Circular No. 3636 — Procedures for calculating the risk-weighted asset (RWA) portion for exposures subject to price index coupon rate variation under the standardized approach (RWAjur3)

CIRCULAR NO. 3,636, OF MARCH 4, 2013

Establishes the procedures for calculating the risk-weighted asset (RWA) portion related to exposures subject to the variation of the coupon rate of price indices, whose capital requirement is calculated using the standardized approach (RWAJUR3), as provided for in Resolution No. 4,193, of March 1, 2013.

The Collegiate Board of the Central Bank of Brazil, in an extraordinary session held on March 1, 2013, based on the provisions of Articles 9, 10, item IX, and 11, item VII, of Law No. 4,595, of December 31, 1964, and Articles 3, paragraph 2, and 15 of Resolution No. 4,193, of March 1, 2013,

RESOLVES:

Art. 1 The calculation of the daily value of the risk-weighted asset (RWA) portion, related to exposures subject to the variation of the coupon rate of price indices, whose capital requirement is calculated using the standardized approach (RWA), as provided for in Resolution No. 4,193, of March 1, 2013, must be carried out based on the following formula:

RWA = F * Σ(j=1 to 3) [ Σ(i=1 to 11) (EL + DV + DHZ) + Σ(p=1 to p) DHE ]

where:
I - F = factor established in Article 4 of Resolution No. 4,193, of 2013; II - M = multiplier factor for exposure subject to the variation of the coupon rate of price indices, to be disclosed by the Central Bank of Brazil; III - p = number of price indices in which there is exposure subject to the variation of the coupon rate of price indices; IV - EL = net exposure at vertex "i" and at price index coupon "p"; V - DV = vertical mismatch at vertex "i" and at price index coupon "p"; VI - DHZ = horizontal mismatch at price index coupon "p" within maturity zone "j"; and VII - DHE = horizontal mismatch at price index coupon "p" between maturity zones.

Sole paragraph. The calculation referred to in the caput applies to operations classified in the trading book, in the manner of Resolution No. 3,464, of June 26, 2007, including financial derivative instruments, and subject to the variation of coupon rates of price indices, defined as fixed interest rates of the instruments referenced in the mentioned price index coupon "p".

Art. 2 For the determination of the daily value of the RWA 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, referring to the set of operations held open on the business day immediately preceding.

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

§ 2 The number of cash flows will correspond to the number of maturities in which the net results determined in accordance with this article are different from zero.

§ 3 The values of assets and liabilities that make up the cash flows must include 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 by using 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 in a price index coupon:
I - the representative value of each position must be obtained by multiplying the number of contracts by their size and by the variation of the option price relative to the variation of the price of its underlying asset (delta); and II - the cash flows corresponding to each operation must be obtained separately, and their result must be included in the cash flow of the contract's maturity date.

§ 7 Cash flows resulting from credit derivatives used as a hedge for the adjustment to the market value of operations with financial derivative instruments due to the variation in the credit quality of the counterparty (CVA) must be excluded.

§ 8 The values of positions held as a result of investments in investment fund shares must be treated consistently based on the proportional composition of their portfolios or, if impossible, as a position in a price index coupon, allocated at vertex P defined in Article 3 of this Circular.

Art. 3 Cash flows must be grouped into the following vertices (P), according to the number of business days remaining until the maturity date (T):
I - P1, corresponding to one business day;
II - P2, corresponding to 21 business days;
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 P1 must be allocated to the corresponding vertex P1.

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

§ 3 Cash flows included between the terms of one business day and 2,520 business days must be allocated to the preceding (Pn) and subsequent (Pn+1) vertices, according to the following criteria:
I - the fraction (Pn+1 – T) / (Pn+1 – Pn) of the marked-to-market value of the cash flow must be allocated to the vertex with term Pn; and II - the fraction (T – Pn) / (Pn+1 – Pn) of the marked-to-market value of the cash flow must be allocated to the vertex with term Pn+1.

Art. 4 The exposure to price index "p" at vertex Pi is defined by the allocation of each position in the said index, whether bought or sold, at the said vertex, and 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 0.50% (fifty hundredths percent); III - for positions at vertex P3, Y3 is 0.70% (seventy hundredths percent); IV - for positions at vertex P4, Y4 is 0.80% (eighty hundredths percent); V - for positions at vertex P5, Y5 is 1.20% (one whole and twenty hundredths percent); VI - for positions at vertex P6, Y6 is 2% (two percent); VII - for positions at vertex P7, Y7 is 4% (four percent); VIII - for positions at vertex P8, Y8 is 6% (six percent); IX - for positions at vertex P9, Y9 is 8% (eight percent); X - for positions at vertex P10, Y10 is 10% (ten percent); and XI - for positions at vertex P11, Y11 is 18% (eighteen percent).

Art. 5 The vertices mentioned in Article 3 of this Circular are grouped into three maturity zones, each associated with a factor Wj:
I - Zone 1 comprises vertices P1 to P3, whose W1 is 40% (forty percent); II - Zone 2 comprises vertices P4 to P8, whose W2 is 30% (thirty percent); and III - Zone 3 comprises vertices P9 to P11, whose W3 is 30% (thirty percent).

Art. 6 Each exposure bought or sold at price index "p", at each vertex Pi, must be weighted by the respective factor Yi, resulting in the weighted exposure.

Sole paragraph. The value of the net exposure EL must be determined considering the net value of the sum of weighted exposures at each vertex Pi, for price index "p".

Art. 7 The value of vertical mismatch DV corresponds to 10% (ten percent) of the smaller value between the absolute value of the sum of weighted purchased exposures and the absolute value of the sum of weighted sold exposures at each vertex Pi, for price index "p".

Art. 8 The value of horizontal mismatch within maturity zones DHZ corresponds to the smaller value between the sum of positive ELs and the sum of the absolute values of negative ELs of each vertex Pi belonging to zone "j", multiplied by factor Wj, for price index "p".

Art. 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.

Art. 10. The value of the total exposures of zone "j" mentioned in Article 9 corresponds to the sum of the net exposures EL of each vertex Pi belonging to zone "j", for price index "p".

Art. 11. In the determination of the RWA portion, exposures subject to the variations of the coupons of the Broad Consumer Price Index (IPCA) and the General Market Price Index (IGP-M) must be calculated separately.

§ 1 Exposures subject to the variation of the coupon rates of price indices not mentioned in the caput may be calculated jointly – as subject to the variation of the coupon rate of a single price index – in the determination of the RWA portion.

§ 2 Exposures subject to the variation of the coupon rates of the price indices referred to in the caput whose value is less than 5% (five percent) of the total exposures subject to the variation of the coupon rates of price indices may receive the treatment mentioned in § 1.

Art. 12. The methodology for determining the rates used to mark to market exposures subject to the variation of the coupon rates of price indices 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, assuming no rights or obligations towards the parties, do not form part of the calculation base for the RWA portion.

§ 2 It is the responsibility of the institution within the conglomerate responsible for sending accounting information to the Central Bank of Brazil to determine the consolidated RWA portion.

Art. 13. A report detailing the determination of the RWA portion must be sent to the Central Bank of Brazil, in the manner to be established.

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 RWA portion, as well as the methodology used for determining the market value of the respective operations.

Art. 14. This Circular enters into force on October 1, 2013.

Art. 15. Circular No. 3,363, of September 12, 2007, is hereby repealed, effective October 1, 2013.

Sole paragraph. Citations to Circular No. 3,363, of 2007, shall henceforth refer to this Circular.

Luiz Awazu Pereira da Silva
Director of Regulation of the Financial System

This text does not replace the published in the DOU of 3/6/2013, Section 1, p. 15/16, and in Sisbacen.