## cr18342 ## Source details **Canonical URL:** [cr18342](https://www.imf.org/-/media/files/publications/cr/2018/cr18342.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2018/cr18342.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2018/cr18342.pdf.json) --- ### Executive summary — key findings - Sixteen financial market infrastructures (FMIs) operate in the Brazilian payment system (SPB). - Nine FMIs are systemically important. - Four FMIs belong to the top twenty FMIs in the world. - In terms of value of transactions: - STR (Sistema de Transferência de Reservas), the Brazilian Real Time Gross Settlement system (RTGS), is the backbone of the SPB and belongs to the top ten large value payment systems worldwide. - SELIC is among the top ten central securities depository/securities settlement systems (CSD/SSSs). - CETIP is among the top twenty SSSs. - BM&FBOVESPA Clearinghouse, the largest central counterparty (CCP) in Latin America, belongs to the top ten. - Brazilian post-trading services are integrated: entities providing securities settlement services also provide other post-trade processing, acting both as a clearing house and a CSD or as a trade repository (TR). - FMIs concentrate risks (especially CCPs, which take on credit and liquidity risks) but can reduce systemic risk through netting and imposing risk controls. - Supervision and oversight by Banco Central do Brasil (BCB) and Comissão de Valores Mobiliários (CVM) are broadly in compliance with the CPSS-IOSCO Principles for Financial Market Infrastructures (PFMI), but adjustments are recommended. ### Supervision and oversight — observations and recommended adjustments - Objectives of oversight: - BCB oversight: “maintain the soundness, efficiency, and proper functioning of the National Financial System and of the infrastructure of the financial market”. - CVM supervision: ensure the “efficient and regular functioning of the stock and over-the-counter (OTC) markets, ensure the observance of fair trade practices in the securities market”. - Recommended supervisory and oversight actions: - CVM should disclose it has adopted the PFMI, disclose its specific objectives for supervision of FMIs, and consider producing a supervisory report disclosing its supervisory findings. - BCB should establish separate escalation and reporting lines to the Board of Governors as operator and as overseer of the public-sector owned RTGS. - BCB should ensure publication of disclosure frameworks by all systemically important FMIs. - Risk management enhancements since the 2012 FSAP: - Definition by BM&FBOVESPA Clearinghouse of critical processes and risk appetite. - Introduction of a skin-in-the-game contribution for CCPs in their default waterfall. - Adoption of a new and more efficient risk management model (CORE). - Identification of interdependencies among FMIs and critical service providers. - Areas needing continued or additional attention: - Risks from interdependencies and critical service providers, including business continuity. - Cyber resilience and implementation of CPMI–IOSCO Guidance on cyber resilience for FMIs. - Mitigating risks from severe outages at STR. - Enhancing BCB oversight framework for the Assessment Methodology for the Oversight Expectations of critical service providers to FMIs (Annex F to the PFMI). - Clarifying and documenting coordination among authorities during a (non-resolution) crisis and considering a joint crisis management plan. ### Risk management of BM&FBOVESPA Clearinghouse and B3 — findings and actions - Positive developments: - BM&FBOVESPA Clearinghouse defined critical processes and risk appetite. - Introduced skin-in-the-game in the default waterfall. - Adopted the CORE margin and risk management model. - Areas requiring further action: - B3 should finalize its Recovery Plan consistent with CPMI–IOSCO Guidance; the plan is still at an early stage. - The plan should envisage various extreme stress scenarios (default and non-default related), ensure continuity of critical services, mitigate contagion to participants, and include appropriate recovery tools backed by agreements with relevant decision makers. - No specific regulation in Brazil for orderly resolving a CCP; authorities are working on a draft resolution bill. - A CCP resolution regime consistent with FSB guidance and the Key Attributes for an Effective Resolution Regime is required. - The draft resolution bill should account for FMI specificities, allow market participants to measure and manage risks when exposed to the CCP, and not introduce provisions to hinder indirect access by the CCP to emergency liquidity assistance (ELA) via the conglomerate's bank. ### Main recommendations — supervision and oversight of FMIs (selected) - BCB should require all systemically important FMIs to publish qualitative disclosures in compliance with Principle 23 of PFMI and for CCPs with Public quantitative disclosure standards for central counterparties — ST - CVM should disclose it has adopted the PFMI, its specific objectives for the supervision of FMIs, and consider producing a supervisory report disclosing its findings — ST - BCB should establish separate escalation and reporting lines to the Board of Governors as operator and as overseer of STR — NT - The authorities should follow the evolution of the draft resolution bill and follow up regulation to ensure it is appropriate for FMIs, compliant with the FSB Key Attributes for an Effective Resolution Regime and it does not hinder indirect access by CCPs to emergency liquidity assistance (CMN, BCB, CVM) — MT - The BCB should ensure the implementation of action plans resulting from the interdependencies mapping among FMIs and critical service providers — ST - The authorities should continue fostering the implementation of the CPMI IOSCO Guidance on cyber resilience for FMIs in their supervision and oversight plan (BCB, CVM) — ST - BCB should continue enhancing its oversight framework regarding the Assessment Methodology for the Oversight Expectations of critical service providers to FMIs (Annex F to the PFMI) — ST - BCB should remain diligent on timeframes for operators of FMIs to implement corrective action plans to address identified deficiencies — ST - The authorities should clarify and document how they would coordinate during a (non-resolution) crisis and consider the possibility of establishing a joint crisis management plan — NT (Timeframe notation: “Short-term” is within one year; “near-term” is one to three years; “medium-term” is three to five years.) ### Main recommendations — risk management of B3 and BM&FBOVESPA Clearinghouse (selected) - B3 should finalize its Recovery Plan. This should include ensuring continuity of critical services, and comprehensive recovery tools while avoiding contagion to market participants — ST - BM&FBOVESPA Clearinghouse should analyze its model performance and overall margin coverage by conducting sensitivity analysis on its margin model coverage at least monthly — ST - In the stress scenarios for measuring its liquidity risk, including but not limited to the default of the participant and its affiliates that would generate the largest aggregate liquidity obligation, BM&FBOVESPA Clearinghouse should take into account the default of affiliates of the participant who are not customers of this participant — ST - BM&FBOVESPA Clearinghouse should develop dialogue regarding how to implement the transfer of positions in case a large broker and/or clearing member defaults and involve its participants and their customers in the testing and review of its default procedures at least annually — ST - B3 should consider acquiring the ability of testing the upgrades in the application softwares for their data centers regularly in the secondary data centers after implementation in the main data center — NT - B3 should continue enhancing its cyber risk management framework in compliance with the June 2016 CPMI IOSCO Guidance on cyber resilience for FMIs — ST - B3 should continue developing and implementing the action plans resulting from the mapping of interdependencies among itself and other FMIs and critical service providers — ST ### PFMI Responsibilities A–E (Box 1) - Responsibility A: Regulation, supervision, and oversight of FMIs — FMIs should be subject to appropriate and effective regulation, supervision, and oversight by a central bank, market regulator, or other relevant authority. - Responsibility B: Regulatory, supervisory, and oversight powers and resources — Central banks, market regulators, and other relevant authorities should have the powers and resources to carry out effectively their responsibilities in regulating, supervising, and overseeing FMIs. - Responsibility C: Disclosure of policies with respect to FMIs — Central banks, market regulators, and other relevant authorities should clearly define and disclose their regulatory, supervisory, and oversight policies with respect to FMIs. - Responsibility D: Application of the principles for FMIs — Central banks, market regulators, and other relevant authorities should adopt the CPSS-IOSCO Principles for financial market infrastructures and apply them consistently. - Responsibility E: Cooperation with other authorities — Central banks, market regulators, and other relevant authorities should cooperate with each other, both domestically and internationally, as appropriate, in promoting the safety and efficiency of FMIs. ### Landscape of FMIs and major infrastructures - Sixteen FMIs in Brazil; nine qualified by BCB as systemically important. - Four Brazilian FMIs belong to the top twenty FMIs globally. - Major FMIs: - STR: RTGS operated by BCB; settles funds transfers in accounts at BCB; connected via RSFN for funds settlement; settles monetary, foreign exchange and capital market transactions; net positions of clearing and settlement systems are settled through STR. - SELIC: BCB-operated CSD/SSS that settles trades with government securities in real time; securities can be settled with multilateral netting through BM&FBOVESPA Debt Securities Clearinghouse though since June 2013 almost no trades were submitted there. - CETIP: Privately owned CSD/SSS and TR; records OTC derivatives and private fixed income bonds; CSD of corporate debt securities and some government securities; merged with BM&FBOVESPA but kept CSD operation separate from CCP operation. - BM&FBOVESPA Clearinghouse / B3: Largest CCP in Latin America and one of the top 10 CCPs in the world; B3 established March 2017 from BM&FBOVESPA and CETIP merger; B3 operates trading and post-trading systems and services for equities, financial and commodity derivatives, bonds, federal government debt securities, spot currencies and agricultural commodities; offers infrastructure for registration of OTC unlisted products; operates 2 CSDs, 4 SSSs, 3 CCPs, one PS and 4 TRs as operational departments under B3. ### Integration and post-trade developments - BM&FBOVESPA post-trade integration project (IPN): - Objective: create an integrated clearinghouse. - On August 28, 2017, scope extended by migrating equity and corporate fixed income markets into a new infrastructure integrated with derivatives and commodities markets. - At project end (schedule not finally decided), when the two remaining CCPs (BM&FBOVESPA Cambio (FX) and BM&FBOVESPA Debt Securities Clearinghouse) are integrated, B3’s clearing, settlement and CCP services will have: - a single set of rules, a single participant structure and register, - unified processes for position allocation, clearing and control, - a single settlement window, - a single risk management system, - a single collateral pool, - a single safeguard structure. - Stated participant benefits: better liquidity management, more efficient capital allocation, more efficient margin calculation, and lower operational risk. ### Structural and operational specificities of the Brazilian framework - Post-trade identification of the final beneficial owner is mandatory. - OTC derivatives trades are only valid if registered. - Almost all securities are dematerialized. - Trading, clearing and settlement systems are automated and STP widely used. - Delivery versus payment (DVP) is observed in all securities settlement systems. - Dark pools and order internalization are not allowed. ### Supervisory and oversight framework: authorities and responsibilities - Key authorities and roles: - National Monetary Council (CMN): policy committee; issues general guidelines; does not have supervisory powers. - Central Bank of Brazil (BCB): empowered to regulate, authorize functioning and oversee FMIs involving settlement (PS, SSS and CCPs); oversight competencies include approval of rules, approval of risk models, monitoring, on-site inspection, enforcement of corrective actions; BCB discloses policies/objectives in its Oversight report published annually since 2013; BCB issued Policy Statement 25,097 in January 2014 committing to apply the PFMI. - Brazilian Securities Commission (CVM): jurisdiction over market participants under Securities Law 6385/76 for market integrity and investor protection; CVM and BCB have shared responsibilities over SSSs, CSDs and TRs; CVM competent for company-level corporate governance of CCPs; BCB competent for the whole of PFMI including governance at CCP level. - Coordination: - Coordination between BCB and CVM established via CMN Resolutions and an MoU allowing information sharing and coordinated activities. - Authorities considering a comprehensive bill to clarify fields of competence, consolidate dispersed legislation, and incorporate internationally accepted classification of FMIs. - Self-regulatory arrangements: - Organized securities markets, clearinghouses, CSDs and TRs considered ancillary organs of CVM with delegated self-regulatory authority. - B3 incorporated BSM as a special-purpose vehicle for self-regulation; BSM Board: at least 2/3 independent members; presently out of 12 members, 9 are independent; Board members have a 3 years fixed term. ### Regulation, supervision and transparency (analysis and PFMI application) - BCB Circular 3057 Article 8 designates systemically important FMIs using criteria including settlement systems for financial assets and systems for interbank funds transfer with daily turnover above 4 percent of the STR average turnover. - Identified systemically important FMIs include STR, BM&FBOVESPA FX, SELIC, BM&FBOVESPA Central Security Depository, CETIP, BM&FBOVESPA Clearinghouse, CIP–C3, BM&FBOVESPA Securities, and B3’s three CCPs. - BCB oversight practices: - Applies PFMI in oversight; systemically important FMIs must comply with all PFMI. - Monitors operational risk indicators (availability index, number of failures and capacity utilization) and financial risk indicators for CCPs. - Performs annual on-site inspections lasting up to a month; action plans result but implementation can be slow. - CVM supervision and disclosure: - Requires certification of PFMI compliance for authorization of CSDs and TRs (Instructions 461 modified by 544, and 541). - Supervision through cooperation with BCB, review of BSM reports, market surveillance agreements with IRD within B3, and reporting by B3 compliance and internal control department. - CVM should consider defining and disclosing specific objectives for supervision of FMIs and disclose it has adopted the PFMI. ### Supervisory and oversight framework — main findings (Responsibility B, E) - BCB assesses payment and settlement systems it operates against the PFMI similarly to other systemically important FMIs. - The PFMI requirements "not applicable to FMIs operated by central banks" are not applied in oversight of systems operated by BCB. - Where necessary, BCB defines action plans to remedy deficiencies; implementation should be accelerated. - Several mitigation measures identified after the 2012 FSAP to address systemic impact from a severe disruption of STR remain pending implementation; some measures have a deadline until 2018. - Conflict of interest and reporting lines: - BCB, as operator and overseer, does not have separate reporting and escalation lines to the Board of Governors for STR. - Within BCB, Deban operates and oversees STR with Gemon operating STR and Diesp and Dirog overseeing STR; organizational separation exists up to the head of Deban but best practice suggests separate reporting lines to the Deputy Governor. - Cyber resilience: - Cyber risk recognized as a major threat; authorities should foster implementation of the CPMI–IOSCO 2016 Guidance on cyber resilience. - BCB intends to communicate on the Guidance through the FMI Forum. - Cooperation and crisis management: - MoU formalizes cooperation and information sharing between BCB and CVM. - No FMI-specific (non-resolution) crisis management arrangements developed between BCB and CVM describing supervisory responsibilities in case of market wide financial or operational crisis. - Authorities should develop a crisis coordination framework outlining primary responsibilities, decision trees, key contacts, and consider a joint crisis management plan. - B3 should finalize a robust and effective recovery plan for BM&FBOVESPA Clearinghouse consistent with PFMI and CPMI–IOSCO guidance. - No specific regulation for orderly resolving a CCP; FMIs subject to Bankruptcy Code (Law 11,101/05) in case of insolvency; BCB, CVM and SUSEP prepared a draft Resolution bill with BCB as resolution authority; draft must account for FMIs’ specificities and not hinder indirect CCP access to ELA via the conglomerate's bank. - Oversight expectations for Critical Service Providers (Annex F): - BCB should continue enhancing oversight framework regarding the Assessment Methodology for Oversight Expectations of CSPs to FMIs (Annex F). - Annex F expectations: (i) strong risk identification and management; (ii) robust information security management; (iii) reliability and resilience; (iv) effective technology planning; (v) strong communications with users. - BCB plans to require FMIs to assess their CSPs and establish action plans to address gaps. ### Analysis of BM&FBOVESPA Clearinghouse risk management framework — governance and corporate structure - B3 is a vertically integrated multi-asset multi-market listed entity operating BM&FBOVESPA; FMIs operated as operational departments (not subsidiaries) create spill-over risk. - B3 uses individual customer segregation model for trading, registration and post-trading. - Board of Directors: composed of 11 members (temporary composition of 14 with 8 independent members due to merger); six independent members including the Chairman. - Ownership structure (last updated on 09/22/2017): - Capital World Investors: 198,618,595 common shares — 9.65% — Last changed 4/4/2017 - Funds managed by OppenheimerFunds, Inc.: 133,741,768 common shares — 6.50% — Last changed 10/8/2015 - Funds Managed by BlackRock, Inc.: 92,434,646 common shares — 4.49% — Last changed 8/11/2015 - Other: 1,614,054,476 common shares — 78.38% — Last changed 8/31/2017 - Treasury stock: 20,289,005 common shares — 0.98% — Last changed 8/31/2017 - Total: 2,059,138,490 common shares — 100.00% - Corporate governance/risk management structured along four lines of defense. - Risk appetite: - Board defined a low appetite for CCP risk. - Financial resources and qualified liquid resources should be sufficient to cover credit and liquidity risks under multiple stress scenarios with a 99,96 percent market risk confidence level. - Transparency and stakeholder mechanisms: - 2017 disclosures in accordance with CPMI-IOSCO qualitative and quantitative requirements. - Simulation system for margining based on CORE offered to intermediaries and clearing members. - Advisory committees for clearing members, brokers, investors, custody agents. - Dialogue on default procedures and portability is limited; porting cannot be assumed possible for all positions. ### Model testing, validation, monitoring and CORE margining system - Model validation: - DCR analyses logical aspects, conceptual soundness, consistency, implementation, validation and monitoring accuracy; independent of model development; models are subject to BCB authorization. - Ongoing monitoring: - Daily back testing of initial margin and stress testing of pre-funded financial resources. - CORE margining system: - Calculates portfolio risk at individual customer level; measures worst cash flow requirement during close-out; close-out period between 1 and 10 days. - Uses full valuation under 10,000 scenarios for each risk factor. - Confidence level at least 99.96 percent. - Scenarios include historical look-back from 2002 to 2016, quantitative extreme but plausible scenarios, and prospective “what if” scenarios. - Market Risk Technical Committee re-examines parameters every fortnight or as necessary. - Liquidity stress testing follows six scenarios; backtesting daily; monthly tests check timely access to liquidity facilities. ### Recovery and wind-down planning - BM&FBOVESPA identified four scenarios threatening continuity and viability. - B3’s rulebooks contain tools similar to recovery tools but do not meet guidance requirements: not comprehensive and effective in reliability, timeliness and legal basis. - Recommendation: finalize a recovery plan compliant with PFMI ensuring continuity of critical services and mitigating contagion with appropriate recovery tools backed by agreements and explicit deadlines. ### Margin arrangements, pro-cyclicality and collateral practices - CORE methodology specifics: - 10,000 scenarios per risk factor; close-out period 1–10 days; confidence level at least 99.96 percent; used for all products. - Operational margin practices: - Marked-to-market values update margin requirements and margin calls daily. - Additional margin for positions exceeding concentration limits. - Intraday collateral may be required; intermediaries’ balances should be positive at all times. - Risk Management Department conducts daily margin backtesting and daily monitoring of market risk scenarios. - Recommendations: - Sensitivity of margin model coverage should be tested using a wide range of parameters and assumptions at least monthly. - Procyclicality mitigation: - CORE includes stress scenarios combining fat tails and volatility fluctuations. - Parameters are unconditional and exogenous to the model. - CORE accounts for average daily liquidity to determine maximum number of contracts CCP can closeout during holding period. - Collateral and wrong-way risk: - More than 95 percent of collateral posted consists of Brazilian government bonds; average haircut less than 1 percent. - Wrong-way risk prevented by not accepting securities issued by a clearing participant or its group affiliates as collateral. - Concentration limits imposed. ### Credit risk, liquidity risk and operational risk — key elements - Credit risk: - Three main types identified: (i) provider of infrastructure settlement processes; (ii) default by one or more participants and market/liquidity risks in closeout; (iii) credit risk associated with issuers of assets used in safeguard structures. - Credit stress tests assume default by two participants and their affiliates; financial resources assessed to cover default of the two participants and their affiliates with higher severity than margin calculations. - Replenishment of the default fund capped in any 20-day period to three times the value of the non-defaulting clearing member’s contribution. - Clearinghouse not exposed to settlement bank default since it uses its own account with BCB in STR. - Liquidity risk: - Monitoring components: settlement values and collateral monetization analysis. - Qualifying liquid resources: dedicated credit lines from top-tier banks; liquidity assistance from BM&FBOVESPA Bank; cash dedicated by the CCP; Brazilian Government bonds in the Settlement Fund; BM&FBOVESPA Clearinghouse free cash flow. - Stress tests show liquid resources sufficient to cover default of the clearing member owing the largest settlement obligation; CCP also stress tests simultaneous default of two clearing members. - In individual customer segregation model, each affiliate clearing through parent is counted as any customer for largest exposure calculations. - Operational risk: - Operational risk management framework aligned with Corporate Risk Management, Operational Risk and Internal Control Policies; Board revises these at least annually. - Information security based on ISO 27000 family; Security Operations Centre (SOC) operates 24/7. - Business continuity: recovery time objective two hours (RTO = Two hours) and recovery point objective RPO = 0 for mission-critical processes; business continuity plans tested at least annually; participants and suppliers invited to testing at least once a year. - PFMI quantitative disclosure Q2 2017: actual availability of the core system over previous 12 months: 99,994 percent. - Technology architecture: primary and secondary data centers 20 kms apart; synchronous data replication. ### Appendix IV — selected quantitative disclosures and statistics (BM&FBOVESPA Clearinghouse) - Credit Risk / Margins (selected figures): - Minimum requirement the CCP is subject to in relation to total pre-funded default resources: Cover 2 - 1.3 Peak Day Amount In Previous 12 Months: 1.155.000.000 - 1.3 Mean Average Over Previous 12 Months: 299.000.000 - 1.7 Peak Day Amount In Previous 12 Months: 1.308.000.000 - 1.7 Mean Average Over Previous 12 Months: 468.000.000 - 1.11 Value of pre-funded default resources (excluding initial and retained variation margin) held in total: - Pre-haircut 3.828.254.819 - Post-haircut 3.799.440.678 - 2.1 Number of times over the past 12 months that margin coverage held against any account fell below the actual marked-to-market exposure: 316 - 2.2 Frequency of daily back-testing result measurements: Once a day - 2.3 Time of daily back-testing result if measured once a day: End of day - 2.4 Number of observations: 7.428 - 2.5 Achieved coverage level: 99,98% - 2.6 Peak size of uncovered exposure where breaches occurred: 13.776.335 - 2.7 Average size of uncovered exposure where breaches occurred: 28.93 - ClientIM_PreHaircut: 194.319.215.295 - ClientIM_PostHaircut: 192.566.819.854 - Liquidity Risk / Liquid resources (selected figures): - Same Day Payment_Total: 8.202.000.000 - Same Day Payment: 8.202.000.000 - Same Day Payment_Total (Amount Exceeded): 2.807.892.046 - Same Day Payment (Amount Exceeded): 2.807.892.046 - Sufficiency of liquid resources maintained by the clearing service: Cover 2 - Secured committed lines of credit: 11.250.000.000 - Unsecured committed lines of credit: 2.790.000.000 - Highly marketable collateral held in custody and investments: 584.000.000 - Other: 1.200.000.000 - CCP routine access to central bank liquidity or facilities: Yes, via BM & FBOVESPA BANK - Operational Risk / Availability (selected figures): - Operational availability target for the core system(s): 99.8% - Actual availability of the core system(s) over the previous twelve month period: 99,994% - Total number of failures and duration affecting the core system(s) over the previous twelve month period: Duration of Failure — Number of failures is not available, 19:49:00 - Recovery time objective(s): Two hours - Appendix IV CPMI—Statistics: Key placements: - SELIC value of transactions (2012–2016): 184 246; 241 468; 265 076; 209 131; 209 574 — Average value per transaction: 50 644,0; 60 883,5; 67 112,8; 50 516,6; 49 688,7 - CETIP value of transactions (2012–2016): 8 981,4; 9 391,5; 9 105,0; 7 752,7; 6 178,6 — Average value per transaction: 294,7; 109,2; 77,9; 25,0; 15,2 - BMFBOVESPA-Equities value of transactions (2012–2016): 2 723,1; 2 692,2; 2 378,8; 1 496,4; 1 312,7 — Average value per transaction: 144,1; 128,6; 124,1; 83,1; 73,7 *Source: IMF Technical Note prepared by Marguerite Zauberman based on publicly available information, self-assessments, authorities’ assessments and background documentation provided by the Brazilian authorities and B3, and discussions with the authorities, B3 and other institutions.* ### 1. PFMI Responsibility A—E _____________________________________________________________________________ 11 ### 1. PFMI Responsibility A—E ### Executive summary — key findings - There are sixteen financial market infrastructures (FMIs) operating in the Brazilian payment system (SPB). - Nine FMIs are systemically important. - Four FMIs belong to the top twenty FMIs in the world. - In terms of value of transactions: - STR (Sistema de Transferência de Reservas), the Brazilian Real Time Gross Settlement system (RTGS), is the backbone of the SPB and belongs to the top ten large value payment systems worldwide. - SELIC is among the top ten central securities depository/securities settlement systems (CSD/SSSs). - CETIP is among the top twenty SSSs. - BM&FBOVESPA Clearinghouse, the largest central counterparty (CCP) in Latin America, belongs to the top ten. - Brazilian post-trading services are integrated: entities providing securities settlement services also provide other post-trade processing, acting both as a clearing house and a CSD or as a trade repository (TR). - FMIs concentrate risks (especially CCPs, which take on credit and liquidity risks) but can reduce systemic risk through netting and imposing risk controls. - Supervision and oversight by Banco Central do Brasil (BCB) and Comissão de Valores Mobiliários (CVM) are broadly in compliance with the CPSS-IOSCO Principles for Financial Market Infrastructures (PFMI), but adjustments are recommended. ### Supervision and oversight — observations and recommended adjustments - Objectives of oversight: - BCB oversight seeks to “maintain the soundness, efficiency, and proper functioning of the National Financial System and of the infrastructure of the financial market”. - CVM supervision aims to ensure the “efficient and regular functioning of the stock and over-the-counter (OTC) markets, ensure the observance of fair trade practices in the securities market”. - Recommended supervisory and oversight actions: - CVM should disclose it has adopted the PFMI, its specific objectives for the supervision of FMIs, and consider producing a supervisory report disclosing its supervisory findings. - BCB should establish separate escalation and reporting lines to the Board of Governors as operator and as overseer of the public-sector owned RTGS. - BCB should ensure publication of disclosure frameworks by all systemically important FMIs. - Authorities have enhanced risk management practices at Brazilian FMIs since the 2012 FSAP, including: - Definition by BM&FBOVESPA Clearinghouse of critical processes and risk appetite. - Introduction of a skin-in-the-game contribution for CCPs in their default waterfall. - Adoption of a new and more efficient risk management model. - Identification of interdependencies among FMIs and critical service providers. - Areas needing continued or additional attention: - Risks from interdependencies and critical service providers, including business continuity. - Cyber resilience and implementation of CPMI–IOSCO Guidance on cyber resilience for FMIs. - Mitigating risks from severe outages at STR. - Enhancing BCB oversight framework for the Assessment Methodology for the Oversight Expectations of critical service providers to FMIs (Annex F to the PFMI). - Clarifying and documenting coordination among authorities during a (non-resolution) crisis and considering a joint crisis management plan. ### Risk management of BM&FBOVESPA Clearinghouse and B3 — findings and actions - Positive developments: - BM&FBOVESPA Clearinghouse defined critical processes and risk appetite. - Introduced skin-in-the-game in the default waterfall. - Adopted a new margin and risk management model. - Areas requiring further action: - B3 should finalize its Recovery Plan in consistency with CPMI–IOSCO Guidance; the plan is still at an early stage. - The plan should envisage various extreme stress scenarios (default and non-default related), aim to ensure continuity of critical services, mitigate contagion to participants, and include appropriate recovery tools backed by agreements with relevant decision makers. - There is currently no specific regulation in Brazil for orderly resolving a CCP; authorities are working on a draft resolution bill. - A CCP resolution regime consistent with FSB guidance and the Key Attributes for an Effective Resolution Regime is required to safeguard financial stability and continuity of critical functions. - Authorities should ensure the draft resolution bill accounts for FMI specificities, allows market participants to measure and manage risks when exposed to the CCP, and does not introduce provisions to hinder indirect access by the CCP to emergency liquidity assistance (ELA) via the conglomerate's bank. ### Main recommendations (Table 1) — supervision and oversight of FMIs - BCB should require all systemically important FMIs to publish qualitative disclosures in compliance with Principle 23 of PFMI and for CCPs with Public quantitative disclosure standards for central counterparties — ST - CVM should disclose it has adopted the PFMI, its specific objectives for the supervision of FMIs, and consider producing a supervisory report disclosing its findings — ST - BCB should establish separate escalation and reporting lines to the Board of Governors as operator and as overseer of STR — NT - The authorities should follow the evolution of the draft resolution bill and follow up regulation in order to ensure it is appropriate for FMIs, compliant with the FSB Key Attributes for an Effective Resolution Regime and it does not hinder indirect access by CCPs to emergency liquidity assistance (CMN, BCB, CVM) — MT - The BCB should ensure the implementation of action plans resulting from the interdependencies mapping among FMIs and critical service providers — ST - The authorities should continue fostering the implementation of the CPMI IOSCO Guidance on cyber resilience for FMIs in their supervision and oversight plan (BCB, CVM) — ST - BCB should continue enhancing its oversight framework regarding the Assessment Methodology for the Oversight Expectations of critical service providers to FMIs (Annex F to the PFMI) — ST - BCB should remain diligent on timeframes for operators of FMIs to implement corrective action plans to address identified deficiencies — ST - The authorities should clarify and document how they would coordinate during a (non-resolution) crisis and consider the possibility of establishing a joint crisis management plan — NT (Timeframe notation: “Short-term” is within one year; “near-term” is one to three years; “medium-term” is three to five years.) ### Main recommendations (Table 1) — risk management of B3 and BM&FBOVESPA Clearinghouse - B3 should finalize its Recovery Plan. This should include ensuring continuity of critical services, and comprehensive recovery tools while avoiding contagion to market participants — ST - BM&FBOVESPA Clearinghouse should analyze its model performance and overall margin coverage by conducting sensitivity analysis on its margin model coverage at least monthly — ST - In the stress scenarios for measuring its liquidity risk, including but not limited to the default of the participant and its affiliates that would generate the largest aggregate liquidity obligation, BM&FBOVESPA Clearinghouse should take into account the default of affiliates of the participant who are not customers of this participant — ST - BM&FBOVESPA Clearinghouse should develop dialogue regarding how to implement the transfer of positions in case a large broker and/or clearing member defaults and involve its participants and their customers in the testing and review of its default procedures at least annually — ST - B3 should consider acquiring the ability of testing the upgrades in the application softwares for their data centers regularly in the secondary data centers after implementation in the main data center — NT - B3 should continue enhancing its cyber risk management framework in compliance with the June 2016 CPMI IOSCO Guidance on cyber resilience for FMIs — ST - B3 should continue developing and implementing the action plans resulting from the mapping of interdependencies among itself and other FMIs and critical service providers — ST ### PFMI Responsibilities A–E (Box 1) - Responsibility A: Regulation, supervision, and oversight of FMIs - FMIs should be subject to appropriate and effective regulation, supervision, and oversight by a central bank, market regulator, or other relevant authority. - Responsibility B: Regulatory, supervisory, and oversight powers and resources - Central banks, market regulators, and other relevant authorities should have the powers and resources to carry out effectively their responsibilities in regulating, supervising, and overseeing FMIs. - Responsibility C: Disclosure of policies with respect to FMIs - Central banks, market regulators, and other relevant authorities should clearly define and disclose their regulatory, supervisory, and oversight policies with respect to FMIs. - Responsibility D: Application of the principles for FMIs - Central banks, market regulators, and other relevant authorities should adopt the CPSS-IOSCO Principles for financial market infrastructures and apply them consistently. - Responsibility E: Cooperation with other authorities - Central banks, market regulators, and other relevant authorities should cooperate with each other, both domestically and internationally, as appropriate, in promoting the safety and efficiency of FMIs. *Source: IMF Technical Note prepared by Marguerite Zauberman based on publicly available information, self-assessments, authorities’ assessments and background documentation provided by the Brazilian authorities and B3, and discussions with the authorities, B3 and other institutions.* ### 4. Among the sixteen FMIs located in Brazil, four systemically important ones belong to ### cr18342 - 4. Among the sixteen FMIs located in Brazil, four systemically important ones belong to ### Landscape of FMIs and major infrastructures - There are sixteen FMIs in Brazil whose nature and activities are presented in Appendix III; nine are qualified by the BCB as systemically important. - Four Brazilian FMIs belong to the top twenty FMIs in the world; Key statistics on the value and volume of their activity is shown in Appendix V. - Major FMIs described: - Sistema de Transferência de Reservas (STR) - An RTGS system operated by the BCB that constitutes the backbone of the Brazilian payment system (SPB). - Funds transfers are settled by STR in the accounts held at BCB. - STR settles transactions in the monetary, foreign exchange and capital markets between the financial institutions that hold accounts at BCB. - Net positions of clearing and settlement systems are settled through the STR. - Several other payments and settlement systems (large value, retail, securities settlement and foreign exchange) are connected to the STR through the Rede do Sistema Financeiro Nacional (RSFN – National Financial System Network) for funds settlement purposes. - SELIC, Sistema Especial de Liquidação e de Custódia - The BCB-operated central securities depository (CSD) and securities settlement system (SSS) that settles trades with government securities in real time. - These securities can also be settled with multilateral netting through the BM&FBOVESPA Debt Securities Clearinghouse, although since June 2013, almost no trades were submitted to the Clearinghouse. - CETIP, Central de Custódia e de Liquidação Financeira de Títulos - Privately owned CSD/SSS and TR; records trades with OTC derivatives and private fixed income bonds. - CSD of corporate debt securities and some government securities. - Merged with BM&FBOVESPA which kept its CSD operation separate from the CCP operation. - BM&FBOVESPA Clearinghouse / B3 - BM&FBOVESPA Clearinghouse is the largest CCP in Latin America and one of the top 10 CCPs in the world; one of the CCPs operated by B3. - B3 (Brasil, Bolsa, Balcão) established in March 2017 when BM&FBOVESPA and CETIP merged. - B3 operates trading and post-trading systems and services for equities, financial and commodity derivatives, bonds, federal government debt securities, spot currencies and agricultural commodities. - For OTC unlisted products traded bilaterally, B3 offers infrastructure for registration of these trades. - B3 operates several FMIs: 2 CSDs, 4 SSSs, 3 CCPs, one PS and 4 TRs (operational departments under the same legal entity B3). ### Integration and post-trade developments - BM&FBOVESPA post-trade integration project (IPN) - Objective: create an integrated clearinghouse. - On August 28, 2017, scope extended by migrating the equity and corporate fixed income markets into a new infrastructure integrated with derivatives and commodities markets. - BM&FBOVESPA Clearinghouse became responsible for clearing and settling practically all trades executed on B3 markets. - At the end of the project (schedule not finally decided yet), when the two remaining CCPs (BM&FBOVESPA Cambio (FX) and BM&FBOVESPA Debt Securities Clearinghouse) are integrated, B3’s clearing, settlement and CCP services will have: - a single set of rules, a single participant structure and register, - unified processes for position allocation, clearing and control, - a single settlement window, - a single risk management system, - a single collateral pool, - a single safeguard structure. - Stated benefits for participants: better liquidity management, more efficient capital allocation, more efficient margin calculation, and lower operational risk. ### Structural and operational specificities of the Brazilian framework - Long-standing structural features: - Post-trade identification of the final beneficial owner is mandatory and enables a consolidated view of each investor’s position. - OTC derivatives trades are only valid if registered; they may be with or without central counter-party. - Almost all securities are dematerialized. - Trading, clearing and settlement systems are automated and STP (straight through processing) is widely used. - Principle of delivery versus payment (DVP) is observed in all securities settlement systems. - Dark pools and order internalization are not allowed, increasing transparency on price formation. ### Supervisory and oversight framework: authorities and responsibilities - Key authorities: - National Monetary Council (CMN) - Policy committee composed of the Minister of Finance, the Minister of Planning, Budget & Management, and the Governor of the Central Bank. - Issues general guidelines; does not have supervisory powers. - Central Bank of Brazil (BCB) - Under CMN general regulation, empowered to regulate, authorize the functioning and oversee FMIs that involve settlement (payment systems (PS), SSS and CCPs). - Oversight competences include approval of rules, approval of risk models, monitoring, on-site inspection, enforcement of corrective actions. - BCB discloses policies/objectives in its Oversight report; has published annually since 2013 (publication for 2016 delayed due to format change). - BCB issued Policy Statement 25,097 in January 2014 committing to apply the PFMI in authorization and oversight. - Criteria for qualifying systemically important FMIs are based on BCB’s Circular 3057 (see Box 2). - Brazilian Securities Commission (CVM) - Jurisdiction over market participants who deal with financial assets mentioned in the Securities Law 6385/76 for market integrity and investor protection. - CVM and BCB have shared responsibilities over SSSs, CSDs and TRs. - For CCPs: CVM competent for corporate governance at company level; BCB competent regarding the whole of PFMI including governance at the CCP level. - CVM requires any FMI subject to its competence to certify compliance with the PFMI as a condition of authorization (Instructions 461 modified by 544, and 541). - Coordination and legal framework: - Regulation, supervision and oversight based on statutory law, CMN’s Resolutions, BCB’s Circulars and Policy statements, and CVM Instructions. - Coordination between BCB and CVM established at policy level via mandatory consistency with CMN’s Resolutions and operationally via a memorandum of understanding (MoU) that allows information sharing and coordinated activities. - Authorities are considering enhancing the legal framework through a comprehensive bill to clarify respective fields of competence, consolidate dispersed legislation, and incorporate internationally accepted classification of FMIs. - Self-regulatory arrangements: - Organized securities markets, clearinghouses, CSDs and TRs are considered ancillary organs of CVM for market surveillance and exercise delegated self-regulatory authority. - CVM Instruction 461/07 allows operators of organized markets to: - create a specific self-regulation structure, - incorporate a special-purpose vehicle, - or engage an independent third party. - B3 chose to incorporate a special-purpose vehicle, BSM, to perform self-regulation activities with administrative, financial and budget management autonomy and an independent Board. - BSM Board: at least 2/3 independent members and no B3 employee or member; presently, out of 12 members, 9 are independent. - Board members have a 3 years fixed term. - BSM has full right of access to information and independence regarding investigation results. ### Regulation, supervision and transparency (analysis and application of PFMI) - Criteria and designation of systemic FMIs: - BCB Circular 3057 Article 8 designates systemically important FMIs: - I – settlement systems for financial assets, securities, derivatives and foreign exchange, regardless of transaction amounts or daily turnover; - II – systems for interbank funds transfer and other obligations if: - a) daily turnover above 4 percent of the STR average turnover; or - b) at BCB discretion, likelihood that a participant default in a deferred net settlement system will cause risk to the SPB payments flow. - Daily turnover calculation: considering the thirty largest positions taken on the six months prior to the assessment date; funds transfers through STR where sender and beneficiary are the same institution are not considered. - Assessment performed monthly in the Sub-paragraph II situations; if system becomes systemically important, BCB grants a six months period to comply. - For letter (a) situations, daily turnover estimated based on expected turnover for the next two tax base semesters. - Current identified systemically important FMIs (as per Para 13): - Two systemically important PSs: STR, BM&FBOVESPA FX. - Three CSDs/SSSs: SELIC, BM&FBOVESPA Central Security Depository (former Equities Clearinghouse), CETIP. - Three TRs/SSSs: BM&FBOVESPA Clearinghouse, CIP–C3, CETIP. - One SSS: BM&FBOVESPA Securities. - Three CCPs: B3 operates three CCPs: Equities and Derivatives (integrated), FX (Cambio) and Securities (since August 2017). - All identified FMIs have been identified to be subject to the PFMI. - Note: FMIs operated by the central bank are not subject to some parts of some Principles as per the PFMI (ie Principle 2 on governance, Principle 4 on credit risk, Principle 5 on collateral, Principle 15 on general business risk, and Principle 18 on access and participation requirements). - BCB oversight practices: - Applies PFMI in oversight; systemically important FMIs must comply with all PFMI. - Non-systemically important FMIs subject to oversight against PFMI but exempted from principles related to credit risk and liquidity risk. - BCB monitors operational risk indicators (availability index, number of failures and capacity utilization in real time settlement systems) and financial risk indicators for CCPs. - BCB performs annual on-site inspections lasting up to a month (in 2015, SELIC, CETIP and BM&FBOVESPA among others) resulting in action plans; schedules monitored by BCB although not always met. - CVM supervision and disclosure: - CVM requires certification of PFMI compliance for authorization of CSDs and TRs. - Supervision executed through: - cooperation with BCB, - review of reports by BSM (B3 self-regulatory organization), - market surveillance agreements with Issuers Regulation Department (IRD) within B3, - reporting by B3 compliance and internal control department. - BSM responsibilities include supervision of trades and participants, following Exchange and OTC activities, investigating misconduct, and initiating disciplinary proceedings; BSM and IRD have delegation from CVM (and B3, and BCB in BSM’s case) to notify warnings and apply sanctions (fines). - Office of Market Surveillance receives self-assessment reports from CETIP and BM&FBOVESPA against the PFMI. - CVM should consider defining and disclosing specific objectives for supervision of FMIs and should disclose it has adopted the PFMI for its supervision and consider producing a supervisory report disclosing supervisory findings regarding FMIs. *International Monetary Fund — CR18342 (selected section).* ### 19. Systemically important FMIs are subject to appropriate and effective supervision and ### 19. Systemically important FMIs are subject to appropriate and effective supervision and oversight although implementation of corrective actions should be accelerated ### Supervisory and oversight framework — main findings - The BCB assesses payment and settlement systems it operates against the PFMI in the same way as other systemically important FMIs; this includes STR and SELIC which are owned, operated and overseen by the BCB. - The PFMI requirements "not applicable to FMIs operated by central banks, as published by the Bank for International Settlements," are not applied in the oversight of the systems operated by BCB. - Where necessary, the BCB defines action plans to remedy deficiencies; however, implementation of such measures should be accelerated. - Several mitigation measures identified following the 2012 FSAP to address problems with potential systemic impact in a severe disruption of STR, and an analysis of the impact on other FMIs of a severe outage at STR, remain pending implementation. - Some measures have a deadline until 2018 due to the need for adjustments to regulation. - Some measures are pending FMIs decision. - The timeframe, especially when affecting the RTGS (the backbone of the SPB), should be shortened. - The BCB should ensure mitigation measures are implemented as soon as possible when deficiencies are identified. - BCB’s preferred enforcement tool is through persuasiveness (often referred to as "moral suasion"); discussions with the system operator and participants play an important part in achieving oversight objectives. ### Conflict of interest, governance, and reporting lines - The BCB, as operator and overseer, does not have separate reporting and escalation lines to the Board of Governors for addressing potential conflict of interest for STR. - Within the BCB, the Department of Banking Operations and Payments System (Deban) is in charge of operating and overseeing STR. - Gemon is the division in charge of operating STR. Diesp and Dirog share responsibility for overseeing STR. The head of Gemon reports to one deputy head of Deban. The heads of Diesp and Dirog report to another deputy head of Deban. - Potential conflict of interest between the BCB’s role as operator and its role as overseer is addressed through organizational separation of the two functions up to the level of the head of Deban in the case of STR (and up to the level of the Deputy Governor in the case of SELIC). - Best practice for many central banks consists in separate reporting lines and escalation lines to the Deputy Governor for operators and overseers to address such cases. ### Improvements in FMI risk management and remaining gaps - Evidence shows BCB’s and CVM’s oversight and supervision have been effective in improving risk management practices at Brazilian FMIs, including: - Creation in BM&FBOVESPA’s corporate governance of advisory committees for the board and the CEO. - Adoption of best practices in compliance and risk management (definition of critical processes and risk appetite). - Improvements in information security management. - Introduction in 2014 of a skin-in-the-game contribution for the CCPs in their default waterfall. - Adoption of a new and more efficient risk management model (CORE — Closeout Risk Evaluation). - Establishment of a working group to identify interdependencies between FMIs and critical service providers. - Continuous improvement of information security structure and incident management procedures with corrective actions monitored and lessons learned processes in place. - Nevertheless, room remains to improve compliance with PFMI and the implementation of corrective action plans: - BCB should require all systemically important FMIs, in particular STR, SELIC, and CETIP, to publish a disclosure framework in compliance with key consideration 5 of Principle 23 of PFMI. - BCB should require BM&FBOVESPA Cambio (FX) to publish a quantitative disclosure in compliance with Public quantitative disclosure standards for central counterparties. - The working group led by B3 identifying risks from interdependencies between FMIs and critical service providers should accelerate assessment of risks, impact on the SPB, and related action plans; these should be integrated into BCB’s oversight framework. ### Cyber resilience - Cyber risk has recently been recognized as a major threat. - Authorities should continue fostering implementation of the CPMI–IOSCO 2016 Guidance on cyber resilience for financial market infrastructures through oversight and supervision of FMIs against the PFMI. - BCB’s oversight division should continuously evaluate FMIs’ information security frameworks. - FMIs should undertake active outreach to participants (in particular banks) and other stakeholders to promote understanding and support of resilience objectives and their implementation. - FMIs’ cyber resilience depends partly on interconnected FMIs, service providers, and participants. - FMIs were requested to answer a survey to reveal progress in meeting the Guidance provisions. - BCB intends to communicate on the Guidance through the FMI Forum as a channel to communicate with stakeholders and emphasize the importance of cyber resilience. ### Powers and resources (Responsibility B) - BCB and CVM have powers to obtain information from supervised FMIs based on relevant laws. - FMIs must provide information regarding planned changes, significant matters, and statistical information to BCB. - Any change to internal rules related to risk and efficiency must be approved by the BCB; minor changes must be informed for assessment. The same applies to CVM for FMIs under its jurisdiction (SSS/CSD and TR). - Both BCB and CVM have authority to apply penalties if an FMI refuses to give access to requested information. - Examples of quantitative and qualitative data provided: 1. Volume of transaction, 2. Value of transaction, 3. Settlement figures, 4. Operational availability, 5. Available resources regarding the General Business Risk. - Both BCB and CVM can induce change and enforce corrective action; perceived deficiencies are discussed and notified through letters of recommendations with action plans. - Implementation of actions may take time; BCB should encourage FMIs to improve timeframes for corrective action plans, especially recommendations following on-site inspection. - Both authorities may rely on moral suasion, and both have the power to impose sanctions or penalties which they have not used to date for FMIs. - Resourcing: - BSM has a staff of 130 people including 48 auditors who perform on-site inspections and desk-audits at all B3 participants, including clearing members and brokers. - The Department of Banking operations and Payment Systems (DEBAN) at the BCB has staff comprising approximately 27 qualified persons. - The Office of Market Surveillance at CVM employs approximately 12 qualified persons partially dedicated to FMI supervision in a total staff of 37. - By law, part of supervisory tasks is delegated to the self-regulatory organization of B3, BSM, and to IRD through agreements. - Both BCB and CVM state their personnel resources and budgets are adequate and kept under review, but CVM may need increased staff if new FMIs enter the market. ### Cooperation and crisis management (Responsibility E) - Cooperation: - BCB and CVM cooperation covers TRs, CSDs and SSSs that settle securities (other than government securities and corporate bonds issued by financial institutions). - CMN has by law a coordination role in common activities of BCB and CVM. - An MoU formalizes cooperation, consultation of the other agency for prior opinion on regulation affecting entities under either authority, and exchange of information. Self-assessment reports produced by FMIs are shared. - The Financial Stability Committee (BCB, CVM, PREVIC, SUSEP) participates in COREMEC within the Ministry of Finance to promote coordination among regulators. - Cross-border and crisis arrangements: - BM&FBOVESPA Clearinghouse is not a systemically important CCP in other jurisdictions; BCB does not participate in any cross-border Crisis Management Group. No foreign entrant has been recognized in the market to date; no links with foreign FMIs exist. - BCB exchanges information related to foreign banks participating in B3 through 30 MoU agreements with their supervisory authorities. CVM has signed the IOSCO multilateral memorandum of understanding. - BM&FBOVESPA’s clearinghouses are recognized by ESMA and classified as qualifying central counterparties (QCCP). - Crisis management gaps and recommendations: - No FMI-specific (non-resolution) crisis management arrangements have been developed between BCB and CVM describing supervisory or oversight responsibilities in case of market wide financial or operational crisis. - Threats to financial stability are discussed and contingency plans defined at COREMEC; authorities should develop a framework for coordination during a crisis outlining primary responsibilities (including FMIs and stakeholders), decision trees, key people and contacts, and consider establishing a joint crisis management plan. - B3 should finalize a robust and effective recovery plan for BM&FBOVESPA Clearinghouse, consistent with PFMI and CPMI–IOSCO guidance, envisaging various extreme stress scenarios (default and non-default events), including appropriate recovery tools, approvals of decision makers, stakeholder agreements, and an explicit deadline. - There is currently no specific regulation in Brazil for orderly resolving a CCP; FMIs including CCPs are subject to the Bankruptcy Code (Law 11,101/05) in case of insolvency, which prevents BCB or CVM intervention. - BCB, CVM and SUSEP prepared a draft Resolution bill for financial institutions, FMIs, exchanges, insurance companies and pension funds; BCB would be the resolution authority but BCB and CVM must cooperate when the FMI involves securities and derivative markets. - By being granted enforcement powers to place CCPs in resolution, authorities would be better placed to safeguard financial stability, ensure continuity of critical functions and avoid contagion. - If a solvent CCP’s liquid resources are insufficient in extreme circumstances, access to lender of last resort support may need to be considered at the discretion of the Central Bank to avoid spillovers. - BCB has the power to supply emergency liquidity assistance (ELA) to the BM&FBOVESPA Settlement Bank, a subsidiary of B3, which can be an alternative to direct CCP access to central bank liquidity provided: (i) arrangements ensure central bank liquidity is directed to the CCP via the bank; and (ii) the decision to grant CCP ELA through the bank lies with the discretionary power of the BCB. - Authorities should introduce an orderly resolution regime consistent with international guidance for CCPs, ensure the draft resolution bill and subsequent regulation account for FMIs’ specificities, comply with the Key Attributes of Effective Resolution Regimes for Financial Institutions, and introduce no provision to hinder indirect CCP access to ELA via the conglomerate's bank. ### Oversight expectations for Critical Service Providers (CSPs) (Annex F) - The BCB should continue enhancing its oversight framework regarding the Assessment Methodology for the Oversight Expectations of CSPs to FMIs (Annex F of the PFMI). - Annex F outlines five oversight expectations: - (i) ensuring strong risk identification and management; - (ii) robust information security management; - (iii) reliability and resilience of system; - (iv) effective technology planning; - (v) strong communications with users. - BCB has authority to establish such expectations for CSPs of FMIs based on Circular 3057, article 25: "Supervision may be extended to third parties if they carry out, at the discretion of the Central Bank of Brazil, important steps related to the final activities of the entities covered by the caput, a hypothesis in which the extension should be included in the contracts between them and third parties." - Currently, monitoring of CSPs is conducted through principle 17 on operational risk. - Main critical service providers identified in the working group led by B3 on interdependencies and impact of unavailability: - For the CCP: (i) other FMIs (the RTGS STR and the SSS/CSD SELIC), (ii) RTM (information technology supplier), and (iii) the Brazilian messaging system RSFN (mostly used instead of SWIFT in Brazil). - BCB plans to require FMIs to assess their CSPs following the methodology and to establish action plans to address gaps. ### Analysis of key elements of BM&FBOVESPA Clearinghouse risk management framework — introduction - CCPs reduce participant risk through netting and risk controls, including collateral requirements (initial margin and other financial resources) and mutualization devices such as default funds. - CCPs concentrate risks that can threaten their viability if not properly managed; they should have strong and comprehensive risk management practices in compliance with the PFMI to prevent failure. - Maintaining continued provision of critical services is especially important where a single FMI provides those services. - The analysis focuses on financial risks considered by CPMI-IOSCO guidance on CCP resilience (July 2017) and operational risk. *cr18342 - 19. Systemically important FMIs are subject to appropriate and effective supervision and oversight although implementation of corrective actions should be accelerated* ### 35. BM&FBOVESPA Clearinghouse is the main CCP operated by B3 who is the sole ### 35. BM&FBOVESPA Clearinghouse is the main CCP operated by B3 who is the sole ### Governance and Corporate Structure - B3 is a vertically integrated multi-asset multi-market legal entity and listed company which operates BM&FBOVESPA. All the FMIs it operates are operational departments and not subsidiaries, creating spill-over risk if one FMI fails. - B3 uses the individual customer segregation model for all stages of the trading, registration and post-trading cycles. - B3 is listed on the Novo Mercado premium listing segment with no single shareholder or organized shareholder group having voting rights equivalent to more than 7 percent of the total number of shares. - B3 publishes quarterly reports and has 6 subsidiaries: BM&FBOVESPA Settlement Bank; two local representative offices in the US and in UK; one inactive stock exchange in Rio; one civil society for social projects; and BSM, a not-for-profit association organized as a self-regulatory and market surveillance organization. - Board of Directors: - Composed of 11 members (noting a temporary composition of 14 members with 8 independent members due to merger). - Six are independent members including the Chairman (regulatory requirement); five are shareholder representatives and/or linked to market participants but not connected to controlling group or management. - Duties include approving policies, defining strategic guidelines and targets, overall budgets, internal control framework, risk appetite and risk management framework, financial reporting and compliance, and nominating directors in charge of execution. - The Board’s performance as a group is assessed yearly; individual members are assessed under the authority of the Chairman. - Ownership structure (last updated on 09/22/2017): - Capital World Investors: 198,618,595 common shares — 9.65% — Last changed 4/4/2017 - Funds managed by OppenheimerFunds, Inc.: 133,741,768 common shares — 6.50% — Last changed 10/8/2015 - Funds Managed by BlackRock, Inc.: 92,434,646 common shares — 4.49% — Last changed 8/11/2015 - Other: 1,614,054,476 common shares — 78.38% — Last changed 8/31/2017 - Treasury stock: 20,289,005 common shares — 0.98% — Last changed 8/31/2017 - Total: 2,059,138,490 common shares — 100.00% - Executive Board: - Composed of six directors: one President and five Vice-Presidents. - Management compensation aligned with company performance and strategic objectives. - 11 advisory committees to the Executive Board (including corporate risk advisory committee, credit risk technical committee, business continuity committee, information security management committee). - Finance and Risk Committee: - Presently 6 members, two independent. - Duties include assessing and monitoring exposure to risks in B3’s activities; proposing risk management guidelines and limits. - With regard to CCP risk: present periodic reports on exposures, collateral quality, and outcomes of liquidity stress tests; monitor liquidity, cash flow, indebtedness policy, and capital structure. - Two risk management frameworks established: one for central counterparty risk and one for corporate risk. - Corporate governance / risk management framework: - Structured along four lines of defense: - Business Areas manage business risks and internal controls; report to Risk Technical Committee and Market Risk Committee of the Executive Committee. - Internal Controls, Compliance and Corporate Risk Department (DCR) evaluates model soundness, analyses outcomes, monitors processes, reporting to the Risk and Financial Committee at Board level. - Internal Audit Department performs independent evaluation of internal controls reporting to the Audit Committee. - External auditors review financial impact of risks in financial statements; BCB approves CCP rules and models. - DCR recently created with appropriate staff, audited by Internal Audit and has direct access to the Risk and Financial Committee at the Board level. - Risk appetite: - The Board has defined a low appetite for CCP risk. - Financial resources (“safeguard structure”) and qualified liquid resources should be sufficient to cover credit and liquidity risks under multiple stress scenarios with a 99,96 percent market risk confidence level. - Policies and procedures are in rulebooks and manuals available on B3’s website; any change to rulebooks must be approved by the Board and by BCB. - Legal basis for clearing arrangements: Law 10214/01 and BCB Circular 3057. - When a trade is entered through the exchange it is contracted with the CCP as counterparty at the moment the trade is accepted and registered, achieving unconditional and irrevocable settlement. - Assets pledged as collateral to the CCP cannot be apprehended in case of default. ### Mechanisms for Considering Stakeholder Interests - Transparency is central: in 2017 the CCP published information in accordance with CPMI-IOSCO qualitative and quantitative disclosure requirements. - Disclosures on B3’s website include: presentation on margin calculation, collateral valuation, information on individual limits and exposure to risks, risk factors, settlements, summaries of default waterfall, Board decisions, monthly investor reports, financial statements, and annual report. - BM&FBOVESPA provides a simulation system allowing margining for hypothetical portfolios based on the CORE methodology; offered to intermediaries and clearing members for risk management and intraday risk monitoring. - Stakeholder dialogue: - Open and constructive dialogue exists, with advisory committees for clearing members, brokers, investors, custody agents (risk advisory, products and services committees). - Proposed new risk management policies and amendments are discussed with market participants. - Limited dialogue on default procedures and portability; advance consideration is required given the number of customers for derivatives clearing, and the size and limited number of clearing members — porting cannot be assumed possible for all positions, particularly positions that are not in-the-money. ### Model Testing and Validation - BM&FBOVESPA uses several models to quantify, aggregate and manage credit, margin, collateral and liquidity risks. - Validation process: - DCR analyses logical aspects, conceptual soundness, background theory, consistency between data characteristics and model assumptions, implementation issues, validation and monitoring accuracy, hypothesis testing and sensitivity to parameters. - Validation is independent of model development and operation. - DCR analyses outcomes through backtests and monitors processes, reporting to the Finance and Risk Committee at Board level. - Models are subject to authorization by BCB. - Ongoing monitoring: - Daily back testing of initial margin and stress testing of pre-funded financial resources to monitor sufficiency of overall financial resources. - CORE margining system: - Market Risk Technical Committee re-examines every fortnight or as necessary the parameters of the margining methodology and credit stress test, independently from margin backtesting. - Liquidity stress testing follows six scenarios and backtesting performed daily; monthly tests check timely access to liquidity facilities. - Scenarios for liquidity stress tests are being updated for the newly integrated clearinghouse; some scenarios reviewed monthly and some bi-annually. - Results are reported to the Board. ### Recovery and Wind-Down Planning - CCP failure risks: significant losses or liquidity shortfalls from participant defaults or extraordinary non-default losses (operational risks such as terrorist attack, natural disaster, cyber-attacks, potential litigation). - BM&FBOVESPA has identified four scenarios that might threaten business continuity and viability. - B3’s rulebooks contain some tools similar to recovery tools but they do not meet the requirements set in the guidance for recovery of FMIs: not comprehensive and effective in reliability, timeliness and legal basis. - Recommendation: BM&FBOVESPA should finalize a recovery plan (currently at a very early stage) compliant with the PFMI, ensuring continuity of critical services and mitigating contagion through participants with an appropriate set of recovery tools backed by agreements with relevant decision makers. ### Margin Arrangements and Pro-Cyclicality - Margin methodology CORE: - Calculates portfolio risk at the individual customer level. - Measures worst cash flow requirement during close-out of a defaulting customer’s portfolio given adverse price movements defined in risk factor variation scenarios for that portfolio. - Close-out period defined as between 1 and 10 days. - Uses the full valuation method for all positions, including positions in non-linear instruments, under 10,000 scenarios for each risk factor. - Confidence level used in calculation is at least 99.96 percent. - CORE is used for all products. - The 10,000 scenarios: - Include historical scenarios with look-back period from 2002 to 2016; quantitative extreme but plausible scenarios not necessarily observed in the sample period; and prospective “what if” scenarios. - Operational margin practices: - Marked-to-market values update margin requirements, collateral and margin calls, and calculate daily settlement values. - Additional margin required for positions exceeding concentration limits for open positions. - Intermediaries and clearing members may be required to post intraday collateral if intraday risk monitoring justifies it; intermediaries’ balances should be kept positive at all times. - Risk Management Department monitors margin model parameters and assumptions every day using (i) a daily margin backtesting procedure for all portfolios, and (ii) daily monitoring of market risk scenarios compared with observed market price variations. - Recommendations and observations: - Sensitivity of margin model coverage should be tested using a wide range of parameters and assumptions at least monthly; results should be used to analyze potential losses in B3 and in individual customers’ positions. - Rigorous sensitivity analysis gains importance when markets are illiquid or volatile. - Procyclicality mitigation: - CORE includes stress scenarios combining fat tails and volatility fluctuations to prevent sudden changes in required margins. - Model parameters are based on unconditional distribution of shock returns (not conditional volatility), so increased market volatility does not automatically change required margin. - Parameters (daily liquidity and scenarios for risk factors) are determined ex ante, unconditionally and exogenously to the model. - CORE accounts for average daily liquidity of each contract to determine maximum number of contracts CCP can closeout (or auction) during the holding period. - Presence of low-liquidity contracts may increase margin requirements. - Collateral and wrong-way risk: - Collateral valuation is integral to CORE calculations. - More than 95 percent of collateral posted to BM&FBOVESPA consists of Brazilian government bonds, for which the average haircut is less than 1 percent. - Wrong-way risk is prevented by not accepting securities issued by a clearing participant or its group affiliates as collateral. - Limits are imposed to prevent concentration risk and mitigate adverse price movements impacting received collateral. *Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18342.pdf* ### 53. BM&FBOVESPA has identified three main types of credit risk: (i) the risk of financial ### 53. BM&FBOVESPA has identified three main types of credit risk: (i) the risk of financial ### Credit risk: types, identification, monitoring, and financial resources - Three main types of credit risk identified: - (i) the risk of financial losses resulting from the failure of providers of infrastructure for settlement processes; - (ii) the risk of losses due to default by one or more participants, associated with the market and liquidity risks inherent in closeout of positions and collateral execution; and - (iii) the credit risk associated with issuers of assets used in the clearinghouse’ financial resources that the CCP calls “safeguard structures”. - Sources of credit risk are identified by the Risk Management Department and the Credit Risk Technical Committee. - Monitoring and stress testing: - Credit exposures are monitored every day and intraday using credit stress tests. - Credit stress tests assume default by two participants and their affiliates. - The financial impact of such defaults is simulated using the CORE methodology, assuming market risk scenarios of greater severity than those used to calculate margin requirement. - Credit assessment metrics: - Use of external metrics and internal metrics (daily settlement volumes, margin requirements and collateral posted, for example). - If a participant’s credit quality deteriorates, BM&FBOVESPA Clearinghouse can lower limits assigned and require additional collateral. - If a participant becomes insolvent, BM&FBOVESPA can prohibit new transactions that increase exposure, impose position closeout, and revoke the participant’s access authorization. - Financial resources to cover exposures: - Current exposures and potential future exposures consist of collateral posted by participants (margin requirement including additional margin by customers, and intermediary collateral posted by an intermediary to meet his access requirement and/or to raise the intraday risk limit) and a settlement fund replenished by the clearing members and by the CCP (currently 50 percent of the fund). - A credit stress test assesses that financial resources are sufficient to cover the default of the two participants and their affiliates with the largest exposures to the CCP with a higher confidence level for market risk than the level used to calculate margin requirements. - Replenishment of the default fund is only to cover future defaults and is capped, in any 20-day period, to three times the value of the non-defaulting clearing member’s contribution. - Exposure to settlement bank default: - The Clearinghouse is not exposed to credit risk arising from the potential default of a settlement bank since it uses its own account with BCB in the STR to receive and make payments from and to its clearing members. ### Liquidity risk: monitoring, stress testing, and liquid resources - Two main components of monitoring and management: - Analysis of settlement values — analyzes potential liquidity needs from failures in settlement by one or more participants during the clearing process. - Analysis of collateral — ensures collateral is adequate and can be monetized promptly in the event of a participant default and subsequent close out of positions. - Aggregate liquidity risk evaluation: - Stress scenario simulations consider failure of financial conglomerates that owe the largest settlement amount to BM&FBOVESPA Clearinghouse, including the performance of the group entities as liquidity providers and issuers of collateral (Bank Certificate of Deposit (CDBs) and letters of bank guarantee). - BM&FBOVESPA calculates settlement obligations, including collateral requirements, due by all participants at all levels (final beneficiary, intermediary and clearing member), and monitors settlements and flows in real time. - Tools are made available to participants (intermediaries and clearing members) to assist in managing intraday liquidity risks. - Qualifying liquid resources available to meet liquidity requirements: - Dedicated credit lines from top-tier banks; - Liquidity assistance from BM&FBOVESPA Bank; - Cash dedicated by the CCP; - Brazilian Government bonds in the Settlement Fund; - BM&FBOVESPA Clearinghouse free cash flow. - Stress test outcomes and scope: - Stress tests show these liquid resources are sufficient to cover the default of the clearing member that owes the largest settlement obligation to the CCP. - No liquidity breaches have been reported against “cover 1” by BCB in its Financial Stability Report. - The CCP also stress tests the liquidity requirement against the simultaneous default of two clearing members. - In the individual customer segregated model, each affiliate that clears through his parent clearing member is taken into account as any customer for calculating the largest exposure to the CCP. - Where an affiliate clears through a clearing member other than his parent and has a standing payment obligation to the CCP, BM&FBOVESPA should consider this payment obligation in the clearing members’ exposure if not covered by the first clearing member. ### Operational risk: framework, security, and testing - Governance and policies: - Operational risk management framework is designed to mitigate and manage sources of operational risk in compliance with BM&FBOVESPA Clearinghouse’s risk management policy. - Corporate Risk Management, Operational Risk and Internal Control Policies establish guidelines, functions and responsibilities to identify, monitor and manage operational risks. - The Board of Directors has established and revised, at least annually, Corporate Risk Management, Operational Risk and Internal Control Policies. - The operational risk management structure is subject to internal and external auditing. - Information security and cyber resilience: - Comprehensive physical and information security policies are based on international and national standards, such as the ISO 27000 family of standards. - BM&FBOVESPA should enhance implementation of the 2016 CPMI IOSCO Guidance on cyber resilience recognizing cyber risk as a major threat. - BM&FBOVESPA has a Security Operations Centre (SOC) which operates around the clock seven days a week and is responsible for security monitoring and treatment of IT incidents, ethical hacking, and internal and external audits that continuously assess information security controls. - Business continuity management: - BM&FBOVESPA has business continuity rules, a business continuity policy, a business continuity committee, and a business continuity management system. - Following an initiative by the BCB, BM&FBOVESPA has led a working group on identification of interdependencies among FMIs and critical service providers. - BM&FBOVESPA with other FMIs and critical service providers should assess risks from identified interdependencies, coordinate continuity plans, and/or carry out joint contingency tests. - Recovery objectives, testing, and performance: - For mission-critical processes a recovery time objective (a two-hour RTO) and recovery point objectives (an RPO of 0) are defined. - Business continuity plans are updated and tested at least annually; participants and suppliers of critical services are invited to take part in testing at least once a year. - Continuity plan testing results show that the RTO is achieved within 2 hours in 2017 for all B3 clearing houses. - The PFMI quantitative disclosure for the second quarter of 2017 shows the actual availability of the core system over the previous 12 months as 99,994 percent. - Technology architecture and data replication: - BM&FBOVESPA should consider acquiring the ability of testing regularly the upgrades in the application softwares in the prime and secondary data center to avoid divergences between the main site and the contingency site. - Architecture is designed to eliminate single points of failure. - Data replication between the primary and secondary (contingency) data centers, which are 20 kms apart, occurs in synchronous mode. - Technological environment characterized by high availability (if a specific IT resource presents a problem, another resource on the same site can replace it) and disaster recovery (if resources on the same site present problems, resources on the backup site can replace them). - Business areas have procedures to verify data integrity if processes are interrupted; these procedures can be run on the primary site or on the secondary site after execution of recovery procedures. *cr18342 - 53. BM&FBOVESPA has identified three main types of credit risk: (i) the risk of financial* ### Appendix IV. CPMI—Statistics: Top Twenty FMIs ### Appendix IV. CPMI—Statistics: Top Twenty FMIs ### Payments processed by selected interbank funds transfer systems: value of transactions (total for the year) - Value of transactions (USD billions except as noted) and Average value per transaction (USD thousands) by system (2012–2016) - Singapore - MEPS+(IFT): 14 150,6; 13 293,1; 12 027,3; 11 674,1; 12 459,7 — 2 991,7; 2 618,8; 2 308,4; 2 193,8; 2 290,5 - SGDCCS: 506,0; 526,8; 500,4; 453,3; 426,6 — 6,9; 7,4; 7,3; 7,0; 7,0 - USDCCS: 49,06; 52,17; 52,46; 50,19; 47,06 — 53,3; 55,9; 56,1; 55,6; 55,2 - IBG: 234,14; 253,41; 264,32; 258,67; 269,17 — 2,4; 2,5; 2,7; 2,6; 2,6 - South Africa - SAMOS - large: 10 146,4; 9 108,5; 9 712,3; 9 188,2; 8 936,2 — 2 022,2; 1 571,6; 1 511,8; 1 306,0; 1 188,3 - SAMOS - retail: 970,4; 905,2; 865,6; 793,7; 735,9 — nav; nav; nav; nav; nav - Sweden - RIX: 18 363,6; 17 189,2; 17 124,7; 15 843,4; 18 533,0 — 5 072,8; 4 511,6; 4 217,9; 3 634,6; 4 081,3 - Bankgirot: 1 278,8; 1 388,2; 1 368,7; 1 574,6; 1 641,1 — 1,6; 1,6; 1,5; 1,3; 1,3 - Dataclearing: 397,5; 417,5; 428,1; 383,4; 385,7 — 2,9; 3,0; 3,0; 2,6; 2,7 - Switzerland - SIC: 32 219; 34 450; 32 497; 40 390; 39 544 — 78,5; 82,0; 75,8; 91,6; 88,2 - Turkey - EFT1 - large: 18 239,5; 18 178,0; 18 314,7; 15 709,4; 14 914,8 — 100,12; 6 162,02; 6 426,21; 5 379,94; 5 965,93 - EFT - retail: 213,4; 2 993,1; 3 030,1; 2 795,3; 3 739,4 — 14,29; 13,04; 11,37; 8,87; 9,98 - Garanti Payment Systems: 4,7; 6,9; 7,8; 7,6; 7,8 — 0,08; 0,10; 0,09; 0,08; 0,07 - Interbank Card Center: 94,14; 99,40; 99,92; 89,12; 87,30 — 0,06; 0,06; 0,05; 0,04; 0,04 - Interbank Clearing House: 176,66; 184,04; 184,60; 162,77; 150,26 — 9,56; 10,71; 10,61; 9,61; 9,75 - United Kingdom - CHAPS Sterling: 113 607; 109 637; 111 894; 104 553; 102 001 — 3 347,7; 3 134,6; 3 063,8; 2 784,5; 2 617,8 - Cheque/credit: 1 023,3; 900,5; 884,6; 754,6; 587,9 — 1,5; 1,5; 1,7; 1,7; 1,6 - BACS: 6 514,2; 6 594,3; 7 278,3; 7 015,2; 6 446,9 — 1,2; 1,2; 1,2; 1,2; 1,0 - Faster Payment Service: 978,8; 1 205,7; 1 488,1; 1 590,5; 1 604,8 — 1,2; 1,2; 1,4; 1,3; 1,1 - United States - CHIPS: 364 819; 379 985; 390 695; 375 862; 364 331 — 3 757,1; 3 685,6; 3 571,3; 3 404,5; 3 288,2 - Fedwire: 599 201; 713 310; 884 552; 834 630; 766 962 — 4 553,2; 5 315,3; 6 552,2; 5 844,8; 5 178,7 - European Union - TARGET: 912 920; 743 057; 661 493; 564 347; 537 468 — 10 186,2; 8 134,9; 7 537,6; 6 370,0; 6 041,7 - EURO1 / STEP1: 74 350; 64 625; 54 712; 48 944; 45 474 — 1 116,5; 1 007,6; 948,6; 885,7; 852,5 - STEP2 XCT Service: 5; nav; nav; nav; nav — nav; nav; nav; nav; nav - STEP2 ICT Service: 6; 1 340,4; 1 220,8; 89,6; nav — nav; 4,3; 4,4; 3,8; nav; nav - STEP2 SCT Service: 3 140,0; 4 861,3; 12 368,9; 11 635,3; 12 509,4 — 4,9; 4,5; 3,3; 2,9; 3,0 - STEP2 SDD B2B Service: 14,2; 125,1; 769,6; 670,8; 748,3 — 8,7; 24,0; 9,8; 8,1; 8,9 - STEP2 SDD CORE Service: 14,3; 97,3; 1 458,4; 1 240,2; 1 311,9 — 0,2; 0,2; 0,3; 0,2; 0,2 - Memo - CLS: 4; 1 221,0; 1 290,6; 1 274,9; 1 232,2; 1 255,8 — 5 902,6; 7 307,0; 6 219,9; 6 019,8; 5 730,8 - Notes: 1. Converted at yearly average exchange rates. 2 - 6. For the footnotes regarding the systems, see after Comparative Table PS4. ### Transactions processed by selected central securities depositories: value of transactions (total for the year) - Value of transactions (USD billions except as noted) and Average value per transaction (USD thousands) by system (2012–2016) - Belgium - NBB SSS: 13 160,5; 10 969,5; 14 375,7; 8 901,5; 9 640,9 — 22 573,8; 19 908,4; 15 148,3; 17 874,5; 18 647,8 - Euroclear Belgium: 709,9; 1 039,9; 1 108,2; 1 035,1; 1 060,2 — 394,1; 545,0; 523,2; 419,6; 446,0 - Euroclear Bank: 396 680; 454 350; 515 293; 487 810; 493 401 — 6 116,1; 6 481,8; 6 806,3; 5 826,3; 5 835,6 - Brazil - SELIC: 184 246; 241 468; 265 076; 209 131; 209 574 — 50 644,0; 60 883,5; 67 112,8; 50 516,6; 49 688,7 - BMFBOVESPA-Equities: 2 723,1; 2 692,2; 2 378,8; 1 496,4; 1 312,7 — 144,1; 128,6; 124,1; 83,1; 73,7 - CETIP: 8 981,4; 9 391,5; 9 105,0; 7 752,7; 6 178,6 — 294,7; 109,2; 77,9; 25,0; 15,2 - Canada - CDS: 92 762; 112 771; 110 681; 97 985; 96 446 — 257,4; 319,9; 257,6; 219,5; 202,9 - China - SD&C: 16 619; 27 684; 40 961; 82 892; 88 864 — 8,0; 79,6; 91,0; 37,9; 13,47 - CDC Depository and Settlement System: 11 221,7; 5 970,5; 5 044,3; 9 721,0; 11 974,7 — 19,11; 13,05; 10,82; 14,35; 11,88 - France - Euroclear France: 157 791; 174 214; 145 776; 102 138; 114 268 — 6 680,4; 7 145,2; 6 000,0; 3 987,9; 4 470,2 - Germany - Clearstream Banking AG: 71 623; 79 240; 105 764; 73 982; 51 531 — 1 356,6; 1 300,4; 1 911,4; 1 209,4; 919,4 - Hong Kong SAR - CCASS: 5 646,1; 6 768,1; 6 475,9; 8 021,7; 5 746,0 — 313,2; 335,1; 297,6; 324,0; 281,0 - CMU: 834,2; 744,8; 694,4; 497,5; 483,7 — 9 4198 0547 0955 7746 593 (original formatting retained) - India - RBI (SSS): 2; 22,8; 23,4; 23,0; 23,5; 28,8 — 9,9; 8,9; 7,6; 7,5; 7,8 - NSDL: 2 841,4; 2 730,9; 3 091,9; 2 936,0; 3 330,6 — 26,38; 27,44; 20,99; 22,24; 21,81 - CDSL: 115,2; 140,4; 121,5; 171,1; 79,2 — 83,26; 1,68; 2,03; 2,06; 1,88 - Italy - Monte Titoli: 75 055; 82 775; 100 731; 73 633; 73 772 — 3 525,1; 3 942,2; 4 084,3; 3 104,5; 3 318,1 - Japan - BOJ: 258 516; 226 658; 233 540; 204 829; 196 049 — 61 393,9; 52 032,7; 50 175,7; 45 969,9; 44 458,7 - JASDEC: 15 837,5; 13 640,7; 16 008,9; 14 043,1; 17 224,9 — 17,9; 31,7; 9,3; 12,7; 11,8; 61,1 (original formatting retained) - Korea - KSD: 5 529,7; 5 741,1; 7 182,8; 6 922,2; 6 631,5 — 7 16,7; 744,79; 19,18; 03,67; 42,0 (original formatting retained) - Mexico - Indeval: 92 361,1; 96 720,1; 97 524,6; 81 617,7; 73 262,1 — 19 344,2; 18 082,3; 18 693,0; 14 785,8; 12 628,2 - Netherlands - Euroclear Netherlands: 5 763,4; 5 843,9; 5 790,6; 5 421,0; 5 194,3 — 1 153,1; 1 092,7; 1 014,7; 868,5; 881,3 - Russia - NSD: 4 329,7; 5 370,5; 5 350,9; 4 194,4; 4 863,3 — 1 848,8; 2 059,0; 2 145,5; 1 712,5; 1 826,5 - DCC: 107,4; 2,2; nav; nap; nap — nap; 942,7; 5 766,9; nav; nap; nap (original formatting retained) - Saudi Arabia - Tadawul: 514,7; 365,3; 572,5; 443,4; 308,9 — 12,22; 8,45; 11,73; 14,56; 11,33 - Singapore - MEPS+(SGS): 1 116,3; 1 187,4; 1 114,0; 938,2; 1 003,5 — 12 403,0; 11 670,4; 11 339,4; 8 159,1; 8 187,9 - CDP: 257,3; 283,6; 209,8; 203,6; 196,9 — 49,2; 56,9; 25,6; 93,5; 43,2; 29,4; 29,6 (original formatting retained) - South Africa - SAFIRES: 3 995,8; 3 108,7; 2 733,2; 2 601,6; 2 566,3 — 640,3; 471,0; 383,6; 326,0; 310,9 - Sweden - Euroclear Sweden: 13 808,1; 14 266,7; 12 428,6; 11 023,7; 11 250,9 — 1 212,9; 1 134,8; 880,8; 830,0; 811,2 - Switzerland - SECOM: 5 735,2; 4 191,1; 4 504,3; 6 678,7; 5 655,7 — 115,1; 78,4; 81,8; 81,8; 99,8; 96,8 (original formatting retained) - Turkey - Takasbank: 2 755,6; 2 981,2; 2 604,6; 2 141,7; 1 880,6 — 25,9; 16,5; 10,6; 7,2; 5,8 - Central Securities Depository: 989,4; 1 301,2; 962,3; 744,4; 726,6 — 345,9; 365,6; 278,6; 233,3; 248,4 - ESTS: 4 215,0; 5 437,3; 4 250,4; 4 120,0; 4 098,6 — 22 890,1; 20 138,3; 16 333,6; 14 459,7; 14 489,7 (original formatting retained) - United Kingdom - CREST: 183 955; 437 115; 377 795; 410 743; 262 243 — 3 843,1; 7 688,9; 6 551,0; 6 858,8; 4 383,2 - United States - NBES: 284 402; 295 186; 287 104; 295 756; 286 672 — 15 599,7; 15 505,8; 16 848,7; 16 935,6; 17 305,3 - DTC: 110 300; 106 400; 113 700; 112 300; 111 100 — 368,5; 333,0; 352,0; 325,3; 312,1 - Notes: 1. Converted at yearly average exchange rates. 2. For value of transactions, trillions. 3. Data refer to total transactions during the fiscal year ending March of the following year (see Japan). As a consequence, they are converted at average fiscal-year exchange rates. ### Key quantitative points and operational notes (selected highlights from related appendices appearing in the content) - Credit Risk / Margins (BM&FBOVESPA Clearinghouse quantitative disclosure) - Minimum requirement the CCP is subject to in relation to total pre-funded default resources: Cover 2 - 1.3 Peak Day Amount In Previous 12 Months: 1.155.000.000, please refer to note 2 - 1.3 Mean Average Over Previous 12 Months: 299.000.000 - 1.7 Peak Day Amount In Previous 12 Months: 1.308.000.000, please refer to note 2 - 1.7 Mean Average Over Previous 12 Months: 468.000.000, please refer to note 2 - 1.11 Value of pre-funded default resources (excluding initial and retained variation margin) held in total: Pre-haircut 3.828.254.819; Post-haircut 3.799.440.678 - 2.1 Number of times over the past 12 months that margin coverage held against any account fell below the actual marked-to-market exposure: 316 (the back testing applies at the individual client account) - 2.2 Frequency of daily back-testing result measurements: Once a day - 2.3 Time of daily back-testing result if measured once a day: End of day - 2.4 Number of observations: 7.428 (average of observations per day, an observation means an individual client's portfolio) - 2.5 Achieved coverage level: 99,98% - 2.6 Peak size of uncovered exposure where breaches occurred: 13.776.335 - 2.7 Average size of uncovered exposure where breaches occurred: 28.93 - HouseIM_PreHaircut: See note 3 - HouseIM_PostHaircut: (not provided) - ClientIM_PreHaircut: 194.319.215.295 - ClientIM_PostHaircut: 192.566.819.854 - Liquidity Risk / Liquid resources - Same Day Payment_Total: 8.202.000.000 - Same Day Payment: 8.202.000.000 - Intra Day Payment: Not applicable - Multi Day Payment: Not applicable - Same Day Payment_Total (Amount Exceeded): 2.807.892.046 - Same Day Payment (Amount Exceeded): 2.807.892.046 - Sufficiency of liquid resources maintained by the clearing service: Cover 2 - Secured committed lines of credit: 11.250.000.000 - Unsecured committed lines of credit: 2.790.000.000 - Highly marketable collateral held in custody and investments: 584.000.000 - Other: 1.200.000.000 - CCP routine access to central bank liquidity or facilities: Yes, via BM & FBOVESPA BANK - Operational Risk / Availability - Operational availability target for the core system(s): 99.8% - Actual availability of the core system(s) over the previous twelve month period: 99.994% - Total number of failures and duration affecting the core system(s) over the previous twelve month period: Duration of Failure — Number of failures is not available, 19:49:00 - Recovery time objective(s): Two hours - Notes (selected) - CORE methodology: stress test based on a set of 10,000 scenarios for price variations of risk factors; positions and collateral jointly valued across scenarios. - Mid-December 2016 methodological changes to CCP credit stress test mean some data are reported from mid-December 2016 to the end of the reference period rather than the previous 12 months. - BM&FBOVESPA adopts an individual client segregation model ("client gross" margin model); clearing member's proprietary portfolio (house) is deemed as an individual customer’s portfolio. *Italic: Source — cr18342 - Appendix IV. CPMI—Statistics: Top Twenty FMIs (extracted content provided).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18342.pdf_