EXPLANATORY NOTE TO CVM INSTRUCTION NO. 104, OF OCTOBER 26, 1989.

Ref: Instruction providing for futures, forward, and options markets with securities.

This Instruction aims to impose rules that curb the possibility of manipulation in futures settlement markets, especially those for options and index futures, as well as to require the maintenance of independent external audit for operations carried out in these markets.

In the options market, a minimum margin of fifteen percent of the exercise price or the spot price has been introduced, depending on whether it is put or call options, with the objective of reducing operations at prices very distant from the market price. The futures market, in turn, must maintain a minimum margin of thirty percent of open positions, increasing the safety of operations. Margin deposits for operations in futures settlement markets must necessarily be made in cash, with the exception of the forward market, which will admit as margin the deposit of the underlying shares.

To dilute excessive concentration in futures settlement markets, limits have been imposed at the market level and at the client level, with respect to outstanding shares; exchanges that maintain markets referenced in indices must present to the CVM, for approval, prior to the opening of maturities, limits that mirror those of markets referenced in shares, transposed to the index market.

In the options market, the opening of series is subject to the establishment of a single criterion by the exchanges, to be submitted previously to the CVM for approval, with the objective of limiting the number of series in negotiation.

Article 8 establishes the preparation of reports on the behavior of futures markets, to be prepared daily by the exchanges, and audited with weekly frequency. The maintenance of independent external audit services for operations in futures settlement markets will function as an adjunct to the exchanges' supervision mechanisms, improving the control of these operations and preserving the principle of market self-regulation.

Signed originally by
Martin Wimmer
PRESIDENT