32nd Annual International Futures Industry Conference The Brazilian Mercantile & Futures Exchange -...

32nd Annual International Futures Industry Conference

The Brazilian Mercantile & Futures Exchange - BM&F

32nd Annual International FuturesIndustry Conference

32nd Annual International FuturesIndustry Conference

Info ExchangeThe Brazilian Mercantile & Futures Exchange - BM&F

Info ExchangeThe Brazilian Mercantile & Futures Exchange - BM&F

Boca Raton – March 14th 2007Boca Raton – March 14th 2007



• Improved Macroeconomic Fundamentals

Brazilian Business Environment is Attractive toInternational Capital Flows




Enhanced Performance of Brazilian EconomyReflects Upon the Decrease of Sovereign Risk Enhanced Performance of Brazilian Economy

Reflects Upon the Decrease of Sovereign Risk

EMBI BR - Spread Over US Treasury

Source: JP Morgan Securities WC, Emerging Markets Research and Bloomberg

100

200

300

400

500

600

700

800

900

Feb-04 Jul-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07



Building Up International Reserves Protectsthe Brazilian Economy Against External Turbulences

Building Up International Reserves Protectsthe Brazilian Economy Against External Turbulences

Source: Brazilian Central Bank

Brazilian Central Bank International Reserves

0

15

30

45

60

75

90

105

Feb-04 Jun-04 Oct-04 Feb-05 Jun-05 Oct-05 Feb-06 Jun-06 Oct-06 Feb-07

US

$ B

illion

s

101.1



0

500

1,000

1,500

2,000

00 01 02 03 04 05 06

US

$ B

illion

0%

4%

8%

12%

16%

Traded Contracts % of Total Contracts of BM&F

Non-Residents Investors at BM&F

Helping to Attract Non-Resident InvestorsHelping to Attract Non-Resident Investors




• Strong Base to Build Derivatives Business





• World class derivatives exchange and self–regulatory organization

• Markets are supervised by the Brazilian Securities Commission (CVM) and Clearinghouses are regulated by the Brazilian Central Bank (BCB)

• Provides hedge and asset allocation related to the main exposures of the Brazilian economy and exports commodities prices

• The number of traded contracts grew 42.2% in 2006 to USD 283.6 million

• The financial volume increased 38.9% in 2006 to USD 10.6 trillions

• More than 90% of BM&F clients are qualified investors buyers

BM&F HighlightsBM&F Highlights



Source: FIA’s Monthly Volume Reports

199,900,022

155,511,862

104,586,832

84,707,576

New York Mercantile Exchange (Nymex)

National Stock Exchange of India (NSE)

Dalian Commodity Exchange (DCE)

ICE Futures

7th

8th

9th

10th

235,862,979Bolsa de Mercadorias & Futuros (BM&F)6th

1,010,066,878

890,077,317

630,869,854

397,660,221

265,881,288

Chicago Mercantile Exchange (CME)

Eurex Deutchland (EUREX)

Chicago Board of Trade (CBOT)

Euronext

Mercado Mexicano de Derivados (MexDer)

1st

2nd

3rd

4th

5th

Traded Contracts

Jan – Nov 2006

Traded Contracts

Jan – Nov 2006ExchangeExchangeRankRank

One of the Top 10 Futures Exchanges in the WorldOne of the Top 10 Futures Exchanges in the World



BM&F is an Institutional Investor ArenaBM&F is an Institutional Investor Arena

Institutional Investor 23.06%

Financial Institutions

52.25%

Private Individuals6.66%

Foreign Investors 16.30%

Others1.72%

Breakdown by Financial Volume



BM&F Business Model Guarantees the Safetyand Soundness of Brazilian Financial MarketsBM&F Business Model Guarantees the Safetyand Soundness of Brazilian Financial Markets

BM&FTrading and Registration Systems

BM&FTrading and Registration Systems

GOVERNMENTBONDS

Electronic platform SISBEX – trading

OTC registrationplatform

DERIVATIVES

Open outcry

Electronic platform GTS and WebTrading (E-mini)

OTC registration platform

FOREIGN EXCHANGE

OTC registration platform

Open outcry

Settlement Bank 2004

Settlement Bank 2004

DerivativesClearinghouse

1986

DerivativesClearinghouse

1986

SecuritiesClearinghouse

2004

SecuritiesClearinghouse

2004

FXClearinghouse

2002

FXClearinghouse

2002



Growth of Daily Traded Volume at BM&FGrowth of Daily Traded Volume at BM&F

CAGR = 28%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

00 01 02 03 04 05 06 Jan-Feb07

Th

ou

san

d C

on

tracts



Increasing and Steady Open Interest at BM&FIncreasing and Steady Open Interest at BM&F

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

00 01 02 03 04 05 06 Feb-07

Th

ou

san

d C

on

tracts



SWAPS

- INTEREST RATE

- EXCHANGE RATE

- PRICE INDEX

- STOCK INDEX

- GOLD

FLEXIBLE OPTIONS

- STOCK INDEX

- EXCHANGE RATE

- INTEREST RATE

FUTURES & OPTIONS

- STOCK INDEX

- INTEREST RATE

- EXCHANGE RATE

- DOLLAR DENOMINATED DOMESTIC YIELD CURVE

- INTEREST RATE X PRICE INDEX

(PPI/CPI) SPREAD

- PRICE INDEX (PPI/CPI)

- SOVEREIGN DEBT BOND - GLOBAL BOND

- A BOND

- US TREASURY

STRUCTURED PRODUCTS

- SPREAD STRATEGIES

- VOLATILITY TRADING

- STOCK INDEX

- INTEREST RATE

- EXCHANGE RATE

- FORWARD RATE AGREEMENTS

What Can You Trade at BM&F? What Can You Trade at BM&F?

FUTURES & OPTIONS

- - ARABICA COFFEE

- CONILLON COFFEE

- SUGAR

- ETHANOL

- COTTON

- CORN

- SOYBEAN

- LIVE CATTLE

- FEEDER CATTLE

SPOT

- GOLD

- U.S. DOLLAR EXCHANGE RATE

OTCDERIVATIVES

OTCDERIVATIVES

FINANCIALDERIVATIVESFINANCIAL

DERIVATIVESCOMMODITYDERIVATIVESCOMMODITYDERIVATIVES



BM&F - Full Fledged Exchange Offering Solutionsto Non-Resident Investors

BM&F - Full Fledged Exchange Offering Solutionsto Non-Resident Investors

Feb’07

BM&F Product Breakdown

Exchange Rates 25.61%

Interest Rates 66.38%

Stock Indices 6.96%

OTC Market 0.63%

Agricultural Commodities

0.42%



A Sharp Increaseof Non-Resident Participation at BM&F

A Sharp Increaseof Non-Resident Participation at BM&F

• 41 million traded contracts (05 78.5%)

• Average traded volume of 166 thousand contracts (05 81.4%)

• 14.7% of negotiated contracts (05 25.5%)

• USD 1.6 trillion in financial volume (05 66.0%)

• Average daily financial volume of USD 6.3 billion (05 68.7%)

• 14.8% of the total financial volume negotiated (05 20.3%)



7.4

3.11.3

14.1

25.4

12.4

13.3%

7.4%

10.6%

7.7%

18.3%17.7%

Interest Rates Exchange Rates Stock Indexes

2005 2006 Relative Participation 2005 Relative Participation 2006

Million Contracts

Non-Resident Investors Are Trading More Contractsin the Most Liquid Markets

Non-Resident Investors Are Trading More Contractsin the Most Liquid Markets



353.8

67.844.5

530.5

993.7

482.2

13.5%

9.5%

20.0%21.3%

22.0%

17.3%

USD Billion

Interest Rates Exchange Rates Stock Indexes

Non-Resident Investors Are Increasing Volumesin the Most Liquid Markets

Non-Resident Investors Are Increasing Volumesin the Most Liquid Markets




7.514.2

1.13.6

21.5%

4.0%

7.9%

1.9% 1.7%

10.1%

Agricultural Commodities Gold Sovereign Bonds

Thousand Contracts

Non-Resident Investors Are Trading MoreAgricultural Commodities Markets Contracts

Non-Resident Investors Are Trading MoreAgricultural Commodities Markets Contracts


105.7

135.5



1,196.0

16.9

840.5

75.0

1,447.7

6.5

5.6%5.3%

11.8%11.9%

1.7%0.6%

USD Million

Agricultural Commodities Gold Sovereign Bonds

Non-Resident Investors Participation is Increasing in the Agricultural Commodities Markets

Non-Resident Investors Participation is Increasing in the Agricultural Commodities Markets




Pledged Collateral by Non-Resident InvestorsWill be Facilitated in New York

Pledged Collateral by Non-Resident InvestorsWill be Facilitated in New York

0%

5%

10%

15%

20%

01 02 03 04 05 06



• Clears, guarantees and settle every contract traded at BM&F

• Average daily trading volume: 1.8 million contracts

• Average daily notional financial volume: USD 64 billion

• Open interest: 13.71 million contracts

• Open interest notional financial value: USD 656 billion

• Value deposited as collateral: USD 28.3 billion

Derivatives ClearinghouseCCP to Every Contract Traded at BM&F

Derivatives ClearinghouseCCP to Every Contract Traded at BM&F

Feb’07



BM&F’s financial safeguard system is based on self contained layers of protection facilitated by a defaulter, survivor, and third party payment structure

BM&F’s has expertise in dealing with unexpected volatility peaks and a capacity to handle a boost in the settlement volume

BM&F utilizes state-of-the-art risk management procedures to mitigate market and counterparty risk

Why it is Safe to Trade at BM&F?Why it is Safe to Trade at BM&F?



CustomerCustomer CustomerCustomer LocalLocal CustomerCustomer

BrokerageHouse

BrokerageHouse

BrokerageHouse

BrokerageHouse

BrokerageHouse

BrokerageHouse

Derivatives Clearinghouse Participant Structure Derivatives Clearinghouse Participant Structure

BM&F Participants StructureBM&F Participants Structure

BM&FBM&F

ClearingMemberClearingMember

ClearingMemberClearingMember



CustomercollateralCustomercollateral USD 28.3 billionUSD 28.3 billion

Feb’07

Derivatives Clearinghouse Sound Safeguards System Derivatives Clearinghouse Sound Safeguards System



Sturdy and Conservative CollateralizationSturdy and Conservative Collateralization

Feb’07

BM&F Derivatives Clearinghouse Collateral Composition

Gold 0.05%Other Assets

0.87% Stocks 4.15%

Federal Government

Bonds 87.13%

BankCDs

2.56%Letters of

Credit 5.23%



Brokerage Houseproprietary collateral

Brokerage Houseproprietary collateral

CustomercollateralCustomercollateral

Clearing FundClearing Fund USD 80 millionUSD 80 million

Clearing Memberproprietary collateral

Clearing Memberproprietary collateral

Joint and severalequity liability

Joint and severalequity liability

USD 28.3 billionUSD 28.3 billion

Mutualized FundsMutualized Funds USD 40 millionUSD 40 million

Clearing MemberClearing Member

BrokerageHouse

BrokerageHouse

CustomerCustomer

Feb’07

USD 469 millionUSD 469 million BM&F equity BM&F equity

Guarantee Fund

Guarantee Fund

USD 45 millionUSD 45 million

Derivatives Clearinghouse Sound Safeguards System Derivatives Clearinghouse Sound Safeguards System



High Standards for Liquidity Risk ManagementHigh Standards for Liquidity Risk Management

Achievement of Lamfallusy Plus Criteria

2002/2003 Event

May 2006 Event

Access to Central Bank Discount Window

Access to Central Bank Discount Window

0

100

200

300

400

500

600

700

800

900

12

/01

06

/02

12

/02

06

/03

12

/03

06

/04

12

/04

06

/05

12

/05

06

/06

12

/06

US

D M

illion

Sum of the two largest clearing members' settlement debts BM&F credit facilities



Intraday riskcalculation

Intraday riskcalculation

Portfolio stresstesting

Portfolio stresstesting

Economic outlookanalysis and

Extreme Value Theory Models

Economic outlookanalysis and

Extreme Value Theory Models

Collateralmarket riskCollateral

market risk

Credit analysisCredit analysis

Concentrationlimits

Concentrationlimits

Additionalmargin callsAdditional

margin calls

Collateralcredit riskCollateralcredit risk

Central Bankdiscount window

and 5 bankingrepo facilities

Central Bankdiscount window

and 5 bankingrepo facilities

Pricevariation

limits

Pricevariation

limits

Achievement ofLamfalussyPlus Criteria

Achievement ofLamfalussyPlus Criteria

Collateralliquidity risk

Collateralliquidity risk

Businessrecovery plan

Businessrecovery plan

Contingencyhot site

Contingencyhot site

Independentinternal and

external audits

Independentinternal and

external audits

ISO 9001complianceISO 9001

compliance

BrazilianPayment System

BrazilianPayment System

Law 10214Law 10214

Finalityand netting

Finalityand netting

InsolvencyprotectionInsolvencyprotection

Market RiskMarket Risk Credit RiskCredit Risk Liquidity RiskLiquidity Risk OperationalRisk

OperationalRisk Legal RiskLegal Risk

BM&F Derivatives Clearinghouse Risk ManagementBM&F Derivatives Clearinghouse Risk Management

Efficient and Modern Risk ManagementEfficient and Modern Risk Management



• The world’s first clearing and settlement system for interbank FX market

• 95% market share on T+1 and T+2 BRL/USD FX Transactions

• 72 participating banks

• Average daily registered gross volume: USD 2.5 billion

• Average daily net settled volume: USD 932 million

• 81% of netting power

• The Clearinghouse mitigates principal, volatility, and operational risks through DVP, pre-pledged collateral and deferred net settlement

Foreign Exchange ClearinghouseCCP for Interbank FX TransactionsForeign Exchange Clearinghouse

CCP for Interbank FX Transactions



BM&F FXClearinghouse

Central Bank

CorrespondentBank abroad

Bank of America


Citibank


StandardChartered

Foreign currency settlement account

LocalcurrencysettlementaccountCorrespondent

Bank abroad

Wachovia Bank

FX Clearinghouse Settlement AccountsFX Clearinghouse Settlement Accounts



• Renders registration, clearing and settlement services for federal government bonds cash transactions on the spot market

• Provides services that contributes to higher liquidity and lower operational and credit risks

• General and specific collateralized repos for the cash driven and securities driven repo markets

• Settlement of primary government auctions

• Securities lending facility

• Average daily volume of USD 6.5 billion (Mar-06 to Feb-07)

• Clearing 41% of the Brazilian repo market, i.e., the “on the run” National Treasury Bills trading (LTN)

Securities ClearinghouseCCP and SSS for government Bonds

Securities ClearinghouseCCP and SSS for government Bonds



REAL-TIME QUOTESREAL-TIME QUOTES

REFERENCE PRICESREFERENCE PRICES

NEWSNEWS

AUCTIONSAUCTIONS

Sisbex ScreenSisbex Screen



• The business model is based on three pillars

• Risk management mitigation – Access to Brazilian Central Banking reserves accounts, efficiency of margin charge and allocation, and a full platform integrated to the BM&F clearing systems

• Settlement facilities – Real time collateral management and liquidity assistance trough repo transactions and FX services for non-resident investors

• Custody – Pre-matching and post trading reconciliation of securities positions under fiduciary ownership of the CSDs

• A wholly-owned BM&F subsidiary, with capital of USD 11 million

• STP structure not exposed to market and credit risks

• Services 50% of BM&F’s members

Settlement BankEnhances Competitiveness of Brokers and Clearing Members

Settlement BankEnhances Competitiveness of Brokers and Clearing Members







• Sound Regulatory Framework for Investments



Resolution 2689 – An Efficient Legal Gateway forNon-Resident Investors to Access Brazilian Markets

Resolution 2689 – An Efficient Legal Gateway forNon-Resident Investors to Access Brazilian Markets

• Allows nonresidents investors to invest in the Brazilian capital and financial markets, including BM&F’s products

• Focuses on foreign institutional investors, financial institutions, corporations, and individuals

• Creates a Privileged Taxation Regime for Non-Resident Investors from Non-Tax Havens

• Makes foreign investment more efficient

• Eliminating investment restrictions

• Simplifying procedures

• Creating operational safety



Resolution 2689 – A Step by Step Processfor Non-Resident Investors Access to BM&FResolution 2689 – A Step by Step Process

for Non-Resident Investors Access to BM&F

1. Select a legal representative in Brazil

2. Receive a registration number from CVM

3. Select a local custodian

4. Select a BM&F Brokerage House member

5. Provide documents required

6. Select a Brazilian bank FX transactions

7. Starts to trade







• Sound Regulatory Framework for Investments

• Following Global Tendencies



Volumes are Moving to Our Electronic Trading SystemVolumes are Moving to Our Electronic Trading System

92.9

7.1

87.6

12.4

78.8

21.2

74.9

25.1

66.6

33.4

51.848.2

46.0

54.0

01 02 03 04 05 06 Jan-Feb07

Open Outcry Electronic Trading



WebTrading FacilityWebTrading Facility



Number of Traded Contracts (WebTrading)

The WebTrading Volume Reached8.8 million Contracts Traded in 2006 The WebTrading Volume Reached

8.8 million Contracts Traded in 2006

0

1,000

2,000

3,000

4,000

1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 Jan-Feb07

0%

2%

4%

6%

8%

10%

Th

ou

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tracts

% of Contracts Traded Electronically (WebTrading + GTS)



• Electronic Certified Emission Reduction Auctions• Web based trading system• To be scheduled on demand

• Direct Access to Authorized Participants• BM&F Brokers• Carbon Funds• Carbon Brokers/Traders• Government Entities• Multilateral Organizations

• First Stage• Spot market (already issued CERs)• Clearing:

• Delivery Versus Payment• CER Physical Delivery: CDM Registry UN / EU ETS

• Full integration with BM&F Carbon Facility

Carbon Trading SystemCarbon Trading System



BM&F Carbon FacilityBM&F Carbon Facility



Demutualization: A Tendency Adopted by the Top ExchangesDemutualization: A Tendency Adopted by the Top Exchanges

• Creates competitive advantages

• Maximizes the value of members’ titles

• Provides access to capital markets to boost investments on new projects

• Creates opportunities to businesses combinations, joint ventures, and strategic alliances with other exchanges and markets participants



Demutualization AgendaDemutualization Agenda

• Demutualization approved by General Meeting of Members in December 2006

• Appointment of Rothschild as advisor

• Expected changes on Bylaws and corporate structures in July 2007

• Regulatory approvals

• IPO expected to be conclude at the end of 2007



BM&F New York OfficeBM&F New York Office

Phone (1-212) 750-4197Phone (1-212) 750-4197

BM&F Shanghai OfficeBM&F Shanghai Office

Phone (86-21) 5037-2886Phone (86-21) 5037-2886

BM&F HeadquartersSão Paulo

BM&F HeadquartersSão Paulo

Phone (55-11) 3119-2320Phone (55-11) 3119-2320

[email protected]



www.bmf.com.brwww.bmf.com.br

The Brazilian Mercantile & Futures Exchange – BM&F



Boca Raton – March 14th 2007

32nd Annual International Futures Industry Conference The Brazilian Mercantile & Futures Exchange -...

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