BM&FBOVESPA POST TRADE INTEGRATION Marcelo Wilk BM&FBOVESPA

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

1. BM&FBOVESPA´S BUSINESS MODEL 3

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

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

2. POST TRADE ENVIRONMENT 6

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 DERIVATIVES CLEARINGHOUSE EQUITIES AND CORPORATE DEBT CLEARINGHOUSE FX CLEARINGHOUSE GOVERNMENT BONDS CLEARINGHOUSE Futures & options contracts based on interest rates, exchange rates, inflation rates, equity indices, agribusiness, energy and metal commodities OTC derivatives (swaps and flexible options) Equities, ETFs and BDRs Corporate Debt and MBS Equity and equity index derivatives Securities lending service Interbank Spot FX market (BRL vs. USD) Government bonds spot market Money and repo markets Securities lending CSD SSS SSS SSS SSS CCP CCP CCP CCP 7

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) 8

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 9

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

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

3. THE POST TRADE INTEGRATION PROJECT 12

Main functions performed by each clearinghouse THE POST TRADE INTEGRATION PROJECT Registration, clearing & settlement Central counterparty (CCP) Main functions performed by each clearinghouse 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 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 13

Organization of the post-trade environment by type of asset/product 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 different IT environment/architectures, generating a higher operational risk and requiring constant maintenance efforts, thus impacting the time frame of projects 4 systems/processes for give-up, allocation and open position management 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 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 registration systems of participants and clients 4 collateral pools not communicating with each other, often preventing the benefit of the collateral posted from being fully explored 14

THE POST TRADE INTEGRATION PROJECT Clearinghouse Integration (environment by process) Equities, ETFs, BDRs Other products & assets 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 Government bonds Rulebook & Manual Participant structure Participant & client registration Give-up & allocation Position control Netting & settlement Risk management Collateral pool OTC derivatives Corporate debt securities Securities lending Interbank spot FX Futures, options, forwards 15

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

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

Key benefits to the market 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 18

Key benefits to the market 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 19

Key benefits to the market 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 20

Key benefits to the market 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 21

5. PROJECT GOVERNANCE AND MAIN CHALLENGES 22

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

THE POST-TRADE INTEGRATION PROJECT 2008 BM&F AND BOVESPA MERGE 2008 FINANCIAL CRISIS GOVERNANCE INTEGRATION INTEGRATION AND INCORPORATION OF THE LEGAL ENTITIES 2009 INTEGRATION INITIAL STUDIES WHITE PAPER – RESEARCH AND DEVELOPMENT INITIAL STANDARDIZATION PROCESS 2010 WHITE PAPER - PUBLISHED INTEGRATION OPPORTUNITIES – R&D INTERNAL TASK FORCE IBM ASSESSMENT POTENTIAL PARTNERSHIPS WORKING GROUP WITH MARKET PARTICIPANTS ROADMAP DEFINITION 2011/12 INTEGRATION OPPORTUNITIES – R&D IMPLEMENTATION 2013 NEW UNIFIED CCP - DERIVATIVES 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 24

Thank you! Marcelo Wilk mwilk@bvmf.com.br