General Market Price Index (IGP-M) Futures Contract – Specifications

[Pages:2]General Market Price Index (IGP-M) Futures Contract ? Specifications ?

1. Definitions

Contract (specifications): The terms and rules under which the transactions shall be executed and settled.

IGP-M:

The General Market Price Index, expressed in index points, with a base value of 100

in August 1994, calculated by the Brazilian Institute of Economics (IBRE) of the

Getulio Vargas Foundation (FGV).

Index:

The IGP-M.

Settlement price (PA): The closing price, for the purpose of updating the value of open positions and

calculating the variation margin and the settlement value of day trades, calculated

and/or arbitrated daily by BM&F, at its own discretion, for each authorized

contract month, and expressed in index points.

Business day:

The day that is a trading day at BM&F.

2. Underlying asset The General Market Price Index (IGP-M).

3. Price quotation Index points to three decimal places. Each index point is equal to the Brazilian Real (R$) value established by BM&F.

4. Minimum price fluctuation 0.001 of an index point.

5. Maximum daily price fluctuation As established by BM&F. The Exchange may alter the price fluctuation limit applicable to any contract month at any time, even during a trading session, by communicating this to the market with a 30 minute-advance notice.

6. Contract size The IGP-M futures times the Brazilian Real value of each index point, as established by BM&F.

7. Contract months All months.

8. Number of authorized contract months As established by BM&F.

9. Expiration date The first business day of the contract month.

10. Last trading day The fifth business day preceding the expiration date.

11. Day trading Buying and selling on the same trading session the same number of contracts for the same month shall be offset provided these transactions are executed on behalf of the same customer through the same Brokerage House and registered by the same Clearing member, or performed by the same Local and registered by the same Clearing Member. These transactions shall be cash settled on the following business day, and their amounts shall be calculated in accordance with item 12(a).

12. Daily settlement of accounts (variation margin) The positions outstanding at the end of each session shall be settled based on that day's settlement price, established in accordance with BM&F rules and regulations, and cash settled on the following business day. The variation margin shall be calculated by the following formulas: The variation margin shall be calculated up to the expiration date by the following formulas:

(a) For the positions initiated on the day

ADt = (PAt - PO) ? M ? n

(b) For the positions outstanding on the previous day

ADt = (PAt ) - PAt-1 ? M ? n

Where: ADt = the variation margin value corresponding to date "t" and expressed in Brazilian Reals; PAt = the settlement price for the corresponding contract month on date "t";

Bolsa de Mercadorias & Futuros

PO = the traded price; M = the Brazilian Real value of each index point, as established by BM&F; n = the number of contracts; PAt?1 = the settlement price for the corresponding contract month on day "t?1." The variation margin value (ADt) calculated as shown above, if positive, shall be credited to the buyer and debited to the seller. Should the calculation above present a negative value, it shall be debited to the buyer and credited to the seller.

13. Settlement conditions on expiration On the expiration date and after the last settlement price, open positions shall be cash settled by BM&F by means of the registration of an offsetting transaction (long or short) on the same number of contracts at the IGP-M value corresponding to the previous month, thus generating the settlement value in accordance with the following formula:

VL = (IGP-M - PAt-1 )? M ? n

Where: VL = the cash settlement value per contract; IGP-M = the General Market Price Index (IGP-M) of the month preceding the contract month; Cash settlement shall be made on the business day following the expiration date. ? Special provisions

Should for any reason the IBRE/FGV delay or not publish the IGP-M defined in item 1 for one or more days, BM&F may at its own discretion: (a) Postpone the contract settlement up until an official disclosure by the IBRE/FGV; or (b) Close out the outstanding positions at the last available settlement price. In either case, BM&F may also index the settlement value by arbitrating an opportunity cost, to be defined at its discretion, from the previously established settlement date to the effective cash settlement date. Should the IBRE/FGV definitively stop calculating/publishing the IGP-M, BM&F shall close out the outstanding positions at the last available settlement price. Should the IBRE/FGV make an unpredictable change in the IGP-M calculating criteria, thus altering the behavior of the index, BM&F may at its discretion: (a) Change the settlement value calculating formula, so as to attain the same results as before; or (b) Close out the outstanding positions at the last available settlement price; or (c) Adopt the index points for the IGP-M that best reflect the contract's underlying asset, should more than

one IGP-M value be published for the same period due to the change in methodology. Regardless of the situations described above, BM&F may, at its own discretion, close out open positions based on an arbitrated price at any time, should it consider that the index value published by the IBRE/FGV and/or the last available settlement price are not representative for this purpose.

14. Hedgers Financial institutions, institutional investors and others, at BM&F's discretion.

15. Margin requirements Those assets and securities accepted by the BM&F Derivatives Clearinghouse.

16. Assets eligible to meet margin requirements Collateral shall be required from all customers holding open positions. Margin values shall be updated daily by the Exchange, in accordance with the margin calculation criteria for futures contracts.

17. Trading costs ? Fees Consist of the Exchange, Registration and Permanence Fees, which are calculated as per BM&F methodology. Trading costs shall be due on the first business day following the trade date, except for the Permanence Fee, which shall be due on the day defined by BM&F.

18. Further regulations This contract shall be subject, where applicable, to the legislation in force and to BM&F rules, regulations and procedures, as defined in its Bylaws, Operating Rules and Circular Letters, as well as to the specific rules and regulations set forth by the Brazilian governmental authorities that may affect the terms herein stated. Should there be situations not covered by this contract, as well as governmental measures that affect the formation, calculation or disclosure of its variable, or even imply its discontinuity, BM&F may at its own discretion take the measures it deems necessary for the contract's settlement or continuity on an equivalent basis.

Bolsa de Mercadorias & Futuros

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