INSTRUCTION CVM NO. 120, OF JUNE 6, 1990.

Provides for futures, forward, and options markets with securities.

THE PRESIDENT OF THE SECURITIES COMMISSION MAKES PUBLIC THAT THE COLLEGIATE BODY, in a session held on this date, according to the provisions of Articles 8, 17, and 18, item II, letter "a", of Law No. 6,385, of December 7, 1976,

HAS DECIDED:

ON GUARANTEES

Art. 1. Operations in the futures, forward, and options markets with securities shall be guaranteed by deposits at Stock Exchanges or in Clearing and Settlement Systems in an amount equivalent to, at minimum:

a) 2 (two) times the market premium value, or 10% (ten percent) of the exercise price, whichever is greater, when dealing with put options;

b) 2 (two) times the market premium value, or 10% (ten percent) of the spot price, whichever is greater, when dealing with call options;

c) 20% (twenty percent) of the position amount or contract value, when dealing in forward and futures operations on stocks;

§1º In the cases referred to in letters "a" and "b", the guarantee may be provided in cash, certificates representing gold, federal public bonds, unconditional bank guarantee letters, or credit insurance.

§2º In forward and futures operations on stocks, the minimum guarantee referred to in letter "c" must be provided in cash; additional guarantees may be provided as in § 1, or still in stocks included among those acceptable for this purpose by the stock exchange where the operation takes place, considering the guarantee value to be 80% (eighty percent) of its quote in the spot market.

§3º In forward and futures sales operations and in the writing of options on stocks, the deposit of the guarantee is waived if there is a deposit of the stocks subject to the operation.

§4º The brokerage company may use up to 10% (ten percent) of the value of the unconditional bank guarantee letter for each client, per market type.

§5º The guarantees referred to in this article are due daily.

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§6º The position will be compulsorily closed if the guarantee deposit is not made until the day following the operation performed.

Art. 2. Operations in the index futures market, with reference to securities, shall be guaranteed by deposits at Stock Exchanges or in a Clearing and Settlement System, in an amount sufficient to cover the maximum probable adverse variation in the period between the margin call and its deposit.

§1º It shall be the responsibility of the Stock Exchanges to establish the calculation methodology for the guarantee, which will be previously approved by the CVM, considering the volatility of the reference indices and the interest rate practiced in the market.

§2º The non-expression of opinion by the CVM within a period of 7 (seven) business days will imply automatic approval of the methodology.

Art. 3. No guarantee deposit will be required for positions of an opposite nature in the options market, held by the same client and intermediated by the same institution, provided the following conditions prevail:

I - the maturity of the holder position is the same or subsequent to that of the writer position; and

II - the exercise price of the writer position is greater than or equal to the exercise price of the holder position, in the case of call options; or the exercise price of the writer position is less than or equal to the exercise price of the holder position, in the case of put options.

§1º If the exercise price of the option held by the writer is lower than the exercise price in the holder position, in the case of call options, or higher in the case of put options, a deposit of value equal to the verified difference will be additionally required as a guarantee.

§2º In the event of extinction of the rights of the holder of the option, a deposit of guarantees relative to the remaining position will be required.

ON LIMITS

Art. 4. By delegation of the Securities Commission, stock exchanges shall fix, for the futures, forward, and options markets, global and per-client limits, for open positions, in each exchange, per underlying stock, related to the number of stocks in circulation in the market.

§1º Exchanges that maintain futures and options markets referenced in stock indices will establish limits, global and per-client, for open positions in each exchange, per reference index.

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§2º The limits fixed in accordance with the provisions of the "caput" of this article and its § 1 must be approved by the Securities Commission, prior to their implementation.

§3º The non-expression of opinion by the CVM within a period of 7 (seven) business days will imply automatic approval of the limits.

§4º The limits referred to in the "caput" of this article and § 1 may be altered by the exchanges, after prior approval by the CVM.

§5º The non-expression of opinion by the CVM within a period of 2 (two) business days will imply automatic approval of the alteration made.

§6º For the purposes of this Instruction, stocks in circulation in the market are understood as the total number of stocks of the same species and class issued by the same open company, excluding those owned by the shareholder or controlling group.

ON THE OPENING OF NEW SERIES IN THE OPTIONS MARKET

Art. 5. To open series of a new maturity, up to five exercise prices will be fixed.

Art. 6. The criterion for opening series and fixing exercise prices will be established by the exchanges, by common agreement, and submitted previously to the CVM for approval.

§1º The criterion referred to in this article should consider the volatility and trend of the spot price of the security, as well as the procedures to be adopted for opening additional series during the maturity.

§2º The non-expression of opinion by the CVM within a period of 7 (seven) business days will imply automatic approval of the criterion.

Art. 7. New series will not be opened for a maturity of options in the five trading sessions preceding the maturity.

ON MATURITIES IN INDEX MARKETS

Art. 8. Maturities in the markets subject to this Instruction will obey a calendar established by the Exchanges.

ON INDEPENDENT EXTERNAL AUDIT

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Art. 9. Exchanges must maintain independent external audit services for future settlement operations, to detect non-compliance with current legislation, and especially, with the provisions of this Instruction and CVM Instruction No. 77, of May 11, 1988.

§1º Weekly reports on the behavior of future settlement markets, duly audited, shall be sent to the Securities Commission, until Tuesday of the following week.

§ 2º The respective audit report must be published in the exchange's dissemination bulletin.

ON SETTLEMENT OF OPERATIONS

Art. 10. Only exchanges that perform physical and financial settlement of operations in all markets in which they operate until the day following the closure of the operation (D+1) may maintain options and futures markets.

ON GENERAL AND TRANSITIONAL PROVISIONS

Art. 11. The provisions of this Instruction, as well as those of CVM Instruction No. 77, of May 11, 1988, apply to futures and commodities exchanges that trade with securities.

Sole Paragraph. Stock, futures, and commodities exchanges must present to the CVM, by July 17, 1990, a schedule for implementing the D+1 settlement system, including phases of system simulation and training of representatives of brokerage companies. ¹

Art. 12. Non-compliance with the provisions set forth in this Instruction constitutes a serious offense, for the purposes of § 3 of Article 11 of LAW NO. 6,385, of December 7, 1976.

Art. 13. The deadline for settlement of operations, provided for in Article 10 of this Instruction, will apply only from January 2, 1991; until that date, settlement must be processed until the second day following the closure of the operation. ¹

Art. 14. This Instruction enters into force on the date of its publication in the Official Gazette of the Union, revoking CVM Instruction No. 104, of October 26, 1989, and other contrary provisions, except for CVM Deliberation No. 84, of April 6, 1990.

Signed original by
ARY OSWALDO MATTOS FILHO
President