex P7, Y7 is 1.75% (one whole and seventy-five hundredths percent); VIII - For positions at vertex P8, Y8 is 2.25% (two whole and twenty-five hundredths percent); IX - For positions at vertex P9, Y9 is 2.75% (two whole and seventy-five hundredths percent); X - For positions at vertex P10, Y10 is 4.50% (four whole and fifty hundredths percent); and XI - For positions at vertex P11, Y11 is 8% (eight percent).

Article 5. The vertices mentioned in Article 3 are grouped into three maturity zones,
each associated with a factor Wj:
I - Zone 1 comprises vertices P1 to P5, whose W1 is 40% (forty percent); II - Zone 2 comprises vertices P6 to P8, whose W2 is 30% (thirty percent); and III - Zone 3 comprises vertices P9 to P11, whose W3 is 30% (thirty percent).

Article 6. Each exposure bought or sold in interest rate coupon "t", in
each vertex Pi
, must be weighted by the respective factor Yi , resulting in the weighted exposure. The value of the net exposure ELi is determined considering the net value of the sum of the weighted exposures at each vertex Pi , for interest rate coupon "t".

Article 7. The value of vertical mismatch DVi corresponds to 10% (ten percent)
of the smaller value between the absolute value of the sum of the weighted exposures bought and the absolute value of the sum of the weighted exposures sold at each vertex Pi , for interest rate coupon "t".

Article 8. The value of horizontal mismatch within maturity zones DHZ
corresponds to the smaller value between the sum of positive ELi and the sum of the absolute values of negative ELi of each vertex Pi belonging to zone "j", multiplied by factor Wj , for interest rate coupon "t".

Article 9. The value of horizontal mismatch between maturity zones DHE
corresponds to the sum of the following values:
I - 40% (forty percent) of the smaller absolute value between the total exposures of Zone 1 and Zone 2, if they have contrary total exposures; II - 40% (forty percent) of the smaller absolute value between the total exposures of Zone 2 and Zone 3, if they have contrary total exposures; and III - 100% (one hundred percent) of the smaller absolute value between the total exposures of Zone 1 and Zone 3, if they have contrary total exposures.

Circular No. 3,364, of September 12, 2007 5

Article 10. The value of total exposures of zone "j" mentioned in Article 9
corresponds to the sum of the net exposures ELi of each vertex Pi belonging to zone "j", for interest rate coupon "t".

Article 11. In determining the PJUR[4] portion, exposures subject to variations of Reference Rate (TR), Long-Term Interest Rate (TJLP), and Basic Financial Rate (TBF) coupons must be calculated separately.

§ 1. Exposures subject to variation of interest rate coupons not mentioned in the main text may be calculated jointly - as subject to the variation of a single interest rate coupon - in the determination of the PJUR[4] portion.

§ 2. Exposures subject to variation of interest rate coupons as provided for in the main text whose value is less than 5% (five percent) of the total exposures subject to variation of interest rate coupons may receive the treatment mentioned in § 1.

Article 12. The methodology for determining the rates used for marking to market exposures subject to variation of interest rate coupons must be established based on consistent and verifiable criteria, in accordance with current regulations.

§ 1. Operations in which the institution acts exclusively as an intermediary, not assuming any rights or obligations with respect to the parties, do not form part of the calculation base for the PJUR[4] portion.

§ 2. It is the responsibility of the institution in the conglomerate responsible for submitting accounting information to the Central Bank of Brazil to perform the consolidated determination of the PJUR[4] portion.

Article 13. A report detailing the determination of the PJUR[4] portion must be sent to the Financial System Monitoring and Information Management Department (DESIG) of the Central Bank of Brazil, in the manner to be established by it.

Sole Paragraph. Institutions must keep available to the Central Bank of Brazil, for a period of five years, the information used for the daily determination of the PJUR[4] portion, as well as the methodology used for determining the market value of the respective operations.

Article 14. This Circular enters into force on the date of its publication, producing effects from July 1, 2008.

Brasília, September 12, 2007.

Alexandre Antonio Tombini
Director

This text does not replace that published in the DOU and Sisbacen.