Emerging Market Economies: Does this classification still make sense? Panel 4 – Developing Economies World Federation of Exchanges Paulo Oliveira Jr. Chief Business Development Officer October 2009

Emerging Markets a World Bank definition and the conventional wisdom to be challenged  Low Income Emerging Markets: USD 975 or less  Lower Middle Income Emerging Markets: USD 976-USD 3,855  Upper Middle Income Emerging Markets: USD 3,856-USD 11,905  Developed Economies: USD 11,906 or more  The World Bank classifies member economies according to gross national income (GNI) per capita However, the concept became popular to designate nations in a TRANSITION PROCESS or IN A CATCHING UP PATH

Emerging Economies have attained a relevant position among the top markets Source: IMF and ECB (Jul09 and Aug09)  Emerging Markets have attracted attention because of their dynamic growth, therefore developing a leading role in the global economy  The BRICs are among the top ten economies in the world Source: IMF Emerging Markets Developed Countries GDP OF SELECTED COUNTRIES IN 2008 In USD billion INTERNATIONAL RESERVES OF SELECTED COUNTRIES IN 2009 In USD billion

 The “so-called” emerging markets are leading the recent recovery  These economies established a new benchmark for global economic development, leveraging their strength on the international arena GDP PROJECTION Developed Economies GDP PROJECTION Emerging Economies Emerging Markets growth has reshaped geopolitics on a global basis Source: IMF

Emerging Markets Developed Countries Return in Emerging Markets reflects investors confidence in the potential of such economies MSCI INDEX PERFORMANCE IN 2009 Source: MSCI Data as of 28th September 09 Note: South Korea is classified as a Emerging Economy by MSCI  MSCI Index represents economic performance and market expectations from the most sophisticated investors in the world

Note: Snapshot of the end of 2008 reveals the full impact of the global financial crisis. In December 2007 Brazil Capitalization was over 80% of GDP and in June 2009 is around 60%. Source: Goldman Sachs Research Report Spain Liquidity depth of emerging capital markets is advancing within the G-20 economies MARKET CAPITALIZATION AND GDP OF SELECTED COUNTRIES IN THE END OF 2008

Emerging Markets sustainable achievements are undisputable and globally recognized Is such classification still applicable and reasonable? The Brazil repositioning case as a crisis aftermath ARGENTINA, BRAZIL, CHINA, INDIA, INDONESIA, MEXICO, RUSSIA, SAUDI ARABIA, SINGAPORE, SOUTH AFRICA AND TURKEY ARE ALL G-20 MEMBERS

 Prudential regulation, reasonable levels of leverage, sound fiscal and macroeconomic policies have proved to be essential  Newly released recommendations by multilateral organizations and international industry bodies demand reinforcing supervision and controls  Efficient and effective regulation  CCP function as a core value  Sound accounting standards  Transparent derivatives markets  Prudent margining and risk management  Strong market surveillance and supervision  Controlled leverage of financial institutions    Regulatory framework is under review in the developed financial markets after the crisis     Brazil has been practicing these benchmarks consistently for years

BREAKDOWN OF THE GLOBAL DERIVATIVES MARKET OTC VERSUS LISTED EXCHANGE IN 2008 In notional amount outstanding BREAKDOWN OF THE BRAZILIAN DERIVATIVES MARKET OTC VERSUS LISTED EXCHANGE IN 2008 In notional amount outstanding Source: Deutsche Boerse Group, BIS, WFE, FIA, BM&FBOVESPA, CETIP Brazilian prudent regulation and sophisticated markets provided superb defense mechanisms  Organized and regulated markets are by far predominant in Brazil  This feature has been fundamental in avoiding market disruptions and sustaining market integrity

BRAZILIAN INTERNATIONAL RESERVES NET TOTAL EXTERNAL DEBT TO GDP (%) PUBLIC SECTOR NET DEBT TO GDP (%) TOTAL CREDIT OPERATIONS TO GDP (%) Brazil remarkable resilience during the crisis anticipates a huge potential for growth USD billion Source: Central Bank of Brazil

NET FOREIGN INVESTMENTS IN THE BRAZILIAN STOCK MARKET IN 2009 USD million *Up to September 18th FOREIGN INVESTOR PARTICIPATION IN THE BRAZILIAN STOCK MARKET USD million Brazilian excellent fundamentals attract liquidity available after crisis deleveraging 16 billion in 2009  International investors have kept their confidence even under extreme scenarios  Reliable and vibrant markets have sustained a steady flow of foreign investments Source: BM&FBOVESPA

IPO – CAPITAL RAISED BY SHARES ISSUES IN 2009 in USD billion TOTAL CAPITAL RAISED BY SHARES ISSUES IN 2009 in USD billion Source: WFE Note: Up to August Source: WFE Note: Up to August  Regulation, transparency and improved corporate governance have reinforced the Exchange as a promoter of economic development  Raising capital in the Exchange became fashionable and profitable New capital flows reinvigorate the Brazilian Exchange role in financing development

PRICE EVOLUTION OF THE TOP 5 LARGEST LISTED EXCHANGES Local Currency (Base 100=01/01/08) Source: Bloomberg The Brazilian Exchange outstanding performance is perceived and rewarded  BM&FBOVESPA is the largest stock and derivatives exchange in LatAm and the 4 th largest listed exchange in the world

81% of Latin America total stock value traded (Jan-Aug09) 89% of Latin America derivatives market volume (Jan-Jun09) PRODUCT GRID CASH Stocks Funds Corporate Bonds Government bonds US Dollar Gold Commodities SPOT MARKETS FUTURES AND OPTIONS Equities Interest Rates Currencies Indices Metals Commodities Energy DERIVATIVES MARKET Its vertically integrated multi asset class model is important for global footprint  Full Range of Products  Dedicated Platforms and common interface  Robust Risk Management  Multi-layered and sound safeguards TRADING POST TRADING

158 All listed companies must disclose annual financial statements in IFRS by 2010 Its corporate governance rules are designed to foster sustainable investment in the region 37% of total listed companies 61% of total market capitalization 75% of total traded value Participation of the special listing segments (aug/09) IPOs per level* *From 2004 to Jun09

Emerging markets : an elusive concept that has to be revisited by market practitioners The financial crisis has provided evidence that :  Some emerging countries have built advanced regulation and effective financial infrastructures that withstand volatile markets more efficiently  Some emerging markets have developed original risk management solutions and transparency rules that better cope with financial institutions leveraging  Some emerging economies have created comprehensive corporate governance rules that promote disclosure more widely  New possibilities for developing capital markets are rising  New models for economic development are shaping  Old fashioned capitalism analytical framework is being challenged  Not every country needs to follow the path of more mature and developed economies  In a multipolar world the name of the game is full and open dialogue, not only East  West, but also North  South  There are plenty of lessons to be learned and experiences to be shared

Emerging Market Economies: Does this classification still make sense? Panel 4 – Developing Economies World Federation of Exchanges Paulo Oliveira Jr. Chief Business Development Officer October 2009