Brazilian Payment System (SPB) BM&F Foreign Exchange Clearinghouse Regional Clearing Facility

2. Presentation Structure • Brazilian Payment System (SPB) • BM&F Foreign Exchange Clearinghouse • Regional Clearing Facility

3. BRAZILIAN PAYMENT SYSTEM

4. Brazilian Payment System - SPB • Brazilian Payment System • Real time gross settlement system (RTGS). • Clearing system with risk management and safeguard structure for systemically important markets (DNS). • RTGS • Manager: Central Bank of Brazil. • Purpose: Transfer of large amounts in real time between bank reserves accounts and/or clearinghouse settlement accounts. • Clearinghouses - DNS • Settlement systems by netting amounts.

5. Brazilian Payment System - SPB • Brazilian Payment System • In April 2002, the Central Bank of Brazil introduced important changes in the Brazilian Payment System with the following main purposes: • Reduce risks; • Increase the dynamics of the system; • Eliminate risks that the Central Bank was forced to assume in the previous system; • Reduce operational and financial costs; • Adapt the legal base and implement the corresponding regulation. • To reach these purposes, the Central Bank changed and innovated several aspects of the previous system. Among these are: • Creation of a system to transfer of large amounts in real time and directly in the accounts maintained by the banks in the Central Bank; • Creation of clearinghouses with their own safeguard mechanisms to ensure the finality of operations and the payments made through them; and • Irrevocability of operations and payments, as well as adoption of the delivery versus payment (DVP) and payment versus payment (PVP) settlements.

6. Central Bank Banks Clients Funds tranfer in Brazil – previous system Period of Operation: 24:00 Risks: Clients – Bankruptcy of the banks that pay and/or receive payments during the clearing process. Banks – Use of the funds before the closing of the clearing cycle. Central Bank – Bankruptcy of the paying bank with a negative balance in its reserves account. Confirmation Electronic files COMPE Electronic files Confirmation Checks / Other Documents Confirmation

7. Central Bank Banks Clients Funds transfer in Brazil – current system – STR (RTGS) STR STR CIP / TecBan COMPE Confirmation Confirmation ConfirmsSTR STR STR STR Confirmation Confirmation Confirms TED Checks / Other Documents Confirmation TED

8. Central Bank Money Supply Public Bonds National Treasury FX Participants Participants Participants Participants Participants Participants Participants Participants BM&F Derivatives Clearingh. BOVESPA & CBLCClearingh. BVRJ & BBF Clearingh. Settlement of financial transactions in Brazil – previous system Funds transfer between bank reserves accounts Central Bank systems CETIP (custody and settlement system) Private securities Exchange Financial System (SFB)

9. Central Bank of Brazil (settlement accounts) BM&F FX Clearinghouse BM&F Derivatives Clearinghouse BM&F Securities Clearinghouse 1 CETIP 2 CBLC Clearingh. Participants Participants Participants Participants Participants Settlement of financial transactions in Brazil – current system • In final testing phase. • Do not have a safeguard structure • The four clearinghouses are holders of settlement accounts in the Central Bank.

10. Daily average amount since April 22, 2002 Source: Central Bank of Brazil

11. FX Clearinghouse

12. 5_a DNS (with the Clearinghouse) Negotiation T+0 Bank A Bank B SISBACENPCAM 383 Registration (tradebytrade) BM&F FXClearinghouse 08:00 17:15 00:00 06:00 12:00 00:00 Negotiates Negotiates Confirms Registers Captures

13. 5_b1 DNS (with the Clearinghouse) Analysis T+0 Bank A Bank B (tradebytrade) Central Bank Analysis • Operational Limit • Volatility • Rate Equalization • Operating Result Analysis BM&F FXClearinghouse 08:00 17:30 00:00 06:00 12:00 00:00 Accepted transactions Accepted transactions Accepted transactions Accepted

14. 5_b2 DNS (with the Clearinghouse) Analysis T+0 Bank A Bank B (tradebytrade) Central Bank Analysis • Operational Limit • Volatility • Rate Equalization • Operating Result Analysis BM&F FXClearinghouse Analysis ClearinghouseDepartment 08:00 17:30 00:00 06:00 12:00 18:00 00:00 Accepted transactions Accepted transactions Refused Accepted transactions Solved

15. 5_b3 DNS (with the Clearinghouse) Analysis T+0 Bank A Bank B (tradebytrade) Central Bank Analysis • Operational Limit • Volatility • Rate Equalization • Operating Result Analysis BM&F FXClearinghouse Analysis ClearinghouseDepartment 08:00 17:30 00:00 06:00 12:00 18:00 00:00 Unaccepted transactions Unaccepted transactions Refused Unaccepted transactions Refused

16. 5_c DNS (with the Clearinghouse) Net amount calculation Foreign currency Local currency Sale 600.00 (-) 1800.00 (+) Purchase 350.00 (+) 1050.00 (-) Net amount 250.00 (-) 750.00 (+) Bank N Bank B Bank A Sale 2850.00 (+) 8550.00 (-) Central Bank Purchase 3030.00 (-) 9090.00 (+) Net amount 180.00 (-) 540.00 (+) Sale 3200.00 (-) 9600.00 (+) Purchase 3630.00 (+) 10890.00 (-) Net amount 430.00 (+) 1290.00 (-) BM&F FXClearinghouse Analyticalreport Analyticalreportper bank Analyticalreport Analyticalreport

17. 5_d1 DNS (with the Clearinghouse) Phase 1 - settlement T+N Payment request in local and foreign currency BM&F FXClearinghouse Bank N Bank A Bank B CorrespondentBank abroad Balance CorrespondentBank abroad FEDBOOK CorrespondentBank abroad SISBACEN Balance CorrespondentBank abroad 04:30 06:00 Balance 00:00 12:00 18:00 00:00 Requests credit inforeign currency withCorrespondent Bank abroad Requests credit in localcurrency with the Central Bank Reportsdebtorsin localcurrency Requests credit inforeign currency withCorrespondent Bank abroad

18. 5_d2 DNS (with the Clearinghouse) Phase 2 - settlement T+N Payment in local and foreign currency BM&F FXClearinghouse Bank N Bank B Bank A CorrespondentBank abroad Balance CorrespondentBank abroad FEDBOOK CorrespondentBank abroad SISBACEN Balance CorrespondentBank abroad 11:00 13:05 Balance 00:00 06:00 12:00 18:00 00:00 Paymentorder Requests credit inforeign currency with Correspondent Bank abroad Requests credit in localcurrency with the Central Bank Reportsdebtorsin localcurrency Paymentorder Requests credit inforeign currency withCorrespondent Bank abroad Creditnotice Confirmslocalcurrencypayment Balance FEDBOOK Pays Clearinghouse(RTGS) Balance Balance

19. 5_d3 DNS (with the Clearinghouse) Phase 3 - settlement T+N Payment of local and foreign currency to nondefauters BM&F FXClearinghouse Bank N Bank A Bank B ClearinghouseCorrespondentBank abroad ClearinghouseCorrespondentBank abroad FEDBOOK CorrespondentBank abroad SISBACEN 14:05 00:00 06:00 12:00 18:00 00:00 Paymentorder Pays banksA and B (RTGS) Creditnotice Paymentconfirmation(RTGS) Paymentconfirmation(RTGS)

20. 5_e1 DNS (with the Clearinghouse) Operational defaulter/defaulter T+N Buying bank Bank N SISBACEN No Balance BM&F FXClearinghouse 13:05 15:30 00:00 06:00 12:00 18:00 00:00 Requests credit in localcurrency with the Central Bank Reports debtorsin local currency Pays Clearinghouse(RTGS) Sends order back Does not confirm credit No Balance

21. 5_e2 DNS (with the Clearinghouse) Operational defaulter/defaulter T+N Buying bank ClearinghouseBank Bank B SISBACEN Balance BM&F FXClearinghouse 13:05 13:30 00:00 06:00 18:00 00:00 Sells and transfers foreign currency Bank excluded Transferslocal currency Credit notice Balance

22. 5_f1 DNS (with the Clearinghouse) Operational defaulter/defaulter T+N Selling bank CorrespondentBank abroad No Balance Bank A ClearinghouseCorrespondentBank abroad BM&F FXClearinghouse 13:05 15:30 00:00 06:00 12:00 18:00 00:00 Requests foreigncurrency payment Paymentorder Sends order back No balance Confirms localcurrencynonpayment

23. 5_f2 DNS (with the Clearinghouse) Operational defaulter/defaulter T+N Selling bank FEDBOOK Central Bank Bank A ClearinghouseCorrespondentBank abroad ClearinghouseCorrespondentBank abroad ClearinghouseBank BM&F FXClearinghouse 13:05 13:30 00:00 06:00 18:00 00:00 Foreign currency credit confirmation Transfers undelivered local currency to defaulting bank (RTGS) Buysforeign currency Paymentconfirmation Defaulting banks Payment order

24. 5_g1 Risk Management Principal risk Bank A Bank B BM&F FXClearinghouse Buys foreign currencyand pays local currency Sells and delivers foreign currency Pays local currency Delivers foreign currency The principal risk is eliminated because, for settlement purposes, the Clearinghouse takes the position of the contracting part, pursuant to the provisions of article 4 of Law 10214/2001. Obrigations are settled through PVP.

25. 5_g2 Risk Management Market risk Previouslypostedcollateral Bank A Bank B ClearinghouseBank BM&F FXClearinghouse Buys foreign currencyand pays local currency Sells foreign currency but does not deliver it Delives foreign currency Buys foreign currencyand pays local currency Usescollateralif necessary The exchange rate fluctuation is guaranteed by the Clearinghouse, within contractlimits, based on previously posted collateral, pursuant to the provisions of Chapters V and IX of the Rulebook approved by the Central Bank of Brazil.

26. 5_g3 Risk Management Liquidity risk Clearinghouse Bank Clearinghouse Bank Clearinghouse Bank Clearinghouse Bank ABN AMRO bank do Brasil Bank of America Citibank BM&F FXClearinghouse Contracted limits to buyand sell foreign currency Contracted limits to buyand sell foreign currency

27. 5_g4 Risk Management Liquidity risk Bank D Bank B Bank A Bank C BM&F FXClearinghouse Monitors net and grosscontracted amounts Monitors net and grosscontracted amounts Operationallimit Operationallimit Operationallimit Operationallimit Monitors net and grosscontracted amounts Monitors net and grosscontracted amounts The establishment of operational limit considers the participant’s payment capacity and historical record in the interbank foreign exchange market, and the total liquidity of the interbank FX market.

28. 5_H Settlement Accounts Central Bank CorrespondentBank abroad CorrespondentBank abroad CorrespondentBank abroad CorrespondentBank abroad ABN AMRO Bank of America Citibank StandardChartered BM&F FXClearinghouse Foreign currency settlement account Localcurrencysettlementaccount

29. 6 BM&F FX Clearinghouse FX ClearinghouseDirector Market RiskAnalist Registrationand ContractingDepartment Payment andSettlementDepartment MonitorsFX transactioncontracting Monitorscontracted FXtransactionsettlement Monitorsthe market Monitorsthe market

30. 7 Participating Banks (12/31/2003) 1 - Banco ABC-Brasil S/A 2 - Banco ABN Amro Real S/A 3 - BancoAlfa de Investimento S/A 4 - BancoBanif Primus S/A 5 - BancoBarclays S/A 6 - BancoBBM S/A 7 - BancoBMC S/A 8 - BancoBMG S/A 9 - BancoBNL do Brasil S/A 10 - BancoBNP Paribas Brasil S/A 11 - BancoBradesco S/A 12 - BancoBrascan S/A 13 - BancoBVA S/A 14 - BancoCacique S/A 15 - BancoCargill S/A 16 - BancoCitibank S/A 17 - Banco Comercial do Uruguai S/A 18 - Banco Cooperativo Sicredi S/A 19 - Banco Credit Lyonnais Brasil S/A 20 - Banco da Amazônia S/A 21 - Daycoval S/A 22 - Banco de la Provincia de Buenos Aires 23 - Banco de Tokyo-Mitsubishi Brasil S/A 24 - Banco Dibens S/A 25 - Banco do Brasil S/A 26 - Banco do Estado de São Paulo S/A (BANESPA) 27 - Banco do Estado do Espírito Santo S/A (BANESTES) 28 - Banco do Estado do Rio Grande do Sul S/A 29 - Banco do Nordeste do Brasil S/A 30 - Fibra S/A 31 - Banco da Indústria e Comércio S/A 32 - Banco Industrial do Brasil S/A 33 - Indusval S/A 34 - Investimentos CSFB S/A 35 - Itaú S/A 36 - Itaú-BBA S/A

31. 7 Participating Banks (12/31/2003) 55 - BancoSumitomo Mitsui Brasileiro S/A 56 - BancoUBS S/A 57 - BancoVotorantim S/A 58 - BancoVR S/A 59 - BancoWestLB do Brasil S.A. 60 - BancoZogbi S/A 61 - BankBoston bank Múltiplo S/A 62 - BankBoston N.A. 63 - BES Investimento do Brasil S.A. 64 - BRB - Bancode Brasília S/A 65 - Deutsche Bank S.A. - BancoAlemão 66 - Dresdner Bank Lateinamerika A.G. 67 - HSBC Bank Brasil S/A 68 - ING Bank N.V. 69 - Lloyds TSB Bank PLC 70 - União de BancosBrasileiros S/A (Unibanco) 37 - BancoJ.P.Morgan S/A 38 - BancoMercantil do Brasil S/A 39 - BancoMorgan Stanley Dean Witter S/A 40 - BancoNossa Caixa S/A 41 - BancoPactual S/A 42 - BancoPaulista S/A 43 - BancoPine S/A 44 - BancoProsper S/A 45 - BancoRabobank International Brasil S/A 46 - BancoRendimento S/A 47 - BancoRural S/A 48 - BancoSafra S/A 49 - BancoSantander Brasil S/A 50 - BancoSantos S/A 51 - BancoSociete Generale Brasil S/A 52 - BancoSofisa S/A 52 - BancoStandard de Investimento S/A 54 - BancoSudameris Brasil S/A

32. 2 LAWS CMN/BACEN BM&F Law No. 10214, of March 27, 2001 Law No. 4595, of December 31, 1964 Law No. 6385, of December 7, 1976 Resolution No. 2882, of August 30, 2001 Circular No. 3057, of August 31, 2001 Bylaws EthicsCode Rulebook Manuals

33. Law No.10214, of March 27, 2001 Provides for the activities of clearinghouses and clearing service providers within the scope of the Brazilian Payment System Law No. 4595, of December 31, 1964 Provides for the monetary policy and the monetary, banking, and credit institutions; creates the National Monetary Council (CMN) and the Central Bank of Brazil (BACEN) Law No.6385, of December 7, 1976 Provides for the securities market and creates the Brazilian Securities and Exchange Commission (CVM) Laws Applicability limited by Law No. 10214/’01 Presidential Decree No. 7661, of June 21, 1945 Bankruptcy law Law No. 6024, of March 13, 1974 Provides for the intervention and extrajudicial liquidation of financial institutions

34. Resolution No. 2882, of August 30, 2001 Provides for the Brazilian Payment System and the clearinghouses and clearing service providers Circular No. 3057, of August 31, 2001 Approves the regulation that governs the functioning of the systems operated by clearinghouses and clearing service providers Regulations from the National Monetary Counciland the Central Bank of Brazil

35. Bylaws Authorizes BM&F to register, clear, and settle by physical delivery and cash settlement the trades executed in its auction systems and/or registered in any of its trading or registration systems by means of an in-house department or an organization constituted for that purpose (article 2, item I) General Meeting of Members of March 21, 2001 Authorizes the constitution of the special segregated capital for the FX Clearinghouse of up to BRL100,000,000.00, among other provisions BM&F Market Participants’ Ethics Code October 2003 Brazilian Mercantile & Futures Exchange

36. Rulebook Approved by the Central Bank of Brazil, the FX Clearinghouse Rulebook governs the registration, clearing, and settlement of foreign currency purchase and sale through the Clearinghouse systems. Operating Manual Approved by Central Bank of Brazil, the FX Clearinghouse Operating Manual lists each and every step in the registration, clearing, and settlement of foreign currency purchase and sale through the Clearinghouse systems. Risk Management Manual Approved by Central Bank of Brazil, the FX Clearinghouse Risk Management Manual lists each and every step involved in the risk management of foreign currency purchase and sale through the Clearinghouse systems. Brazilian Mercantile & Futures Exchange

37. Information Technology Approved by Central Bank of Brazil, it shows the technology infrastructure, as well as the contingency systems used to register, clear, and settle foreign currency purchase and sale through the Clearinghouse systems. Accounting Approved by Central Bank of Brazil, it deals with the accounting records and auditing procedures of foreign currency purchase and sale through the Clearinghouse systems. Brazilian Mercantile & Futures Exchange

38. 7 Market Share for Settlement on T+1in USD million04/22/2002 – 12/31/2003 BM&F Market Market Share

39. 7 Market Share for Settlement on T+2in USD million04/22/2002 – 12/31/2003 BM&F Market Market Share

40. 7 Exchange Rate04/22/2002 – 12/31/2003

41. 7 VaR BM&F Hypothetical return Back Testing – Settlement on T+104/22/2002 – 12/31/2003

42. 7 VaR BM&F Hypothetical return Back Testing – Settlement on T+204/22/2002 – 12/31/2003

43. 7 Safeguards BRL1,180.99 MM Participants BRL1,030.99 MM BM&F BRL150.00 MM Participation Fund BRL131.73 MM Deposited collateral BRL899.25 MM Operational Fund BRL50.00 MM Segregated Capital BRL100.00 MM 12/31/2003

44. 7 Participation FundBRL131,734,878.88 12/31/2003

45. 7 CollateralBRL899,250,378.67 12/31/2003

46. 7 CollateralUsed: BRL360,816,592.10Deposited: BRL538,433,786.57 12/31/2003

47. 7 04/22/2002 – 12/31/2003

48. REGIONAL CLEARING FACILITY PRELIMINARY STUDY

49. Modelo atual Market Market Market Market Exporter Importer Bank Bank Bank Bank Importer Exporter Current Model Country A Country B Local Currency Local Currency US Dollars US Dollars Local Currency US Dollars Local Currency Goods / Services Local Currency Local Currency US Dollars US Dollars US Dollars Local Currency Local Currency Goods / Services

50. Modelo Proposto - Déficit País A Market Market Importer Importer Bank Bank Bank Bank Clearing bank Clearing bank Clearing Clearing Exporter Exporter Proposed Model – Trade Balance Equilibrium Country A Country B Local Currency Local Currency Goods / Services Local Currency Local Currency Goods / Services