BM&F SECURITIES CLEARINGHOUSE RULEBOOK CHAPTER I DEFINITIONS

Transcription

1 BM&F SECURITIES CLEARINGHOUSE RULEBOOK CHAPTER I DEFINITIONS Article 1. For the purposes of this Rulebook, the following definitions apply: 1. Acceptance [aceitação] The act by which the Clearinghouse becomes liable, as the central counterparty, to the Direct Participants involved for the Settlement of the Transaction submitted to it; 2. Trading System [ambiente de negociação] An electronic system linked to the Clearinghouse in which the Securities Trading Participants perform and register Securities Transactions; 3. Registration System [ambiente de registro] - An electronic system linked to the Clearinghouse in which a Participant effects the Registration of Transactions which are performed in an external system, and involve a Securities Trading Participant; 4. Security [ativo] A bond from a federal government issuer, as well as its coupons, under the custody of the Special System for Settlement and Custody (SELIC), whose trades may be subject to Acceptance, Netting and Settlement through the Clearinghouse systems; 5. BM&F The Brazilian Mercantile & Futures Exchange (BM&F); 6. Settlement Responsibility Chain [cadeia de responsabilidades na liquidação] The sequence of responsibilities borne by the different Participants and by the Clearinghouse throughout the Settlement process; 7. Clearinghouse [câmara] The BM&F Securities Clearinghouse; 8. Participant Registration [cadastramento] The procedure for the admission of institutions as Participants to the Clearinghouse systems; 9. Netting [compensação] The process for calculating the Multilateral Net Result (credits minus debits) to be settled through the Clearinghouse on a certain date or among Participants, as established in this Rulebook; 10. Final Buyer [comprador final] The participant that, in any given Transaction, acquires a Security or undertakes a commitment to acquire one on a future date; 11. Deposit Account [conta de depósito] An account maintained by the Clearinghouse in the Special System for Settlement and Custody (SELIC) for the reception, custody and transfer of Securities deposited by Participants for trading; 12. Collateral Accounts [contas de garantias] Accounts held by the Clearinghouse (i) in the Special System for Settlement and Custody (SELIC), and (ii) at banking institutions, the former intended for the reception, custody and transfer of Securities Collateral delivered to the Clearinghouse by Participants, and the latter for the reception, custody and transfer of cash Collateral delivered to the Clearinghouse by Participants; 13. Settlement Accounts [contas de liquidação] Accounts held by the Clearinghouse with the Central Bank of Brazil that may be operated through the Reserve Transfer System (STR) and the Special System for Settlement 1

2 and Custody (SELIC) for the Settlement of Participant and Clearinghouse obligations; 14. BM&F Account [conta de patrimônio] An account maintained by BM&F in the Special System for Settlement and Custody (SELIC) for the reception, custody and transfer of federal government bonds owned by BM&F; 15. SELIC Accounts [contas Selic] Accounts maintained by Participants in the Special System for Settlement and Custody (SELIC) for the reception, custody and transfer of Securities, including transfers related to the Settlement process, to the pledging and withdrawal of Collateral, and to the services provided by the Clearinghouse; 16. Fees [custos] Costs payable by Participants to the Clearinghouse or to the Trading or Registration Systems for using their systems and other services; 17. Operational Defaulter [devedor operacional] The qualification of a Participant by the Clearinghouse upon the former s failure to fulfill, within the time frame and in the manner established by the latter, a Delivery, Payment or Collateral Recomposition duty; 18. Final Lender [doador final] The Participant having the duty, in a Loan or an Interchange, to deliver a certain Security on the agreed date, and the right to receive it on the maturity date of the Transaction; 19. Loan [empréstimo] The loan of securities for a certain period and upon payment of a Premium by the Final Borrower; 20. Charges [encargos] Funds payable by a Participant to the Clearinghouse with respect to the reimbursement of any amounts the latter may have spent to meet the needs arising from any act directly or indirectly attributable to such Participant; 21. Delivery [entrega] The deposit of Securities for Settlement that must be made in the Clearinghouse Settlement Account within the time frame established by the Clearinghouse, or in the Direct Participant s or other holder s SELIC Account, according to the Specification; 22. Specification [especificação] The procedure followed by Securities Trading Participants, Centralized Settlement Participants, or Investment Managers to designate the SELIC Account to be used in the Settlement of the Transaction and, in the event of any General Collateral Repo Transactions, the traded Securities; 23. Collateral [garantias] Securities and funds delivered to the Clearinghouse by Participants to guarantee fulfillment of obligations arising from or related to Transactions; 24. Defaulter [inadimplente] A Participant s qualification by BM&F whenever the latter deems the former incapable of making a Delivery or a Payment due to the Clearinghouse, within the time frame and in the manner established by BM&F, for other than operational reasons, at the discretion of the Clearinghouse; 25. Settlement Window [janela de liquidação] The period during which Settlement is processed, with Deliveries and Payments due being made by Participants and by the Clearinghouse; 26. Repo Collateral [lastro] The Security underlying a Repo Transaction; 2

3 27. General Collateral [lastro genérico] A Security which, prior to its Specification, integrates a basket of mutually fungible Securities characterized as such by the Clearinghouse; 28. Settlement [liquidação] The fulfillment of the Clearinghouse s or Participants obligations; 29. Gross Settlement [liquidação bruta] The fulfillment of the Clearinghouse s or Participants obligations one by one; 30. Rehypothecation Clause [livre movimentação] The rule that allows the trading of Securities received as the result of Transactions settled through the Clearinghouse, without prejudice to any commitment undertaken to resell those Securities or to the duty to return them as the result of a Loan or an Interchange having reached its respective maturity date; 31. Fine [multa] An amount payable by the Participant to the Clearinghouse as a penalty for failing to comply with any obligation or provision set forth in this Rulebook; 32. Transaction [operação] Any and all trades registered in a Trading or Registration System, and any commitment arising from a Repo Transaction registered in the Special System for Settlement and Custody (SELIC), resulting in an obligation to be settled through the Clearinghouse; 33. Repo Transaction [operação compromissada] An accepted Security purchase or sale Transaction cumulated with a commitment to resell or repurchase that same Security; 34. Securities-Driven Repos [operação compromissada dirigida] Repo Transactions, which integrate the Securities Lending Facility (SET), where a defined number of a certain Security is traded; 35. Purchase and Sale Transaction [operação definitiva] A Transaction for the purchase and sale of a Security, including each one of the Transactions comprised by a Repo Transaction; 36. Payment [pagamento] The funds transfer between the Settlement Accounts of the Clearinghouse in the Reserve Transfer System (STR) and the Bank Reserves account of a Settlement Bank for Settlement purposes; 37. Participant [participante] The institution registered with the Clearinghouse in any of the categories referred to in this Rulebook, and subject to its rules and procedures; 38. Direct Participant [participante direto] Any Clearing Member and Centralized Settlement Participant; 39. Net Financed Balance [posição líquida financiada] A Participant s right to receive funds, calculated as the result of the netting of the purchase and sale Transactions pertaining to a General Collateral Repo Transaction whose Settlement is scheduled for that day, and has the same Settlement date as the resale and repurchase transaction; 40. Net Financing Balance [posição líquida financiadora] Any Participant s duty to pay funds, calculated as the result of the netting of the purchase and sale Transactions pertaining to a General Collateral Repo Transaction whose Settlement is scheduled for that day, and has the same Settlement date as the resale and repurchase transaction; 3

4 41. Reference Price [preço de referência] A value established by the Clearinghouse for any given Security, considered in risk management and in any cash Settlement of the Delivery duty of the Clearinghouse in that Security; 42. Premium [prêmio] Funds payable as the result of a Loan or an Interchange; 43. Pre-Registration [pré-registro] The act by which Participants formalize, to the Clearinghouse and the Registration System, the execution of a Transaction for which Acceptance in the Clearinghouse systems and Registration in the Registration System are conditional upon the fulfillment of other requirements; 44. Collateral Recomposition [recomposição de garantias] A demand for additional cash Collateral to adjust the Participants limits to a risk identified by the Clearinghouse; 45. Central Bank Credit Facility [redesconto] A mechanism by which the Central Bank of Brazil provides the market with liquidity by means of Repo Transactions; 46. Intraday Central Bank Credit Facility [redesconto intradia] A Central Bank Credit Facility for which the settlement date of the sale or purchase transaction coincides with the settlement date of the repurchase or resale transaction; 47. Transaction Registration [registro] The act formalizing a Securities Transaction for a proprietary account or for a third party s account, in a Trading or Registration System; 48. Net Multilateral Result [resultado multilateral líquido] Rights and duties arising from Direct Participants Netting of funds or Securities with the Clearinghouse and the latter s with respect to such Participants, as well as a Securities Trading Participant with respect to the Clearing Member and the latter s with respect to the Securities Trading Participant; 49. Safeguards [salvaguardas] Principles, rules, criteria and mechanisms adopted to ensure, either directly or indirectly, the Settlement process and the integrity of the systems maintained by the Clearinghouse; 50. SELIC The Special System for Settlement and Custody managed by the Central Bank of Brazil; 51. Securities Lending Facility (SET) [serviço de empréstimo de títulos] A type of facility available in the Trading and Registration Systems for performing a Securities-Driven Repo, a Loan or an Interchange; 52. STR The Reserve Transfer System managed by the Central Bank of Brazil; 53. Final Borrower [tomador final] The Participant having the right, in a Loan or an Interchange, to receive a certain Security on the agreed date, and the duty to deliver it on the maturity date of the Transaction; 54. Interchange [troca] Loans of different Securities for the same tenor, for which Transaction Registrations are made concurrently and in a linked manner; and 55. Final Seller [vendedor final] The Participant that, in any given Transaction, sells the Security or undertakes a commitment to sell it on a future date. CHAPTER II PURPOSE 4

5 Article 2. This Rulebook regulates the activities carried out nationwide by the BM&F Securities Clearinghouse and its Participants regarding the Acceptance, the Netting and the Settlement of Securities Transactions, and the Settlement, through the Clearinghouse, of other Transactions. Sole paragraph. The Clearinghouse Risk Management System, Procedures and Technology Manuals, in addition to Circular Letters and External Communications published by BM&F, are integrated into this Rulebook. CHAPTER III CLEARINGHOUSE ACTIVITIES Article 3. The Clearinghouse effects the Registration, Acceptance, Netting, and deferred Settlement of Securities Transactions which are subject to Registration in Trading or Registration Systems. Paragraph 1. The Clearinghouse defines those Securities which may be subject to the Transactions submitted to it, as well as the criteria for Acceptance, Netting and Settlement of such Transactions. Paragraph 2. In the performance of its functions, the Clearinghouse may carry out other activities aimed at decreasing or managing the risk in its Settlement of Transactions, as well as fostering the development of Participants risk management procedures. Paragraph 3. The Clearinghouse may sign agreements or create other relationships with: (i) Trading or Registration Systems, and use their other services or systems; and (ii) service providers whose services are instrumental to Clearinghouse activities. Article 4. The Clearinghouse also effects the registration, Acceptance, Netting, and deferred Settlement of the following Transactions in regard to Repo Transactions with the Rehypothecation Clause: (i) purchase or sale from a resale or a repurchase commitment to be settled in the SELIC; and (ii) resale or repurchase from commitments undertaken in the SELIC, whenever duly informed by SELIC to do so. Article 5. The Clearinghouse may also provide other services to Participants and its customers pursuant to the provisions set forth in this Rulebook. Article 6. The Clearinghouse may also effect the Gross Settlement of Delivery obligations pertaining to accepted Transactions, as well as the Gross Settlement of trades in which it assumes no obligation to guarantee their Settlement, even if the Settlement, in any such event, is deferred relative to the time of Acceptance of the Transaction or of the performance of the trade. Sole paragraph. The Transactions with Gross Settlement of Delivery obligations must have the corresponding Securities deposited for their coverage. 5

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7 CHAPTER IV TRADING AND REGISTRATION SYSTEMS Article 7. It is incumbent upon the Trading or Registration Systems with which the Clearinghouse has signed an agreement or created another relationship to apply all necessary control mechanisms for Transaction Registration, in order to meet the needs of the Clearinghouse and adopt any practices for reducing operating risks. Sole paragraph. The control mechanisms referred to in this article include, inter alia: (i) conditioning the Registration of any Transaction to be settled through the (ii) Clearinghouse to the Acceptance thereof; informing the Clearinghouse, upon the entry of any trade in its systems, that such Transaction is based on an order pending electronic confirmation, in the Trading System, by the Participant for whose account and on whose behalf it is being carried out; (iii) setting upper and lower limits for the trading price of the Security or for the rate agreed upon in the Transaction; and (iv) offering conditions for its Participants to set limits for the number of Securities traded or for the amount of each Transaction. CHAPTER V PARTICIPANTS SECTION I GENERAL PROVISIONS Article 8. Clearinghouse Participants are distinguished into the following categories according to the rules and criteria set forth in this Rulebook: (i) Clearing Members; (ii) Centralized Settlement Participants; (iii) Securities Trading Participants; (iv) Investment Managers; (v) Master Centralized Settlement Participants; (vi) Settlement Banks; and (vii) Custodians. Article 9. BM&F establishes the requirements, criteria and procedures for Participant Registration, defining, inter alia: (i) the set of information to be provided to the Clearinghouse; (ii) the minimum technological infrastructure and qualification standards to be met; (iii) the proper instruments for formalizing adherence to the Clearinghouse Rulebook; and (iv) minimum equity and capitalization levels. Sole paragraph. The requirements to which Participants are subject pursuant to the provisions set forth in this article are related to their respective categories. 7

8 Article 10. Upon a Participant Registration, Participants must expressly adhere to the rules and procedures established by the Clearinghouse, and are responsible for fully complying with such rules and procedures. Sole paragraph. All registered Participants are assigned a code to be used for their identification in the Clearinghouse systems. Article 11. Participants must ensure that the information provided to the Clearinghouse is accurate, and keep their registration data updated. Article 12. Limited access to the Clearinghouse systems by Non-Members is permitted pursuant to the provisions set forth in this Rulebook. Paragraph 1. A Non-Member is a financial institution which is not a BM&F member, but which is authorized to intermediate Securities transactions. Paragraph 2. BM&F publishes the requirements, criteria and procedures to register Non-Members. Paragraph 3. A Non-Member is authorized to intermediate any Securities Transactions, for Settlement through the Clearinghouse, having the same characteristics as those established in article 31 and, cumulatively, meeting the following requirements: (i) participation of at least one Securities Trading Participant, acting as an (ii) intermediary, a Final Buyer or a Final Seller; and Registration in a Registration System for Settlement through the Clearinghouse. Paragraph 4. A Non-Member must appoint, to the Clearinghouse, a Clearing Member with which it has a contractual relationship, in order to receive any funds by virtue of the Transactions it intermediates. Paragraph 5. The Non-Member is fully responsible for choosing any given Clearing Member. Article 13. Direct Participants and Securities Trading Participants must keep available to the Clearinghouse such documents and records as pertain to the Settlement of Transactions carried out through the Clearinghouse. SECTION II CLEARING MEMBERS Article 14. Clearing Members are the holders of a DL Member membership, as defined in the BM&F Bylaws, and any institutions equated to those holders, as such registered with the Clearinghouse. Article 15. A Clearing Member provides Netting and Settlement services to Securities Trading Participants and Non-Members, and must keep the Clearinghouse informed about the Securities Trading Participants and Non- Members with which it maintains a contractual relationship. Paragraph 1. The Clearing Member is fully responsible for the decision to provide services to any given Non-Member or Securities Trading Participant and for the limits to be set for the latter. 8

9 Paragraph 2. For risk management purposes, the Clearing Member sets the following limits for each Securities Trading Participant with which it maintains a contractual relationship: (i) a maximum operational limit, corresponding to the maximum amount the Clearing Member allows to be calculated by the Clearinghouse, pursuant to the provisions set forth in Chapter VI, as the operational limit for a Securities Trading Participant with which it maintains a contractual (ii) relationship; a risk limit, taken into account by the Clearinghouse in the calculation of the Securities Trading Participant s operational limit, pursuant to the provisions set forth in the Clearinghouse Risk Management System Manual; (iii) a pending order risk limit, taken into account by the Clearinghouse upon Acceptance of the Transaction indicated by the Securities Trading Participant as originating from an order pending electronic confirmation, in the Trading System, by another Participant, or as originating from an order by a Master Centralized Settlement Participant; (iv) a financial limit, taken into account by the Clearinghouse in the Transaction Acceptance and determining the maximum amount for the duty to transfer funds from the Securities Trading Participant to the Clearing Member; and (v) a quantitative limit, taken into account by the Clearinghouse in the Transaction Acceptance and determining the maximum number of any given Security for the duty to deliver and the right to receive such Security by the Securities Trading Participant with respect to the Clearing Member. Paragraph 3. The limits set forth in paragraph 2 of this article may be changed by the Clearing Member at any time, after a notice is given to the Clearinghouse and the Securities Trading Participant, pursuant to the provisions established by the Clearinghouse and effective in accordance with its rules, without prejudice to any obligations undertaken prior to the change made and pending Settlement. Paragraph 4. The Clearinghouse makes available to Clearing Members the means for monitoring the utilization of the limits of each Securities Trading Participant with which they maintain a contractual relationship, including those limits established by the Clearinghouse pursuant to the provisions set forth in Chapter VI. Article 16. The Clearing Member must adopt reasonable control mechanisms so as not to compromise its ability to fulfill any undertaken Delivery and Payment duties, abiding by the limits established by the Clearinghouse, monitoring the utilization levels of the limits which it sets for each Securities Trading Participant with which it maintains a contractual relationship, and making sure such limits are complied with. Article 17. The Clearing Member must contract a Settlement Bank for the fulfillment of Payment obligations between it and the Clearinghouse resulting from accepted 9

10 Transactions, in observance of the terms and conditions established by the Clearinghouse. Paragraph 1. The Clearing Member is fully responsible for choosing any given Settlement Bank. Paragraph 2. The Clearing Member must provide the Settlement Bank with all the information necessary for the latter s activities. Paragraph 3. In addition to the Settlement Bank indicated pursuant to the provisions set forth in this article, the Clearing Member must maintain a contractual relationship with a second Settlement Bank, in order to make, whenever deemed necessary by the Clearinghouse, the latter s Payment to the Clearing Member, informing the Clearinghouse of the transfer made. Article 18. The Clearing Member must contract a Custodian for making such Securities transfers as necessary for it to perform in the Clearinghouse, as well as for receiving interest, amortization or redemption income from Securities deposited in the Clearinghouse. Sole paragraph. The Clearing Member is fully responsible for the decision to contract any given Custodian. Article 19. The Clearing Member must provide for its contribution to the Guarantor Fund referred to in Chapter XII in the manner and within the time frames established by the Clearinghouse. SECTION III CENTRALIZED SETTLEMENT PARTICIPANTS Article 20. Centralized Settlement Participants are investment funds, open-end pension funds, closed-end pension funds, insurance companies and local reinsurers, registered with the Clearinghouse in such category. Article 21. The Centralized Settlement Participant may, as regards any Transactions for its proprietary account: (i) carry out their Netting and Settlement through the Clearinghouse; (ii) directly effect their Registration in the Registration System whenever a Securities Trading Participant appears as its counterparty in the trade; or (iii) have their Registration effected in the Trading or Registration System by any Securities Trading Participant with which it maintains a contractual relationship. Article 22. The Direct Settlement Participant must, in the manner and within the time frame established by the Clearinghouse, make a timely Specification for the Transactions under its responsibility. Paragraph 1. A Transaction Specification is conditional on compliance with the Centralized Settlement Participant s limits, and may be rejected by the Clearinghouse. 10

11 Paragraph 2. Any lack of Specification or any untimely Specification is dealt with by the Clearinghouse pursuant to the provisions set forth in this Rulebook and in the Procedures and Risk Management System Manuals. Article 23. The Clearinghouse makes available to Centralized Settlement Participants the means for monitoring the utilization of their limits. Article 24. The Centralized Settlement Participant must adopt reasonable control mechanisms so as not to compromise its ability to fulfill any undertaken Delivery and Payment duties, in observance of the limits established by the Clearinghouse. Article 25. The Centralized Settlement Participant must contract a Settlement Bank for the fulfillment of Payment obligations between it and the Clearinghouse resulting from accepted Transactions, abiding by the terms and conditions established by the Clearinghouse. Paragraph 1. The Centralized Settlement Participant is fully responsible for choosing any given Settlement Bank. Paragraph 2. The Centralized Settlement Participant must provide the Settlement Bank with all the information necessary for the latter s activities. Paragraph 3. In addition to the Settlement Bank indicated pursuant to the provisions set forth in this article, the Centralized Settlement Participant must maintain a contractual relationship with a second Settlement Bank, in order to make, whenever deemed necessary by the Clearinghouse, the latter s Payment to the Centralized Settlement Participant, informing the Clearinghouse of the transfer made. Article 26. The Centralized Settlement Participant must contract a Custodian for making such Securities transfers as necessary for it to perform in the Clearinghouse, as well as for receiving interest, amortization or redemption income from Securities deposited in the Clearinghouse. Sole paragraph. The Centralized Settlement Participant is fully responsible for the decision to contract any given Custodian. Article 27. The Centralized Settlement Participant may appoint on its behalf an Investment Manager to the Clearinghouse, in order to adopt the procedures pertaining to the transfer of securities and funds. Sole paragraph. The Centralized Settlement Participant is fully responsible for choosing any given Investment Manager. Article 28. The Centralized Settlement Participant may appoint, to the Clearinghouse, a Master Centralized Settlement Participant to trade on its behalf. Sole paragraph. The Centralized Settlement Participant is fully responsible for choosing any given Master Centralized Settlement Participant. SECTION IV SECURITIES TRADING PARTICIPANTS 11

12 Article 29. Securities Trading Participants are holders of a DO Member membership, as defined in the BM&F Bylaws, and any institutions equated to those holders, as such registered with the Clearinghouse. Article 30. The Securities Trading Participant may, in Trading and Registration Systems, and for the Settlement of Transactions through the Clearinghouse: (i) effect the Registration of Transactions for its proprietary account or for the account and on behalf of customers; (ii) effect the Registration of Transactions for the account and on behalf of Centralized Settlement Participants, Master Centralized Settlement Participants, or other Securities Trading Participants; (iii) have, for its proprietary account or for the account and on behalf of its customers, Transactions registered by another Securities Trading Participant; and (iv) effect the Registration of Transactions which it intermediates for Centralized Settlement Participants, Master Centralized Settlement Participants, or other Securities Trading Participants, pursuant to the provisions set forth in article 29 Sole paragraph. The Securities Trading Participant must maintain a contractual relationship with customers and other Participants for whose account it registers Transactions or has its Transactions registered. Article 31. The intermediation activity by the Securities Trading Participant is, for the purposes of this Rulebook, characterized by the Registration, in a Trading or Registration System, of the following Transactions where at least two other Participants appear: (i) a purchase and sale Transaction in which the intermediating Securities Trading Participant is entitled to compensation corresponding to the positive difference between the sale and purchase Settlement amounts; (ii) or a Loan or an Interchange in which the intermediating Securities Trading Participant is entitled to compensation corresponding to the positive difference between the Premium Settlement amounts to be paid by the Final Borrower and received by the Final Lender. Paragraph 1. The Intermediation activity is only permitted to the Securities Trading Participant whenever it is acting in intermediation for a Final Buyer, Final Seller, Final Lender or Final Borrower which is a Clearinghouse Participant, and consequently up to two intermediaries are allowed per Transaction. Paragraph 2. The Securities Trading Participant s intermediation activity in any given Transaction, for the purposes of this Rulebook, can no longer be characterized as such if that Participant appears in the Transaction as a Final Buyer, Final Seller, Final Lender or Final Borrower Paragraph 3. The transactions referred to in item (i) of this article may be related to repurchase or resale commitments, in which event intermediation may also be characterized by the positive difference between the Settlement amounts of cash obligations resulting from such resale and repurchase. 12

13 Paragraph 4. After all other provisions set forth in this article are complied with and there is no difference between the Settlement amounts of cash obligations as referred to in items (i) and (ii) of this article, intermediation can no longer be characterized, and the Securities Trading Participant is deemed to be providing a Transaction Registration service for Settlement through the Clearinghouse. Paragraph 5. In the event referred to the previous paragraph, the Securities Trading Participant s compensation for providing the service is settled by a means which is external to the Clearinghouse. Paragraph 6. In order to calculate the differences referred to in items (i) and (ii) of this article, as well as in paragraph 4, the cash amounts corresponding to any possible adjustments in cents from the Transactions where the Securities Trading Participant has executed orders for more than one Participant shall not be considered. Article 32. The Securities Trading Participant must, in the manner and within the time frame established by the Clearinghouse, make a timely Specification for the Transactions it has registered or which have been registered for its own account and on its behalf. Paragraph 1. A Transaction Specification is conditional on compliance with the Securities Trading Participant s limits and those of its Clearing Member, and may be rejected by the Clearinghouse. Paragraph 2. Any lack of Specification or any untimely Specification is dealt with by the Clearinghouse pursuant to the provisions set forth in this Rulebook and in the Procedures and Risk Management System Manuals. Article 33. Each Securities Trading Participant must appoint, to the Clearinghouse, a Clearing Member with which it maintains a contractual relationship for the Settlement of any Delivery and Payment obligations arising from Transactions for its proprietary account and Transactions for the account and on behalf of customers, as well as for the receipt of any funds resulting from the Transactions it intermediates. Paragraph 1. In Transactions whose Registration is effected by the Securities Trading Participant for the account of a Centralized Settlement Participant, either directly or on behalf of the Master Centralized Settlement Participant with which it maintains a contractual relationship, or another Securities Trading Participant, whenever indicated as such, the Centralized Settlement Participant, or the Securities Trading Participant for whose account the Transaction Registration has been effected is not deemed a customer of the Securities Trading Participant for the purposes of this article. Paragraph 2. The Securities Trading Participant is fully responsible for the decision to contract any given Clearing Member. Paragraph 3. The Securities Trading Participant must inform its customers of the Clearing Member responsible for the Settlement of any obligations arising from accepted Transactions. 13

14 Article 34. The Clearinghouse makes available to Securities Trading Participants the means for monitoring the utilization of their limits as established by the Clearing Member or by the Clearinghouse. Article 35. The Securities Trading Participant must adopt reasonable control mechanisms so as not to compromise its ability to fulfill any Delivery and Payment duties undertaken towards the Clearing Member or its customers, abiding by the limits established by the Clearing Member or by the Clearinghouse. Article 36. The Securities Trading Participant must contract a Custodian for making such Securities transfers as necessary for it to perform in the Clearinghouse, as well as for receiving interest, amortization or redemption income from Securities deposited in the Clearinghouse. Sole paragraph. The Securities Trading Participant is fully responsible for the decision to contract any given Custodian. SECTION V INVESTMENT MANAGERS Article 37. Investment Managers are institutions registered as such with the Clearinghouse, to which they are appointed by the Centralized Settlement Participants as being authorized to act in the Clearinghouse systems on their behalf, and which are accredited by the proper authorities to perform the activities referred to in this Rulebook, Article 38. It is incumbent upon the Investment Managers, in observance of established time frames and procedures, and acting on behalf of the Centralized Settlement Participants with which they maintain a contractual relationship. (i) to make a timely Specification for the Transactions under the (ii) responsibility of the Centralized Settlement Participants; to adopt the procedures for which they are responsible, in order to fulfill the Delivery and Payment obligations between the Centralized Settlement Participants and the Clearinghouse; and (iii) to perform the acts under their responsibility, in order provide the Securities transfers necessary for the Centralized Settlement Participants activities. SECTION VI MASTER CENTRALIZED SETTLEMENT PARTICIPANTS Article 39. Master Centralized Settlement Participants are institutions registered as such with the Clearinghouse, to which they are appointed by Centralized Settlement Participants as being responsible for the management of their Securities portfolio, and which are accredited by the proper authorities to perform this activity. 14

15 Article 40. It is incumbent upon the Master Centralized Settlement Participants, in observance of established time frames and procedures: (i) to transmit orders to trade Securities to Securities Trading Participants on behalf of Centralized Settlement Participants with which they maintain a contractual relationship and for the proprietary accounts of the Centralized Settlement Participants; (ii) to appoint to the Clearinghouse the Centralized Settlement Participants responsible for the Transactions performed as the result of the orders they transmitted; and (iii) to inform the Centralized Settlement Participants about the Transactions they perform or intend to perform which need the Centralized Settlement Participants entry authorization into the Clearinghouse systems or the Trading System. Article 41. The Clearinghouse makes available to Master Centralized Settlement Participants the means for monitoring the utilization of the limits of the Centralized Settlement Participants with which they maintain a contractual relationship, as well as the level of those limits which are established by the Clearinghouse. SECTION VII SETTLEMENT BANKS Article 42. Settlement Banks are financial institutions, registered as such with the Clearinghouse, which are holders of a Bank Reserves account with the Central Bank of Brazil. Article 43. It is incumbent upon the Settlement Bank, in observance of established time frames and procedures: (i) to effect transfers related to the Settlement of Direct Participants Payment obligations; (ii) to confirm the total or partial availability of funds intended for fulfilling the Payment obligations of the Clearinghouse or of those Direct Participants for which it provides any services; and (iii) to communicate to the Clearinghouse and its Participants any problem that may involve a total or partial inability to transfer, within the established time frame, any funds pertaining to the Settlement of Payment obligations. Article 44. Netting by the Settlement Bank is precluded of any amounts that must be paid to the Clearinghouse or received from the latter by the various Direct Participants for which it provides any services. SECTION VI CUSTODIANS Article 45 Custodians are institutions that maintain proprietary custody accounts and customer custody accounts with SELIC. 15

16 Article 46. It is incumbent upon the Custodian, in observance of established time frames and procedures: (i) to adopt the measures for effecting, as required by Participants, the necessary Securities transfers for the process of Settlement of obligations, deposit of Securities for trading, or pledging of Collateral, as well as any transfers pertaining to services provided by the Clearinghouse and involving transfers of Securities among accounts managed by the Custodian; (ii) to confirm the availability of the necessary Securities for effecting any of the transfers referred to in the previous item; and (iii) to communicate to the Clearinghouse and its Participants for which it provides any services any problem that may involve a total or partial inability to effect, within the established or required time frame, any of the transfers referred to in item (i) of this article. Paragraph 1. The Custodian must appoint a Settlement Bank, to the Clearinghouse, for receiving interest, amortization or redemption income from Securities which are deposited with the Clearinghouse and which must be transferred to the Custodian by the Clearinghouse, and adopt the necessary measures for their transfer to the owners of such Securities, whenever applicable. Paragraph 2. In addition to the Settlement Bank appointed pursuant to the provisions set forth in paragraph 1 of this article, the Custodian must maintain a contractual relationship with a second Settlement Bank for the purpose indicated in said paragraph. CHAPTER VI LIMITS ESTABLISHED BY THE CLEARINGHOUSE SECTION I GENERAL PROVISIONS Article 47. For risk management purposes, the Clearinghouse calculates and/or sets limits for Direct Participants, Securities Trading Participants and Master Centralized Settlement Participants. Article 48. The limits set by the Clearinghouse for Participants may be changed at any time, at the sole discretion of the Clearinghouse, including taking into account the influence of general market conditions. Article 49. Lowering any of the limits set by the Clearinghouse occurs without prejudice to the obligations arising from Transactions accepted when the previous limit was in effect. SECTION II OPERATIONAL LIMIT AND OTHER LIMITS Article 50. The operational limit is calculated by the Clearinghouse for Direct Participants, Securities Trading Participants and Master Centralized Settlement 16

17 Participants based on the provisions set forth in this Rulebook and the methodology contained in the Clearinghouse Risk Management System Manual. Paragraph 1. The operational limit corresponds to the difference, as calculated by the Clearinghouse under stress scenarios, between the rights and duties of those Participants listed in this article. Paragraph 2. The Clearinghouse may, for prudential reasons and at its sole discretion, set a maximum amount as the operational limit of any given Participant, notwithstanding the Collateral pledged by said Participant and its accepted Transactions. Paragraph 3. The provisions set forth in this article apply to the operational limits of the Master Centralized Settlement Participants, which are calculated based on the operational limits of the Centralized Settlement Participants with which they maintain a contractual relationship. Article 51. The Clearinghouse may, at its sole discretion and taking into account market conditions and prudential aspects, set a financial limit for Direct Participants, limiting each Participant s Payment duty, and a quantitative limit, limiting the right to receive and the duty to deliver any given Security per Participant, and the proper provisions contained in the Clearinghouse Risk Management System Manual shall apply to such limits. Paragraph 1. The limits referred to in this article may also be established for other Participants, pursuant to the provisions set forth in the Clearinghouse Risk Management System Manual, whenever their activities determine an increase in the Delivery or Payment duties of Direct Participants. Paragraph 2. Pursuant to the provisions set forth in its Risk Management System Manual, the Clearinghouse sets the maximum amount Clearing Members may assign a Securities Trading Participant as a pending order risk limit. CHAPTER VII COLLATERAL SECTION I PLEDGING OF COLLATERAL Article 52. The Clearinghouse accepts funds in national currency and Securities as Collateral. Paragraph 1. The Clearinghouse determines which Securities are acceptable as Collateral, the criteria for valuing such Securities and the procedures to be followed by Participants for pledging Collateral. Paragraph 2. Direct Participants are always liable to the Clearinghouse for the pledging of Collateral. Article 53. The Collateral pledged by a Direct Participant to the Clearinghouse is intended to guarantee, pursuant to the rules and procedures herein set forth, the Participant s fulfillment of its Delivery or Payment obligations to the Clearinghouse, in the event the Participant breaches such obligations. 17

18 Article 54. The Clearinghouse may, at any time, require a Collateral Recomposition from any given Direct Participant, and suspend the Acceptance of new transactions involving an increase of its risk exposure to the Participant, as long as this requirement is not met. Sole paragraph. Collateral Recomposition is always required to be made in funds, which is a requirement that may be met through a deposit of Securities in those events and under the conditions established in the Clearinghouse Risk Management System and Procedures Manuals. Article 55. The Clearinghouse may, based on prudential reasons, limit its acceptance of certain Securities as Collateral or any given Participant s ability to deposit such Securities or use the rights appurtenant thereto for purposes of setting operational limits. SECTION II WITHDRAWAL OF COLLATERAL Article 56. Any Collateral pledged pursuant to the provisions set forth in this Rulebook which, at the discretion of the Clearinghouse, is unrelated to the Settlement of obligations may be transferred, at the Participant s request and always with the prior authorization of the Clearinghouse, from the latter s Collateral Account: (i) to such Participant-held accounts as indicated by the Participant; (ii) to other Clearinghouse accounts; or (iii) on the Participant s behalf to a Collateral Account in other clearing and settlement systems managed by BM&F. Paragraph 1. The Clearinghouse defines the procedures, as well as the criteria, for authorizing such withdrawals of Collateral as referred to in this article. Paragraph 2. In order to authorize any withdrawal of Collateral, the Clearinghouse determines, among other issues of a prudential nature, at its own discretion, any effects on the operational limit and on the set of Transactions under the Participant s responsibility. CHAPTER VIII SECURITIES DEPOSITED TO COVER TRANSACTIONS Article 57. Securities are deemed to be deposited to cover Transactions when they are: (i) for such purpose kept in the Clearinghouse Deposit Account until the deadline which the Clearinghouse has set for final processing of the Settlement of the corresponding Delivery obligation; or (ii) kept in the Clearinghouse Deposit Account, in order to cover SET Transactions. Paragraph 1. The making of a deposit to cover Transactions and the Acceptance of a Transaction for which Securities have been deposited under this article may alter the Participants limits pursuant to the provisions set forth in the Clearinghouse Risk Management System Manual. 18

19 Paragraph 2. The Clearinghouse Risk Management System Manual details the situations where the Collateral matches the Securities deposited in the Clearinghouse Deposit Account for Transaction coverage purposes. Article 58. While kept as a deposit pursuant to the provisions set forth in item (i) of the previous article, Securities shall, prorated to the quantities deposited, meet the Delivery obligations arising from Transactions accepted from the Direct Participant to the Clearinghouse and from the Securities Trading Participant to the Clearing Member. Paragraph 1. A Delivery obligation which is met pursuant to this article, while remaining as such, is not subject to Netting as referred to in Chapter X, and is terminated upon Gross Settlement. Paragraph 2. The Clearinghouse may, as provided for in its Risk Management System and Procedures Manuals, establish a priority order for obligations to be met as set forth in this article. Paragraph 3. Final processing of the Settlement of the Delivery obligation as set forth in this article takes place at such time as the Clearinghouse shall set which is comprised between the closing time for the Acceptance of Transactions with Settlement scheduled for that very date and the Settlement Window on the same date. Article 59. Securities deposited pursuant to the provisions set forth in items (i) and (iii) of article 50 may be withdrawn by the Participants or earmarked for other purposes, at their request, provided the requirements pertaining to risk management and the established operating procedures are met. CHAPTER IX TRANSACTIONS SECTION I GENERAL PROVISIONS Article 60. The following types of Securities Transactions, which are entered into the Clearinghouse systems pursuant to the terms and conditions set forth in the Rulebook, may be subject to Acceptance, Netting and Settlement by the Clearinghouse: (i) same day or forward Purchase and Sale Transactions; (ii) Repo transactions; (iii) Loans; and (iv) Interchanges. Paragraph 1. The Settlement date of obligations pertaining to accepted Transactions cannot exceed the maturity date of any underlying Security. Paragraph 2. Obligations in funds derived from amounts paid by issuers as interest, amortization and redemption income from Securities traded in the Transactions may be settled through the Clearinghouse in the events referred to in this Rulebook or defined by BM&F in a Circular Letter. 19

20 Paragraph 3. In the event of an early redemption, by the issuer, of the total number of any given Security underlying Transactions with Settlement scheduled for a date later than the redemption date, or any other occurrence which may, at the discretion of the Clearinghouse, result in extraordinary difficulties or in the impossibility of the Participants or the Clearinghouse to meet future Delivery obligations of the Security, the Clearinghouse may, as regulated in the Procedures Manual or in Circular Letters and Communications from BM&F, provide for the adoption of exceptional measures and criteria, such as an earlier date for Settlement or for maturity of Transactions, as well as the cancellation of Transactions and of other obligations deriving therefrom, such as those involving intermediate interest payments. SECTION II ENTERING TRANSACTIONS INTO THE CLEARINGHOUSE SYSTEMS Article 61. Transactions subject to Acceptance by the Clearinghouse are entered into its systems through Trading or Registration Systems in observance of the rules applicable to each case. Sole paragraph. The Clearinghouse may set rules, procedures and specific control mechanisms to be observed by the Trading or Registration Systems, as well as require the Pre-Registration of certain Transactions. SECTION III ACCEPTANCE OF TRANSACTIONS Article 62. The Acceptance of any Transaction is conditional upon: (i) observance of the involved Participants limits in accordance with the provisions set forth in the Clearinghouse Risk Management System Manual; and (ii) adoption of all established operating procedures and conformity to all controls established in the Trading or Registration System used. Sole paragraph. Without prejudice to such procedures as adopted in exceptional situations, the analysis under item (i) of this article is conducted upon entry of the Transaction into the Clearinghouse. Article 63. The Clearinghouse takes the position of central counterparty for Settlement purposes of accepted Transactions, ensuring the settlement thereof pursuant to current legislation and the rules, procedures and criteria set forth in this Rulebook. Paragraph 1. The Acceptance of Repo Transactions comprises the Acceptance of both the purchase and sale Transaction and the Transaction pertaining to the corresponding resale and repurchase commitment. Paragraph 2. The Acceptance of Transactions which are subject to Pre- Registration is conditional upon all necessary requirements being met as established in this Rulebook and other applicable rules. Paragraph 3. The cancellation of any accepted Transaction, upon request by the involved Participants, before the Settlement of any of the corresponding 20

21 obligations is subject to the analysis and other provisions concerning risk set forth in the Clearinghouse Risk Management System Manual. When a cancellation is complied with by the Clearinghouse, it may change the operational limit of the involved Participants, including the Clearing Member of the Securities Trading Participant that has required this cancellation, in addition to causing the Clearinghouse to be no longer characterized as the central counterparty for Settlement purposes of any corresponding obligations. 21