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SECURITIES LENDING PROGRAM

SECURITIES LENDING PROGRAM. BTC – BANCO DE TÍTULOS CBLC SECURITIES LENDING PROGRAM. Legal Basis Main Characteristics Operational Procedures Risk Management Historical Data Next Steps. LEGAL BASIS. CMN- National Monetary Council ( Resolution n º 2268 of April 10,1996)

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SECURITIES LENDING PROGRAM

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  1. SECURITIES LENDINGPROGRAM

  2. BTC – BANCO DE TÍTULOS CBLCSECURITIES LENDING PROGRAM • Legal Basis • Main Characteristics • Operational Procedures • Risk Management • Historical Data • Next Steps

  3. LEGAL BASIS • CMN- National Monetary Council (Resolution nº 2268 of April 10,1996) • CVM – Securities Commission ( Ruling nº 249 of April11,1996) • CBLC – Companhia Brasileira de Liquidação e Custódia ( Resolution nº 009 of April 22,1996)

  4. MAIN CHARACTERISTICS • Settlement , registration and custodial entities are authorized to lend shares issued by publicly-held companies , subject to the CVM prior approval; • All types of investors can participate as a lender or borrower in Securities Lending Program; • The Custody Agent, lenders of the assets,must enter into an adhesion agreement with CBLC , whereby they expressly authorize the lending and transfer Assets to CBLC;

  5. MAIN CHARACTERISTICS • The Custody Client, Lender of the assets, must enter into an agreement with his Custody Agent , whereby the former expressly authorizes the lending and transfer his Assets to CBLC; • The Brokerage Firm and the Clearing Agent as a representative of a Borrower, must enter into an adhesion agreement with CBLC; • The Eligible Assets ( stocks issued by publicly-held companies) must be deposited at CBLC´s Fungible Custody Services;

  6. MAIN CHARACTERISTICS • Custody Clients and Custody Agents qualify as Asset Borrowers must be represented by a Brokerage Firm and under the responsibility of a Clearing Agent of CBLC; • There´s no relationship between the borrowers and lenders ( CBLC assume the counterpart as a guarantor); • Participants access the Securities Lending Program through CBLC´s Network

  7. MAIN CHARACTERISTICS • The original stock owner (Lender) is entitled to all dividends, bonuses and subscription rights that may come to be declared by the company; • The Borrower must deposit the required margin with CBLC , through the respective Clearing Agent

  8. MAIN CHARACTERISTICS • Use of Borrowed Assets: • Sold on the cash market; • Used to settle operations carried out on the cash market; • Used as guarantee for operations carried out on futures markets; • Used to cover call options; • Used in any other way as may be established by CBLC.

  9. OPERATIONAL PROCEDURE • Through CBLC’s network the Participants ( Custodians and Brokerage Firms) have the access to BTC; • In BTC the Participants can: • Entry: Lenders and Borrowers’s offers • Closing against registered offers • Inquiry: registered closings,borrowers interested, securities available for lending,etc. • The Participants and Investor can also access information related the Securities Lending Program of CBLC through Bloomberg.

  10. CBLC’S NETWORK BTC Entry: Offers Lenders Borrowers Lender Borrower Inquiry: Offers Lenders Borrowers Custody Agent Brokerage Firm Deletion: Offers Lenders Borrowers Brokerage Firm Clearing Agent Closing against Registered Offer

  11. RISK MANAGEMENT • Limits of Position • Investor • Clearing Member • Whole Market Limits are disclosed by CBLC’s website ( www.cblc.com.br) Margin Calculation • By Investor • System employed CM-TIMS ( OCC) • Measurement Risk in stress scenario • By Clearing Agent • System employed RiskWatch( Algorithimcs)

  12. RISK MANAGEMENT • Deposit of Guarantee • Through The CBLC’s Guarantee System; • Collateral accepted • Letters of Credit ( domestic and international); • Brazilian Federal Public Instruments; • Shares ( the most liquid); • Gold certificates; • CD’s; and • International assets* * CBLC has accounts in DTCC , EUROCLEAR and CLEARSTREAM

  13. RISK MANAGEMENT Market data Positions M E T O D O L O G Y PORTFOLIOS HIERARCHY CASH OPTION FORWARD BTC Prices Curves Volatil. Parâmeters Scenarios CONSOLIDATION RULES MODELS BACK TESTING ANALYSIS OF RISKS REPORTS FUTURE

  14. RISK MANAGEMENT CASH DERIVATIVES BTC SYSTEM DEVELOPED BY OCC- THE OPTIONS CLEARING CORPORATION CM-TIMS MARGINING COLLATERAL SYSTEM SYSTEM DEVELOPED BY CBLC RISKWATCH SETTLE. FUND SYSTEM DEVELOPED BY ALGORITHMICS INC

  15. HISTORICAL DATA

  16. HISTORICAL DATA

  17. NEXT STEPS • The Securities Lending Program ( BTC) will be extended to: • Private Bonds ( Debenture,Commercial Papers,etc) • Public Bonds ( Brazilian Government Bonds); • The settlement system will be automatically linked to BTC • In case of default in settlement process CBLC will registered automatically, a securities lending position in the name of the defaulter.

  18. NEXT STEPS • The new version of BTC will be launched in December/2001 with: • a new platform; • access through CBLC’s intranet; • new operational facilities

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