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Margarida Baptista November 16, 2001

ACSDA SEMINAR BEST ACHIEVEMENTS ON DEPOSITORY, CLEARANCE AND SETTLEMENT SERVICES IN THE AMERICAS APPROACHES TO TRUE DVP. Margarida Baptista November 16, 2001. AGENDA. CBLC at a glance. The New Brazilian Payment System. CBLC Model: SFI-DVP 3. CBLC at a glance.

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Margarida Baptista November 16, 2001

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  1. ACSDA SEMINARBEST ACHIEVEMENTS ON DEPOSITORY, CLEARANCE AND SETTLEMENT SERVICES IN THE AMERICASAPPROACHES TO TRUE DVP Margarida Baptista November 16, 2001

  2. AGENDA CBLC at a glance The New Brazilian Payment System CBLC Model: SFI-DVP 3

  3. CBLC at a glance The New Brazilian Payment System CBLC Model: SFI-DVP 3

  4. CBLC at a glanceMajor milestones ... • 1997: CBLC creation • CSD, CCP and settlement corporation for equities (cash, options and forward markets) • 2000: CBLC becomes the only CSD, CCP and settlement corporation for the Brazilian equities market (exchanges and OTC markets) • 2000/2001: Diversification process • Government Bonds: Clearance and Settlement functions • Corporate bonds: CSD, clearance and settlement corporation, CCP

  5. CBLC at a glanceWhat we are ... ... • CSD for private issued securities (equities and corporate bonds) • Clearing and Settlement Corporation: • equities • corporate bonds • government bonds • Central Counterparty (equities and corporate bonds)

  6. CBLC at a glanceNear future ... • April 2002: • CCP and guarantor for equities, debt instruments (corporate and government) and money market • Exchanges and OTC markets • New operational model: SFI-DVP 3 • NEW BRAZILIAN PAYMENT SYSTEM

  7. AGENDA CBLC at a glance The New Brazilian Payment System CBLC Model: SFI-DVP 3

  8. The new Brazilian Payment SystemMain objectives ... • Reduction of systemic risk • Compliance with international best practices and recommendations Improvement of the Brazilian market competitiveness

  9. The new Brazilian Payment SystemMain features ... • Control of reserves accounts in real time by Central Bank, not allowing overdrafts (RTGS payment facilities) • SELIC (Central Bank’s depository and government bonds settlement system) operating in a RTGS fashion • Implications: • Maximum principal risk mitigation • Greater liquidity requirements Minimizing ...

  10. The new Brazilian Payment SystemMain features ... • Private clearinghouses operating DNS systems with direct access to Central Bank systems (SELIC and STR) through settlement accounts • FOREX • Payments • Securities COMPLEMENTARITY RTGS AND DNS SYSTEMS Central Counterparties

  11. The new Brazilian Payment SystemThe Central Counterparties Role ... • Definition (CPSS-IOSCO):“an entity that interposes itself between the counterparties to trades, acting as the buyer to every seller and the seller to every buyer” • Main function: • To measure, manage and assume counterparty risk • Main advantages: • Guarantee of anonymity • Supports multilateral netting • Absorption of risks between trade and the settlement period • Protection of participants in the event of a participant default • Prevents the spillover of securities settlement risks to the payments system

  12. AGENDA CBLC at a glance The New Brazilian Payment System CBLC Model: SFI-DVP 3

  13. CBLC Settlement ModelWhat was taken into account ... • Objectives and regulations of the New Brazilian Payment System • International best practices and recommendations • Profile and the characteristics of the Brazilian financial market • CBLC accumulated expertise as a central counterpaty and settlement corporation

  14. CBLC Clearance and Settlement ModelGeneral characteristics ... • CBLC as a central counterparty • SFI-DVP model 3 - multilateral netting both for securities and cash legs • For cash leg, multilateral netting across different markets and instruments - single net position • Same day finality in central bank money • Settlement cycles: • Equities: T+3 • Corporate Bonds: T+1 • Government Bonds: T+0 and T+1 • Settlement window: 3:30 p.m.-3:55 p.m.

  15. Trading (Trading Systems) Sell Order Buy Order Matching Broker A Broker B Information Information Allocation to Beneficial Owner CBLC Allocation to Beneficial Owner • Trading and Matching (Trading Systems) • After Matching all trades are reported to CBLC • Information to Brokers • Allocation Process

  16. Settlement Bank of Clearing Agent A CBLC (CCP) Settlement Bank of Clearing Agent B Clearing Agent A Clearing Agent B Multilateral Netting Broker A1 Broker B1 • CBLC becomes CCP to Clearing Agents • Multilateral Netting • Netting Information (Securities and Cash)

  17. CBLC Depository Service (Equities and Corporate Bonds) CBLC has settlement accounts in SELIC Depository Service Bonds (Government Bonds) and in CBLC Depository Service (Equities and Corporate Bonds). • Securities are transferred on net basis • from the seller accounts to CBLC • Settlement Accounts: • T+3 - Equities (11:00 a.m.) • T+1 - Corporate Bonds (2:00 p.m.) • T+0/T+1 - Government Bonds (2:00 p.m.) CBLC’s Settlement Account in CBLC Depository Service CBLC’s Settlement Account in SELIC SELIC Depository Service (Government Bonds) SELIC Participant Selic Participant must instruct the delivery. Delivery Process to CBLC

  18. Clearing Agent A Clearing Agent C Clearing Agent B Settlement Bank Settlement Bank Settlement Bank STR (Central Bank Money Transfer System) CBLC Account in STR Payment Process to CBLC (3:30 p.m.)

  19. STR (Central Bank Money Transfer System) Settlement Bank (Clearing Agent A) Settlement Bank (Clearing Agent C) CBLC Account in STR Settlement Bank (Clearing Agent B) Settlement Bank (Clearing Agent D) Depository Services CBLC Accounts in Depository Services CBLC Depository Services SELIC Depository Services At Settlement Window CBLC coordinates DVP model 3 SFI - Delivery versus Payment (3:55 p.m.)

  20. CBLC Clearance and Settlement ModelFailure Procedures ... • Settlement window: 3:30 p.m.- 3:55 p.m. • Delivery failure : • Securities lending • Buy-in • Payment failure : • Financial Credit Lines • Collateral Execution • Settlement Fund • Segregated Networth

  21. THANK YOU VERY MUCH !

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