PROCEDIMIENTOS DE CONTROL INTERNO Y GESTION DE RIESGO EN BRASIL Fabio Menkes Madame chair, Dear Mr. Barnes, Dear delegates, Good afternoon!   It is a pleasure to participate in this high level conference of central securities depositories and it is an honor to speak to an audience of experts and executives coming from several regions around the world. I would like to thank the CSD8 organization for giving me this opportunity. One of my goals here is to provide the CSD8 attendees with an overview on international recommendations, their history and evolution during the last 20 years as well as their relevance for CSD assessment initiatives. www.cvm.gov.br

BOLSA DE VALORES DE SÃO PAULO (BOVESPA)   Cámara de compensación (clearing house) independiente: COMPANHIA BRASILEIRA DE LIQUIDAÇÃO E CUSTÓDIA (CBLC) www.cblc.com.br www.cvm.gov.br

BOLSA DE MERCADORIAS E FUTUROS (BMF)   Hay tres clearings en su organigrama: Clearing de Derivados Clearing de Cambio (efectivo) Clearing de Activos (efectivo) www.bmf.com.br In the beginning of the 80s, the growth of the securities industry accelerated briskly for many reasons.  One of them was the rise of institutional investors, especially pension funds. Nowadays, in some developed countries the value of assets owned by institutional investors is more than the gross domestic product. Also, the deregulation processes experienced by several domestic markets contributed to the increase in the volumes traded and settled in the domestic and international markets. Another reason was the development of the securitization process. Banks started to securitize their assets transferring their credit risk to third parties. As a result, the securities settlement systems became a critical component of the infrastructure of global financial markets. Weaknesses in the securities settlement systems could be a source of systemic disturbances to securities markets and to other payment and settlement systems as we could see during the crisis of 1987. Since the late 80’s, we can see a growing concern about the safety and reliability of custody and settlement systems. www.cvm.gov.br

ESTRUCTURA Y PROCESO DE TRABAJO - Cliente - Sociedad corredora - Miembro de compensación - Clearing - Banco liquidador www.cvm.gov.br

PROCESO DE LIQUIDACIÓN FINANCIERA La clearing informa a la corredora, al miembro de compensación y al banco liquidador el monto que debe ser pago/recibido (en términos netos). En D+1 (BMF) o D+3 (CBLC), el banco liquidador tiene su cuenta en el Banco Central de Brasil debitada o acreditada, conforme el caso, en el periodo denominado “ventana de liquidación”. Given the importance of the depositories and securities settlement systems nowadays, these recommendations play a central role in our global financial market. The implementation of these recommendations aims at mitigating risks and enhancing transparency in the securities markets, avoiding crises and protecting investors. These standards have been developed in order to harmonize procedures across markets, improve efficiency and reduce costs for market participants and investors. www.cvm.gov.br

LOS RIESGOS ENFRENTADOS POR LAS CLEARINGS Riesgo de Mercado Riesgo de Crédito Riesgo de Liquidez Riesgo Operacional These recommendations are considered as benchmarks for assessing CSDS, settlement systems and central counterparties around the world. Usually, CSDs are assessed by their own regulators, by multilateral organizations - for example, the international monetary fund and the world bank - and by associations or groups driven by the interests of market participants. International rating agencies also take these standards as benchmarks to assess CSDs and the whole market infrastructure in order to identify risks and assign ratings. CSDS also use the recommendations for self-assessment and implementation of best practices. All these assessments have a strong influence on the decisions of market participants regarding portfolio allocation, driving capital flows among marketplaces. Market liquidity is essentially dependent on confidence in the safety and reliability of depository and settlement arrangements. www.cvm.gov.br

MEDIDAS PARA EL CONTROL DEL RIESGO DE MERCADO   Límites de riesgo para el miembro de compensación / corredora Margen de garantía Test de estrés Value at Risk (VAR) Control del riesgo de mercado de las garantías I would divide the assessment initiatives into three groups: the regulatory bodies initiatives, the market driven initiatives and the rating agencies initiatives. www.cvm.gov.br

MEDIDAS PARA EL CONTROL DEL RIESGO DE CRÉDITO   Análisis de crédito Límite de concentración Margen adicional para posiciones concentradas Control del riesgo de crédito de las garantías www.cvm.gov.br

MEDIDAS PARA EL CONTROL DEL RIESGO DE LIQUIDEZ Contratación de líneas de crédito para liquidez Criterio de Lamfalussy: los sistemas multilaterales de neteo deben poder asegurar el cumplimiento a tiempo de las liquidaciones diarias en caso de que el participante con la mayor posición neta de débito no pueda cumplir con su liquidación Límites de variación de precios. Control del riesgo de liquidez de las garantías The recommendations released by regulatory bodies’ organizations establish minimum requirements for central depositories, securities settlement systems and central counterparties. These requirements should be implemented to guarantee the smooth functioning of the market infrastructure. The main concern here is the health of the whole system. The regulators should work in order to assure that CSD, settlement system and central counterparties have the minimum level of adequate standards in order to promote a safe and reliable environment for foreign and domestic investments. www.cvm.gov.br

MEDIDAS PARA EL CONTROL DEL RIESGO OPERACIONAL  Infraestructura tecnológica adecuada Site de contingencia Auditoria independiente  The Committee on Payment and Settlement Systems (CPSS) together with the International Organization of Securities Commission (IOSCO) formed the CPSS-IOSCO Task Force on securities settlement systems that released two groups of recommendations: (1) the Recommendations for Securities Settlement Systems and (2) the Recommendations for Central Counterparties. The Task Force also released an assessment methodology for the first group of recommendations (Recommendations for SSS). However, the Task Force did not assess any CSD – directly. As a regulator driven forum, it delegated the assessment responsibility to the local market authorities. The local regulators may or may not enforce the adoption and monitor the implementation of these standards. It is worth mentioning that the Task Force was dissolved. The International Monetary Fund and the World Bank also apply these recommendations as benchmarks in their assessment programs, such as the Financial Sector Assessment Program (FSAP), a joint initiative of both institutions. www.cvm.gov.br

METODOLOGÍA DE CÁLCULO DE MARGEN EN LA BMF El Test de Estrés sobre el Valor Presente es utilizado como base para calcular el valor de márgenes para los contratos de futuros y de opciones. These are examples of regional initiatives. The Committee of European Securities Regulators together with the Governing Council of the European Central Banks developed clearing and settlement standards for the European Union based on the CPSS-IOSCO recommendations. These standards have no European Community law status yet, but local regulators are monitoring their implementation. Making these standards an enforceable EU Directive is a possibility now being analyzed. www.cvm.gov.br

EL SISTEMA DE TEST DE ESTRÉS SOBRE VALOR PRESENTE - decompone cada contrato derivado en factores de riesgo para períodos fijos - consolida los factores de riesgo comunes - calcula la pierda/gaño asociada a cada factor de riesgo, dados los escenarios de estrés ya definidos - encuentra el peor escenario para cada factor de riesgo - encuentra la peor combinación de escenarios para todos los factores de riesgo en conjunto The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

EXEMPLO DE DECOMPOSICIÓN EN FACTORES DE RIESGO: EL FUTURO DE DÓLAR Suponiendo que no existan oportunidades de arbitraje, el futuro de dólar, en Brasil, posee 3 factores de riesgo: el valor en efectivo del dólar la curva de interés doméstica en reales la curva de interés doméstica en dólares The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

EXEMPLO DE DECOMPOSICIÓN EN FACTORES DE RIESGO: EL FUTURO DE DÓLAR Los escenarios de riesgo, en la BMF, son definidos semanalmente, para cada factor de riesgo, por ejemplo, como: dólar efectivo: 12% de alta y 10% de baja curvas de interés (US$ y R$): cambios paralelos de +800 y –800 puntos base y cambios no paralelos (cambios de inclinación de las curvas). The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

EXEMPLO DE DECOMPOSICIÓN EN FACTORES DE RIESGO: EL FUTURO DE DÓLAR Son definidos, para: dólar efectivo: 2 escenarios curva de interés (US$): 7 escenarios curva de interés (R$): 7 escenarios Del total de 98 combinaciones posibles, escoge-se la peor para el cálculo de márgenes. The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

TEST DE ESTRÉS EN CBLC Es calculado sometiendo-se los portafolios de los miembros de compensación al test basado en crisis pasadas: México, Asia, Rusia y Brasil, con un nivel de confianza de 99%. Con base en el risco total, se obtiene el valor del Fondo de Liquidación que deberá cubrir los riesgos no capturados por la simulación histórica, al nivel de confianza de 95%. The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

SISTEMAS DE CÁLCULO Y CONTROL DE MÁRGENES EM CBLC CBLC utiliza: Sistema de Control de Límites Sistema de Control de Garantías Sistema CM-TIMS Sistema RiskWatch The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

SISTEMA DE CONTROL DE LÍMITES CBLC, así como BMF, son contrapartes centrales, o sea, substituyen cualquier parte que haga default en la liquidación. Para tratar de eso, CBLC (y BMF) exige que las corredoras y miembros de compensación aporten garantías anteriormente al registro de sus operaciones, sobre cuyo monto será calculado su límite. The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

SISTEMA DE CONTROL DE GARANTÍAS Controla la asignación de garantías y establece un haircut (descuento) sobre su valor. The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

SISTEMA CV-TIMS Controla el cálculo de márgenes en los mercados derivados (termo y opciones), y en el préstamo de títulos. Permite la simulación de márgenes para estos mercados. The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

SISTEMA RISKWATCH Calcula, por simulación histórica, los riesgos de del portafolio de operaciones a liquidar, así como los riesgos del portafolio agregado de operaciones más colaterales depositados por miembros de compensación, lo que permite verificar si los límites operacionales son cumplidos. Son utilizados los últimos 252 días, con la adopción de un nivel de confianza de 95%. Un nuevo sistema, AlgoRisk CS, permite que cualquier participante del mercado, inclusive el inversor final, pueda simular la margen necesaria para hacer frente a los riesgos de su portafolio. The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

LÍMITES DE CONCENTRACIÓN BMF y CBLC mantienen límites de concentración para posiciones en sus mercados de efectivo y derivados, para evitar la ocurrencia de manipulación o corner. The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

LÍMITES DE CONCENTRACIÓN Si no hubiera el límite, y la posición del inversor fuera tan grande que tuviese que ser cerrada: - el cerramiento abrupto poderia impactar los precios de mercado, potenciando el perjuicio de la clearing. - el cerramiento paulatino expondría la clearing por más tiempo al volatilidad del mercado, potenciando también sus perjuicios. The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

LÍMITES DE CONCENTRACIÓN Caso un participante viole los límites establecidos, la clearing puede: - requerir del participante depósito de garantías adicionales - exigir el cerramiento de las posiciones que excedieren a los límites establecidos. The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

LÍNEAS DE CRÉDITO PARA LIQUIDEZ Los participantes de clearings deben liquidar sus obligaciones en los 15 minutos de apertura de la ventana de liquidación. En caso de default de un grande participante, no hay tiempo para liquidar sus garantías; la clearing utiliza, entonces, las líneas de crédito previamente contratadas, con lastre en garantías del participante en default. En CBLC las líneas de crédito llegan a 140 y en la BMF a 600 millones de dólares, considerando también el Banco BMF. The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

LIQUIDACIÓN FÍSICA – TRATAMIENTO DE FALLAS (CBLC) - caso el vendedor de efectivo no disponga de los títulos vendidos hasta las 10hs de D+3, el sistema de liquidación acciona el Préstamo Automático. Habiendo oferta del activo vendido y no entregue, es registrado un préstamo en nombre del vendedor, evitando así la falla en la liquidación - con el Préstamo Automático se permite que el comprador reciba los títulos que compró dentro del plazo - reduje la volatilidad del mercado evitando la emisión de órdenes de recompra The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

FONDO DE LIQUIDACIÓN BMF y CBLC utilizan en la liquidación un modelo mixto, “defaulters pay” y survivors pay”. - BMF mantiene fondo de 36 millones de dólares. - CBLC mantiene fondo de 80 millones de dólares, cuyo valor es calculado diariamente y recompuesto mensualmente. The market driven assessment initiatives are slightly different from those carried out by regulators initiatives. Although they deal with the same issues, they try to push the market toward new standards and enforce the adoption of best practices. I confess that when I was writing this slide I had some doubts whether to consider the AGC (Association of Global Custodians) initiative a market driven initiative or a regulator initiative. I believe it is correct to say that it is a “regulatory motivated initiative”. Anyway, I think it is a mix - a private initiative driven by a regulatory requirement. I decided then to leave the AGC in this group. www.cvm.gov.br

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