CVM INSTRUCTION NO. 475, OF DECEMBER 17, 2008

Provides for the presentation of information on financial instruments in a specific explanatory note, and for the disclosure of the sensitivity analysis demonstration table. Revokes CVM Instruction No. 235, of March 23, 1995.

The PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION - CVM makes it known that the Collegiate Board, in a meeting held on December 16, 2008, based on §§ 3 and 5 of art. 177 of Law No. 6,404, of December 15, 1976, combined with items I, II, and IV of § 1 of art. 22 of Law No. 6,385, of December 7, 1976, APPROVED the following Instruction:

Art. 1 Publicly held companies must disclose, in a specific explanatory note, qualitative and quantitative information on all their financial instruments, recognized or not as an asset or liability in their balance sheet.

§ 1 The explanatory notes referred to in the caput must be true, complete, and consistent.

§ 2 The explanatory notes referred to in the caput must be written in clear, objective, and concise language.

§ 3 The explanatory notes referred to in the caput must allow users to assess the relevance of financial instruments, especially derivative financial instruments for the financial position and results of the company, as well as the nature and extent of risks associated with such instruments.

§ 4 The quantitative information of the explanatory note referred to in the caput must be presented in table form, observing, where applicable, the example contained in Annex I.

§ 5 The table for presenting the quantitative information referred to in § 4 must segregate speculative derivative financial instruments from those intended to protect exposure to risks (hedge).

§ 6 Any other data necessary for users of the financial statements to be able to evaluate the quantitative information must be disclosed.

Art. 2 This Instruction uses the definitions of financial instruments, derivatives, hedge, and fair value provided in Pronouncement CPC 14 – Financial Instruments: Recognition, Measurement, and Disclosure.

Sole Paragraph. Without prejudice to the definitions referred to in the caput, derivative financial instruments are considered to be forward contracts, swaps, options, futures, swaptions, swaps with put option, flexible options, derivatives embedded in other products, structured operations with derivatives, exotic derivatives, and all other operations with derivatives, regardless of the form in which they are contracted.

CVM INSTRUCTION NO. 475, OF DECEMBER 17, 2008

Art. 3 Publicly held companies, in addition to the provisions of item 59 of CPC 14 – Financial Instruments: Recognition, Measurement, and Disclosure, must disclose a sensitivity analysis demonstration table, for each type of market risk considered relevant by management, arising from financial instruments, to which the entity is exposed at the end of each period, including all operations with derivative financial instruments, the example of which is in Annex II.

§ 1 The sensitivity analysis demonstration table referred to in the caput must be disclosed and prepared as follows:

I - identify the types of risk that can generate material losses for the company, including operations with derivative financial instruments originating these risks;

II – discriminate the methods and assumptions used in preparing the sensitivity analysis;

III - define the most likely scenario, in management's assessment, plus 2 (two) scenarios that, if they occur, may generate adverse results for the company;

IV - estimate the impact of the defined scenarios on the fair value of the financial instruments operated by the company; and

V - prepare the sensitivity analysis demonstration in table form, considering the relevant financial instruments, including derivatives, and the selected risks, in rows, and the defined scenarios, in columns.

§ 2 In the definition of the scenarios referred to in item III of § 1, the following must necessarily be used:

I - a situation considered likely by management and referenced by an independent external source (e.g.: prices of futures contracts traded on stock and commodity exchanges and futures);

II - a situation, with a deterioration of at least 25% (twenty-five percent) in the considered risk variable; and

III - a situation, with a deterioration of at least 50% in the considered risk variable.

Art. 4 For operations with derivative financial instruments carried out for the purpose of hedge, the company must disclose the object (the element being protected) and the derivative financial instrument of protection in separate lines of the sensitivity analysis demonstration table, in order to inform about the company's net exposure, in each of the three scenarios mentioned in art. 3, § 2.

Sole Paragraph. The company must indicate how it proceeded with the accounting of derivatives designated for the purpose of hedge, in accordance with the provisions of Pronouncement CPC 14 – Financial Instruments: Recognition, Measurement, and Disclosure.

CVM INSTRUCTION NO. 475, OF DECEMBER 17, 2008

Art. 5 CVM Instruction No. 235, of March 23, 1995, is revoked.

Art. 6 This Instruction enters into force on the date of its publication.

Signed original by

MARIA HELENA DOS SANTOS FERNANDES DE SANTANA
President

CVM INSTRUCTION NO. 475, OF DECEMBER 17, 2008

ANNEX I

EXAMPLE

Derivative financial instruments (speculative) or for asset protection (hedge)

The values of derivative financial instruments are summarized below:

Description	Reference Value (Notional)	Fair Value	Amounts to Pay or Receive in the Period*
			Current Period	Previous Period	Amount to receive / (received)	Amount to pay / (paid)
Futures Contracts:
Purchase Commitments
Foreign Currency
Indices
Stocks
Others
Sale Commitments
Foreign Currency
Indices
Stocks
Others
Options Contracts
Holder Position - Purchase
Foreign Currency
Indices
Stocks
Others
Holder Position - Sale
Foreign Currency
Indices
Stocks
Others
Writer Position - Purchase
Foreign Currency
Indices
Stocks
Others
Writer Position - Sale
Foreign Currency
Indices
Stocks
Others
Swaps Contracts
Active Position
Foreign Currency
Indices
Rates (specify fixed or floating)
Others
Passive Position
Foreign Currency
Indices
Rates (specify fixed or floating)
Others
Forward Contracts
Purchased Position
Sold Position
Others (specify)

(*) These columns represent the amounts to be received or received and the paid or to be paid recognized by accrual in the reference period.

CVM INSTRUCTION NO. 475, OF DECEMBER 17, 2008

ANNEX II

Example

Assuming that Company Alfa has the following derivative operations for speculative and hedge purposes: (i) futures contracts (sold in rate and purchased in PU) linked to the behavior of the one-day interest rate (CDI), (ii) a forward contract (purchased) of non-deliverable dollars (NDF), (iii) an exotic derivative, and (iv) a debt hedge operation. Based on this information, the company must disclose the following:

1. Future
The company considered that the greatest risk in the case of being sold in rate (purchased in PU) in an interest rate futures contract is the rise in CDI. The company estimated that the likely scenario (I) for the next three months (contract term) is CDI at 12%; in this case, the company would have to pay adjustments of R$ 1,000.00. The other two scenarios are 15% and 18% respectively with payments of R$ 4,500.00 and R$ 9,000.00 (values estimated by the company).

2. NDF
The company is purchased in dollars (NDF) for delivery in 90 days at the price of R$ 2.00/US$ with a notional value of US$ 10,000.00. Management estimates (based on BM&FBOVESPA quotes) that the likely dollar for the period or maturity will be R$ 2.10/US$. Scenario II is the dollar at R$ 1.60/US$ and Scenario III is the dollar at R$ 1.10/US$. In the likely scenario, the company will have gained R$ 1,000.00. In the other two scenarios, the company will have losses of R$ 4,000.00 and R$ 9,000.00, respectively.

3. Exotic Derivative
In this exotic derivative (with a notional of US$ 10,000.00 and a term of 12 months), the company will gain if the dollar is less than R$ 2.00/US$ - it will receive the difference in this case. If the dollar is greater than R$ 2.10/US$, the company must pay the bank the difference multiplied by 2 (a penalty) for the remaining term of the contract (10 months in this case where, hypothetically, 2 months have already passed). Thus, in the likely scenario (dollar at R$ 2.10/US$), the company will have neither losses nor gains. However, in Scenario II (with dollar at R$ 2.50/US$), the company will have losses of R$ 80,000 ((R$ 2.50 – R$ 2.10)/US$ x 2 x 10 x US$10,000). In Scenario III (R$ 3.00/US$), the company will have losses of R$ 180,000 ((R$ 3.00 – R$ 2.10)/US$ x 2 x 10 x US$10,000).

CVM INSTRUCTION NO. 475, OF DECEMBER 17, 2008

4. Dollar Debt Hedge
Assuming the same situation presented in item 2 above but adding that the company has debts linked to the variation of the US dollar in the same amount and terms as the forward contract. Thus, we would have the following sensitivity analysis demonstration table.

Sensitivity Analysis Demonstration Table of Company Alfa – Effect on the Variation of Fair Value

Operation	Risk	Likely Scenario (I)	Scenario II	Scenario III
Future	Rise in CDI	(R$ 1,000.00)	(R$ 4,500.00)	(R$ 9,000.00)
NDF	Fall in US$	R$ 1,000.00	(R$ 4,000.00)	(R$ 9,000.00)
Exotic Derivative	Rise in US$	------	(R$ 80,000.00)	(R$ 180,000.00)
Debt Hedge in US$	Derivative (risk of US$ fall)	R$ 1,000.00	(R$ 4,000.00)	(R$ 9,000.00)
	Debt (risk of US$ increase)	(R$ 1,000.00)	R$ 4,000.00	R$ 9,000.00
Net Effect		Null