11/15/2001 BTC – BANCO DE TÍTULOS CBLC SECURITIES LENDING PROGRAM Legal Basis Main Characteristics Operational Procedures Risk Management Historical Data Next Steps
11/15/2001 LEGAL BASIS CMN- National Monetary Council (Resolution nº 2268 of April 10,1996) CVM – Securities Commission ( Ruling nº 249 of April11,1996) CBLC – Companhia Brasileira de Liquidação e Custódia ( Resolution nº 009 of April 22,1996)
11/15/2001 MAIN CHARACTERISTICS Settlement, registration and custodial entities are authorized to lend shares issued by publicly-held companies, subject to the CVM prior approval; All types of investors can participate as a lender or borrower in Securities Lending Program; The Custody Agent, lenders of the assets,must enter into an adhesion agreement with CBLC, whereby they expressly authorize the lending and transfer Assets to CBLC;
11/15/2001 MAIN CHARACTERISTICS The Custody Client, Lender of the assets, must enter into an agreement with his Custody Agent, whereby the former expressly authorizes the lending and transfer his Assets to CBLC; The Brokerage Firm and the Clearing Agent as a representative of a Borrower, must enter into an adhesion agreement with CBLC; The Eligible Assets ( stocks issued by publicly- held companies) must be deposited at CBLC´s Fungible Custody Services;
11/15/2001 MAIN CHARACTERISTICS Custody Clients and Custody Agents qualify as Asset Borrowers must be represented by a Brokerage Firm and under the responsibility of a Clearing Agent of CBLC; There´s no relationship between the borrowers and lenders ( CBLC assume the counterpart as a guarantor); Participants access the Securities Lending Program through CBLC´s Network
11/15/2001 MAIN CHARACTERISTICS The original stock owner (Lender) is entitled to all dividends, bonuses and subscription rights that may come to be declared by the company; The Borrower must deposit the required margin with CBLC, through the respective Clearing Agent
11/15/2001 MAIN CHARACTERISTICS Use of Borrowed Assets: –Sold on the cash market; –Used to settle operations carried out on the cash market; –Used as guarantee for operations carried out on futures markets; –Used to cover call options; –Used in any other way as may be established by CBLC.
11/15/2001 OPERATIONAL PROCEDURE Through CBLC’s network the Participants ( Custodians and Brokerage Firms) have the access to BTC; In BTC the Participants can: –Entry: Lenders and Borrowers’s offers –Closing against registered offers –Inquiry: registered closings,borrowers interested, securities available for lending,etc. The Participants and Investor can also access information related the Securities Lending Program of CBLC through Bloomberg.
11/15/2001 RISK MANAGEMENT Limits of Position –Investor –Clearing Member –Whole Market Limits are disclosed by CBLC’s website ( www.cblc.com.br) Margin Calculation –By Investor –System employed CM-TIMS ( OCC) Measurement Risk in stress scenario –By Clearing Agent –System employed RiskWatch( Algorithimcs)
11/15/2001 RISK MANAGEMENT Deposit of Guarantee –Through The CBLC’s Guarantee System; –Collateral accepted Letters of Credit ( domestic and international); Brazilian Federal Public Instruments; Shares ( the most liquid); Gold certificates; CD’s; and International assets* * CBLC has accounts in DTCC, EUROCLEAR and CLEARSTREAM
11/15/2001 METODOLOGYMETODOLOGY PORTFOLIOS HIERARCHY CONSOLIDATION RULES MODELS Positions CASH OPTION FORWARD BTC Prices Curves Volatil. Parâmeters Market data Scenarios RISK MANAGEMENT ANALYSIS OF RISKS REPORTS BACK TESTING FUTURE
11/15/2001 RISK MANAGEMENT CASH DERIVATIVESBTC CM-TIMS MARGINING COLLATERAL SYSTEM RISKWATCH SETTLE. FUND SYSTEM DEVELOPED BY OCC- THE OPTIONS CLEARING CORPORATION SYSTEM DEVELOPED BY CBLC SYSTEM DEVELOPED BY ALGORITHMICS INC
11/15/2001 NEXT STEPS The Securities Lending Program ( BTC) will be extended to: –Private Bonds ( Debenture,Commercial Papers,etc) –Public Bonds ( Brazilian Government Bonds); The settlement system will be automatically linked to BTC –In case of default in settlement process CBLC will registered automatically, a securities lending position in the name of the defaulter.
11/15/2001 NEXT STEPS The new version of BTC will be launched in December/2001 with: – a new platform; – access through CBLC’s intranet; – new operational facilities