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

2. 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

3. 1. BM&FBOVESPA´S BUSINESS MODEL3

4. 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

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

6. 2. POST TRADE ENVIRONMENT6

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
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

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) 8

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 9

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

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

12. 3. THE POST TRADE INTEGRATION PROJECT12

13. 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

14. 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

15. 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

16. 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

17. 4. KEY BENEFITS TO THE BRAZILIAN FINANCIAL AND CAPITAL MARKETS17

18. 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

19. 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

20. 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

21. 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

22. 5. PROJECT GOVERNANCE AND MAIN CHALLENGES22

23. 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

24. 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

25. Thank you!
Marcelo Wilk