The importance that institutional investors have in our financial system, and in particular the Collective Investment Institutions (IIC), brings with it that the institutions of all the instruments to enable them to carry out efficient management of the assets and, in particular, that of the products derived therefrom.

The investments of IICs in derivative products up to the present time had been developed in accordance with the regime established in the Order of 6 July 1992 on the operations of IICs in futures and financial options. This provision had its enabling protection in the forecasts contained in the second paragraph of Article 17 (2) of the Regulation of Law 46/1984 of 26 December 1984 on the Regulation of the Collective Investment Institutions, approved by Royal Decree 1393/1990 of 2 November 1990. In turn, the latter provision had its legal basis in Article 10 (1) of that Law 46/1984.

According to the regulatory landscape described, IICs have been able to invest in financial derivatives traded on both domestic and foreign organised secondary markets.

Now, the needs of the aforementioned institutional investors, coupled with the evolution of the financial markets in our economic environment, have revealed the inadequacy of the current legal regime, especially because it prevented the use of so-called non-traded derivative instruments in secondary markets (in Anglo-Saxon terminology, "over the counter", or, in short, "otc"). These financial realities are a complement to those currently permitted by our existing provisions, and they help, inter alia, to be able to develop structures called 'guaranteed' or which pursue a specific objective of profitability for the unit-holders of an IIC, in so far as they merit the risks to which their portfolio is exposed through the use, inter alia, of financial swap contracts ('swaps '). Moreover, with these new possibilities, it is also possible to shape the investments of IICs in a more appropriate way, as well as more efficient management of their portfolios.

To the objective of equating our IICs to those of our economic environment responded the forecast added in article 10.2 of Law 46/1984, of December 26, Regulatory of the Institutions of Collective Investment (introduced in Article 21 of Royal Decree-Law 7/1996 of 7 June 1996 on urgent measures of a fiscal nature and on the promotion and liberalization of economic activity. This forecast completes the financial regime of the financial IICs, extending the framework for the use of derivative products, as it makes it possible to invest or use derivatives not negotiated in an organized secondary market.

Now, from a formal point of view, the configuration of the legal system for the use of derivatives required the updating of the rules currently in force (the aforementioned Order of 6 July 1992, on the operations of IICs in the future and (i) the most appropriate solution, which was considered to be the most appropriate solution technically, was to issue a new order to integrate these new regulatory provisions with the existing provisions.

As a result, this Order will lead to the regulation of financial IIC derivative transactions on the following guidelines:

First of all, the purposes that can be pursued in derivative instruments are concretized. To this end, the norm houses most of the products used in the financial field, opening the possibility, although under the control of the supervisor, to new modalities that will arise in the future.

In the second term, the derivative investment regime is based on two pillars: on the one hand, the rules on market risk management are stipulated; on the other, the guidelines for measuring counterparty risk are set.

The above is complete with a set of specific forecasts to vertebrate operations with non-traded instruments in organized secondary markets.

With regard to the control of the so-called "operational risk", the standard faces the same by establishing a set of internal control obligations in the managing entities, as a determining budget to be (a) the capacity of such entities for the use of derivative products.

Finally, the previous forecasts are completed with a set of supervisory rules (specifically, reporting obligations to the National Securities Market Commission) and transparency (obligations of information to members and investors).

In its virtue, prior to the report of the National Securities Market Commission, according to the State Council, I have:

First. Typology of derivative financial instruments susceptible to use.

1. Mobiliaria Investment Companies, the Mobiliary Investment Funds (FIM) and the Investment Funds in the Assets of the Monetary Market (FIAMM, hereinafter referred to as the "Institutions") will be able to operate with instruments to ensure adequate coverage of the risks incurred in all or part of the portfolio, as an investment to manage the portfolio more effectively or in the framework of a management aimed at achieving a target (a) the cost of the investment, in accordance with the management objectives set out in the information leaflet and in the Social Regulation or Statutes of the Institution.

2. Under the terms set out in this Order, the institutions may use the following derivative financial instruments:

a) Futures traded on organized derivatives markets on interest rates, exchange rates, shares, dividends or stock indexes.

b) Options traded on organised derivatives markets on interest rates, exchange rates, shares, dividends or stock indices.

(c) Buy-in term interest rates, exchange rates, shares, dividends or stock indices, not traded on organised derivatives markets. The term agreements on interest rates ("FRAs") and the term purchase of fixed income instruments shall be understood to be included in this letter.

d) Options on interest rates, exchange rates, shares, dividends or stock indexes, not traded on organized derivatives markets; including "warrants", options with an upward limit ("CAPs") and options with low limit ("FLOORs").

e) Financial Permute Operations ("SWAPs") on interest rates, exchange rates, shares, dividends or stock indices, recorded and settled or not on organised derivatives markets.

(f) Structured transactions, whether or not traded on organised derivatives markets, resulting from the combination of two or more derivative instruments provided for in the preceding letters, including the combination of "CAP" /sale of "FLOOR" or sale of "CAP" /purchase of "FLOOR" ("COLLARs"). The combination of one or more derivative instruments and an investment-eligible asset shall also be considered as structured transactions. For the purposes of this Order, no structured transactions shall be considered as bonds and debentures convertible or exchangeable for shares, as well as those that only incorporate an early repayment option.

In the event that the structured operation incorporates an investment-grade value, the investment value will be subject to the general investment limits of the Collective Investment Institutions.

(g) Other than any other price dependent on an underlying asset of a financial character, provided that the National Securities Market Commission has approved its use by these institutions as a general or In the exercise of that power, the specific characteristics of the instrument, its application and use in the financial markets, as well as the impact on the risk management and investment policy of the Institutions.

The institutions may not use any derivative instruments other than those mentioned above, either be contracted in isolation or incorporated in a structured transaction in combination with other instruments, securities or deposits.

3. For the purposes of this Order, the markets in which the trading of the instruments is regulated shall be those markets where the trading of the instruments is governed, with a system of guarantee deposits which are updated daily in (a) a function of the recorded or daily allowance for loss and profit, a clearing centre which registers the transactions carried out and is brought between the contracting parties acting as a buyer to the seller and as seller to the buyer. In any event, it must be a market fit for the investment of the institutions, in accordance with the provisions of Article 17 of the Regulation of Law 46/1984 of 26 December, the Regulation of the Collective Investment Institutions.

4. For the purposes of this Order, the temporary acquisition of assets and the simultaneous transactions of spot purchase and sale in instalments on annotated public debt shall not be considered as derivative financial instruments.

Second. General limits on the use of derivative instruments by market risk.

1. Commitments for the set of derivatives transactions shall not, at any time, exceed the value of the institution's assets. Commitment shall mean any current or potential obligation arising from the use of derivative instruments. The National Securities Market Commission shall determine the method of calculation of such commitments, as well as the conditions under which different transactions may be compensated for. Such compensation shall take into account the property positions when they are covered by derivative financial instruments.

2. In no case will premiums paid for purchased options, including "warrants", "CAPs" and "FLOORs", either be contracted in isolation or incorporated into structured operations, may exceed 10 per 100 of the institution's assets.

3. Where the institution carries out a management aimed at achieving a specific objective of profitability which has been guaranteed to the institution itself by a third party, the institution may exceed the limits laid down in paragraphs 1 and 2.

4. Where, for reasons other than the wishes of the Management Society or the Institution, the limits laid down in the preceding numbers are exceeded, the Management Company or the Institution shall have the obligation to regularise such a situation, eliminating the excess generated within the maximum period of 15 days.

5. At no time may a FIAMM use derivative instruments for purposes other than hedging.

6. The guarantee deposits and other liquid amounts affected to the performance of the operations referred to in this Order shall not be computable within the liquidity ratio required of the Investment Funds and the Mobiliary Investment Companies of Variable Capital (SIMCAV, hereafter).

Third. Limits on the use of derivative instruments by counterparty risk.

1. The institutions shall at all times maintain a reasonable policy of diversification of the counterparty risk in the non-negotiated transactions on organised derivatives markets, taking into account the situations of concentration of the counterparty. risks that could arise in the future. In any case, positions in derivatives not traded on organised derivatives markets shall be subject, in conjunction with the securities issued or endorsed by the same entity or by those belonging to the same group, to the general limits established in Article 4 of the Regulation of Collective Investment Institutions.

2. For the purposes of calculating the joint investment limits referred to in paragraphs 1 and 3 of that Article, the risk of an existing counterparty shall be computed with respect to positions in derivatives not traded on organised derivatives markets. each of the entities acting as a counterparty for such transactions, including, where applicable, the cumulative positive results, whether or not made, to be settled. In the case of purchase of options including "warrants", "CAPs", and "FLOORs", as well as structured transactions and financial swaps, counterparty risk shall be understood to be the value of the carrying out of such options. The selling positions in options, for their part, will not enter into the computation of these limits.

Also, for the purposes of calculating the above limits, cash deposits and public debt securities eligible for the investment of the institutions received by them to reduce the counterparty risk of their transactions may be deducted from the amount of such risk, provided that such guarantees are fully enforceable in the event of non-compliance of the counterparty.

3. The limits referred to in the preceding paragraphs may be exceeded where the failure to comply is due to the fact that the institution has managed to achieve a specific objective of profitability which has been guaranteed to the Institution for a third party.

4. Where, for reasons other than the wishes of the Management Society or the Institution, the limits laid down in the preceding numbers are exceeded, the Management Company or the Institution shall have the obligation to regularise such a situation, eliminating the excess generated within the maximum period of 15 days.

Fourth. Specific requirements for trading in non-traded derivative instruments on organised derivatives markets.

1. The use of derivative instruments not traded on organised derivatives markets shall be subject to the following requirements:

(a) The purpose of the operations shall be to cover the risks incurred by the Institution or to achieve a specific objective of profitability included in the information leaflet.

(b) Counterparties shall be financial institutions domiciled in OECD Member States subject to prudential supervision or supranational bodies of which Spain is a member, which is a regular and professional member of the carrying out of such operations and having sufficient solvency. For these purposes, the counterparty shall be presumed to have sufficient solvency when it has a favourable credit rating from a specialised agency recognised by the National Securities Market Commission.

(c) Operations may be without effect at any time at the request of the Institution, so that the contractual terms of each transaction shall at any time permit its liquidation or transfer to a third party. In order to ensure compliance with this requirement, either the counterparty or the financial intermediary who has undertaken this commitment and meets the requirements set out in subparagraph (b) above, shall be required to provide on a daily basis and on a firm basis. Purchase and sales quotes. The maximum interval in which such contributions are to be paid shall be fixed in each contract made and in the periodic information documents of the institution drawn up after the signature of each contract. In the case of transfer to a third party, the third party shall be subrogated to the institution's position at least at the price fixed for that day by the counterparty or financial intermediary mentioned above.

(d) The contractual terms of the transactions shall include accurate documentation of the valuation method according to which the daily quotations referred to in the preceding subparagraph are to be determined.

(e) When the counterparty belongs to the same group as the Management Company, the Mobiliary Investment Company or the Depositary, where appropriate, it shall be proved that the transaction is performed at market prices. It shall be presumed to have been made at market prices where the counterparty has carried out other transactions under those same conditions with non-group entities.

2. The limitations referred to in paragraph 1 above shall not be construed as subject to the term of public debt purchased on the organised markets referred to in Article 17 of the Collective Investment Institutions Regulation, and purchases of "warrants" which have not been issued singularly and which, due to their own legal configuration and regime of transmission, are subject to widespread and impersonal traffic in a market of those mentioned in that article.

Fifth. Valuation of positions.

1. The institutions shall assess their derivatives transactions on a daily basis.

2. Where there is not a sufficiently liquid market to permit daily value of the derivative positions, the Management Company or the Board of Directors of the Mobiliary Investment Company, prior to the conduct of the transaction, there shall be agreed with the Depositary, where appropriate, the valuation method to be used. Such a method must be approved by the Management Body of the Gestora or the Society and with sufficient power from the Depositary. In any event, the valuation method chosen shall comply with the principle of valuation prudence, be of general acceptance and use the daily quotation of the securities or financial instruments, indices or other references in which the instrument is based.

3. The methods of assessment shall be specified in the institution's periodic information documents.

Sixth. Internal control obligations.-The Management Companies or, where appropriate, the Boards of Directors of the Mobiliary Investment Companies will exercise extreme diligence in the operations referred to in this Order. In any event, the aforementioned entities to carry out transactions with derivative instruments must verify that these operations are appropriate to the objectives of the institution and that they have the means and experience necessary to carry out such activity and to adequately assess the risks in which they are incurring. In particular, they shall comply with the following requirements:

a) Contar with experts with proven experience in the field or hire the services of independent advisors who enjoy it.

b) Having qualified professional knowledge.

c) Develop an investment plan and gather the information necessary to make investment decisions consistently and solidly reasoned at all times.

d) Constate the consistency of the operations with the investment policy informed to the participants.

e) To carry out a permanent follow-up of the commitments acquired by the Institution as a result of the operations referred to in this Order. To this end, they shall keep at the disposal of the National Securities Market Commission a daily status of updated positions and assess the levels of potential commitments and risks arising from those in relation to risks. General of the institution's portfolio. Both the states and the risk assessment systems shall be verified at least weekly by persons other than those involved in their preparation.

f) Dispose detailed documentation about the operations performed.

Seventh. Monitoring.

1. The Investment Companies and the Management Companies of Collective Investment Institutions shall periodically submit to the National Securities Market Commission a detailed information on the operations referred to in this Order.

The hedging operations shall include, in particular, the covered risk and the results obtained. In transactions of other types, the amounts of premiums entered or satisfied and the realised or latent profits or losses shall be reported as a minimum.

2. The National Securities Market Commission is enabled to establish the standard reporting models for the information referred to in the previous point and how to complete them.

3. The system of penalties applicable is laid down in Chapter V of Law 46/1984 of 26 December 1984 on the Regulation of the institutions of collective investment and Chapter VI of its Rules of Procedure, adopted by Royal Decree 1393/1990 of 2 December 1990. November.

Eighth. Information to partners and members.

1. The Investment Company and the Management Companies of Collective Investment Institutions shall expressly refer to the information leaflet of the Institution, in the section corresponding to the investment criteria, to its policy regarding the the operations referred to in this Order, specifying the purpose, the types of operations to be carried out and the maximum risk limits, measured in accordance with the criteria defined in this Order, which the institution is prepared to assume with these operations.

2. The institutions shall include in their quarterly report and in the annual report a broad information, adjusted to what is established by the National Securities Market Commission, on the operations referred to in this Order, which have been carried out during the corresponding periods, including, in any case, data on the profit or loss generated by those transactions. In hedging transactions, the joint result shall be reported with the covered equity transaction, broken down by the specific result of the equity transaction and the derivative instrument used for its coverage.

In particular, detailed information shall be included on non-traded transactions on organised markets where the counterparty belongs to the same group as the Gestora, SIM or SIMCAV, or the Depositary, where applicable. It shall in any event be sufficient to prove the provisions of paragraph 1 (e) of the fourth paragraph of this Order.

The credit rating of counterparties shall also be reported in non-traded transactions on organised derivatives markets, except for the transactions referred to in point 2 of the fourth paragraph of this Order.

Additional disposition first.

For the purposes of the provisions of Article 17 of the Regulation of Law 46/1984 of 26 December, the Regulatory of the Institutions of Collective Investment, the operations referred to in this Order, are computable for the Investment ratio of the Mobilia Investment and Investment Funds.

Additional provision second.

The National Securities Market Commission is enabled to modify the limits set forth in this Order, provided that market circumstances that advise it are present.

Additional provision third.

Own-account investment in instruments derived from the Management Companies of Collective Investment Institutions shall comply with the following conditions:

(a) You may only perform the operations referred to in the first paragraph of this Order.

(b) Its purpose must in any event be the strict risk coverage of the financial assets held by such companies.

Additional provision fourth.

According to the provisions of Article 83.4 of Royal Decree 1393/1990 of 2 November, which is adopted by the Regulation of Law 46/1984 of 26 December, Regulation of the Institutions of Collective Investment, enables the National Securities Market Commission to establish and modify the records to be carried by the Portfolio Management Companies and, after reporting by the Accounting and Audit Institute of Accounts, the accounting standards and the to hold their Balances and Results Accounts, having the frequency of presentation and the details with which they are to be supplied to the National Securities Market Commission, or to be made public on a general basis.

Additional provision fifth.

1. In accordance with the provisions of Article 14.7 of Royal Decree 1814/1991 of 20 December, which regulates the Official Futures and Options Markets, the National Securities Market Commission, with the same extension and Article 86 of the Law of 26 July 1989 on the application of Article 86 of the Law 24/1988 of 28 July 1989 on the Stock Market, in order to enable it to establish and amend the records to be carried, and the accounting rules and public and confidential models to which the periodic financial statements and annual accounts should be adjusted, as another statistical information of the Companies Rector of the Official Markets of Futures and Options. It also enables the National Securities Market Commission to dictate the rules on its production, frequency of shipment, and the way in which, where appropriate, they should be made public.

2. For the establishment or modification of the annual accounts models, as well as the fixing or alteration of the valuation criteria, the previous report of the Accounting and Audit Institute of Accounts will be required.

3. It is also enabled for the National Securities Market Commission to determine the time limit in which the Governing Companies of the Official Futures and Options Markets will have to forward the annual accounts and audit reports to which they are responsible. Article 14.8 of Royal Decree 1814/1991 of 20 December 1991.

Single transient arrangement.

Operations eligible for investment in derivative instruments, agreed upon by the Institutions prior to the entry into force of this Order, that do not comply with the limitations and requirements set out therein, may be maintained until they have expired under the same conditions as laid down in the previous legislation.

Single repeal provision.

The Order of 6 July 1992 on the operations of the Collective Investment Institutions in Futures and Financial Options is hereby repealed.

Final disposition first.

The National Securities Market Commission is enabled to dictate how many rules are needed for the development of this Order in the following aspects:

(a) Accounting, valuation criteria and investment rules.

b) Record of operations.

c) Information, publicity and transparency for investors.

d) Risk management and assessment.

e) Use of derivative instruments not traded on organised secondary markets where the purpose to be pursued in their use is not to cover the risks incurred by the Institution or to achieve a target (a) a return In particular, the information system may be specified to unit-holders and to the National Securities Market Commission, limits to the positions and internal control of these operations by the administrative bodies of the Member States. Institutions.

Final disposition second.

This Order will take effect the day after its publication in the "Official State Gazette".

Madrid, 10 June 1997.

HANGING OUT AND FIGAREDO

Excmo. Mr. Chairman of the National Securities and Exchange Commission. Mr. Director-General of the Treasury and Financial Policy.