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Brazilian Mercantile & Futures Exchange (BM&F). Brazilian Payment System (SPB) BM&F Foreign Exchange Clearinghouse Regional Clearing Facility Presentation.

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Presentation on theme: "Brazilian Mercantile & Futures Exchange (BM&F). Brazilian Payment System (SPB) BM&F Foreign Exchange Clearinghouse Regional Clearing Facility Presentation."— Presentation transcript:

1 Brazilian Mercantile & Futures Exchange (BM&F)

2 Brazilian Payment System (SPB) BM&F Foreign Exchange Clearinghouse Regional Clearing Facility Presentation Structure

3 Brazilian Mercantile & Futures Exchange (BM&F) BRAZILIAN PAYMENT SYSTEM

4 Brazilian Mercantile & Futures Exchange (BM&F) 1.Brazilian Payment System Real time gross settlement system (RTGS). Clearing system with risk management and safeguard structure for systemically important markets (DNS). 2.RTGS Manager: Central Bank of Brazil. Purpose: Transfer of large amounts in real time between bank reserves accounts and/or clearinghouse settlement accounts. 3.Clearinghouses - DNS Settlement systems by netting amounts. Brazilian Payment System - SPB

5 Brazilian Mercantile & Futures Exchange (BM&F) 1.Brazilian Payment System In April 2002, the Central Bank of Brazil introduced important changes in the Brazilian Payment System with the following main purposes: a.Reduce risks; b.Increase the dynamics of the system; c.Eliminate risks that the Central Bank was forced to assume in the previous system; d.Reduce operational and financial costs; e.Adapt the legal base and implement the corresponding regulation. To reach these purposes, the Central Bank changed and innovated several aspects of the previous system. Among these are: a.Creation of a system to transfer of large amounts in real time and directly in the accounts maintained by the banks in the Central Bank; b.Creation of clearinghouses with their own safeguard mechanisms to ensure the finality of operations and the payments made through them; and c.Irrevocability of operations and payments, as well as adoption of the delivery versus payment (DVP) and payment versus payment (PVP) settlements. Brazilian Payment System - SPB

6 Brazilian Mercantile & Futures Exchange (BM&F) Banks Clients Central Bank COMPE Funds tranfer in Brazil – previous system Checks / Other Documents Electronic files Confirmation Period of Operation: 24:00 Risks: Clients – Bankruptcy of the banks that pay and/or receive payments during the clearing process. Banks – Use of the funds before the closing of the clearing cycle. Central Bank – Bankruptcy of the paying bank with a negative balance in its reserves account.

7 Brazilian Mercantile & Futures Exchange (BM&F) Banks Clients Central Bank COMPECIP / TecBan TED Confirms TED STR Confirms STR Funds transfer in Brazil – current system – STR (RTGS) STR Confirmation Checks / Other Documents STR Confirmation

8 Brazilian Mercantile & Futures Exchange (BM&F) Central Bank Central Bank systems FX Public Bonds National Treasury Money Supply Participants Funds transfer between bank reserves accounts CETIP (custody and settlement system) Private securities Exchange Financial System (SFB) BM&F Derivatives Clearingh. BOVESPA & CBLC Clearingh. BVRJ & BBF Clearingh. Participants Settlement of financial transactions in Brazil – previous system

9 Brazilian Mercantile & Futures Exchange (BM&F) Central Bank of Brazil (settlement accounts) Participants BM&F FX Clearinghouse BM&F Derivatives Clearinghouse BM&F Securities Clearinghouse 1 CETIP 2CBLC Clearingh. (1) In final testing phase. (2) Do not have a safeguard structure The four clearinghouses are holders of settlement accounts in the Central Bank. Settlement of financial transactions in Brazil – current system

10 Brazilian Mercantile & Futures Exchange (BM&F) Settlement System Transactions Gross amounts (million) Net amounts (million) Netting R$ % BM&F (Derivatives)10,9371, CBLC (DNS)68,4531, CBLC (RTGS) CETIP (DNS)1,1116, , CETIP (RGTS)1,0469, CIP60,8194, COMPE11,817,6777, STR47,992155, Tecban343, Selic3,081127, Source: Central Bank of Brazil Daily average amount since April 22, 2002

11 Brazilian Mercantile & Futures Exchange (BM&F) FX Clearinghouse

12 Brazilian Mercantile & Futures Exchange (BM&F) DNS (with the Clearinghouse) Bank ABank B SISBACEN PCAM 383 BM&F FX Clearinghouse (trade by trade) Registration Negotiation T+0 5_a Negotiates ConfirmsRegisters Captures 00:00 12:0006:00 08:0017:15

13 Brazilian Mercantile & Futures Exchange (BM&F) DNS (with the Clearinghouse) Central Bank Bank BBank A Analysis BM&F FX Clearinghouse (trade by trade) Analysis T+0 5_b1 Accepted transactions Accepted transactions Accepted transactions 00:00 12:0006:00 08:0017:30 Analysis Operational Limit Volatility Rate Equalization Operating Result Accepted

14 Brazilian Mercantile & Futures Exchange (BM&F) DNS (with the Clearinghouse) Central Bank Bank BBank A BM&F FX Clearinghouse Analysis Clearinghouse Department (trade by trade) Analysis T+0 5_b2 Accepted transactions Accepted transactions Accepted transactions 00:00 12:0006:0018:00 08:0017:30 Analysis Operational Limit Volatility Rate Equalization Operating Result Refused Solved

15 Brazilian Mercantile & Futures Exchange (BM&F) 5_b3 Unaccepted transactions Unaccepted transactions Unaccepted transactions DNS (with the Clearinghouse) Central Bank Bank BBank A BM&F FX Clearinghouse Analysis Clearinghouse Department (trade by trade) Analysis T+0 00:00 12:0006:0018:00 08:0017:30 Analysis Operational Limit Volatility Rate Equalization Operating Result Refused

16 Brazilian Mercantile & Futures Exchange (BM&F) 5_c (-) (+) (+) (-) (+) (-) (-) (+) (-) (+) (+) (-) (-) (+) (-) (+) (+) (-) Analytical report per bank Analytical report Net amount Sale Purchase Foreign currencyLocal currency Sale Purchase Sale Purchase DNS (with the Clearinghouse) Bank A Central Bank Net amount calculation Bank B Bank N BM&F FX Clearinghouse

17 Brazilian Mercantile & Futures Exchange (BM&F) 5_d1 DNS (with the Clearinghouse) Phase 1 - settlement Payment request in local and foreign currency T+N Correspondent Bank abroad Balance Correspondent Bank abroad Balance Bank N SISBACEN Balance Bank A Bank B Correspondent Bank abroad BM&F FX Clearinghouse FED BOOK Requests credit in local currency with the Central Bank Reports debtors in local currency Requests credit in foreign currency with Correspondent Bank abroad 00:00 12:00 04:30 18:00 06:00

18 Brazilian Mercantile & Futures Exchange (BM&F) 5_d2 Pays Clearinghouse (RTGS) Correspondent Bank abroad Balance Correspondent Bank abroad Balance Bank N SISBACEN Balance Bank A Bank B Correspondent Bank abroad BM&F FX Clearinghouse FED BOOK DNS (with the Clearinghouse) Phase 2 - settlement Payment in local and foreign currency T+N FED BOOK Reports debtors in local currency Confirms local currency payment Credit notice Requests credit in foreign currency with Correspondent Bank abroad Requests credit in foreign currency with Correspondent Bank abroad Payment order Requests credit in local currency with the Central Bank Balance 00:00 12:0006:0018:00 11:0013:05

19 Brazilian Mercantile & Futures Exchange (BM&F) 5_d3 Payment confirmation (RTGS) Pays banks A and B (RTGS) Credit notice Payment order FED BOOK Clearinghouse Correspondent Bank abroad Correspondent Bank abroad SISBACEN BM&F FX Clearinghouse Bank ABank BBank N Clearinghouse Correspondent Bank abroad DNS (with the Clearinghouse) Phase 3 - settlement Payment of local and foreign currency to nondefauters T+N 00:00 12:0006:0018:00 14:05

20 Brazilian Mercantile & Futures Exchange (BM&F) Bank N BM&F FX Clearinghouse No Balance SISBACEN DNS (with the Clearinghouse) Operational defaulter/defaulter Buying bank T+N 5_e1 Requests credit in local currency with the Central Bank Reports debtors in local currency Pays Clearinghouse (RTGS) Sends order back Does not confirm credit No Balance 00:00 12:0006:0018:00 13:0515:30

21 Brazilian Mercantile & Futures Exchange (BM&F) BM&F FX Clearinghouse Balance SISBACEN Bank B DNS (with the Clearinghouse) Operational defaulter/defaulter Buying bank T+N Clearinghouse Bank 5_e2 Credit notice Bank excluded Sells and transfers foreign currency Transfers local currency Balance 00:00 06:0018:00 13:0513:30

22 Brazilian Mercantile & Futures Exchange (BM&F) No Balance Correspondent Bank abroad BM&F FX Clearinghouse Bank A Clearinghouse Correspondent Bank abroad DNS (with the Clearinghouse) Operational defaulter/defaulter Selling bank T+N 5_f1 Requests foreign currency payment Confirms local currency nonpayment Payment order Sends order back No balance 00:00 12:0006:0018:00 13:0515:30

23 Brazilian Mercantile & Futures Exchange (BM&F) BM&F FX Clearinghouse Bank A Central Bank Clearinghouse Bank FED BOOK Clearinghouse Correspondent Bank abroad DNS (with the Clearinghouse) Operational defaulter/defaulter Selling bank T+N 5_f2 Defaulting banks Buys foreign currency Foreign currency credit confirmation Transfers undelivered local currency to defaulting bank (RTGS) Payment order Payment confirmation 00:00 06:0018:00 13:0513:30

24 Brazilian Mercantile & Futures Exchange (BM&F) 5_g1 Buys foreign currency and pays local currency Sells and delivers foreign currency BM&F FX Clearinghouse Bank ABank B Risk Management Principal risk Pays local currency Delivers foreign currency The principal risk is eliminated because, for settlement purposes, the Clearinghouse takes the position of the contracting part, pursuant to the provisions of article 4 of Law 10214/2001. Obrigations are settled through PVP.

25 Brazilian Mercantile & Futures Exchange (BM&F) 5_g2 Buys foreign currency and pays local currency Sells foreign currency but does not deliver it Delives foreign currency The exchange rate fluctuation is guaranteed by the Clearinghouse, within contract limits, based on previously posted collateral, pursuant to the provisions of Chapters V and IX of the Rulebook approved by the Central Bank of Brazil. BM&F FX Clearinghouse Bank ABank B Risk Management Market risk Clearinghouse Bank Previously posted collateral Buys foreign currency and pays local currency Uses collateral if necessary

26 Brazilian Mercantile & Futures Exchange (BM&F) 5_g3 Contracted limits to buy and sell foreign currency BM&F FX Clearinghouse Risk Management Liquidity risk Clearinghouse Bank ABN AMRO Clearinghouse Bank bank do Brasil Clearinghouse Bank Bank of America Clearinghouse Bank Citibank Contracted limits to buy and sell foreign currency

27 Brazilian Mercantile & Futures Exchange (BM&F) 5_g4 Monitors net and gross contracted amounts Operational limit BM&F FX Clearinghouse Bank BBank A Bank DBank C Risk Management Liquidity risk The establishment of operational limit considers the participants payment capacity and historical record in the interbank foreign exchange market, and the total liquidity of the interbank FX market.

28 Brazilian Mercantile & Futures Exchange (BM&F) BM&F FX Clearinghouse Settlement Accounts Central Bank Correspondent Bank abroad ABN AMRO Correspondent Bank abroad Bank of America Correspondent Bank abroad Citibank Correspondent Bank abroad Standard Chartered 5_H Foreign currency settlement account Local currency settlement account

29 Brazilian Mercantile & Futures Exchange (BM&F) 6 BM&F FX Clearinghouse FX Clearinghouse Director Registration and Contracting Department Payment and Settlement Department Monitors FX transaction contracting Monitors contracted FX transaction settlement Monitors the market Market Risk Analist

30 Brazilian Mercantile & Futures Exchange (BM&F) 7 Participating Banks (12/31/2003) 1 - Banco ABC-Brasil S/A 2 - Banco ABN Amro Real S/A 3 - Banco Alfa de Investimento S/A 4 - Banco Banif Primus S/A 5 - Banco Barclays S/A 6 - Banco BBM S/A 7 - Banco BMC S/A 8 - Banco BMG S/A 9 - Banco BNL do Brasil S/A 10 - Banco BNP Paribas Brasil S/A 11 - Banco Bradesco S/A 12 - Banco Brascan S/A 13 - Banco BVA S/A 14 - Banco Cacique S/A 15 - Banco Cargill S/A 16 - Banco Citibank S/A 17 - Banco Comercial do Uruguai S/A 18 - Banco Cooperativo Sicredi S/A 19 - Banco Credit Lyonnais Brasil S/A 20 - Banco da Amazônia S/A 21 - Daycoval S/A 22 - Banco de la Provincia de Buenos Aires 23 - Banco de Tokyo-Mitsubishi Brasil S/A 24 - Banco Dibens S/A 25 - Banco do Brasil S/A 26 - Banco do Estado de São Paulo S/A (BANESPA) 27 - Banco do Estado do Espírito Santo S/A (BANESTES) 28 - Banco do Estado do Rio Grande do Sul S/A 29 - Banco do Nordeste do Brasil S/A 30 - Fibra S/A 31 - Banco da Indústria e Comércio S/A 32 - Banco Industrial do Brasil S/A 33 - Indusval S/A 34 - Investimentos CSFB S/A 35 - Itaú S/A 36 - Itaú-BBA S/A

31 Brazilian Mercantile & Futures Exchange (BM&F) 7 Participating Banks (12/31/2003) 37 - Banco J.P.Morgan S/A 38 - Banco Mercantil do Brasil S/A 39 - Banco Morgan Stanley Dean Witter S/A 40 - Banco Nossa Caixa S/A 41 - Banco Pactual S/A 42 - Banco Paulista S/A 43 - Banco Pine S/A 44 - Banco Prosper S/A 45 - Banco Rabobank International Brasil S/A 46 - Banco Rendimento S/A 47 - Banco Rural S/A 48 - Banco Safra S/A 49 - Banco Santander Brasil S/A 50 - Banco Santos S/A 51 - Banco Societe Generale Brasil S/A 52 - Banco Sofisa S/A 52 - Banco Standard de Investimento S/A 54 - Banco Sudameris Brasil S/A 55 - Banco Sumitomo Mitsui Brasileiro S/A 56 - Banco UBS S/A 57 - Banco Votorantim S/A 58 - Banco VR S/A 59 - Banco WestLB do Brasil S.A Banco Zogbi S/A 61 - BankBoston bank Múltiplo S/A 62 - BankBoston N.A BES Investimento do Brasil S.A BRB - Banco de Brasília S/A 65 - Deutsche Bank S.A. - Banco Alemão 66 - Dresdner Bank Lateinamerika A.G HSBC Bank Brasil S/A 68 - ING Bank N.V Lloyds TSB Bank PLC 70 - União de Bancos Brasileiros S/A (Unibanco)

32 Brazilian Mercantile & Futures Exchange (BM&F) 2 BM&F LAWS CMN/BACEN Law No , of March 27, 2001 Law No. 4595, of December 31, 1964 Law No. 6385, of December 7, 1976 Resolution No. 2882, of August 30, 2001 Circular No. 3057, of August 31, 2001 Bylaws Ethics Code Rulebook Manuals

33 Brazilian Mercantile & Futures Exchange (BM&F) Law No , of March 27, 2001 Provides for the activities of clearinghouses and clearing service providers within the scope of the Brazilian Payment System Law No. 4595, of December 31, 1964 Provides for the monetary policy and the monetary, banking, and credit institutions; creates the National Monetary Council (CMN) and the Central Bank of Brazil (BACEN) Law No. 6385, of December 7, 1976 Provides for the securities market and creates the Brazilian Securities and Exchange Commission (CVM) Laws Applicability limited by Law No /01 Presidential Decree No. 7661, of June 21, 1945 Bankruptcy law Law No. 6024, of March 13, 1974 Provides for the intervention and extrajudicial liquidation of financial institutions

34 Brazilian Mercantile & Futures Exchange (BM&F) Resolution No. 2882, of August 30, 2001 Provides for the Brazilian Payment System and the clearinghouses and clearing service providers Circular No. 3057, of August 31, 2001 Approves the regulation that governs the functioning of the systems operated by clearinghouses and clearing service providers Regulations from the National Monetary Council and the Central Bank of Brazil

35 Brazilian Mercantile & Futures Exchange (BM&F) Bylaws Authorizes BM&F to register, clear, and settle by physical delivery and cash settlement the trades executed in its auction systems and/or registered in any of its trading or registration systems by means of an in-house department or an organization constituted for that purpose (article 2, item I) General Meeting of Members of March 21, 2001 Authorizes the constitution of the special segregated capital for the FX Clearinghouse of up to BRL100,000,000.00, among other provisions BM&F Market Participants Ethics Code October 2003 Brazilian Mercantile & Futures Exchange

36 Brazilian Mercantile & Futures Exchange (BM&F) Rulebook Approved by the Central Bank of Brazil, the FX Clearinghouse Rulebook governs the registration, clearing, and settlement of foreign currency purchase and sale through the Clearinghouse systems. Operating Manual Approved by Central Bank of Brazil, the FX Clearinghouse Operating Manual lists each and every step in the registration, clearing, and settlement of foreign currency purchase and sale through the Clearinghouse systems. Risk Management Manual Approved by Central Bank of Brazil, the FX Clearinghouse Risk Management Manual lists each and every step involved in the risk management of foreign currency purchase and sale through the Clearinghouse systems. Brazilian Mercantile & Futures Exchange

37 Brazilian Mercantile & Futures Exchange (BM&F) Information Technology Approved by Central Bank of Brazil, it shows the technology infrastructure, as well as the contingency systems used to register, clear, and settle foreign currency purchase and sale through the Clearinghouse systems. Accounting Approved by Central Bank of Brazil, it deals with the accounting records and auditing procedures of foreign currency purchase and sale through the Clearinghouse systems. Brazilian Mercantile & Futures Exchange

38 Brazilian Mercantile & Futures Exchange (BM&F) 7 BM&FMarketMarket Share Market Share for Settlement on T+1 in USD million 04/22/2002 – 12/31/2003

39 Brazilian Mercantile & Futures Exchange (BM&F) 7 Market Share for Settlement on T+2 in USD million 04/22/2002 – 12/31/2003 BM&FMarketMarket Share

40 Brazilian Mercantile & Futures Exchange (BM&F) 7 Exchange Rate 04/22/2002 – 12/31/2003

41 Brazilian Mercantile & Futures Exchange (BM&F) 7 Back Testing – Settlement on T+1 04/22/2002 – 12/31/2003 VaRBM&FHypothetical return

42 Brazilian Mercantile & Futures Exchange (BM&F) 7 Back Testing – Settlement on T+2 04/22/2002 – 12/31/2003 VaRBM&FHypothetical return

43 Brazilian Mercantile & Futures Exchange (BM&F) 7 Safeguards BRL1, MM Participants BRL1, MM BM&F BRL MM Participation Fund BRL MM Deposited collateral BRL MM Operational Fund BRL50.00 MM Segregated Capital BRL MM 12/31/2003

44 Brazilian Mercantile & Futures Exchange (BM&F) 7 Participation Fund BRL131,734, /31/2003

45 Brazilian Mercantile & Futures Exchange (BM&F) 7 Collateral BRL899,250, /31/2003

46 Brazilian Mercantile & Futures Exchange (BM&F) 7 Collateral Used: BRL360,816, Deposited: BRL538,433, /31/2003

47 Brazilian Mercantile & Futures Exchange (BM&F) 7 04/22/2002 – 12/31/2003 Contracted transactions148,314 Gross contracted amount USD523,317,879, Gross contracted amount BRL1,607,916,961, Amount USD settled by funds transfer82,091,951, Amount BRL settled by funds transfer252,578,650, Amount USD settled on a netting basis441,225,927, Amount BRL settled on a netting basis1,355,338,310, Funds transfer reduction (%)84.29%

48 Brazilian Mercantile & Futures Exchange (BM&F) REGIONAL CLEARING FACILITY PRELIMINARY STUDY

49 Brazilian Mercantile & Futures Exchange (BM&F) Modelo atual Goods / Services Local Currency US Dollars Importer Exporter Bank Country BCountry A Local Currency Goods / Services Local Currency US Dollars Exporter Local Currency US Dollars Local Currency Importer Bank Market Current Model

50 Brazilian Mercantile & Futures Exchange (BM&F) Modelo Proposto - Déficit País A Country BCountry A Importer Clearing Exporter Local Currency Clearing Exporter Importer Local Currency Goods / Services Bank Clearing bank Market Proposed Model – Trade Balance Equilibrium

51 Brazilian Mercantile & Futures Exchange (BM&F) Modelo Proposto - Déficit País A Country BCountry A Importer Clearing US Dollars Local Currency Exporter Local Currency Clearing Exporter Importer Local Currency US Dollars Local Currency Goods / Services US Dollars Goods / Services Bank Clearing bank Market Proposed Model – Country A Deficit

52 Brazilian Mercantile & Futures Exchange (BM&F) Modelo Proposto - Déficit País B Country BCountry A Importer Clearing US Dollars Local Currency Exporter Local Currency Clearing Exporter Importer Local Currency US Dollars Local Currency Goods / Services US Dollars Goods / Services Bank Clearing bank Market Proposed Model – Country A Surplus

53 Brazilian Mercantile & Futures Exchange (BM&F) Modelo atual Goods / Services Local Currency US Dollars Importer Exporter ArgentinaBrazil Local Currency US Dollars Bank Market Current Model

54 Brazilian Mercantile & Futures Exchange (BM&F) 3 Annual flow of US Dollars – Brazil x Argentina foreign trade amounts in US Dollar billion Brazilian Imports 1991: Mercosur 1997: Asian Crisis 1998: Russian Crisis 1999: Brazilian Crisis 2001/02: Argentinean Crisis Current Model

55 Brazilian Mercantile & Futures Exchange (BM&F) Modelo atual Goods / Services Local Currency US Dollars Importer Exporter ArgentinaBrazil Local Currency US Dollars Goods / Services Local Currency US Dollars Exporter Local Currency US Dollars Local Currency Importer Bank Market Current Model

56 Brazilian Mercantile & Futures Exchange (BM&F) 3 Annual flow of US Dollars – Brazil x Argentina foreign trade amounts in US Dollar billion Current Model Brazilian Imports Argentinean Imports 1991: Mercosur 1997: Asian Crisis 1998: Russian Crisis 1999: Brazilian Crisis 2001/02: Argentinean Crisis

57 Brazilian Mercantile & Futures Exchange (BM&F) Modelo atual ArgentinaBrazil Importer Clearing US Dollars Local Currency Exporter Local Currency Clearing Exporter Importer Local Currency US Dollars Local Currency Goods / Services US Dollars Goods / Services Bank Clearing bank Market Proposed Model – Brazilian Deficit

58 Brazilian Mercantile & Futures Exchange (BM&F) 3 Annual flow of US Dollars – Brazil x Argentina foreign trade amounts in US Dollar billion Brazilian Deficit Proposed Model – Brazilian Deficit

59 Brazilian Mercantile & Futures Exchange (BM&F) Modelo atual ArgentinaBrazil Importer Clearing US Dollars Local Currency Exporter Local Currency Clearing Exporter Importer Local Currency US Dollars Local Currency Goods / Services US Dollars Goods / Services Bank Clearing bank Market Proposed Model – Argentinean Deficit

60 Brazilian Mercantile & Futures Exchange (BM&F) 3 Annual flow of US Dollars – Brazil x Argentina foreign trade amounts in US Dollar billion Proposed Model – Argentinean Deficit Brazilian Deficit Argentinean Deficit

61 Brazilian Mercantile & Futures Exchange (BM&F) 3 Annual flow of US Dollars – Brazil x Argentina foreign trade amounts in US Dollar billion Comparative Brazilian Deficit Argentinean Deficit Brazilian Imports Argentinean Imports

62 Brazilian Mercantile & Futures Exchange (BM&F)


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