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FX CLEARINGHOUSE OPERATING MANUAL 1. General Provisions

The terms used in this Operating Manual have their meanings defined in Chapter I (Definitions) of the Clearinghouse Rulebook.

2. Purpose and Activities The purpose of the Clearinghouse is to register, analyze, accept, contract, clear, and

settle the foreign exchange transactions performed directly by its participants or via trading systems, as shown in Illustrations 1 and 2.

Illustration 1 – General Outline of the BM&F FX Clearinghouse

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Illustration 2 – Process Flow Chart 3. Time

All time references in this Operating Manual, the BM&F Circular Letters, and any and all other documents and/or reports are in Brasília time, as evidenced by the clocks in the Clearinghouse computers through which its systems receive or send specific messages.

4. Participants and Limit Assignment

Participation in the Clearinghouse is restricted to institutions that, after being authorized by the Central Bank of Brazil to buy, sell, and intermediate trades in the foreign exchange market, are in turn duly registered and authorized to use the Clearinghouse systems. The following institutions can be authorized to be Clearinghouse participants:

(a) Banks authorized to trade foreign exchange; and (b) Institutions authorized to intermediate FX transactions.

The participants in the Clearinghouse systems are grouped as:

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(a) Member participant, which is an institution that holds a BM&F equity membership; and

(b) Nonmember participant, which is an institution that does not hold a BM&F equity membership.

Illustration 3 – BM&F FX Clearinghouse Participants

4.1 Banks Participating in the Clearinghouse Systems The banks that participate in the Clearinghouse systems can register interbank foreign exchange spot transactions traded directly between their trading desks or via electronic or open outcry trading systems. The authorized banks will be assigned position limits in foreign currency on a net basis. The participating banks can keep net credit or debit balances in foreign currency to be settled through the Clearinghouse systems, up to the level of their corresponding position limits.

4.2 Institutions Authorized to Intermediate FX Transactions

These institutions, when authorized to use the Clearinghouse systems, are allowed to register interbank foreign exchange spot transactions traded via its trading systems.

4.3 Position Limit – Attribution and Alteration

Position limits are assigned by the Clearinghouse always by request of the participating bank. The requested value is assessed by the Clearinghouse by taking into account the bank size. Therefore, the following variables are

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considered, among others the Clearinghouse may deem necessary for the system security: Net worth, working capital, rating received from specialized rating companies, and most importantly bank history in the financial market and in foreign exchange transactions. An alteration in the position limit assigned by the Clearinghouse may occur by formal request of the bank, for an increase or a reduction, or by the decision of the Clearinghouse itself, always for a reduction, by considering prudential criteria. All new granted or altered limits, which are informed by the Clearinghouse, become effective two business days after the bank request or the Clearinghouse decision.

4.4 Trading Limit

The trading limit is established by the Clearinghouse in foreign currency for the sum of all transactions in the confirmation process by the buying and selling banks based on the total amount deposited in the Guarantor Fund, which is mutualized between all authorized intermediaries and BM&F. The Clearinghouse monitors the Guarantor Fund throughout the day and, if necessary, will require new deposits from BM&F, as well as adjust the shares of participants to better reflect the transactions they have intermediated or which are in the confirmation process by the buying and selling banks. The methodology that defines the way the Guarantor Fund is used, is included in the Clearinghouse Risk Management Manual.

5. Official Communication Systems Between the Clearinghouse and Its

Participants

The official communication systems between BM&F and its participants have the following categories: regulatory, operational, and informative. Regulatory communications are those that inform about the decisions made by the BM&F under its jurisdiction, as provided by its Bylaws and the Clearinghouse Rulebook and this Manual, approved by the Central Bank of Brazil, and the applicable legislation of the Brazilian Payment System (SPB). BM&F publishes its regulatory communications through Circular Letters; the other information is published through Communications. Operational communications relate to the registration, acceptance, and contracting of transactions, to the requests for Brazilian currency payment and foreign currency delivery, and to the statements defined in the Clearinghouse Rulebook and this Operating Manual approved by the Central Bank, among others. All operational communications are made through SPB messages and the BM&F screen system. Specific functions applicable to FX contracting formalization in the Central Bank Information System (SISBACEN) are also used, in addition to other electronic communication systems used in international markets. Informative communications are those that disclose information of public interest concerning the FX transactions in the Clearinghouse systems, such as: High and low prices, total volumes, and average prices. Such communications are made through

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BM&F and specialized vendor systems. Information that may harm participants or their clients will not be disclosed. BM&F maintains contingency systems for all of the official communication systems, which also become official when they are used as such.

6. Registration of Institutions Authorized to Trade in the FX Market

Registration is the procedure through which all the information necessary to identify the institutions that intend to be authorized to perform FX transactions through the Clearinghouse systems and their representatives is recorded. The registration process is done by filling out a specific form, published in a BM&F Circular Letter and also made available by electronic means.

Illustration 4 – Registration of the Institution Participating in the FX Clearinghouse

7. Authorization of Registered Institutions

Authorization is the procedure through which an institution that is allowed to trade in the FX market and registered in the Clearinghouse systems accepts all terms and conditions established in the Clearinghouse Rulebook and this Operating Manual. The authorization process begins with the filling out and signing of a specific legal instrument, published in a BM&F Circular Letter and also made available by

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electronic means. After the definition of position limits, the next phase of the authorization process is the technical validation of the institution’s systems. The institution must then deposit its share in the Participation Fund or in the Guarantor Fund, if that is the case. At the end of the process, the institution is informed of its authorization and its name is published in the BM&F communication systems as a participant authorized to use the Clearinghouse systems. The purpose of the technical validation phase during the authorization process is to verify the proper and correct functioning of an institution’s information technology and security structures, in order to ensure the perfect operation of the Clearinghouse. This phase includes among other things:

(a) Compatibility verification of security, equipment, software, and data

communications ne twork with the Brazilian Payment System standards, or in the case of intermediaries with the BM&F systems; and

(b) A series of tests to check functions, message and/or file exchange, and correct processing of operating rules and criteria.

The technical validation phase is coordinated by BM&F and carried out in collaboration with the institution under the authorization process. The validation is made official in a result analysis report that must be filed by BM&F together with the supporting evidence.

Illustration 5 – Registered Institution Authorization

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Illustration 6 – Participant Technical Evaluation

8. Duties of the Clearinghouse and the Participants

The duties of the Clearinghouse are:

(a) To receive and analyze, within regular time frames, the proposed FX

transactions registered by participants, and inform them of the analysis results; (b) To accept and contract, for settlement purposes, the transactions approved in the

analysis process and inform the participants; (c) To keep participants informed about the whole process of the registered,

analyzed, accepted and contracted FX transactions to be settled through the Clearinghouse systems, until their final settlement;

(d) To request immediate measures from participants in regard to the transactions pending in the Clearinghouse systems and monitor those transactions;

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(e) To clear the amounts of the transactions contracted, and keep the participants’ net balances updated and available for consultation;

(f) To issue to all participants, within regular time frames, all statements and requests concerning net debit balances for Brazilian currency payment and foreign currency delivery;

(g) To monitor the payment processing of net debit balances; (h) To keep the correspondent banks informed, when applicable, of the need to buy

and sell FX or to enter into repurchase agreements (repos) or reverse repurchase agreements (reverse repos), due to a participant’s operational or financial difficulty during the current settlement session;

(i) To issue payment orders on behalf of the nondefaulting participants, ensure their finality, and inform the respective creditors;

(j) To conduct all of the procedures needed to resolve matters still pending from the settlement session, such as tracking payments made by operational defaulters, buying or selling the currency needed to cover unsettled funds, and executing the defaulter’s collateral;

(k) To issue reports on the errors committed by participants and forward them to the directors responsible for the institutions and to the Central Bank, when applicable; and

(l) To send to the Central Bank all of the information it requests on the behavior of the market and its participants.

The duties of participants are:

(a) To register their transactions in a timely fashion, in the systems of the Central

Bank, pursuant to its provis ions, and in the Clearinghouse systems, through the means defined in its Rulebook and this Operating Manual, and to monitor their processing, until their final settlement, when applicable;

(b) To maintain an accurate control of the analysis of their transactions, until the final result of the process;

(c) To promptly meet Clearinghouse requests to resolve matters concerning transactions pending in its systems;

(d) To maintain an adequate control of the transactions accepted and contracted to be settled through the Clearinghouse systems, especially in regard to position limits and the amount of deposited collateral at the disposal of the Clearinghouse;

(e) To monitor and control net credit and debit balances, until final settlement, resulting from the transactions accepted, contracted and cleared by the Clearinghouse systems;

(f) To receive, and acknowledge the receipt in a timely fashion, of the requests for Brazilian currency payment and foreign currency delivery issued by the Clearinghouse;

(g) To provide within the time frame established by the Clearinghouse the payments due and required in the requests for payment, and monitor the entire funds transfer process in Brazilian and foreign currency;

(h) To keep the Clearinghouse informed of any financial or operational difficulty corresponding to the settlement of funds under their responsibility, and when the

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case so demands to take the necessary steps together with the Clearinghouse to resolve that difficulty;

(i) To make sure that the transfer of credits communicated by the Clearinghouse are confirmed by the respective correspondent banks abroad or by the Central Bank;

(j) To take part together with the Clearinghouse in all of the procedures needed to resolve, on the same day, pending obligations under their responsibility that arise from the settlement process;

(k) To make the necessary adjustments to resolve the pending obligations under their responsibility that are listed in the reports issued by the Clearinghouse; and

(l) To update the institution’s registration data, as well as the data of the personnel directly or indirectly involved in all of the phases of the FX transactions carried out through the Clearinghouse systems.

9. Foreign Exchange Transactions

For Clearinghouse purposes, FX transactions are interbank purchase and sale transactions of foreign currency performed directly between the participating banks and the Clearinghouse or through intermediaries in trading systems. They include trading, registration in the Clearinghouse systems, acceptance, contracting, registration in the Central Bank systems, clearing to calculate the net balances in the currencies involved, payment of Brazilian currency, and delivery of foreign currency. Only the FX transactions that are in full compliance with Brazil’s current FX legislation, the rules of the National Monetary Council and the Central Bank of Brazil, and with the provisions set forth in this Operating Manual and in the Clearinghouse Rulebook and Risk Management Manual, can be carried out through the Clearinghouse systems. Participants are solely responsible for the information registered in the Clearinghouse systems, including their compliance with current FX regulations. The Clearinghouse publishes and updates through BM&F Circular Letters or External Communications, whenever necessary, the characteristics and conditions of the FX transactions that can be carried out through the Clearinghouse systems.

10. FX Trading

An FX transaction, involving the definition of all corresponding variables, is traded directly between the Clearinghouse buying and selling participants or through intermediaries in trading systems. The transaction variables are, among others, the amount in foreign currency, the exchange rate, the foreign currency delivery date, and the Brazilian currency payment date. In general, trading is usually carried out by FX traders at the banks’ trading desks by using the available communication systems, or the trading systems. The latter can be an open outcry system or an electronic system.

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Illustration 7 – FX Trading

11. Registration of Proposed FX Transactions in the Clearinghouse Systems

As mentioned previously, participants can register FX transactions that are traded (i) between themselves, buyer and seller, directly or (ii) through intermediaries in trading systems. The Clearinghouse systems are open for the registration of FX transactions, also for same day settlement, during the hours published by BM&F, in observance of the time frame established for their registration in the Central Bank systems. After trading, participants can register their FX transactions so that they can be analyzed, accepted, contracted, cleared and settled through the FX Clearinghouse systems. Every transaction accepted by the Clearinghouse must be registered with the Central Bank through a specific function which is available for that purpose in SISBACEN, pursuant to the conditions set forth by the Central Bank.

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Illustration 8 – Registration of FX Transactions Traded Directly Between Banks – Via

SISBACEN/Messages

11.1 FX Transactions Traded Directly by Participating Banks and Registered with the Clearinghouse Via SISBACEN or Through the Use of Messages The FX transactions traded directly between banks can be registered in the Clearinghouse systems through the direct use of a SISBACEN function or specific SPB or BM&F messages for this purpose. The FX transactions traded directly between banks that are not accepted by the Clearinghouse are the sole responsibility of the banks involved.

11.2 FX Transactions Traded by Participating Banks in Electronic or Open

Outcry Trading Systems The Clearinghouse counts on its own procedures to authorize each of these trading systems, through which legal and technical issues and risk factors are evaluated, among others.

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FX transactions traded by intermediaries in trading systems can be registered, cleared and settled through the Clearinghouse systems. When applicable the Clearinghouse requests that the intermediary, responsible for the transaction, specifies the buying or the selling bank, and subsequently requests that the specified bank confirms the transaction. In the resolution of the transactions that are not confirmed by the specified -banks, the following measures will be taken in order to obtain a new counterparty: (i) the intermediary responsible for trading the FX Transaction will be allowed to specify another bank; (ii) the Clearinghouse will indicate another intermediary to trade the opposite FX Transaction; and (iii) the Clearinghouse will contract the services of one of the correspondent banks by taking into account the Correspondent Bank that provides the best conditions. The Clearinghouse will utilize the BM&F Settlement Bank whenever it becomes impossible to solve the pending transaction pursuant to the provisions set forth previously, or whenever it is not advisable to use correspondent banks. If necessary, the Clearinghouse will use the specific safeguards of the system where the transaction has been traded to cover expenses. This procedure will follow the provisions set forth in the Clearinghouse Risk Management System Manual. In order to carry out FX transactions through the Clearinghouse, the trading systems will have to rely on their own regulations, which must be approved by the Clearinghouse, as well as on their own safeguard structures, so as to ensure the participants and the Clearinghouse that any pending matters that may arise during trading will be resolved, if such be the case.

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Illustration 9 – Registration of FX Transactions Via Trading Systems – Open Outcry

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Illustration 10 – Registration of FX Transactions Via Trading Systems – Electronic

12. Analysis and Acceptance of FX Transactions by the Clearinghouse

Analysis and acceptance of FX transactions integrate the purchase and sale process for settlement purposes within the scope of the Clearinghouse. In the analysis stage, the Clearinghouse checks data, terms, conditions and characteristics of each proposed FX transaction registered in its systems. Special attention is given to the corresponding risk aspects. In the acceptance stage, the Clearinghouse decides whether or not it will accept to buy from the seller and to sell to the buyer. Acceptance by the Clearinghouse occurs as follows:

(i) FX transactions performed directly by participating banks and registered with

the Clearinghouse via SISBACEN – In this situation, the Clearinghouse receives the transaction registration

directly from SISBACEN. After the transaction is analyzed and is in condition to be accepted, the Clearinghouse confirms its acceptance through

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SISBACEN and informs the corresponding banks via SPB message system or BM&F communication systems. In this event, the formal binding of the Clearinghouse to the transaction as its buyer/seller occurs at the moment the Clearinghouse confirms its acceptance through SISBACEN and informs the corresponding banks;

(ii) FX transactions performed by directly participating banks and registered in the Clearinghouse systems through the use of the specific SPB or BM&F messages for this purpose – In this situation, the Clearinghouse receives the transaction registration via

SPB messages or BM&F communication systems. After the transaction is analyzed and is in condition to be accepted, the Clearinghouse informs its acceptance through SPB messages and informs the corresponding banks via SPB message system or BM&F communication systems. In its information of acceptance, the Clearinghouse requests that the transaction be registered in the Central Bank systems, thereby binding itself to the transaction as its buyer/seller;

(iii) FX transactions performed by participating banks in electronic or open outcry trading systems – In this situation, the Clearinghouse receives the transaction registration

directly from the trading system, upon which time it formally binds itself to the transactions as its buyer/seller. This registration is made by the corresponding intermediaries. The Clearinghouse requests that these intermediaries specify the buying and selling banks, performs the previous analyzes of the transaction, and requests that the banks confirm the transaction. After the transaction is confirmed, the Clearinghouse makes its final analysis and informs its acceptance through the SPB message system or the BM&F communication systems. In its information of acceptance, the Clearinghouse also requests that the transaction be registered in the Central Bank systems.

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Illustration 11 – Analysis and Acceptance of Proposed FX Transactions

12.1 Position Limit

Position limits are established for all participants when they are authorized in the Clearinghouse systems, as explained in subsection 4.3 of this Operating Manual. During the analysis process, the Clearinghouse risk management system adds the values of the new FX transaction under analysis, in Brazilian and foreign currency, to the net balances outstanding per settlement date, and compares the new status of the participants with their position limits.

12.2 Marking to Market

If a participant defaults, the Clearinghouse systems are programmed to manage the exchange rate fluctuation risk with pre-deposited collateral, pursuant to the provisions and conditions set forth in the Clearinghouse Rulebook and Risk Management Manual, as well as in this Operating Manual. The parameter applied to manage the exchange rate fluctuation risk is determined based on studies involving the FX market and its variables. These studies are prepared by the BM&F technical areas, pursuant to the guidelines of its Risk Committee, whenever they are deemed necessary.

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During the period between the constitution of the balance and its settlement, or its extinction or modification by netting with other transactions contracted with the Clearinghouse, the pledge of new collateral for exchange rate fluctuation can be required from the participants whose marked-to-market balances expose the settlement process to risk, in accordance with the methodology described in the Clearinghouse Risk Management Manual. Following this reasoning, the collateral of participants whose balances no longer expose the settlement process to risk will be released. The lack of the pledge of collateral required by the Clearinghouse to keep the exchange rate of the outstanding net balance marked to market will cause the suspension of the acceptance of new transactions from the corresponding participant, except for those that result in the reduction of that balance. In this case, the Clearinghouse will assess the situation, and it may choose, when applicable, to contract from correspondent banks an opposite position or other type of transaction available for risk protection. Any expenses from the transaction contracted for risk protection, when applicable, will be incumbent on the participant that originated the situation.

13. Transaction Registration with the Central Bank of Brazil

The FX transactions traded by participants and registered, analyzed and accepted by the Clearinghouse are registered with the Central Bank, as determined in FX legislation. With the Central Bank registration/confirmation, the Clearinghouse becomes the contracting party for the purposes of the settlement of obligations, pursuant to the provisions set forth in Law No. 10214, of March 27, 2001, and further rules and regulations of the Brazilian Payment System. When a registration/confirmation is refused, the participant is considered as a defaulter by the Clearinghouse. In this situation, the Clearinghouse resorts to one of the correspondent banks to resolve the pending obligation by taking into account the Correspondent Bank that provides the best conditions. The Clearinghouse will utilize the BM&F Settlement Bank whenever it becomes impossible to resolve the pending obligation pursuant to the provisions set forth previously, or whenever it is not advisable to use Correspondent Banks. All expenses from using the services of correspondent banks or the BM&F Settlement Bank, as well as from exchange rate equalization, when applicable, will be incumbent on the defaulting bank. If necessary, the Clearinghouse may also use the collateral pledged by the Participant that originated the situation.

14. Netting of Obligations for Net Credit and Debit Balance Calculation

The Clearinghouse systems process the settlement of FX transactions with its participants on a bilateral net basis. The BM&F Foreign Exchange Clearinghouse, therefore, operates under the Deferred Net Settlement (DNS) system. This means that FX purchase and sale transactions contracted with the Clearinghouse for settlement on a net basis can generate situations where the parties—the Clearinghouse and its participants—become reciprocal bilateral debtors and creditors in Brazilian and

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foreign currency. Their obligations in both currencies are in full compliance with the netting procedures set forth in applicable legislation. Netting is then automatic. Thus, reciprocal obligations in Brazilian and foreign currency will terminate after they are netted. Net credit and debit balances in Brazilian and foreign currency result from automatic netting between the Clearinghouse and its participants. These net balances are paid and received on the dates, during the hours and under the forms defined by the Clearinghouse Rulebook and this Operating Manual. Net credit and debit balances may be composed of the following amounts:

(i) In foreign currency

– The amounts corresponding to the FX transactions registered per participant on the contracting date, and analyzed and accepted by the Clearinghouse for settlement through its systems;

(ii) In Brazilian currency – The amounts corresponding to payments made and received for the FX

transactions registered per participant on the contracting date, and analyzed and accepted by the Clearinghouse for settlement through its systems;

– The costs incurred by the Clearinghouse as a consequence of financial or operational failures, under a participant’s responsibility, as referred to in the Clearinghouse Rulebook and this Operating Manual; and

– The basic and extra fees defined in the Clearinghouse Rulebook and this Operating Manual for the use of the Clearinghouse registration, clearing, and settlement systems.

15. FX Transaction Settlement

The Clearinghouse performs the daily settlement of FX transactions for the dates when the participants have net credit and debit balances in Brazilian and foreign currency. Settlement occurs pursuant the provisions set forth in Chapter VIII (Settlement) of the Clearinghouse Rulebook.

15.1 First Phase of the Settlement Session

In the first phase of the settlement session, the Clearinghouse issues the corresponding messages containing preliminary communications for the participants with net debit balances in Brazilian currency and in foreign currency. Such requests are issued immediately after the close of the FX transactions on the day before the settlement date and sent in a message format, in accordance with the parameters defined for the communications network of the Brazilian Payment System, or made available to the participants by a specific BM&F system. The types of messages or other communications channels accepted and used by the Clearinghouse are published in the SPB message catalog or by BM&F. The preliminary communications with net debit balances in Brazilian currency and in foreign currency remain at the disposal of the debtors until 06:00 of the settlement date.

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Illustration 12 – First/Third Phase of the Settle ment Session

15.2 Second Phase of the Settlement Session The second phase of the settlement session is destined to the funds transfer by participants for the payment or contracting of new purchases and/or sales for same day settlement. This phase ends precisely at 10:15 for both the registration and the confirmation of new transactions. Participants with net debit balances in Brazilian currency must provide the corresponding credit to the settlement account of the Clearinghouse at the Central Bank. Participants with net debit balances in foreign currency may provide the corresponding foreign currency delivery to the settlement account of the Clearinghouse at the correspondent bank it indicates abroad.

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Illustration 13 – Second/Fourth Phase of the Settlement Session

15.3 Third Phase of the Settlement Session

The third phase of the settlement session begins at 10:45, when the Clearinghouse issues the “Request for Brazilian Currency Payment” and the “Request for Foreign Currency Delivery” to all participants with net debit balances. The requests for Brazilian currency payment or foreign currency delivery must be confirmed by the participants, also through specific messages or the BM&F systems, by no later than 11:00. The requests that are not confirmed in this manner will need to be confirmed by the Clearinghouse telephone recording system. Telephone confirmation may be charged to the participant as an extra fee, pursuant to the provisions and values published by BM&F in its Circular Letters.

15.4 Fourth Phase of the Settlement Session

In the fourth phase, participants must provide Brazilian currency payments and/or foreign currency deliveries to the Clearinghouse and confirm them. All participants with total or partial net debit balances to the Clearinghouse must make the corresponding funds transfers in this phase, which ends precisely at 13:05, by which time all payments should be confirmed to the Clearinghouse. The Brazilian currency payments and foreign currency deliveries that have not

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been confirmed by this time will cause the participants to be considered as “operational defaulters” or as “defaulters.”

15.5 Fifth Phase of the Settlement Session

The fifth phase of the settlement session, pursuant to the Clearinghouse Risk Management Manual, occurs at 14:05. In this phase, the Clearinghouse systems issue all payment orders: (i) In Brazilian currency, directly to the credit of the bank reserve accounts of the net sellers or to another account per their instructions; and (ii) in foreign currency, for delivery through a credit to the net buyers’ accounts at the indicated correspondent bank. Payment orders in Brazilian currency are issued by the Reserve Transfer System (STR) of the Central Bank of Brazil, and deliveries of foreign currency are made in Fed funds or by internal book transfer to the correspondent bank, whenever admissible.

15.6 Sixth Phase of the Settlement Session

In this phase, which ends at 15:30, the Clearinghouse takes the necessary measures to ultimate the fulfillment of the obligations that may still be pending from the other phases.

16. Forms of Payment

All the payments in Brazilian currency by participants to the Clearinghouse and by the Clearinghouse to participants must be made by using funds on deposit at the Central Bank of Brazil. The Clearinghouse holds a settlement account at the Central Bank to transfer Brazilian currency. Funds transfers to and from the settlement account consist of the financial results of FX transactions, proceeds from collateral execution, and Clearinghouse fees. For foreign currency transfers, the Clearinghouse holds current accounts abroad at correspondent banks, the names of which are published and updated by BM&F through Circular Letters. Delivery of United States Dollars can be made in Fed funds or by book transfer.

16.1 Payment of Brazilian Currency by the Buyer Net Brazilian currency funds due by the buyers must be paid through the

transfer of funds from their bank reserve accounts to the settlement account of the Clearinghouse. Such transfers must be made in accordance with the instructions contained in the messages with preliminary communications of the amounts due in Brazilian currency, or in the “Request for Brazilian Currency Payment.” Payments must be credited through the STR—as prompt funds—and confirmed to the Clearinghouse by no later than 13:05. Brazilian currency payments that are not confirmed by that time will cause participants to be included in the status of “operational defaulters” or “defaulters.”

16.2 Delivery of Foreign Currency by the Seller Net US Dollars funds due by the sellers must be credited to the account of the

Clearinghouse with the correspondent bank it indicates. Such transfers must be made in accordance with the instructions contained in the messages with

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preliminary communications of the amounts due in foreign currency, or in the “Request for Foreign Currency Delivery.” Deliveries must be credited in Fed funds or by book transfer—as prompt funds—and confirmed to the Clearinghouse by no later than 13:05. Foreign currency deliveries that are not confirmed by that time will cause participants to be included in the status of “operational defaulters” or “defaulters.”

16.3 Payment of Brazilian Currency to the Seller The Clearinghouse will pay the net Brazilian currency funds due to the sellers

that have met their obligations by transferring the corresponding funds from its settlement account to the sellers’ bank reserves accounts at the Central Bank of Brazil, via the STR, or to another account as instructed by the participants that do not hold bank reserves accounts. All payment messages and their respective communications are issued at 14:05.

16.4 Delivery of Foreign Currency to the Buyer The Clearinghouse delivers the net foreign currency funds to the net buyers who

have met their obligations. These deliveries are made abroad to the net buyers’ accounts at the indicated correspondent bank, which must be registered in the Clearinghouse systems. The payment instruction is issued by the Clearinghouse via Society for Worldwide Interbank Financial Telecommunication (SWIFT) or an alternative means of communication defined by the parties. The Clearinghouse will instruct its correspondent bank to make delivery by crediting the bank indicated by the participant. Delivery will be made in Fed funds or by book transfer.

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Illustration 14 – Payment of Brazilian Currency to the Seller/Delivery of Foreign Currency Delivery to the Buyer

17. Buyer’s Default

The buyers that fail to pay the net funds due in Brazilian currency by 13:05, as instructed in the messages with the preliminary communications of the amounts due or in the “Request for Brazilian Currency Payment,” will be immediately considered as “operational defaulters,” when payment is not made for operational reasons, or as “defaulters,” when the lack of payment results from total incapacity to pay. If the Clearinghouse does not receive the funds in Brazilian currency for any reason it will suspend the corresponding delivery of foreign currency.

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Illustration 15 – Buyer’s Default

Operational defaulters must adjust the payment of the funds due with the Payment and Settlement Department by no later than 15:30 on the day in question; otherwise they will be considered as defaulters. The Head of the Payment and Settlement Department will immediately report any unreceived payment to the FX Clearinghouse Director, with a view on the circumstances that led the participant to be in such a situation. The FX Clearinghouse Director will propose to the BM&F Chief Executive Officer the suspension or exclusion of the participant from the Clearinghouse systems.

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Illustration 16 – Buyer Becomes an Operational Defaulter – Sale of Foreign Currency All decisions made by the FX Clearinghouse Director will be submitted to the BM&F Chief Executive Officer, who is empowered to make all final determinations. Participants that are considered as defaulters, or that are suspended or excluded cannot register new FX transactions in the Clearinghouse systems as long as their pending issues remain unresolved. The BM&F Chief Executive Officer, together with the FX Clearinghouse Director, must seek the means to resolve these issues in a coordinated effort with the participants. Such events will only be reported to the Central Bank of Brazil after all possible solution alternatives have failed. Transactions that are already registered for a settlement date occurring after the default will remain in the Clearinghouse systems and will be settled on their respective dates, pursuant to the provisions of the Clearinghouse Rulebook and this Operating Manual. The Clearinghouse will use the foreign currency funds which were not delivered to the operational defaulter or defaulter to obtain, through a repo or a sale, the Brazilian currency amount needed to pay the nondefaulting participant. Foreign currency sales will be made by the Payment and Settlement Department to the correspondent bank that presents the best bid.

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In a foreign currency sale, if a negative exchange rate fluctuation occurs it will be covered by using the defaulter’s deposited collateral. If a positive exchange rate fluctuation occurs, it will be included in the deposited collateral account and will be treated in accordance with the Clearinghouse Rulebook, its Risk Management Manual, this Operating Manual and the SPB legislation. The use of collateral will follow the provisions set forth in Chapter IX (Safeguards) of the Clearinghouse Rulebook.

Illustration 17 – Buyer Becomes an Operational Defaulter – Repurchase of Foreign Currency

A foreign currency repo will always be made when a debit is identified by the Payment and Settlement Department as the lack of payment for operational reasons, that is, when the buyer’s capacity to pay is not in question. A repo will therefore have the sole purpose of solving purely operational issues concerning the payments of net buyers, and must be resolved by no later than 15:30 of the day scheduled for the settlement of the FX transaction. If the problem remains unresolved after this time, the operational defaulter, at the discretion of the Clearinghouse, can be considered as a defaulter. In this case, the repo will become a sale.

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The FX Clearinghouse Director will examine special situations, and he can then propose to the BM&F Chief Executive Officer that a special treatment be applied on a case-by-case basis. A repo will always be subject to the conditions agreed upon between the Clearinghouse and one of the correspondent banks. In order to make a repo, the participant considered as an operational defaulter must previously transfer to the Clearinghouse, as collateral, the amounts corresponding to the fees/costs, as well as to the exchange rate fluctuations. Such a transfer must be made in Brazilian currency, in foreign currency, or in federal government bonds, and confirmed to the Clearinghouse by no later than 13:15. Partial deposits to the settlement account will be received as additional collateral in the participant’s accounts with the Clearinghouse.

18. Seller’s Default

The sellers that fail to deliver the net funds due in foreign currency by 13:05, as instructed in the messages with the preliminary communications of the amounts due or in “Request for Foreign Currency Delivery,” will be immediately considered as “operational defaulters,” when delivery is not made for operational reasons, or as “defaulters,” when delivery is not made for total incapacity to pay. If the Clearinghouse does not receive the funds in foreign currency for any reason it will suspend the corresponding payment of Brazilian currency.

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Illustration 18 – Seller’s Default

Operational defaulters must adjust the delivery of the funds due with the Payment and Settlement Department by no later than 15:30 on the day in question; otherwise they will be considered as defaulters. The Head of the Payment and Settlement Department will immediately report any unreceived delivery to the FX Clearinghouse Director, with a view on the circumstances that led the participant to be in such a situation. The FX Clearinghouse Director will propose to the BM&F Chief Executive Officer the suspension or exclusion of the participant from the Clearinghouse systems.

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Illustration 19 – Seller Becomes an Operational Defaulter – Purchase of Foreign Currency

All decisions made by the FX Clearinghouse Director will be submitted to the BM&F Chief Executive Officer, who is empowered to make all final determinations. Participants that are considered as defaulters, or that have been suspended or excluded cannot register new FX transactions in the Clearinghouse systems as long as their pending issues remain unresolved. The BM&F Chief Executive Officer, together with the FX Clearinghouse Director, must seek the means to resolve these issues in a coordinated effort with the participants. Such events will only be reported to BACEN after all possible solution alternatives have failed. Transactions that are already registered for a settlement date occurring after the default will remain in the Clearinghouse systems and will be settled on their respective dates, pursuant to the provisions of the Clearinghouse Rulebook and this Operating Manual. The Clearinghouse will use the Brazilian currency funds not paid to the operational defaulter or defaulter to obtain, through a reverse repo or a purchase, the foreign currency amount needed to be delivered to the nondefaulting participant. Reverse repos will be made by the Payment and Settlement Department with the correspondent bank that presents the best offer.

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In a foreign currency purchase, if a negative exchange rate fluctuation occurs it will be covered by using the defaulter’s deposited collateral. If a positive exchange rate fluctuation occurs, it will be included in the deposited collateral account and will be treated in accordance with the Clearinghouse Rulebook, its Risk Management Manual, this Operating Manual and the SPB legislation. The use of collateral will follow the provisions set forth in Chapter IX (Safeguards) of the Clearinghouse Rulebook.

Illustration 20 – Seller Becomes an Operational Defaulter – Resale of Foreign Currency

A foreign currency reverse repo will always be made when a debit is identified by the Payment and Settlement Department as the lack of payment for operational reasons, that is, when the seller’s capacity to pay is not at stake. A reverse repo will therefore have the sole purpose of solving purely operational issues concerning the payments of net sellers, and must be resolved by no later than 15:30 of the day scheduled for the settlement of the FX transaction. If the problem remains unresolved after this time, the operational defaulter, at the discretion of the Clearinghouse, can be considered as a defaulter. In this case, the reverse repo will become a purchase.

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The FX Clearinghouse Director will examine special situations, and he can then propose to the BM&F Chief Executive Officer that a special treatment be applied on a case-by-case basis. A reverse repo will always be subject to the conditions agreed upon between the Clearinghouse and one of the correspondent banks. In order to make a reverse repo, the participant considered as an operational defaulter must previously transfer to the Clearinghouse settlement account with the Central Bank of Brazil, as collateral, the amounts corresponding to the fees/costs, as well as to the exchange rate fluctuations. Such a transfer must be made in Brazilian currency, in foreign currency, or in federal government bonds, and confirmed to the Clearinghouse by no later than 13:15. Partial deposits to the settlement account will be received as additional collateral in the participant’s accounts with the Clearinghouse.

19. Safeguards

Safeguards are the mechanisms that compose the security structure of the Clearinghouse and that guarantee the necessary conditions for the settlement of transactions carried out through its systems, pursuant to the provisions of article 4, paragraph 2, of Law No. 10214, of March 27, 2001. The Clearinghouse safeguards are of operational, administrative and financial nature, as follows:

(a) Operational safeguards refer, among othe r things, to the technological support,

its accessories, and the communication systems used to connect the Clearinghouse with its participants or other entities that are directly or indirectly involved in the achievement of its purposes in Brazil and abroad;

(b) Administrative safeguards refer, among other things, to the specialized staff members who belong to the BM&F workforce and undertake Clearinghouse activities; and

(c) Financial safeguards refer, among other things, to the collateral pledged by participants with the Clearinghouse; the constitution of the funds established by the Clearinghouse to cover possible operational or administrative failures; and the formation of a segregated capital by BM&F to guarantee, as a last recourse, the fulfillment by the Clearinghouse of the obligations concerning the accepted FX transactions. Pursuant to the provisions of Law No. 10214, financial safeguards are intended to guarantee the cash settlement of transactions that are registered, analyzed, accepted and contracted for settlement through the Clearinghouse systems.

To guarantee the cash settlement of transactions carried out through its systems, the Clearinghouse will make use of the safeguards that follow.

Concerning the Principal (i) Every FX transaction for which the Clearinghouse becomes the contracting

party is subject to the payment versus payment (PVP) settlement. The Clearinghouse will settle the transactions registered in its systems through the DNS process, in both foreign and Brazilian currency, which will reduce the

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amount of funds to be transferred and will allow a greater control of principal risk. PVP settlement is possible because FX transactions are bilateral agreements for the purchase and sale of foreign currency. A Brazilian currency payment or a foreign currency delivery will only be made to the participants that have not defaulted in their obligations to the Clearinghouse.

(ii) The establishment of position limits for participants based on the Clearinghouse rating system restricts net debit balances, in both currencies, to the actual payment capacities of the participants, thereby keeping them from assuming, within the scope of the Clearinghouse, commitments and risks which are beyond their capabilities.

Concerning the Exchange Rate (i) Exchange Rate Fluctuation in a Default Situation

To guarantee the variation of the exchange rate when a participant defaults, the Clearinghouse will use, whenever necessary, the participant’s pre-deposited collateral. To define the size of this fluctuation, the Clearinghouse will employ a combination of objective and subjective factors. The objective factors will be obtained through equations applied to an exchange rate fluctuation database verified in past periods. The subjective factors will be obtained through information from the FX market and other domestic and international financial markets, with reflections on the exchange rate formation. Such information will be obtained by the Clearinghouse Analysts from the participants’ trading desks, BM&F futures markets, and other market sources. At the close of the daily FX market operations, the Clearinghouse Director, the Head of the Registration and Contracting Department, the Head of the Payment and Settlement Department, their respective Analysts, and optionally the BM&F Chief Executive Officer and other directors, will meet to analyze market behavior and economic and political scenarios that influence the exchange rate formation. For the establishment of the exchange rate fluctuation index that will provide the Clearinghouse and its participants with the best security, the BM&F Risk Committee, if necessary, will examine the results of statistical studies along with the day-to-day market information. The FX Clearinghouse Director is one of the members of the BM&F Risk Committee. The index is published in the BM&F systems.

(ii) Exchange Rates Contracted Out of Market Parameters The proposed FX transactions whose rates are not within the parameters defined

by the Clearinghouse will only be accepted after collateral is pledged, as determined by its systems. The systems will include parameters and algorithms to identify and calculate, if necessary, the amount of equalization to be deposited by the participant that is exposed to risk in those transactions.

(iii) Losses in FX Transactions for Same Date Settlement For each proposed FX transaction registered by participants with an opposite

sign to the existing balance (debit or credit), for the same settlement date, the Clearinghouse systems, before accepting the FX transaction, will simulate the resulting balance in both currencies through the calculation of the average exchange rate of that balance and its marking to market, as described in The Clearinghouse Risk Management Manual. Therefore, any negative results from transactions will be covered by collateral.

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Concerning Clearinghouse Liquidity in the Event of Operational Problems and Defaults The Clearinghouse counts on liquidity assistance facilities in foreign currency from the correspondent banks. These liquidity facilities provide the Clearinghouse at any time with enough liquidity to face, if necessary, an operational problem or the default of a participant. The agreements the Clearinghouse has entered into with the correspondent banks specify the amounts and conditions fo r the use of those facilities. Operationally, a failure of payment by a participant will generate an excess amount of the other currency in the Clearinghouse accounts. This excess amount will be used in the purchase or sale to the correspondent banks of the other currency needed to meet the obligation with the nondefaulting participant. Taking into consideration the average turnover in the interbank FX market during the last few years, the liquidity assistance facilities will be enough for the Clearinghouse to meet its obligations, pursuant to the provisions of the regulations set forth by the Central Bank for the Brazilian Payment System.

19.1 Intermediaries’ Collateral

Intermediaries pledge collateral in order to cover risks during the trading process in trading systems. This collateral is posted in the Guarantor Fund. Yields from federal government bonds and other assets deposited in Clearinghouse accounts will be released to their holders, provided they have met their obligations with the Clearinghouse. Custody expenses that are debited by the institutions that render custody services will be charged to the holders of the assets pledged as collateral with the Clearinghouse. The Clearinghouse, after prior negotiation between the participant and the Registration and Contracting Department, can invest cash collateral posted in Brazilian currency.

Guarantor Fund This fund, which is made up of deposits made by the Clearinghouse and the intermediaries, has the purpose to ensure the soundness of the trading systems until the bank identified by the intermediary confirms to the Clearinghouse its acceptance of the transaction. The Guarantor Fund is mutualized and its shares may be refundable, provided the applicant has no pending obligations to the Clearinghouse. BM&F will define and revise periodically the total amount of the Guarantor Fund, as well as the value of its share and those of the participants, and the assets that can compose it.

19.2 Buyers’ and Sellers’ Collateral

Its purpose is to eliminate the settlement risk of the Brazilian and foreign currency balances belonging to the buyers and sellers. Eligible assets are published and periodically updated in BM&F Circular Letters. The assets pledged as collateral with the Clearinghouse are included in the deposited collateral account, which is related to the used collateral subaccounts, and these assets are used to cover risks that may arise in the settlement process,

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as defined in this Operating Manual and in the Clearinghouse Risk Management Manual. The assets accounted as used collateral will be transferred to the deposited collateral account whenever the principal obligation is fulfilled. These assets may be transferred by the nondefaulting participants. Participants must promptly replace the federal government bonds pledged as collateral in the Clearinghouse accounts that, for any reason, are no longer eligible for discount at the Central Bank of Brazil. Yields from federal government bonds posted by the Central Bank in the Clearinghouse settlement account will be immediately released to their holders, provided they have met their obligations with the Clearinghouse. Custody expenses that are debited by the institutions that render custody services will be charged to the holders of the assets pledged as collateral with the Clearinghouse. The Clearinghouse, after prior negotiation between the participant and the Registration and Contracting Department, can invest cash collateral posted in Brazilian and foreign currency. In addition to the above-mentioned collateral, BM&F has created funds, a segregated capital, and a loss sharing mechanism, composed of participants’ or BM&F’s own funds, in order to provide the Clearinghouse safeguard structure with more strength. Participation Fund The Participation Fund is the initial pledge required by the Clearinghouse from all participants when they are authorized to carry out their transactions through its systems. The Participation Fund is not mutualized and is composed of individual shares whose value will differ from participant to participant and will be refundable to those that, having met all obligations with the Clearinghouse, cease to participate in the Clearinghouse. The shares are calculated and updated monthly, based on the position limits assigned each participant by the Clearinghouse, pursuant to the provisions set forth in subsection 4.3 of this Operating Manual. BM&F will publish and update the value of the shares that compose the Participation Fund in its Circular Letters. In accordance with the conditions established and published in BM&F Circular Letters, the assets accepted to make up this fund include all federal government bonds eligible for discount at the Central Bank of Brazil. Other assets can be accepted as well, after prior consultation with the Clearinghouse. With the exception of cash deposits, the values of the assets accepted to compose the Participation Fund will be defined and marked to market, in accordance with the criteria defined by the Clearinghouse. The Clearinghouse member participants can use their BM&F Clearing Member membership to constitute their share in the Participation Fund, up to the limit of fifty (50) percent of its equity value, provided such membership is free of any and all charges or debts, and it does not exceed seventy five (75) percent of the Participation Fund share value.

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The participants’ shares in the Participation Fund can be used to cover their possible participation in a loss sharing process, and the participants must recompose their shares by the end of the day in which such an event takes place. Operational Fund This fund is designed to cover losses arising from operational, administrative or functional failures in the process of management or conduction of Clearinghouse activities. BM&F is responsible for its composition, management and maintenance. The amount of this Operational Fund is fifty-million Reals (BRL50,000,000.00).

19.3 Segregated Capital Segregated capital is a portion of BM&F’s equity that was segregated upon

decision of the Special General Meeting of Members on March 27, 2001. The segregated amount is one hundred million Reals (R$100,000,000.00). The amount deposited for the purposes of article 5 and its paragraphs of Law No. 10214 and Central Bank of Brazil regulations was ten million Reals (BRL10,000,000.00).

19.4 Loss Sharing Mechanism The Clearinghouse systems were designed to enable the Clearinghouse to settle

each participant’s FX transactions in Brazilian and foreign currency on a net basis. The stages comprised were carefully elaborated to make it possible to settle net credit and debit balances between the Clearinghouse and its participants by using PVP settlement.

Exchange rate fluctuations are covered by pre-deposited collateral, whose amount is recalculated whenever the magnitude of these fluctuations exceeds the parameters defined by the Clearinghouse. However, any losses that exceed the safeguards established by the Clearinghouse will be shared pursuant to the provisions set forth in Chapter IX (Safeguards) of its Rulebook.

The methodology that defines the application of the loss sharing mechanism is described in item 8.2.1 of the Clearinghouse Risk Management Manual.

In the event the loss sharing mechanism is applied, the Clearinghouse will become a creditor of the defaulter, or of its estate, pursuant to the provisions set forth in article 8 of Law No. 10214, and it will take the necessary measures to recover the corresponding credit. The amounts eventually recovered will be transferred to the nondefaulting participants in the exact proportion of their participation in the loss sharing process.

20. Costs

Costs represent the charges incurred by the Clearinghouse as the result of a financial or operational failure committed by a participant. Those costs will be charged to the participant involved and augmented by the fine defined and published in BM&F Circular Letters. Financial costs, among others, are charges that arise from the use of operational limits in Brazilian or foreign currency with correspondent banks by the Clearinghouse, in

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order to cover a lack of payment for any reason, as well as any judicial or extrajudicial payment the Clearinghouse may be obliged to make directly or indirectly in connection with a participant’s failure. Operational costs, among others, are those that arise from the use of third-party services in the solution of a participant’s failure in meeting obligations with the Clearinghouse, as well as any judicial or extrajudicial payment the Clearinghouse may be obliged to make directly or indirectly in connection with a participant’s operational failure. Participants must pay these costs as soon as they are charged by the Clearinghouse. A lack of payment under these conditions may result in the suspension of the registration of new FX transactions and the use of a participant’s deposited collateral in the Clearinghouse systems, including its share in the Participation Fund.

21. Fees

Fees must be paid by participants for their use of the Clearinghouse registration, clearing and settlement systems. Such fees, which are calculated and paid in Brazilian currency, are divided into basic and extra fees.

(i) Basic Fees

Basic fees are charged for the use of the conventional Clearinghouse processing systems, pursuant to the provisions set forth in the Clearinghouse Rulebook, for trading, registration, clearing and settlement of FX transactions.

(ii) Extra Fees Extra fees, among other things, are charged for the extraordinary services

requested by participants, such as registration of transactions by unconventional means of communication, issuance of additional statements, or statements in a format different from the ones defined by the Clearinghouse. The fees for extraordinary services will be published in BM&F Circular Letters.

Each day the Clearinghouse will issue, through specific messages, the “Requests for Payment of Fees/Costs.” Payment instructions will be published in BM&F Circular Letters. Participants that fail to pay fees/costs, as defined by the Clearinghouse, can be subject to the suspension of the registration of new proposed FX transactions. The fees for the transactions registered directly by the buying and selling banks will be established based on a percentage of the sum of the Brazilian currency amounts of all transactions registered in the Clearinghouse systems by each participant, as defined in BM&F Circular Letters.

22. Penalties

The Clearinghouse systems will count on mechanisms to register, automatically and/or manually, all occurrences verified during the daily FX sessions. Occurrences are the events classified as out of routine, such as: the absence of transaction registration (confirmation); exceeded position limits; the delay in adjusting exceeded limits; the lack of collateral upon transaction registration and settlement; the delay in funds transfers to settle net debit balances; the delay and the lack of payment of

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fees/costs; errors in communications with the Clearinghouse in the registration, confirmation and funds transfer processes. Occurrences are registered in specific reports, which are sent to the responsible officers in the corresponding banks and to the Central Bank of Brazil, pursuant to its instructions. The BM&F Chief Executive Officer can decide on the application of the following penalties:

(a) A warning, which, at the Clearinghouse discretion, will be given for those

practices that make the processing of transactions in the Clearinghouse systems difficult, and thus generate market disturbances, such as: constant delays in registration (confirmation), in funds transfers to settle net debit balances, and in fee/cost payments; exceeded position limits; and lack of collateral in transaction registration or settlement;

(b) A suspension, which will be imposed on the participant that accumulates five (5) warnings over a period of no more than thirty (30) consecutive business days. The suspended participant cannot register new proposed FX transactions in the Clearinghouse systems during the suspension period; and

(c) An exclusion, which will be applied to the participant that defaults, that does not transfer the funds due, in the conditions defined by the Clearinghouse, and that has been suspended five (5) times within a twelve (12)-month period.

The Heads of the two Departments will jointly propose to the Clearinghouse Director that a warning be issued. The Clearinghouse Director and the Heads of the two Departments will jointly propose to the BM&F Chief Executive Officer that a suspension or an exclusion be issued. An appeal, which will not suspend the punitive actions, may be made to the BM&F Board of Governors within ten (10) days, counting from the date the penalty is communicated. Upon the Clearinghouse’s or the participant’s decision, unresolved pending matters can be submitted to the BM&F Arbitration Panel. All penalties applied to an institution will be hand delivered, with the receipt confirmed in writing by the responsible officer, and also sent to the Central Bank of Brazil, pursuant to its instructions.

23. Data Confidentiality

The BM&F FX Clearinghouse is responsible for the confidentiality of the data registered in its systems, pursuant to legislation currently in force applicable to bank secrecy, as well as the regulations of the Central Bank of Brazil. The Clearinghouse, however, can disclose or order the disclosure, by any means available, of information considered important for the financial market and the economy as a whole, with the exception of the information that through its identification may cause damages to participants or their clients.