Circular No. 3638 — Establishes Procedures for Calculating Risk-Weighted Assets (RWA) for Equity Price Variance Exposures Under the Standardized Approach

CIRCULAR NO. 3,638, OF MARCH 4, 2013

Establishes the procedures for calculating the risk-weighted assets (RWA) portion related to exposures subject to equity price variance whose capital requirement is calculated using the standardized approach (RWAACS), 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:

Article 1. The daily calculation of the risk-weighted assets (RWA) portion, relative to exposures subject to equity price variance whose capital requirement is calculated using the standardized approach (RWAACS), as provided for in Resolution No. 4,193, of March 1, 2013, must correspond to the algebraic sum of the RWA fractions relative to each country where the institution has exposure of this nature.

Sole Paragraph. The calculation referred to in the caput applies to operations classified in the trading book, in the form of Resolution No. 3,464, of June 26, 2007, and must be carried out based on the following formula:

RWA[ACS] = Σ (from j=1 to n) (F[ACS] * RWA[j])

where:
I - F[ACS] = factor established in Article 4 of Resolution 4,193, of 2013; II - n = number of countries in which the institution carries out operations subject to equity price variance; III - RWA[j] = portion related to the risk of operations subject to equity price variance, in country "j", calculated based on the following formula:

RWA[j] = Σ (from i=1 to n) (F[VI,j] * ELA[i,j]) + Σ (from i=1 to n) (F[V,j] * ELA[i,j])

where:
a) n = number of issuers to which the institution is exposed in country "j"; b) ELA[i,j] = net equity exposure of issuer "i" in country "j", observing the procedures described in Article 2; c) F[VI,j] = general risk factor, applicable to the absolute value of the sum of net equity exposures (ELA[i,j]), equal to 0.08 (eight hundredths); and d) F[V,j] = specific risk factor in country "j", applicable to the sum of the absolute values of net equity exposures (ELA[i,j]), equal to 0.08 (eight hundredths).

Article 2. The calculation referred to in Article 1 applies to exposures in equity and to financial derivatives referenced therein.

§ 1. Exposures related to depositary receipts must be considered as exposures in the equity they represent, considering the country of origin of these equity for the purposes of the calculation referred to in the caput.

§ 2. The net equity exposure and financial derivatives referenced therein – ELA – must be obtained, for each issuer "i" in a given country "j", by the absolute value of the sum, in reais, of the market values of all long positions minus the absolute value of the sum, in reais, of the market values of all short positions.

§ 3. In the case of option contracts, the representative value of the position must be obtained by multiplying the market value of the underlying asset by the quantity of contracts, by their size, and by the delta of the option, which is defined as the variation of the option price relative to the variation of the price of its underlying asset.

§ 4. Positions referenced in the same equity index must be considered, at the discretion of the institution and provided it is adopted consistently, as:
I - a position of one issuer; or
II - positions in the equity of the index, proportionally to its composition.

§ 5. 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 of one issuer.

§ 6. Operations in which the institution acts exclusively as an intermediary, assuming no rights or obligations with respect to the parties, do not form part of the calculation base.

Article 3. The methodology for determining the market value of exposures subject to equity price variance must be established based on consistent and verifiable criteria, in accordance with current regulations.

Sole Paragraph. It is the responsibility of the institution within the conglomerate responsible for submitting accounting information to the Central Bank of Brazil to carry out the consolidated calculation of the RWA portion.

Article 4. A report detailing the calculation 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 calculation of the RWA portion, as well as the methodology used for determining the market value of the respective operations.

Article 5. This Circular enters into force on October 1, 2013.

Article 6. Circular No. 3,366, of September 12, 2007, is hereby revoked, effective October 1, 2013.

Sole Paragraph. Citations to Circular No. 3,366, 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 version in the DOU of 3/6/2013, Section 1, p. 17, and in Sisbacen.