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BM&FBOVESPA POST TRADE INTEGRATION Marcelo Wilk BM&FBOVESPA.

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Presentation on theme: "BM&FBOVESPA POST TRADE INTEGRATION Marcelo Wilk BM&FBOVESPA."— Presentation transcript:

1 BM&FBOVESPA POST TRADE INTEGRATION Marcelo Wilk BM&FBOVESPA

2 2 1.BM&FBOVESPA´s Business Model 2.Post Trade Environment 3.The Post Trade Integration Project 4.Key Benefits to The Brazilian Financial and Capital Markets 5.Project Governance and Main Challenges Agenda

3 1. BM&FBOVESPA´S BUSINESS MODEL

4 4 BM&FBOVESPA´S BUSINESS MODEL Fully Integrated and Diversified Business Model Listing (stocks, bonds, funds, asset-backed securities, among others) Commodities Certification Trading (stocks, derivatives, corporate and government bonds, funds, spot US Dollar, among others) Central Counterparty (CCP) Clearing and Settlement (for all the products) Central Securities Depository (stocks and corporate bonds) Securities Lending (stocks) Custody (services provided for funds, and other market participants) Market Data Index Licensing Software Licensing (used by brokerage houses and other market participants) OTC Derivatives Registration and Collateral Management

5 5 BM&FBOVESPA´S BUSINESS MODEL One-stop-shop for Brazilian Exchange Traded and OTC Assets

6 2. POST TRADE ENVIRONMENT

7 7 POST TRADE ENVIRONMENT The configuration of BM&FBOVESPA’s post-trade environment is the result of the historical evolution of the two exchanges and their merger SSS Government bonds spot market Money and repo markets Securities lending Futures & options contracts based on interest rates, exchange rates, inflation rates, equity indices, agribusiness, energy and metal commodities OTC derivatives (swaps and flexible options) DERIVATIVES CLEARINGHOUSE Equities, ETFs and BDRs Corporate Debt and MBS Equity and equity index derivatives Securities lending service EQUITIES AND CORPORATE DEBT CLEARINGHOUSE Interbank Spot FX market (BRL vs. USD) FX CLEARINGHOUSE GOVERNMENT BONDS CLEARINGHOUSE CCP SSS CCP CSD SSS CCP SSS CCP

8 8 BM&FBOVESPA POST-TRADE ENVIRONMENT Derivatives Clearinghouse Central Counterparty Interest rate futures and options FX futures and options Commodities futures and options OTC derivatives (swaps and options)

9 9 BM&FBOVESPA POST-TRADE ENVIRONMENT Equities and Corporate Debt Clearinghouse Central Counterparty Equities, ETFs and BDRs Corporate Debt and MBS Equity and equity index derivatives Securities lending

10 10 BM&FBOVESPA POST-TRADE ENVIRONMENT FX Clearinghouse Central Counterparty Interbank spot FX market

11 11 BM&FBOVESPA POST-TRADE ENVIRONMENT Government Bonds Clearinghouse Central Counterparty Spot transactions Repo transactions Securities lending

12 3. THE POST TRADE INTEGRATION PROJECT

13 Registration, clearing & settlement Central counterparty (CCP) Main functions performed by each clearinghouse 13 THE POST TRADE INTEGRATION PROJECT Trade capture, registration, give-up & allocation Open position management Marking to market Calculation & netting of rights and obligations in currencies, securities & commodities Settlement processing in currencies, securities & commodities Provision of information to participants & regulators Risk system development & management Maintenance of stress scenarios & further risk parameters Collateral acceptance, limit control & valuation Regular back-testing analysis of risk models Management of defaults & crisis situations Approval of CCP risk management processes by DEBAN/Central Bank

14 THE POST TRADE INTEGRATION PROJECT Organization of the post-trade environment by type of asset/product 4 rulebooks and 4 operating procedure manuals 4 distinct participant structures, with different operational & capital requirements 4 systems/processes for give-up, allocation and open position management 4 risk management systems/processes not taking into account the effects of risk-offsetting among the several products and assets, including those posted as collateral 4 collateral pools not communicating with each other, often preventing the benefit of the collateral posted from being fully explored 4 settlement windows and 4 multilateral balances not netted against each other, requiring a higher intraday liquidity and a greater number of payment transactions 4 different IT environment/architectures, generating a higher operational risk and requiring constant maintenance efforts, thus impacting the time frame of projects 14 4 registration systems of participants and clients

15 Government bonds Corporate debt securities Interbank spot FX Futures, options, forwards Securities lending OTC derivatives Other products & assets Equities, ETFs, BDRs Organization of the post-trade environment by type of process, instead of product Streamlining & standardization of rules, processes, requirements & documentation Creation of a single settlement window for all the markets Development of an integrated risk model & a single collateral pool Thorough modernization and simplification of the technological infrastructure 15 THE POST TRADE INTEGRATION PROJECT Clearinghouse Integration (environment by process) Rulebook & Manual Participant structure Participant & client registration Give-up & allocation Position control Netting & settlement Risk management Collateral pool

16 Real-time clearing system Participant register Pricing Instrument register Fees SPB & CSD settlement CORE Collateral management Taxation Intraday risk management Calculation of cash settlement values Trade capture & reg. Give-up & allocation Position management Exchange of information with other systems Information services THE POST TRADE INTEGRATION PROJECT Marking to market New process and system architecture 16

17 4. KEY BENEFITS TO THE BRAZILIAN FINANCIAL AND CAPITAL MARKETS

18 18 Greater efficiency in managing intraday liquidity Single settlement window for all the markets Netting of payable and receivable flows among the several asset/product classes Saving of average intraday liquidity amounting to BRL0.5 billion Example: Balance payable on the futures market: (-) BRL100 million Balance receivable on the options market: (+) BRL110 million Balance to be settled with the integrated clearinghouse: (+) BRL10 million KEY BENEFITS Key benefits to the market

19 19 Increased efficiency in the use of capital New risk evaluation model called CORE Integrated portfolio risk calculation, covering traded assets & contracts, including OTC contracts and posted collateral Integrated & robust modeling of market, liquidity and cash flow risks for the different assets/contracts/collateral included in the portfolio Risk-offsetting between assets & contracts with mutual risk factors Examples: Futures vs options Futures vs swaps Options with different expiration dates Short BTC position vs equities posted as collateral Short options position vs equities posted as collateral CORE has the potential of becoming a new international benchmark for CCP risk management KEY BENEFITS Key benefits to the market

20 20 KEY BENEFITS Reduced operational risks & increased operational efficiency Simplification & standardization of countless back-office processes Elimination of redundancies Increased automation of processes Reduced back-office & infrastructure costs for the whole chain of participants Less time to launch new products and meet market and regulatory demands, because of a more modern, compact & modular technology architecture Key benefits to the market

21 21 KEY BENEFITS Modernization & standardization of the technological infrastructure Complete technological renovation, with the adoption of a state-of-the-art IT architecture – kernel & modules Processing capacity of more than 10 million trades per day Real-time risk processing capacity High availability & disaster recovery Functionality & flexibility due to a modular architecture and a multimarket feature Key benefits to the market

22 5. PROJECT GOVERNANCE AND MAIN CHALLENGES

23 23 MARKET REGULATORS BM&FBOVESPA Strong Project Management Model definition IT development and testing Change management Interaction with market and Regulators Engagement and participation Model and process validation Testing Committee Internal IT modifications Certification & parallel production Reporting and monitoring Review & approval of Rulebook and Manual Review & approval of risk management model System ratification, process & IT auditing PROJECT GOVERNANCE AND MAIN CHALLENGES

24 24 THE POST-TRADE INTEGRATION PROJECT / BM&F AND BOVESPA MERGE GOVERNANCE INTEGRATION INTEGRATION AND INCORPORATION OF THE LEGAL ENTITIES 2008 FINANCIAL CRISIS INTEGRATION INITIAL STUDIES INITIAL STANDARDIZATION PROCESS WHITE PAPER – RESEARCH AND DEVELOPMENT WHITE PAPER - PUBLISHED INTERNAL TASK FORCE WORKING GROUP WITH MARKET PARTICIPANTS INTEGRATION OPPORTUNITIES – R&D ROADMAP DEFINITION INTEGRATION OPPORTUNITIES – R&D IMPLEMENTATION NEW UNIFIED CCP - DERIVATIVES IBM ASSESSMENTPOTENTIAL PARTNERSHIPS 2014 NEW UNIFIED CCP – DERIVATIVES AND EQUITIES 2015 NEW UNIFIED CCP – DERIVATIVES, EQUITIES, FX, GOV. BONDS The Post Trade Integration Project is subject to prior authorization from regulators

25 Thank you! Marcelo Wilk


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