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• BMFBOVESPA MARKET INFRASTRUCTURE A VERTICALLY
  INTEGRATED MODEL

Paulo Oliveira Chile Santiago October 2008
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Vertically integrated multi-asset class exchange
TRADING PLATFORMS AND REGISTRATION SYSTEMS
Spot Markets
Derivatives Markets

• CASH
• Stocks
• Funds
• Corporate Bonds
• Government Bonds
• US Dollar
• Gold
• Commodities

• FUTURES OPTIONS
• Equities
• Interest Rate
• Currencies
• Indices
• Metals
• Agricultural
• Commodities
• Energy

CLEARINGS AND CENTRAL SECURITIES DEPOSITORY
Securities Settlement Systems Central Counterparty
SETTLEMENT BANK
Custody Services
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Trading, registration and clearing model
FX Cash Market Open outcry OTC registration
Derivatives Open outcry Electronic trading OTC
registration
Stocks andCorporate Bonds Electronic Trading OTC
Registration
GovernmentBondsElectronic trading OTC
registration
FX Clearinghouse
Derivatives Clearinghouse
CBLC
Securities Clearinghouse
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Derivatives clearinghouse focus on risk management

• Vertical line of protection Customer, Broker and
  Clearing Member
• Margin requirements are based on the worst case
  scenario for the customers net portfolio
• Margin reduction for diversified portfolios
  offsetting opposite exposures to common risk
  factors
• Intraday risk is captured via the Intraday Risk
  Limit
• Stress testing based on conservative scenarios
• High degree of transparency to market
  participants and authorities all risk models
  and stress scenarios are publicly available
• Credit risk mitigation through concentration
  limits, additional margin calls, and cumulative
  loss monitoring
• Liquidity risk mitigation through six different
  previously committed credit facilities and access
  to the Central Bank discount window through BMF
  Settlement Bank

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Safeguard structure
Safeguard structure for the derivatives market
BMFBOVESPA
Clearing Member
Clearing Member
Brokerage House
Brokerage House
Costumer
Customers Default
Customer
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Derivatives clearinghouse sound safeguards

USD 1.49 billion
BMFBOVESPA Tangible Assets
USD 157 million
Clearing Fund (FLO)
USD 19 million
Special ClearingMember Fund (FEMEC)
USD 24 million
Agricultural MarketTrading Fund (FOMA)
Clearing Member Proprietary Collateral
Clearing Member
Guarantee Fund
USD 47 million
Brokerage House Proprietary Collateral
Brokerage House
Operational PerformanceFund (FDO) USD 530 million
Customer Collateral
Customer
USD 45 billion
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Overview our model

• Conception based on an integrated model
• Central securities depository
• Securities settlement system
• Central depository
• Clearing and settlement activities
• Central counterparty function
• Fully integrated to the exchange
• Trading activities directly link with the
  clearing and settlement system
• Straight through processing

At the same structure
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CBLCs overview corporate facts

• Clearing and Depository Corporation for fixed
  income, equities and equity derivatives
• For-profit company owned by BMF BOVESPA S.A.
• Self regulatory corporation under the supervision
  of the Brazilian Securities and Exchange
  Commission (CVM) and the Brazilian Central Bank.

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Brazilian Clearing and Depository corporation -
CBLC
CENTRAL SECURITIES DEPOSITORY
SECURITIES SETTLEMENT SYSTEM
CENTRAL COUNTERPARTY
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Depository services
Depository services for securities
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Depository services
Depository services for equities, corporate
bonds, REITs, asset-backed securities and other
instruments
Main Features

• Full Dematerialization
• Fiduciary Ownership
• Account Segregation

• Daily Reconciliation
• Proxy Statements
• Corporate Actions

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Depository services
Securities Under CBLCs Depository Services -
(USD billion)
800
600
699.6
693.4
400
450.5
200
320.1
0
2005
2006
2007
2008
Exchange rate as of June 30th, 2008
June 2008
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Clearance Settlement
Clearance Settlement services for securities
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Clearance settlement services
STP Straight Through Processing
Depository Services for equities, corporate
bonds, REITs, asset-backed securities and other
instruments
Equities
Derivatives
Fixed Income
Real Time
CBLC
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Clearance settlement services
GROSS SETTLEMENT

• Public offerings, initial public offerings,
  privatizations, special services and fixed
  income instruments
• SFI-DVP Model 1 (BIS)

SETTLEMENT CYCLE
Equities
T0
Tn
Fixed Income
T0
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Clearance settlement services
NET SETTLEMENT

• Multilateral netting across different markets
  and instruments (equities, derivatives and fixed
  income instruments)
• SFI-DVP Model 3 (BIS)

SETTLEMENT CYCLE
Equities - Cash
T3
T1
Equities - Derivatives
Fixed Income
T0
T1
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Central counterparty and risk management
Central counterparty and risk management services
for securities
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Central counterparty
Equities
Derivatives
Fixed Income
Securities Lending

• Trading information is captured on a real-time
  basis and in a STP fashion
• All trades are previously collateralized

CBLCs Risk Management, Clearing and Depository
Services
STP
Options on stocks
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Layers of protection
Special Net Worth
CBLCs Model
Settlement Fund
Collateralization
Participants Requirements
Hybrid model Collateralization and Settlement
Fund
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Risk management services
DEALING WITH FAILURES
DELIVERY
PAYMENT

• 1st Collaterals posted by the defaulter
• 2nd Settlement Fund
• Defaulters contribution
• Survivors contribution
• 3rd Special Net Worth

• 1st Securities Lending
• 2nd Buy-in Procedures

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Risk management services
RISK ANALYSIS

• Back-tests
• The risk is analyzed by CBLCs Board every
  month
• The participants have full access to the
• criteria
• methodology
• risks incurred by CBLC
• The participants also have the same tools and
  systems CBLC applies to calculate its own risk

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Overview
providing creative and safe solutions to the
financial market.
RATING
Very Low Risk by
Maximum Rate by
Item Transaction costs and settlement efficiency
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CBLC in the international scenario
Fair Access Conditions
Transparency
Sound Legal Basis
CPSS-IOSCO -2001
Segregation of Accounts
G-30 - 2003
Delivey vs. Payment
Same Day Finality in Central Bank
CPSS-IOSCO - CCP -2004
Securities Lending
CCP Risk Management
Collateralization and Settlem. Fund
Contingency Plan and Backup Site
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Advantages of a integrated model

• High level of Straight Through Processing (STP)
• Synergies
• Reaching all post-trade services
• Dealing with failures
• Investors services
• Facilitate the clearing services
• Information pool

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• www.bmfbovespa.com.br